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Baroness Seear: My Lords, the arguments were clearly put forward by the noble Baroness, Lady Hollis. I reiterate merely that the employers are not taking the risk in the case of money purchase schemes and they do not need to have a majority control; that is, if one accepts the argument, which I do not, that they need it for the other schemes. They can agree to a majority of two-thirds and they stand to lose nothing by so doing. I hope that the Government will accept the amendment.
Lord Mackay of Ardbrecknish: My Lords, in Committee I wondered why the Opposition did not argue the case for a majority of two-thirds in money purchase schemes. They concentrated on defined benefit schemes and divided the Committee on the issue of 50 per cent. I strongly suspect that however powerful I and my noble friends consider my argument the Opposition are intent on dividing the House on this matter. However, I shall try.
It is interesting and a little flattering to have my words in Committee quoted back to me. I have often wondered whether anyone bothers to read Hansard but I am glad to know that the noble Baroness finds it such good reading material. I did not say "such good bedtime" reading but in a sedentary intervention the noble Baroness indicated that that is what it is. I am sure that it is so riveting it does not help to put her to sleep.
The amendment is based on the recommendation of the PLRC that the balance of interest in a money purchase scheme is such that it is appropriate to provide that members, rather than employers, should have a majority on the trust board.
I certainly acceptwith the noble Baroness scrutinising my words, of course I dothat in a money purchase scheme the employer's interest is less direct than it is in relation to a defined benefit scheme. The employer does not take on such substantial financial exposure. However, the employer retains a significant interest in the proper running of the scheme. First, it is normally a major part of the remuneration package and the employer has a significant business interest in the successful operation of the scheme and in the performance of its fund. Secondly, employers sponsoring defined contribution schemes, while formally insulated from the investment risk, may well, if the scheme runs into serious difficulty, feel under a moral obligation to ensure that former employees receive a reasonable pension.
Finally, and most importantly, under the proposed compensation arrangements we expect employers sponsoring defined contribution schemes to make good any deficiencies caused by the misappropriation of assets. Compensation will be payable only once the sponsoring employer is insolvent, having done his utmost to restore the fund. Those factors suggest that employers sponsoring defined benefit schemes can justifiably claim a significant interest in the fund, although perhaps not as intense as the interest of an employer sponsoring a defined benefit scheme
Lord Mackay of Ardbrecknish: My Lords, if the noble Baroness will contain herself I shall address the question of why I believe that the PLRC was wrong in its suggestion that defined benefit schemes should have a majority of two-thirds whereas salary-related schemes should have only one-third.
I have mentioned the employer's interest, and the noble Baroness indicated that she does not disagree with that. However, pointing to the PLRC report, she justifiably indicates that the employer's interest is less in the kind of schemes which we are discussing than in defined benefit schemes.
I believe that the practicalities are important. How does one define a money purchase scheme? What arrangements should apply to the many different types of hybrid schemes? It seems easier to minimise the scope for argument and adopt a similar approach for all schemes, which at least delivers the basic policy intention of broadening the perspective of the trust boards.
The requirement is that at least one-third should be member nominated. As I said in Committee, there is nothing to prevent a trust fund being set up and employers agreeing the composition of a board on which more than one-third are member-nominated. There could be half or more and there is nothing to stop that happening. The requirement is for at least one-third, so that money purchase schemes could have two-thirds of member-nominated trustees if they wished.
Perhaps I may explain the problem of complexity. We have tried to make our provisions as straightforward as possible and to give the schemes the maximum freedom to make the rules which suit their particular circumstances. We had in mind the wide variety of schemes and arrangements currently operating. For example, hybrid schemes are a combination of salary related benefits with a money purchase top-up, or vice versa. In some arrangements, the same individual trustees may act for both a money purchase scheme and a salary related scheme. An additional point is that since 6th April 1988 all schemes approved by the Inland Revenue are required to allow their members to make additional voluntary contributions. Those contributions are passed to the scheme trustees, who invest them with the other scheme resources or with an outside agent. They can be used to purchase additional years and final salary schemes or, more frequently, to provide a range of benefits on a money purchase basis. Therefore, a salary related scheme can have funds to provide both salary related and money purchase benefits. I understand that approximately 1 million people have elected to pay voluntary contributions.
Obviously, that kind of hybridity could cause a great deal of argument about which way it falls. It may mean that people will try to separate schemes and that may not be to the benefit of the members of the scheme. There are practical reasons why we have decided that the statutory minimum should apply to both kinds of scheme and that it should apply at least at the one-third member nominated level. As I said, schemes are free to add more member-nominated members than the one-third, which is the minimum.
Those are the practical points which arise from the fact that some companies sponsoring different types of scheme have single trust boards. We believe that unnecessary difficulty would be caused to such trust boards if they had to split themselves up to meet the differing requirements in respect of different parts of their current responsibility.
Therefore, largely for practical reasons and based on the real world in which pension schemes operate we have concluded that it would be best if both types of pension schemes had to meet the same requirement. I hope that having listened to my compelling argument the noble Baroness, Lady Hollis, will withdraw her amendment. In the unlikely and surprising event of her putting the amendment to the test of a Division, I hope that my noble friends will support me.
Baroness Hollis of Heigham: My Lords, I can well understand the Minister hoping that his noble friends will support him. He can rely on nothing other than hope; certainly not his arguments. We are invariably delighted to hear well-argued or reasonably argued presentations from the Minister. However, tonight even he must accept that he was scratching around for an argument with which to support a proposal that so offends natural justice.
The Minister made two points, both of which were dealt with by the Goode Committee, as he knows perfectly well but chose not to remind the House. First, the Goode Committee specifically dealt with hybrid schemes. They are nothing new. The Government have
The second argument, which Goode recognised the Minister might wish to employ and which was answered and demolished in advance, is that regarding where financial interests and responsibility lie. If the primary responsibility of a trustee was fiduciary, employers and employees should have an equal 50 per cent. on both sets of schemes. But in Committee the Minister persuaded your Lordships that if the employer had an overriding, rather than significant, financial interest in final salary schemes because he contributed more and picked up the deficitit is correct that they contribute more and pick up the deficitthose interests should be protected by two-thirds trustee membership.
What happens now? We are now discussing money purchase schemes, not hybrid schemes. What do the Government now say, in precisely the same circumstances, where scheme members pay more than the employer, and scheme members rather than the employer accept the financial risk? They are not consistent. The Minister has made a 180 degree turn. Is that because we are dealing with scheme members rather than employers? Is that what is going on?
This deeply offends natural justice. There is no practical or administrative problem but there is a problem in relation to fairness and justice if the Minister will not allow scheme members to protect their savings, investment and risk in their pension schemes. By definition, money purchase schemes, unlike final salary schemes, are the members' schemes. They are not a joint arrangement and a joint sharing of risk with the employer. The Minister's answer was deeply unfair and I think he knows it. Therefore, I propose to test the opinion of the House.