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Lord Lucas moved Amendment No. 135:
The noble Lord said: My Lords, in moving the amendment, I shall not speak to Amendment No. 136.
The amendment concerns the degree to which the Government should be able to dictate the investment principles under which the fund should operate. I welcome the amendment that we have just passed. The noble Baroness has, as she said, responded to our comments in Committee and has produced a fine answer to them. Sadly, regarding her response to the points that I have raised, she is rather better at defeating my arguments than conceding to them. I feel
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strongly about this matter. If the fund is to work well, the investment principles of that fund must be free from direct mandates from the Government.
The example given by the Minister in Committee was that it might be the wish of the Government to specify that the fund should be invested ethically. Well, yes, but that is the grassy green top of a very slippery slope. We do not have to look that far back to be aware that it would have been in the minds of Mr Heath and Mr Wilson and others that the money should be invested in supporting the steel industry or keeping coal mines open. Once you give the Government the power to dictate how money is invested, then some Secretary of State, at some time, will use it. It is in the nature of politicians and governments that that should be so.
If we want the fund to be regarded seriously and to be accepted by those who will have to continue to put money into it, the investment principles should be based on the noble Baroness's Amendment No. 134, not on the particular whims of the Minister at the time. It strikes me that any proper influence that the Government wish to exert can be exerted under subsection (4) by prescribing the form of the statement of investment principles. They can say that it must cover such matters as investment or whatever else the Government are concerned about and thereby ensure, by making the fund report on those matters, that it is run in accordance with best principles. But to be able to impose a diktat, so that the investment shall be in accordance with the wishes of the Government, runs entirely counter to the amendment that we have just passed.
Beyond anything else, this fund will be an important precedent. We face a substantial crisis in pensions. We are looking around for a vehicle that we can use to enable people without great means to invest on acceptable terms and at acceptable costs, to help to provide pensions for themselves.
To my mind, this fund is a pretty good model of what might be used. It is run centrally but the investment is made professionally. The investment principles are set out clearly but, as I said, it is crucial that those principles are in the interests of the people providing the money and not in the interests of the government of the time. I would be very sad to see the fund become a potential political plaything. I say that not in relation to the current incumbent but, looking back at our history, it is not impossible that such a temptation will be resisted. I cannot see that there is anything in subsection (3) which cannot be done equally well through subsection (4), which would not pose anything like the same dangers to the future management and general acceptance of the fund. I beg to move.
Lord Higgins: My Lords, I think that my noble friend's amendment is helpful. In considering it further, we shall need to look very carefully at what the Minister says and, if necessary, return to the matter at Third Reading. In Committee, we had an extensive debate on investment principles. It is very important that we get those right because, in effect, the Pension Protection Fund will
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operate in much the same way as any other pension fund and, as in the case of individual pension funds, it is important that we are clear about the exact principles.
Rightly, what concerns my noble friend is that the wording of the clause is too wide, and we are not clear about exactly what the Government have in mind. One would expect a number of normal, if I may put it that way, investment principles to be specified. But, in particular, as the clause states specifically that the board must comply with any prescribed requirements, the question is whether the Government would impose any requirements which might be objectionable.
Some three or four years ago, a Minister issued a general circular to those in charge of pension funds about so-called "ethical investment" and asked them to respond. Generally speaking, the crucial point is that the assets should be invested in a way that maximises the benefit to the beneficiaries, and that is the primary responsibility of the trustees.
A few days ago, I was interested to come across a paper circulated by the universities' pension fund, which, I understand, is the second largest fund in the country. It raised both the question of the extent to which the fund should take into account good governance, which is entirely understandable, and, secondly, the question of the ethical issues—for example, whether the fund should not invest in tobacco companies, even though they might give a better return than alternative investments.
I think that my noble friend's concern arises both from the history of the matter to which I have just referred and also from the general feeling that this is a matter which should not be dictated, as it could possibly be by this clause, by the Government. Therefore, I hope that the noble Baroness can assure us that it is not the intention of the Government that the so-called "prescribed requirements" should seek to influence the decisions of the Pension Protection Fund in the way that I have just described. As I said, it will be important to consider carefully what the Minister says and, if need be, return to the matter at Third Reading. It is an important issue.
Perhaps the noble Baroness will also comment specifically on the point made by my noble friend; namely, whether there is any way in which subsection (3) can be dispensed with because it is reasonably covered by subsection (4).
Lord Oakeshott of Seagrove Bay: My Lords, we on these Benches support the amendment. As we discussed in Grand Committee, we think it is very important that there are clear, simple and limited objectives for the investment policy of the PPF. One does not want to end up with a kind of Christmas tree on which all sorts of worthy objectives are hung. One needs a simple, clear objective, which is basically to maximise the investment return, subject to an acceptable level of risk, or something on those lines.
I completely agree with noble Lords on the Opposition Benches that, when one is setting up a Bill and establishing the structure for the long term,
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however much confidence one might have in the existing incumbents or, indeed, in the board not to abuse that, it is important that the principles are set out clearly and in statute at the beginning. On that basis, I very much support the amendment.
Baroness Noakes: My Lords, I support what my noble friends have already said and, in particular, what my noble friend Lord Lucas said and his contention that, by removing subsection (3), nothing of substance would be taken away.
If the Minister believes that something of substance would be taken away by removing subsection (3), will she consider an alternative formulation which would imply that government had less ability to interfere with the proper running of the fund—that is, a duty of consultation with the Secretary of State? If there is a need for the Government to have some formal contact with the fund in connection with its investment objectives, it seems to me that it would be less objectionable if they did not have a power to tell the pension fund what to do by regulations but the ability and duty to be consulted.
Baroness Hollis of Heigham: My Lords, I can see where Opposition Members are coming from but, for once, if I may say so, I think that we are making slightly heavy weather of this. Perhaps that is because noble Lords need more of a gloss on subsections (3) and (4) than they have had so far, and I hope to be able to allay their concerns.
These amendments seek to remove from Clause 112 the power to make regulations regarding the requirements to which the PPF board must adhere prior to preparing or revising a statement of investment principles and the minimum requirements concerning the matters that the statement should cover. I hope that our amendments to Clause 111 have reassured the House that we shall have regard to the interests of key stakeholders when investing for prudent financial management. In doing so, we have also underlined that the provisions of Clause 112 are not designed to give this or future governments some unfettered control or leverage over the board's investment principles.
I want to reassure noble Lords that, as they have told me, statements of investment principles have been a feature of pension schemes, both public and private, for many years and, in the light of your Lordships' debate, that is the path that we are now pursuing. The draft does, indeed, cover issues such as the impact of the nature of the board's liabilities on its investment strategy, the kinds of investments to be held, the balance between different kinds of investment, and so on. Those are fairly conventional things. Noble Lords may wish to pursue this matter at Third Reading, although I rather hope that they do not.
I turn to the point of the subsections. With regard to subsection (3), as I mentioned during our previous discussion, the requirements that we envisage are simply that, before preparing or revising a statement of investment principles, we shall require the board to
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obtain and consider relevant expert advice. I hope that the House will agree that, under the circumstances, that is a reasonable regulatory requirement.
Subsection (4), to which the second amendment relates, is simply about requiring the board to cover a limited number of key areas in the statement in order to provide a degree of accountability to all its stakeholders; for example, the kind of investments held and the balance between them. Nothing in this provision fetters the board's freedom to invest as it sees fit, subject to Clause 111. That is the type of area in which the Government expect these subsections to be used.
As I said, I think that in this case, if I may say so, the Opposition are reading ogres into sensible and useful requirements, such as the requirements to consult and to take professional advice—the kind of thing that I mentioned during the previous discussion. I hope that those reassurances will allay the fears of Members opposite and that the noble Lord will be happy to withdraw the amendment.
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