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Lord Higgins moved Amendment No. 3:

Page 1, line 12, leave out subsection (2).

The noble Lord said: My Lords, we tabled a somewhat similar amendment in Committee in the sense of this being a probing amendment. We now have rather more information than we did at that stage. I am sure this is totally out of order, but I hope that I may make two remarks. First, I think that the noble Baroness will have discovered from our previous discussion that there has not been any final salary scheme created since the Government came into power. Secondly, I welcome what she said about

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considering the detailed clauses on the state second pension because I believe that will be a tremendous help. That worked well as regards the subject of VAT and saved much time.

Baroness Hollis of Heigham: My Lords, I said that I would reflect on the matter and decide whether it made sense. I gave absolutely no commitment on the matter. In the spirit of trying to be helpful, I shall see what we can do.

Lord Higgins: My Lords, I thank the noble Baroness for those comments. This amendment concerns whether the stakeholder pension scheme should be set up under a trust arrangement or under some other arrangement. The Government seem to have vacillated quite a bit on that. I refer to the not particularly glossy consultation brief No. 5 which concerns the Government's proposals for governance of stakeholder pensions. We now have a lot more detail than we had previously. Therefore, it would be wrong of me to take up your Lordships' time by going through it as if it were a consultation paper and I were one of the consultees.

However, I shall make a few remarks. On page six of the consultation paper, the Government say that they,

    “are not convinced that finding individuals to take on the role of trustees in schemes will be an insuperable difficulty".

I think that they are being over-optimistic in that regard. One has only to consider the extraordinary obligations that one takes on if one becomes a trustee of a pension scheme, and the risks which are involved in doing that, to realise that if we are to have a multiplicity of stakeholder schemes it will be difficult to find trustees who are able to do a proper job and, in particular, to make sure that they are independent.

I am not particularly keen on the paragraph which states that the,

    “onus will be on the financial service company to identify individuals willing to act as trustees".

The next question is whether they will be paid. If they are to be paid, that will increase the cost considerably. Professional trustees do not come cheap, as opposed to voluntary trustees. What particularly worries me is paragraph 27 which concerns liability and states:

    “Trustees will ultimately be financially liable for the operation of the scheme".

Of course, trustees are always liable in terms of carrying out their duties properly. However, that is rather different from what is stated here. The paper further states:

    “In the event that a scheme was unable to operate within the charge limit, the trustees would be liable for any costs in excess of the charging limit".

I find that a strange statement. We have trustees who will presumably operate in the same way as a company pension scheme trustee. But trustees are, of course, responsible for exercising their trust. Action may be taken against them--indeed, severe action, such as imprisonment and so on--if they do not act properly. However, if a scheme does not meet its

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charges in the way which is suggested simply because it goes over the 1 per cent limit set by the Government, to say that the trustees are personally liable for that--I refer to paragraph 27 of the paper--seems to me rather extraordinary. The paper makes a number of other points about independence and so on. Of course, the trustees must be independent and if they fail in that respect, they will find themselves liable for penalties in the way that I described a moment or two ago.

I do not wish to weary the House by going through the consultation paper in general; it is helpful to have it before us in order that we may consider it. I am interested to know what kind of representations the Government have received as a result of its publication.

5.30 p.m.

Baroness Turner of Camden: My Lords, I rise to oppose to some degree what the noble Lord, Lord Higgins, said and to oppose Amendment No. 3. My Amendment No. 4 is grouped with it and puts a rather contrary point of view.

It is stated in subsection (2):

    “The first condition is that the scheme is established under a trust or in such other way as may be prescribed".

My amendment seeks to delete the words:

    “or in such other way as may be prescribed".

In other words, I want all such schemes to be written under trust law.

When stakeholder pensions were first mooted I got the clear impression that this was the Government's intention. That seems to be borne out to some degree by the consultation paper. Since that time I believe that sections of the pensions industry have mounted a small campaign against that. In its consultation brief on the governance of stakeholder pension schemes the DSS includes a suggested alternative to the trust-based arrangements, and yet I think the DSS clearly favours the trust-based concept. It has said that a board of trustees will provide an effective counterweight to the financial services companies which will be involved in stakeholder pension schemes. I could not agree more.

Lord Higgins: My Lords, I apologise for interrupting. I am also entirely content with the trust arrangement. It was simply in the form of a probing amendment that I raised the point. I do not dissent from what the noble Baroness said.

Baroness Turner of Camden: My Lords, if I may, I shall continue to speak to my amendment because it is grouped with that of the noble Lord.

Almost all the surveys of pension provision which have taken place over the years have emphasised the importance of trustees--in the case of occupational pension schemes, trustees representative of the employees concerned. It is accepted that such trustees provide a vital sense of security and reassurance for the scheme members. Furthermore, as has already been indicated, trustees have quite significant

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responsibilities, for which training is required. That is provided by unions in particular and by many companies operating such schemes. The stakeholder concept does not involve any lesser need for membership security and accountability. Indeed, as I said in Committee, many friendly societies and unions may wish to set up such schemes for the benefit of members who may not have access to occupational schemes. It is certain that such schemes would need member trustees.

I believe that one objection has been made on the grounds of excessive cost, although there is a DSS view that if a stakeholder scheme recruits a large enough number of members the trustee costs could work out at only a fraction of the capped 1 per cent fund charge.

Another objection is whether trustees can realistically be found. This has been mentioned already by the noble Lord, Lord Higgins. I do not think this is so much of a problem, as in some cases trustees could be drawn from the stakeholder scheme sponsors, such as a union, employers' organisations or others, while in other cases financial services companies could arrange experienced trustees.

Under the suggested secure stakeholder management governance the proposal is that an FSA-authorised stakeholder manager would run the scheme as a regulated investment business and adhere to a contract made with the members. The manager would be required to register the scheme with OPRA and provide limited information. There could possibly be an advisory committee to represent members' interests. I do not think that is an adequate alternative to trust-based governance.

Through choice, many financial services companies would obviously not introduce a trustee body to be responsible for any of their products. Trustee bodies will increase costs--another point which has already been made--as they see it, although I have indicated that the increase could well be marginal spread over a large membership.

Trustees may also change the service provider in the future if they felt that it did not provide adequate value, leaving poor providers with low volumes of business. I should have thought that this was all to the good and to the benefit ultimately of the pensioner population. Moreover, nowhere in the proposed alternative model is there a requirement for the scheme to be run in members' interests, as was originally envisaged in the Green Paper. The advisory committee representing the interests of scheme members is only optional. I understand that OPRA has already said that the alternative proposal lacks an intermediary who is independent. I refer to trustees.

Trustees are needed to act on behalf of a largely unsophisticated and economically vulnerable group of contributors. The use of the term “secure stakeholder management" may give an impression of greater financial security than exists. As I said in Committee when the issue was raised by the Opposition, I am firmly committed to the idea of governance based on trust law, with trustees whose duty it is to ensure that the scheme is run in the interests of members. I was

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under the firm impression that this was the Government's view as well. The amendment I put before your Lordships this afternoon seeks to delete,

    “or in such other way as may be prescribed".

That means that in future such schemes will have to be written under trust law and with trustees, which I thought was the original concept.

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