| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Lord Higgins: The clause relates to the functions of the board and a number of various functions are set out. I wish to clarify a couple of points.
The Minister earlier helpfully described the way in which the board would operate, taking over eligible schemes, maintaining them and paying out the amounts that they would have received or an amount related to what they would have received, had the existing pension scheme not folded. I fully understand that the money all then goes into a single pot, but do the members whose scheme has been taken over and become an eligible scheme operated by the PPF go on making the same contributions as they would previously have been going to make? In effect, is the PPF making up the contribution that would have been made by the company if it had not gone bust?
If that is so, are the liabilities of the PPF with regard to those particular people going to be assessed by an actuary, as they would have been if the original scheme had continued in existence? We need to be clear. On the one hand, we all realise that the money all goes into a single pot; on the other hand, the benefits remain the same or are related to the way in which they were previously paid. What is the situation with regard to the members of that scheme, now part of the PPF, paying contributions? Do they go on paying the contributions? Do they go on paying—I am saying this for a second time—the contributions they would previously have paid and does the PPF make up the payments which the employer would previously have made?
The other point relates to a different matter; the board's functions. It is taking over the various schemes, many of which would have had actuaries, accountants, advisers or whoever, who may be on contract to the scheme that has folded. Does the PPF compensate those people?
Baroness Hollis of Heigham: I shall take advice on the second part of that question. On the first part, a scheme will enter the PPF only if the company is insolvent and the scheme is under-funded. If the company is solvent, but the scheme is under-funded, the company will be expected to make good as part of the winding up. If the company is insolvent, but the pension scheme is adequately funded, it can continue as a closed scheme or wind up under certain circumstances if that is desirable. Therefore, the schemes come into the PPF with an active member—say, James Smith aged 50 working for a steel widgets firm in the north—because the company has folded with it his job. Therefore, contributions continue and
15 Jul 2004 : Column GC355
no increase in benefits will follow. He has effectively become a deferred pensioner. This is for people who are still of working age.
Clearly, pensions in payment—those over retirement—continue in the usual way. Clearly, there is an issue about whether in the assessment period someone hits retirement or seeks to come into the scheme perhaps by manipulating ill-health rules. There are some issues around that which the noble Lord, Lord Higgins, would be right to pick me up on and press me as to how we will deal with them. They are complicated.
I believe that I am right by definition, but I am not sure whether technically I am right. I am speaking in a lay person's language. Basically, at the point at which someone's scheme comes into the PPF, he has effectively become a deferred pensioner. In that sense, it would follow not dissimilar rules to any other deferred pension scheme which gets, so to speak, frozen but will have certain indexation rules applied to it. But no additional contributions are being made and therefore no benefits are being accrued over and beyond what a limited indexation might achieve. I do not know whether that helps the noble Lord.
On the second question relating to compensation to professionals, there will be no compensation to trustees and so forth, in the same way as they are not compensated during a normal scheme wind-up. It is simply that their contracts of employment are terminated. I am sorry, did I speak too quickly? We do not expect any compensation to professionals, including trustees, in the same way as they do not receive compensation now when a normal scheme winds up; in other words, their contacts of employment are terminated.
Clause 106 [The Non-Executive Committee]:
On Question, Whether Clause 106 shall stand part of the Bill?
Lord Lucas: We come back to that which the noble Baroness would not answer before lunch. Personally, I can listen to the noble Baroness all day. Indeed, I have done so on many occasions during my days on the Front Bench—most enjoyable it was, too. I am not sure that that is entirely reciprocated, but there we are.
We have dealt with the assertion that this provision is a Higgs structure; the noble Lord, Lord Borrie, has demolished it comprehensively. We are dealing with a particular board structure that has to be justified in its own terms. The common British board is a unitary board where, although there may be functions that non-executive directors are supposed to undertake, they none the less undertake them as part of a unitary board.
This would be a separate non-executive committee with its own responsibilities and decisions, which it would take separately from the board. The Government
15 Jul 2004 : Column GC356
must justify why they have moved from our standard structure to this structure. What benefits flow from adopting this structure rather than the ordinary structure that we would expect in a body corporate?
Towards the end of Clause 106(5) we get something that looks like the remuneration committee and the audit committee. I can understand why we have a separate committee with separate responsibilities. In paragraphs (a) to (e) of subsection (5) we are looking at functions that belong to the responsibilities of the whole board. I do not see why sole responsibility for them is being delegated to a non-executive sub-committee. That damages the function of the board, which is why we do not do that in ordinary companies. Those functions are the responsibility of the board and need to be dealt with by the board.
Non-executive directors have particular responsibility for considering matters, which they will often meet separately to discuss. None the less, the decisions and responsibilities rest with the board. A non-executive committee in an ordinary company does not take separate decisions on those matters or have defined responsibility as suggested in this clause. I want to know why this is being done. I do not expect to hear "because it's Higgs"—because it is not.
Lord Borrie: I am delighted that the noble Lord, Lord Lucas, has, for the second time, agreed with my earlier points about Higgs and the combined code. It helps to make the point that I seek now to pursue: we are dealing with a public sector body, and I entirely agree with the noble Lord, Lord Lucas, that it must be justified on its own merits.
In part of the argument put forward by the noble Lord, Lord Lucas, it seems as though he is torn between the combined code and that particular argument: he talks about moving away from the board structure with which we are all familiar in the private sector. Because this is the public sector, we do not need to consider how far it is different from, or how far we have moved away from, the private sector corporate structure. We need to consider whether this is a valuable way for this particular body to do business.
The clear distinction, which is set out somewhere or other—I agree that there are a lot of words in Clause 106—is that it is the strategic direction of the board with which the non-executive committee are supposed to be concerned. That is the key function of the non-executive committee. That, together with calling to account the performance of the chief executive, seems a very suitable function for the non-executive committee. I shall say no more. I agreed with the basis of what the noble Lord said, but then he could not help himself in going back to the private sector structure, which we do not need to do in this regard.
Lord Higgins: I sympathise with my noble friend's point; it has been a thread through our discussions all day. What is proposed is much closer to a continental European structure. To some extent, in effect, it becomes a supervisory board; but, if I understand it correctly, it means that we will not have a specific remuneration committee or a specific audit committee.
15 Jul 2004 : Column GC357
The whole thing comes under the non-executive committee. Given what is happening at Shell, I am not sure that this model is ideal. We need to consider why the Government have decided that this is the right approach.
Baroness Noakes: I never like to disagree with my noble friend on the Front Bench, but I do not think that this is like a supervisory board on the continental model. That board sits above the board to which are accustomed, which does most of the business. Here, we have the board and a non-executive committee, which carries out functions. However, subsection (3) states:
That is neither fish nor fowl, which is the cause of the problem.
The noble Lord, Lord Borrie, says that we do not have to follow the private sector. Indeed, we do not, but the vast majority of public-sector bodies—and I mean the vast majority—have unitary boards. There are two or three examples, which started with the Bank of England, which have this curious non-executive committee structure.
I have some knowledge of that structure because I was the first senior non-executive director of the non-executive committee of the Bank of England. That caused us huge problems because the non-executive directors were suddenly required to take on functions that were functions of the board but, in some senses, separately. We got around that by having technical meetings of the non-executive directors, which ratified things that were carried out in the main board from the perspective of the responsibilities laid on the non-executive directors.
Reading the current report of the Bank of England, it has moved on to having the non-executive directors carrying out most of the functions of the board with executive members in attendance, which are determined by formal meetings of the whole board to ratify what has gone on. Neither arrangement is satisfactory because both arrangements are attempts to get around a slightly ludicrous separation between executive and non-executive in the context of a unitary board.
Because of Clause 106(3), it seems to me that there is schizophrenia here. We want a unitary board so the functions are left to the board, but we also want to set up some kind of a divisive structure. This started to go wrong when the Bank of England Act set that up. There have been only a couple of other examples. Nowhere else in the public sector will one find such nonsense.
| Next Section | Back to Table of Contents | Lords Hansard Home Page |