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Baroness Hollis of Heigham: As the noble Lord, Lord Higgins, indicated, during Second Reading and our discussions on the moral hazard issues, I have come to realise the increasing importance of the clearance procedure as a way to act as a sensitive discriminator between good-faith and non-good-faith activities which may affect pension funds.
I gave the undertaking that we would be discussing the issue with the industry during the summer and to provide further clarification. The amendment suggests a statutory procedure, but I would be reluctant to have a statutory procedure which puts a lot of delays into the system and has to go through the parliamentary system, codes of practice or regulations.
However, it is obvious that we need to make clear the way in which the mechanism will work. That is exactly what we need to discuss with the industry during the summer and I hope that as a result we will have a clearer outline of the scheme. It will not be
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enough to leave it to an informal telephone conversation—we must have a scheme which people know how to enter and be confident about their behaviour. We therefore must devise something with a shape to it and I hope that we will be able to do that before the Report stage.
Lord Oakeshott of Seagrove Bay: We look forward to the result of these consultations over what will be a very busy summer for the noble Baroness.
Lord Higgins: I am grateful to the noble Baroness for that offer. There is one other point which ought to be considered in the same context; that the regulator should give a broad view as to why he has reached a particular decision so that if a transaction between, say, A and B falls through and then the same transaction arises between A and C, the group would not need to go through the whole clearance procedure a second time. Perhaps in the course of the discussions that can be taken into account.
Baroness Hollis of Heigham: It would depend on the circumstances. You cannot give a planning permission in advance for all possible mergers and acquisitions to which a particular company may be exposed because their terms may differ considerably. While I take what the noble Lord says on board and will ensure that it is put into the considerations, it would be unwise to say to a particular company, "Now go ahead, whatever you want to do will be okay by us because you only have to go through the clearance procedure. This merger has now fallen through and for any other five, 10 or 15 you may dabble with that clearance still applies". I am sure that that is not what the noble Lord intends.
We need expert involvement in this area from the industry and most of us will be very busy over the summer.
Lord Higgins: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 95 [Powers to vary or revoke orders, notices or directions etc]:
Lord Skelmersdale moved Amendment No. 173:
The noble Lord said: This is a quickie from me but I am afraid that it might be a slow answer from the Minister. Clause 95(1) is about the regulator changing its mind—in the early days of its existence, OPRA's mind—except in the specific instances mentioned in subsection (2). They are: an order under Section 3(3) of the 1995 Act; Section 4(5) of the same Act; and Section 2(3) of the Welfare Reform and Pensions Act.
Besides each of these, I have a note in my Bill, "Why can't it change its mind about these provisions?". Under Amendment No. 174, which leaves out
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subsection (5)(a), if the regulator decides to revoke or vary, how can it not be a regulatory function to allow it to do so? It seems very strange indeed. I beg to move.
Baroness Hollis of Heigham: As the noble Lord suspected, the answer is slightly techie, but I am happy to place it on the record so that he can have a nice busy summer contemplating our exchanges in Hansard.
Subject to specified exceptions, Clause 95 gives the regulator the power to vary or revoke any determination notice, direction or order that it issues in exercising its regulatory functions. This power enables the regulator to change any determination, if necessary; for example, in the light of new evidence or representations received. Obviously, that would be a desirable flexibility which I am sure would be welcome. Any variation or revocation cannot take effect before the date on which the variation or revocation is made.
I suggest, therefore, that the amendments are unnecessary because subsection (2) as drafted requires trustees of occupational schemes to make a fresh application, for example, based on new evidence or new representations on cases where they disagree with the determination of the regulator—in particular, on an order under Section 3(3) of the Pensions Act 1995 revoking a prohibition order, an order under Section 4(5) of that Act revoking a suspension order, or a direction under Section 2(3) of the Welfare Reform and Pensions Act 1999 refusing to register a scheme under Section 2 of that Act or removing a scheme from the register of stakeholder pension schemes.
Subsection (5)(a) enables the regulator to vary or revoke any determination order, notice or direction at any stage after the initial determination. We believe that that ensures the effective use of the regulator's resources.
Viscount Trenchard: Is Clause 95 also intended to cover occasions where the regulator may have determined not to exercise a regulatory function? Given information to that effect to somebody who sought the regulator's opinion, does it mean that the regulator may subsequently change its mind and decide to exercise a regulatory function whereas it had previously decided not to?
Baroness Hollis of Heigham: No. This is not about a simple change of mind; it is about new evidence coming forward as a result of which the grounds on which the original determination was made were inappropriate.
Lord Skelmersdale: I am grateful to the noble Baroness. I shall have to study her previous answer to my noble friend Lord Trenchard very carefully.
Baroness Hollis of Heigham: I have just been given an example of how it might work. If a trustee is suspended or prohibited, he can apply for that decision to be revoked, but there is an independent procedure for that and the application means that all directly
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affected parties can be involved. That is the sort of situation to which, I think, the noble Viscount referred.
Viscount Trenchard: I thank the noble Baroness but I fear that I have not made myself sufficiently clear. I was asking what happens if the regulator has been asked whether it will determine to exercise a regulatory function and decides not to. Subsequent to that clearance, is it entitled to vary its decision not to exercise a regulatory function?
Baroness Hollis of Heigham: I find that very hard to answer because it depends on the degree of significance of the altering circumstances—whether the closed procedure has been gone through and whether there is sufficient basis for the regulator to decide that its first decision was erroneous because it was based on, say, incomplete information. At the end of the day, the regulator must be able to make what it believes to be the correct decision. If the circumstances are such that it would be clearly incorrect to proceed on the all-clear process of the clearance procedure, the regulator must be in a position to say that new information has come to light and that it needs to reconsider its "good faith" clearance. It would be very difficult to be more precise than that, because I simply do not know under what circumstance that situation might arise. The presumption is that when all parties are acting in good faith, the clearance procedure would stick. When there was either subsequent evidence of lack of good faith or additional significant information, I would expect the regulator to be able to say that its original steer needed to be reviewed.
Baroness Noakes: The point raised by my noble friend is important, and it will come back to what is in the clearance procedure. In that regard, I believe that I heard the Minister say that she did not anticipate a statutorily based clearance procedure, but one that was somehow dealt with in regulations. The more one thinks about the kind of situations that might arise, having something based wholly in regulations and not having any statutory force seems to me to create a significant problem for businesses that will need to deal with the regulator. It may not be an issue that we can debate any further today, but it seems to me that a statutory clearance procedure is what we shall need out of the summer's deliberations.
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