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I am sympathetic to my noble friend’s concerns that the personal account scheme should facilitate ways to maximise retirement incomes. I should like to examine our approach to those individuals with stranded pots that are too small to be economically attractive to annuity providers but when combined with the value of other pension funds are not eligible for trivial commutation. Allowing individuals in this scenario to transfer their personal accounts funds to and from the scheme could promote the consolidation of pension saving while keeping with our commitment to focus the scheme on the target market.
I assure my noble friend that the scheme order with regard to transfers in and Clause 111 with regard to transfers out provide us with sufficient flexibility to legislate if we decide that these exceptions should apply. We would like to discuss this issue with stakeholders over the summer in advance of developing the likely content and approach for the secondary legislation, the scheme order and the non-legislative scheme rules for a public consultation in March 2009. I am therefore confident that we can make progress on this issue. With those assurances, I hope that my noble friend will not press her amendment.
Baroness Hollis of Heigham: I thank the Committee. It is always a pleasure—and not just for political reasons—to get such warm support for an issue on which we all recognise that injustice is being done to people who can least afford to lose their modest savings, as my noble friend Lady Dean so eloquently put it. I am glad that the Minister respected the fact that the Committee fully supports finding a way to move forward on this issue without necessarily circumscribing the way in which he should do it.
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I also thank my noble friend and the staff who have worked hard on this issue—this is essentially an HMRC rather than a DWP issue, which I think is why it was uncovered relatively late—for the positive and constructive response. However, does he expect, or wish for, the trigger of a probing amendment on Report so that he can tell the House what the arrangements will be? I realise that the Summer Recess is approaching and that he will be exploring a lot of other issues, but I am sure that he has no intention of allowing this to be lost in the short, long or distant grass. None the less, I hope that before I withdraw the amendment he can advise me whether he would welcome a probing amendment on Report so that we would all know whether the Government have managed to move the debate forward over the summer.
Lord McKenzie of Luton: I always welcome amendments from my noble friend. Irrespective of whether they are forthcoming, I shall ensure that we stay in touch with her as this issue develops over the next couple of months.
Baroness Hollis of Heigham: I am grateful to my noble friend. I shall take advice on whether I need to table an amendment or whether it would be better for my noble friend to send a letter to noble Lords at the end of the summer, which would do just as well. I again thank noble Lords for their support for the amendment, which I beg leave to withdraw.
Amendment, by leave, withdrawn.
Lord Lucas moved Amendment No. 134ZBA:
In section 89 of the Pensions Act 2004 (c. 35) (publishing reports etc.) after subsection (3) insert—
“(4) The Regulator shall publish its determinations, including Clearance Statements issued under section 42 or 46 together with the reasons for that determination within 28 days of the determination being made.
(5) The Regulator may, at the request of the directly affected parties, anonomise a determination published under section (4) above.
(6) The Regulator shall publish its policy on the exercise of its determinations in order that the exercise of them is consistent and transparent.””
The noble Lord said: I shall also speak to Amendment No. 134ZBB. Amendment No. 134ZBA would encourage the regulator to be more open about his determinations than he has been hitherto. Although he published the clearances given by the determinations panel, he has not published anything about those given by staff. Given the context of the broader discretion that he is likely to have as a result of the forthcoming regulations, it is important that he should be encouraged to build up in public a body of precedent which will guide people who might be subject to his ire in the future as to what his attitude is likely to be. It could only assist if he was more helpful than at present.
The second amendment slightly redresses the balance in situations where the Pensions Regulator is actively pursuing a case against an individual or business. At the moment there is no way for the accused to know the full breadth of information in the case against
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Lord McKenzie of Luton: With these amendments, the noble Lord raises the relationship between transparent decision-making and effective regulation. This issue was discussed by the Public Accounts Committee in another place recently, and the Government and the regulator recognise that there is an important balance to be struck.
The power to publish reports in Section 89 is a permissive power. It is for the regulator to consider when and in what circumstances to publish reports. When Parliament discussed this during the passage of the 2004 Act it agreed that this provision should be widely drawn to ensure that there are no restrictions on what the regulator is able to publish following an investigation. The regulator originally considered that, given the issues of confidentiality, it was better to approach this on a “publish by exception” basis.
The Public Accounts Committee recently considered transparency in reporting as part of its scrutiny of the Pensions Regulator. It found that the regulator should publish determinations to bring clarity and transparency to regulator decisions. There was no question that this process necessitated changes to statute. In response to the PAC hearing, since December 2007 it has been the regulator’s policy to publish determinations on issues reserved to the Pensions Regulator’s determination panel unless there is a good reason not to. It has published detailed determinations in some high profile cases such as the Sea Containers and Telent cases. This publication policy is in the public domain. The regulator recognises the educative value in publishing reports and now has a firm policy that it should publish in all cases other than by exception. All past determinations were recently published on the Pensions Regulator’s web pages.
I appreciate the intention behind the noble Lord’s amendment: providing as much transparency as possible in regulatory decision-making. However, it would make publication of reports mandatory and remove any exercise of judgment by the regulator on whether publication was appropriate. This additional administrative duty upon the regulator would not materially enhance its performance in the exercise of its statutory functions. It could constrain a regulator’s ability to depart from its published policy on the exercise of its functions even where justice and circumstances would otherwise require it, for example where there is a criminal investigation.
It would also require the regulator to publish even when it considered that the circumstances of the case made the parties affected identifiable, even with anonymisation. In the regulator’s experience, employers and the pensions industry would have serious concerns
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Such a mandatory requirement would undermine the industry’s trust in the regulator to maintain confidences, deterring potential approaches and interaction and generating uncertainty within the industry. This amendment would run counter to the regulator’s efforts to maintain the confidence of the pensions industry in maintaining confidential and commercially sensitive information. There is already transparency under the regulator’s current regime. The regulator provides both advisers and their clients—the applicants or trustees—with the detailed determination notices. These set out the reasons for the regulator’s intervention and provide advisers with a frame of reference about how the regulator operates.
On the second amendment, the Pension Regulator’s determinations panel procedures give the panel a power to direct how a hearing will take place, potentially including what documents should be shared. The amendment would go wider in scope than is intended. It would make that apply to all determinations, even those not made by the panel. This would make the clearance process virtually unworkable given the number of documents involved. It could result in clearance applications undergoing investigations taking several months and raise questions about which documents corporates would want to share.
I understand the noble Lord’s intentions, but there is a risk that such an approach could divert focus and resources from other areas that require regulatory action. As established and also under the Hampton principles, the regulator is risk-based, with the freedom to focus its resources on those issues that place members’ benefits or the PPF at the greatest risk. If accepted, the amendment could stifle the regulator’s ability to react quickly in clearance applications. Introducing these requirements on the regulator would simply constrain its flexibility to focus resources on key risks. It would be unnecessary unless the regulator considers the relevant information when making its decisions. Then such decisions could be open to challenge.
If it would help the noble Lord, I would be happy to facilitate the opportunity for him to meet with the Pensions Regulator to discuss his concerns in greater detail. Perhaps, with his colleagues and other noble Lords, he might find this a fruitful way of getting further into these issues.
Lord Skelmersdale: The danger is that regulators become like Ministers in their need to justify themselves. Ministers do this by introducing legislation and subordinate legislation into Parliament, and there are occasions when the regulator does it by secrecy. Otherwise, if a body of case law, as referred to by my noble friend
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Lord McKenzie of Luton: I would be more than happy to facilitate the noble Lord’s involvement in that as well. Obviously it is not entirely my decision but I cannot believe it would not be possible.
Lord Lucas: I am grateful for what the Minister has said. He gave a full answer to my first amendment; I must go away, read it carefully and think on it. While I was less in agreement with what he said on the second amendment I will certainly be happy to follow the path he laid out and discuss these matters with the Pensions Regulator. I look forward to spending my holidays in such a blissful state. I must apologise to him that I am now going to desert the Committee to defend the honour of the Lords against the Commons on the river. I am sure he will manage the rest of the Bill without my help.
Lord McKenzie of Luton: We will miss the noble Lord but wish him well in his endeavours later today.
Lord Lucas: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 134ZBB to 134ZBD not moved.]
Lord Tunnicliffe moved Amendment No. 134ZC:
In section 37 of the Pensions Act 1995 (payment of surplus to employer) after subsection (1) insert—“(1A) But this section does not apply in the case of any of the payments listed in paragraphs (c) to (f) of section 175 of the Finance Act 2004 (authorised employer payments other than public service scheme payments or authorised surplus payments).””
The noble Lord said: This amendment corrects an omission in the Pensions Act 2004. It introduces an exemption from the strict conditions that must be satisfied before the trustees of a trust-based occupational pension scheme can authorise a payment to the sponsoring employer from the funds of the scheme.
These conditions are set out in Section 37 of the Pensions Act 1995, and they are commonly referred to as the surplus rules. There was, however, an exemption from this rule for administrative and certain other payments, allowing the trustees to make them without reference to the surplus rules. Unfortunately, this exemption was inadvertently not carried forward when Section 37 was substantially revised by the Pensions Act 2004. It was not our intention to remove this exemption, and an equivalent provision should have been carried forward.
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This amendment corrects the position through the introduction of an exemption that refers to payments listed in Section 175 of the Finance Act 2004; namely, compensation payments, authorised employer loans and scheme administration employer payments. It also refers to a regulation-making power that enables HMRC to extend the scope of authorised employer payments in particular circumstances.
It has been necessary to update the precise wording of the exemption because Section 37(7) referred to tax legislation that has now been replaced as part of the major changes to the taxation regime for pension schemes introduced by the Finance Act 2004. This amendment will restore the longstanding position that was inadvertently removed by the Pensions Act 2004. I beg to move.
Lord Skelmersdale: Keen as I am—or rather, as I have been throughout the passage of this Bill—to consider the great raft of government amendments to which we have been exposed in a spirit of scepticism and questioning, the Minister will be relieved to hear that I find this amendment totally benign. However, I would just tease whoever drafted the Bill for needing to correct this mistake.
Lord Tunnicliffe: I am sorry; I did not quite get the noble Lord’s final stinging question.
Lord Skelmersdale: Don’t worry.
On Question, amendment agreed to.
2.15 pm
Clause 109 [Appointment of trustees]:
Lord Skelmersdale moved Amendment No. 134A:
The noble Lord said: This is a probing amendment; whether it will remain so in the Bill’s future stages depends very much on the Minister’s answer. It would delete paragraph (a) from Clause 109(1).
We have already had an important debate on the powers of the Pensions Regulator. Compared with the extensive powers proposed in the Government’s new clause before Clause 107, the extension of the powers of the regulator in Clause 109 is much less significant, but we should still debate the need for the alterations proposed in that clause. Under the Pensions Act 1995, the Pensions Regulator can remove trustees when it thinks that it is “necessary” to do so. Clause 109 changes that test to one that is “reasonable”; my amendment deletes that change.
Trustees are the bedrock of the pensions system in the United Kingdom and they operate in trust law to act for the benefit of members. We are concerned that this change will act to undermine the foundations on which private sector pension provision is based. Pension schemes can have a mix of trustees, ranging from the completely independent and professional trustees through to employer-nominated and member-nominated
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I acknowledge that there can be difficulties with boards of trustees in practice, if only because trustees are human and their abilities and knowledge can vary hugely. The average trustee—this includes professionals as well as non-professionals—can struggle to cope with the complexities of modern investment strategies and the strength of the employer covenant when corporate restructuring is proposed. They are also severely tested when issues such as buyouts confront them; we have debated that subject extensively over the past few days. That is why we can see that the Pensions Regulator should have a reserve power to change the trustees when it is necessary. To extend that power to where the regulator thinks that it is “reasonable” risks undermining the whole model. Why does the 1995 Act need to be changed?
The existing power was perfectly adequate, for example, to allow the regulator to appoint independent trustees in the case of Telent and the Pensions Corporation. The regulator has the power conferred by Section 33 of the 2004 Act to issue prohibition orders in respect of trustees who are not considered to be “fit and proper”. Furthermore, Clause 109(1)(d) extends the circumstances in which the regulator may appoint trustees for the protection of the interests of the generality of the members. Can the Minister describe the circumstances in which a combination of the existing powers and those in paragraph (d) would not be adequate? As I said, the powers were used effectively, and even upheld on challenge, in the Telent case. What could be more challenging than that?
We do not believe that it is appropriate to confer powers on the regulator unless there is a clear need for them. Using the criterion of reasonableness could allow the regulator to start to impose his own judgment on the abilities and competence of trustees. That would go in the wrong direction from a regulatory standpoint.
The appointment of trustees goes to the heart of the operation of pension schemes. A power based only on reasonableness would be a step on the road to making our defined benefits system almost state-controlled rather than state-regulated, which is an enormous difference. I beg to move.
Lord McKenzie of Luton: Our occupational pension system depends, in large, on trustees who play a vital role in the running of the schemes and looking after the interests of scheme members. The noble Lord was clear about that when he moved the amendment. However, it is not always the case that a board of trustees is equipped to deal with the challenges that it can face—collectively, it may not have the knowledge and expertise it needs, or a conflict of interest may arise that hinders the effective operation of the trustee board.
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