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As the Minister anticipated, we will want to return to this on Report because it is a point of principle that we need to address before we let the Bill go through. For now, I beg leave to withdraw the amendment.
Clause 2, page 2, line 18, leave out the balance and insert the total amount of the balance on the dormant account calculated prior to any transfer of the proportion to a charity under subsection (1)(b) which
The noble Baroness said: The amendment has been suggested to us by the Law Society of Scotland, which, as I am sure the Minister is aware, often produces careful and well thought-out amendments, which I am always happy to table in Committee for the purposes of discussion.
The intent of Clause 2 is that the small bank or building society should transfer its dormant account money to its own pet charity, but that it should reach an agreement with the reclaim fund to transfer some money to that fund to meet possible repayment claims. There is no problem with that.
The Law Society of Scotland believes there is some ambiguity about the use of the term balance in subsection (2)(b). Because the balance on the dormant account is being split into two destinations, the references in subsection (2) could mean the balance transferred to the reclaim fund or the balance transferred to the charity. The amendment is designed to make it clear that what is intended on a repayment is the whole balance, calculated before any transfers were made elsewhere. I hope the Minister shares the Law Society of Scotlands desire for clarity, and I beg to move.
Lord Bach: I am grateful to the noble Baroness for raising this issue. I share her high opinion of the Law Society of Scotland, having met it a number of times. As I said in reply to an earlier group of amendments, though, we rely on how Clause 8 defines balance. We have already had a discussion about whether Clause 8 deals with the issue of interest in particular. The noble Lord, Lord Monson, reprimanded me forhe did not describe it in these terms, but it is what he meantthe opaque language of Clause 8(2) and wondered whether we could do better. The answer to the noble Baronesss question is to be found in the definitions in Clause 8.
Baroness Noakes: I had expected that the Minister would say that Clause 8 was the source of the answer. I shall invite the Law Society of Scotland to consider carefully his views and to see whether any ambiguity remains between the way the wording is put together in Clause 2 and that in Clause 8. I beg leave to withdraw the amendment.
The noble Baroness said: This is a probing amendment. Under Clause 2, in the alternative scheme the amount available to be transferred to charities by the smaller bank or building society is the amount that is left after paying an agreed proportion to the reclaim fund. That seems reasonable because the reclaim fund will have to meet any repayments. In Clause 2(3) we are told that the agreed proportion must take account of the need for the reclaim fund to have enough money to meet repayment claims. My amendment is a small one: it inserts the word only into that formulation so that the reclaim fund can take only amounts needed for repayment and not for anything else.
This is the first time we have encountered the issue of the finances of the reclaim fund. I hope the Minister will be able to explain how much it is anticipated will be withheld by the reclaim funds before it is decided how much a smaller bank or building society can transfer to its charities, or indeed how much the reclaim fund has to hold back before it distributes money. None of the papers I have seen thus far has given any information about how this holding-back of money will work in practice.
Will the banks and building societies under Clause 2 be involved in setting the percentages or will they be told by the reclaim fund how much the fund wants? Will the Treasury be involved in that, or will it be left entirely to the fund and/or the banks and building societies? While we are dealing with Clause 2 schemes, is it anticipated that there will be a flat rate for all transfers, or will it be institution-specific or dormant account-specific? If it is the latter, which is arguably the most accurate, we are talking about significantly detailed calculations being involved.
We touched on the Financial Services Authority earlier. It will supervise the payment of customer claims because the Government intend to specify that as a regulated activity. Does that mean that the authority will get involved in the policies adopted by the reclaim fund, either for the amounts taken from those involved in the Clause 2 scheme or from the amounts that it holds back within the fund and does not pay over to the Big Lottery Fund? That raises the question of whether the Financial Services Authority has any competence in this area and how transparent its involvement might be.
The amendment arises in the specific context of the alternative scheme in Clause 2, but the principlethat of the money that is set aside to meet repayment claimshas a wide application throughout the rest of the Bill. I hope the Minister will be able to answer questions on that basis as well. I beg to move.
Lord Davies of Oldham: The reclaim fund is a company run by the private sector and regulated by the FSA. We expect it to act reasonably and manage its affairs responsibly. Its directors will have a duty to act in accordance with company objects and articles of association, particularly those objects that are defined by this legislation. In order to obtain FSA authorisation, the fund must satisfy the fit and proper person test that forms part of the threshold conditions for authorisation under the Financial Services and Markets Act.
I emphasise that the scheme will be highly transparent. The reclaim fund will prepare audited annual accounts. In addition, its articles will require it to publish detailed figures on the flows of money into and out of the scheme. If we believe that a reclaim fund has not managed its assets appropriately, we have powers under the legislation to take action. The Treasury would be able to direct the reclaim fund to comply with its company objects or any of its articles required by Schedule 1. If it did not comply with such a direction, the Government would be able to take action in court to ensure that that was rectified.
The reclaim fund will have costs. An aspect of its necessary expenditure will be the costs involved in administration. It is reasonable that the income from dormant accounts covers the funds running costs, but those will need to be subject to public analysis through the transparent structure we are putting in place.
I am grateful that the noble Baroness has said that this is a probing amendment. I hope that I have met the most precise of her probes. I have no doubt I will have an opportunity at a later stage to deal with any that I have not answered.
Baroness Noakes: The Minister might even have an opportunity now. He has answered one specific point covered by the amendment: the reclaim fund will claim not only money set aside to meet repayments but also money set aside to meet other costs. That will raise concerns in building societies, which will be wary of the amounts that will be held back from them, diverted away from their local charities, with which they have special relationships, and going into this more amorphous body, the reclaim fund, which they will probably have nothing to do with.
I asked the Minister specifically whether the Financial Services Authority will be getting involved in the way that the reclaim fund sets its policies for holding money back or indeed taking money from the Clause 2 schemes. I do not think he answered that.
Baroness Noakes: With respect, that does not quite answer the question. Just to say that something is regulated does not mean that an aspect of its activities is regulated. As I understand it, the Treasury has said that the making of repayment claims would be a regulated activity. I am not sure how far that takes the FSA into the financial policies of the reclaim fund. It is important to establish that.
I want to link that to something else the Minister said about the Treasury having the ability, if things were not going right, to tell the reclaim fund to comply with its articles. It has the direction power, which we will be coming on to later. I was wondering how the Treasury knows about thatas well as what competence it hasand how it gets into questions of that nature. The Minister was keen to say that the reclaim fund will be a private sector body, and I am
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Lord Shutt of Greetland: I shall try to help here. There are three jobs for the reclaim fund. First, it has to keep proper records. Secondly, it has to invest any money it receives. The third and main aspect, though, is judgment. The fund has to judge how much it dares to give to charitable purposes, whether a local or a national scheme, and how much it holds back. Then, having held back that amount, it has to exercise more judgment on a later occasion about how much more of that sum it should hold. With regard to the word only, what else does the fund need to spend money on? That is what the noble Baroness is asking.
Lord Davies of Oldham: As I have indicated, the fund has running costs. That is all I was prepared to vouchsafe as a contributory answer to the question. I hope it meets the noble Lords anxieties, but it will not meet the noble Baronesss as she wants some precision on the calculations. She will have to show a little patience on that. I have indicated that the Financial Services Authority will authorise a reclaim fund and will consult on the rules that should govern it, but it is a little early for any precision about how that structure will develop. I have already indicated that there is much work to be done on that. However, the structures are in place to guarantee public accountability.
Baroness Noakes: I thank the Minister and the noble Lord, Lord Shutt, who is right that it is a question of judgment. The judgment of the reclaim fund will be set against the judgment of others, like the smaller banks and building societies that do not want so much kept back, or it might be the judgment of the Treasury and/or the Financial Services Authority. The latter might incline to greater prudence in holding money back, while the Treasury might be keen on more money flowing through to the Big Lottery Fund. I was trying to tease out who will actually make those decisions. I accept that precise percentages cannot be given today but, based on what the Minister has said, I am not much clearer about the actual process for determining them.
The Minister said that much work remains to be done. I hope we do not hear that throughout Committee. The scheme has been a long time in gestation, and to be told that much work still needs to be done is not a satisfactory response. I will let it go this one time, but I hope it does not become a constant refrain from the other side of the Committee. I beg leave to withdraw the amendment.
The noble Baroness said: I shall speak also to Amendment No. 45. I said at the beginning of our session that we thought the Bill was too narrowly drawn in relation to the purposes to which the money gathered under the dormant accounts scheme could be put. The amendment is intended to widen the way in which the money can be used on a national basis.
Amendment No. 19 would insert some additional words into Clause 5(1)(c) so that a reclaim fund could transfer money either to the pension protection lifeboat fund set up by my Amendment No. 45 or to the Big Lottery Fund. The amendment itself does not create an obligation on the reclaim fund to transfer money to the lifeboat fund, but there is a Treasury power of direction in Clause 5(4) that would allow the Treasury to direct a reclaim fund to give effect to a specified object. Transferring money to the lifeboat fund would be one of the reclaim funds objects.
Amendment No. 45 would insert a new clause after Clause 10 setting up the pension protection lifeboat fund. Noble Lords who followed the passage of the Pension Bill in our last Session will recognise the drafting of that amendment. It draws very heavily on the amendment which was passed by your Lordships House during the passage of that Bill but overturned in another place before the Bill became an Act.
The lifeboat fund is designed to ensure that those unfortunate individuals who lost their pension entitlements prior to the setting up of the Pension Protection Fund get pension payments at the same level as those who qualify for payments from the Pension Protection Fund. I shall not recite the whole messy history here. The Parliamentary Ombudsman has said that the Government should provide compensation to those who lost their pensions. The Government have refused to do that and have instead introduced a financial assistance scheme that gives some additional pension payments but certainly not at the level that would be paid under the Pension Protection Fund.
The amendment does not address the many concerns that there are about the efficiency of the financial assistance scheme in delivering additional pension payments but it does help to address the need to increase the level of payment beyond the FAS level. The lifeboat fund, which would be run by the PPF, would pay top-up pensions up to the PPF levels. Under subsection (4), the Secretary of State could make loans to the lifeboat fund to enable the pension top-ups to be paid until sufficient had been received from a reclaim fund. If the reclaim fund ended up transferring more than was needed, subsection (6) would require the funds to be returned to the reclaim fund, which could then transfer the money to the Big Lottery Fund.
When we moved our amendments to the Pensions Bill, we also tried to set up an asset recovery agency, which was designed to gather in dormant assets to pay
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We believe it is important not to let the Bill pass without creating the opportunityit is no more than thatfor dormant bank account money to be used to supplement the FAS level of support. The work being undertaken by Mr Andrew Youngs review of scheme assets is identifying some further money for the FAS, but the interim review did not find enough to fill the funding gap. Todays papers are saying that Mr Youngs final report will say that there will be enough money only if the Treasury matches certain elements of funding, and it is no surprise to learn from the newspapers that the Treasury does not want to stump up. Hence, these amendments are potentially important in ensuring that decent pensions are delivered to those who were unfortunate enough to suffer pensions loss before the PPF came into force.
I should say that that we support money being spent on the matters listed in Clause 17 and, in particular, we support spending on youth facilities, provided that it produces things that young people actually want and not what some well intentioned committees think they want. At Second Reading, I asked some questions about that as the Prime Minister had been talking about £670 million being spent on youth, which is way ahead of the amount that will be available from the dormant accounts scheme according to the figures from the British Bankers Association and the Building Societies Association. I asked the Minister to cover that question in his winding-up speech but he chose not to do so. I have heard from the Commission on Unclaimed Assets that the £670 million was a classic bit of government spin because it included already budgeted government expenditure and existing lottery money amounting to £495 million. What a surprise. The additional amount going to youth projects, being spun as £670 million, is, I understand, somewhere between £100 million and £150 million, depending on whom you ask.
So, we can fulfil the Prime Ministers promises to fund youth and still have a lot left over, even on the cautious estimates being put up by the banks and building societies. Few would deny that spending money on youth projects is a good thing, but I hope that the other end of the generation spectrum is not forgotten when the dormant account money is handed out. Pensioners and prospective pensioners forced to rely on the stingy FAS support payments should be among those first in the queue for help, and I hope that noble Lords will support these amendments, which create the ability to give some very deserving pensioners a slightly better income in retirement. I beg to move.
Lord Newby: We have considerable sympathy with the noble Baroness to the extent that the pension protection lifeboat fund is a worthy aim. In our view, it is a sufficient priority that it should be dealt with straightforwardly by the Treasury. I congratulate the noble Baroness on having come up with this alternative route to deal with the problem, but I have some slight
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To go back to the discussions that we had earlier, if we were extending the scope of the scheme to include the dormant assets of insurance companies and pension funds, the logic for some of the funding going in this direction would be stronger. However, we are clearly not going in that direction in the foreseeable future. Within the scope of the scheme as it is likely to emerge from the Bill, because of the spreading thin argument we are not minded to support these amendments.
Lord Skelmersdale: It is not normally my habit to interfere in Bills run by my fellow Front-Benchers but, as I moved the original amendment to the Pensions Bill on the lifeboat scheme, I feel duty-bound to point out, especially to the noble Lord, Lord Newby, that, as he will remember, the Government have been pushed kicking and screaming at every stage into increasing the amount of money available to the now 125,000 pensioners who lost some or all of their pension expectations. Originally, it was thought that there were some 60,000 of them, and the Government decided that £400 million over 20 years was quite enough money to lay aside. Since then, that has been ratcheted up, not least in the Budget last year. There will be an order on exactly that subject in this very Room on Thursday, which will bring a total of £2.3 billion into the FAS pot.
The indefatigable Dr Altmann, who is the spokesman and, arguably, leader of the Pensions Action Group, has pointed out, first, that that is still not nearly enough and, secondly, that what is needed is for the Government to accept the moral result of the ombudsmans report of some two years ago. My noble friend mentioned the investigation that is going on into the use within the FAS scheme of those residual assets that are coming into the scheme. A report was due in July. I still have not seen itand of all people, I would be the most likely in your Lordships House to do so.
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