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On Question, amendment agreed to.
Clause 130 [Delegation of powers by the Regulator]:
Lord McKenzie of Luton moved Amendment No. 22:
22: Clause 130, page 66, line 17, leave out from “functions),” to end of line 21 and insert “the existing provision becomes sub-paragraph (1).
(2A) For paragraph (e) of that sub-paragraph substitute—
“(e) permitting the Regulator to authorise such persons, in such circumstances and under such arrangements, as the Regulator may determine, to exercise on behalf of the Regulator—
(i) the power to determine whether to exercise any of the functions listed in sub-paragraph (2);
(ii) the power to exercise any of the functions listed in sub-paragraph (2) or such other functions as may be prescribed.”
(2B) After that sub-paragraph insert—
“(2) The functions mentioned in sub-paragraph (1)(e) are—
(a) the power to issue an improvement notice under section 13;
(b) the power to issue a third party notice under section 14;
(c) the power to recover unpaid contributions under section 17;
(d) the power to require information under section 72;
(e) the power to vary or revoke a determination, order, notice or direction under section 101;
(f) the power to require payment of a penalty under section 10 of the Pensions Act 1995;
(g) the power to issue a compliance notice under section 34 of the Pensions Act 2008;
(h) the power to issue a third party compliance notice under section 35 of that Act;
(i) the power to issue an unpaid contributions notice under section 36 of that Act;
(j) the power to issue a fixed penalty notice under section 39 of that Act;
(k) the power to issue an escalating penalty notice under section 40 of that Act;
(l) the power to recover penalties under section 41 of that Act;
(m) the power to review a notice under section 42 of that Act;
(n) the power to issue a compliance notice in respect of prohibited recruitment conduct under section 50 of that Act;
(o) the power to issue a penalty notice in respect of prohibited recruitment conduct under section 51 of that Act.””
The noble Lord said: My Lords, these technical amendments are designed to ensure that there is no confusion about the regulator’s ability to contract out its functions. Paragraph 21 of Schedule 1 to the Pensions Act 2004 enables regulations to be made permitting the regulator to contract out its regulatory functions. Through the introduction of Clause 130 of this Bill, we amended Schedule 1 in Committee to facilitate the
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As I said at the time, it is important that the regulator has the ability to contract out the functions associated with the compliance regime to ensure that it can fulfil this new role in the most efficient and cost-effective way. However, as the Bill is currently drafted, there remains some doubt as to whether the regulator will be able to deliver through contractors. Our intention in delivering the compliance regime is that the regulator will be able to delegate both the power to determine whether to exercise its functions and its power to actually exercise those functions.
This distinction is made in other parts of the Pensions Act 2004 but not in paragraph 21 as amended by Clause 130. Without this distinction, there is a risk that the regulator would not be able to delegate decision-making relating to a function. In the case of compliance notices, for example, this could mean that, every time a contractor wanted to issue a notice to an employer who had failed to auto-enrol a jobholder, it would need to pass this information back to the regulator for a formal decision and therefore, potentially, significantly increase the time for processing the notice and the potential for bottlenecks. We are therefore seeking to introduce technical amendments to Clause 130 that would ensure absolute clarity by referring to both exercise and determination.
However, we do not want this power to allow the regulator to delegate both the exercise and determination for the whole range of its functions. We want to explicitly limit the ability to contract out determination to the regulator’s activities to enforce the new compliance regime. The regulator has done further design work over the summer on operational models and has identified the range of functions, both in this Bill and the 2004 Act, to enable it to deliver the compliance regime. The amendment therefore explicitly limits the power to delegate the determination to those functions. The Secretary of State will retain his existing power, as amended in Committee, to enable the regulator to contract out the exercise, but not the determination, of functions that are prescribed in regulations.
Finally, Amendment No. 23 ensures that any regulations that have already been made under the contracting-out powers in Schedule 1 to the 2004 Act remain in force and may be amended for consolidation purposes only.
It is worth stressing that these amendments relate to an existing regulation-making power. To enable the regulator to contract out any of its functions, regulations will have to be laid before the House. In relation to the functions that the regulator is seeking to contract out to deliver the compliance regime, we will be publishing regulations next year for consultation.
I hope that noble Lords agree that it is important to ensure absolute clarity around the regulator’s ability to contract out and that they are reassured by our efforts to limit this power as far as possible. I beg to move.
On Question, amendment agreed to.
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Lord McKenzie of Luton moved Amendment No. 23:
23: Clause 130, page 66, line 22, at end insert—
(a) do not affect any regulations made under paragraph 21(e) of Schedule 1 to the Pensions Act 2004 before the coming into force of this section, and
(b) do not affect the powers conferred by that paragraph, so far as exercisable for the purpose of making, by way of consolidation, provision having the same effect as any provision of those regulations.”
On Question, amendment agreed to.
Clause 132 [Additional Class 3 contributions]:
Lord McKenzie of Luton moved Amendments Nos. 24 to 26:
24: Clause 132, page 67, line 4, leave out “prescribed conditions” and insert “conditions prescribed by regulations made by the Treasury”
25: Clause 132, page 67, line 24, leave out “of a relevant class” and insert “that are of a relevant class for the purposes of paragraph 5 or 5A of Schedule 3”
26: Clause 132, page 68, line 5, leave out “of a relevant class” and insert “that are of a relevant class for the purposes of paragraph 5 of Schedule 3”
On Question, amendments agreed to.
Clause 133 [Additional Class 3 contributions (Northern Ireland)]:
Lord McKenzie of Luton moved Amendments Nos. 27 to 29:
27: Clause 133, page 68, line 29, leave out “prescribed conditions” and insert “conditions prescribed by regulations made by the Treasury”
28: Clause 133, page 69, line 5, leave out “of a relevant class” and insert “that are of a relevant class for the purposes of paragraph 5 or 5A of Schedule 3”
29: Clause 133, page 69, line 31, leave out “of a relevant class” and insert “that are of a relevant class for the purposes of paragraph 5 of Schedule 3”
On Question, amendments agreed to.
Clause 140 [Orders and regulations]:
Lord McKenzie of Luton moved Amendments Nos. 30 and 31:
30: Clause 140, page 74, line 19, after “17(1)(c),” insert “(Sections 20, 24 and 26: certification that quality requirement is satisfied),”
31: Clause 140, page 74, line 22, after “section” insert “(Sections 20, 24 and 26: certification that quality requirement is satisfied)(9),”
On Question, amendments agreed to.
Lord McKenzie of Luton moved Amendment No. 32:
32: Clause 146, page 76, line 22, leave out paragraphs (g) and (h) and insert—
“( ) sections 130 to 133;”
On Question, amendment agreed to.
4.30 pm
Schedule 1 [The trustee corporation]:
Lord Tunnicliffe moved Amendment No. 33:
33: Schedule 1, page 78, line 11, at end insert—
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“(1A) Subject to sub-paragraph (1B), the Secretary of State must consult the chair of the corporation before appointing an ordinary member (that is, a member who is not, on appointment, also appointed as chair).
(1B) A vacancy in the office of chair does not prevent the appointment of an ordinary member.”
The noble Lord said: My Lords, we had a discussion on Report about the role of the chair of the trustee corporation. The noble Baroness, Lady Noakes, and the noble Lord, Lord Oakeshott, gave the House the benefit of their extensive boardroom experience, in particular on the distinct role of the chair. Their argument on the need for the chair to be involved in the appointment process of other members was entirely sensible and we committed to bringing back an amendment that would confirm this. Amendment No. 33 requires the Secretary of State to consult the chair before appointing any other members of the trustee corporation. Proposed new sub-paragraph (1B) ensures that, if the chair is vacant, that will not prevent another member of the trustee corporation from being appointed. It also allows for a group of inaugural members to be appointed, along with the inaugural chair. I beg to move.
Baroness Noakes: My Lords, I am grateful to the Government for bringing this back to respond to an issue that we raised.
Lord Oakeshott of Seagrove Bay: So am I, my Lords.
On Question, amendment agreed to.
Lord McKenzie of Luton moved Amendments Nos. 34 and 35:
35: Schedule 1, page 84, line 12, leave out from first “conditions” to end of line 13 and insert—
“(c) in the case of a loan, must be given on a condition requiring the loan to be repaid with interest at a rate approved by the Treasury.
(3) Section 5 of the National Loans Act 1968 (c.13) (rates of interest on certain loans out of the National Loans Fund) has effect as respects the rate of interest on a loan under this paragraph as it has effect as respects a rate of interest within subsection (1) of that section.”
On Question, amendments agreed to.
Schedule 9 [Contribution notices and financial support directions under Pensions Act 2004]:
Baroness Noakes moved Amendment No. 36:
36: Schedule 9, page 131, line 26, at end insert—
“3A In section 90(3) (revision of codes of practice), at the end insert “except that the Regulator may not revise the whole or any part of a code issued under subsection (2)(aa) before the expiry of 2 years from the first issuance of a code under that paragraph.””
The noble Baroness said: My Lords, Amendment No. 36 would insert a new paragraph into Schedule 9, which, in turn, amends Section 90 of the Pensions Act 2004 on statutory codes of practice. Paragraph 3 of Schedule 9 introduces the welcome requirement for a code of practice for the circumstances in which the regulator expects to issue a material detriment contribution
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My amendment says that, once the code has been issued, it should not be revised for two years. The aim is to provide some stability for those who need to navigate commercial transactions so that they do not run on to the rocks of the contribution notice regime. I am sure that the Minister will be aware that a contribution notice is regarded by companies and their advisers as something to be avoided if at all possible.
The commercial world hates uncertainty and wants a reasonable understanding of what the rules are so that business can be planned and executed in a reasonably secure way. There is quite enough change and uncertainty in markets and in commercial life in general without their having to cope with a constantly shifting regulatory environment. I think that that is a commonplace in terms of what constitutes better regulation, to which the Government are, of course, signed up.
I am aware that the existence of a code of practice does not the prohibit the regulator from issuing a contribution notice under new Section 38A but, as the Minister has reminded us on several occasions, the regulator must act reasonably and should therefore depart from the code only in unusual circumstances. That is why certainty as to the code is important in its own right.
I was prompted to table the amendment by the Government’s recent consultation on Section 75 and employer debt, which was announced by a DWP Minister at a CBI breakfast a week or so ago. Its contents have been made available to a number of organisations, but it is has not been made available publicly, even to the Official Opposition. However, we are resourceful people in the Opposition and we have got a copy.
The consultation document makes the point that any change to the employer debt regime would be targeted at those who provide a strong covenant. It goes on to say that the regulator would use its anti-avoidance powers, including the new material detriment powers, to protect members’ benefits and the PPF. So far, so good.
The following sentence in paragraph 14 of the consultation document caught the eye of one of my contacts:
“Indeed the Government considers that such regulatory intervention may be appropriate when a reorganisation would have a detrimental impact on the pension scheme (for example such as a weakening of the employer covenant or the employer’s obligations to the scheme)”.
This reference to simple “weakening” of the covenant seems to be at odds with the quite clear sets of circumstances set out in the code of practice. The nearest equivalent in the code of practice is about the,
- “severing of employer support for the scheme so that employer support is removed, substantially reduced or becomes nominal”.
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It has been generally understood that “severing” is much more dramatic than “weakening” and certainly more than we would expect to find in most routine company reorganisations, which is where the employer debt provisions have caused a problem and led to the consultation under Section 75.
Will the Minister confirm that the consultation document does not represent a shift in thinking on the use of the material detriment provisions? Alternatively, are we expecting the code to say that company reorganisations more generally that involve a weakening will be included within the code? Either way, certainty is required. When the Minister responds, perhaps he will comment on why the Section 75 consultation is such a big secret. I hope that he will recognise the business community’s legitimate concerns for certainty and stability that lie behind the amendment. I beg to move.
Lord Oakeshott of Seagrove Bay: My Lords, the noble Baroness, Lady Noakes, has been more resourceful than I have, as I have not yet got hold of a copy of the document. However, I have been rather puzzled by the purpose and the timing of the consultation, as it seems that the right honourable Rosie Winterton had hardly got her feet under the desk before it was issued. I wonder whether it is in some way to do with the arrival of the noble Lord, Lord Mandelson, and whether it is all part of a great deregulatory agenda. However, it is surprising that the consultation has suddenly been announced and not made public. A number of individuals, including people in the pensions regulatory area, have expressed serious concerns to me about what is going on. At the very least, will the Minister send noble Lords a copy of the document—and if not, why not? Will he please put a copy in the Libraries of the Houses? Is there any secrecy or problem about it, given that a very short timescale is involved? I would welcome reassurances on those points.
Lord McKenzie of Luton: My Lords, I was not sure that our discussion would go in this direction, but I am happy to try to deal with the points raised in relation to Section 75. I stress that an informal consultation is under way in advance of what might be the usual formal consultation. It has been driven because the Section 75 issue has been around for a little while. I am certain from the meetings that I have attended that the CBI would maintain that it is the number one issue for it so far as pension provision is concerned. That is why we have gone down the path of kick-starting the informal consultation, with the intent, depending on where that heads, to go through the more formal consultation processes in due course.
There is absolutely no reason why noble Lords should not see a copy of the consultation document; I shall make sure that they are sent one straightaway. Indeed, noble Lords’ input would be welcome. I attended the first stakeholder group meeting, which began to exchange hints and views on this matter. We need to see where it goes and whether the various propositions set down in this informal consultation are the right way forward. There were four propositions, one of which was to have no change.
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Lord Oakeshott of Seagrove Bay: My Lords, I thank the Minister for that assurance. However, it makes me wonder when a consultation is not a consultation. How many people or bodies are being informally consulted at the moment?
Lord McKenzie of Luton: My Lords, on the number of bodies being informally consulted, I think that the interests around the table included the Pensions Regulator—this is not a state secret—as well as the CBI, the Association of Pension Lawyers and the actuaries.
Baroness Noakes: In other words, my Lords, the usual suspects.
Lord McKenzie of Luton: Indeed, my Lords—a nice summary. But I shall resist trying to give a definition as to when an informal consultation becomes a formal one.
Lord Oakeshott of Seagrove Bay: Was the TUC there?
Lord McKenzie of Luton: My Lords, indeed, it was.
There is nothing sinister about this. The issue is a serious one; we are trying to understand the scale of the issue and how it might be addressed, if it warrants a change in the current position. I stress that there is no shift in relation to the position so far as we have discussed the material detriment test and the code of practice.
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