Previous Section Back to Table of Contents Lords Hansard Home Page

I thought that, in addition, there might not be much difference between people employed by the Secretary of State or PADA and those “engaged on behalf of” them so I have proposed a new sub-paragraph (6)(c) to deal with that in Amendment No. 112N. Perhaps the Minister will shed more light on paragraph 2(6) and the people it is targeting. I beg to move.

Lord McKenzie of Luton: I previously explained why it is important that potential conflicts of interest are taken into account when considering appointments to the trustee corporation. The Bill sets out two circumstances in which it is assumed that a person will not be taken to have a conflict of interest for those reasons alone—first, if a person has been working on behalf of the Government in relation to pensions and, secondly, if a person has been a trustee or manager of a pension scheme. However, this is not an exhaustive list. The amendment seeks to add to the list individuals who worked for the Personal Accounts Delivery Authority but, as I have just said, the list is not exhaustive and therefore working for or being a member of the Personal Accounts Delivery Authority would not automatically disqualify somebody from being a member of the trustee corporation on the grounds of conflict of interest.

A member or member of staff of the delivery authority could, like anyone else, apply for appointment to the trustee corporation. They would be considered, like anyone else, as part of the recruitment process and this would include considering whether there were any conflicts of interest. The delivery authority will be advising Government on the recruitment process for individual members of the trustee corporation, but decisions about who to appoint in the initial period will be for the Secretary of State. It is worth noting that the trustee corporation will be a completely different organisation from the delivery authority and that very different skills are required to design a pension scheme compared to those required for running one as a

2 July 2008 : Column 328

trustee. Therefore we would not want to make any assumptions and each case will have to be considered on its merits.

I hope this has reassured the noble Baroness that individuals who have worked for the Personal Accounts Delivery Authority would not on those grounds alone be excluded from being members of the trustee corporation. I can see there might be some merit in making that specific on the Bill but I believe it is unnecessary. I hope I have put this clearly for the record.

Baroness Noakes: I thank the Minister for that explanation. I was mystified by seeing the examples given in sub-paragraph (6), which seemed to imply that others in a similar position might not be so excluded. I take the Minister’s explanation and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 112N and 112P not moved.]

Baroness Noakes moved Amendment No. 112Q:

The noble Baroness said: Sub-paragraph (3) says that the appointment period can be up to four years and a person may be reappointed only once, and hence the maximum period is eight years. It seems to me that this is a rather short period for something as complex as the personal accounts pension scheme. We all know that boards need to be refreshed, but the Bill proposes a shorter period than is generally used in the listed company sector, where norms do exist. In practice in the listed company sector, we are finding that the norm is lengthening.

There was considerable dissatisfaction with slavish adherence to what appeared to be the rule in the Financial Reporting Council’s corporate governance statement of a maximum of three times three years, which was driven by independence. The FRC looked at that rule last year and emphasised that a person could continue beyond nine years, provided that a board was satisfied with independence. Many boards made representations that they were being deprived of some of their most useful talent—those who understood the business—because the corporate governance rulebook made it difficult for them to do anything else. That has now changed and there is an acceptance that independence is the criterion and not some silly time period that is used to define it.

Will the Minister explain how the policy of creating an effective personal accounts scheme is served by removing members of the trustee corporation in a period that is less than is emerging practice in the corporate sector, at a time when those people, given the complexity of personal accounts, may well be—not in all cases—at their most useful? I beg to move.

Lord Tunnicliffe: Schedule 1 includes provisions that deal with the period for which a person can be appointed to be a member of the corporate trustee. It sets the period of appointment of a member, or the chair, of the corporation at no more than four years and prevents someone being reappointed more than once. In other words, no one can serve for more than eight years. The amendment would entirely remove those limits.

2 July 2008 : Column 329

In responding to this amendment, I should first explain that we intend appointments to the corporation, which will be a non-departmental public body, to follow the principles in the code of practice of the Office of the Commissioner for Public Appointments—the OCPA. This code suggests that it is in the public interest to limit the length of appointments made by Ministers to be no longer than a total of 10 years to encourage new blood and new ideas, and to give other people an opportunity to serve on a public body. Of course, in the case of the trustee corporation, appointments after the initial period will be made not by Ministers but by the corporation.

The good practice of limiting the term of appointment should be included in this Bill for several reasons. First, it will continue the practice begun by the Secretary of State, who will make the initial appointments to this NDPB in accordance with the principles of the OCPA. Secondly, as the scheme is being set up to fulfil a public policy objective, it will be appropriate for members of the corporation charged with running that scheme to follow the good practice of the OCPA. Thirdly, beyond the initial stage, the members of the trustee corporation collectively will be making appointments. This amendment could therefore effectively allow them to appoint themselves for unlimited periods, or might result in different members being appointed for different periods. Clearly, this could lead to unfairness and accusations of unfair treatment, and we simply cannot take that risk.

The most effective blend of members of the trustee corporation will be a mix of fresh faces, new ideas, experience, pensions expertise and corporate memory. The appointment periods set out in the Bill will ensure that such a blend can exist. Furthermore, I believe that the limits on the period of appointments that we have chosen match the responsibilities of the trustee corporation, while remaining well within the maximum proposed in the guidelines of the Office of the Commissioner for Public Appointments. Setting a reasonable limit on the periods of appointment will strike a good balance between the independence of the members of the trustee corporation and the good practice of the OCPA.

I hope that the noble Baroness is reassured about the reasons for these limits and I ask her to withdraw the amendment.

Lord Oakeshott of Seagrove Bay: Does the Minister accept that the brief he has just read out was very much couched—and the code suggests—to mean that it is not in the public interest for people to serve longer than 10 years? That is not, in my view, a reason to have an absolute ban on anybody under any circumstances going on for more than eight years. It seems to me that the sort of background he was giving about balance of corporate memory, experience and so on—I speak from experience of many pension fund boards—is that in some circumstances it is right that people should be able to go on longer. To move from suggestions in a code to an absolute ban does not seem proportionate. I do not think an absolute ban is sensible.

Lord Tunnicliffe: The problem with anything but an absolute ban is that it is difficult to see how you would put the controls into a body that we are seeking to

2 July 2008 : Column 330

make as independent as possible. There might be a general guidance if this was within the discretion of the Secretary of State, and that may be one way forward. But since we are removing it from the discretion of the Secretary of State after the initial setting up, I think it is difficult to see any device which achieves the objectives I set out, other than an absolute ban.

Baroness Noakes: I see the point the Minister is making; that without the Secretary of State’s involvement beyond initial appointments there will be no levers if the Secretary of State thought that people were staying beyond their term. However, the point made by the noble Lord, Lord Oakeshott, is very valid. The Government have taken an advisory limit and turned it into a lower absolute maximum. That advisory limit is already higher than the figure that the Government have drafted into the Bill and our experience—especially from pension boards, of which the noble Lord, Lord Oakeshott, has much experience, and certainly from corporate life generally—is that this is likely to constrain rather than assist in operating this properly.

I would think that the Government would want to avoid having to get rid of a damn good member who really knew the personal accounts scheme backwards, knew the legislation and had all the relationships, was still young, vital and whatever because eight years had come up. That is not how good organisations operate. I had hoped that the Minister might be able to take this away and think about it. In the long-term interests of creating an effective board, the Government need to provide a little more flexibility. I take the point that the Minister made about having levers. It may be that a higher overall limit, which can then be communicated in advisory terms between the Secretary of State and the board informally, would serve the needs of the pension accounts trustee corporation better than what the Government have currently drafted.

Lord Oakeshott of Seagrove Bay: Perhaps I could suggest to the noble Lord that if there has to be an absolute ban for the reasons so given, the tenure advisory guidance should be between eight and 12. If there has to be an absolute ban, perhaps the Minister would consider whether it could be two reappointments rather than one—that is to say, an absolute ban on 12 years rather than eight.

Baroness Noakes: The noble Lord, Lord Oakeshott, makes a very useful suggestion. I hope that the Minister will be prepared to think about it.

Lord Tunnicliffe: Without giving any indication, we would be happy to consider the points put forward tonight. I invite the noble Baroness to withdraw the amendment.

Baroness Noakes: On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 112R not moved.]

Baroness Noakes moved Amendment No. 112S:

2 July 2008 : Column 331

The noble Baroness said: I shall speak also to Amendment No. 112T. Both amendments concern an audit committee for the trustee corporation.

This ought to be uncontroversial. The Minister knows that when I say that, I am heading for a small disagreement with him. When we get to Clause 74 we will find that the Personal Accounts Delivery Authority will be setting up a non-executive committee which, inter alia, will keep an eye on PADA’s internal financial controls in securing the proper conduct of its financial affairs. That is what audit committees very broadly do—throughout the corporate world, and pretty much the public sector as well. Why is there no equivalent for the trustee corporation?

Of course, the corporation will comprise non-executives, and so a group delineated in the way that is being set up for PADA would be inappropriate. However, it should still be necessary—indeed, it should be vital—for an organisation such as the Personal Accounts Delivery Authority to have an audit committee. Internal financial controls are obviously important in any organisation but this one will have huge sums of money related to a very large number of transactions, which in turn will relate to a very large number of individuals. The controls need to operate effectively not only at the level of the whole corporation but also at the level of the individual; clearly, they need to operate so that an individual’s pension entitlement is correctly calculated.

Therefore, Amendment No. 112S alters paragraph 9 of Schedule 1 so that the power to establish committees is modified. There would have to be a committee looking at financial controls. Amendment No. 112T adds an annual reporting requirement to paragraph 17, and the work of the committee that I have just described should be included in the annual report. That is standard practice and also mirrors what PADA will be doing by virtue of Clause 74. I hope that the Minister will agree that this is a no-brainer. I beg to move.

9.15 pm

Lord McKenzie of Luton: It gives me great pleasure to respond to the noble Baroness’s no-brainer. The trustee corporation will receive all members’ contributions. Most will be invested on members’ behalf but of course there will be a charge for running costs—direct costs such as salaries and lease of premises, and indirect costs such as external contracts. Therefore, the trustee corporation is accountable to the scheme members for how their money is invested and in relation to whether the charges are reasonable and proportionate. As with all pension schemes, this scheme will produce an annual report and accounts, which will be audited and published. We discussed this audit when debating Clause 58.

The trustee corporation is being set up as a non-departmental public body. This places an additional requirement on it, as its accounts, setting out moneys received from charges and what it has spent on running the scheme, have to be independently audited by the National Audit Office and laid before Parliament.

Although the two sets of accounts are separate, they are so closely linked that it is inconceivable that

2 July 2008 : Column 332

one can be looked at without examination of the other. Whether the scheme accounts will form an annexe to the NDPB accounts or whether it will be the other way round is a detail yet to be decided. However, I can say that the scheme members and Members of Parliament will see both sets of accounts.

As an NDPB, the way in which the trustee corporation operates will be set out in a framework document. This will follow the guidance for all NDPBs issued by Her Majesty’s Treasury and the Cabinet Office. In particular, the framework document will follow the Treasury guidance, Managing Public Money. It will specify how the NDPB must account for any money received; it will set out management and financial responsibilities; and it will clarify internal and external audit arrangements. It will also set out requirements for reporting to the department, including on financial performance. These requirements make it absolutely clear that the corporation will be obliged to make robust arrangements for internal financial control.

I now move on to the amendments. As the noble Baroness explained, Amendment No. 112S would require the trustee corporation to establish a committee to review the corporation’s internal financial controls, and Amendment No. 112T would require such an internal audit committee to produce an annual report. At this stage, before the detailed workings of the trustee corporation are fully developed, it would seem premature to specify that that should be done through a committee, although it may well be the right way forward. While that is a standard responsibility of non-executive directors on a board, the role of such a board is not absolutely comparable with the role of the members of the trustee corporation. Those members may choose to create a committee but they may prefer some other way, and at this juncture I cannot see a reason to tie their hands in relation to such matters.

NDPBs are already required to produce an annual report and accounts and to lay them before Parliament. The accounts would normally include an audit report.

Given the framework in existence for NDPBs, we would prefer not to prescribe further the way in which the trustee corporation should assure itself about internal financial control. However, I acknowledge that the noble Baroness has raised important matters and the committee as outlined may well be the appropriate way to proceed in due course, but it is simply that we would not particularly want to tie the hands of the NDPB at this juncture.

Baroness Noakes: I am surprised by that reply. I thought that the Minister would put on the record that they will have an audit committee, because that is the only way that I am aware of for handling such issues as oversight of internal financial controls. I am mystified that the Minister thinks that there might be another way that the trustee corporation could devise. There is no other way known in corporate life—I use “corporate” as a broad term encompassing public, private and voluntary sectors. The Minister seems to be leaving the door open for something unconventional. Will he explain that?

2 July 2008 : Column 333

Lord McKenzie of Luton: As I said, it is probable that we would go down the audit committee route. The members might want to do it as a committee themselves, and want the board to be involved. I accept that that would be unusual. I am trying to acknowledge the thrust of the noble Baroness’s point. We would prefer not to tie it down specifically at this juncture but if there is great strength of feeling around the issue I am happy to take it away and come back on Report. We are not apart on the need to make sure that there is proper scrutiny and a group of people to look at the audit arrangements and the financial controls. That is vital. We were not ready at this stage and it has to be carried out by a committee. I will take away the matter if there is great strength of feeling.

Lord Oakeshott of Seagrove Bay: The wording is to “establish a committee” —in theory, that could be a committee of the whole board. It is not something to get too hung up on. Unless the noble Lord can give us a credible example of a workable situation where we did not form a committee, we would rather that he thought again and brought back the matter on Report.

Baroness Noakes: I endorse what the noble Lord, Lord Oakeshott, said. The Minister has said that he will take away the matter: I hope that he will. The amendment was intended as a probing amendment for the Government to place on the record the arrangements that would be in place. I am surprised, as I said earlier, that he is not able to do that at this stage, but between now and Report perhaps we can make some progress. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 112T not moved.]

Baroness Noakes moved Amendment No. 112U:

The noble Baroness said: I shall move Amendment No. 112U and speak also to Amendments Nos. 112V and 113P. These amendments concern the terms on which the Secretary of State may provide finance to the trustee corporation or to PADA. I have included the latter for the convenience of the Committee as the principles of financial assistance for personal accounts run across both organisations.

Next Section Back to Table of Contents Lords Hansard Home Page