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As for the consultation on the code that we refer to here, it cannot start until Royal Assent, which we hope will be imminent. We hope that the code will be in place in the first half of 2009—obviously, after being laid before Parliament.
Noble Lords will recall that, as part of the package of amendments on the Pensions Regulator’s anti-avoidance powers, we introduced a requirement on the regulator to publish a code of practice. This code would set out the circumstances in which the regulator expects to issue a contribution notice under the material detriment test, as the noble Baroness explained. The Government concluded, in consultation with key stakeholders, including the CBI, that setting out these circumstances in a code was the most appropriate approach. This approach would allow the regulator, in consultation with stakeholders, to update the code in light of its operation while giving employers and trustees a degree of certainty on the application of the law.
Section 91 of the 2004 Act allows for codes of practice to be updated, but such changes have to be consulted on and are subject to the Secretary of State’s approval. The Secretary of State is required to lay the draft code in Parliament for a period of 40 days and either House may resolve that no further proceedings be taken on the draft code.
Amendment No. 36 would remove the regulator’s discretion to modify the code of practice in the light of its operation during the first two years of its introduction. It would not be right to prevent the regulator being able to update the code to deal with new risks to
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As I said at Report, officials worked closely with the regulator and key stakeholders during the summer to prepare the contents of the draft code, which was published on 20 October. In drafting the code, the regulator and stakeholders started from a consideration of new business models and the risks that these represented to members’ benefits. They considered a range of circumstances where it could be appropriate to use the material detriment test. For example, most routine corporate activities, such as routine dividend payments, are excluded from the code; whereas other non-routine events, such as the severance of the operating company from its pension scheme which may substantially increase risk to members benefits, would be in scope.
Following this development work, the regulator is confident that the draft code sets out the right circumstances. Therefore, I should like to offer my assurance that the regulator cannot currently envisage any other circumstances which it would need to add to the code in the next two years. As a precautionary measure, however, we could not preclude that if circumstances arose. On that basis, I ask the noble Baroness not to press the amendment.
4.45 pm
Baroness Noakes: My Lords, I thank the Minister for that reply and for confirming that there is currently no intention shortly to change the code and that, in particular, the Section 75 consultation document does not imply any change of view at this stage. I am grateful for those assurances. I apologise to the Minister for bowling a fast ball on the Section 75 consultation but I could not resist as this is the last amendment that we will be debating on this Bill. However, the Minister showed his usual, excellent skill and batted my ball away. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McKenzie of Luton: My Lords, I beg to move that this Bill do now pass. Although I would like to say a few words to reflect on the progress made, perhaps I can simply thank all noble Lords who engaged with the Bill and, in particular, the Bill team for their excellent work.
Moved accordingly, and, on Question, Bill passed, and returned to the Commons with amendments.
Dormant Bank and Building Society Accounts Bill [HL]
4.46 pm
Lord Davies of Oldham: My Lords, I beg to move that the Commons amendments be now considered.
Moved accordingly, and, on Question, Motion agreed to.
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[The page and line references are to Bill 80 as first printed for the Commons.]
Amendment No. 11: Page 1, line 15, at end insert-
“( ) The reference in subsection (1) to an account that a person holds is to be read as including an account held by a deceased individual immediately before his or her death.
In such a case, a reference in subsection (2) to the customer is to be read as a reference to the person to whom the right to payment of the balance has passed.”
Lord Davies of Oldham: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 1. I shall also speak to the other amendments in this group.
I begin by setting out what it means for an account to be dormant and exactly what the definition must achieve. It is vital that the definition is completely clear so that no institution can be in any doubt when it transfers an account to the scheme about whether the account qualifies as dormant. The definition must be able to be applied simply and effectively by over 200 institutions, each with a wide range of accounts with differing features, customer bases and usage profiles.
At the same time, we are committed to doing the utmost to ensure that only truly dormant accounts are transferred into the scheme. However, the available information which could be used to identify whether an account is active varies enormously between institutions, and even between different accounts in the same institution. We are confident that with the refinements in the definition produced by the Bill’s passage through both Houses, we now have a definition that is both clear enough to provide a simple and effective test and flexible enough to allow the institutions to take into account the information available to them
The key condition of no customer-initiated transactions in relation to the account for 15 years is both simple and universally applicable. Yet there is flexibility for an institution to refer to any consumer activity of which it has knowledge in deciding whether an account is genuinely dormant. That could include, for example, correspondence, telephone calls, emails or voting at AGMs. Under the Banking Code, each institution is required to publish clearly, for all their customers to see, the criteria it will use to decide the issue of account dormancy. With that in mind, I turn specifically to the amendments before us.
The Government’s intention is that all bank and building society accounts based on the definition of dormancy in the Bill are eligible for transfer into the scheme. Naturally, this includes accounts that could have been opened a very long time ago. When we first debated the Bill in this House, we were asked to clarify the position for accounts owned by deceased persons. It is of course unlikely that banks and building societies will know whether account holders are living or deceased. Unless they have very good reason not to, we would expect them to transfer into the scheme all accounts that fit within the 15-year qualification period. However, we understand that institutions wish to have certainty
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Amendment No. 8 also is a technical amendment. It ensures that notice accounts, where a short notice period is required before a withdrawal can be made, are not excluded from the scheme under the provision that was made for fixed-term accounts. Amendment No. 9 covers our intention to ensure that genuinely dormant bank and building society accounts lost by the account holder will be transferred into the scheme, and not those accounts which are simply rarely used but of which the account holder is still aware. This will minimise unnecessary costs associated with returning accounts to customers after transfer. We want, of course, to keep the necessity for any return transfer to an absolute minimum.
Our scheme provides a definition of dormancy that is simple, clear and straightforward. It is an account open throughout a period of 15 years with no customer-initiated transactions. However, the scheme is also sophisticated. It allows banks and building societies the flexibility to refer to customer-initiated activities which may indicate that an account is not in fact dormant even where there have been no transactions on it. Of course in those circumstances the account would not fall within the framework of the scheme.
If the institution is aware of activity—the request of periodic statements, for example—we would fully expect institutions not to transfer such accounts. Furthermore, those with particularly strong or individualised systems will be able take this into account in their individual policies. This flexibility is one of the great strengths of our scheme. Institutions will be expected to use their knowledge. That was indicated in our consultation and is clearly set out in the Explanatory Notes.
The Building Societies Association has said that the ability to take account of other forms of customer contact is “particularly important” to it, and that it supports the Bill as it is. The British Bankers’ Association has also welcomed,
“The ability to take into account other indications of whether an account is genuinely dormant”.
Furthermore, it is simply not in the interests of any institution to transfer an account to the scheme unless the deposit-taker and the customer have genuinely lost touch. This would add to the administration of the scheme, a substantial proportion of which will be borne by those institutions themselves. Requiring institutions to use all their knowledge in legislation is unnecessary, as it adds nothing to the scheme. On the contrary, it would have a detrimental impact on the clarity of the definition.
It is immediately apparent in the Bill when the minimum definition of dormancy has been achieved. If there has been a transaction in the last 15 years, the account cannot be considered dormant. If there has not been a transaction in that time, it can be considered so. Most importantly, however, the consumer will have a full right to repayment in all circumstances through the bank or building society where they held the
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As regards Amendments Nos. 10, 10A and 10B and the period of 15 years, we recognise that there is considerable debate over the suitable length of the period for the purpose of defining dormant accounts. We believe that 15 years’ customer inactivity is the most appropriate time to determine whether an account is truly dormant. That figure was arrived at after considerable discussion with industry and consultation. It is also the figure that other countries, including Ireland, have adopted in legislation.
Industry has estimated that 80 per cent of accounts that have had no customer initiated activity for 15 years are truly dormant. Adopting a lower dormancy period runs the risk of a higher reclaim rate, with a corresponding inevitable increase in costs. In any case, any accounts which are truly dormant will still be dormant when they reach the 15-year mark, and will come into the scheme then. However, we have listened carefully to the arguments for a shorter period, which have been put on a number of occasions. We accept that, in the future, the experience of the operation of the scheme and of industry could suggest that there should be an alternative figure to that in the Bill. Accordingly, the Commons amendment brings forward a reserve power for the Treasury to amend the dormancy period. The amendment was drafted with a negative resolution procedure. However, the Delegated Powers and Regulatory Reform Committee considered this power and recommended that, since the definition of a “dormant account” is central to the purpose of the Bill, the power to amend the 15-year period should be subject to the affirmative procedure. We have, of course, respected its conclusions and representations and are happy to bring forward Amendment No. 10B for inclusion in the Bill. Accordingly, I will move that amendment when we get to it. I beg to move.
Moved, That the House do agree with the Commons in their Amendment No. 1.—(Lord Davies of Oldham.)
Baroness Noakes: My Lords, we on these Benches are content with the package of changes that the Minister has put before us. We might regret that some of our pride of authorship has disappeared as regards some of these amendments, but the overall package is acceptable.
On Question, Motion agreed to.
AMENDMENT NO. 22: Page 2, line 1, leave out “building society or a smaller bank” and insert “smaller bank or building society”
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Lord Davies of Oldham: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 2. I wish to speak also to Amendment No. 2A and to the other amendments in the group. I remind noble Lords of the objective of this Bill. I am not unmindful of the fact that the noble Lord, Lord Shutt of Greetland, holds a somewhat different view from the Government on this. I shall in no way, shape or form attempt to pre-empt his arguments. I will, of course, bend the ever-listening ear to what he has to say, but wish to indicate the strength of the Government’s position as we see it.
The Bill sets out to facilitate fair and efficient distribution of funds in dormant accounts for the benefit of the wider society. Small banks and building societies often play a key role in supporting and engaging with their local communities. For this reason, the Government have always been clear that small, locally based institutions would be able to focus dormant account assets on real needs in their local communities. Of course, the Government recognise the value of “small and local”.
We consulted with the bank and building society sector, and the Government identified a £7 billion turnover as a credible threshold to define small and locally based institutions. The Building Societies Association advised us that more than 90 per cent of building societies with less than £7 billion total assets have all their branches within 70 miles of their head office. Thus “small” also means reasonably local.
By contrast, the big building societies are, by definition, not small and are not local. The noble Lord, Lord Shutt, will forgive me if I draw attention to a building society based in Yorkshire, as he is likely to quote Yorkshire-based examples back to me. The Leeds Building Society, which is the smallest of those that will be above the £7 billion threshold, with assets of £9.2 billion, has branches the length and breadth of the country, from Aberdeen to Southampton and from Belfast to Braintree.
We are confident that the asset limit that we have identified enables genuinely small and local institutions to provide support for their local communities, while ensuring that funds from institutions that operate on a national scale are distributed towards the agreed national spending priorities in a co-ordinated fashion.
Let us be clear: the Government are of course committed to supporting mutual organisations and recognise the many benefits that they bring to society and communities across the UK. If I had any doubts about this matter, my recollection of exchanges with the noble Lord, Lord Shutt, and other noble Lords in the House earlier in the year would have convinced me of the virtues of the mutuals. We recently introduced new legislation to support the mutuals sector, including improving rights relating to members’ shares and improving the procedures involved in transferring business to the subsidiary of another mutual.
Let us also be clear that the vast majority of building societies will be eligible for the alternative scheme. According to the BSA’s November 2008 statistics, 50 of its 59 members, nearly 85 percent, will meet the “small and local” definition and the distribution of resources within that framework.
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It was pointed out at Second Reading that the building societies that will not be eligible hold the vast majority of the dormant account funds in the sector. That is correct. To be precise, the BSA estimated that of the £130 million in dormant accounts in the sector, £100 million lay in the larger institutions.
Much has been said of the great need in the areas to which the spending priorities of this scheme have been directed. The noble Lord, Lord Shutt, will take solace in knowing that this was a subject of considerable debate in the other place. It was hardly likely that Members of Parliament, with their representative role in their constituencies, would miss the opportunity of emphasising the local good that this dormant accounts scheme could provide from the institutions that would contribute to it. However, MPs emphasised also, with great force, the advantages to their communities of the priorities to which the major resources from the big building societies and banks would be directed: youth facilities, a social investment wholesaler and improving financial capability and inclusion. On the latter point, we are all too well aware that the more difficult the economic circumstances, the greater the need for people to be able to manage their affairs effectively.
If the largest building societies do not take part in the main scheme, quite simply we undermine our ability to fund these very important initiatives for the wider society. The Government are aware that banks and building societies already support a variety of good causes in different communities, and we applaud those initiatives, but are they really in the best position consistently to consider the needs of wider communities throughout the UK? If we allow dormant account money to be administered through multiple individual foundations, that will inevitably lead to significant overlaps and to possible gaps in provision.
In the interests of the fair and efficient distribution of substantial funds, it is right that we concentrate on establishing centralised, national distribution. With respect to the main scheme, the Big Lottery Fund has a track record of ensuring that all communities benefit from its funding. At this point, I should say that I am all too well aware that for every success in relation to National Lottery allocation, there will be attendant disappointments, and that therefore Big’s record will be subject to criticism. However, given the forebodings expressed during the passage of the Bill about the arrangements for the National Lottery and the distribution of its funds, and given the flurry of questions that were asked shortly after it began to operate, it is markedly the case that the lottery’s distribution work is subject to much less criticism than was foreshadowed. That suggests that the Big Lottery Fund is doing its job ably and reflects the fact that it is well placed to do so. It has a track record of ensuring that all communities benefit from its funding; it has used, and will be expected to use in relation to dormant accounts assets, a variety of methods to achieve a fair regional and local spread of funding; and it already has a comprehensive infrastructure in place for distributing funds on a national level, in line with spending directions. Therefore, here is an institution with considerable knowledge of, and experience in, fielding grant
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We welcome the October statement from the Building Societies Association supporting the Bill and the Government’s proposals for an alternative scheme for smaller financial institutions. We also welcome the statement of the coalition of building societies expressing its members’ commitment to making the scheme a success and its intention to participate in it. Likewise, the British Bankers’ Association offered a statement confirming commitment to participate from banking groups which represent 90 per cent of the UK retail banking market.
The proposed scheme is designed to be simple and efficient to minimise costs to institutions and the scheme overall, and to maximise funds for distribution. The asset limit provides a balance between giving small, locally based banks and building societies the flexibility to directly benefit their local communities against maximising assets for the main scheme.
The government amendments are designed to create an alternative scheme for small, locally based institutions. Those require a definition, which is given accurately in the Bill, and I therefore hope that the House will support Commons Amendment No. 2 and the other government amendments when they are brought forward.
Moved, That the House do agree with the Commons in their Amendment No. 2.—(Lord Davies of Oldham.)
Lord Shutt of Greetland moved, as an amendment to the Motion that this House do agree with the Commons in their Amendment No. 2, leave out “agree” and insert “disagree”.
The noble Lord said: My Lords, this issue is about the best way to dispense moneys when we all agree that the beneficiaries should be good causes. Perhaps I should declare an interest as a grant-maker. For nearly 35 years, I have been a trustee, particularly with the Joseph Rowntree Charitable Trust and the JRSST Charitable Trust, and I am a vice-president of the Community Foundation for Calderdale.
In our previous discussions, we have resolved that all building societies should be encompassed in the scheme for the smaller banks and building societies. That was the position when the Bill left this place on 31 January. At that time, there were 59 building societies, 51 of which were regarded as small and eight of which were regarded as large. I want to recap the case that was made then.
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