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I hope that noble Lords are reassured by this and agree that these provisions work to best effect as they stand. I therefore hope the noble Baroness will feel able to withdraw the amendment.

Baroness Noakes: I thank the Minister for that reply, although I was not entirely convinced by it. She said that the chairman would be involved in appointments as much as possible; that falls short of a firm commitment that the chairman will be involved. She said that this allows the chairman to have some input; that is not consulting the chairman. I think the noble Baroness was saying that DWP Ministers are in charge of the process and they might let someone into it if they feel like it.

Baroness Morgan of Drefelin: There is a firm commitment to involve the chair in appointments. The timetable has been carefully worked through and there is an absolute intention that the chairman will be involved. Subject, of course, to following the correct guidance for public appointments, independent scrutiny and so on, the chairman will be involved in the appointment of non-executives and the chief executive.

Baroness Noakes: I thank the noble Baroness for that clarification. She said that it was good business practice to give directions to a deputy chairman. I can tell her that it is 100 per cent not good business practice. It is nowhere close to normal, let alone good, business practice. It is extremely unusual that a deputy needs to receive special instructions because the nature of the deputy role is as decided. It could be straightforward deputising—that is, filling in when the chairman is not there—or it could be to undertake specific functions. “Directions” is a very Whitehall-centric view of how appointments to boards should be handled. If any instruction or guidance is to be given, it should come from the authority, which is what my amendment seeks.

I shall reflect on what the noble Baroness has said and may return to this on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Turner of Camden moved Amendment No. 85:

The noble Baroness said: I shall speak also to Amendments Nos. 85A, 104 and 104A, all of which I support.

As the Committee will know, the TUC has in general been very supportive of the Bill and particularly welcomes the establishment of the delivery authority as far as the personal account scheme is concerned. However, it would like to ensure that the authority is fully representative of the people to be covered by this section of the Bill: consumers. That is why I have tabled the amendment.

Not surprisingly, the Consumers’ Association feels the same way and believes that there should be consumer representation on the board. It particularly welcomes the statement by the Secretary of State on 27 May 2007 that personal accounts will be a trust-based occupational scheme and a members’ panel will be established to ensure that members’ views are taken into account. It points out that when the Pensions Bill was debated in the House of Commons, cross-party support was given to the idea that consumers should be placed at the heart, as they put it, of personal accounts. It also draws attention to the Work and Pensions Select Committee report, which concluded that,

It is concerned to ensure that, despite the assurances given, this provision is made in the Bill; hence, we have tabled these amendments.

The Consumers’ Association also seeks a consumer committee members’ panel to be written into the Bill. It thinks such a panel would serve as a crucial sounding board for personal accounts policy decisions, in relation to the impact that decisions will have on the consumer. They think that it will add independent scrutiny and advice, ensure the direct involvement of key representative stakeholders and therefore the consumer voice, and improve the quality of decision-making. I am sure your Lordships are not surprised to hear that from the Consumers’ Association; that is what it is in business to do.

I hope this set of suggestions will receive support from the Front Bench, as we think they are reasonable. My noble friend will no doubt add her views on her own amendments, which I also support.

Baroness Gibson of Market Rasen: There are six amendments in my name on the Marshalled List today. The reason for them is that I was contacted by an organisation called Fair Pensions, with which I have worked in the past. It campaigns for responsible investment, and aims to persuade UK pension funds to adopt effective and responsible investment policies.

Fair Pensions, which has briefed me for today’s debate, believes that these amendments would improve the Bill and ensure that the Personal Accounts Delivery Authority abided by best practice on shareholder activism and so promoted acceptable standards of corporate social responsibility on the part of investee companies. Such best practice would have significant benefits for companies, in that it would provide investments against medium-term and long-term risks associated with environmental, social and governance issues.

The amendments would also ensure that the interests of members—the beneficiaries—of the personal accounts scheme would be formally represented within the delivery authority. Shareholder activism to promote corporate social responsibility does not dictate investment strategy; rather, it requires fund managers to develop a toolkit for identifying, assessing and acting upon issues that may adversely affect returns. It also encourages fund managers to recognise that they are investing pensions and pensions-related assets, and therefore need to analyse medium-term and long-term trends as well as short-term ones.

Fund managers who have adopted responsible investment practices have worked to future-proof the profits of their investee companies. One example is the Carbon Disclosure Project, of which the Universities Superannuation Scheme pension fund, which I understand is the second largest occupational pension scheme in the UK, is a founding member. The project now has 72 per cent of the 500 largest publicly owned companies reporting on carbon emissions.

If the delivery authority does not include members with responsibility to represent the interests of the intended beneficiaries of personal accounts, beneficiaries may not be confident that the authority will take their best interests into account. For example, if a committee consists primarily of individuals with finance backgrounds, it could be thought to lack the willingness and ability to evolve in a constantly changing legal and regulatory environment. If the delivery authority does not include members able to represent the interests of beneficiaries, it could consist entirely of persons with finance backgrounds who would oversee other persons with finance backgrounds with no window to the outside world and no communication with those whom personal accounts are designed to benefit.

9.30 pm

The rationale for Amendments Nos. 85A and 104A is that stating that at least one-third of the members of the committee are to be representatives of scheme members brings this scheme into line with the situation that applies in occupational pension schemes, where at least one-third of trustees must be member-nominated. While at this stage it is not possible for such persons to be members of the scheme, because it is not yet operational, it is still desirable for their interests to be strongly represented, as is the case for occupational pension scheme members. Under these circumstances, I hope that the Minister will look at these amendments favourably.

Baroness Noakes: Amendments Nos. 87 and 104, which are in this group, are tabled in my name. The amendment tabled by the noble Baroness, Lady Turner, requires one of the members of the authority to be a person representing the interests of members, but we cannot support it or Amendment No. 85, which was tabled by the noble Baroness, Lady Gibson, for three reasons. First, we do not believe that anybody who sits on an authority should represent a particular interest. That does not lead to good governance, as all members should be focused impartially on the functions of the authority. Secondly, the amendment focuses on one group called “consumers”. I find that a very vague term, although the Consumers’ Association doubtless finds it easy to deal with. I think that what is meant is more specific: those who are, or may well be, members of the scheme. Thirdly, the amendment focuses on only one possible interest group, and we know that there are other groups, not least those that provide pensions and believe that their voices should be represented in the authority.

That is why my Amendment No. 87 requires the Secretary of State merely to have regard to the desirability of a balance of interests on the board, with nobody being there as a representative. The amendment refers to those with knowledge and experience of members’ needs, employers’ involvement, pension providers and regulatory issues around pensions, and I have no doubt that others could be added to that list. My amendment does not require the Secretary of State to make specific appointments from any of those groups. In fact, that would be impractical, as the membership of the very small board that we discussed on previous amendments would not, except occasionally, go above nine members. My amendment does not preclude the Secretary of State taking into account other factors that are normally brought into play when designing a board, the most common nowadays being the diversity agenda.

Amendment No. 104 adds a specific committee to represent the interests of scheme members and prospective scheme members. It is similar to Amendment No. 104A, which was tabled by the noble Baroness, Lady Gibson, but her amendment is more elaborate and potentially more constraining.

My amendments meet the concerns of the noble Baroness, Lady Turner, but in another way. As she said, it is clearly important that the design of the personal accounts system should have the interests of those who should benefit from it at its heart—I think the noble Baroness used that term—but not necessarily on the authority itself. The noble Baroness, Lady Turner, referred to the announcement last month that there would be a members’ panel for the personal accounts scheme. An equivalent panel exists for the Financial Services Authority, and it is a perfectly normal mechanism to set up. We shall certainly be looking carefully at the next Bill to see that one is set up when the scheme is set up, but the issue now is the Personal Accounts Delivery Authority, and it is important that there should be a panel that represent the views of those who will become members of the scheme. We believe that that should be in the Bill. There may not be much in practice between me and the noble Baronesses opposite, but we come about these things in a slightly different way.

Lord Leitch: I declare my interest as a director of Scottish Widows, chairman of BUPA and Intrinsic Financial Services, as well as other entries in the register. I have spent all my working life in the financial services industry and have the scars to prove it. For the past two years I have led the Leitch review of the UK’s long-term skills needs. At the same time, I have been carefully following the Government’s policy on pensions.

I endorse both the sentiment and the substance behind the amendments in the names of my noble friends Lady Turner and Lady Gibson. The noble Baroness, Lady Noakes, makes very helpful points.

The Personal Accounts Delivery Authority has a vital role to play in delivering both the ambition and the implementation of the Government’s pension strategy. The stark reality is that the UK is witnessing steady deterioration and erosion of the number of people on track to live a secure and comfortable retirement. We are a nation divided by our propensity and our ability to save. Too many consumers either simply have no idea about the levels of saving required for a comfortable retirement or they live in disturbing ignorance of the financial reality for even a very modest retirement.

The new authority has a key role to play, both in increasing public awareness and education on saving for retirement and in facilitating the delivery of the right advice at the right time. In this regard, it is essential that the authority really understands and takes note of all consumer interest.

There is, of course, another major impediment to a secure retirement and it is, in many ways, for many people, the greatest obstacle. That is affordability. Disturbingly, the obstacle of affordability is concentrated among those with the greatest need to save. Solutions to address and remedy this obvious but serious problem lie elsewhere through initiatives on skills, employment and social justice. But that is for another day.

To the issues before us, I see two clear challenges to address. First, we must influence and encourage those who can or do save to do more and to make the right level of provision. Secondly, we must support those who are unable to do so. No pensioner in our country should ever live in poverty.

Personal accounts have a fundamental role to play in addressing the first challenge, which is increasing the numbers of people saving and the absolute amounts being saved. But personal accounts will stand—or fall—on their ability to broaden and deepen the extent of retirement savings. In other words, they must reach the parts that existing provision does not reach. They must work in tandem with the private sector. Public and private schemes must complement each other. Personal accounts must be genuinely additive; they must not simply redirect savings from other channels. That would be a wasted opportunity and an expensive, pointless exercise.

At the same time, it would be damaging if employers used personal accounts as an excuse to reduce their overall contribution levels. In recent years, there has been a significant shift away from defined benefit schemes to defined contribution arrangements, in many cases resulting in a decrease in employer contributions. This inexorable decline must not prevail.

However, do not misunderstand me. Despite what one may read, today the private pensions sector is both tightly regulated and flourishing. Millions of people are making substantial contributions to their pensions. Personal accounts must not just coexist with existing private provision. The two must work harmoniously in tandem as part of an overall pensions strategy—neither should benefit, nor suffer, at the hands of the other.

I understand the argument that the taxpayer should help to fund the establishment costs of the delivery authority, but at the same time existing providers should not be unfairly disadvantaged by significant or open-ended public subsidy. Like their private sector counterparts, the success of personal accounts will be determined in large part by the quality and relevance of the advice that individuals receive. Make no mistake, advice in what remains one of the most complicated pension systems anywhere in the world will make the difference between success and failure. The Government’s intention to make a generic advice model is needed and, I believe, very welcome. I look forward to the conclusions of the Thoresen review, but I want to sound a note of caution. Generic advice to consumers is by its very nature limited in its application to specific circumstances. The challenge is to be both general yet sufficiently personalised to encourage saving and inform the correct decision. Striking the right balance will be incredibly difficult. We must be alert to the real risks in both the short and long term.

I am sure that we all agree that retirement should be a secure period in everyone’s life, not something to dread or feel anguish about. For many people that peace of mind demands a much greater awareness and a willingness to make adequate preparation for the future. For many, that will mean confronting the very harsh reality of making sacrifices today for a more secure and certain tomorrow. This Bill, with effective personal accounts, is a solid foundation on which to build that tomorrow.

Lord McKenzie of Luton: I thank my noble friends who moved and spoke to the amendment and my noble friend Lord Leitch for giving his broad sweep of the personal accounts landscape. He brings an experienced and knowledgeable eye to the risks and opportunities that personal accounts represent.

The amendments before us focus on membership of the delivery authority and, in particular, the arrangements for consumer representation. These are both important issues. The board will be the driving force of the organisation, providing the strategic leadership as it discharges its functions, so it is vital that the right people are appointed. Consumer representation is an issue which we rightly recognise as crucial to the success of the personal accounts scheme.

I shall talk first about the membership of the authority board. I can assure noble Lords that we recognise the importance of ensuring the board contains individuals with a breadth of knowledge and experience, from a range of different backgrounds. The Secretary of State will of course be mindful of this when making or approving appointments. Noble Lords should be reassured by this, as it is likely that the delivery authority will contain members with the knowledge and experience outlined in Amendment No. 87. However, we might also wish to have members from other backgrounds and with other experience, so we do not want to specify in legislation the particular skills or experience members must have and thereby restrict the flexibility to recruit the right person at the right time.

The specific calls from my noble friends Lady Turner and Lady Gibson for board-level representation of consumer interests also highlight an important issue. As the White Paper makes clear, we consider it essential to the success of the scheme that members’ needs are at the core of personal accounts. I can reassure the Committee that each board member will be acting in the interests of prospective members, although each member will, of course, bring different knowledge, skills and backgrounds to their role. We want the authority to have the flexibility to recruit the best person for the job. The noble Baroness, Lady Noakes, also effectively aired the point about the board members’ representing the whole board rather than sectional interests.

9.45 pm

Amendments Nos. 104 and 104A seek to oblige the delivery authority to establish a committee for the purpose of representing the interests of prospective scheme members. As I made clear, we consider it essential that members’ needs are at the core of personal accounts. However, at this initial stage, it is the Government who will continue to take policy decisions and set the framework within which the delivery authority must work. It is therefore more appropriate for prospective members’ comments or concerns on personal accounts policy to be directed at this stage to the Department for Work and Pensions. I can reassure noble Lords that officials within the department have regular engagement with a range of stakeholders, and maintain productive and valuable relationships with groups that represent the issues of prospective members. If my noble friends have other contacts, we would certainly be more than happy to engage with them as part of that process.

We recently had a very productive and interesting meeting with Which? and agree with it that consumer representation is fundamental if trust and confidence in personal accounts is to be upheld. I can also reassure the Committee that we are exploring the arrangements for member representation in the live running of the scheme. However, as I outlined, during this advisory stage it is more appropriate for stakeholders’ views to be directed to the DWP. It will be for the delivery authority to establish committees and to invite persons from outside the authority to sit on them as it deems appropriate. The delivery authority may wish to set up a committee to advise it on the interests of prospective members. Indeed, that is made possible by paragraph 9(1)(b). Again, however, we would not wish to specify in legislation specific committees to be established by the delivery authority. This would remove the delivery authority’s flexibility to use committees in the most effective way.

Although I am not able to accept the amendments in the form in which they have been tabled, I hope that what I have said has been reassuring to the noble Baroness and that she will be able to withdraw the amendment.

Baroness Noakes: Before the noble Baroness decides what to do with her amendment, I should point out that the Minister has used the word “flexibility”, which is one of those concepts that is regularly trotted out by Ministers when they do not wish to accept an amendment. The board wants to keep flexibility to use committees as it wants. That means that it has the flexibility not to involve consumer interests. The whole purpose of these amendments, regardless of whether we call it “consumer interests” or “the needs of members”, is to ensure that the board has at heart those needs of the members.

I completely understand that the DWP may want to continue consulting those interests and other stakeholders. But the important point is that the delivery authority will be doing very important work in advising the Secretary of State on his proposals and advising on the implementation of those proposals. It is crucial that the needs of members are specifically built into—hardwired into—the way in which the authority works. There should not be any flexibility about not having an involvement with consumers or members. I think that the Minister needs to reconsider this.

Lord McKenzie of Luton: I was seeking to make the point, perhaps not effectively enough, that at this stage the policy formation is still with the DWP. Clearly, advice will be coming forward from the delivery authority. I cannot conceive that the matter would go forward without consumer interests being taken fully into account. I suppose that the particular assurance that noble Lords will have is that we have a second Bill that will follow this one in which much of the detail of personal accounts will be presented. That is another protection. I would hang on to the point that this policy development, and how it will affect consumers and prospective members, still sits with the DWP. That is where the engagement at this stage is best focused.

Baroness Turner of Camden: I thank noble Lords who participated in this debate, which I found extremely interesting, particularly the contribution of the noble Lord, Lord Leitch, who talked about the difficulties involved in persuading people to save. We have often discussed this in various committees with which I am associated. It is very difficult. We are asking people to save at a period in their lives when they are under considerable pressure: they are having to pay for a mortgage; very often, in mid-life, they are having to support children; they may even have to support elderly relatives, and so on. There is a lot of pressure on incomes. That is one of the reasons why the TUC supported personal accounts and automatic payment unless people opt out. It is a way of ensuring that people pay something. It is very important that that should be acknowledged. We should thank the Government for thinking of it. I entirely support the scheme.

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