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4.15 pm
With the help of the noble Lord, Lord Hunt, and other Members of your Lordships’ House, including the noble Lords, Lord Oakeshott, Lord Skelmersdale and Lord Higgins, we devised flexible and relatively informal clearance arrangements, which I understand—despite the cost which the noble Baroness suggested—have worked well, have not been abused and are welcomed as a way of offering comparative flexibility in a fast-moving scene, as well as appropriate scrutiny by TPR and security for scheme members. There are, of course, three objectives here.
The point of this amendment is the process, mentioned by the noble Lord, Lord Oakeshott; namely, how we did it. As far as I can judge, the Government’s proposed procedure, as outlined by my noble friend, is broadly similar to the one we adopted in 2004, which all parties say worked well. There was a framework proposal in the Bill, reflected in Amendment No. 130EW, together with draft regulations that we worked on over that summer, on which there was extensive co-operation from your Lordships and extensive consultation with the industry. They were published and made available for formal scrutiny by this House. If necessary, we were willing to make further adjustment in the Bill, as my noble friend indicated.
It is the case now as then—the noble Lord, Lord Oakeshott, was spot on on this—that new forms of pension activity, from bulk buy-outs to some of the
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TPR powers as they stand are not adequate to cover some of these emerging risks and address the new mark 2 version of emerging moral hazard issues. My noble friend will correct me if I have misunderstood this, but until recently there was broad consensus about how we move forward and general support for the Government’s draft regulations on which we are consulting. I am not sure why that broad consensus seems to have broken down in the past few weeks, although I suppose that some bodies, for example venture capital bodies, might find some aspects of the regulations irksome in a fast-moving world. I can see why they might argue that, but when set against the proper interests of scheme members and the like, one should not assume that they have the monopoly of the best interests of all stakeholders and players. Government and TPR, not any particular interest, always have to hold the ring between entirely legitimate but conflicting and competing concerns.
The assumptions behind some of the comments by noble Lords in Committee on Monday therefore surprised me. They appeared to suggest that the Government were behaving unscrupulously and that they needed to be watched because they might introduce retrospective and unreasonable requirements. I thought that was an odd and unreasonable charge to make, because the Government are acting for all of us, especially the employees whose pension savings could be at risk. I believe the charge of bad faith should not be levelled at the Government, but at the occasional company or organisation that—I know: we were burnt by it—does not always behave with full probity and seeks to cut corners. Government are continually scrutinised, and rightly so. Emerging forms of pension structure, however, are not so scrutinised. For its regulation to be adaptive and flexible, TPR needs that head space of additional powers—that is what we are talking about—without being sure in what precise way they might be applied. It is no use waiting for future primary legislation. The old adage about closing the stable doors comes to mind, because, from my experience in 1995, in pensions legislation we are always one step behind. We need TPR to have generic powers that are properly scrutinised, following proper consultation of regulations, to cope with the unforeseen. Those regulations must have broad support.
Since 1995, when I was first engaged in pensions legislation, we have always been fighting the previous war. Remember how long MFR lasted and how robust it turned out to be? Remember the unsuccessful efforts of some of us to get a central funding scheme, with the result that we had to invent the PPF five years down the line? If we had got the PPF when we called for it, it could have resolved the problems that FAS had to be invented to adjust.
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Governments of all persuasions, my own included, too often have been leaden-footed on pensions when crises emerge, because they do not have the head space of regulatory powers entrusted with an organisation such as TPR—it did not exist in 2004—to scrutinise in the public interest, on behalf of all of us, and to strike the right balance.
My noble friend has listened. He has moved during these debates, for example on qualifying earnings, where sensible discussions are now taking place. I hope that those discussions will bring us to an amicable result. The amendments strike the right balance and are proportionate. I am perfectly comfortable with any assurances that my noble friend may wish to give tonight about retrospectivity, which I agree can be uncomfortable territory to occupy; clearance schemes; the offer to put further wording in the Bill; and the like.
In pensions, the scenario, as the noble Lord, Lord Oakeshott, rightly said, is changing fast, and TPR does not have the head space in its regulatory powers at the moment to address those issues as and when they might arise. I urge the Committee not to follow the example of the Bourbons, who, I am sure noble Lords are aware, allegedly learnt nothing and forgot nothing. We know what happened to them.
Lord Lucas: I was delighted to listen to the speech by the noble Baroness, Lady Hollis. I always find her persuasive, and she was particularly so on this occasion. She set out all our common objectives very well. Perhaps I put a little more emphasis on trying to amend Amendment No. 130EW, merely to set out the Government’s stated intentions more clearly in the Bill—that is perhaps a kind way of putting it—and to make clear the limits of the power.
I entirely agree with the noble Baroness, Lady Hollis, that the Pensions Regulator needs the flexibility to deal with the attempts that will be made, particularly in difficult economic circumstances, to sidestep the pension fund liability. By and large, I do not think that Governments proceed with malevolence towards companies running pension funds, but I do think that they are guilty of serial idiocy. Certainly, I would convict us of that, in our 1995 Bill, in not realising how things would play out. I picked up an echo of that from what the Minister said when last we met. He said:
“On the fair value point touched on by the noble Lord, it is not the Government’s intention that a transaction, whereby a person purchases assets or securities at fair value, would normally trigger the regulator’s use of its anti-avoidance powers, provided that, as part of the transaction, the pension scheme was properly considered and adequately addressed. However, the fact that a person had purchased assets or securities at fair value would not necessarily provide the reassurances needed. That would be only the first step in ensuring that capital was available to mitigate the risks to the scheme; it does not of itself get the capital to the scheme”.—[Official Report, 14/7/08; col. 1089.]
There we are seeing part of a process—which, I agree, we started and which has carried on since—which is making the pension fund gradually into some sort of super-creditor, giving it rights over and beyond that of an ordinary, unsecured creditor, moving it ever more into a position where it has additional, superior
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As my noble friend Lady Noakes has said, clearance has grown into a great industry. There are professional clearance advisers who do nothing else and make a great deal of money. We may push companies into a position whereby every decision might be viewed as depriving the pensioners of access to assets, such as paying a dividend, selling an operation, or, in relation to the terms of trade with some associated overseas company, entering into a big contract, which has sunk many companies. If all those decisions are to be questioned and there is personal liability for the directors as a result, it will become extremely difficult to run companies with defined benefit schemes of any magnitude. We must think very carefully if we are going to threaten or enact regulations that push companies in the direction of receivership.
Lord Hunt of Wirral: I should again declare my interest as a partner of the national commercial law firm Beachcroft. However, I no longer have to declare an interest as president of the Chartered Insurance Institute, because at lunchtime I handed over the chain of office to Trevor Matthews, who later this month will become chief executive of Friends Provident.
It is very important that we do nothing to stifle innovation, because that has been right at the heart of the pension industry and must continue always to bear that in mind as a material factor. I thank the noble Baroness, Lady Hollis, for her kind remarks about our previous discussions of matters like this, but in particular I support my noble friend Lady Noakes in what she said. Perhaps the only contribution that I want to make to this debate is for the Minister. In many respects I have been down this road before. The one thing that I always tried to avoid during the many years that I was a Minister was pressure from within the department, particularly from my fellow Ministers—usually from the Treasury and the committees that look after legislation—to legislate in a rush. That is particularly important in this Bill.
I agree with the noble Lord, Lord Oakeshott, although I shall not go down his road and make a speech about his speech. He was absolutely right to say to the Minister that we need time to get this right. Thanks to
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4.30 pm
There is no dramatic need to conclude Committee before next Tuesday, although the Minister will be told by his officials that the problem with having a further Committee sitting in the overspill is that all sorts of things may arise during the recess, all sorts of results might flow from further consultation. Surely that is a good thing. As the noble Lord, Lord Oakeshott, said, a number of organisations should participate in the discussions as well as those on the Front Benches.
What about consensus? We heard a great deal about consensus at the start of proceedings on the Bill. There are grounds to hope that this legislation will endure for generations to come; and that there will be a real, radical change in the amount of money being put aside for pensions and a substantial increase in the number of people who embark on proper levels of saving. We all hope that. I do not know about all these telephone conversations with somebody called Macho Mike. If it is Mr O'Brien, I have to say that I do not recognise the description. I have had many dealings with Mr O'Brien and that is not a phrase that comes readily to mind. If we are to develop a consensus and entrench a scheme that will last for generations to come, we have to get the detail right.
Without going down the road that my noble friend Lord Lucas and other speakers went down, my plea to the Minister is that there is now a great argument to pause and think, to sit down with key stakeholders in the industry and elsewhere to make sure that we are giving the right powers to the right bodies to meet the main objective of the Bill, which is substantially to increase pensions savings. Surely on that there is substantial consensus. I plead with the Minister: do not let us lose any consensus by moving too quickly.
Lord McKenzie of Luton: This has been a helpful place to start our deliberations today. The noble Lord, Lord Hunt, said that whatever we do we should not stifle innovation. I very much agree. Of course, innovation can bring with it uncertainty—unknowns—which is why my noble friend Lady Hollis is absolutely right to say that we need some headroom in our regulatory armoury to cope with it. I say to the noble Lord, Lord Hunt, that I do not feel under any pressure from within the department to rush into legislation. We have the time to take this forward in the way that he and every noble Lord who spoke suggested. If there is a difference between us today, it is that we want to start with the building block of the government amendment, recognising that it needs to be built on, rather than withdrawing it and coming back with something afresh.
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That is how we wish to proceed, especially because we do not want the message to get out to those who, we know, do not want these changes to regulatory power that there is a process by which they can prevent them. I know that that is not the position of the overwhelming majority of stakeholders, but we know there are some out there, especially in the venture capital world, who do not want these powers. That is absolutely clear and we must be careful not to give any succour to them.
Frankly, it would be nice if we could conclude the Committee stage this side of the Recess, just because it might make the summer holidays a little more bearable. The important thing is that we spend the time that we need to get this right. If we do spill over, I am sure that the Whips will be on to me, but we need to get this right. I still hope that, with the time that we have available, we can conclude, but it is not entirely within my hands.
The noble Lord, Lord Lucas, talked about super-creditors and whether we are changing the status of pension funds. I do not think that anything in the Government’s proposals would suggest that that is the case. I accept entirely the need to build reassurance in respect of those issues. The noble Lord used the phrase, “a great backwash retrospectively”. I know that he is concerned about retrospection. We will come to an amendment on which I hope that I can give him further reassurance.
My noble friend Lady Hollis is right. The current flexible clearance system has worked well. Before my time and before I was engaged in this legislation, there were fears about it. I am grateful for her support and for her input on the lessons of history. It comes back to innovation. There are new forms of pension activity out there, which are difficult prospectively to define in a way that means that we do not need to have some discretion in our powers.
The noble Lord, Lord Oakeshott, berated my colleague the Minister for Pensions. In defence of my honourable friend, I should explain that he was concerned that we might lose the government amendment, not because there was no recognition that we needed and were keen to work together over the next few months to build on it, but because of the impression that it might create. We need to be firm about that. I believe that he tried to reach the noble Lord. Ultimately, we hope that we have been able to communicate in a satisfactory way.
The noble Lord, Lord Oakeshott, is right. We are trying to get to the same place, although we might have a little bit of a spat about the journey and how we reach that place. However, this is important and comes back to consensus. At the end of the day, it will be quite difficult, with all the engagement that we will have, to write something as specific as some Members of the Committee want. If we have to have discretion in powers at the margins, it is important for people to understand why. They can gain that understanding from engagement with us as stakeholders or as legislators. There is a clear commitment to liaise with the Committee to make sure that noble Lords have a chance for input into the process before we return on Report.
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The noble Baroness, Lady Noakes, said that no account had been taken of consultation. With respect, I do not believe that that is the situation. The legislative approach was to enable consultation responses to be considered in drafting regulations. As I have said previously, the consultation document indicated that we would bring forward a broad enabling power.
The thrust of one point was whether companies are unsaleable if they have DB schemes. We do not believe that to be the case. Clearances are still available. Just this or last week a significant legal firm wrote in Pensions Week that it certainly is not advising against investing in firms with DB schemes.
We need to ensure that, as part of the objectives of the Pensions Regulator, employers do not sidestep their pension obligations and that the regulator has a number of powers to enable it to deal with that. In considering whether, without regulations, there is a material risk to the security of members’ benefits or to the PPF, the Secretary of State will have to form a judgment after getting the views of the Pensions Regulator and other stakeholders. It clearly would not be appropriate to exercise the power if it did not reduce the existing material risks or, indeed, if it created serious new risks. I reassure noble Lords that it is not our intention, by introducing these provisions, to increase such risks.
The Government’s new clause includes safeguards covering the power to amend provisions, including the requirement to consult the regulator and other key stakeholders. We will be dealing with an amendment that specifically broadens the range of people whom we are required to consult. We have sympathy with that. It will ensure scrutiny by relevant parties, who will be alert to—and will actively seek to prevent—material increases in such risks. The consultation process should identify any unintended consequences that could increase these risks.
The noble Baroness’s amendment touches on the wider issue of ensuring an appropriate level of regulation. I agree that it is essential that we strive to achieve the difficult balance required, by enabling the regulator to meet statutory objectives while avoiding placing undue burdens on the sponsors of defined benefit schemes. It has been a fundamental principle that the regulator should act reasonably and take a risk-based approach. We now have a number of years’ operational experience, which serves to demonstrate the efficacy of that approach. I reassure the noble Baroness that it is not the Government’s intention to use the new power to change this fundamental approach; we simply intend to ensure flexibility in the face of an increasingly sophisticated and fast-moving market.
The noble Lord, Lord Lucas, talked about making pension schemes higher priority creditors. We do not believe that these proposals would increase the priority of pension schemes, which must be treated fairly alongside creditors of equal priority. I am sure that we agree on that. Ros Altmann has pointed out that some organisations are thought to make money out of the jettisoning of pension obligations. I am sure that noble Lords across the Committee consider that behaviour unacceptable.
The noble Baroness touched on the burdens of clearance. This is voluntary. TPR has published detailed guidance on when and where it is appropriate. The
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I hope to persuade the noble Baroness not to press her amendment. I think, from all the contributions and indeed from our discussions on Monday, that we are on the same page. We need to stay there and move ahead together to end up in a good place.
4.45 pm
Baroness Noakes: I thank the Minister for that response and thank all noble Lords for taking part in the debate. Much of it has been more like a Second Reading debate than a Committee debate on the amendments before us. However, there is no harm in that, because the issues are important.
I agree with the noble Lord, Lord Oakeshott, that this is not a party-political issue. I have heard that the Government have been trying to portray this as a party-political spat, so I place it on record that I never intended to raise these issues in a party-political manner. I hope that the Government will not continue to spread that claim.
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