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Clause 59(4) is slightly different. Under Clause 59, an order may allow the trustee, rather than the Secretary of State, to make rules, but subsection (4) allows the Secretary of State to impose a lot of restrictions and conditions on their exercise. Our fundamental position is that the Secretary of State should not micromanage the affairs of the new pension scheme. We hope that the trustee corporation will be chaired by a person of substance and that the other trustees will similarly be highly competent and respected. We think that they should be left to make up their own mind about rules. Why does the Secretary of State have to have the power to set up conditions and prohibitions? Amendment
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Lord McKenzie of Luton: Clause 58 enables the Secretary of State to establish the scheme and provides that it will be a trust, which, like all trust-based schemes, must be run in the best interests of its members. It also sets out provisions which must be made in the scheme order rather than the scheme rules. Clause 59 sets some general conditions for an order made under Clause 58 to deal, in particular, with the role and powers of the scheme trustee.
Our intention has always been to allow the trustee as much independence as possible to run the scheme within the parameters of the order and rules and in the best interests of members. None the less we must ensure that the scheme meets the intentions of the wider reforms and, as the scheme is being set up to fulfil a public policy objective, it is right that there should be some limits on the trustee’s powers set by the settlor, the role which is being undertaken by the Secretary of State. As settlor, the Secretary of State has a duty to set out, for example, the purpose of the scheme and the appointment of trustees. Those are of such significance that they must be included in the order and not the rules. The scheme order will in effect be akin to a trust deed in other occupational pension schemes and, like trustees of those other schemes, the trustee will not be able to change the provisions in that instrument. The scheme rules will be non-statutory, so the scheme order can provide for them to be amended by the trustee.
Amendments Nos. 110C and 110D will allow the trustee to alter the fundamentals of the scheme through changes to the scheme rules. Amendment No. 110C removes the list of key aspects of the scheme which we believe should be set out in the order. Amendment No. 110D would remove the Secretary of State’s power to place limits through the order on the trustee’s ability to make rules. We think it important to have limits around what aspects of the scheme the trustee corporation can change and how the trustees can make changes to the rules. For example, we do not think that provision about the process of appointing or removing trustees should be a matter for the trustees themselves. Clearly, the trustees are involved in making appointments, but the rights under which they can do that should not be subject to change by them.
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We also believe that the order should be able to require trustees to consult before making or changing rules. Many noble Lords will, I know, be aware that it is a universal practice for pension scheme trustees to set out the parameters for the trustees’ role. By setting these parameters in legislation we are making sure that some fundamental aspects of the scheme, such as its purpose and the removal of its trustees, are set out in the scheme order and therefore subject to parliamentary scrutiny. At this stage, we do not have precise details of
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I should add that we will run a public consultation next spring to ensure that the order and rules package achieves the policy aims. As I have said previously, that will give all interested stakeholders the opportunity to consider and comment well in advance of the start of the scheme. I hope that has reassured the noble Baroness on why matters in the Bill are structured as I have outlined.
Baroness Noakes: I am grateful to the Minister for setting on record his reasons for drafting the Bill as it is. I can see why the rules should not affect the purpose or object of the scheme; I am much less convinced on such issues as,
Those appear to me to be quintessentially internal matters for the trustees to develop over time, and of no real concern to the Secretary of State.
On the amendments that I mainly expect to speak to today, I will raise a number of issues that probe the role of the Secretary of State and the trustee corporation. We need to take an overall view on whether the balance of the ongoing involvement of the Secretary of State veers toward micromanagement, and whether that is inappropriate. On reading the Bill, my initial view is that the DWP’s officials have gone overboard, as usual, in finding so many nooks and crannies of the trustee corporation for the Government to be involved in.
Lord McKenzie of Luton: It is fine if we discuss some of that detail in due course, but I draw the noble Baroness’s attention specifically to Clause 62(2), which says that:
that is, an order other than one setting up the scheme—and that the trustees have to consult members’ and employers’ panels. That seems quite a long way from the Secretary of State micromanaging the scheme.
Baroness Noakes: I thank the Minister for reminding me of that clause, which I was aware of, and I will take it into account when considering the role of the Secretary of State in the round. For today, there is no point in pursuing matters further and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 58, as amended, agreed to.
Clause 59 [Scheme orders: general]:
[Amendments Nos. 110D and 110DA not moved.]
Clause 60 [Consultation of members and employers]:
[Amendment No. 110E had been withdrawn from the Marshalled List.]
Baroness Noakes moved Amendment No. 110EA:
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The noble Baroness said: Under Clause 60, there are to be panels of employers and members. We fully support that but find it difficult to understand why, since the effect of Clause 60(2) is that there should be these panels, the Secretary of State cannot just leave it to the trustees to get on with operating them. What ongoing interest will the Secretary of State have in determining the composition and functions of the panels? Surely that is the natural territory of the trustees, so my amendment is designed to remove the Secretary of State from the details of those panels. I beg to move.
Lord McKenzie of Luton: We anticipate that the membership of the personal accounts schemes will be very large, numbering in the millions, with members coming from a diverse range of jobs and backgrounds. We also anticipate that there will be many thousands of participating employers with no connection by trade or size. The size and diversity of membership presents the trustee corporation with a unique task in communicating with scheme members and participating employers. However, we firmly believe that the representation of these members and employers is vital to the scheme’s success. That is why we have placed an obligation on the trustee to consult members and employers about the operation, development and amendment of the scheme.
Furthermore, we have placed a requirement in the Bill for the trustee to set up panels to represent members and participating employers. These panels will have to be consulted by the trustee prior to any proposed changes to the order and rules. Setting up the panels to ensure proper member and employer representation is clearly not an easy task, and we have asked PADA to consider the options for their functions and composition. PADA has yet to reach its conclusions, but is considering similar panels operated by the Financial Services Authority and has met officials from pension scheme organisations such as Unite. Even when PADA makes its recommendation, we want the order to set out only the higher level composition and functions, which will leave the trustee and the panels with the flexibility to develop the roles of the panels once the scheme is fully functioning.
The amendment allows only the trustee corporation to determine the composition and functions of the panels. That would mean that the panels could be realised only after the scheme order came into force and following trustee recruitment. While it is possible to grant the trustee sole discretion as the clause is now written, we believe it is appropriate for the Secretary of State to set the basic parameters in the scheme order. Personal accounts are being introduced as part of public policy changes affecting millions of individuals, many of whom have had little prior involvement with pensions. For this reason, there is considerable interest from the pensions industry and consumer organisations about how members will be encouraged to engage with the scheme. By setting the composition and functions of the panels in the order, stakeholders and Parliament will be able to have their say on the vital question of how members should be represented. We hope to publish the order on the rules consultation next spring.
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Baroness Noakes: It is a question of judgment whether the matter is for the Secretary of State or for the trustee corporation, which we hope will be a free-standing organisation of some stature and substance in the pensions community. This is another area where the question is whether the Secretary of State’s role is correct or too intrusive. For every involvement of the Secretary of State, somewhere in the Department for Work and Pensions there will be one or more job descriptions which include that aspect of involvement. One of the things we are concerned about is that we not only create a bureaucracy in the new trustee corporation but leave lots of pegs under which bureaucracy can thrive in Whitehall, which would not be the right outcome. I will consider that in the overall context. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 110F had been withdrawn from the Marshalled List.]
Baroness Noakes moved Amendment No. 110G:
The noble Baroness said: Clause 60(4) states:
“The functions of the members’ panel may include nominating individuals to be members of the trustee corporation”.
I am not sure why the Bill needs to say that, because I thought that subsection (3) was wide enough to allow that. We obviously support members being on the panels, although we hope that the trustee board does not become packed with special interest members flying under the broad banner of members’ interests. Given that the Government have chosen to put this in the Bill, the question is naturally raised as to why there is no mention of the employers’ panel nominating individuals to be members of the trustee corporation.
In another place, Mr O’Brien, the Pensions Minister, said:
“Employers should not be represented on that board, because the trustees are all there to represent members’ interests”.—[Official Report, Commons, Pensions Bill Committee, 31/1/08; col. 320.]
That rang alarm bells with me. We fully accept that the main duty of the trustees will be to work in the interests of members, but that duty cannot be seen in isolation. If the way in which trustees conduct themselves is contrary to employers’ interests, that can only store up problems for the personal accounts scheme overall.
When employers set up their own trust-based pension schemes, whether for DB or DC purposes, they draw up the documentation that sets out the various rights and obligations of the employers and the trustees. To my knowledge, that usually, if not always, includes the power of the employer to appoint some of the trustees. Of course, the trustees are there to act in the interests of the members, like all trustees, but they provide a conduit for the views of the employer. That occasionally causes difficulties in practice, but, overall, it provides many benefits to the efficient working of those schemes. I do not know a single employer with those arrangements who would want to operate in any other way.
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Of course, the personal accounts scheme is different. It is the default scheme and the voice of the employer at the trustee board will be less specific in nature than is found in an employer’s own scheme—but so, too, will be the voice of the member. Both will be represented by representative groups. It seems to me that if something needs to be raised about how issues may affect employers versus employees, it is best that that is played out at the trustee board, rather than to have some key players in the whole success of this scheme being excluded. I believe that it should be possible for employers’ representatives to be on the trustee board and that the use of the panels as the nominating mechanism is useful. I hope that the Minister will share my view that a trustee board that excluded the voice of the employer in its entirety would be likely to work against the overall success of the personal accounts scheme. I hope, therefore, that he will accept my amendment. I beg to move.
Lord Tunnicliffe: Consultation with both employers and members is essential to the success of the personal accounts scheme. The Bill requires the trustee to establish members’ and employers’ panels to ensure that the trustee corporation is informed of the concerns of these groups. This amendment would give the employers’ panel the right to nominate members to the corporate trustee in the same way as the members’ panel can. While the personal accounts scheme will emulate existing occupational pension schemes, it will be unique in scale. The members will be drawn from many thousands of employers and it is likely that many of these members will not have saved in a pension before, which is why it is particularly important that the members of personal accounts should feel a sense of ownership.
All individuals who form the corporate trustee will have the core obligation to act in the members’ best interest, rather than to represent any particular interest groups. It will not be possible for the trustee to meet the duty of acting in the members’ best interest without taking account of the employers’ concerns. It is the employers’ panel role to ensure that it has the information to do this.
It may be helpful to point out the different role of the employer in the personal accounts scheme. In a typical occupational pension scheme, the participating employer would set up the scheme. The personal accounts scheme is being set up specifically for those employers who do not currently offer access to a workplace pension. If an employer chooses to use the personal accounts scheme, he will not be involved in the running of the scheme. The main focus for employers using the personal accounts scheme will be its efficient administration. If an individual employer has any concerns or problems with the administration of the scheme, he can raise this with the administrator or through the employer panel.
The role of the employer panel will be important; the panel will ensure that the views of the wide range and diverse nature of employers using the personal accounts scheme are heard. Ultimately, however, the members are the beneficiaries of the scheme, so they should have a greater stake in how it is run. It is for this reason that we have given only the members’ panel
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Lord Oakeshott of Seagrove Bay: I listened carefully to the Minister’s reply but it did not really explain why there was a distinction between the two. I am not persuaded by his reply. This is, after all, only an enabling clause; it does not say that they have to be nominated. I am with the noble Baroness on this.
Baroness Hollis of Heigham: I am puzzled at the noble Lord’s response, although I can understand where the noble Baroness is coming from. This is a DC scheme, whereas all the assumptions about employer contribution and activity are based on models of a DB scheme where the employer has set up the scheme and is actively contributing but is also expected to honour the pension promise, underpinned by the PPF. This is a DC scheme, in which the disinvestment risk and, to some extent, the investment risk, is carried by the members. The amount of risk carried by the employers is non-existent. Clearly their views matter and will be picked up by an employers’ panel, but I cannot see the place for employers in a money purchase scheme; it has nothing to do with employers apart from their contributions, which are laid down by statute.
Baroness Noakes: I am disappointed in the noble Baroness. In employer-based DC schemes, as well as trust-based DB schemes, employers do take part. The noble Baroness says that we are interested in employers only for their money; fortunately, the Minister went a little beyond that and said that the Government wanted to hear the views of employers through the panel.
Baroness Hollis of Heigham: I actually said that we would expect to hear employers’ views through panels, which I welcome. I was making a distinction between that and where the risk lay and therefore where the responsibilities of trustees should reside. That is a different point.
Baroness Noakes: The issue of risk does not necessarily drive how to create an effective trustee corporation board. The important thing is that all the right issues are raised and discussed at that board. If the noble Baroness looks at the example of how conventional DB and DC trust-based schemes work, she will see that they are mixed, with employee-nominated and employer-nominated people. They all have the duty to act for the members—there is no question about that. But the issue is how effectively to deal with those concerns.
There are two panels—one is invited to put its people on to the board and one is invited to stay at arm’s length. Issues will arise that need employer input. That is the way in which the scheme operates. It is all about information flow and how employers deal with the interface on behalf of their employees. The construct that the department has and the noble Baroness seems to have—that employers are there to be consulted
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I am not trying to make a case for employers dominating a scheme or doing anything other than acting in members’ interests. I should like the Government to think again about whether it is the right answer to exclude employer representatives from the panel. The experience of existing employment-based provision suggests that this is fundamentally a good process. It sometimes causes difficulties but, overall, it allows a forum in which issues can be raised. I hope that the Government are prepared to look at this again. I am not seeking to put forward an employer-dominant case; I am just concerned about the efficiency of the scheme.
Lord Tunnicliffe: We have not heard anything to date that would cause us to change our mind. However, if the amendment is not pressed to a vote, we will reflect on the noble Baroness’s words between now and Report and may come to a different conclusion.
Baroness Noakes: I am grateful for the Minister’s comments. I beg leave to withdraw the amendment.
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