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I am conscious that this has been a rather lengthy explanation, but this is an important subject, around which I am sure that we will continue to have discussions. I hope that I have at least put enough on the record at this stage to help the noble Baroness.
Lord Oakeshott of Seagrove Bay: I wanted to listen to the Minister carefully. I have been critical on one or two occasions tonight of the Ministers and the quality of their briefing. However, the noble Lord has just given a thorough and comprehensive reply, which set out the position fairly. He said that the intention is for the scheme to be wholly self-financing in the long term, which is quite clear and as far as one can go. He made the point that the scheme cannot pick and choose its clients; it is almost like being an NHS doctor in terms of having to take whomever you get, unlike commercial providers in the private sector, which can take whomever they want. That is their privilege. The Minister set matters out fairly. I would be happy to accept those assurances and I hope that the noble Baroness will withdraw her amendment.
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Baroness Noakes: I, too, thank the Minister for that careful and considered response to my amendments. I will want to read carefully what he said, but he covered many of the aspects that needed to be covered. I still need to be clear in my mind that the handover of costs between PADA and the trustee corporation is adequately dealt with in his response, but I will look at that in detail in Hansard.
The Minister criticised my Amendment No. 112WA, which refers to,
on the basis that it meant that the corporation had to break even over two years. “Taking one year with another” is a standard phrase in dealing with corporations that need to break even over a period. I thought that I had been using it for 30-plus years, but I did not check it when I drafted it.
Lord McKenzie of Luton: It is a bit like “from time to time”.
Lord Oakeshott of Seagrove Bay: When I was doing public policy economics in the 1960s, “taking one year with another” was always applied to British Rail, which was meant to break even taking one year with another. The years never came. It is fairly long term.
Baroness Noakes: Indeed, the aim may never have been met, but it is a standard formulation in the public sector. I was concerned to hear the Minister say that PADA would have a continuing role. I had thought that it would not continue once the personal accounts scheme was set up, but we have an opportunity to debate that later, so I shall not delay the Committee. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 112WA and 112X not moved.]
Baroness Noakes moved Amendment No. 112Y:
The noble Baroness said: This is a simple, probing amendment that would delete Clause 66(1)(b), which states that the trustee corporation’s powers include,
Will the Minister explain how other enactments give the trustee corporation functions and what they are? Paragraph (a) gives the corporation functions in connection with the pension scheme established under Clause 58, and Clause 66(2) gives a very wide incidental power. What more is needed? I beg to move.
Lord McKenzie of Luton: It is a good question which I hope to be able to answer. The overriding function of the trustee corporation will be to run the personal accounts scheme in the best interests of the scheme members. The power to establish the scheme is in Clause 58, which sets out that it will be established by order.
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The order will be the equivalent of a normal occupational pension scheme’s trust deed and will set out most of the trustee’s functions or give a power for the functions to be set out in the scheme rules.The scheme order will be in secondary legislation and subject to both public consultation and parliamentary scrutiny
However, although the order will contain most of the trustee corporation’s functions, it cannot contain them all. For instance, the corporation will, in line with other occupational pension schemes, have to abide by existing pensions and tax legislation—for example, in relation to tax registration and accounting, paying scheme benefits and, importantly, to oversight by the Pensions Regulator.
Furthermore, the trustee corporation is being set up as an NDPB, so, beside the general functions given to it in Schedule 1, it also has duties in relation to a public body that are contained in other legislation. I asked what those other functions might be. Other functions not listed in the order could relate to its being an NDPB, so it will have to fulfil duties of all public bodies; for example, complying with the Freedom of Information Act and fulfilling gender equality issues.Carrying out those duties will not be at odds with its duty to run the scheme; they are simply the duties that all NDPBs have to carry out in addition to their main duties and functions.
The amendment would remove Clause 66(1)(b). However, I understand that it is a probing amendment, so I shall not comment further on it. I do not believe that the noble Baroness meant to impose those restrictions. If the amendment were to be pressed, it would also cast doubt on the extent to which the trustee’s functions could arise other than from the Bill. As I have explained, it is important that its functions can include those arising from other pensions and tax legislation, although in all cases they will, and must, remain only such functions as relate to the scheme. I hope that that has put the matter in context.
Baroness Noakes: The Minister will hear from me words that he does not often hear: I am entirely satisfied. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Noakes moved Amendment No. 112Z:
The noble Baroness said: In moving Amendment No. 112Z, I shall speak also to the other three amendments in the group. These probing amendments relate to the trustee corporation’s financial powers.
Amendment No. 112Z deletes Clause 66(3)(b). The trustee corporation will have billions of pounds of pension contributions swelling its coffers, so why should it ever need to borrow money? Amendment No. 112ZA deletes subsection (4) of the clause and Amendment No. 112ZB deletes from that subsection the reference to investing money. That returns to our theme of the independent operation of the trustee corporation. Why do the Government think it necessary to keep control of the corporation in that way? I can just about see why consent control is required in relation to borrowing, if borrowing is required, but I cannot see why the
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Lastly, Amendment No. 112ZC deletes subsection (5) because I did not understand what it meant. I invite the Minister to explain it. Perhaps it means that the trustee corporation can borrow and invest in its capacity as the trustee of the scheme but not otherwise without consent. If that is the case, is the Minister satisfied that it will always be clear in what capacity financial transactions are being undertaken? Money is, after all, fungible, and how can distinctions be made? I look forward to the Minister’s explanations and I beg to move.
Lord McKenzie of Luton: We have made clear, here and in the other place, the Government’s intention that the personal accounts scheme will be self-financing in the long term, through charges on members, and delivered at nil cost to taxpayers. However, as with most new enterprises, there will be periods when the scheme has an operating deficit. One possible source of financing for these costs could be borrowing, from either the private sector or Government or a mixture of both.
The delivery authority is evaluating a range of funding options to enable it to make recommendations on the best way to establish and run the personal accounts scheme. However, no decisions, including whether any borrowing will be required, have yet been made. It is important that the delivery authority is given the time to complete this important work. We are determined that the scheme should deliver a good deal for scheme members through low charges, but this must be balanced against what is needed to ensure that the scheme is a viable proposition and our intention for the scheme to be self-financing in the long run.
It is therefore vital that we do not restrict the options for financing the scheme at this stage, as Amendment 112Z would, as doing so could compromise the trustee corporation’s ability to get value for money. I reassure your Lordships that if the trustee corporation needs to borrow, it will need to comply with existing guidance and legislation and show that this provides value for money, just like any other NDPB. If a government loan is required, it will also need to be affordable, represent value for money to taxpayers and comply with European rules on state aid and competition.
Amendment No. 112ZA would allow the trustee corporation to borrow and to invest money without consent from the Secretary of State. While Amendment No. 112ZB would allow the corporation simply to invest money without the Secretary of State’s consent, Amendment No. 112ZC would require the Secretary of State’s consent for any borrowing and investment that the trustee corporation makes. Between them these amendments cover almost all of the permutations that you could have.
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I therefore thank the noble Baroness for the opportunity to clarify the Government’s intention regarding oversight of the trustee corporation’s borrowing and investment activities. For an NDPB, it is normal for functions such as borrowing and investing to require the consent of the parent department’s Secretary of State, in this case the Department for Work and Pensions. This is because an NDPB’s expenditure is taken into account in its parent department’s budgets. The requirement for consent from the Secretary of State quite rightly provides a safeguard to ensure the wider interests of the taxpayer are taken into account, as well as the trustee corporation’s own objectives.
In the case of decisions relating to borrowing, the trustee corporation would be responsible for balancing low charges for members against ensuring that the scheme is commercially viable. The Secretary of State’s consent is needed to ensure that their actions are also consistent with the sound management of public finances. In the case of investment, we would generally not expect the trustee corporation, as an NDPB—and therefore a not-for-profit organisation—to invest any money on its own behalf. Therefore, the purpose of Clause 66(4) is to ensure that, should the trustee corporation wish to invest any funds provided for its operation, it could do so only with the consent of the Secretary of the State.
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However, I assure noble Lords that this provision is not intended to compromise the independence of the trustee corporation. Although Clause 66(4) requires consent, Clause 66(5)—which was, I think, the clause that the noble Baroness asked about—ensures that the trustee corporation may act independently of Government, when acting as sole trustee of the personal account scheme. This provision would apply, for example, when the trustee corporation uses the power in Clause 66(3) to invest members’ contributions on their behalf. Investing members’ funds must be the responsibility of the trustee. It is right that Ministers should not have a role in these investment decisions. This is purely a matter for the trustee, acting in members’ best interests.
The noble Baroness may press me on when the NDPB would invest other than on behalf of members. I suppose there could be circumstances where there might be a short-term surplus of funding. I have not really thought it through, but one can see that there are circumstances where the NDPB might invest on its own account, rather than for scheme members. I make it absolutely clear that the investment of members’ contributions is the responsibility of the trustee. It is not the responsibility of Government or the Secretary of State. I hope that has helped with these amendments.
Baroness Noakes: I thank the Minister for that response and I will read carefully what he has said. It seems that the Minister is saying that there is a distinction between the trustee corporation acting as a corporation and the pension scheme, and that these activities can be separated. It seems to me that the trustee corporation will be running the pension scheme and its costs will be those of the pension scheme. It is difficult to separate the two; they are not separate in that sense. I
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Lord McKenzie of Luton: I will try. I struggled a little and had some discussions with officials, which are still under way. It was explained to me that the NDPB will have costs in relation to its members, which may not necessarily be scheme costs. There will be costs that the NDPB incurs which would be chargeable to the scheme, for example if asset management is outsourced. Whether those asset management charges go directly to the scheme or to the NDPB and are then recharged to the scheme is under consideration. The key point is that members’ contributions are invested by the trustees, not by the Secretary of State. He does not have a role in that and nor do the Government. We need to develop some pro forma examples of what these accounts might look like. It would certainly help me and I think it would help the noble Baroness. I would be happy to share those examples with her.
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Baroness Noakes: Doubtless officials will rue the day that two chartered accountants ended up dealing with this Bill. We are interested in quite abstruse matters. I am interested in this because it gets to the heart of whether you can separate the two and how the powers and restrictions in this Bill work in practice. I would be interested in exploring that with the Minister if he could find a way of facilitating it before Report. These are important issues; we should make sure that we understand them. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 112ZA to 112ZC not moved.]
Lord Tunnicliffe: I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
- House adjourned at 10.05 pm.
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