New Clause 2

HC Deb 09 February 2000 vol 344 cc258-63

Matters to be included in orders under section 20

"—(1) The Treasury shall specify each of the activities set out in subsection (2) in any order made by it pursuant to section 20.

(2) The activities referred to in subsection (1) are the following—

1. (a) providing advice to a consumer on the choice of a manager;
2. (b) providing advice to a consumer on the performance of assets under the management of a manager;
3. (c) providing advice to a consumer on asset mix or allocation for a fund;
4. (d) advising on the structuring or reorganisation of a fund.

(3) References in this section to advice and advising do not include the provision of legal advice.

(4) "Consumer" means a person who uses, or may be contemplating using, the services provided by a manager.

(5) "Manager" means a person who performs the regulated activity of managing investments in the United Kingdom.

(6) "Fund" means an occupational pension scheme, or other assets held under trust.

(7) "Occupational pension scheme" means any scheme or arrangement which is comprised in one or more instruments or agreements and which has, or is capable of having, effect in relation to one or more descriptions or categories of employment so as to provide benefits, in the form of pensions or otherwise, payable on termination of service, or on death or retirement, to or in respect of earners with qualifying service in an employment of any such description or category.".—[Mr. Flight.]

Brought up, and read the First time.

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Mr. Howard Flight (Arundel and South Downs)

I beg to move, That the clause be read a Second time.

Madam Speaker

With this it will be convenient to discuss new clause 34—Transfer to Financial Services Ombudsman of functions of Pensions Ombudsman—

".—(1) There shall be transferred to the scheme operator all the functions and powers of the Pensions Ombudsman established under Part X of the Pension Schemes Act 1993 (as amended by the Pensions Act 1995).

(2) The Treasury may by order—

1. (a) provide for the transfer of any property, rights or liabilities held, enjoyed or incurred by any person in connection with functions transferred under this section;
2. (b) provide for the carrying on and completion by or under the authority of the scheme operator of any proceedings, investigations or other matters commenced, before the order takes effect, by or under the authority of the Pensions Ombudsman;
3. (c) make any transitional, incidental or consequential provision which is necessary or expedient as a result of the transfer of functions under this section;
4. (d) provide for the substitution of the scheme operator for the Pensions Ombudsman in any instrument, contract or legal proceedings made or begun before the order takes effect.

(3) The Treasury may make regulations providing for—

1. (a) the transfer to the scheme operator of any staff previously employed in the service of the Pensions Ombudsman;
2. (b) the terms on which any such transfer shall take place; and
3. (c) the terms on which the employment of any person previously employed in the service of the Pensions Ombudsman may be terminated.

(4) In this section "scheme operator" means the body corporate established under Schedule 14 to operate the disputes resolution procedure referred to in section 200 as "the ombudsman scheme".".

Mr. Flight

New clause 2 is to a substantial extent a probing amendment. Members will be aware that the roles of different parties in the provision of financial services have changed. Typically, pension fund consultants will advise pension funds on the spread and constitution of their assets among bonds, equities, international assets and domestic assets. They will also advise funds on the appointment of fund managers. Accountants provide similar services to companies and to high net worth individuals. Indeed, lawyers are also providing such advice.

The issue is that, under clause 20, the Treasury will need to specify what constitutes a regulated investment activity. I ask the Minister to use this occasion to clarify whether it is intended that the type of activities that I have described will indeed fall within the definition of regulated investment activities. If that is not the case—it was not in the whole sorry saga of pensions over recent years—a major territory of regulation will be omitted. That would be undesirable.

On new clause 34, there is a simple issue: when bringing together all the ombudsmen under one unit under the Financial Services Authority, there is little logic in leaving out just the pensions ombudsman, who is short of resources. Additional actuaries are needed to deal with quite a few complaints. It would be more sensible if all the ombudsmen relating to financial services were brought together under one ombudsman scheme.

Mrs. Jacqui Lait (Beckenham)

Like my hon. Friend the Member for Arundel and South Downs (Mr. Flight), I emphasise that new clause 34 is a probing amendment. It is so probing that I managed to forget to include in it the fact that the Occupational Pensions Regulatory Authority should go with the pensions ombudsman.

I thought that it was worth having a debate about the role of the pensions ombudsman in the new structure. It arises because of a constituency case that has raised some complex issues, most of which will be pursued in other ways, but the need to look more closely at the role of the pensions ombudsman was one of the results of that case. I will pursue some of the issues in the Committee that is considering the Child Support, Pensions and Social Security Bill. I emphasise that I tabled the new clause and was interested in it long before I was delighted to take on the pensions spokesman portfolio.

The pensions ombudsman has a good record. Many consumers have been delighted with his decisions, so I emphasise that it is an entirely constitutional legislative issue. It is by no means an attack on his role. There is a debate in the financial world about that role. I do not wish to take part in that debate. He has been so good to so many small consumers that some of the bigger companies have raised issues about him.

Members of pension funds, however, are unlikely to go to the press because they would feel intimidated in doing so. They are not likely to complain publicly. However, I think that complaints have been raised with a number of hon. Members privately. Lawyers are picking up on some of the issues that are emerging. That is where the debate has been in the past. As he has been so successful at resolving many of the easier cases, it is primarily only the complex, and of course the new, cases that remain.

The pensions ombudsman is unique in that he has some judicial powers, one of which is almost equivalent to those of Customs and Excise—he can send in the bailiffs. I am sure that some of the other ombudsmen wish that they had similar powers.

The ombudsman has been criticised over administration and delays. My hon. Friend pointed out that there have been improvements. Last September's annual report showed that fewer cases were waiting at the end of the year. However, we must remember that the poor ombudsman has few staff. He has half a lawyer, one legal adviser, one in-house litigation solicitor and no actuaries. Given that actuaries drive the pensions industry, I should have thought that he needed access to in-house actuarial advice.

I recognise that the pensions ombudsman only looks after occupational pensions. Historically, such pensions have been the prime provider, but life is changing. We have more money purchase and private pension schemes as well as the Government's stakeholder pension. That is where the problem arises. The Financial Services Authority and OPRA, plus two ombudsmen—two different ombudsmen—will have regulatory authority over stakeholder pensions, which points up the absurdity of the present situation.

The Investment and Life Assurance Group pointed out to me the confusion among the bodies that regulate stakeholder pensions. Such pensions are designed for people who earn roughly up to £20,000 a year. With the best will in the world, those are the people who have most need of sensible advice and who may need to have recourse to the regulatory authorities.

The present provision will lead to confused consumers. That is why there is an argument for the pensions ombudsman to come under the umbrella of the FSA in the new set-up. That would make the system simple. Consumers could go to one organisation. That ombudsman would have access to the latest thinking in a structured as opposed to an informal way.

Under the present proposals, the ombudsman is out on a limb, completely independent and without a structural relationship with the FSA. He may hear about best practice and thinking and new forms of help for consumers through the informal net, but he will not do so through the formal structured net, so he is a fairly lonely character in structural terms—robust, but lonely.

The Government must consider whether they are happy that the pensions ombudsman sits outside the FSA. The argument for that, as I understand it, is that the pensions ombudsman deals only with occupational pensions, which are not a financial product in the same way as an insurance policy is. These days, that comes close to deciding how many angels are dancing on the head of a pin. Ordinary consumers, among whom I would count most hon. Members, would not recognise the distinction between an occupational pension and a financial services product. On those grounds, we have reason to bring the pensions ombudsman within the FSA structure.

There has never been a move to bring the pensions ombudsman into the FSA fold. As many people are satisfied with the job that he is doing, they have not felt that we need to re-examine his place in the system.

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In a sense, inertia rules. I feel that there could be a role for the ombudsman within the FSA, and that his relationship with the FSA should at least be more clearly defined. As I said, the matter of who holds responsibility for stakeholder pensions, for example, is very confused, and a clear line of responsibility needs to be established. Another option is to give the pensions ombudsman more power over more pensions products.

Consumers will become confused about pensions, and confused consumers become angry consumers. They will receive little satisfaction from this regulatory system and will be pushed from pillar to post. Moreover, hon. Members will discover that ever more people will visit our advice surgeries or write complex letters to us about pensions. As hon. Members who have dealt with pensions cases will know, constituents often visit us and begin by saying, "It's a long story", before producing several files. We have to help people with pensions complaints to find their way through the pensions maze.

I should hope that the Government will take new clause 34 away and seriously consider whether there is a role for the pensions ombudsman, with more responsibility, outside the structure, or whether he might be better placed within the FSA structure—so that the lives not only of consumers, but of hon. Members might be simplified.

The Economic Secretary to the Treasury (Miss Melanie Johnson)

As the new clauses deal with rather different topics, I shall deal first with new clause 2, and then with the points made on new clause 34.

New clause 2 proposes that certain activities must be the subject of a regulated activities order, to be made under clause 20. Currently, however, the Bill does not specify which activities should or should not be subject to such an order, although, in schedule 2, an indicative list is provided of the types of activities that could be covered. The schedule essentially sets the four corners of the scope of financial regulation in the Bill.

Specifying activities in the Bill would not be appropriate, and it would go against the basic structure that we have tried to establish—which is that the detailed activities to be regulated are to be specified in secondary legislation, so that the scope of regulations may be adapted when necessary to take account of the changing needs of the regulatory climate. When it is proposed to extend the scope of regulation under the Bill, affirmative resolution procedure will apply.

Much of new clause 2 touches on advice being given on general matters, not on particular investments. The draft regulated activities order that was published in February 1999 proposed that, if advice was not being given on particular investments, it should not be caught. Therefore, generic advice given on investing in shares rather than bonds, for example, would not be a regulated activity, whereas advice to buy shares in a given company would be a regulated activity.

The new clause seems partly to seek to contradict that position, and potentially to bring new matters within the scope of regulation, which is simply not our intention.

Although I appreciate that the hon. Member for Arundel and South Downs (Mr. Flight) said that the new clause was a probing amendment, I hope that I have explained why we do not think that it is the appropriate way to go.

Mr. Flight

The point of the probing amendment that was debated in Committee was to establish whether the Treasury were proposing to specify in the Bill the various types of investment advice that have developed. I should be grateful if the Minister could answer that.

Miss Johnson

If we specified them, we would do so in secondary legislation which will require an affirmative resolution. In schedule 2, we have indicated only the types of activity that we think could be covered, rather than tied ourselves down on the matter in primary legislation.

New clause 34, proposed by the hon. Member for Beckenham (Mrs. Lait), deals with dispute resolution in connection with operational pensions. It has been our intention where possible and sensible to remove the scope for overlaps and gaps in the arrangements connected with all kinds of financial services, so I cannot deny that there is a certain logic in the proposal.

However, the pensions ombudsman's current role is different from that envisaged under the Bill. The pensions ombudsman can entertain complaints against any trustees or sponsoring employers. That would not be the case under the Bill, because all potential respondents—such as employers—would not need to be authorised by the FSA, and so could not be brought within the compulsory jurisdiction. There is a fundamental difference in terms of the basis of the jurisdiction of the ombudsmen.

Moreover, the financial services ombudsman will generally consider relatively minor complaints—primarily from retail and small business customers about financial services they have bought, their home insurance, a problem with the mortgage and so on—where the nature of the complaint is between customer and service provider.

The pensions ombudsman—as all hon. Members will know—can look at the operation of the pension scheme as a whole, and can even consider complaints by potential respondents such as employers and trustees against each other. The ombudsman needs to be able to deal with the firm, the employees of the firm and the trustees of the firm's pension scheme, and deal with relationships between those people. Accordingly, whereas under the FSA's current proposals the ombudsman will be able to make awards of up to £100,000 per complaint, this would not be a sensible approach for the pensions ombudsman, given the collective nature of occupational pension schemes. There are a number of differences between the two proposals.

Mrs. Lait

Can the Minister clarify where the balance would lie in terms of people who have stakeholder pensions under a trustee system and the many stakeholder pension schemes that will not have trustees? Would a member of a trustee stakeholder scheme go to the pensions ombudsman? Would someone with a money-purchase stakeholder scheme go to the FSA?

Miss Johnson

That is a matter for the relevant pensions Minister. The hon. Lady said that she will be raising such issues in debates on child support, pensions and social security. That issue should be raised with my colleagues in the Department of Social Security.

I accept that things will not always be clear cut. Clearly there can be cases where a person has a complaint against both an authorised person and the scheme trustees or employer—for example, in relation to a decision to opt out of an employer's scheme and take a personal pension plan recommended by an independent financial adviser. When problems arise, it is not immediately clear where the fault lies.

Sadly, I am not sure that that conflict can ever be resolved entirely. However, I hope that the hon. Member for Beckenham will note that paragraph 14(2)(c) of schedule 14 enables the ombudsman scheme rules to make provision allowing the ombudsman, with the consent of the complainant, to refer the case to another body for resolution by that body. Paragraph 19 provides a similar power for the voluntary jurisdiction, and allows the scheme to perform functions on behalf of a similar body, such as the pensions ombudsman. Those provisions were included with the pensions ombudsman in mind to ensure that the consumer could continue to benefit from an apparently seamless service in relation to pensions questions.

I hope that the hon. Member for Beckenham will agree that although there is no overwhelming single argument against the proposal that she has made, taking the various factors together, there are a number of potential problems that we ought to guard against. I hope that she will find my comments about the relationship between the two schemes reassuring.

Question put and negatived.