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Lord Higgins: The clause is so full of regulations that it is totally devoid of content. Can the Minister give us any idea what it is all about?
Lord MacGregor of Pulham Market: I want to ask whether I have got it right. Obviously the clause refers to situations that are all too common nowadays, in which employers have to take decisions to close a defined-benefit scheme to new members, because of developments or other factors. As we know, there has been an enormous switch to that position, even among the companies in the FTSE 100, and clearly more will follow.
As I understand it, the clause is saying that the employer must consult employees in such situations, but that the decision after that consultation is up to the employer and the consultation does not affect the actual decision. I may be wrong about this, but according to the Explanatory Notes, subsection (3) seems to imply that if the employer fails to consult the employee, so be it—the decision can still be made and is valid. Is that an accurate depiction of the clause?
Baroness Hollis of Heigham: Clauses 248 to 250 are in a way the other side of what I call Section 67 clauses; they relate to future changes to the scheme, while Section 67 relates to the situation with accrued rights. There is not an identical set of requirements as to what must or must not be consulted about—they differ between the two provisions. I want to ensure that there is no ambiguity there.
The duty to consult is important, and I shall make a fuller speech, rather than simply answer the brief points that have been made. Subsequently, there may be confusion with Section 67, so this might be an opportunity to say something on that, although it will mean going on longer than I would normally seek to do.
The three clauses introduce the requirement to consult, meaning that in future employers will have a statutory obligation to consult affected active members of pension schemes or their representatives before making major changes to future pension
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arrangements. The requirement will apply to employers who offer occupational pension schemes or group personal pension schemes which have direct payment arrangements in place benefiting up to 7.5 million people, for example.
We shall set out the decisions which will trigger consultation by way of regulations, but we anticipate that they will include decisions, identified by the noble Lord, Lord MacGregor, such as closing a scheme to future accruals or to new members, changing from DB to DC or hybrid schemes and significantly reducing or removing an employer contribution to a DC scheme or group personal pension scheme. Those are the big ones on which the employer is required to consult. Experience shows that many employers already consult, but others have failed to take up the opportunity to do so as part of good employment relations and practice.
It will be part of the duties and objectives of the new Pensions Regulator to promote compliance and best practice by employers. Clause 299 contains the relevant powers which will enable civil penalties to be applied by the regulator to breaches of the requirement to consult regulations. When a possible breach comes to light, the regulator has powers to investigate, including requiring employers to produce evidence of compliance. In cases of non-compliance, the regulations will enable the regulator to impose a sanction by way of a civil penalty of up to £5,000 for individuals and up to £50,000 in any other case.
It has been suggested that employment tribunals should enforce compliance with the new requirement, but an important difference comparing sanctions applied by employment tribunals to those applied by the Pensions Regulator is that the regulator will be able to enforce compliance by employers and trustees equally, in a proportionate and proactive way appropriate to a pension scheme and in a way that will be joined up with the rest of pensions legislation. The new consultation requirement will focus on future changes—distinct, therefore, from the provisions in Clause 251, dealing with the former Section 67.
Clause 248 is the first of the three clauses, and relates to consultation requirements where future changes to occupational schemes are proposed. We are considering, under Clause 248(1), possible exemptions for some areas of the public sector and in respect of small employers. For example, the requirement would not add much if applied to large public sector schemes, which are governed by statutory requirements to consult. For small employers, we need to get the balance right between protection and excessive burdens.
We also must take account of different powers. We will be using these powers to prescribe who will be consulted to build on the Government's approach on information and consultation, based on a framework agreed by the CBI and TUC. This is the first time that the UK has approached implementation of EU social legislation in this way.
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The key principle is that where trade unions are recognised by an employer, the employer will be able to consult on changes to future pension arrangements using another mechanism only where employees have specifically agreed and approved an alternative approach to information and consultation. So they must use trade union or approved nominated members under the information and consultation requirement or, in the absence of those, their members more generally. Throughout the consultation stages of the Bill, we have consulted and listened to both sides of the industry, and I think that we have a workable balance.
Clause 250 contains further provisions about regulations under the section. Ultimately, because pensions are voluntary, the employer is not required, following consultation, to implement the views of those consulted, but he must give them due consideration. Equally, if trustees propose changes to the scheme, the employer must still undertake the exercise. The sanctions do not bite if the employer fails to deliver what the consultation exercise has produced but if he fails the consultation exercise in its entirety. That is the distinction that I think the noble Lord wanted me to make. However, the consultation does not exercise a veto, because pensions remain voluntary.
In comparison with Section 67, the employer has all the residual powers when dealing with future changes. In the provisions replacing Section 67, the trustees have the residual powers because they are acquired rights that have been built up. That is the essential distinction between the two—who has the determining power. Here it remains with the employer; under the provision replacing Section 67 it will be, as we shall see, with the scheme trustees.
I hope that the Committee will forgive me for that rather long answer, but I think, given that there has been some confusion on the issue outside, it would be helpful to put it clearly on the record.
Clause 249 [Consultation by employers: personal pension schemes]:
Baroness Dean of Thornton-le-Fylde moved Amendment No. 308:
(c) proposes to reduce the contributions which the employer pays to the personal pension scheme,"
The noble Baroness said: In moving Amendment No. 308, I should also like to speak to Amendments Nos. 308A, 309 and 310.
Amendment No. 308 puts into regulation something which we believe is not there at the moment. The proposal is that there should be consultation on personal pension schemes. Over the past few years, employers have been moving towards paying a contribution either to an individual money purchase scheme, a group personal pension or, indeed, a stakeholder pension. We feel that there is a blank in the Bill on consultation in that regard.
The amendment also deals with employers who want to reduce the contributions they pay to an individual's personal pension. Certainly, Amendment
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No. 308A moves on to remedy. That leads on to Amendment No. 309 and the two are very much connected—as is Amendment No. 310.
I should be happy to be corrected, but there does not appear to be provision for the remedy that applies to consultation. We know that consultation means different things for different people. I know that it will be put in the regulations, but it would be helpful if the Minister could tell us a little about what is meant by "consultation". The word "meaningful" is not in the Bill and I do not intend to have half an hour's debate over one word. But "consultation" to some people means "informing"; to other people it means "discussing before you reach conclusions". That is what it means to me but that is not always the case and it has not been the case in people's experience, either.
Amendment No. 309 is not dissimilar and the requirement for consultation there is not dissimilar to what is required under health and safety legislation. We believe that it is reasonable to provide for some remedies. It may be that the intention was to do that anyway, but this is a probing amendment and I am trying to draw from the Minister what the Government mean by "consultation". If the Bill is left as it is, there would be very different interpretations of that. I beg to move.
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