HL Deb 15 July 2004 vol 663 cc307-62GC

The Committee met at eleven of the clock.

[The Deputy Chairman of Committees (Baroness Gould of Potternewton) in the Chair.]

Clause 85 [Procedure for issue and publication of codes of practice]:

Lord Skelmersdale

moved Amendment No. 167:

Page 61, line 5, leave out subsections (5) to (8) and insert—

  1. (5) If the Regulator determines to proceed with a draft, he must send it to the Secretary of State who—
    1. (a) if he approves of it, must make the code of practice in the form of the draft, and
    2. (b) if he does not approve of it, must publish details of his reasons for withholding approval.
  2. (6) The power to make a code of practice under this section is exercisable by statutory instrument."

The noble Lord

said: At the end of our proceedings on Tuesday, I put the Minister on warning that I would make a faintly retrospective speech about Clause 84 and its relationship to Clause 85. She said that she would not complain too much. It is in Hansard.

As the Committee will know, I have now spent just over one third of my life in this House sitting on the Joint Committee on Statutory Instruments. For some reason, the committee is not subject to the three-year return, but I will not be asking the Minister why as I do not believe it is in her province.

This series of amendments point out that it is bad statutory instrument practice for a quango to make legally binding codes of practice. I accept that the Bill does not propose this, but the Secretary of State confirms the codes of practice. I recall that on Second Reading the noble Baroness and I had a little exchange about the degree of the legally binding effect (col. 386). In effect, she said that obeying or not obeying the regulator's codes of practice would be taken into account in any legal proceedings under Clause 84(5), but no more than that.

We can argue about the weakness of the Bill's provisions in this regard probably till the cows come home. But I would say that if the Secretary of State gets involved in the codes of practice that are laid before Parliament—albeit subject to negative resolution under the Bill, but affirmative under this proposal—they should be legally binding and not merely taken account of.

Be that as it may, the current drafting in subsections (5), (6), (7) and (8) of Clause 85 is extremely complicated. We have therefore sought to simplify it by using the formulation we already have in the Bill under Clause 301(1). It surely is not necessary to have subsection (7) in particular, which encapsulates part of the Statutory Instruments Act 1947. As subsection (8) again states, the obvious I would ask the Minister why it is necessary. It is, after all, practice that a statutory instrument is law until it is replaced by another one. I beg to move.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham)

Clause 85 sets out the procedure for issue and publication of codes of practice. Before a code of practice, including a revised code of practice, can be issued by the regulator, a draft of the code must be published for consultation with persons whom it considers appropriate and anyone the Secretary of State identifies.

Before a code of practice may be issued, the regulator must send it to the Secretary of State which, if it approves the code, will lay before Parliament or, if it disapproves, must publish details of its reasons for withholding consent. The normal procedure then applies associated with either negative or affirmative regulations.

Amendment No. 344 would require each code of practice to be subject to the affirmative procedure, which we would resist because we believe it would create unnecessary delay and restrict the ability of the regulator to respond quickly to changes and address changes needed to its code of practice.

However, the noble Lord, Lord Skelmersdale, raised a couple of different issues. On the negative/affirmative issue, perhaps I may put a proposition to him which on that point he might find helpful. It is that we do not move away from the negative procedure simply because some of the codes may be extremely technical and not appropriate to come to Parliament. Others may be general.

I am happy—and I hope that the noble Lord, Lord Oakeshott, will find this helpful—that wherever a code of practice is being laid under negative procedure, I write to the two Opposition spokes people and place it in the Library so that they will know it is there. They will not then have to rely on their researchers to be informed that it exists.

That would give ample opportunity to pray against it and make a judgment about whether it is appropriate to bring it on to the Floor of House. I would not wish to make all codes of practice affirmative because they will vary in their degrees of specificity and it might be a waste of the time of the House. If it would be helpful for me to give advance notice—indeed, I would be happy to send copies of each instrument—noble Lords can then decide whether they wish to pray against them. This might meet that objective. Let me pause for a moment and see whether that would be helpful.

Lord Oakeshott of Seagrove Bay

I shall obviously have to consider that. How far in advance would this be? What sort of timescale or notice would we get from these letters? What is the intention?

Baroness Hollis of Heigham

I have no idea. I am trying to find a way through a dilemma here. It is quite clear that some codes of practice, though not legally binding, can none the less be used evidentially—that was the phrase we used last time. It is therefore important, at least to start with, that people have an opportunity to scrutinise them. Some codes of practice may be sufficiently technical not to do so. When Secretary of State lays a code of practice before Parliament, there is normally up to 40 praying days against. When he lays it in the Library, I will undertake to notify noble Lords so that as a result there are 40 praying days in which to look at it. I do not know whether that would be helpful but it is a way of us doing the noble Lords' research work for them. It allows noble Lords to discriminate in a way that cannot be done if we make blanket negative or affirmative regs.

Lord Skelmersdale

I shall respond to that as the noble Lord, Lord Oakeshott, has done so. Personally, I would find that extremely helpful and I am sure that my successors will, too. I take it that this suggestion will be binding, but more on the department than the Minister of the day. As the noble Baroness will remember, in Opposition the research work available is next door to nil, although I have to accept that under recent arrangements it has got marginally better, but only marginally, in this House. All of us in Opposition are still extremely jealous of our MP colleagues and what they manage to achieve.

I assume from what the Minister has just said that at the same time that the instrument is sent to the Clerks of the Joint Committee it would also be sent to the spokesmen of the day in this House. It would be the easiest way for everybody.

Baroness Hollis of Heigham

My concern is entirely for this House. What they do down the other end is a matter for arrangements down there. I was giving an undertaking. I have been in the situation myself and it is very difficult to monitor negative regs and keep apace of them, particularly in the DWP. I was trying to think my way through the dilemma by what I would have found useful. I am making the offer that when laying the instrument in the Library, I shall write to the noble Lords and do my best to ensure that a copy of the instrument is enclosed. That would make approximately 40 days' praying time available for the noble Lords to decide. It is important and the noble Lords will decide that perhaps one code in two, three or seven may be appropriate to be debated on the Floor of the House.

As to the other point raised by the noble Lord, Lord Skelmersdale, on whether codes of practice are legally binding, they are not, but they are evidential. The reason is that a code sets out the regulator's interpretation of good practice. Therefore, any person to whom a code is relevant—for example, a trustee taking action within a "reasonable time"—may take an alternative course of action as long as he complies with the law. In the event that the regulator was of the opinion that that trustee was not complying, the onus would fall on the trustee to show that, although he did not follow the code, he is still within the law. In other words, there may be a way to get to the terminal point that is not along the route laid out by the codes of practice. If the trustee can establish that, this procedure would be acceptable.

It not legally binding because it would put in rigidity—at least as rigid as that on the face of the Bill. The last thing one wants is for a code of practice to have that degree of rigidity but it does carry strong evidential weight. The onus of proof is on the trustee to show that he has arrived at the objective by a somewhat different route, perhaps, than is acceptable to the code of practice. I am advised that that is the reason why it is not legally binding. With that explanation, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Skelmersdale

Not yet, because the noble Baroness has not answered my third point, which concerned the complicated drafting of the clause compared with Clause 301(1).

Baroness Hollis of Heigham

One area that I have difficulty describing, explaining or negotiating is drafting. Having had the pleasure of being Ministers, the noble Lord and the noble Lords, Lord Higgins, Lord Hunt of Wirral and Lord Lucas, will know that what happens is that policy intent goes via parliamentary counsel. Parliamentary counsel determines the precise phraseology of clauses and it is the judgment of parliamentary counsel that this is the appropriate way to meet the objectives. So I cannot help the noble Lord any further.

However, I am perfectly happy to ask our lawyers to write to him explaining why the clause has taken the form that it has. I can deal only with the policy intent and try to get parliamentary lawyers to explain why it has come back in the form that it has, rather than taking what would appear to be a more obvious route. I am sorry that I cannot help the noble Lord any further than that but, as I know that he has been in this position himself, I expect the utmost sympathy.

Lord Skelmersdale

Of course I am sympathetic, but I was fishing for exactly the response that I received: an explanation from the draftsmen, or from lawyers in the department, of what I still regard as a curious and unnecessary form of drafting. However, I have responded to the very generous offer that the noble Baroness made to us about advance warning of negative resolutions. I am very pleased with that. Of course, codes of practice are the regulator's interpretation of good practice; I accept that. However, as the noble Baroness and I pointed out in opening the debate, they have the sanction of the Secretary of State, so they are a little more forceful, shall we say, then they would otherwise be. I shall continue to consider the matter, but in the mean time I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 168 not moved.]

On Question, Whether Clause 85 shall stand part of the Bill?

Lord Higgins

I shall speak briefly because my noble friend Lord Skelmersdale dealt in considerable detail and with expertise with the strangely drafted form of the clause. The trouble with giving parliamentary counsel instructions is that when you come months later to debate the Bill in Committee, you often find a clause that is totally incomprehensible and unrecognisable, so you wonder what on earth it is about until you realise that it is the thing that you originally gave instructions about.

I have only two trivial points to make about the clause. It states: The Regulator must arrange for any code…to be published in the way, that appears to be appropriate.

Baroness Hollis of Heigham

Could the noble Lord give me the line reference?

Lord Higgins

It is line 30 on page 61. The question is how it is proposed that it should be published. It is obviously important that individual trustees, and so on, receive it. The Treasury seems to be being quite mean by normal Treasury standards in asking for a charge to be made. What sort of revenue are the Government expecting to receive from the Treasury charging for the code of practice to be issued? The Treasury really does not need to go that far in facilitating the operation of the Bill, which otherwise is in many ways worth while.

Baroness Hollis of Heigham

I am delighted to hear the noble Lord, Lord Higgins, encouraging us to spend money—I am sure that it is for a good cause. Under subsection (10), we expect publication to be valid whether it is by paper or the Web, so that people have access to it.

Secondly, we do not expect that there will normally be a fee under subsection (11). But if a company requested 1,000 copies, one for each of its members, it would seem reasonable to consider a charge so that the provision was not at the expense of others. It is a matter of judgment, but normally there would be no problem with sending out a copy. If a company wanted every member to have a copy, as a result of which a very large amount of trees were involved, it would not be unreasonable to consider an appropriate fee—it would be non-profit-making, I am sure.

11.15 a.m.

Baroness Turner of Camden

I was interested in the reference to consultation in Clause 85. It states: Where the Regulator publishes a draft…it must consult— (a) such persons as it considers appropriate, and (b) any other persons the Secretary of State requires it to consult. Where would the list of people to consult come from and who would those people be? If a code of practice affects how trustees are expected to operate, it is necessary that trustees are consulted. As my noble friend is aware, an organisation of trustees from major companies has already been established. It has drafted its own code of trustees, which it put to the department. I would like to see such people consulted in connection with these codes. Can my noble friend give us any information on how such lists, if there are any, are compiled?

Baroness Hollis of Heigham

I am not sure whether we have lists as such. All that I would say is that I have never known a Bill that has involved so much consultation—on policy intent, the draft regulations and so on. The intention is to consult as widely but as appropriately as possible; for example, it might not be sensible to involve insolvency practitioners on an issue associated with how many staff there might be for the removal of the tracing service from OPRA to the Department for Work and Pensions, but it might be very appropriate to consult the union of the staff concerned, because their conditions of employment may change or a TUPE issue may be involved. All I can suggest to my noble friend is that this is one of those occasions where one says, "I am from the Government; please trust me".

Lord Hunt of Wirral

I hesitate to follow that last remark, because I thought that that was one of the great untruths.

Baroness Hollis of Heigham

It depends on who says it.

Lord Hunt of Wirral

From the Minister's mouth, I would readily believe it, but from some other mouths I would not.

On Clauses 84 and 85, I am aware not only of the concerns expressed by my noble friend Lord Higgins but of the serious concern expressed by the Association of British Insurers (ABI). Its head of pensions and savings, Joanne Segars, has said that she and many members of the ABI are seriously concerned that there is a danger that the Bill as currently drafted, particularly Clause 85, will not provide for good pension scheme governance.

I realise that we have debated some of these issues already. I hope that there will be time, before we resume after the Recess, for the Minister and her colleagues to discuss some of the issues involved with the representative organisation. It is in everybody's interest that we have good pension governance.

Baroness Hollis of Heigham

That is absolutely right; I certainly promise to discuss the issues. I understand where people are coming from on this clause. Would noble Lords find it helpful if I asked our lawyers to provide a detailed description of the clause—the weight of its words, the cross-references and its import—and to ensure that it is circulated to everybody before Report? If noble Lords would find such a legal deconstruction helpful I am very happy to make that offer. It is absurd, if people of the experience and expertise of your Lordships are struggling with the clause, to expect people outside, who possibly do not have that expertise, to have easy access to it. It may be that, if we have any supplementary guidance and so on, we can ensure that it covers the description of the clause. Members of the Committee may find other clauses similarly opaque. Some of the difficulty, although not very much of it, is about cross-referencing back to previous pensions Acts. If and when—I hope that it will not be too long—we get a consolidation Act—we shall not face that problem. That could be next week or next decade. Who knows?

Lord Oakeshott of Seagrove Bay

It could not be next week.

Baroness Hollis of Heigham

No, I agree—that was a rash hypothesis. But if any other clauses fall into that category, Members of the Committee should let me know, and I shall be happy to extend the same offer.

Clause 85 agreed to.

Clause 86 [Revocation of codes of practice]:

On Question, Whether Clause 86 shall stand part of the Bill?

Lord Higgins

I make only a very brief point. The final subsection, on page 61, refers without prejudice to Section 300, which is a very long section dealing with subordinate legislation and general provisions. The subsection says: Without prejudice to section 300, an order under this section may contain such savings as appear to the Secretary of State to be necessary or expedient. I am not familiar with the expression "savings", and I have no idea what it means in this context.

Baroness Hollis of Heigham

I am sure that "savings" here does not mean cash. Let me add that to the letter that I shall write about Clause 85. Apparently "savings" carries a legal import here with which I am unfamiliar.

Clause 86 agreed to.

Clause 87 [The Regulator's procedure in relation to its regulatory functions]:

[Amendment No. 169 not moved.]

Lord Higgins

moved Amendment No. 170:

Page 62, line 26, at end insert— "( ) power to issue a contribution notice under section 35; ( ) power to issue financial support directions under section 39; ( ) power to issue contribution notices where financial support directions not complied with under section 42; ( ) power to issue a restoration order where a transaction is at an undervalue under section 47; ( ) power to issue a contribution notice where a restoration order is not complied with under section 50"
The noble Lord

said: The amendment stands in my name and that of my noble friend Lord Skelmersdale, and is intended to be helpful—as, indeed, all our amendments are intended to be. Nowhere in the Bill does it appear that there is any requirement for the regulator to determine the code of procedure for the powers enumerated in the amendment. We are under the impression that that may be an oversight, and the amendment seeks to remedy it if that is the case. Currently the regulator's exercise of the powers is not within the scope of the pensions regulator tribunal in Clauses 91 and 93, and so not subject to any judicial oversight as to fact or law. The amendment seeks to put the matter right. I beg to move.

Baroness Hollis of Heigham

I see the point of the amendment, but I wonder whether it is at all necessary. It would add a number of functions to the list of regulatory functions of the regulator contained in Clause 87(2). The functions of the question are the powers that the regulator may exercise under the clauses that we debated very extensively and which cover moral hazard—Clauses 35 to 50.

The list of regulatory functions in Clause 87(2)(c) includes the functions reserved to the Determinations Panel and listed in Schedule 2. That schedule already contains the powers that are the subject of Amendment No. 170. Members of the Committee will find them on page 245 of the Bill. Those powers are therefore already classed as regulatory functions. In other words, we do not disagree, but what the noble Lord is asking for is in one of the schedules that is tucked away in Volume II of the Bill, in Part 4. I hope that with that explanation, the noble Lord will feel able to withdraw his amendment.

Lord Higgins

I am grateful for that response. Is it the case, however, that the regulator's exercise of the powers is not within the scope of the Pensions Regulator Tribunal, and so on, and not subject to any judicial oversight as to fact or law?

Baroness Hollis of Heigham

No, it certainly comes within the purview of the oversight of the pension tribunal.

Lord Higgins

We will obviously need to do further homework and, if need be, come back at Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 87 shall stand part of the Bill?

Viscount Trenchard

I have a point regarding Clause 87, which I found confusing. Subsection (1) states: The Regulator must determine the procedure that it proposes to follow in relation to the exercise of its regulatory functions. That includes, as the Minister pointed out, in subsection (2)(c), "the reserved regulatory functions" reserved to the Determinations Panel. But subsection (3) states: The Determinations Panel must determine the procedure to be followed, in respect of the exercise of those powers.

The clause seems to state that the reserved regulatory functions are determined by both the regulator and, separately, the Determinations Panel. I am still confused about whether the Determinations Panel is or is not a part of the regulator. Clause 87 seems to state that they will both draw up their own procedures.

Baroness Hollis of Heigham

The noble Lord is right. The Determinations Panel is a subset of the regulator. That is why, under the functions listed, it is part of what the regulator does. But certain functions that the regulator does are reserved to the Determinations Panel.

As the noble Viscount will know, there is no overlapping membership whatever. That is not only to meet ECHR requirements but also to overcome a difficulty that OPRA has experienced where there is a problem about appearing to be both judge and jury on one's own issue. It is because the Determinations Panel is part of the regulator. None the less, it will determine its own procedures within its own area of activities.

Viscount Trenchard

I thank the noble Baroness for her reply. But I am still unclear, in respect of the reserved regulatory functions, whether it is the regulator or the Determinations Panel which will determine the procedures to be followed.

Baroness Hollis of Heigham

The Determinations Panel is part of the regulator. I am obviously not making myself clear. The Determinations Panel will determine its procedures. The point is that because the Determinations Panel is a subset of the regulator, Clause 87(2) gives the comprehensive listing; subsection (3) gives a further specification or a development of the points made in subsection (2). I hope that that is helpful.

Viscount Trenchard

In respect of this clause, that is helpful, but I shall have to refer back to our previous discussions about the difference between the regulator and the Determinations Panel. Would I be right in understanding that where it says "the regulator", one can understand the regulator including, if appropriate, the Determinations Panel?

Baroness Hollis of Heigham

The Determinations Panel is part of the regulator. Clause 87(3) specifies those functions that only the Determinations Panel may do. Equally, it may be that the regulator, minus the Determinations Panel, may send responsibilities across to the Determinations Panel—a one way delegation—in which case, again, the Determinations Panel would be responsible.

Clause 87 agreed to.

Clause 88 [Publication of procedure in relation to regulatory functions]:

On Question, Whether Clause 88 shall stand part of the Bill?

Lord Higgins

Again, this is a very detailed point, as indeed are all points on this section. The drafting gives rise to some confusion. I find somewhat puzzling that suddenly, under Clause 88(5), The Regulator must, without delay, give the Secretary of State a copy of any statement which it issues. Do I gather that the regulator will not have consulted the Secretary of State previously and that the statement will suddenly land on the Secretary of State's desk having all been decided? If the Secretary of State does not like it, what can he do about it? I shall leave to one side the fact that he has to give it to the Secretary of State rather than charge him.

11.30 a.m.

Baroness Hollis of Heigham

The Secretary of State will certainly not be determining what the regulator will do. The regulator will not be consulting. The Secretary of State will receive the copy from the regulator. The regulator is at arm's length from the Secretary of State, which I am sure is what we would wish.

Lord Higgins

Fine. The Secretary of State has no role in the matter at all. So why is he sent a copy?

Baroness Hollis of Heigham

It is partly a courtesy and partly—I am trying to think of an example. There might be some annual report or the sort of information that the Secretary of State may wish to know, which may influence policy development within the department and so on. It is a courtesy. But the point is that we are seeking to protect the integrity and independence of the regulator at arm's length, so that he does not have to have the approval of the Secretary of State to exercise his functions appropriately.

Lord Higgins

I do find it odd.

Clause 88 agreed to.

Clauses 89 and 90 agreed to.

Clause 91 [Special procedure: applicable cases]:

Baroness Hollis of Heigham

moved Amendment No. 171:

Page 66, line 13, at end insert— ( ) the power to make or extend a restraining order under section (Pension liberation: restraining orders):
The noble Baroness

said: This is a further consequential amendment resulting from the introduction of the new clauses to combat pensions liberation. Whenever we use the words "pensions liberation" it is in heavy inverted commas. Due to an administrative oversight the amendment was not moved in Committee on 8 July with other government amendments. It should have been and I failed to do so. So I would hope that I could move it formally. The matter is consequential and I am happy to explain at greater length, but I do not wish to take up the Committee's time unnecessarily. I beg to move.

On Question, amendment agreed to.

Clause 91 agreed to.

Clauses 92 to 94 agreed to.

Lord Higgins

moved Amendment No. 172:

After Clause 94, insert the following new clause—

"SECTION 35 CLEARANCE

  1. If a person is in doubt whether an act or deliberate failure to act within the meaning of section 53(4) may be such that the Regulator would consider to constitute an act or deliberate failure to act in relation to which it would be appropriate to issue a contribution notice under section 35, that person may seek a ruling from the Regulator in the prescribed manner.
  2. The Regulator shall issue a ruling within the prescribed period.
  3. GC 317
  4. Any ruling issued by the Regulator under subsection (2) shall be binding and shall be admissible in evidence in any legal proceedings and if relevant must be taken into account in determining any question arising in the proceedings.
  5. The Secretary of State shall make regulations under this section relating to—
    1. the manner of seeking a ruling from the Regulator;
    2. the information to be provided to the Regulator;
    3. the requirement on the Regulator to keep all information provided confidential;
    4. periods within which the Regulator must respond to any request for a ruling, depending on its urgency;
    5. the manner of the Regulator's reply; and
    6. such other matters as the Secretary of State considers relevant."

The noble Lord

said: This is concerned with clearance. We are suggesting that: If a person is in doubt whether an act or deliberate failure to act within the meaning of Section 53(4) may be such that the Regulator would consider to constitute and act or deliberate failure to act in relation to that section for example, it would be appropriate to issue a contribution notice under section 35, that person may seek a ruling from the Regulator in the prescribed manner. Then the regulator can issue a ruling. I shall not burden the Committee with the remainder of the amendment. The Government indicated at Second Reading that they would look favourably on an amendment to introduce a clearance procedure. There would seem to be a clear need for such a clearance procedure in addition to the code of practice that we have been considering. It is intended that the code of practice would give sufficient guidance to a person considering a transaction to take a view on the likelihood of the regulator issuing a notice. This would, it is hoped, suffice for many transactions and ought to take away some of the workload from the regulator. None the less, there may be grey areas in relation to which it is desirable for the regulator to reach a rapid decision. In those circumstances, it would seem appropriate to have a clearance procedure. I beg to move.

Baroness Hollis of Heigham

As the noble Lord, Lord Higgins, indicated, during Second Reading and our discussions on the moral hazard issues, I have come to realise the increasing importance of the clearance procedure as a way to act as a sensitive discriminator between good-faith and non-good-faith activities which may affect pension funds.

I gave the undertaking that we would be discussing the issue with the industry during the summer and to provide further clarification. The amendment suggests a statutory procedure, but I would be reluctant to have a statutory procedure which puts a lot of delays into the system and has to go through the parliamentary system, codes of practice or regulations.

However, it is obvious that we need to make clear the way in which the mechanism will work. That is exactly what we need to discuss with the industry during the summer and I hope that as a result we will have a clearer outline of the scheme. It will not be enough to leave it to an informal telephone conversation—we must have a scheme which people know how to enter and be confident about their behaviour. We therefore must devise something with a shape to it and I hope that we will be able to do that before the Report stage.

Lord Oakeshott of Seagrove Bay

We look forward to the result of these consultations over what will be a very busy summer for the noble Baroness.

Lord Higgins

I am grateful to the noble Baroness for that offer. There is one other point which ought to be considered in the same context; that the regulator should give a broad view as to why he has reached a particular decision so that if a transaction between, say, A and B falls through and then the same transaction arises between A and C, the group would not need to go through the whole clearance procedure a second time. Perhaps in the course of the discussions that can be taken into account.

Baroness Hollis of Heigham

It would depend on the circumstances. You cannot give a planning permission in advance for all possible mergers and acquisitions to which a particular company may be exposed because their terms may differ considerably. While I take what the noble Lord says on board and will ensure that it is put into the considerations, it would be unwise to say to a particular company, "Now go ahead, whatever you want to do will be okay by us because you only have to go through the clearance procedure. This merger has now fallen through and for any other five, 10 or 15 you may dabble with that clearance still applies". I am sure that that is not what the noble Lord intends.

We need expert involvement in this area from the industry and most of us will be very busy over the summer.

Lord Higgins

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 95 [Powers to vary or revoke orders, notices or directions etc]:

Lord Skelmersdale

moved Amendment No. 173:

Page 69, line 21, leave out subsection (2).
The noble Lord

said: This is a quickie from me but I am afraid that it might be a slow answer from the Minister. Clause 95(1) is about the regulator changing its mind—in the early days of its existence, OPRA's mind—except in the specific instances mentioned in subsection (2). They are: an order under Section 3(3) of the 1995 Act; Section 4(5) of the same Act; and Section 2(3) of the Welfare Reform and Pensions Act.

Besides each of these, I have a note in my Bill, "Why can't it change its mind about these provisions?". Under Amendment No. 174, which leaves out subsection (5)(a), if the regulator decides to revoke or vary, how can it not be a regulatory function to allow it to do so? It seems very strange indeed. I beg to move.

Baroness Hollis of Heigham

As the noble Lord suspected, the answer is slightly techie, but I am happy to place it on the record so that he can have a nice busy summer contemplating our exchanges in Hansard.

Subject to specified exceptions, Clause 95 gives the regulator the power to vary or revoke any determination notice, direction or order that it issues in exercising its regulatory functions. This power enables the regulator to change any determination, if necessary; for example, in the light of new evidence or representations received. Obviously, that would be a desirable flexibility which I am sure would be welcome. Any variation or revocation cannot take effect before the date on which the variation or revocation is made.

I suggest, therefore, that the amendments are unnecessary because subsection (2) as drafted requires trustees of occupational schemes to make a fresh application, for example, based on new evidence or new representations on cases where they disagree with the determination of the regulator—in particular, on an order under Section 3(3) of the Pensions Act 1995 revoking a prohibition order, an order under Section 4(5) of that Act revoking a suspension order, or a direction under Section 2(3) of the Welfare Reform and Pensions Act 1999 refusing to register a scheme under Section 2 of that Act or removing a scheme from the register of stakeholder pension schemes.

Subsection (5)(a) enables the regulator to vary or revoke any determination order, notice or direction at any stage after the initial determination. We believe that that ensures the effective use of the regulator's resources.

Viscount Trenchard

Is Clause 95 also intended to cover occasions where the regulator may have determined not to exercise a regulatory function? Given information to that effect to somebody who sought the regulator's opinion, does it mean that the regulator may subsequently change its mind and decide to exercise a regulatory function whereas it had previously decided not to?

Baroness Hollis of Heigham

No. This is not about a simple change of mind; it is about new evidence coming forward as a result of which the grounds on which the original determination was made were inappropriate.

Lord Skelmersdale

I am grateful to the noble Baroness. I shall have to study her previous answer to my noble friend Lord Trenchard very carefully.

Baroness Hollis of Heigham

I have just been given an example of how it might work. If a trustee is suspended or prohibited, he can apply for that decision to be revoked, but there is an independent procedure for that and the application means that all directly affected parties can be involved. That is the sort of situation to which, I think, the noble Viscount referred.

Viscount Trenchard

I thank the noble Baroness but I fear that I have not made myself sufficiently clear. I was asking what happens if the regulator has been asked whether it will determine to exercise a regulatory function and decides not to. Subsequent to that clearance, is it entitled to vary its decision not to exercise a regulatory function?

Baroness Hollis of Heigham

I find that very hard to answer because it depends on the degree of significance of the altering circumstances—whether the closed procedure has been gone through and whether there is sufficient basis for the regulator to decide that its first decision was erroneous because it was based on, say, incomplete information. At the end of the day, the regulator must be able to make what it believes to be the correct decision. If the circumstances are such that it would be clearly incorrect to proceed on the all-clear process of the clearance procedure, the regulator must be in a position to say that new information has come to light and that it needs to reconsider its "good faith" clearance. It would be very difficult to be more precise than that, because I simply do not know under what circumstance that situation might arise. The presumption is that when all parties are acting in good faith, the clearance procedure would stick. When there was either subsequent evidence of lack of good faith or additional significant information, I would expect the regulator to be able to say that its original steer needed to be reviewed.

11.45 a.m.

Baroness Noakes

The point raised by my noble friend is important, and it will come back to what is in the clearance procedure. In that regard, I believe that I heard the Minister say that she did not anticipate a statutorily based clearance procedure, but one that was somehow dealt with in regulations. The more one thinks about the kind of situations that might arise, having something based wholly in regulations and not having any statutory force seems to me to create a significant problem for businesses that will need to deal with the regulator. It may not be an issue that we can debate any further today, but it seems to me that a statutory clearance procedure is what we shall need out of the summer's deliberations.

Baroness Hollis of Heigham

I am not persuaded by that argument, although I take the point of the need for as much certainty as possible in good faith in certain situations.

If the regulator exercises a function, it may vary or revoke it. If it does not exercise a function, there is nothing to vary or revoke. In that sense, the regulator may revisit if it has already taken some action; if it has not taken action, it is still open to it to do so. I am not sure that we can take that matter much further, as we are dealing with an array of circumstances. Perhaps it would be helpful to say to the noble Viscount, Lord Trenchard, and the noble Baroness, Lady Noakes, that if they have circumstances in mind in which it would be helpful to see how the clause would run, they may write to me. I would be very happy to put that into the summer discussions and come back with an answer. It would be helpful if the noble Viscount could produce two or three examples of his concerns, so I can see what they would look like. At the moment, it is very blue sky, and I do not know whether we are talking about a difficulty with an individual trustee or a serious problem with a merger and acquisition, such that 5,000 pensions are at risk. I do not know at what level the noble Viscount is concerned, so perhaps he could write to me.

Viscount Trenchard

I thank the Minister for her reply, and I shall write to her with an example of what I mean.

Lord Skelmersdale

That turned into quite a clause stand part debate—so I hope that with a bit of luck we can get away without having a clause stand part debate.

I believe that the point that my noble friend Lord Trenchard was making was that it does not actually matter why or what the particular point is on which the regulator changes its mind, but that there should be transparency as to what is going on and what is allowed. I shall have to look very carefully at Hansard for the Minister's response to Amendment No. 174 because, after that discussion, I have forgotten it. I would not dream of asking her to repeat it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 174 not moved.]

Clause 95 agreed to.

Clause 96 [The Pensions Regulator Tribunal]:

On Question, Whether Clause 96 shall stand part of the Bill?

Lord Higgins

This is the lead clause with regard to the Pensions Regulator Tribunal. I am very happy to see the references throughout to the Lord Chancellor who, happily, after the events of 48 hours ago, remains. His continued existence was supported by a very large majority of the Chamber.

The other thing that puzzles me about the provisions is that although we have a splendid clause dealing with the references to the tribunal, appeals on points of law, redetermination—and then the whole of Schedule 4, to which we shall come in a moment—nowhere in the Explanatory Notes does it actually say what the Pensions Regulatory Tribunal will be tribunalling about. There are a large number of references to references, but not what the references relate to or what kind of references will be made. I look in vain for any suggestion as to what they may be. No doubt there is a simple answer and we shall be told why this body is to exist.

Baroness Hollis of Heigham

Basically, anyone who is discontented with the warnings of either the regulator or the Determinations Panel in particular may appeal on fact or in law to the Pensions Regulator Tribunal. I do not know whether that is enough of an answer. I have a long answer describing the functions, but we do not necessarily have to do the pay and rations stuff, which is basically the appeals procedure—and quite rightly so. It is analogous to and modelled on the Financial Services and Markets Appeals Tribunal (FINSMAT). It will probably be based with FINSMAT, using the same premises, support staff and tribunal members, although there may be some further appointments of members with pensions knowledge. The tribunal will also hear references from determinations made by the regulator or the Determinations Panel. It will be a court of appeal which will act on fact or law—and cases could be sent back to be reconsidered as appropriate.

Lord Higgins

I am grateful for that. I just did not understand why the Explanatory Notes might not have said that.

Clause 96 agreed to.

Schedule 4 [The Pensions Regulator Tribunal]:

Baroness Hollis of Heigham

moved Amendment No. 175:

Page 253, line 24, after "State" insert "and the Department for Social Development in Northern Ireland"
The noble Baroness

said: I shall be brief. This is a technical amendment concerning the distribution of decisions made by the Pensions Regulator Tribunal. As drafted, paragraph 12 of Schedule 4, which lists the rules and procedures surrounding the decisions of the tribunal, requires that copies of those decisions must be sent to the Secretary of State. As the tribunal's remit extends to Northern Ireland, the amendment specifies that copies must also be sent to the Department for Social Development in Northern Ireland. I am sure Members of the Committee will welcome the amendment. I beg to move.

On Question, amendment agreed to.

On Question, Whether Schedule 4 shall be agreed to?

Lord Higgins

I shall be brief. I am slightly puzzled that there are provisions in this schedule for the tribunal to be established and the Lord Chancellor to appoint a panel of persons acting as chairman of the tribunal. But at page 250 he also appoints a president. I am not clear what the relationship is between the president on the one hand and the panel of chairmen on the other. I had assumed that the tribunal would generally operate under one of the members of the panel of chairmen, and that he would preside. But it seems to be that occasionally—I am not clear when—the president will preside.

Baroness Hollis of Heigham

The president is the chair of the chairmen.

Lord Higgins

So does he preside only over the panel?

Baroness Hollis of Heigham

He may also be a chairman in his own right. He will be the most senior of them. I shall give the noble Lord an example. Wearing another part of my departmental hat, I am responsible for the appeals functions of various matters. The noble and learned Lord, Lord Archer of Sandwell, has been president of the Council of Tribunals and it may well be that when one is discussing the Leggatt reforms, for example, with Judge Harris, it is important to have someone who is the chairman of the chairmen to speak for that body. That is the simple explanation. It may also be appropriate that that person also sits as a chairman in his or her own right.

Lord Borrie

The Employment Appeal Tribunal, which has a lot of work, has a lot of chairmen—some of whom are women, of course—hearing cases in particular panels. But there is also a president, who gives more time to the whole panoply of operation and administration and is someone to whom government and others look when they want to ask questions about the Employment Appeal Tribunal generally.

Lord Higgins

I am most grateful for both explanations. The only other point that I have on the schedule relates to remuneration and allowances. I should have thought that normally one would specify levels of remuneration and how much someone was going to be paid, rather than leaving the matter completely open.

Baroness Hollis of Heigham

I have been heavily involved in appeals procedures, and I have never come across a specification. As an example, there might well be people on the disability panel who have very different levels of background, experience and so on. They may have very different time commitments. In such cases, the remuneration has always been determined by the Lord Chancellor, not in any public way. If the noble Lord has a particular question, I could probably find out and give him Privy Council terms. However, I do not believe that such details would normally be on the face of any document.

Lord Skelmersdale

I hate to prolong the debate, but if and when the Government get their way and abolish the position of Lord Chancellor, given that this Bill represents a very legal operation, it would be unusual to say the least if it followed the formulation in the Constitutional Reform Bill and the references to Lord Chancellor read "Secretary of State" instead. I do not believe that that would be appropriate. Who is it intended shall replace the Lord Chancellor in this Bill?

Baroness Hollis of Heigham

Should Parliament so decide, it will be whoever takes over the legal functions of the Lord Chancellor, which I would expect to be the Secretary of State for Constitutional Affairs. However, as I have already been teased on the subject twice this morning, I should not want to go beyond that, until we see the outcome of Parliament's decisions.

Lord Borrie

Is it not likely that the Commission for Judicial Appointments, on which there is much wider agreement than the matter of the office of Lord Chancellor, would take over the responsibility for appointments, with only a very modest intervention by the relevant Minister? In fact, only one name may be put forward by the Commission for Judicial Appointments, with simply a stamp of approval by the relevant Minister. That kind of arrangement would meet very widespread support, as it is intended for the courts generally, if it applied to tribunals of many kinds, including this one.

Baroness Hollis of Heigham

I am due to have discussions fairly soon with Judge Harris, who is responsible within our department for our tribunal system. I should be happy to explore the matter with him. When we know what Parliament's intent is, I shall be happy to expand on that. What my noble friend Lord Borrie said may be absolutely right, but because of the interface with the stakeholders in this case a more formal and elaborate input from the Secretary of State may be required. Frankly, I believe that that matter has yet to be worked out, and I need to take advice on it from Judge Harris, who will play a heavy role as we go through to the integrated appeal and tribunal service under the proposals.

Schedule 4 agreed to.

Clause 97 [References to the Tribunal]:

Lord Skelmersdale

moved Amendment No. 176:

Page 70, line 20, at end insert— ( ) If a reference is made to the Tribunal under subsection (1), the Regulator shall issue a risk order under section 20.
The noble Lord

said: This is very simple and may for once need only a brief answer. We spent quite a long time discussing freezing orders and the circumstances surrounding the need for emergency stop orders—or "risk orders", as I tried to call them last week. Surely to goodness they should come into play while there is a case before the tribunal, otherwise all sorts of mischief could go on. That is what I am seeking to avoid, as should the Minister. I beg to move.

Baroness Hollis of Heigham

I politely disagree with the noble Lord, which is unusual because, even when we cannot meet all his concerns, I recognise why he raises them. I think that this is a mistake. The tribunal must direct the regulator to take any action that it considers necessary. We have discussed some of those already. The noble Lord's amendment would require the regulator to issue freezing notices against all cases referred to the tribunal under Clause 97(1). This is undesirable. A freezing order puts a pause button on the whole matter. Whether one wants to freeze a scheme at that time depends entirely upon what issues may be going to the Pensions Appeal Tribunal.

If the regulator thinks that it is appropriate in order to protect the interests of the generality of members of the scheme or that there is an immediate risk to the interests of the members of the scheme or its assets, a freezing order will come into play. There are ample powers to do so. But it is not necessary automatically to freeze a scheme because something is going up to the tribunal under Clause 97(1). That would be far too heavy-handed. I hope that the noble Lord will recognise that where a freezing order is appropriate it will come into play. It may well come into play on many cases that go up to the Pensions Appeal Tribunal but will not necessarily do so.

Noon

Lord Skelmersdale

Now that the noble Baroness has made me think about it, I accept that it should not come into play automatically. But there will be cases where it will be necessary for it to come into play.

Baroness Hollis of Heigham

In which case, it will do so.

Lord Skelmersdale

But where in the Bill does it say so?

Baroness Hollis of Heigham

We discussed previous clauses on the regulator and there is a power for it to issue a freeze. A freezing order may have a different function from an appeal going to the Pensions Appeal Tribunal. The Pensions Appeal Tribunal could hear an appeal about the role of particular trustees. That may be a perfectly proper issue to take to the tribunal, but it may not in any sense be jeopardising the scheme. If a freezing order is put on the scheme accruals are not allowed to build up, among other things. If there is no risk to the scheme, it would not be appropriate to impose a freezing order.

Lord Skelmersdale

I have already accepted that that should not happen.

Baroness Hollis of Heigham

But the regulator has that power independently. If the noble Lord is asking me for the clause reference, I shall dig it out for him.

Lord Skelmersdale

Tell me later. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 97 agreed to.

Clauses 98 to 100 agreed to.

Clause 101 [The Board of the Pension Protection Fund]:

Lord Higgins

moved Amendment No. 177:

Page 72, line 29, at end insert— "( ) In nominating or appointing the Chief Executive, chairman and members of the Board (including members of the Non-Executive Committee, as defined in section 106, and of its sub-committees), regard shall be had to their skills and experience (both as individuals and combined as a group) in view of the functions to be carried out and the requirement for knowledge and understanding under section 238(4). ( ) The affairs of the Board shall be conducted having appropriate regard where relevant to the principles set out in the Combined Code on Corporate Governance (as amended or replaced from time to time)."
The noble Lord

said: When we were discussing the very complicated issues of some of the earlier clauses in the sitting before last, we started with a broad survey of the situation, which was helpful in putting the matter in context. We now come to a very important part of the Bill, dealing with the question of the pension protection fund, the board, the arrangements for the levy and so on. The Committee will have noticed that there is a considerable number of government amendments. The Minister, in her typically helpful way, has written to many of us about this set of amendments. What concerns me is that increasingly—and not just on Department for Work and Pensions Bills—we seem to get large tranches of government amendments at relatively late stages of a Bill, after it has been through the House of Commons. It is very worrying.

It is now only too apparent that the House of Commons is to a very large extent failing to scrutinise legislation because of the way in which Bills are programmed. It would also be particularly worrying if it is somehow assumed in departments that Bills will be cleared up in the Lords, even though the Commons has totally failed to deal with matters in detail. That would be very worrying. We were talking earlier about Ministers referring matters to draftsmen who then produce the form of the Bill. I get the impression that on that front as well we are getting drafting changes—indeed, very substantial changes—after the Bill is supposed to have been scrutinised in the Commons. While we are a revising Chamber, we are increasingly becoming almost the opposite. We are almost dealing with Bills in toto.

In the noble Baroness's helpful letter, to which I referred, she pointed out that there are a large number of amendments but she assured us that they would represent only about 10 subject areas in total, mainly around the PPF. It might be helpful if she can let us know which groupings she envisages in dealing with these 10 areas so that we can try to focus on them in an orderly way.

The only other general point that I wish to make is that we are receiving a lot of correspondence from various people involved in pension funds who are worried about the security of their pensions. Increasingly, it is difficult to work out in the structure of the Bill where particular groups of pensioners fall. Some people's companies have gone bust or, as mentioned earlier, are reneging on their promises. These people appear to fall before the date of the £400 million scheme that we were dealing with in Part 6. Then there will be those who are covered by that part who are past a certain date.

Beyond that, there will be people who will fall within the scope of the pension protection fund. There are a series of problems relating to that. The £400 million Treasury subvention to help those in a particular time period who are suffering is obviously welcome. However, it seems likely that that will be far less than someone was likely to get under the pension protection fund and therefore companies will tend to defer taking any action about their pension funds until the pension protection fund comes into operation.

It would be helpful if the Minister could give us some idea of what dates are covered by what provisions, and in particular, whether some of those people who are writing to us will get nothing under any of the provisions, which is particularly worrying. Having said that—I am hopelessly out of order but I thought it might be helpful to say it—I shall say a word or two about the amendment. The National Association of Pension Funds was particularly concerned that, when nominating the chief executive and others, regard should be had to their skills and to the way in which the board will be conducted, having appropriate regard to the principles set out in the combined code of practice on corporate governance. I think we are all anxious that that code of practice should be adhered to. The amendment seeks to make that explicit in the Bill. I beg to move.

Baroness Turner of Camden

I shall speak to the amendment standing in my name and that of my noble friends, which is grouped. The amendment concerns the way in which representation will be accorded on the new and very important pensions protection fund board.

Perhaps I may make a few remarks about what the noble Lord, Lord Higgins, said earlier. I also received a number of letters from people who are worried because they do not think that they will be covered. The dates are not right for some people and they will not be covered, even though some of them have been working for their companies for many years and have lost substantial amounts of money—in some cases, apparently, lost everything. Within the context of this Bill, we will have to debate those issues.

However, we can do that under this amendment where we are talking about how the representation will take place on the board. Of course, we have had this discussion in connection with the regulator where we tabled a very similar amendment. As I said, we are anxious to ensure that the various interests are adequately represented on this very important board. We accept that employers have to be adequately represented, that there must be people who are technically qualified serving on the board and that we must have people who know about the management of occupational pension schemes.

This amendment was suggested by my union. We are concerned that there should be representation of people who are employees and are, therefore, members of schemes. It is very important that their interests should be properly represented. As I said earlier, we had a discussion about the basis of representation when we were talking about the regulator. The arguments are very similar and I do not want to take up the time of the Committee by repeating them. Simply, this is a very important board. It is essential that it has the respect of the people whose interests it has been established to safeguard. Therefore, although I cannot move the amendment because it is grouped, I am speaking to it.

Lord Borrie

First, in relation to the amendment proposed by the noble Lords, Lord Higgins and Lord Skelmersdale, I do not think that it is necessary—whether the proposal comes from an eminent body such as the NAPF or otherwise—to teach one's grandmother to suck eggs by saying that the members of the board must have appropriate skills and experience. That seems to be an over-the-top amendment, which is unnecessary.

The second subsection of Amendment No. 177 calls for the affairs of the board to be, conducted having appropriate regard where relevant to the principles set out in the Combined Code on Corporate Governance. Earlier in our discussions in Committee, I was concerned about references in speeches made to a number of amendments to the combined code and to the Derek Higgs report on corporate governance.

At that time, I had not checked my memory about it, but I have since. I am concerned not only about those speeches coming from the Opposition and what lay behind them, but also about paragraph 28 of the Explanatory Notes where the impression—which is quite wrong—is given that the combined code deals with the public sector.

The Higgs report, is the latest of the series—Cadbury, Hampel, Greenbury and Turnball—concerning corporate governance in the private sector. I would be the first to admit that there are some similarities between the private and public sectors. If it is appropriate or relevant, certain ideas can be borrowed from one to the other.

12.15 p.m.

My noble friend the Minister mentioned at least one of these fundamental differences earlier in Committee; namely, accountability. But accountability of the private sector lies to the shareholders. Much of the combined code is concerned with how to make that more effective; how to get the big investors involved with the directors; how to ensure that the directors are executive, non-executive and of different levels of experience; and so forth. It is all concerned with accountability of the private-sector company. However, in the public sector, accountability is to Ministers and to Parliament by various appropriate methods. I am therefore a little concerned that we—the Explanatory Notes on the Bill, let alone what Opposition Members have said in Committee—have overdone the references to the combined code.

Sir Derek Higgs made his report following consultation and receipt of evidence, exclusively dealing with the private sector. He was not supposed to go into the suitable accountability and governance in the public sector.

I wanted to make those points because I have checked on matters about which I did not feel sufficiently confident to talk about at an earlier stage. But clearly it is relevant to Amendment No. 177. My noble friend Lady Turner will not expect me to repeat my arguments against her over-prescriptive requirements for membership of the board because I made those comments when we were discussing the regulator.

Viscount Trenchard

I want to make two points. First, I remain confused and unhappy about our definitions or terminology. When we are dealing with the regulator, it seems that the body corporate and its board are the same entity. However, I am not sure whether the pension protection fund and its board are also the same entity. That is confusing. There should be a difference between the board of a body corporate and the body corporate itself.

Secondly, Clause 102(2) states: The chairman [of the board of the PPF] must not be appointed from the staff of the Board or be the chairman of the Regulator. So the implication is that the chairman of the board may be a member other than the chairman of the regulator or of the board of the regulator, as I would prefer it. However, subsection (5) states: No member of the Determinations Panel established by the Regulator…or member of the staff of the Regulator, is eligible for appointment as a member of the Board. Taking those two together, it still appears to me that a non-executive member of the board of the regulator, other than the chairman, is eligible to be the chairman of the board of the pension protection fund. Will the Minister say whether I am correct in that?

Baroness Noakes

Perhaps I may contribute briefly in the light of what the noble Lord, Lord Borrie, said on the combined code being for the private sector and nothing to do with the public sector.

The amendment moved by my noble friend Lord Higgins is intended to be helpful. It is not intended to imply that whatever is good for the private sector has to be good for the public sector, because it does so where relevant. I want to give a couple of examples where reference to something like a code of corporate governance would be extremely helpful in setting the agenda for a body such as that we are now dealing with. One area is the requirement to have an audit committee. That is in the combined code. It is not in the Bill, and quite rightly so. Whenever one tries to draft provisions for something like an audit committee, one will always be behind the times and not reflecting best practice. The good thing about the combined code is that it is kept up to date. A second example of how these matters are kept live and moving on is the requirement to report on internal control—what we used to call Turnbull. A new working party has been set up to look at whether reporting on internal controls should be extended in the light of best practice, internationally and elsewhere.

Those are two areas that would be entirely relevant to the governance of a body such as the one we are talking about today. The Combined Code on Corporate Governance gives very relevant guidance and, more importantly, it is kept up to date by the activities of those who are charged with ensuring that the governance frameworks are always relevant and up to date for commercial companies.

I would never suggest that what applies in the context of the private sector automatically applies in the public sector but very good things are done under the guidance of the Combined Code on Corporate Governance, that, in other circumstances, have already been borrowed by public sector bodies. Amendments such as this give a permanent linkage mechanism so that, where relevant, these developments should be imported into the governance of the public sector body. If the noble Lord, Lord Borrie, would see it in that light, he might look more kindly on the amendment proposed by my noble friend.

Lord Oakeshott of Seagrove Bay

Starting with the point taken up by the noble Baroness, Lady Noakes, and the noble Lord, Lord Borrie, I am with the noble Lord, Lord Borrie. But, as we mentioned on the first day of the Committee, can I gently remind him that when he says "the Opposition", it was the Conservative Opposition that felt that. The other Opposition did not. The other Opposition was very much his way.

As one listens to the noble Baroness, Lady Noakes, her pick and mix approach to the combined code does not really work. It does not help us to have that. I suspect that my friend and former colleague Sir Derek Higgs would also have reservations on it.

More widely—and I hope I shall be only very briefly out of order—I agree with the noble Lord, Lord Higgins, about the torrent of Government amendments. At times, I feel as if I have just staggered out of a rough sea on to a beach and, just as I am getting up, another great flood comes over me and wears me down again. It is hard work. I do not blame the noble Baroness, but it is not the best way to deal with complicated legislation.

I ask the Committee's indulgence, but I cannot see why Amendment No. 181, which stands in my name and that of my noble friend Lady Barker, has not been grouped with these amendments. It deals with very much the same point of the composition of the board. I wonder if I could mention it, if not formally. It is a fairly modest amendment. I see in the current advertisement for non-executive directors of the pension protection fund that it is said that: Expertise in any one of the following areas would be an advantage: pension scheme management, investment management. That seems to be top of the DWP's own list. It is inconceivable that one could have a non-executive board of something as complicated as the PPF without having anyone as a non-executive who has direct—not necessarily immediate—experience of pension fund management or of advising on pension funds.

The first paragraph of Amendment No. 177 is sensible. I broadly support it. On Amendments Nos. 178 and 179, moved in the name of the noble Baroness, Lady Turner, and her colleagues, we have to some extent been around this track before. We have some sympathy with this, as long as it is clear that the categories overlap and are not mutually exclusive. In that situation, we would go with them.

I do not support Amendment No. 180 because of its wording. One wants the business community to be consulted, but I do not like the phrase "representatives from the business community". That sounds slightly corporate. I support the intention but not the wording.

Baroness Dean of Thornton-le-Fylde

I too have difficulty with the second paragraph of Amendment No. 177. We are talking about one body here but there are hundreds of bodies in the public sector. If one looks at them, one would find that they are required by the accounting government department to have an audit committee and various committees that consider good governance. Who decides what is "relevant to the principles"? The answer may be that the board itself decides. But the amendment leaves it open-ended.

I support Amendments Nos. 178 and 179, to which I added my name. The noble Lord, Lord Oakeshott, is right that we discussed the principles of this matter earlier, in a different area of the Bill. This is an even more important area because we are dealing with people's individual contributions and investments. I hope that my noble friend will take note. We will need to return to this matter on Report.

The noble Lord, Lord Higgins, made a very swift move of foot in raising the issue of the sad letters that we are all getting about people who are caught in the abyss between what the Bill provides and issues that have arisen on which there are no clear answers at the moment. That is an issue that we must debate in the Bill. I was considering Clause 274 as the appropriate place but that can be decided. It is the single clause in Part 6 over which the noble Lord, Lord Oakeshott, chided my noble friend at Second Reading because it is so short. It is an area where we will have a debate on principles. We will need to do so.

Lord Lucas

I support what the noble Lord, Lord Borrie, said. I too turned to the Higgs report after our last debate. However, my argument is not what the noble Lord, Lord Borrie, said was made by the Opposition. My argument is that the Government have no business pleading Higgs in aid in the structure of this or the next part of the Bill. The concept of the non-executive committee that has matters reserved to it and that has to take its own decisions is not a Higgs structure. The Higgs report said over and over again that we are talking about a unitary board. Therefore, we cannot say, "This is good because it is Higgs". We must look at it in its own context and ask whether it is good for the regulator. It is not a Higgs structure.

Baroness Hollis of Heigham

There must be some member of the Committee who has not yet spoken. I shall have to trespass on the indulgence of the Committee and make a speech that is far too long. I shall say what I propose to address and then noble Lords can say that I have left something out. Then I shall go on to my speech, which is also extremely long.

I want to be as helpful as I can to the Committee so I shall make a general statement on the government amendments, as asked for by the noble Lord, Lord Higgins, and where we are proposing to go with them. I am happy to do that. Secondly, there is the point raised by the noble Lord, Lord Higgins, and endorsed by my noble friends, about how we see the timetable for different categories of members with pensions possibly at risk and how they fit into the PPF and the financial assistance scheme. I shall share with the Committee the information I have so far on that and where we have got to.

Thirdly, there is a bundle of "shopping list" issues that revisit some of the issues about appropriate skills raised earlier by my noble friend, the CBI, the trade unions, the investment funds and so on. Fourthly, the noble Viscount, Lord Trenchard, made specific points about overlapping membership and the difference between a fund and a board. Fifthly, the wider discussion on Higgs and corporate governance was fascinating, but I think I can probably get away with ducking it. Finally, I may need to come back to fill in any points that have not been addressed so far in trying to set the context for the PPF. I think I have got it right.

12.30 p.m.

I shall start with a general statement about where we are with the amendments. I accept some of the criticisms of the noble Lord, Lord Higgins, about so many amendments being tabled in this House, which is the revising Chamber. But our dilemma is honourable. We could have deferred the Bill for another year and produced something that was polished, manicured, massaged and whatever other terms one wants to take from beauty salon treatments. We would have produced something conventionally that we could have sent first to the Commons and then this House could have looked at it line by line, clause by clause to see whether it had sufficient clarity and so on. Our dilemma, as my noble friend has emphasised today, is that people are seeing their pensions put at risk.

We have a choice. We can seek to have the Bill in place and the pension protection fund up and running from, I hope, next April. That is in nine months' time. The price for that is that, inevitably, we are asking your Lordships to carry out a much more active and energetic role in accepting an array of amendments that have not had the opportunity to go to the Commons and scrutinise them for the first time.

The Bill is being developed as it proceeds through the House. This is for two reasons. One is the sense of urgency that everybody shares. We have all received letters to that effect. The second is that when we are trying to respond to that sense of urgency we must involve a wide range of stakeholders outside the department, which is unusual for the DWP. Given those two pressures, we find ourselves in an honourable dilemma. I know that I will have the support of the Committee in seeking to get through it in as honourable a way as possible. We want to see, if Parliament agrees, the Bill in place to give people urgent protection. If that means that your Lordships are asked to go beyond what noble Lords would ordinarily do, then I am sure your Lordships will understand the reasons.

The Bill also has moral hazards. Issues such as pensions liberation are coming up. I do not think that 12 months ago any of us would have recognised the need to address the issue of pensions liberation. In the past 12 months OPRA has put to us that there is a real problem here and a dilemma. It is extremely complicated to resolve it because whatever solution is put in place produces a further problem of appeal rights and so that has to be addressed.

Therefore, there are three reasons why, in good faith, we are developing the Bill as it proceeds: the urgency of the situation for people whose pensions are at risk; the propriety, appropriateness and value of extensive consultation—which is unusual for my department, although the DTI and other departments are perhaps more accustomed to it—and the fact that things are coming out of the woodwork that we need to address because there may not be an opportunity to do so in another major Bill.

In the main areas of Government amendments, there may sometimes be a list of 20 or 40 amendments because they are consequential. The first bundle is on insolvency practioners. Because insolvency practioners do not want to be involved in the appeal process, we need to produce a rectification process and an appeals process that produces determination in order to take that responsibility away from them. Solving the problem of insolvency practioners generates further problems to which we need a solution. The bundle of concerns expressed by insolvency practitioners about insolvency, to which we are responding, has a cascade effect. That explains some of the complexity of that bundle of amendments.

Secondly, there is a bundle of amendments about pensions on divorce and the PPF. This is extremely complex. The problem is that it appears to be very simple. Lady Seear, Lady Young and others—among them three of my noble friends sitting in the Committee today and the Deputy Chairman of the Committee—were instrumental in persuading the House that pensions were a major part of matrimonial property and should be shared. Eventually, we put legislation through and at the moment that allows pensions to be shared for a clean break or to be earmarked, which is when a pension is being paid when divorce occurs. The problem is: what is the status of a pension that is at risk and is entering the pensions protection fund? Will the judge know about the possible resources that may be added to the depleted pension by virtue of the compensation effect of the PPF? We are asking the judge to take into account something that has not yet happened. That requires revisiting all the family law, divorce and pensions legislation that deals with pension protection, because it was not even contemplated that the pensions protection fund or financial assistance scheme might come into play. We all accept that it should. That is complex, wet towel stuff, but highly desirable, as I am sure we would all agree, because that is obviously a major asset for a couple going through the divorce process.

Thirdly, there is a set of amendments about the scheme rules and distinguishing between scheme rules and rules of the scheme. Sensibly, we are clarifying the language. Rules of the scheme are the rules of the particular scheme, whereas scheme rules may also involve all the legislation that may override the rules of the scheme—for example, equality legislation, European legislation and so on.

Fourthly, there is a complex set of issues associated with survivors' benefits in the PPF. We are still working through some of the implications of that: what happens to survivors' benefits when someone dies during the assessment period? Fifthly, there are issues about periods of short service in the PPF, transfer rights and deferred pensions. Sixthly, there are technical amendments to the PPF for clarification.

Then there are a number of amendments concerning member-nominated trustees and pension representatives. As the Committee will know, the Government's intention is that there should be a minimum of one third member-nominated trustees. I know that that will be an issue of considerable concern to my noble friends; we will table amendments about that. Finally, we shall introduce amendments ensuring that the Bill is consistent with legislation on winding-up priority orders. As the Committee will know, the Secretary of State made a Statement in June 2003, I think, and, following yesterday's discussion in the Commons, we will need to ensure that that is appropriately incorporated in the legislation.

I hope that that helps the Committee, before I turn to item No. 2 on my shopping list.

Lord Higgins

I thought that there were six items, rather than 10.

Baroness Hollis of Heigham

I have eight major items. I shall duck and weave and say that the rest are technical.

The second issue was the timetable for the PPF. Again, if I may trespass on the Committee's time—I know that I am bending every rule in the book, but it seems helpful, given that we have now moved into Part 2, which is a matter of so much concern to so many people—I have a statement about where schemes are.

Schemes will be eligible for entry into the pensions protection fund if the winding-up of a scheme takes place after the PPF is up and running. On current plans—returning to my opening remarks about our dilemmas on speed, and so on—that will be 6 April 2005. Thereafter, schemes may be eligible to come into the PPF. Schemes are eligible to come into the PPF only if the employer is insolvent and the scheme is funded to a level below the PPF benefits. If the employer is solvent, we would expect him to buy out the liabilities; if the scheme is funded to a sufficient level, it does not need to come into the PPF, because the PPF benefits are lower by definition.

Those facts will be established during the assessment period, which is when a scheme is considered for entry to the PPF. The details of the financial assistance scheme will be developed through consultation with stakeholders, such as pension scheme trustees, trade unions and key business representatives. Our plan is to consult on such details in the autumn. We will work on them over the summer for the autumn. We have made clear that we are minded—I use that word deliberately—to frame eligibility to include schemes where the employer is insolvent and where the scheme in question commenced wind up after 1997. That is when the Pensions Act 1995 came into force. There is no connection with the change of government or anything like that; it is because that is the operative date for the 1995 Act. Of course, we shall take into account the position of schemes which started to wind up shortly before April 1997 before reaching a final conclusion. That is the reason for the date.

So we are minded to include schemes where the employer is insolvent and where the scheme in question commenced wind up after 1997. In addition, we would expect the financial assistance scheme not to be more generous than the level of benefits offered by the PPF. It will be for trustees to make decisions about their fiduciary duty to act in the interests of scheme members. OPRA is also providing advice to schemes in wind up, but we would not encourage trustees or other professionals to stop progressing the affairs of their schemes in the usual way.

It is worth adding that we changed the existing priority order through regulations that took effect on 10 May 2004. Those changes will ensure a fairer allocation of assets of schemes that will wind up before the PPF is in place. The Committee will remember that by moving pension indexation down the order, non-pensioners will receive a higher priority. Before those changes to winding-up procedures, voluntary contributions came right at the top, but pensions indexation came next and only what was left over could go to the rest of the scheme. We are now providing for 100 per cent for pensioners, 90 per cent for other members and then comes indexation, after voluntary contributions. That allows far more resources to be available for active members. As I said, that will improve the position for non-pensioners in schemes that wind up without sufficient assets.

Although we will not be discussing the financial assistance scheme for a while, there has been discussion about the adequacy of the £400 million fund. I emphasise something that is sometimes overlooked when people talk about X or Y amount of shortfall. Often, that speculation in the press takes no account of people who are currently active members of the scheme. Before discussing the adequacy of the amount of money, it is worth emphasising that a high proportion of those affected are deferred pensioners. The sums of money involved are therefore small. The figures are in the House Library, but a high proportion of occupational pensioners are paid in respect of only a few years' service and so relatively low amounts. The average for those receiving occupational pensions is about £6,500 a year but, underneath that, half of all pensions in payment are worth less than £3,500; a quarter are worth less than £1,500; and only a small number receive a large amount.

So people may talk about a 20, 30 or 40 per cent shortfall, but those may be shortfalls on very small sums because many pensions are deferred with only a modest sum due in due course. It is worth emphasising that, because I have read quite a lot of misleading representation about it.

Thirdly, I return to what I called the shopping-list issue. I hope that the Committee will not think I am being condescending in calling it that. We discussed the matter fairly fully during our previous discussion on the board of the regulator. Whether the appropriate number is five or six, as provided for in my noble friend's amendment, or indeed seven or eight, I am sure that that will be the number of members appointed.

However, I advise the Committee not to adopt the shopping list principle. If we read the required skills for the pensions protection fund board in the advert in the Times, they seem pretty comprehensive. But were we to limit those people by reference to a particular background, I was looking at the curricula vitae of the appointed chairman, Lawrence Churchill, and the appointed chief executive, Myra Kinghorn, and I am not sure that they would qualify. The chairman, Lawrence Churchill, comes from Zurich Financial Services and UNUM insurance scheme, which is a disability-based organisation. Myra Kinghorn's admirable expertise relates heavily to the Serious Fraud Office and compensation issues. That makes for a very useful and relevant portfolio of skills, but would not be caught by the shopping-list approach, as identified by the Committee. So I would hope that the Committee would agree that both the chairman and the Secretary of State will want to ensure the highest level of skill and the broadest reach of experience possible for the board and that all such people will be appointed in the appropriate way. I hope that we shall not try to specify, because we may then lose out on people with highly relevant CVs who have real expertise but who do not fit into the list.

12.45 p.m.

The noble Viscount, Lord Trenchard, asked about overlapping membership. Someone could be a member of the regulator, a non-executive director of the regulator, although not a member of the Determinations Panel, and sit on the PPF. That is pretty unlikely; but it could be valuable and it is not ruled out. He then asked about the difference between the fund and the board. The PPF is the fund; the board is the organisation. However, I suspect that during the course of our discussion, we shall use the terms "fund", "board" and "PPF" almost interchangeably. I hope that the Committee will accept tolerance there, but there is a clear legal distinction.

As I said, I shall duck the issue of Higgs and corporate governance. Where we think that either Higgs or the corporate governance code are relevant and set out best practice that is desirable to incorporate, we have done so. The separation between the chairman and chief executive is an obvious example. The financial services compensation scheme has adopted the code. We are not going all the way on that, but there is much of value there to take on board and that is what we are doing.

Finally, I wonder in what detail the Committee would like me to address the amendments. I realise that I am trespassing on the Committee's time. I could read into the record what is an extensive speech setting out how the PPF will operate—its pay and rations and all the rest of it—but I do not want to trespass on the Committee's time if it feels that it understands that perfectly well by virtue of our preparatory briefing. I am in the Committee's hands. Perhaps the Committee would make clear to me what further information it would like at this stage and I shall seek to provide it, rather than read what, as I said, is an extensive speech that may be entirely superfluous if the Committee is well aware of the shape of the scheme.

Lord Oakeshott of Seagrove Bay

On the last point, I do not know whether I speak for the noble Lord, Lord Higgins, as well, but I should be happy to have a look at the speech to see whether we want it read into the record. If the Minister is happy to do that, that would save time.

On the more fundamental point and the important and helpful announcement that the Minister has just made, which will be followed with great interest by many people in the country, many of whom have been writing to us, I press her on the exact timing on the winding-up of schemes. As I heard her say it, the timetable for the PPF is that schemes will be eligible where winding-up of the scheme takes place—I think those were her words—after 6 April, 2005. Could she clarify further what "takes place" means, because winding-up involves quite a process. Exactly what does that mean?

On the financial assistance scheme, could she again make clear whether wind-up must have been completed before 1997 or whether schemes must have entered wind-up? In particular, could she clarify what she means by schemes that were winding up shortly before? We need to be clear exactly on those points.

Baroness Hollis of Heigham

I will do my best. When referring to whether schemes can come in to the PPF, the question is when winding up commences—when schemes are commencing wind-up. We are trying to avoid the issue of the closing date itself. Secondly, on the financial assistance scheme, again the relevant term is "commences" and we are minded to link it to 1997. I suspect that we will not reach discussion of the financial assistance scheme before we rise for the Summer Recess. When we come to discuss it in Committee in September, I may be able to provide further information on that.

Lord Higgins

There may be an opportunity when discussing later amendments, such as Amendment No. 182, to pick up some of the points that the noble Baroness was not sure whether to cover a moment ago. I understand the point about the shopping list. One problem is that we discussed the composition of the regulator and are now discussing the composition of the pensions protection fund. Inevitably, we tend to go over the same ground and it becomes pretty boring.

The reason why we referred to Higgs is that it appears on page 8 at paragraph 28 of the Explanatory Notes. I have a lot of sympathy for the view put forward by the noble Lord, Lord Borrie. He enumerated some of those who have presided over the various corporate governance proceedings. At one stage, it seemed to me that whenever someone took on that job, the company of which he was chairman immediately ran into serious problems. I will not be sordid enough to cite specific examples, but there we are.

We will no doubt come in due course to the list of various subjects concerning the government amendments mentioned by the noble Baroness. The points that she made about winding up and various dates were helpful, although we may need to get the situation a little clearer than that, perhaps with reference to particular funds that have folded, about which we are receiving a number of letters.

Finally, I am sure that we are all anxious to do everything we can to get the Bill right. That is our duty, and I am sure that all Members of the Committee will do all that they can to fulfil it. However, we would have felt a lot happier about the explanation that the Minister gave if the proceedings in the Commons had not been curtailed by way of a Programme Motion. That is the problem. There may be particular circumstances affecting the Bill, but the fact is that, time and time again, Bills come to this House that have not been adequately debated because the opposition parties in the Commons have not been allowed to do so, under the name of modernisation or some such expression.

Baroness Hollis of Heigham

The noble Lord will know this as well as I do. I have read some of those Committee proceedings from the other end of the corridor. I do not mean to be patronising, but I must say that, in my view, the Opposition did not always use the time available to scrutinise in a manner that I take for granted in your Lordships' House. Without getting into the balance between the Houses, I do not think that that was necessarily a problem of government. I know that my officials were poised to answer far more detailed questions than were ever put to them. The reason those questions were not put to them was not due to lack of time.

Lord Higgins

I do not accept that. Of course, a whole chunk of Part 6 appeared only at the very last moment and the Programme Motion was not adjusted to allow for that. If one knows that one does not have enough time to do the job properly, there is little point in trying to grind through the initial clauses, knowing that the rest of them will go totally undiscussed.

However, I shall leave the matter there. The noble Baroness's remarks have been extremely helpful and the flexible approach that we have adopted under our Deputy Chairman of Committees will ensure that our subsequent proceedings go more rapidly and effectively than they would otherwise have done. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 101 agreed to.

The Deputy Chairman of Committees

The Committee now stands adjourned until half-past one o'clock.

[The Sitting was suspended from 12.54 to 1.30 p.m.]

[Amendments Nos. 178 to 180 not moved.] On Question, Whether Clause 102 shall stand part of the Bill?

Lord Higgins

I merely wish to share my own experience of returning rapidly to a meeting. As Treasury Minister I once appeared two minutes late at a Cabinet Committee meeting. Given that I had thought that the meeting would last about three hours, I was surprised that it had already concluded. The reason was that the spending department Ministers had agreed that all their expenditure was entirely justified when there was no Treasury Minister present. So I have never been late since.

Baroness Hollis of Heigham

And what happened to the noble Lord's future?

Lord Higgins

That explains everything.

Clause 102 agreed to.

Clause 103 agreed to.

Schedule 5 [The Board of the Pension Protection Fund]:

[Amendment No. 181 not moved.]

Lord Skelmersdale

moved Amendment No. 182:

Page 260, line 8, after "Fund" insert "comprising the actuarial valuation of each scheme for which the Board has responsibility"
The noble Lord

said: This amendment would insert, comprising the actuarial valuation of each scheme for which the Board has responsibility. It relates to a question that I asked the noble Baroness at Second Reading and which she almost answered in her great speech just before the break. It is designed to find out how the fund will operate. The shorthand that I used at Second Reading was: would there be some funds?

Clearly, the board will take control of a number of pension schemes, most probably all with differing rules, although there is likely to be some overlap. As a result, it will have two choices: either to run all the schemes together—calling it a fund suggests that that might happen—and pay the beneficiaries only according to the rules of each scheme, or to run the schemes as they are handed to the fund, but somewhat better, using the fund money as back-up.

In either event, dedicated officials and, presumably, board members would need to be involved—less in the case of the former but much more in the case of the latter. It would be helpful to know exactly how the fund will operate. I beg to move.

Lord Lucas

Returning to the question of Mr Green and Marks & Spencer, some interesting things will happen when transferring schemes into the pension protection fund. Where a scheme belongs to a company that has gone bust, the actuarial valuation will be on the basis of an extremely conservative investment policy—basically, fixed interest. The pension protection fund has strong access to cash to deal with deficits should they arise as a result of investment performance. Therefore, if a scheme which has a decent number of members who are not in payment and have a long life expectancy is transferred into the fund, putting a chunk of equity as another higher yielding investment in the mix, the basis for actuarial valuation will change. As a result, a scheme with an actuarial deficit may have an actuarial surplus once it has joined the fund. That will be fun to deal with.

Lord Oakeshott of Seagrove Bay

May I move Amendment No. 184, in my name?

Baroness Hollis of Heigham

It is not in this group.

Lord Oakeshott of Seagrove Bay

Perhaps, then, I may offer my support to Amendment No. 182.

Baroness Hollis of Heigham

This is an important amendment because it allows us to give some sense of what the fund is like. Perhaps I can add to my comments later if any Member of the Committee wishes to return to something.

When a scheme enters the PPF, its assets and liabilities will be transferred to the pension protection fund. The amendment would mean that assets transferred from schemes to the fund must be monitored separately, so that an actuarial valuation of the assets from each individual scheme can be carried out as part of the annual reporting requirements.

Perhaps I should explain what "being transferred to the PPF", or "entering the PPF" mean in practice, before moving on to the reasons why I must resist the amendment. Once all the criteria for entering the PPF have been met, the board must issue a transfer notice to the scheme trustees. As soon as the transfer notice has been received by the trustees, the scheme ceases to exist as a legal entity and the trustees are discharged of their pension obligations. The assets and liabilities of the scheme are immediately transferred to the pension protection fund and the board must pay compensation to the members of the former schemes—in effect, they become PPF members. The important point is that once a transfer notice has been issued, it cannot later be revoked or unpicked.

When considering how the fund should work, we quickly eliminated the idea that the board should simply top up scheme assets. That would not provide the economies of scale that the PPF is designed to give. It would result in the board having to pay large amounts of compensation at once and therefore having to pass the costs immediately on to the levy-payers, instead of allowing them to smooth the costs over time.

So we are introducing a fund which will be held for the payment of compensation. We have made no provision to track the assets from each former scheme; indeed, it would be almost impossible to do so without changing the entire nature of the PPF. The fund is intended to pay compensation at the same rate for each individual, irrespective of what proportion of the liabilities are being met by the assets that come with that scheme into the fund—100 per cent, 90 per cent and so on. The compensation is to be paid for by a combination of assets transferred from former schemes and receipts from the pension protection levies. Assets held in the fund will be invested in line with the statement of investment principles, which we will discuss separately.

Tracking the assets of each former scheme would give very few advantages. For example, a comparison would be to require trustees to keep assets in the scheme relating to each individual member separate and to report regularly on the level of assets for every member. However, each member would receive the same level of pension regardless of the level of assets that they brought. So there is not much point in such an approach, if there is no precise connection between what you bring into the scheme in the form of assets and what gets paid out to you in the form of pensions. Whether a member brings in assets that can meet 80 per cent of the liabilities or that meet only 40 per cent—obviously, if it were much more than 80 to 90 per cent, one would be into a wind-up situation—is irrelevant to the payout to the individual members. There is a standard payout of 100 per cent for existing pensioners and 90 per cent for active members or deferred pensions.

Lord Higgins

I am sorry to interrupt the noble Baroness. I have slight difficulty in understanding what she is saying. She has said several times that all members would get the same payout. Does she mean that members will all get the same amount, or that they would all get the same as they would have received if the previous scheme, now defunct, had gone bust? We need to define more clearly what is meant by "the same".

Baroness Hollis of Heigham

It means that when a member has joined the PPF, he will be entitled on retirement, if he is an active member, to 90 per cent of what he would have got under his old scheme. It relates to the length of service. There will also be standardised rules relating to civil partners, survivors and the like. I am trying to break any connection between the assets coming from a scheme and the payout to the members—subject to a £25,000 cap. It means, for example, that if a member would have been entitled to a £20,000 pension through his normal working life with a company, he will get 90 per cent of that in the PPF as opposed to the 100 per cent entitlement that he would have expected had he not joined the PPF.

The rules of payments to survivors, dependents and so on will be constant for all members of the scheme as broadly as possible. Whatever rules applied in the old scheme will continue. If, for example, in the old scheme there was a payment not just for a spouse but for an unmarried partner, it will continue. Given the sex equality rules, the payment would also apply to same-sex or opposite-sex partners. If a member's old scheme did not have such a payment, he would not be entitled to it under the PPF. We are not seeking to make the PPF more advantageous than the schemes that members have left. The PPF has the same rules on proportion of payout, but some of the features of the old scheme will be replicated in the new one in so far as they may differ—in particular, payments for survivors. I was seeking to address the implied suggestion of the noble Lord, Lord Skelmersdale, which could be read into the amendment, that one would track assets in an attempt to keep some parity between what was paid in and what was paid out. One does not need to; it becomes a conglomerated fund and payments follow on the basis of the standard rules. I hope that that helps the noble Lord. If not, perhaps he can come back to me.

Lord Higgins

I was wondering at what stage it would be most appropriate to intervene.

1.45 p.m.

Baroness Hollis of Heigham

Perhaps I may finish this speech before addressing any further points.

One further reason for not accepting the amendment is that it would restrict investment decisions because the board could be encouraged to make fewer changes in investment in order to reduce costs of tracking the impact of those changes to the assets of each scheme.

Finally, the amendment could result in legal challenges where an individual is aware that the assets of "his scheme" are now higher than they were on entry to the PPF. Because of this knowledge, such an individual is more likely to try to challenge the PPF for a higher rate of compensation. It would be entirely unfair to give individuals in the same circumstances different levels of compensation according to how former assets have subsequently gone on to deliver. Entry to the PPF should be seen as a clean break—from that point onwards each individual is entitled to the same rate of compensation from the same fund. My only qualification is that the scheme should operate according to the rules of the original scheme so that members do not end up getting a better deal under the PPF, which would accentuate the moral hazard issues. That qualification and the £25,000 cap aside, I hope that I have met the purpose of the noble Lord's amendment, which is to probe how the fund would operate.

Lord Skelmersdale

I am most grateful for that. Clearly, I did not understand how the fund would work. Can the noble Baroness say more about the "rules of the scheme" and the "scheme rules"? Before the break, she made a clear distinction between what those terms meant. If I understood her correctly, she said that most of the rules of the individual schemes would be met, subject to the 100 per cent and 90 per cent caps. She also said that some generic rules would be forced on all schemes. I was not entirely sure what she meant.

Baroness Hollis of Heigham

The noble Lord's last point comes up as a set of government amendments, although I am not sure where exactly those amendments arise. The reason for clarifying the language is that the rules of the scheme are those that apply to a particular scheme. The scheme may have only survivors' pensions for spouses—in which case it would also apply to civil partnerships—or it may not have rules for partners, for example. Those rules would continue.

The point about the subsequent set of amendments is that the rules of the scheme may be—and, in certain circumstances, must be—overturned where they conflict with other legislation, such as the law on sexual orientation and some equality issues. The scheme rules are the broader set. They include the rules of the scheme as amended by, in the light of, or as adjusted by other appropriate government legislation. For example, regardless of the trustees' wishes they will not have the discretion to confine the scheme rules to partners of the opposite sex; in the light of the European directive, they must also apply to same-sex partners. That is where legislation would cut across the rules of the scheme.

Lord Skelmersdale

That is very helpful. As the noble Baroness has said, we shall subdivide this explanation into its constituent parts over the next few amendments. It would not therefore be helpful if I said any more. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham

moved Amendment No. 183:

Page 260, line 18, after "qualifications" insert "or experience, or a person approved by the Secretary of State,"
The noble Baroness

said: This group of amendments relates to the definition of "actuary" throughout the Bill. The changes are to achieve consistency across the Bill by ensuring that all relevant references to an actuary include actuaries of prescribed qualifications or experience, or a person approved by the Secretary of State. The persons approved by the Secretary of State are not mates who would quite like the job of actuary but are not qualified. That is not the purpose of the amendment. Most actuaries will fall within the prescribed qualifications laid down by the Faculty and Institute of Actuaries. However, they will also include European actuaries, as the Faculty and Institute of Actuaries are signatories to the Groupe Consultatif Agreement on the Mutual Recognition of Qualifications. Under that agreement, a full member of one European actuarial association can become a fellow of another European actuarial association following set procedures.

In addition, the faculty and institute have signed mutual recognition agreements with other countries such as those based in Canada and Japan. However, where there is no mutual agreement in place, the person may instead seek approval from the Secretary of State to act as an actuary in the UK. So it is simply ensuring that reciprocal arrangements can be extended to countries other than those formally covered. I beg to move.

Lord Higgins

I am not clear why the provision was not in the Bill originally. What the noble Baroness says seems eminently reasonable, but we will need to think about it and consult outside, as actuarial bodies may have a view on the matter. On Question, amendment agreed to.

Lord Oakeshott of Seagrove Bay

moved Amendment No. 184:

Page 261, line 26, leave out paragraph 27 and insert— "Pension arrangements for the Board The Board shall make pension arrangements for its chairman and employees which shall be broadly comparable to those provided by companies included in the FTSE 100 Index for their employees receiving similar salaries."
The noble Lord

said: I apologise for my confusion earlier. I have learnt not to be a shrinking violet: when one has grouped amendments, do not withdraw the first one.

Amendment No. 184 is a simple amendment tabled in my name and that of my noble friend Lady Barker. It arose as a result of clarification helpfully given at our first meeting with the Minister and officials before it emerged that it was intended that the chairman and staff of the PPF would have Civil Service-type benefits. We do not think that that is the right approach. Perhaps I can regard this as a "le patron mange ici" amendment. Where pension arrangements and remuneration are paid for by private sector schemes, it is right that they should know what the provisions are, and the relevant PPF staff should get benefits comparable to high-quality provision in the private sector.

It is right that members should understand the challenges and the risks faced by private-sector schemes. I know that our civil servants here in particular are overworked, underpaid and do a great deal for this Committee and the country, but I am sure that no one will misunderstand me when I say that one aspect of their remuneration is now platinum-plated. The full, taxpayer-guaranteed, unlimited indexation scheme is now as rare as a vintage Rolls Royce in the private sector. It is definitely wrong that such an arrangement should be available to the board and staff of the PPF, if that is intended. There are perfectly good precedents—the Financial Services Authority does not work that way. I beg to move.

Baroness Noakes

I am sure that the noble Lord is aware that the majority of chairmen in the FTSE 100 are not members of a pension scheme. Does he intend by this amendment to ensure that the chairman has no pension?

Lord Oakeshott of Seagrove Bay

No, I do not. The noble Baroness is quite right. This came up in our earlier discussion. I do not seek to make the appointment pensionable or not. But if it is intended that it should be pensionable, then any pension should be funded as I have described. I take no view on whether it should be pensionable or not.

Baroness Hollis of Heigham

I do not think that the noble Lord will be surprised when I say that, not only do I not accept the principle of his amendment, but I am not sure that I sympathise with him at all. He seems to be saying that it should be part of the learning experience of those running the PPF that they should be exposed to a DC scheme, a non-Civil Service scheme or whatever he might think appropriate as part of getting them to understand the culture of the world in which they operate. This seems to be part of the context; I cannot think of any other decent reason for the amendment. The noble Lord is asking individuals, if it is a DC scheme, to take on the risk, or if it is a scheme without Crown guarantee or one that has different levels of contribution, to face other implications. I am not sure what scheme he would envisage that they join.

Behind his amendment seems to be the thinking that as those running the PPF are dealing with other people's pensions, they should be exposed to the same risks. In a way that is like saying that one cannot be a surgeon unless one has been exposed several times to the operating theatre. I am not sure that I would accept the analogy that one would have had to have gone through it. There are also some practical reasons. It is partly about remuneration. I entirely accept that Civil Service pensions are a particularly attractive part of the remuneration package of anyone joining the Civil Service. We think that if we are seeking to recruit the 100 or so staff that the PPF may require, that is not unreasonable. In turn, pay levels reflect the quality of the pension. That has always been the case.

Secondly, PPF will be a non-departmental public body. Allowing NDPBs to join the Civil Service pension scheme is quite customary. A wide range of bodies also appear in the Superannuation Act 1972, which enables staff of these bodies to receive a principal Civil Service pension. Bodies as diverse as the National Lottery Distribution Fund, the British Library, Culture Online, the Commission for Racial Equality, and the National Consumer Council are all examples of where employees can receive a Civil Service pension.

I shall give an example nearer to home. We have agreed that one body whose staff may also receive Civil Service pensions and is easily comparable to the PPF is the regulator. Payments to the Minister for the Civil Service for regulator staff pensions will be covered by the grant in aid paid to the regulator from the Secretary of State for all administrative staff. The Secretary of State will recover the grant in aid as part of the general levy on pension schemes. It is almost exactly the same as for the PPF. It would also be anomalous for the PPF to offer a DB scheme without a Crown guarantee. If that is the alternative proposed by the noble Lord, such as that for the Arts Council, it would mean that the PPF would become part of the regime it was set up to protect, and would have to pay a levy to itself—even more so since it would be the normal levy-payers who would bear the cost through the administration levy.

The argument that carries most weight with me is the last one I wish to use. We expect staff from the Department for Work and Pensions, the regulator and the PPF to be able to move between the three bodies. They do so now. Staff from OPRA, for example, have been seconded into the Civil Service to work on the Bill and at least one senior official sitting behind me, who has been extremely helpful in assistance with answering some of your Lordships' more detailed questions, was seconded from OPRA into the Civil Service for the period of the Bill. Whether she will stay with the Civil Service, return to the pension regulator, or whatever, I do not know. But that type of regular movement of staff between these bodies is extremely valuable and would be hindered if there were different terms and conditions of service and different pension schemes.

I do not accept the underlying suggestion that the people running the PPF should be exposed to the same type of risks to which people entering the PPF have already been exposed. I do not believe that it is unusual at all. I do think that it is reflected in the total remuneration package with which we attract staff and it would also impede movement between the three bodies of the department, the regulator and the PPF. For all those reasons I hope that the noble Lord will withdraw the amendment.

Baroness Noakes

The Minister used the obscure argument of movement between the three bodies. But she then talked in terms of secondment, which is the one mechanism that is able to keep the terms and conditions of the host employer throughout that mobility. So it seems that that is not a killer argument.

2 p.m.

Baroness Hollis of Heigham

I take the correction. I should have referred to when people actually leave one place and go to the other.

Lord Higgins

Will the staff of the board be on a contributory or non-contributory scheme?

Baroness Hollis of Heigham

It is non-contributory, but I believe that I am right in saying that there is a contribution payment for dependents, which is a voluntary addition. It may be at 1.5 per cent. I am not sure about the details, but it is a largely non-contributory scheme.

Lord Higgins

But the argument for it being a non-contributory scheme, as I understand it, has always been that the salary is adjusted appropriately and that therefore the thing equals out. Would it not be far better and perhaps create a useful precedent if it were a contributory scheme, and then pay the appropriate salary? It is a ludicrous anomaly in the Civil Service system that there is a non-contributory scheme, whereas even Members of Parliament actually contribute.

Baroness Hollis of Heigham

This may be a matter for the Cabinet Office, which could presumably decide to review salaries and change the pension schemes accordingly. However, I encourage Members of the Committee not to trespass down that path today, as we shall make no difference to the levels or structure of Civil Service salaries or pensions, whatever we may say.

Lord Higgins

Would the staff in question all be existing members of the Civil Service?

Baroness Hollis of Heigham

Not necessarily. I take the point made by the noble Baroness, Lady Noakes, about secondment. She was absolutely right. Some of the staff may be currently working for OPRA and some may be newly recruited. We expect about 40 per cent of them to be professionals, such as actuaries and so on, who may have been recruited from the private sector. Others will be administrative staff, and others will have come from OPRA or possibly from the department, so there will be a mixture of staff.

Lord Oakeshott of Seagrove Bay

I regard that as one of the thinnest answers that I have ever heard a Minister give. First, the Minister did not address at all the point that I made, which I should have thought was pretty relevant, about the Financial Services Authority. That was simply ignored. I thank her for pointing out that at the moment there is no amendment to that effect as regards the regulator, and I assure her that I shall rectify that when we get to Report—so that deals with that argument. Indeed, I believe that the argument applies to both cases.

As for the idea that the provisions are somehow simply a matter of carrying on as before and bringing over civil servants, the Minister gave the game away when she said that perhaps 40 per cent of the staff will be from the private sector, including "actuaries and so on".

Baroness Hollis of Heigham

I said "professional". I did not say where they would come from. They may come from the private sector, and 40 per cent are likely to be professionals. My own department, for example, has professionals of the sort described.

Lord Oakeshott of Seagrove Bay

Well, I am delighted that her department has so many spare professionals and actuaries to switch across. But I should have thought that it would have been very important to have major recruitment from the private sector. None of those people will be on the sort of terms that we are discussing, nor would anyone expect them to be.

I have still not heard the argument on the FSA and other parallels, although frankly it would be a lot more interesting than the case of the National Lottery. I quite accept that we are discussing an overall package, which should be in line with good private sector packages. It is ridiculous that civil servants should have these exceptionally generous pension arrangements and such low wages. It would be a good move in setting the provisions up to move towards a more rational structure.

It was a travesty of my argument to say that we are doing what we are doing for educational purposes; we are just saying that the people running the schemes should not be insulated in a completely different cocoon right away from the experience that everyone else in the country has.

Lord Higgins

It is also surely relevant to consider who is actually going to pay the pensions. As I understand it, that will not be the taxpayer but other pension funds.

Lord Oakeshott of Seagrove Bay

That is absolutely right.

Baroness Hollis of Heigham

Perhaps the noble Lord, Lord Oakeshott, should tell the Committee what sort of pension scheme he does think appropriate. It is no use simply referring to the FTSE and saying that such schemes are broadly comparable. What type of scheme does he have in mind? Either way, I put it to him that the salary plus pension equals a sum, and I should be very surprised if that total sum—which is what matters to the levy payers, as the noble Lord, Lord Higgins, has said—will change, whether it is carved up with more pension and less salary, or more salary and less pension. Will the noble Lord say what sort of pension scheme he believes to be appropriate?

Lord Oakeshott of Seagrove Bay

In a way, the Minister has just made my case. The whole point is that the levy payers should know where they stand.

Baroness Hollis of Heigham

They will know where they stand in terms of the total remuneration package attached to each individual employee. The noble Lord has accepted that if one went for a different sort of pension scheme one would have to increase pay proportionately. Therefore, the total cost for the levy payers would remain the same. It is a zero sum game, under the noble Lord's own explanation.

Lord Oakeshott of Seagrove Bay

Perhaps the Minister would sit down and listen for a minute and let me finish the sentence. The whole point is that people do not know where they stand with the Civil Service pension scheme, because it has unlimited indexation over long periods. It is very difficult for them to know where they stand.

The Minister has herself said several times in the House, and we would agree with her, that in private sector schemes the sum is probably around 15 per cent—perhaps 10 per cent from employers and 5 per cent from employees. That seems a perfectly reasonable way in which to do things, although I am not seeking to prescribe that today.

Baroness Hollis of Heigham

A DB scheme, in other words.

Lord Oakeshott of Seagrove Bay

It could be a DB scheme or a DC scheme—I am open on that. But so far I have not had any serious response to the points that I have made. I made the point, although not as clearly as I should have done, that the provisions are not being paid for by the taxpayer. It is being paid for by all the private sector pension schemes in this country, and it is perfectly reasonable that they should expect the staff of those administering the scheme to work on comparable terms of service to better private sector employers.

To be frank, unless the Minister is prepared to think more clearly and address some of the serious points that I have made, her answer seems to me dismissive and unworthy, and I can assure her that I shall return to the matter on Report.

Baroness Hollis of Heigham

I shall try not to take umbrage at what the noble Lord has just said. I am sure he is aware of some of the schemes in the private sector. I can give an example of one scheme. To the best of my knowledge, the Royal Bank of Scotland, which is probably the major financial services player in Europe, has a non-contributory DB scheme. It is quite likely, or at any rate not impossible, that some of the professionals whom we may seek to employ may come from such an employer.

I could produce examples of non-contributory schemes from companies in the FTSE 100; that is pretty common in the financial services industry. I am sure the noble Lord knows that perfectly well. They are at least as generous and in some cases more generous than the Civil Service scheme. They may not be so in all particulars; they may have different retirement ages and different assumptions for dependents. The Civil Service scheme is actually quite mean, in my view, on the matter of dependency. But it is not out of line with many of the best practice leaders, such as RBS, the major player in the private sector. Let us not assume that there is something over there called the Civil Service scheme which is platinum-plated, and that everyone else is living in a much more risky environment. That is not true.

Lord Oakeshott of Seagrove Bay

Perhaps the Minister should have a look at what the amendment actually says. It refers to, pension arrangement … which shall be broadly comparable to those provided by companies included in the FTSE 100 Index"— and by that I mean the general range of them. She may be able to find one non-contributory DB scheme in the FTSE 100, but I challenge her to check up and find out how many FTSE 100 companies have non-contributory schemes open to new members. She will find that it is a handful only.

This is a carefully worded amendment that aims at provision in line with general good practice in big private sector schemes. The Minister should concentrate on that, and not try to produce red herrings, such as the one she has just produced.

Baroness Hollis of Heigham

It is not acceptable to say that I am producing red herrings when I have referred to the scheme, of which I have some knowledge, of the major financial player. That scheme, at least on paper, is probably more generous—apart from the retirement age, possibly—than that of the Civil Service.

If the noble Lord seriously wants me to engage in this discussion, he must indicate to me what his scheme would look like. I have not yet heard that from him. I can guarantee that the FTSE 100 Index companies will have at least 10 different sort of schemes. What does he want me to do—to count the number of schemes, of members, or what? If he is serious about his amendment, while I accept that there is a proper issue behind it, he must indicate what such a scheme would look like. Then I can consider the matter. Simply saying that we should have a look at the top 100 companies, at all 10 different schemes, and work something out from that would not be appropriate. It is incumbent on the noble Lord in moving the amendment to describe what he has in mind and what he believes would be appropriate.

Baroness Noakes

If the noble Lord's amendment were drafted in terms of new entrants, which it should be if he brings it back at Report, I could give the Minister a very clear answer. For new entrants, the usual scheme would be a defined benefit scheme with some employee contribution. I believe that that is what she will find as the emerging norm among all commercial companies, especially those in the FTSE 100 which have responsibilities to control costs on behalf of their shareholders.

Lord Oakeshott of Seagrove Bay

Can I please also ask the Minister about the FSA scheme, which I have now mentioned three times, and on which the Minister is completely ignoring the point?

Baroness Hollis of Heigham

I am very happy to respond on the FSA point. There is obviously a comparison issue. Each NDPB is set up according to its own individual circumstances. The Financial Services Authority compensation scheme, for example, amalgamated a number of existing compensation schemes. The fact that it was not created from a blank canvas will no doubt have affected its design. People came in from different schemes with different pension structures, as far as I am aware.

In addition, the FSA in contrast to the PPF, is a company limited by guarantee and has different overall governance arrangements. Therefore, I do not believe that the comparison with the FSA is the close match that the noble Lord seems to suggest.

Lord Oakeshott of Seagrove Bay

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Skelmersdale

moved Amendment No. 185:

Page 261, line 37, leave out "Neither the Board nor any" and insert— "( ) The Board shall be liable in damages. ( ) No"
The noble Lord

said: I am afraid that the gremlins in the Public Bill Office got at this amendment, too. There should of course be no brackets, and the words should be all on one line.

What I am seeking to probe, although I know that the board is neither the servant nor the agent of the Crown, is whether it is a body corporate that stands freely on its own. I readily understand that it is bad practice for a board not to look after its employees and members and I would not expect them to be liable for damages, but I should be interested to know why the body corporate is not liable in that regard. I beg to move.

Lord Borrie

The proposers of this amendment are quite happy that members and staff of the board or committees should be free from liability but not that the board should be so itself. However, the noble Lord has not referred to later parts of paragraph 28 of the schedule.

If the board has acted in good faith, it should have the exemption from liability proposed there. The noble Lord will notice that, on page 262 of the Bill, the exemption does not apply if the board, or any of the individual members, have acted in bad faith. Subparagraph (5) is equally important in suggesting that the alternative dispute resolution procedure should be adopted, involving the ombudsman—whose position or role we have not yet discussed, but shall do under Clause 200 and subsequent clauses. That power to give compensation is what would be there in place of the common law right of damages, which would otherwise exist if it were not for the exemption.

The exemption for the board acting in good faith seems perfectly reasonable. However, even when it acts in good faith, there should be the compensation powers for the ombudsman to impose if it thinks fit.

Lord Skelmersdale

The noble Lord, Lord Borrie, is misinformed. I have indeed read further down in the paragraph to which he refers.

Lord Borrie

I did not suggest that the noble Lord had not done so, but that he had simply not read it out to us.

2.15 p.m.

Lord Skelmersdale

The noble Lord, Lord Borrie, has the text in front of him in the same way as the rest of us do. But sub-paragraphs (4) and (5) refer to the board as a whole rather than to individual members.

Baroness Hollis of Heigham

In a way, we shall be revisiting the same argument, debate or discussion that we had when we discussed the regulator and the liability for damages in that case. So I do not know whether I shall be taking the argument much further forward than I did in that case. However, I should be very happy to restate the arguments and to see whether—

Lord Skelmersdale

If the Minister is prepared to tell me that the situation is much the same and that the board is a body corporate, I shall be quite satisfied.

Baroness Hollis of Heigham

I can say yes to both questions.

On one final point, to confirm what the noble Lord, Lord Borrie, said, the provisions do not protect the board from maladministration and therefore damages awarded by the ombudsman.

Lord Skelmersdale

Is that under sub-paragraph (5)?

Baroness Hollis of Heigham

Yes.

Lord Skelmersdale

I thank the Minister for that response. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn. On Question, Whether Schedule 5 shall stand part of the Bill?

Lord Higgins

I want to clarify a little more, before we return to the matter on Report, one or two things that were said in the earlier debate. Am I right in thinking that the staff of the board will be civil servants?

Baroness Hollis of Heigham

No, they will not be civil servants.

Lord Higgins

Well then why are they getting the Civil Service pensions arrangements?

Baroness Hollis of Heigham

Because we believe that it is appropriate.

Lord Higgins

Why does the Minister believe that it is appropriate?

Baroness Hollis of Heigham

For the reasons that I have just adduced to the noble Lord, Lord Oakeshott, in the previous discussion.

Lord Higgins

I believe there to be room for genuine disagreement on this point, which we may need to return to. These people are not being paid by the taxpayer; they are being paid by a levy on other pension funds, many of which will have less favourable arrangements. As I understand it, what is proposed is that the staff of the board will have non-contributory inflation-proofed pensions. I rather doubt whether any of the members contributing to the levy will have had a non-contributory pension scheme.

Lord Oakeshott of Seagrove Bay

Not with unlimited indexation; no chance.

Lord Higgins

No, therefore I think it very strange that board member staff should have privileges that those paying for it do not have. The Minister may need to add to the arguments that she has presented so far.

Baroness Hollis of Heigham

I do not know whether I can take the matter any further. The staff are not civil servants—it is a non-departmental public body. We propose that they have pensions analogous to those of the Civil Service, which indeed has the description that the noble Lords, Lord Oakeshott and Lord Higgins, have given it. They are not unique; they are valuable; and the point that I was seeking to make was that although pensions are not the fourth pillar in negotiating pay packages, the total remuneration package includes pensions, pay, possibly relocation expenses, and what you will. My noble friend Lady Turner has negotiated such packages for many years, and will have a much better feel for it than I do.

All I was saying was that if one accepts that there is a total remuneration package, how one slices it between pay and pension is a further matter. What matters to the levy payers is the total cost of the staff to the levy payers in running the levy. I suggest that, given pay and pension levels, if the conditions of the pension are reduced and made less attractive, people will be compensated accordingly in pay. One can argue about what will happen 20 or 30 years down the line—and I take the point about unlimited price indexation, and so on. None the less, the total sum for the levy payers should be approximately the same.

There may be 100 staff, 40 of whom may be professionals, who may or may not have come from the Civil Service or bodies with similar conditions. I gave the example of the RBS, which remains open to new members—it did when I last checked. The conditions are at least as good as, if not better than, those of the Civil Service. Another 40 per cent of the staff may be working on the interface—senior level administrative staff—and another 20 per cent will be involved with aspects such as IT. They will come from different sectors and schemes.

We regard the pension scheme as part of the remuneration package. We could argue about whether it should be sliced differently, but I doubt whether that would have any impact on the nature of the levy. If there is no such impact, we are brought back to the original point—that what other Members of the Committee have proposed is good for its own sake. I am not persuaded that it is.

Baroness Noakes

The Minister's assertion that a package can be simply sliced one way or another is a nice economic theory and may form part of some of the negotiations around the pay packages. But the evidence from employers is that, because employees rarely value the pension that is provided at the cost of providing it, it is not simply a question of cutting up different parts of a package.

The only way one can get to the position described by the Minister is with something close to a defined contribution scheme, whereby one can actually see that the parts are either pay or defined contribution. With a defined benefit scheme, especially those with very generous benefits such as unlimited indexation, all the evidence from the employers with whom I have been involved is that it does not have a commensurate value in the negotiation around pay. Therefore, it is not a zero sum game, as I believe the Minister was trying to say. It could be transparently a zero sum game in the context of a defined contribution scheme, but that is not what we are talking about.

Baroness Hollis of Heigham

I take that point. When we come on to the point about defined choice and retirement, one of our concerns is to bring that up on the agenda. But we are dealing with a group of people who will be educated in pension practice, because that is what they are being employed to do. They will have been involved in accountancy, law and so on, before they come into the job. The notion that they will not actually value that which they are seeking to protect by virtue of running the PPF does not seem likely to me.

I take the noble Baroness's general point. She is absolutely right—and this is a problem that government as a whole deal with—that pensions are undervalued until people hit their 50s. However, I believe that this is one occupation and one NDPB to which that will not apply. It might apply to the Arts Council, but I should be very surprised indeed if it applied to the professionals being employed by the PPF.

Schedule 5, as amended, agreed to.

Clause 104 [Board's functions]:

[Amendment No. 186 not moved.]

On Question, Whether Clause 104 shall stand part of the Bill?

Lord Higgins

The clause relates to the functions of the board and a number of various functions are set out. I wish to clarify a couple of points.

The Minister earlier helpfully described the way in which the board would operate, taking over eligible schemes, maintaining them and paying out the amounts that they would have received or an amount related to what they would have received, had the existing pension scheme not folded. I fully understand that the money all then goes into a single pot, but do the members whose scheme has been taken over and become an eligible scheme operated by the PPF go on making the same contributions as they would previously have been going to make? In effect, is the PPF making up the contribution that would have been made by the company if it had not gone bust?

If that is so, are the liabilities of the PPF with regard to those particular people going to be assessed by an actuary, as they would have been if the original scheme had continued in existence? We need to be clear. On the one hand, we all realise that the money all goes into a single pot; on the other hand, the benefits remain the same or are related to the way in which they were previously paid. What is the situation with regard to the members of that scheme, now part of the PPF, paying contributions? Do they go on paying the contributions? Do they go on paying—I am saying this for a second time—the contributions they would previously have paid and does the PPF make up the payments which the employer would previously have made?

The other point relates to a different matter; the board's functions. It is taking over the various schemes, many of which would have had actuaries, accountants, advisers or whoever, who may be on contract to the scheme that has folded. Does the PPF compensate those people?

Baroness Hollis of Heigham

I shall take advice on the second part of that question. On the first part, a scheme will enter the PPF only if the company is insolvent and the scheme is under-funded. If the company is solvent, but the scheme is under-funded, the company will be expected to make good as part of the winding up. If the company is insolvent, but the pension scheme is adequately funded, it can continue as a closed scheme or wind up under certain circumstances if that is desirable. Therefore, the schemes come into the PPF with an active member—say, James Smith aged 50 working for a steel widgets firm in the north—because the company has folded with it his job. Therefore, contributions continue and no increase in benefits will follow. He has effectively become a deferred pensioner. This is for people who are still of working age.

Clearly, pensions in payment—those over retirement—continue in the usual way. Clearly, there is an issue about whether in the assessment period someone hits retirement or seeks to come into the scheme perhaps by manipulating ill-health rules. There are some issues around that which the noble Lord, Lord Higgins, would be right to pick me up on and press me as to how we will deal with them. They are complicated.

I believe that I am right by definition, but I am not sure whether technically I am right. I am speaking in a lay person's language. Basically, at the point at which someone's scheme comes into the PPF, he has effectively become a deferred pensioner. In that sense, it would follow not dissimilar rules to any other deferred pension scheme which gets, so to speak, frozen but will have certain indexation rules applied to it. But no additional contributions are being made and therefore no benefits are being accrued over and beyond what a limited indexation might achieve. I do not know whether that helps the noble Lord.

On the second question relating to compensation to professionals, there will be no compensation to trustees and so forth, in the same way as they are not compensated during a normal scheme wind-up. It is simply that their contracts of employment are terminated. I am sorry, did I speak too quickly? We do not expect any compensation to professionals, including trustees, in the same way as they do not receive compensation now when a normal scheme winds up; in other words, their contacts of employment are terminated.

Clause 104 agreed to.

Clause 105 agreed to.

2.30 p.m.

Clause 106 [The Non-Executive Committee]:

On Question, Whether Clause 106 shall stand part of the Bill?

Lord Lucas

We come back to that which the noble Baroness would not answer before lunch. Personally, I can listen to the noble Baroness all day. Indeed, I have done so on many occasions during my days on the Front Bench—most enjoyable it was, too. I am not sure that that is entirely reciprocated, but there we are.

We have dealt with the assertion that this provision is a Higgs structure; the noble Lord, Lord Borrie, has demolished it comprehensively. We are dealing with a particular board structure that has to be justified in its own terms. The common British board is a unitary board where, although there may be functions that non-executive directors are supposed to undertake, they none the less undertake them as part of a unitary board.

This would be a separate non-executive committee with its own responsibilities and decisions, which it would take separately from the board. The Government must justify why they have moved from our standard structure to this structure. What benefits flow from adopting this structure rather than the ordinary structure that we would expect in a body corporate?

Towards the end of Clause 106(5) we get something that looks like the remuneration committee and the audit committee. I can understand why we have a separate committee with separate responsibilities. In paragraphs (a) to (e) of subsection (5) we are looking at functions that belong to the responsibilities of the whole board. I do not see why sole responsibility for them is being delegated to a non-executive subcommittee. That damages the function of the board, which is why we do not do that in ordinary companies. Those functions are the responsibility of the board and need to be dealt with by the board.

Non-executive directors have particular responsibility for considering matters, which they will often meet separately to discuss. None the less, the decisions and responsibilities rest with the board. A non-executive committee in an ordinary company does not take separate decisions on those matters or have defined responsibility as suggested in this clause. I want to know why this is being done. I do not expect to hear "because it's Higgs"—because it is not.

Lord Borrie

I am delighted that the noble Lord, Lord Lucas, has, for the second time, agreed with my earlier points about Higgs and the combined code. It helps to make the point that I seek now to pursue: we are dealing with a public sector body, and I entirely agree with the noble Lord, Lord Lucas, that it must be justified on its own merits.

In part of the argument put forward by the noble Lord, Lord Lucas, it seems as though he is torn between the combined code and that particular argument: he talks about moving away from the board structure with which we are all familiar in the private sector. Because this is the public sector, we do not need to consider how far it is different from, or how far we have moved away from, the private sector corporate structure. We need to consider whether this is a valuable way for this particular body to do business.

The clear distinction, which is set out somewhere or other—I agree that there are a lot of words in Clause 106—is that it is the strategic direction of the board with which the non-executive committee are supposed to be concerned. That is the key function of the non-executive committee. That, together with calling to account the performance of the chief executive, seems a very suitable function for the non-executive committee. I shall say no more. I agreed with the basis of what the noble Lord said, but then he could not help himself in going back to the private sector structure, which we do not need to do in this regard.

Lord Higgins

I sympathise with my noble friend's point; it has been a thread through our discussions all day. What is proposed is much closer to a continental European structure. To some extent, in effect, it becomes a supervisory board; but, if I understand it correctly, it means that we will not have a specific remuneration committee or a specific audit committee. The whole thing comes under the non-executive committee. Given what is happening at Shell, I am not sure that this model is ideal. We need to consider why the Government have decided that this is the right approach.

Baroness Noakes

I never like to disagree with my noble friend on the Front Bench, but I do not think that this is like a supervisory board on the continental model. That board sits above the board to which are accustomed, which does most of the business. Here, we have the board and a non-executive committee, which carries out functions. However, subsection (3) states: The functions … are functions of the board". That is neither fish nor fowl, which is the cause of the problem.

The noble Lord, Lord Borrie, says that we do not have to follow the private sector. Indeed, we do not, but the vast majority of public-sector bodies▀×and I mean the vast majority—have unitary boards. There are two or three examples, which started with the Bank of England, which have this curious non-executive committee structure.

I have some knowledge of that structure because I was the first senior non-executive director of the non-executive committee of the Bank of England. That caused us huge problems because the non-executive directors were suddenly required to take on functions that were functions of the board but, in some senses, separately. We got around that by having technical meetings of the non-executive directors, which ratified things that were carried out in the main board from the perspective of the responsibilities laid on the non-executive directors.

Reading the current report of the Bank of England, it has moved on to having the non-executive directors carrying out most of the functions of the board with executive members in attendance, which are determined by formal meetings of the whole board to ratify what has gone on. Neither arrangement is satisfactory because both arrangements are attempts to get around a slightly ludicrous separation between executive and non-executive in the context of a unitary board.

Because of Clause 106(3), it seems to me that there is schizophrenia here. We want a unitary board so the functions are left to the board, but we also want to set up some kind of a divisive structure. This started to go wrong when the Bank of England Act set that up. There have been only a couple of other examples. Nowhere else in the public sector will one find such nonsense.

Baroness Hollis of Heigham

From the way that this discussion is going, I do not know whether praying in aid Higgs would help or hinder me. The noble Lord, Lord Lucas, said that this is not what Higgs says. My noble friend Lord Borrie said that this is not what Higgs says. And quite right, too, because that is not what Higgs refers to. I shall try another approach, which is to say that it is partly Higgs and it is a jolly good idea. Not for the first time, I think that I shall lose friends from all around the Committee. Perhaps I may set out our thinking.

First, we believe that it is a unitary board. I completely defer to the experience of the noble Baroness, Lady Noakes, at the Bank of England. Needless to say, I have not shared that experience. I have no reason to think that she is not entirely accurate in her descriptions of some of the contrivances to avoid a structure that she believes is burdensome and an impediment to appropriate decision making.

The intent is that we are dealing with a unitary board where there is a strategic role that is properly exercised by the non-executive directors, not quite in a Chagall-like way floating above the top of the board, but which would none the less be able to sit as a non-executive committee to discuss the strategic development of the PPF. But the non-executives also have a separate role. That was a feature of the Higgs review, which stated that non-executives should meet separately and have a clear role in contributing to strategy and to monitoring performance.

Again, I cannot challenge the expertise of the noble Baroness, because it is not my expertise at all, but I am advised that ordinary companies are increasingly introducing opportunities for non-executive members of their boards to meet separately and to have a clearer, more independent role—although this may not be formally recognised in the same way as in the PPF.

We can argue about blue-sky stuff such as whether it is more like Europe, more like Britain, whether there should be unitary boards and so on, but ultimately I do not know how the PPF's ability to function appropriately is compromised by these proposals. I can think of many ways in which the role of the PPF will be strengthened by them. Would noble Lords opposite kindly say why in practice this would hamper the good governance of the PPF? I have not heard a single reason. I have heard blue-skies theory on structures and all the rest—that is a changing field, but it is not mine. I have not heard any practical reason why this structure would hinder in any way.

There are many reasons why it would help, particularly given the political sensitivity of such a fund, where one is asking the non-executive members to have a non-commercial role—I am using small letters in that sense; I am not implying any criticism. There is a degree of sensitivity and therefore a degree of background that we would be seeking from the non-executive directors, which would be much greater in its headspace above the ranks of executive directors than is often the case.

In that sense, this separation of the non-executive directors into a non-executive committee, where appropriate, must surely be advisable. I have heard no reasons to persuade me that that is not the case, other than, "it isn't best practice".

Baroness Noakes

I do not wish to delay the Committee too much, as I am sure that we shall return to this matter again at Report. The problem is that the list of non-executive functions starts with strategy. That is quintessentially a function of the whole unitary board. Nothing in Higgs or the combined code says that non-executives go away separately to talk about strategy. They go away separately to talk about the way in which the chairman works—that is specified in the combined code—and, usually with the chairman, to talk about the performance of the chief executive. No one needs to set up in statute or write in the combined code that they should do those things, and no one says that they should have a separate committee for it.

If the intention is, as we understand it, to have a unitary board, why do we have this artificial structure involving the non-executive committee? I tried to explain to the Minister that in the only example with which I have been familiar there has been a series of legal devices to operate as a unitary board but stay within the letter of the Bank of England Act. So if she says, "Is there any harm", I shall say, "No, the PPF will get around it", because it will organise the way that it carries on business as if this is not driving the way they have carried out their day-to-day business. I have not heard from the Minister why this structure helps the governance or the unitary structure to work. All that I can see is that it potentially harms the unitary structure unless the members of the PPF or the board work their way around it. That is not a sound basis for legislation.

Lord Higgins

The Minister said that there will be a remuneration committee and an audit committee, in which case I am not clear whether, if we are specifying a non-executive committee, we are not also specifying them. Provided that there is a proper remuneration committee and a proper audit committee, I wonder increasingly whether we need Clause 106 at all. For the reasons given by my noble friend, it is arguable that we do not.

2.45 p.m.

Baroness Hollis of Heigham

I do not think that I can help very much more. We think that such a committee will ensure a degree of independence and oversee the governance and strategy of the organisation, providing an independent review of the executive function of the board. As a result, we will get a wide of range skills and experience brought to the organisation.

There is probably a degree of a difference of philosophy here. I am not sure that I shall be able to say very much that will change the minds of Members of the Committee. Obviously, as always, I shall read Hansard, but I have not heard anything gritty that I can get into: it has all been at a blue-sky level. I do not mean to be critical because my language, too, has been at a blue-sky level. Apart from the fact that at the Bank of England there was a need to get around it in some way, I have not heard anything to suggest that this provision is a bad thing. I have been given quite a lot of advice to suggest that there are many positive advantages. If noble Lords wish to write to me with further details about why this provision might be an impediment to the effective and appropriate running of this organisation, I am very happy to take that on board. But I have not had that grittiness today.

Baroness Noakes

Perhaps the noble Baroness can tell us the positive advantages. We did not hear those.

Lord Oakeshott of Seagrove Bay

On listening to the debate, I do not think that it is right for the Minister to invite Peers who are probing to write to her. It is for the Minister to explain—this is blue-sky either way—to explain grittily why the provision is a good thing. The more I listen, the more I think that there is not much point for it.

Baroness Hollis of Heigham

I have tried to set out that what we seek to do is to establish a non-executive committee within, if one likes, the unitary structure to overview the strategic functioning and working of the board. Given the nature of its sensitivities and so forth, there is an additional dimension that one might not normally expect of many commercial companies. It would be sensible and is congruent with the advice coming from Higgs et al. I am assured that this is increasingly the way in which many companies are going, and it seems a good way to proceed. But if it is not, it is for Members of the Committee who are saying that we should do something different to explain to me, if they would be so kind, why doing it differently would be better.

Lord Lea of Crondall

This is an unnecessary philosophical discussion that has arisen—as if this must, on a priori grounds, be exactly like a Companies Act company. That is the sort of picture that is coming out. This is sui generis. All the reasons for this provision being set out as it is are based on the particular factors that have led to the whole board structure being created in the first place. The critics have not really taken the point that this is a rather special animal that must have rather special features. I think that time will demonstrate that is the case.

Baroness Noakes

Perhaps I may say to the noble Lord that this is a fairly ordinary NDPB. There is nothing very special about it in public sector organisational terms.

Lord Lucas

Can the noble Baroness ask her officials to talk to their colleagues associated with the Bank of England board to find out their experience of this particular structure? It is an unusual structure in NDPBs. Perhaps we could have some feedback on whether they feel that the structure has been good.

The crucial element is subsection (4), which one could not have in a public company and is not present in most NDPBs. One can have everything else, but subsection (4) kills it. What advantages or disadvantages does the Bank of England see to having that part of the structure? The rest seems to me to say, "Well, if they want to do it that way or not, fine". We take the view of the noble Lord, Lord Borrie, that this is a public board and it can do things its own way. But we are introducing a set of tensions into this board through subsection (4). I do not see how those tensions are constructive.

There is an example in the Bank of England where those tensions exist, at least in potential. Can we have some feedback as to why they are a good idea?

Baroness Hollis of Heigham

I am certainly willing to seek advice and a briefing on the effectiveness of the Bank of England. But in all the briefing that I have read, I have been led to believe that NDPBs, as they are now being developed by government, will proceed down this road unless there are very good reasons otherwise and that this is where best practice lies. Arguments about this not being quite British, and so forth, will not do. I need to be given stronger arguments than that about why this is not congruent with best practice which, for all the reasons I have suggested to Members of the Committee, it appears to be.

As I say, underlying this is some philosophic reading of how companies should be structured in this company. I am very happy to find out whether the Bank of England believes that the structure produces practical problems of the sort described, whether they have been overcome, whether our structure would replicate those problems and whether we shall be able to overcome them. That could be a very useful activity. We shall find out what there is to be said on that.

Certainly, as it stands, I have not heard any evidence to suggest that corralling the strategic functions to the non-executive committee is not an appropriate and proper way to behave. I cannot take the argument any further but, obviously, Members of the Committee will want to revisit this matter on Report.

Clause 106 agreed to.

Clause 107 [Investment of funds]:

On Question, Whether Clause 107 shall stand part of the Bill?

Lord Higgins

This is obviously a very important clause.

Baroness Crawley

As there is a Division in the House, this might be an appropriate time for the Committee to adjourn until Monday at 3.30 p.m.

The Deputy Chairman of Committees (Baroness Thomas of Walliswood)

The Committee stands adjourned until Monday at 3.30 p.m.

The Committee adjourned at nine minutes before three o'clock.