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Lord Rooker: My Lords, I am extremely grateful for the contributions of noble Lords. I would briefly put on record my thanks for the support I have had, having returned to do some Home Office business in this House for the first time in a few years. It is a very complicated Bill with many aspects of policy. It is a large Bill team and I pay thanks to them and to my own private office in the ODPM, which has facilitated communication between two government departments. It has enabled me from time to time to share some of the Government's views with the House. I am extremely grateful for what has been said and I thank everyone concerned.

On Question, Bill passed, and returned to the Commons with amendments.

University of Manchester Bill [HL]

Returned from the Commons agreed to.

Medway Council Bill

Brought from the Commons; read a first time, and referred to the Examiners.

House adjourned at seventeen minutes before eleven o'clock.

 
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Official Report of the Grand Committee on the

Pensions Bill

(First Day)

Tuesday, 6 July 2004.

The Committee met at half past three of the clock.

[The Deputy Chairman of Committees (Baroness Thomas of Walliswood) in the Chair.]

The Deputy Chairman of Committees (Baroness Thomas of Walliswood): Before I put the Question that the Title be postponed, may I remind your Lordships of two points of procedure: noble Lords will speak standing and the House has agreed that there shall be no Divisions in a Grand Committee. Therefore, unless an amendment is likely to be agreed to, it should be withdrawn. If there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and will resume after 10 minutes.

Title postponed.

Clause 1 [The Pensions Regulator]:

On Question, Whether Clause 1 shall stand part of the Bill?

Lord Higgins: I rise to oppose the question that Clause 1 stand part of the Bill. We meet in rather unfamiliar surroundings but they seem to me better than those of the Moses Room. The only constructive suggestion I have at this stage is that perhaps we should follow the practice on the Floor of the House of Commons and have the gap between the tables two sword lengths apart. That would open the room up rather more.

In rising to oppose the question that Clause 1 stand part of the Bill, I should explain that, as noble Lords will have noticed, we have tabled a number of similar amendments to various clauses. The reason is that it seems to us that this is an extremely difficult and complicated Bill. In some cases it is very difficult to put down meaningful amendments, and that is the case as far as this clause is concerned. It simply says that there should be a body corporate called the Pensions Regulator. If, in the event, the debate has already covered the main points that need to be raised on subsequent clauses, we will not speak to those amendments. The Public Bill Office, in its wisdom, has put the list of all the places where we have tabled such Motions on the front of the Bill. It may be that your Lordships will find the pension grouping list rather more convenient since it shows the point at which the clause stand part debates appear.
 
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At Second Reading, we were very clear that the basic objective of the Bill—to ensure that those who are in danger of losing their pension entitlements are protected—is one that we support. The trouble on this clause, and on others, is that there are unfortunate side effects that may result in the provisions of the Bill causing damage in various ways to pensioners and to others. In due course, we shall come to consider those.

To some extent, that is even true of the simple clause that we are now debating because it will incur a considerable additional cost, something over £23 million, and there will probably be other costs on top of that figure. Those will be met by a levy on pension schemes. Inevitably, there will be some employers—but one hopes very few—who will feel that they do not wish to bear the additional cost. It is very simple to avoid the levy by closing down the pension scheme.

There is a danger that the Bill overall puts another nail in the coffin of final salary schemes. The Bill is primarily concerned with defined benefit schemes—or final salary schemes, as they are sometimes called—although there are some clauses that affect defined contribution schemes as well. There is a balance to be struck about the best way to proceed to achieve the objectives that we all wish to see.

The pension regulator is a successor to the existing regulator, OPRA. I speak from personal experience as a one-time chairman of a pension fund when I say that OPRA has done a very good job indeed. But, at the same time, the Sandler, Pickering, NAO and other reports suggested that a rather more wide-ranging regulator would be appropriate.

The problem with that, again, is one of balance. In the Commons, it was said that the regulator would be proactive and focused. We will return to those points in detail later when we will need to consider to what extent this adds to the problems that trustees and pension funds generally have to contend with by way of red tape. There is not the slightest doubt that the change from OPRA to this regulator will significantly increase the degree of work that the pension trustees will have to do to achieve the objectives of their schemes. That is all a question of balance.

I would not go so far as to say in regard to various clauses—particularly, for example, Clause 35—that the road to hell is paved with good intentions. But there are some very important side effects. Therefore, in discussing this and subsequent clauses, we will need to consider very carefully the extent to which we can minimise the unfortunate side effects of these proposals.

My understanding is that there are still a large number of government amendments to come. That is surprising at this stage, given the amount of preparatory work that was done and given that the matter has already been through the House of Commons. Perhaps the Minister can give an indication of what we may expect so that we can be forewarned and can take action to deal with that situation.
 
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Overall, we shall act as constructively as we can without taking undue time: this is a massive Bill of very great complexity that we have to get through. We can all work towards co-operating to improve the Bill.

Lord Oakeshott of Seagrove Bay: I declare my interest as a pension fund investment manager. At Second Reading, we made clear our general approach to the Pensions Regulator. I do not propose to add to that, save to say that our approach to this Bill—I share several of the detailed concerns of the noble Lord, Lord Higgins—will be one of proceeding by amendment rather than outright opposition. Therefore, we will not support any suggestion that Clause 1 do not stand part of the Bill.

Baroness Turner of Camden: At Second Reading, my noble friends and I, who have put down amendments to this Bill, nevertheless supported the general idea of the regulator. We believe that it is necessary to take some further means to protect pensions. The regulator is the way that the Government have chosen. We on this side support that.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): I am grateful for the opening statements made by the noble Lords, Lord Higgins and Lord Oakeshott. As and when, and if and when, this Bill gets full parliamentary approval, that will not be the end of the process. There will still be consistent regulations to be explored and negotiations will continue. I recognise the skills, experience and abilities of Members of the Committee on all sides. I am looking at my colleagues here: three of us were engaged in the arguments on the Pensions Act 1995. Other noble Lords have direct experience of DWP work or other pensions experience. As a result of your Lordships' scrutiny, I am confident that we will ensure that the Bill is as robust, and will have as much staying power, as can be achieved. The essence of pension planning is that it has staying power so that people can have some degree of security in the years ahead.

Clause 1 establishes in law the Pensions Regulator. Subject to Parliament's approval, it will be in place from 6 April 2005, which is only some nine months away. The current regulatory body, OPRA, will be replaced by a new non-departmental public body (NDPB); that is, the Pensions Regulator. I am pleased to be able to agree with both the noble Lord, Lord Higgins, and my noble friend Lady Turner that, since it was established in 1997, OPRA has laid good foundations in the regulation of work-based pensions. We propose to build on its experience of more than seven years of regulation. Having talked with the chairman, it is clear that the authority feels that this is an appropriate way forward in building on the work it has already done.

As noble Lords who took part in the debates in 1994 and 1995 will recall, OPRA was designed specifically to avoid another Maxwell-type situation. At the time of the 1995 Act, the fraudulent use of pension scheme assets was considered the greatest risk to pension
 
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scheme members. OPRA was given the task of monitoring employers' contributions to occupational pension schemes and the activities of the trustees responsible for those schemes. Given the context, I would say that an almost adversarial relationship developed between the interested parties. Someone had to act as a form of "gamekeeper", keeping watch on possible defaulting trustees or employers.

Since 1995, however, the pensions environment has changed significantly for reasons that all noble Lords will know. We would argue that the problem is no longer one of fraud, but of underfunding. OPRA has no powers to tackle the risks associated with the underfunding of pension schemes. It has no powers to ensure that errors, omissions or other breaches of pension legislation are put right; it has very little scope to take a flexible, proactive and responsive approach to regulation to adapt to changing circumstances or, indeed, to influence those changes through information, advice or education.

We believe that our proposals for the new regulator will address these issues. We shall concentrate on problems that generate risks. The body will be given an additional range of powers to help those with duties under pensions legislation to comply and will be able to put things right at an earlier stage through its preventive as well as remedial powers. As the noble Lord, Lord Higgins, said, our proposals will implement the wide-reaching recommendations about the regulation of work-based pensions made in a number of key reports. Pickering, the quinquennial review of OPRA and the National Audit Office study of the authority all recommended that the regulator of pensions should target resources on cases where members' benefits are at greatest risk and avoid "cheapening the regulatory currency" by wasting time on petty breaches that have little or no effect on members.

That is exactly what we propose the Pensions Regulator will do. The issue of risks to members' benefits was a key theme of the discussions held both in the other place and during the debate on Second Reading in this House. Moreover, the Better Regulation Task Force has concluded, from its experience of working with regulators across government, that regulatory bodies are most effective if they can focus their resources on areas of real risk rather than the "graffiti" problems of reporting a day or two late and so forth, which make up over 50 per cent of OPRA's caseload.

The task force has also recommended that regulators should, whenever and wherever possible, adhere to the principles of better regulation. Regulators should be accountable, proportionate, targeted, consistent and transparent in their approach to regulation. I am sure that noble Lords will want to measure our proposals by those five standards. We intend that the Pensions Regulator will embed these principles in its design, working processes and overall approach to the effective regulation of pension schemes.
 
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As OPRA is now, the Pensions Regulator will be funded indirectly through a levy on pension schemes. The noble Lord, Lord Higgins, asked about costs. As he stated, we currently estimate that the running costs of the regulator will be around £23 million. This compares with a projected £17 million for OPRA's final year, 2004–05. Those increased running costs reflect the staffing and processes required to support the wider powers of the body, as well as its additional responsibilities in respect of the Pension Protection Fund, and our approach to regulation.

We shall be developing other themes as we proceed through Part 1 of the Bill but, as noble Lords accept, the Pensions Regulator should concentrate on risk in order to reduce as far as possible, without in any sense being able to make a guarantee, risks to the security of defined benefit schemes. That is to be the core of its job. It will monitor compliance with the provisions of this Bill and other pensions Acts; it will help trustees and others to get it right and keep it right, taking appropriate action where necessary; and it will be the "eyes and ears" of the Pension Protection Fund, tackling the risks associated with underfunding and employer solvency. By doing all that, we hope to ensure that members' benefits are protected so that people have some certainty about their pensions in retirement.

I hope, with my very "blue sky" description of the intent of the Pensions Regulator, that noble Lords will agree that Clause 1 should stand part of the Bill.

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