Grand Committee Report of 6 July 2004

Official Report of the Grand Committee on the

  Pensions Bill
  (First Day)
  The Committee met at half past three of the clock.
  [The Deputy Chairman of Committees (Baroness Thomas of Walliswood) in the Chair.]
  The Deputy Chairman of Committees (Baroness Thomas of Walliswood):Before I put the Question that the Title be postponed, may I remind your Lordships of two points of procedure: noble Lords will speak standing and the House has agreed that there shall be no Divisions in a Grand Committee. Therefore, unless an amendment is likely to be agreed to, it should be withdrawn. If there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and will resume after 10 minutes.
  Title postponed.
  Clause 1 [The Pensions Regulator]:
  On Question, Whether Clause 1 shall stand part of the Bill?
  Lord Higgins:I rise to oppose the question that Clause 1 stand part of the Bill. We meet in rather unfamiliar surroundings but they seem to me better than those of the Moses Room. The only constructive suggestion I have at this stage is that perhaps we should follow the practice on the Floor of the House of Commons and have the gap between the tables two sword lengths apart. That would open the room up rather more.
  In rising to oppose the question that Clause I stand part of the Bill, I should explain that, as noble Lords will have noticed, we have tabled a number of similar amendments to various clauses. The reason is that it seems to us that this is an extremely difficult and complicated Bill. In some cases it is very difficult to put down meaningful amendments, and that is the case as far as this clause is concerned. It simply says that there should be a body corporate called the Pensions Regulator. If, in the event, the debate has already covered the main points that need to be raised on subsequent clauses, we will not speak to those amendments. The Public Bill Office, in its wisdom, has put the list of all the places where we have tabled such Motions on the front of the Bill. It may be that your Lordships will find the pension grouping list rather more convenient since it shows the point at which the clause stand part debates appear.
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  At Second Reading, we were very clear that the basic objective of the Bill—to ensure that those who are in danger of losing their pension entitlements are protected—is one that we support. The trouble on this clause, and on others, is that there are unfortunate side effects that may result in the provisions of the Bill causing damage in various ways to pensioners and to others. In due course, we shall come to consider those.
  To some extent, that is even true of the simple clause that we are now debating because it will incur a considerable additional cost, something over £23 million, and there will probably be other costs on top of that figure. Those will be met by a levy on pension schemes. Inevitably, there will be some employers—but one hopes very few—who will feel that they do not wish to bear the additional cost. It is very simple to avoid the levy by closing down the pension scheme.
  There is a danger that the Bill overall puts another nail in the coffin of final salary schemes. The Bill is primarily concerned with defined benefit schemes—or final salary schemes, as they are sometimes called—although there are some clauses that affect defined contribution schemes as well. There is a balance to be struck about the best way to proceed to achieve the objectives that we all wish to see.
  The pension regulator is a successor to the existing regulator, OPRA. I speak from personal experience as a one-time chairman of a pension fund when I say that OPRA has done a very good job indeed. But, at the same time, the Sandler, Pickering, NAO and other reports suggested that a rather more wide-ranging regulator would be appropriate.
  The problem with that, again, is one of balance. In the Commons, it was said that the regulator would be proactive and focused. We will return to those points in detail later when we will need to consider to what extent this adds to the problems that trustees and pension funds generally have to contend with by way of red tape. There is not the slightest doubt that the change from OPRA to this regulator will significantly increase the degree of work that the pension trustees will have to do to achieve the objectives of their schemes. That is all a question of balance.
  I would not go so far as to say in regard to various clauses—particularly, for example, Clause 35—that the road to hell is paved with good intentions. But there are some very important side effects. Therefore, in discussing this and subsequent clauses, we will need to consider very carefully the extent to which we can minimise the unfortunate side effects of these proposals.
  My understanding is that there are still a large number of government amendments to come. That is surprising at this stage, given the amount of preparatory work that was done and given that the matter has already been through the House of Commons. Perhaps the Minister can give an indication of what we may expect so that we can be forewarned and can take action to deal with that situation.

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  Overall, we shall act as constructively as we can without taking undue time: this is a massive Bill of very great complexity that we have to get through. We can all work towards co-operating to improve the Bill.
  Lord Oakeshott of Seagrove Bay: I declare my interest as a pension fund investment manager. At Second Reading, we made clear our general approach to the Pensions Regulator. I do not propose to add to that, save to say that our approach to this Bill—I share several of the detailed concerns of the noble Lord, Lord Higgins—will be one of proceeding by amendment rather than outright opposition. Therefore, we will not support any suggestion that Clause 1 do not stand part of the Bill.
  Baroness Turner of Camden: At Second Reading, my noble friends and I, who have put down amendments to this Bill, nevertheless supported the general idea of the regulator. We believe that it is necessary to take some further means to protect pensions. The regulator is the way that the Government have chosen. We on this side support that.
  The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): I am grateful for the opening statements made by the noble Lords, Lord Higgins and Lord Oakeshott. As and when, and if and when, this Bill gets full parliamentary approval, that will not be the end of the process. There will still be consistent regulations to be explored and negotiations will continue. I recognise the skills, experience and abilities of Members of the Committee on all sides. I am looking at my colleagues here: three of us were engaged in the arguments on the Pensions Act 1995. Other noble Lords have direct experience of DWP work or other pensions experience. As a result of your Lordships' scrutiny, I am confident that we will ensure that the Bill is as robust, and will have as much staying power, as can be achieved. The essence of pension planning is that it has staying power so that people can have some degree of security in the years ahead.
  Clause 1 establishes in law the Pensions Regulator. Subject to Parliament's approval, it will be in place from 6 April 2005, which is only some nine months away. The current regulatory body, OPRA, will be replaced by a new non-departmental public body (NDPB); that is, the Pensions Regulator. I am pleased to be able to agree with both the noble Lord, Lord Higgins, and my noble friend Lady Turner that, since it was established in 1997, OPRA has laid good foundations in the regulation of work-based pensions. We propose to build on its experience of more than seven years of regulation. Having talked with the chairman, it is clear that the authority feels that this is an appropriate way forward in building on the work it has already done.
  As noble Lords who took part in the debates in 1994 and 1995 will recall, OPRA was designed specifically to avoid another Maxwell-type situation. At the time of the 1995 Act, the fraudulent use of pension scheme assets was considered the greatest risk to pension
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  scheme members. OPRA was given the task of monitoring employers' contributions to occupational pension schemes and the activities of the trustees responsible for those schemes. Given the context, I would say that an almost adversarial relationship developed between the interested parties. Someone had to act as a form of "gamekeeper", keeping watch on possible defaulting trustees or employers.
  Since 1995, however, the pensions environment has changed significantly for reasons that all noble Lords will know. We would argue that the problem is no longer one of fraud, but of underfunding. OPRA has no powers to tackle the risks associated with the underfunding of pension schemes. It has no powers to ensure that errors, omissions or other breaches of pension legislation are put right; it has very little scope to take a flexible, proactive and responsive approach to regulation to adapt to changing circumstances or, indeed, to influence those changes through information, advice or education.
  We believe that our proposals for the new regulator will address these issues. We shall concentrate on problems that generate risks. The body will be given an additional range of powers to help those with duties under pensions legislation to comply and will be able to put things right at an earlier stage through its preventive as well as remedial powers. As the noble Lord, Lord Higgins, said, our proposals will implement the wide-reaching recommendations about the regulation of work-based pensions made in a number of key reports. Pickering, the quinquennial review of OPRA and the National Audit Office study of the authority all recommended that the regulator of pensions should target resources on cases where members' benefits are at greatest risk and avoid "cheapening the regulatory currency" by wasting time on petty breaches that have little or no effect on members.
  That is exactly what we propose the Pensions Regulator will do. The issue of risks to members' benefits was a key theme of the discussions held both in the other place and during the debate on Second Reading in this House. Moreover, the Better Regulation Task Force has concluded, from its experience of working with regulators across government, that regulatory bodies are most effective if they can focus their resources on areas of real risk rather than the "graffiti" problems of reporting a day or two late and so forth, which make up over 50 per cent of OPRA's caseload.
  The task force has also recommended that regulators should, whenever and wherever possible, adhere to the principles of better regulation. Regulators should be accountable, proportionate, targeted, consistent and transparent in their approach to regulation. I am sure that noble Lords will want to measure our proposals by those five standards. We intend that the Pensions Regulator will embed these principles in its design, working processes and overall approach to the effective regulation of pension schemes.

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  As OPRA is now, the Pensions Regulator will be funded indirectly through a levy on pension schemes. The noble Lord, Lord Higgins, asked about costs. As he stated, we currently estimate that the running costs of the regulator will be around £23 million. This compares with a projected £17 million for OPRA's final year, 2004—05. Those increased running costs reflect the staffing and processes required to support the wider powers of the body, as well as its additional responsibilities in respect of the Pension Protection Fund, and our approach to regulation.
  We shall be developing other themes as we proceed through Part 1 of the Bill but, as noble Lords accept, the Pensions Regulator should concentrate on risk in order to reduce as far as possible, without in any sense being able to make a guarantee, risks to the security of defined benefit schemes. That is to be the core of its job. It will monitor compliance with the provisions of this Bill and other pensions Acts; it will help trustees and others to get it right and keep it right, taking appropriate action where necessary; and it will be the "eyes and ears" of the Pension Protection Fund, tackling the risks associated with underfunding and employer solvency. By doing all that, we hope to ensure that members' benefits are protected so that people have some certainty about their pensions in retirement.
  I hope, with my very "blue sky" description of the intent of the Pensions Regulator, that noble Lords will agree that Clause 1 should stand part of the Bill.
  3.45 p.m.
  Lord Higgins: Perhaps the noble Baroness would give us a little breakdown of how the costs compare. She says that they go up from £17 million to £23 million, which is an addition of only £6 million, yet there appears to be a huge increase in the amount of work that the regulator will do compared with what OPRA does.
  Baroness Hollis of Heigham: I was looking for my statistics on the number of staff. We are expecting an increase of about 40 staff to the current number at OPRA, which as I recall is about 240 in both Brighton and Newcastle. The increment is of that order. I shall certainly be happy to write to the noble Lord with any further details but, relying on my memory, we are talking about taking staff numbers up from about 240 to 280 or 300, which would account for the additional costs. The Pensions Regulator will have his or her own staff as well, of course.
  Lord Oakeshott of Seagrove Bay: How many of the additional staff will be in Brighton, and how many in Newcastle? Will additional office space be taken in each place?
  Baroness Hollis of Heigham: At the moment, I cannot help on that. One job that OPRA has encompassed in the past is tracing activities. In some cases, decisions still have to be made on where some of those jobs may be located, or whether they will come back to the department, as in that case. I think that I am right in saying that no final decisions have been
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  made as to where precisely all the additional staff will be, but the presumption is that staff currently in Brighton will remain in Brighton, and staff currently in Newcastle will remain in Newcastle. The pension protection staff will be placed accordingly.
  Lord Oakeshott of Seagrove Bay: I am grateful for that, but it does not take us much further. Will the Minister undertake to write to us and let us know when the decisions are made, just to give us some general feeling?
  Baroness Hollis of Heigham: Certainly.
  Clause I agreed to.
  Clause 2 [Membership of the Regulator]:
  Baroness Turner of Camdenmoved Amendment No. 1:
  Page 1, line 11, leave out "five" and insert "six"
  The noble Baroness said: Amendment No. 1 is really a paving amendment for Amendment No. 4, with which it has been grouped and to which I shall speak as well. Amendment No. 1 changes the number of persons appointed by the Secretary of State as membership of the regulator from five to six. We are doing that to make arrangements for our proposals in Amendment No. 4.
  The Bill establishes bodies with more power than we have yet seen. I agree with that power in the main, as the objective is to protect the rights of pension scheme members now and for the future, as the Minister indicated. The Government accept, as do most people, that there has been a decline in confidence in pension providers generally. That is rightly felt to be something that must be dealt with, and the Bill is an attempt to do that. It is therefore important to ensure that the new bodies charged with administering the Bill should be seen to be widely representative.
  When OPRA was established, legislation laid down a basis for representation that pretty much guaranteed that there would be a TUC nominee. However, this Bill is non-specific on the origins of board members, and the Government have talked about members being properly equipped to do the job; I agree, of course. Consumer interests are also very important, and consumers in this context are employees. As I am sure that the Minister will tell us, the provision of pension schemes is at present a voluntary matter for employers, so there has to be representation of employer interests. There obviously must also be a level of technical competence among board members, and our amendment seeks to deal with that through having a member who knows about life assurance business and someone with experience of management and administration of pension schemes.
  I am indebted to my union, Amicus, for the text before the Committee. My union has always taken a very considerable interest in pension provision for members. We do our best, as do other unions, to ensure that members are knowledgeable about pension matters. We run training courses so that that can be achieved. We have tabled a similar amendment for when we consider the PPF board. So far as the

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  regulator goes, the amendments show our view of the way in which there should be representation on the board, so that it becomes publicly and generally acceptable. We believe, as do the Government, that we have to do something to restore the lack of confidence in the pensions industry. I beg to move.
  Baroness Dean of Thornton-le-Fylde:I support my noble friend Lady Turner in Amendments Nos. 1 and 4. Traditionally, there has been a representative voice of employees on OPRA. That is entirely logical when it is acting as regulator of people's pension funds through their employers. This is not a principle change in the Bill; it brings in some fairness. I may be wrong, but I am sure that at the weekend I saw in the press an advert for members of the Pensions Regulator. No? I will get my paper out of the bin then.
  Lord Oakeshott of Seagrove Bay:It is for non-executive directors of the Pension Protection Fund.
  Baroness Dean of Thornton-le-Fylde:Non-executive directors of the Pension Protection Fund, not the regulator; we will come to that later. Nevertheless, we are going down the same sort of alley, because we will be putting forward the same kind of arguments when we come to that issue.
  The amendments are straightforward; I do not want to make a Second Reading contribution. I entirely support the two amendments that my noble friend has put forward, and I will be interested to hear the Minister's response.
  Lord Freeman:I seek some clarification, because the spirit of Amendments Nos. 1 and 4 must be right. I have three concerns. First, I am somewhat confused by the maths in Clause 2, because if at least two members appointed under subsection (1)(c) must be appointed from the staff of the regulator, then by definition they cannot be non-executive. If you are to have a majority of the board who are non-executive, you must appoint five other persons appointed by the Secretary of State, because it has been assumed that the chairman is non-executive.
  Baroness Turner of Camden:The clause says "at least" five.
  Lord Freeman:It must be five.
  Baroness Turner of Camden:It says "at least" five, so it is flexible.
  Lord Freeman:Yes, I appreciate that. I think we agree that we are talking about five or more in the first place. I am also concerned as to whether the noble Baroness interprets,
  "management or administration of occupational pension schemes",
  to include a trustee nominated member; in other words an employee.
  Baroness Turner of Camden:It could be a trustee, of course. It simply says a member who could be "representative of employees", or,
  "a member who appears to the Secretary of State to be knowledgeable about life assurance",
  or a member who had some knowledge of "management or administration". As far as (d) is concerned, that could well be someone who had trustee experience.
  Lord Freeman:I am grateful. My final point involves the numbers in Amendment No. 1. The experience of running public bodies such as this is that the chairman normally reserves his or her right to intervene. If you are to have a majority who are non-executive, you need six, not five, because the chairman is being included in the majority according to the Higgs principle.
  Baroness Turner of Camden:I keep on having to get up. That is what our amendment says. Our amendment says to leave out five and insert six.
  Lord Freeman:I am agreeing with it.
  Baroness Turner of Camden:The noble Lord is agreeing with it. Okay.
  Lord Freeman:I was seeking to explain the reasons why the amendment should be supported.
  Lord Borrie:When I first saw the opening clauses of the Bill, I found rather odd the use of the words "pensions regulator" to mean something other than one person. However, Clauses 1 and 2 together make it perfectly clear that it is a corporate body and, whether or not we take this amendment, what the membership is to be. I do not have any view on whether in addition to the chairman and the chief executive there is a minimum of five other members, as the Bill says, or six as proposed by the amendment. After all, the Bill provides a minimum and there is freedom to have more than that number.
  But in relation to Amendment No. 4, the principal amendment, I am not sure whether we should be as specific and prescriptive as proposed. As the noble Lord, Lord Freeman, indicated, the categories seem reasonable, although, as the noble Lord's questions indicated, one or two may require interpretation as to exactly what they are. Why not leave the matter of a well-balanced board, which everyone wants, to the judgment of the Secretary of State and, insofar as they act together, with the chairman?
  I recall from experience that being over-specific can cause a certain amount of difficulty. I was once appointed to a quango under a specific provision, which I did not quite fit. Fortunately for me and for the department, no one questioned it; no one seemed to notice. Everyone thought I was a splendid appointment—or so they let me assume—and certainly no one sought judicial review. This was some time ago in the early days of judicial review, and perhaps it was just as well.

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  My main reason for mentioning that example is to raise the rhetorical question of why create unnecessary difficulties by having specific categories, some of which may or may not be easy to interpret at any given moment? With the prospect of numerous meetings of the Grand Committee—I do not know how many—surely none of us here today would happily contemplate another major Bill of this kind for a decade or so. Being over specific on this and other matters would be unwise because we may not in 2004 anticipate all future possibilities.
  The categories set out by my noble friend are perfectly reasonable, but I do not want such categories. Perhaps we should place greater trust not only in the present Secretary of State but in others who may come from other parties and other political backgrounds in the future. On the matter of appointments, I doubt whether more specificity than is in the Bill is required.
  Lord Skelmersdale:My noble friend Lord Higgins has already explained the general philosophy of our amendments. As my name is attached to Amendment No. 1 but not to Amendment No. 4, I was slightly surprised to see them grouped; we tabled Amendment No. 1 for a totally different reason. Nevertheless, the noble Baroness, Lady Turner, and I caused unwitting confusion in the Public Bill Office by unknowingly tabling exactly the same amendment within two hours of each other. However, the matter seems to have been resolved. I am most grateful to the noble Lord, Lord Hoyle, and the noble Baroness, Lady Gibson, for agreeing to their names being removed from the amendment.
  As I said, we tabled the amendment for totally different reasons. For us, its purpose was to determine two matters. First, what kind of animal is the regulator to be? Am I right to assume that, by virtue of Clause 8, as he will chair a non-executive committee he will himself be a non-executive? Or is it the case that he will be an executive chairman by virtue of his functions transferred from OPRA under Clause 4(1)(a)? There is confusion in my mind. In either event, Part I and Schedule I together comprise an almost unique form of corporate governance. I shall have more to say about that when we get to Clause 4.
  The second reason for the amendment is tied into the first. Clause 2 informs us that there are to be not less than three non-executive members. As my noble friend Lord Freeman said, it is clear that this is a minimum because Clause 2(1)(c) states that there are to be at least five members other than the regulator and the chief executive. If the regulator is to be a non-executive, as I suspect, then the minimum number of people on the non-executive board will be four.
  4 p.m.
  I cannot for the life of me see how so few people can do justice to the work encompassed in Clause 9, for example. Nor indeed are they really non-executive as they can be authorised to do anything that is in the province of the regulator. Be that as it may, what happens if the committee needs to have a vote and it
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  splits 2-2? Does the chairman have a casting vote? If so, should the Bill make provision for it? If not, then there should be an even number of non-executives other than the regulator. I do not really mind whether there are six, 10 or whatever even number the Minister picks out of the air, but an even number there most certainly should be.
  Amendment No. 4, as I said, has been grouped with Amendment No. 1, and I am afraid that I have to agree with the noble Lord, Lord Borrie, on this. I cannot be nearly as complimentary to the noble Baroness, Lady Turner, as I was on the last amendment because I simply do not like shopping lists in Acts of Parliament. However, I would say that she is right in wanting to know what sort of people are to be appointed as non-executive members. Clearly employers, employees and pension fund managers are all suitable people, but the danger of a list is that of leaving out those from other backgrounds.
  It further occurs to me that paragraph (b), which refers to employees, could cover employees who are not members of their company pension schemes, which if memory serves me right is not compulsory. Indeed we had quite a lot of chat on that on Second Reading.
  For those reasons, I very much look forward to what the Minister has to say.
  Lord Oakeshott of Seagrove Bay:Perhaps I can start with a tribute to the noble Baroness, Lady Turner, for her lifetime of service for the members and pensioners of Amicus and of what she and I as former members will remember as ASTMS. I link that also to the work of the noble Baroness, Lady Dean, for the print union members.
  I have some sympathy for the amendment. Although I think it is possibly a little rigid as it stands, if it is interpreted in a particular way, might that not solve the problem? Can all these categories overlap? Can people qualify as someone with experience in the management? If the categories could be overlapped so that they were flexible, I would be happy to support the proposal.
  One of the noble Baronesses touched on the question—and this a question, indeed a suggestion, also to the Minister—of having seen this advertisement. Can we be assured that no advertisements have yet appeared for the non-executive directors of the regulator, which I think would be very discourteous to the Committee? There are amendments on the composition of the PPF. I believe that it was very discourteous that, before we have even had a chance to consider those amendments, on the very day that we are starting to discuss the Bill, this should have come out. Will the Minister assure us that it will not happen until more time has gone by? I really do think that this is taking things for granted.
  Baroness Turner of Camden:Perhaps I can respond to that. I see no reason why some of these categories could not overlap, particularly as far as paragraphs (a) and (d) are concerned. Unions often have members who have had managerial experience; it is certainly

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  true of my union. There is no reason why the overlap should not be flexible. I do not see any reason why not. The essential point is that there should be representation of those interests.
  Baroness Hollis of Heigham:Before I speak to the amendments it might be helpful if I gave a brief explanation of the purpose of Clause 2, which deals with membership of the regulator and the reasons for the structure. Afterwards, Members of the Committee can press me on any points that I have left undiscussed.
  As the Committee will be aware, the regulator will consist of executive and non-executive members. It will have a chairman—who has not yet been appointed—who is appointed by the Secretary of State. The chairman cannot be either a member of staff of the regulator or of the Pension Protection Fund. So in that sense he is one of the non-executives, as your Lordships surmised perfectly correctly.
  The chief executive—the former chief executive of OPRA, Tony Hobman—will be a member of the regulator. The first appointment will be made by the Secretary of State with subsequent appointments to be made by the regulator with the approval of the Secretary of State. Given that we do not yet have a chairman, we have gone down only to the other members.
  The chief executive's main function is to ensure that the regulator's functions are carried out efficiently and effectively. The regulator will have at least five other members who are appointed by the Secretary of State. That is the minimum. As I understand it, OPRA has nine members. However, it needs that larger number because it must encompass a determinations panel which, in this regulator, is a separate and independent body. So the numbers are not dissimilar and are perhaps more generous than the old OPRA numbers.
  At least two of those five members must be appointed from the regulator's staff. The majority of the board of the regulator must be non-executive members. That will provide appropriate scrutiny of the rest of the board and the regulator's activities. The structure has been chosen deliberately—following Higgs and the various reports coming from Cadbury on corporate governance—to strike a balance between ensuring sufficient flexibility in the skills, knowledge and experience of members, and creating a governing body that is effective and accountable while being kept to the minimum number.
  Amendment No. 1 is required in order to increase the minimum number of members of the regulator and thus accommodate Amendment No. 4. Amendment No. 4, requiring board appointments to be subject to consultation with representative organisations of employers and employees, is—as I would hope your Lordships will accept—superfluous and inappropriate. I believe that it places disproportionate emphasis on the interests of employers and employees. Although it follows from the current OPRA structure, the OPRA structure of specified interests was set up in the context of Maxwell in which there was theft of individual members' assets in the name of fraud. My
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  noble friend was powerful in her exposure of that fraud. Nevertheless, I think that we have moved on from that adversarial context.
  I have the same hesitation about shopping lists. Like the noble Lord, Lord Borrie, I was a member of a regional health authority. Because my friends, allies, mates and so on within the then eastern region wanted me on that body, they decided that they had better put me in as a representative of the trades unions. That was fine, although I was a member of the Association of University Teachers and had no connection whatever to any of the health unions which should probably have been represented. We had to fiddle, construct and organise it, and I met regularly with trade union colleagues to take on board their concerns; I did an honourable job. However, it was actually a limitation of capacity rather than a representation of capacity. Like the noble Lord, Lord Borrie, we had to find a way round it very precisely.
  The Secretary of State's exercise of the power to appoint members to the board of a statutory public body must in any event be exercised in accordance with administrative law principles, in a reasonable, proper manner, taking into account the interests of the public in general, including the interests of employers and employees.
  As I say, noble Lords will be aware that the proposed structure is from the OPRA structure. I do not think that it is appropriate to reproduce such a structure in a very different climate. However, I should like to reassure my noble friend. When discussing this, she may want to consider that we are significantly and, in my view, absolutely rightly strengthening the role of member-nominated trustees from among the ranks of employees and, where appropriate, involving trade union negotiation. That seems to me exactly where we should be strengthening the role of employees' representatives—at the trustee scheme-specific level. I am delighted that we will be addressing that later in the Bill. However, when it comes to the regulator, I think that we would be denying ourselves the capacity to have people with experience who can range across fields without trying to confine ourselves to shopping lists. I hope that my noble friend will accept that.
  Appointments to the regulator will be made in accordance with Cabinet Office guidelines, following open competition. There will be nothing to prevent groups representative of employers, or of employees, from encouraging their members to apply. But if such a person were to be successful, it would be on the basis of their abilities alone rather than because they represent a specific interest. We are effectively asking them to operate under trust law rather than to be delegated representatives of a body or sectional interest.
  Mindful of the Division Bells, I hope that, with that explanation, my noble friend and noble Lords opposite will feel able to withdraw or not to press their amendments.

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  [The Sitting was suspended for a Division in the House from 4.9 to 4.19 p.m.]
  Lord Skelmersdale:The Minister invited her noble friend Lady Turner to withdraw Amendment No. 1 on the basis of what she had just said, but she did not actually answer the question to which we all seek a response; that is, are three non-executive directors plus the regulator, himself non-executive, sufficient to cover the work of both the non-executive committee and, more important, the Determinations Panel, to be established under Clause 10? There is no reason why one or two of the non-executive directors should not be appointed to that panel.
  Baroness Hollis of Heigham:I am sorry, but I thought that I had made that point clear. At present OPRA has nine members precisely because it is carrying out a determinations function which, quite legitimately, creates problems as regards chinese walls and so forth. Under the Bill, the Determinations Panel will have no overlapping membership at all. Therefore the members of the panel will be over and beyond the members of the Pensions Regulator. I said that in my response, and I am sorry if I did not make myself clear.
  Lord Skelmersdale:I apologise, but the Minister speaks so fast sometimes that I find it very difficult to keep up. However, my original question still stands. There is a perfectly good non-executive committee that is given all sorts of roles. Is three plus the regulator enough for that purpose? I suspect that the answer must be no, in which case I say, for totally different reasons from the noble Baroness, Lady Turner, that there should be an unequal number of individuals on the non-executive committee.
  Baroness Hollis of Heigham:I do not want to be rude, but I wonder whether we are making heavy weather of the provision. We are simply talking about a minimum. I am sure that, if the need is there and the workload justifies it, the chairman and/or the chief executive would make representations to the Secretary of State to increase the membership. At present, of the five people appointed by the Secretary of State, three would be non-executive, at least two would be from the staff, and there would be two others—the chairman, who is non-executive, and the chief executive, who might be regarded as a member of staff. Therefore, we would end up with four plus three. There should not then be a problem about majorities. As I say, we are talking about a minimum, so it is open to the Secretary of State to increase the number.
  Lord Oakeshott of Seagrove Bay:However fast the Minister was speaking, I did not hear her answer my question about the appointment and what the timing would be. Will she confirm whether any advertisements have appeared for non-executives to the regulator? When is that likely to happen?
  Baroness Hollis of Heigham:I sought to answer that by saying that there would be no question of advertisements for members going out until the chairman had been appointed.
  Baroness Turner of Camden:I thank all Members of the Committee who have participated in the debate, which has been very interesting. I would like to consider very carefully, as I always do, what the Minister said. I note that she said that the ball game was now different from OPRA. Presumably it is not the same as the Occupational Pensions Board, of which I was a member for 17 years. In those days, there was a trade union seat on that body. I did not occupy it; I was one of the then Minister's nominees, but the TUC had a right to be nominated.
  Baroness Barker:In going away to consider the matter, might the noble Baroness consider in her efforts to secure representation the potential problem of how people in such categories would be nominated? How would one ensure representation of the groups that she seeks to have on the board?
  Baroness Turner of Camden:Historically the TUC has been invited to make nominations for seats on the Occupational Pensions Board, and presumably on OPRA as well. I was not a member of OPRA, but I was for a long time a member of the Occupational Pensions Board, which had a specific seat allocated. The Minister put forward nominees, as did the industry. We had a board which, as far as the Minister was concerned, was representative of all the interests involved.
  Certainly, my noble friends who have attached their names to the amendment are anxious to ensure that arrangements are made for interests to be represented, as am I. It may be that the wording is not very good—there may be all kinds of other ways in which this can be expressed—but we believe that it is necessary to have some indication that there will be representation for not only the interests of employees but the interests of the other bodies referred to in the amendment.
  I note with interest and welcome what the Minister said about the increase in powers of member-nominated trustees. That is obviously very important. But this is a different matter; it is not about trustees but about an overall regulator for the industry as a whole and the interests of members who hope to benefit from what the industry can offer.
  We shall consider very carefully what has been said and probably come back again at Report stage with another form of wording in order to ensure that the interests for which we think it is so important to secure representation are acknowledged on the face of the Bill. In the mean time, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Lord Higginsmoved Amendment No. 2:
  Page 1, line 11, leave out from "the" to end of line 12 and insert "chairman and approved by the Secretary of State"
  The noble Lord said:The amendment may seem excessively cynical. In effect, it seeks to change the balance in the Bill from the Secretary of State making appointments after consulting the chairman, to the chairman making appointments with the approval of the Secretary of State.
  It is important that the appointments should be impartial and there is some concern that there may be a degree of cronyism in such appointments. On the other hand, the Minister may be able to reassure me as far as that is concerned. I should be further reassured if she could make it clear that, if it is to be done by the Secretary of State, he may not make an appointment under subsection (2) unless the procedures recommended by the Office of the Commissioner for Public Appointments have been followed. Perhaps she will assure me that that is so.
  There are provisions in the Bill for payment of pensions to staff and so on, but I am not absolutely clear whether these are to be full-time appointments. It may emerge later, but I am not sure whether an amendment has been tabled in that regard. Again, that is not irrelevant to the people making the appointments. My feeling is that they will have considerable responsibilities—certainly much greater than OPRA.
  The noble Baroness has been forthcoming to some extent about the timing of these matters: is it the intention that the chairman and others will not be appointed until after the Bill has received Royal Assent? We ran into a little problem with the Energy Bill in regard to advertisements and appointments. Of course you can advertise if a Bill has had its Second Reading in the Commons—which applies to this Bill—but employers and employees would like to know roughly what the timing will be for getting the scheme up and running. Obviously we do not want to set it up, with the corresponding costs, until we get fairly close to the implementation of the Bill. I should be grateful if the noble Baroness would clarify these points.
  Lord Borde:This seems a modest suggestion. I am not sure whether the noble Lord, Lord Higgins, has done the same for the public protection board. I have not read that far into the amendments; perhaps he has.
  He is suggesting a subtle change. However, it is not desirable because the Secretary of State, while of course consulting with the chairman—and this applies whether it is the regulator or the public protection board—should be responsible for the appointments because he or she is responsible to Parliament for the functioning of the Bill and the many different parts of it that we have to discuss in Committee. It is a subtle but undesirable change.
  4.30 p.m.
  Baroness Hollis of Heigham:Amendment No. 2 would move the primary responsibility for the appointment of the members of the regulator from the Secretary of State to the chairman of the regulator. We believe that this raises significant accountability issues,
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  which was an issue of concern at Second Reading. In establishing the new Pensions Regulator, we are seeking to achieve an appropriate balance of powers and responsibilities between the sponsoring department and the regulator. In that context, the regulator will be answerable to the Secretary of State and, through him, to Parliament.
  We believe that it is right for the Secretary of State to take responsibility for ensuring two things. One is that the chairman is fully consulted and involved in the process of selecting the members of the regulator. The other—which goes back to our previous discussion—is that the board fully reflects the skills, knowledge and experience needed to run this key organisation. The effect of this amendment would be that these tasks would fall primarily to the chairman rather than to the Secretary of State. It is not appropriate to delegate such key responsibilities from the Secretary of State, who is directly answerable to Parliament.
  On the specific questions on public appointments, the OPCA will be fully involved, as it was for OPRA. The expectation is that appointments will not necessarily be full-time but we cannot yet confirm that. Appointments will need to be advertised, but official appointments cannot be made before Royal Assent. We will write to noble Lords when we have a clear idea of the timetable. The chief executive has already been appointed: Tony Hobman, the chief executive of OPRA, will move across to the Pensions Regulator. The chairman has not been appointed. We will need a chairman in place before the Secretary of State can consult him about the rest of the members of the board. My understanding is that his appointment cannot legally be confirmed until after Royal Assent. I hope that answers noble Lords' questions.
  Lord Oakeshott of Seagrove Bay:I am persuaded by the Minister's arguments that we need a clear line of responsibility and accountability here.
  Lord Higgins:I also find the Minister's reply extraordinarily persuasive—I could have said unusually persuasive. But I am concerned at the suggestion that these may be part-time appointments. What will these people be doing the rest of the time? That is relevant because it is likely that the people appointed to those posts will have considerable expertise in this area, which I think we will discuss on the next amendment. It seems undesirable that they should still be involved in this area outside the regulator on a part-time basis. We will wish to pursue this point further but, in view of the Minister's excellent reply, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Lord Higginsmoved Amendment No. 3:
  Page 1, line 12, at end insert—
  "( ) In nominating or appointing the chairman and members of the Regulator (including members of the Non-Executive Committee and of the Determinations Panel, as defined in sections 8 and 10 respectively, and of sub-committees of either of them), regard shall be had to their skills and experience (both as

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  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 Regulator 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: The objective of this amendment is to ensure that in making the appointment of the chairman, the regulator and the sub-committees regard should be given to the skills and experience of the individuals and the group of individuals who comprise the regulator.
  The amendment makes specific reference to the requirement for knowledge and understanding under Section 238(4), on which I shall make two points. The first is that the Bill is a two-volume work. It would be helpful if the schedules were in one volume and the rest of the Bill in another. We constantly have to find where on earth we have got to with Schedule 1. The other problem with this amendment is that it refers to Section 238(4) and I cannot find subsection (4).
  But I think the intention of the first part of the amendment is clear enough. Clauses 236, 237 and 238 require individual trustees to have knowledge and understanding—I am sure that we shall come back to this at later stages in the Bill—and if trustees are to have that, it is very important that the regulator should have the corresponding knowledge. We cannot expect the regulator to encourage the type of provisions that exist in Clauses 236, 237 and 238 unless it has adequate knowledge. That is the purpose of the first part in the amendment.
  The second part of the amendment requires that the regulator shall be conducted in line with the Combined Code on Corporate Governance. The chairman and chief executive are divided in the case of the regulator and these provisions would combine with that. But there are other provisions in the code that the Minister may perhaps be prepared to accept it is important that the regulator should implement. If she gives an assurance to that effect, that will carry the necessary weight with those concerned with these matters. I beg to move.
  Baroness Dean of Thornton-le-Fylde:Can the noble Lord, Lord Higgins, shed a little more light on the second part of this amendment? What does he regard as appropriate? There is a tendency today to cherry-pick between the public and private sectors. The Combined Code on Corporate Governance is from the private sector. As the noble Lord says, the separation of the powers of the chief executive and chairman are covered in that code, but here we are dealing with primary legislation. I think I understand the gist of what the noble Lord is saying, but it is not clear. There are parts of the Combined Code on Corporate Governance that would be entirely inappropriate for a public sector regulator.
  Lord Oakeshott of Seagrove Bay:It is hard to object to the first paragraph but the second paragraph is pretty meaningless. It is far from clear how the
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  Combined Code on Corporate Governance works in private companies. I do not know what the amendment means.
  Baroness Hollis of Heigham:The amendment would restrict the skill bases of the Pensions Regulator board members because the Pensions Regulator is not an individual but a corporate body. Individual members and the board, the non-executive committee and the Determinations Panel, as groups, would be required to have knowledge and understanding of the law relating to pensions and trusts, the principles relating to funding and investment and such other matters as may be prescribed. The amendment would place an undue prominence on such limited areas as knowledge and understanding of the operation of occupational pension schemes at the expense of the operation of personal pension schemes, including stakeholder pensions, or the more widespread regulation of work-based pension schemes. In any event, general administrative law principles would encompass the overall need for the knowledge and skills base of the board relevant to the functions it exercises. I do not think that the first part of the noble Lord's amendment takes us forward.
  On the second part of the amendment, the noble Lord, Lord Oakeshott, and my noble friend Lady Dean have very effectively made the point that I was going to make. A requirement for the regulator to have regard to the Combined Code on Corporate Governance is unnecessary. As an NDPB, the regulator will be subject to periodic review and scrutiny by the National Audit Office, as well as to any other review considered appropriate by the Secretary of State.
  The combined code has no statutory force and, particularly if amended from time to time, it may not be entirely appropriate to the management of a NDPB. The amendment would therefore have the effect of irreversibly tying the regulator to guidance that has no statutory force and to which no other organisation in the public or private sectors is required by law to adhere. Members of the Committee may well deem that to be inappropriate. I hope that in the light of my explanations the noble Lord will feel able to withdraw the amendment.
  Lord Higgins:I am grateful to the Minister for her reply and for the contribution made by the noble Baroness, Lady Dean. I take the point that setting a non-statutory code in a statutory framework would not be appropriate. I made the point about the chairman and the chief executive but I understand what the Minister and the noble Baroness, Lady Dean, said. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 4 not moved.]
  [The Sitting was suspended for a Division in the House from 4.40 pm to 4.50 p.m.]
  Lord Higginshad given notice of his intention to move Amendment No. 5:
  Page I, line 15, leave out subsection (3).

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  The noble Lord said: Amendment No. 5 stands in my name and that of my noble friend. In my opening remarks I did not refer to the fact that we are sitting in Grand Committee rather than on the Floor of the House, but I feel bound to say that it is not a satisfactory arrangement. First, we cannot vote in Grand Committee, whereas we could if the Bill was being considered in a Committee of the Whole House; and, secondly, because our proceedings are continually being interrupted by votes downstairs, so that the flow of the discussion tends to be broken. It is wrong, and it will probably mean that the usual balance between the number of days in Committee in relation to the number of days on Report on the Floor of the House will need to be rather more weighted in favour of the Report stage rather than the Committee stage.
  I turn to page 1, line 15, which is concerned with whether two members to be appointed must be appointed from the staff of the regulator. On reflection, that seems to be not an unreasonable proposal. I shall not move the amendment.
  [Amendment No. 5 not moved.]
  Lord Higginsmoved Amendment No. 6:
  Page 2, line 9, at end insert—
  "( ) At least one of the non-executive members of the Regulator shall be a representative of an occupational pension scheme subject to the pension protection levies under this Act."
  The noble Lord said:Amendment No. 6 is simple and straightforward. It concerns essentially a question of balance, in the same way that some of our earlier discussions were concerned with the body being representative. It seems to us that there ought to be someone who is representative of those who are to pay the levy in the course of the deliberations in the regulatory body itself. I beg to move.
  Baroness Barker:Members on this side of the Grand Committee have the same sympathy with this amendment as we did with the amendment proposed by the noble Baroness, Lady Turner. They seek to do slightly similar things; to ensure that the regulator has within its corporate structure the relevant experience. However, this amendment perhaps ought to suffer the same fate as that proposed by the noble Baroness, Lady Turner. It would be wrong to treat the two proposals in wholly different ways just because people come from different backgrounds.
  That said, the noble Lord, Lord Higgins, has a valid point. Representatives of occupational pension schemes put into this position would have an insight into the work of the board. None the less, for the sake of consistency, perhaps this proposal will receive the same response from the Minister.
  Baroness Hollis of Heigham:I am sorry that we were not able to encourage Opposition Members to allow us to group this amendment with Amendments Nos. 1 and 4, because it effectively reproduces the same argument and I am not sure that I can take it very
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  much further. At least that will allow me to be not only brief, but possibly slow, which will mean that I shall avoid criticism from the noble Lord, Lord Oakeshott.
  The position is the same. The amendment would put an undesirable limitation on flexibility, which is designed to ensure that appointments to the regulator are based purely on the skills and knowledge required and the relative merits of each candidate. Although the regulator will have a role in respect of the Pension Protection Fund, its primary objective is to protect members' benefits. That is best served by an ongoing, properly funded scheme and a solvent employer. It is also worth noting that the regulator has responsibility for many types of schemes, including defined contribution occupational schemes, personal pensions and stakeholder schemes, as well as defined benefit schemes which will be subject to the pension protection levies.
  The amendment applies unnecessary pressure to try to introduce what I would call sectional interests, as opposed to breadth of experience. If I can make the distinction, we are on the side of breadth of experience. The arguments are much the same as before. If we agreed the amendment, we would then go down the road of saying, "Here are the employers, here are the employees", and so on. We could not escape that, so I hope that the noble Lord will withdraw the amendment.
  Lord Higgins:Again, I find the argument persuasive, so I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  On Question, Whether Clause 2 shall stand part of the Bill?
  Lord Higgins:I indicated earlier that whether we opposed Clause 2 or not would depend on the state of play at this stage in the proceedings. I do not propose to say anything further on the matter.
  Clause 2 agreed to.
  Clause 3 agreed to.
  Schedule 1 [The Pensions Regulator]:
  Lord Skelmersdalemoved Amendment No. 7:
  Page 233, line 22, leave out paragraph 2.
  The noble Lord said: Schedule 1 contains the "nuts and bolts" provisions for the appointment of the members and chief executive, the proceedings of the regulator and its funding, accounts and so forth. My first question concerns paragraph 2, which states:
  "Where a person ceases to be employed as Chief Executive, he ceases to be a member of the Regulator".
  That states the obvious. The question that originally sprang to my mind was, "What happens then?".
  It seems obvious that a former chief executive could easily make a most useful contribution to the regulator's activities in a non-executive post. He or she would certainly have the experience for which the noble Baroness, Lady Turner, was looking in her list in Amendment No. 4. If the chief executive were sacked for some misfeasance, by definition he would not have

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  that experience, but in the case of a normal retirement why should he not hold such a post, perhaps after a short gap? I beg to move.
  Lord Borrie:I should be interested to know from the Minister, on the last point made by the noble Lord, whether after ceasing to be chief executive there is a gap and that person may then be appointed as a member of the regulator; I imagine that he would be. When a chief executive ceases to be a chief executive—if someone else has been appointed at the end of his term of office or whatever—the paragraph may be stating the obvious but makes the matter clear.
  On the earlier part of the noble Lord's speech, I would have thought that, certainly immediately after and perhaps for a certain period, it would be inappropriate for the chief executive to be part of the regulator because there is a new man in the job; it is usually undesirable for the previous holder of the office to appear to lean over his successor's shoulder immediately thereafter.
  5 p.m.
  Lord Oakeshott of Seagrove Bay:It must be right that the chief executive ceases to be a member if he is then reappointed as a non-executive. Otherwise the balance would suddenly change between executives and non-executives.
  Lord Skelmersdale:I used to think exactly the same as the noble Lord, Lord Borrie. But during my time as chairman of the Stroke Association, I suggested to my fellow trustees that a new chairman of the executive committee be appointed because the other one wanted to retire. Against my better judgment, the new chairman insisted that his predecessor remain on the executive committee. It caused absolutely no problems. It was a matter of personal choice for the new chairman of the executive committee. Perhaps, in a sense, we are both right.
  Baroness Hollis of Heigham:I think that there is a great deal of consensus on the matter. As my noble friend Lord Borrie suspected, after a period of time there is no reason why the former chief executive, if that person so wished, could not be reappointed, through public procedures, to membership of the committee as a non-executive director. That would depend on the harmony of views and whether the new chief executive felt in any sense threatened by such an appointment. I suspect it would also depend on the circumstances under which a chief executive left and to what extent he or she continued to command the support and confidence of other members of the board.
  As regards the second point raised by the noble Lord, Lord Oakeshott, my understanding is that in such a situation a new chief executive would serve on the board and therefore the balance of non-executive and executive members would be maintained. With that explanation, which does not rule out drawing on
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  appropriate expertise if it is done in the proper public way, I hope that the noble Lord will feel able to withdraw his amendment.
  Lord Skelmersdale:I am very relieved to hear the Minister's answer. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 8 not moved.]
  Lord Higginsmoved Amendment No. 9:
  Page 233, line 31, leave out paragraph (a).
  The noble Lord said:In moving Amendment No. 9, I shall speak also to Amendment No. 10. Amendment No. 9 relates to paragraph 5(a) of Schedule 1, which states that the regulator may,
  "pay to…any person who…has been a non-executive member such pension, allowances or gratuities as the Secretary of State may determine".
  Amendment No. 10 relates to paragraph 5(b), which states that the regulator may,
  "make such payments as the Secretary of State may determine towards provision"
  of these payments.
  It seems curious that on the one hand the regulator is to make the payment, but, on the other hand, the amount is to be determined by the Secretary of State. Paragraph 5(b) seems to be a question of the Secretary of State determining what provision should be made. The implication is that the regulator may decide to pay something and the Secretary of State will decide how much, but he may decide to pay some of it and not the rest which, presumably, would then fall to individual members to contribute to the cost of the operation. That seems somewhat convoluted.
  If I have understood the paragraph affected by the second amendment correctly, the Secretary of State seems to have been given discretion as to whether or not he pays the whole amount, having determined what the gratuity or pension should be. Perhaps the Minister could clarify the situation.
  Baroness Hollis of Heigham:I do not think that there is anything sinister about this; it is conventional. Cabinet Office guidance to departments who are setting up NDPBs—Chapter 7 of NDPBs: A Guide for Departments—states that key decisions, such as the appointment of members and chairs and their appropriate remuneration, allowances and pensions are a matter for departments, and not for the body itself. In other words, members should not be setting their own pay. That is not appropriate. They should follow general guidance about pro rata pay per number of days attached responsibility.
  I do not think that businesses funding the levy would want to see members setting their own salaries. They would prefer this to be along the lines of the existing Cabinet Office guidance. With that explanation, I hope that Members of the Committee

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  will feel the proposed alternative method is more appropriate and that the noble Lord will feel able to withdraw his amendment.
  Lord Higgins:I am not sure that I fully understand exactly what the noble Baroness said. I understand that she is referring to normal Cabinet Office guidance as regards the gratuity, pension or whatever being determined by the Secretary of State. But I do not understand, as regards paragraph (b) on page 234, that he may determine what provision he shall make. The implication seems to be that he will not fully finance whatever award he has made. This is a little inconvenient because we have to turn over from page 233 to page 234.
  On the one hand, the regulator pays the amount that the Secretary of State has determined. On the other hand, the Secretary of State decides whether to pay the whole lot or not. I may be mistaken, but no doubt the noble Baroness can clarify this because it is not clear. In Amendment No. 10, we suggest deleting paragraph (b)—that is, the Secretary of State can determine how much of a provision to make. He has decided what should be paid. Then he will have a second bite of the cherry or, more accurately, not bite the cherry at all. I understand that there is slight confusion on the other side, but no doubt the noble Baroness will sort this out.
  Baroness Hollis of Heigham:I was just clarifying. I think that what the noble Lord is pressing me on hinges on the word, "towards". I think that he is concerned about the weight being carried in paragraph (b), which states that,
  "the Secretary of State may determine towards provision",
  for the payment of a pension, thus suggesting that there may be some part that is not. I think that it is the word "towards" on which the noble Lord is pressing me.
  I am advised that that is the exact wording of Section 8 of Schedule 1 to the Pensions Act 1995. It is a straight lift from existing regulations in which salary, allowances, provisions and so forth made to members of the board are paid for entirely by the levy as currently exists. So no change is envisaged in the existing method of remuneration. Perhaps I may write to the noble Lord if there are any further points on this.
  Lord Oakeshott of Seagrove Bay:There is one point that strikes me. Under what circumstances would pension payments be made to non-executive members? The combined code is very clear that non-executive directors' service is not pensionable. I seek clarification on that. It seems rather odd.
  Baroness Hollis of Heigham:The noble Lord is right. My understanding is that we would not expect that for the run-of-the-mill non-executive directors. But, of course, the chairman is a non-executive director who would, as I understand it, be entitled to pensions and allowances. That covers that.
  Lord Higgins:Well, it ought to say the chairman. I detect that in what the noble Lord, Lord Oakeshott,
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  has just said, he, like me, has found that non-executive directors do not receive pensions. Suddenly, we seem to have a situation where they will. That may be in the Pensions Act 1995—which perhaps was not as closely scrutinised as we scrutinise now.
  Baroness Hollis of Heigham:On the contrary, with the Opposition present, I can assure Members of the Committee that the Act was very fully scrutinised. I will check whether this is a problem. If it is, I shall either write to the noble Lord or come back to him.
  Lord Higgins:The alternative is simply for the noble Baroness to put down an amendment at Report.
  Baroness Hollis of Heigham:Let me first determine whether there is a problem to be addressed as opposed to whether the words might simply carry an imputation that needs to be corrected.
  Lord Higgins:In the light of what the noble Baroness has said, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 10 not moved.]
  Lord Skelmersdalemoved Amendment No. 11:
  Page 234, line 4, leave out paragraph 6.
  The noble Lord said: My query is two-fold. First, under what circumstances might it be,
  "right for that person to receive compensation"?
  But my more important point is, who pays? Perhaps I can better explain that by asking out of whose budget the payment is to be made? Is it that of the Secretary of State or that of the regulator? After all, as we have been discussing in the previous amendment, it is a decision of the Secretary of State, which is made, presumably, after a discussion with the regulator. Although the Bill does not say that, surely it should be spelt out. Unless my surmise is incorrect, it would be helpful for the noble Baroness to give us an answer. I beg to move.
  Baroness Hollis of Heigham:I hoped that I had covered this previously. It would be paid for by the regulator.
  Lord Skelmersdale:I am grateful. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Lord Higginsmoved Amendment No. 12:
  Page 234, line 18, leave out paragraph (c).
  The noble Lord said: Amendment No. 12 raises the question of whether the Secretary of State should make available any additional staff. I think that it is also convenient to take Amendment No. 15, which states,
  "Page 235, line 5, leave out paragraph 10".
  Since this body is effectively somewhat remote from central government, I am not clear why the question of whether it needs extra staff is to be determined by the Secretary of State.

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  Earlier, we discussed the additional costs of this regulator against the present costs of OPRA. I expressed some hesitation about whether the additional costs or the increase in staff would be adequate to deal with the much heavier workload—as it seems to me—of the new regulator—certainly if it is to be proactive, focused and so forth. That might reasonably be decided by the chief executive in conjunction with other members of the regulator. Why the Secretary of State suddenly comes back into it, rather than it being done independently in the light of the workload, does not seem a very sensible way of proceeding. I beg to move.
  Lord Oakeshott of Seagrove Bay:The noble Lord, Lord Higgins, makes a strong case. The Minister will need to be at her most persuasive to persuade me otherwise.
  Baroness Hollis of Heigham:That sounds an irresistible invitation; I am not sure whether I shall succeed. It is custom and practice for the department to have such an arrangement. It is certainly in place with OPRA now, as empowered by the Pensions Act 1995. Schedule 1, paragraph 11(5) enables the Secretary of State to make available to OPRA additional staff, and vice versa. This secondment—that is what it is because their rations, so to speak, are paid for by their home employer and not the one to which they go—has proved useful to both the department and OPRA.
  From personal experience, some of the policy briefing and some of the work on this Bill has come from OPRA staff who have been seconded to the DWP for that purpose. We would be denying ourselves a wealth of hands-on experience that is available to us. This is part of the standard workings of government departments. We second staff to appropriate bodies; they second staff back. I am used to it in other forums within the department. I should have thought that this is enriching for both sides and it is pretty standard.
  Lord Higgins:Again, I am grateful to the noble Baroness. I am becoming increasingly suspicious of "pretty standard" things; not least because we were told on the previous amendment that it is what is in the 1995 Act. Now we are agreed that it needs to be looked at again. None the less, we will consider what the noble Baroness has said. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendments Nos. 13 to 15 not moved.]
  5.15 p.m.
  Lord Higginsmoved Amendment No. 16:
  Page 235, line 12, leave out paragraphs 11 to 16.
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  The noble Lord said: Amendment No. 16 concerns the Determinations Panel. This is a complicated point, which I shall seek to explain as best I may. It seems that Part 3 of Schedule 1 relates to Clause 10.
  Baroness Hollis of Heigham:Is the noble Lord speaking to Amendment No. 16 together with Amendments Nos. 28 and 36 with which it is grouped?
  Lord Higgins:Yes, that is right. I think that is the most convenient way to deal with this. In a sense, it is a drafting point, but it may be more substantive than that. No doubt we can establish the true position. It seems that Part 3 of Schedule 1 relates to Clause 10—"The Determinations Panel". Amendment No. 16 would leave Part 3 out of the Bill. Amendment No. 28 would reintroduce it as Schedule 1A, relating to Clause 10. That seems to be the way in which it ought to be done.
  Baroness Hollis of Heigham:Why?
  Lord Higgins:The noble Baroness asks why. The provision does not fall appropriately in Schedule 1, which is largely related to parts of the Bill not concerned with the Determinations Panel. It is a drafting point. Perhaps I may try the argument again. Part 3 of Schedule 1 relates to Clause 10, whereas the rest of Schedule 1 does not. It relates to earlier parts of the Bill. Therefore, this group of amendments sets up a separate schedule which would relate to Clause 10. Currently, Schedule 1 deals with matters that ought to be dealt with separately. I beg to move.
  The Deputy Chairman of Committees (Lord Brougham and Vaux):I remind the Committee that if Amendment No. 16 is agreed to I cannot call Amendments Nos. 17 to 24.
  Lord Borrie:Part 1 of the Bill is headed, "The Pensions Regulator". Within Part I, Clause 10 deals with the Determinations Panel. That seems to be paralleled in Schedule 1—headed, "The Pensions Regulator"—where one would expect to find details on all aspects of Part 1 of the Bill dealt with, including membership of the Determinations Panel. I am not sure what is wrong with the present drafting in that respect.
  Baroness Hollis of Heigham:I see what the noble Lord seeks to do. But this part of the Bill is about "pay and rations". Throughout Schedule 1 there are references—for example, on page 242 of the Bill—to the nature of disqualification of members of the Determinations Panel. Right through the schedule there is an understanding that the Determinations Panel is part of the regulator, although there are no overlapping members between the non-executive and executive members of the regulator with the membership of the Determinations Panel. Conceptually, it is all part of the regulatory function. Therefore, throughout that schedule, there are numerous references. Obviously, we have followed the advice of parliamentary counsel that this is the appropriate place to put it, which makes perfectly

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  good sense. I am not persuaded that we add anything to clarity or understanding by pulling it out into a separate schedule.
  Lord Higgins:I have heard what the noble Lord, Lord Borrie, said, and I take his point. I simply refer to what extent the Determinations Panel, while under the overall aegis of the regulator, would really be a separate body. That emerged from some of the remarks made by the noble Baroness earlier. I shall think again about this and, if need be, return to it at Report. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Lord Higginsmoved Amendment No. 17:
  Page 235, line 12, leave out paragraph 11 and insert—
  "11 The chairman of the Determination Panel must be appointed by the Regulator."
  The noble Lord said: We come here to the various provisions for the Determinations Panel. It seemed to us that this would be a more appropriate way of making the appointment. I beg to move.
  Baroness Hollis of Heigham:Amendment No. 17 seeks to remove the provision for an appointments panel to appoint the chairman of the Determinations Panel, and instead allow the regulator to make that appointment.
  I will not go into the functions and purposes of the Determinations Panel at this stage. We have modelled our proposals on the regulatory decisions committee of the Financial Services Authority. Your Lordships will remember, although I was not a player in that Bill, that it was thought important by the House to ensure separation between investigation and decision-making. In setting up the determinations procedure, we have therefore followed the Financial Services Authority model—that means the chairman of the Regulatory Determinations Committee being appointed by the regulator on the recommendation of an independent group established by the regulator for that purpose.
  Suitable people on that committee could, for example, come from the Department for Constitutional Affairs, and the Council on Tribunals, to ensure that the chairman has the appropriate decision-making skills. A non-executive member of the regulator will, as is the case with the FSA, chair that independent group on the appointment. The regulator also appoints all other members of the Determinations Panel on the recommendation of the chairman of the Determinations Panel. Again, that mirrors FSA procedures. I hope that the noble Lord will be content with that explanation.
  Lord Higgins:I am grateful for that explanation, and I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Lord Higgins moved Amendment No. 18:
  Page 236, line 2, leave out "may" and insert "must"
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  The noble Lord said: This is almost a traditional amendment. The top of page 236 states:
  "The Regulator may pay, or make provision for paying, the members of the Determinations Panel such remuneration as the Secretary of State may determine".
  The implication of that seems to be that they may be amateurs rather than professionals. Therefore, it seems strange. One would have thought that the regulator must pay, or make provision for paying, the members of the Determinations Panel. We are not clear why he is apparently given discretion. No doubt the noble Baroness can tell us. I beg to move.
  Baroness Hollis of Heigham:Am I right in thinking that Amendments Nos. 18 and 19 are grouped? No, it is Amendments Nos. 18 and 20. I take it that the noble Lord is also speaking to Amendment No. 20.
  The amendments seek to shift responsibility for determining the appropriate provisions for paying Determinations Panel members from the Secretary of State to the regulator. That is the effect of the amendment. As I have already explained, the Determinations Panel is there to ensure an appropriate degree of independence from those who investigate and those who take decisions, to ensure that the procedures are seen as fair. It would be inconsistent with that approach for the regulator to have sole control over the pay of the Determinations Panel. It is more appropriate, following non-departmental public body guidelines as reflected in the Cabinet Office and so on, for the Secretary of State to determine the appropriate remuneration for panel members. I hope that the noble Lord will feel able to withdraw his amendment.
  Lord Higgins:I think we are slightly at cross purposes. The clause as it stands states:
  "The Regulator may pay, or make provision for paying, the members of the Determinations Panel".
  I assume that he will pay—indeed, he must pay—the members of the Determinations Panel, unless of course they are to be amateurs. I do not imagine that that is what the Government envisage. The reply given by the noble Baroness does not make the point.
  Baroness Hollis of Heigham:The point is whether it is to be the regulator or the Secretary of State—and the Secretary of State sets levels of pay and so on for non-executives on NDPBs, following, as I said, Cabinet Office guidelines. Not all non-executive members seek, want or receive pay—but that is a subsidiary point. Basically, the Secretary of State sets the levels rather than the regulator because that is consistent across NDPBs.
  Lord Oakeshott of Seagrove Bay:It may be a question of English, but I cannot see how anyone can object to saying that the regulator must pay such remunerations as the Secretary of State may determine. That seems to cover the point.
  Lord Higgins:We are being rather pedantic over what is a traditional amendment. Almost every Bill I can remember has an amendment which seeks to leave

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  out "may" and insert "must"; or, alternatively, leave out "must" and insert "may". However, in this case it clearly ought to be "may".
  Noble Lords:"Must".
  Baroness Hollis of Heigham:I agree.
  Lord Higgins:Very well. After what the noble Baroness said, it seems even stranger that the Secretary of State will make provision and the regulator may pay or not as the case may be.
  Baroness Hollis of Heigham:I shall have yet another go. We have provided that the regulator "may" make such payments as the Secretary of State may determine, rather than requiring the regulator to make such payments. The reason for that is that the regulator should have that slight degree of flexibility within the maxima set by the Secretary of State for NDPBs in accordance with Cabinet Office guidelines.
  The Secretary of State will determine a maximum salary level for panels, but the regulator may agree with some or all members of a panel that they should work, for example, on an expenses-only basis and not receive a salary. This is similar to the way in which some noble Lords have been known not to claim their full entitlement to allowances.
  Baroness Turner of Camden:Does not the noble Lord, Lord Higgins, recollect that nearly all governments, of whatever complexion, usually like to retain the flexibility that "may" rather than "must" gives them?
  Lord Higgins:I do not want to delay the Committee longer. I do not think that one can read into the clause what the Minister has said. We shall think about the matter and come back to it if necessary. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendments Nos. 19 and 20 not moved.]
  Lord Higginsmoved Amendment No. 21:
  Page 236, line 7, leave out "Secretary of State" and insert "Regulator"
  The noble Lord said: In moving Amendment No. 21, I shall speak also to Amendments Nos. 22, 23 and 24. The amendments seek to determine whether pay and so on should be determined by the regulator or the Secretary of State. It would appear that the Secretary of State will be setting these levels rather than leaving it to the regulator. I beg to move.
  Baroness Hollis of Heigham:I am having some difficulty with this. The basic structure—and this applies to a whole range of bodies—is that there is a maxima payment, on a pro rata basis, for certain services. It may be that three days of work a month represents £10,000 a year or £30,000 a year or whatever. Therefore, certain jobs and responsibilities come with those days attached. The maxima for the work is based on Cabinet Office guidelines and is reflected in the determination by the Secretary of State.
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  Retired Ministers of the Crown in your Lordships' House, for example, have refused to draw their salary in the past—noble Lords will know several such—and the clause allows for that possibility and for the regulator to react to it. It is no more significant or sinister than that.
  Lord Higgins:I understand what the noble Baroness is saying. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendments Nos. 22 to 24 not moved.]
  5.30 p.m.
  Lord Higginsmoved Amendment No. 25:
  Page 239, line 42, leave out sub-paragraph (1).
  The noble Lord said: Paragraph 25(1) states:
  "The Secretary of State may make regulations authorising the Regulator to charge fees to meet the costs incurred by the Regulator in connection with applications made for the modification",
  and so on. This again raises the question of the relative position of the Secretary of State and the regulator, this time in relation to the fees which are to be charged. This is the first mention of regulations in anything that we have discussed so far. The noble Baroness has always been helpful on previous occasions in providing us with draft regulations all the way through, and no doubt those subject to the Bill will be interested to know what the fees are likely to be and on what basis they are likely to be charged.
  Perhaps more generally the Minister could give an indication, because at later stages of the Bill almost entire discretion is given to deal with matters in regulations, particularly in Part 6. Could she give some indication as to what extent she is able to follow the practice she has developed in the past of presenting draft regulations—let us say before Report stage? It has always been very helpful. I beg to move.
  Baroness Hollis of Heigham:Dealing with the second point first, I shall do my best to be helpful but I do not think that I shall be able to be so. Many of the regulations will require extensive consultation with industry, and the consultation is an ongoing process. I can assure noble Lords that as soon as I have the regulations I shall bring them to the House.
  However, if there are any areas of proposed regulatory powers that the noble Lord would like explained, if we cannot produce the drafting we can provide at least an explanation of how we might propose to use them. I am very happy to offer that facility to him as a substitute at any stage. It will allow him a sense of what the scope might entail.
  Amendment No. 25 seeks to remove the provision for fees to be charged in relation to applications under Section 69 of the Pensions Act, which deals with the return of surplus. Applications under the section are made in order to return surplus to the employers—so they are getting, so to speak, a quasi-windfall. In the last case OPRA dealt with under this section, involving the return of £50 million to an employer—I have the details with me but it might not be appropriate to read

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  them into Hansard—it had to write to the affected parties three times with details of the case. With 30,000 members that was done at a cost of more than £75,000, which was borne by other employers who were paying a levy to sponsor the return of the £50-million surplus to an individual employer. We think that it is appropriate in such cases for the employer benefiting from the return of surplus to bear the burden of costs rather than all levy payers.
  As part of the consultation for the quinquennial review of OPRA, a specific question was asked to test the response to the charging of fees; my understanding is that there was no negative feedback on the proposal. Given those two points I have sought to establish, I hope that the noble Lord will feel able to withdraw his amendment.
  Lord Higgins:These have been rather tedious probing amendments but one can never tell what is going to happen next. One suddenly finds that what appears to be a minor amendment turns out to cost £50 million.
  Baroness Hollis of Heigham:That was the surplus.
  Lord Higgins:I am sorry. A surplus of £50 million. So it shows that it is important sometimes, however tedious it may be, to sort out exactly what some of the meanings of apparently bland and unimportant words in a Bill actually mean.
  I should be very grateful if the noble Baroness can help as much as possible with the regulations. She has always been, in my experience, extremely co-operative as far as that is concerned. I merely make the point I made earlier in regard to the compensation. Part 6 is to be introduced almost entirely by regulation and it could do absolutely anything about everything or everything about anything. Before we get to that, we must be a lot clearer than we are about the true situation. I am grateful for the explanation. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 26 not moved.]
  Lord Higginsmoved Amendment No. 27:
  Page 242, line 31, leave out sub-paragraph (1).
  The noble Lord said: I think that this amendment is rather more important, on the exemption from liability to damage. The provision suggests:
  "Neither the Regulator nor any person who is a member of the Regulator ... or a member of its staff is to be liable in damages for anything done or omitted",
  in the course of its operations. That is a very sweeping statement and gives the regulator very considerable protection indeed. I wonder whether, when we come later to questions of disclosure, unauthorised disclosure and so on, we ought to examine this matter a little more clearly. For example, in the context of the present takeover business at Marks & Spencer and so on, the regulator might suddenly and wrongly disclose information that could have very important consequences.
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  No doubt the noble Baroness can tell us to what extent there is precedent for this clause. However, the statement seems extremely wide-ranging. One should perhaps consider whether it needs to be quite as broad as it appears in this clause. I beg to move.
  Lord Oakeshott of Seagrove Bay:This provision raises fundamental questions. It states that the regulator, any member of the committee or any member of staff is not to be,
  "liable in damages for anything done or omitted in the exercise or purported exercise of the functions",
  and so on. It is a very comprehensive whitewash clause, as I think lawyers call it, or a blanket exemption. The effect is obviously, in a certain sense, to put the regulator and his staff above the law. I hope that the Minister will be able to give us the fundamental reasons for that and not just say that there are precedents or that it is standard practice. As we have discovered in other clauses, life moves on. I believe that there are fundamental issues here.
  Baroness Hollis of Heigham:As your Lordships have said, Amendment No. 27 would remove the regulator's exemption from liability in damages. Without this protection, the regulator would be liable in damages for the actions, or failures to act, of its staff. It is not just sins of commission but sins of omission as well. When one thinks of the number of schemes that go down and some of the current rows about regulating regimes, one can see the implications of the provision.
  The effect of this would be to prevent the regulator achieving its objectives, in particular protecting members' benefits. I can understand that this exemption may raise eyebrows, as it has today, but perhaps I can suggest why it is necessary.
  Say, for example, that the regulator receives information from a scheme auditor that a particular trustee is about to remove scheme funds for his own purpose. The regulator, if it reasonably believes that to be the case, should act, via the special procedure, to appoint a trustee with exclusive powers, to take control of the scheme's bank account and ensure funds cannot be removed. However, if the regulator were liable for damages it would have to consider before acting the consequences and cost of being wrong—the cost of defending potential actions by trustees of the scheme, the employer and any members affected, and of course any damages award.
  One might think that there is therefore a disproportion between the injury done and the amount of risk that might go by the board if one did not have this protection. Ultimately, the costs of all of those damages and action would fall on all members of pension schemes. That would prevent the regulator from acting in the majority of cases—just about any case—unless the evidence is 100 per cent certain and he feels that there is therefore no risk of liability to damages.
  Your Lordships will have noted that, over the page in sub-paragraph (5), there is provision for damages where the regulator has acted in bad faith. Damages

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  are, of course, also available when the regulator has acted, or failed to act, in contravention of the Human Rights Act 1998. I was told not to believe in precedent, but that is the situation for OPRA. My understanding is that it is also the position for the FSA and its members. It therefore seems appropriate.
  From my experience, if there are issues of liability in any sense that involve an intervention, improvement notice, freezing order or other preventive action in which one may be liable for damages, I think it is possible to return to a situation where there are few options between doing nothing or having such certitude that one winds up the scheme and goes for the full nuclear option.
  Throughout the Bill we have provided an array of graduated steps of intervention, with powers attached, in order to prevent the worst case scenario—that of a scheme failing and calling on the Pension Protection Fund because the promise cannot be delivered. Provided that the regulator acts in good faith, is acting reasonably on the information he has been given and is not contradicting human rights legislation, it is right that he is given this degree of protection in the same way as it is given to OPRA, the FSA and similar financial supervisory bodies.
  Lord Oakeshott of Seagrove Bay:I understand the term "in bad faith", but who will decide whether the regulator reasonably believes it to be the case—which I think were the words just used by the Minister?
  Baroness Hollis of Heigham:Obviously there is a full appeals procedure in place as regards the decisions taken by the regulator—the tribunal through to the ombudsman and so forth. That is available to individuals if there is a view that someone has acted unreasonably. That remedy is always available.
  I am assured that the exemption we have provided is narrower than that currently given to OPRA by Section 1(4) of the Pensions Act 1995, in that it would not apply to acts or omissions committed in bad faith; that is, it would not prevent an award of damages under the Human Rights Act 1998.
  All I would say is that, over and beyond the bad faith and the human rights points, there are rights of appeal against the judgment of the regulator if that judgment is ill founded in fact and in law. Surely that is where we would want to be.
  Lord Oakeshott of Seagrove Bay:No one would argue that there should not be some protections. In a sense, the noble Baroness was arguing against the principle of having no protection, but there must be some. However, the issue that we are trying to probe is whether the protections need to be quite as whitewashing and draconian as this. We have talked about the conditions under "bad faith", but are there other conditions in which the exemptions should not be quite so sweeping?
  Baroness Hollis of Heigham:I understand that this is a significant issue and I shall be happy to follow up
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  my response in more detail in a letter. On that basis, it may be that noble Lords can then decide whether they wish to revisit the matter on Report.
  Baroness Turner of Camden:Without this kind of protection, it might be difficult to persuade people to come forward to take on these jobs.
  Baroness Hollis of Heigham:Following the point made by my noble friend, noble Lords will understand that some of these concerns read across to other areas about the form and degree of regulatory practice and the resultant exposure of members of such bodies to criticism, judicial review and the like.
  Lord Lucas:One understands that people are reluctant to put themselves at risk. Later in the Bill shareholders will be exposed to just that kind of risk, because we are breaking limited liability in a way which may put them at great risk if a pension fund in a company in which they have invested goes wrong. We have to be even-handed and understand that these motivations work on everyone, not only on regulators.
  Lord Higgins:I should like to say a word before the noble Baroness responds, otherwise we shall become rather too conversational.
  As the noble Baroness has said, this is drawn very widely indeed because otherwise it may be difficult to persuade people to do the job or join the staff of the regulator. We have to balance all that. However, it may be that a person or organisation suffers damage, only to find that they have no form of redress whatsoever. Even where there is no question of bad faith, they none the less would have suffered damage. The question here is about to what extent the balance is right in ensuring that, however bad the damage may be—such as on disclosure of information, wrongly or otherwise, which may amount to tens of millions of pounds—the appropriate redress and the limits of the matter are agreed.
  In effect, the cost is carried by the person who is damaged, or the regulator and those paying the levy or, possibly—my old Treasury hackles rise when saying this—the taxpayer, or I suppose that it could be insured. I am not sure to what extent that might be possible. In any event, we need to look at this subparagraph again. The general opinion of the Grand Committee is that this provision is very broad.
  5.45 p.m.
  Baroness Hollis of Heigham:Before the noble Lord decides what to do with his amendment—given the conventions of the Grand Committee, he should withdraw it—perhaps I may say a few more words. We all accept the point about bad faith and understand that the remedy of judicial review is available if the actions taken were inappropriate. However, I am puzzled by the notion of the basis on which we think the regulator will intervene. He would intervene on the basis of a scheme return which has raised concerns about the level of underfunding and the capacity of the pension scheme to meet its pension promise. The regulator would then proceed on that basis, in

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  conjunction with Standard & Poor's risk assessments and so forth, to produce—we hope in consultation with the trustees—a remediation strategy. Only if that fails, or if it is impossible by virtue of the issues to be raised in Clauses 35 onwards that the company is unwilling to make good, would we then be drawn into a much more adversarial situation.
  At what point in that process would one regard the regulator as being liable for damages for acting in the way laid down by law, even if ultimately he is able to reach agreement with the company and the trustees to make good the funding of the pension scheme? Is it a slur on the character of the trustees that the regulator has asked them to remedy the situation? Yes, I suppose it is, but then so they should. The fact that the trustees are carrying an underfunded pension scheme is a perfectly proper piece of public information based on the scheme return.
  I am finding it quite hard to conceive of the circumstances in which one would regard the proper activity of the regulator, which may rightly be critical of the company or the trustees, as inappropriate. Only if the criticisms were not well founded in fact, based on the scheme returns, could an issue of damages payable due to the unjustified imputation of reputation be justified. As I say, I have difficulty in envisaging the scenario.
  I imagine that the noble Lord will want to come back to this on Report. At that point perhaps he will describe for us the situation in which he thinks that there should be some constraint on the regulator acting for fear that if he did, a claim for damages might be pursued on other members of the body. The amendment would serve to limit the capacity of the regulator to act. Do we wish to see that, and in what circumstances would the noble Lord want it to happen? If the noble Lord can help me on this point, we may be able to take the argument further on Report. However, I repeat that I am perfectly happy to write on the legal and technical details of this point.
  Lord Oakeshott of Seagrove Bay:Perhaps I can help the noble Baroness, because I think that she has moved on a tack concerning reputation. The kind of situation one can envisage is that where the regulator said to a struggling company, "You have to put much more money into your pension fund quickly". The Minister has talked about the regulator acting reasonably and carrying out his obligations, and that is fine. But the question is whether there is any kind of remedy for a company which genuinely believes that the regulator has been acting unreasonably because it is being pushed into bankruptcy. Does it have absolutely no power to pursue damages?
  Baroness Hollis of Heigham:If the regulator failed to act in those circumstances, presumably he would be liable to a claim for damages brought by the scheme members.
  Lord Oakeshott of Seagrove Bay:Yes, although I do not think that they would be able to pursue it.
  Baroness Hollis of Heigham:That is exactly the situation we have established; that there is in a sense a stand-off. If we go down that route, any decision that is unfavourable to one party—and by definition that will often be the case—will mean that on paper, the regulator could be exposed to a claim for damages. I should have thought that that was not the route we wanted to take.
  Lord Higgins:I do not think that we should prolong the debate because the problems have been set out quite clearly. We need to consider two points. The first is what the possible damages that might be incurred are. The noble Baroness gave one example and the noble Lord, Lord Oakeshott, another. But all kinds of things could arise, such as the wrongful disclosure of information which results in a loss. The difficulty with the clause as it stands is that it is complete in its scope. Anything done by the regulator would be exempted or protected.
  The second point to consider is where we think the balance should lie as to who actually pays if some damage has been done and loss incurred. We can all brood on these issues. In the mean time, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  The Deputy Chairman of Committees (Lord Brougham and Vaux):When they wish to speak, noble Lords at the back of the room should move forward to the table so that Hansard can record their remarks.
  On Question, Whether Schedule 1 shall be agreed to?
  Lord Higgins:I indicated earlier that we have discussed the schedule exhaustively. I do not wish to say anything further.
  Schedule 1 agreed to.
  [Amendment No. 28 not moved.]
  Clause 4 [Regulator's functions]:
  Lord Skelmersdalemoved Amendment No. 29:
  Page 2, line 27, leave out paragraph (a).
  The noble Lord said: I am afraid that this is not going to be one of my short, snappy question-and-answer sessions. I am told that we must settle into this particular amendment.
  As I said in my contribution to Amendment No. 1, moved by the noble Baroness, Lady Turner, the Bill sets up a most peculiar form of corporate governance. I do not claim to have any expertise on the matter, but the advice I have received from my noble friend Lady Noakes, who most definitely has, is that the only place that she knows of where such a scheme exists is in the Bank of England Act 1998.
  The Explanatory Notes make great play of relying on the Higgs report on corporate governance for the regulator's governance performance, yet there is no recommendation in that report or in the Combined Code on Corporate Governance, which now implements it, for a non-executive committee in the form and shape envisaged by the Bill. To make matters worse, under the Bank of England Act there is in the

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  Bank a sub-committee of non-executive members of the Court. The non-executives massively exceed the executives, by 16 to three. We have had that discussion, but I wanted to make the point for future reference.
  Paragraph 28 of the Explanatory Notes quotes the Higgs review as recommending a balance between executive and non-executive members including—I underline the point—independent non-executives. The Bill makes no reference to independent non-executives, who are key to the Combined Code recommendations on audit committees and remuneration committees. Under Higgs and the Combined Code the chairman, even if non-executive as is currently the case in the Bill, is not independent except at appointment. Hence, the chairman of a public limited company is not a member of an audit or remuneration committee, but in the Bill he actually chairs the non-executive committee, which seems to cover at least the audit committee territory and some of the remuneration committee territory.
  A non-executive committee is objectionable because it potentially undermines the unitary nature of the board/regulator overall. The functions of the non-executive committee ascribed in Clause 9(3) are only loosely derived from the Higgs report and the Combined Code, but the important point is that under Higgs they are not functions of the non-executives acting as a separate group. Rather they are a definition of the contribution of the non-executives to the unitary board as a whole.
  Technically, as we have discussed, in Clause 8 the Bill creates the non-executive committee as a subcommittee of the regulator's board, which means that it derives its authority from the board and must report to it. This seems strange because in essence it would be reporting to itself.
  I have some questions to put to the Minister. If Higgs is the model, why is there no differentiation between independent and non-independent non-executives and why, in particular, is it appropriate for the chairman to chair the non-executives? Do the Government believe that the Bill creates a new unitary board for the regulator? How do they reconcile their provisions with the first Higgs principle, that:
  "The Board is collectively responsible for promoting the success of the company by leading and directing the company's affairs".
  Why are the non-executives' roles spelt out in the Bill but not the role of the whole board? Why have the Government chosen to set up a non-executive committee at all? Higgs said that non-executives should meet without the executives present and at least once a year without the chairman present. Clearly, the Bill provides otherwise.
  There is nothing equivalent to Clause 9 in the combined code. It also says that the non-executives should meet once a year without the chairman to discuss the chairman's performance. Why is that not in the Bill? Why does Clause 9(4) require a separate report in the annual report from the non-executives? I understand that there is no parallel in commercial or any other practice, except in the Bank of England Act.
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  Lastly, why is there no recommendation for a remuneration report in the Bill? That is required under Higgs and in the DTI regulations for Plcs. I apologise for firing a great list of questions at the Minister but I would like some answers so that I can think on it more thoroughly. I beg to move.
  Baroness Hollis of Heigham:As the noble Lord accepts, those are technical questions, and if he wants a serious answer to appear in Hansard it is helpful to have notification of questions that are not on policy and are therefore open to general debate. I shall write to the noble Lord and make sure that your Lordships have copies of the answers to all of the questions. I may be able to answer eight or 10 of them as we go along but I doubt whether I have the answers to all of them here today.
  This amendment removes Clause(4)(1)(a), and I ought to respond to it as it is set out in the Marshalled List. Clause 4 sets out the functions of the regulator and makes provision for the exercise of some of those functions. The transfer of OPRA's functions to the Pensions Regulator is achieved by Clause 7(1), which transfers to the regulator all OPRA's functions conferred by the Pension Schemes Act 1993, the Pensions Act 1995 and the Welfare Reform and Pensions Act 2000.
  I am sorry, I am responding on Amendment No. 29.
  Lord Skelmersdale:I shall give the Minister a little time and perhaps help on this occasion. I am very grateful to her for saying that she is happy to write to me to answer the very detailed and technical questions that I asked her. I am very happy with that response. I should perhaps have said when I began that the amendment in the Marshalled List is merely a peg on which to hang the questions. I know exactly what the effect of leaving out Clause 4(1)(a) would be.
  Baroness Hollis of Heigham:Clause 9 sets out the functions exercisable by the regulator's non-executive committee. The noble Lord was pressing me on why, given Higgs and the like, this particular structure has been chosen. We have looked at the Higgs report and have had the best advice, and it seems to us to be appropriate to make the distinction between the non-executive directors and the executive members of the regulatory body and to have the chairman of the regulatory body chairing the committee. I agree that there may be an issue about whether he does that more than once a year.
  Clause 9 sets out the functions of the regulator's non-executive committee, which is to separate the day-to-day running of the organisation, undertaken by the executive directors, from the responsibility of ensuring efficiency, effectiveness and transparency, which is discharged by the non-executive committee. As the noble Lord acknowledged, this separation of accountabilities is the recommended arrangement promoted by Cadbury and the Higgs report. Ofcom and the FSA, as new regulators, have non-executive committees, as does the Bank of England, as the noble Lord accepted. In addition, all public limited

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  companies are encouraged to develop governance arrangements that include a chair, non-executive directors and committees.
  6 p.m.
  I am a little puzzled that the noble Lord, Lord Skelmersdale, thought he was aware of only the similar example of the Bank of England. From the advice that I have been given, it seems as though the practice is fairly common in most non-departmental public bodies following Cadbury and Higgs.
  The clause spells out what the non-executive committee does. It will: keep under review the strategic direction of the regulator; scrutinise the performance of the chief executive; monitor the extent to which the regulator meets its objectives and targets, which is the subject of other opposition amendments; monitor the regulator's reporting of the activities to the Secretary of State; review whether the regulator's internal financial controls are in order; and, subject to the approval of the Secretary of State, determine the terms, conditions and remuneration of the chief executive.
  Those functions are for any non-executive committee and are consistent with those of the Court of Directors of the Bank of England and with the Financial Services Authority. They allow the separation of the day-to-day running of the organisation from the checks-and-balances accountability that we need for the regulator to remain efficient, effective and accountable.
  I shall see whether there are any questions that I have not answered, but most of those asked were covered by the Higgs report on corporate governance. The only one with which we were slightly at odds was on whether the chairman of the regulatory body was also the chairman of the non-executive committee. That was the only one on which we had some divergence, so I shall come back on it.
  Lord Skelmersdale:I am grateful, but not very grateful. I did not hear the noble Baroness mention the independence of the non-executives. Perhaps she could write to me on that. She referred to my merely citing the Bank of England Act. As she will remember well, the Opposition do not have quite the access to research facilities that a Minister of the Crown has. That said, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Lord Higginsmoved Amendment No. 30:
  Page 2, line 40, at end insert—
  "( ) In discharging its functions the Regulator (and, where relevant, the Non-Executive Committee and the Determinations Panel) must act in a way—

  which is compatible with its objectives under section 5, and

  which is appropriate for the purpose of meeting those objectives.

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  ( ) In discharging its functions the Regulator (and, where relevant, the Non-Executive Committee and the Determinations Panel) must have regard to—

  the need to use its resources in the most efficient and economic way,

  the principle that a burden or restriction which is imposed should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction,

  the need to minimise any adverse effects that may arise from anything done in the discharge of those functions, and

  the interests of all persons who may be affected (including members, employers and others with an interest in, or an obligation in respect of, the scheme concerned).

  ( ) The Regulator (and, where relevant, the Non-Executive Committee and the Determinations Panel) shall have regard to the need for openness regarding its activities and shall consult with interested persons and their representative bodies when developing policies procedures and practices."
  The noble Lord said:The objective of the amendment is effectively to set guidelines for the way in which the regulator may discharge its function and, to some extent where relevant, the way in which the non-executive committee and the determination committee shall operate. It sets out the fact that the objectives must be compatible with Clause 5 and in a number of other ways, such as the need to use resources most efficiently and the principle that any restriction or burden imposed should be proportionate to benefits. It seems appropriate that the regulator should have some guidelines set out in legislation, and that it should have the need for openness on its activities.
  I am trying to remember to what extent that is true so far as OPRA is concerned. My experience has been in relation to particular issues rather than the general extent to which its operations shall be published and public. The guidelines may not be ideal, but they seem the kind of thing that the industry as such—we have had representations on the matter—thinks appropriate to include. I beg to move.
  Lord Oakeshott of Seagrove Bay:It is hard to object to the amendment; it seems quite sensible.
  Lord Borrie:It does seem hard to object to the amendment. It contains a number of favourite governmental words, such as "openness", "proportionate" and "efficient". I do not know what the inverted commas at the end mean, but, subject to that, the amendment is splendid. However, is it really necessary to add it to the Bill?
  Baroness Hollis of Heigham:My advice states that it is not, splendid though the amendment is and despite the seemingly universal assent. The regulator has the functions transferred to it from OPRA and the other functions conferred on it by the Bill. The clause sets out further detail on how the new regulator will discharge its function and reserves certain functions to the non-executive committee. It also reserves the discharge of certain of the regulator's regulatory functions to a special committee called the Determinations Panel, as the Committee is aware. The

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  regulator's general powers to delegate certain functions are subject to the Secretary of State's power to make regulations.
  The amendment seeks to make the regulator more accountable in its policies, procedures and practices. It also aims to ensure that the duties and functions of the regulator discharged to the non-executive committee and the Determinations Panel meet the regulator's objectives specified in Clause 5. That is, indeed, our intention. The proposals for a new regulator have been developed in the findings of the Pickering report of July 2002, the NAO report on OPRA of November 2002 and the quinquennial review of OPRA in December 2002. They all recommended that, in future, the Pensions Regulator should target its resources on those areas where members' benefits were at greatest risk.
  That view is supported by the Better Regulation Task Force's Principles of Better Regulation, published in 1998 and revised in 2000, which recommends that regulators be proportionate, targeted, accountable, consistent and transparent. The introduction of statutory objectives is one way to address the criticisms of OPRA. The objectives provide a driving force for the organisation and will allow for flexibility of regulatory approach. In the light of that reassurance, I hope that the noble Lord will withdraw his amendment. We do not think it necessary.
  Lord Higgins:That was a rather disappointing reply. As the noble Lord, Lord Borfie, pointed out, the sentiments are admirable and might reasonably provide some guidance to the regulator on the way in which he would operate. There is certainly feeling in the industry that it would be appropriate to have some guidelines. Perhaps those suggested in the amendment are not sufficiently concrete. By Report, we might try to formulate something rather more specific.
  Lord Lucas:I want to reinforce some of what my noble friend says. The regulator will not be subject to being sued, so there is not that sort of restraint. There is not even any requirement on him that he not be negligent. It is as well to have that offset to some extent by a set of objectives whereby he can be judged in the court of the public, as it were, where we can all see whether he is doing what he is supposed to do. To have a requirement for openness is absolutely key if we are dealing with someone as protected as the regulator is to be.
  It is also important to look at the wider interests of the people whom the regulator is supposed to cover, as opposed to the narrow interests in relation to their immediate pensions. Unless we have these requirements in the Bill, or something very similar to them, we will find that we are dealing with an organisation that is not as accountable or responsible as it should be, as there is no way for the public to judge it or for a body that has suffered at its hands to seek redress. It is enormously important, because of the restrictions on suing, that we have an explicit commitment to openness and breadth of judgment.
  Lord Higgins:I am encouraged by my noble friend's intervention. We ought to table a rather more specific amendment when we come back to the matter on Report. Meanwhile, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  On Question, Whether Clause 4 shall stand part of the Bill?
  Lord Higgins:I shall add a word or two about this clause at this stage. My noble friend Lord Skelmersdale posed a number of specific questions regarding the way in which the regulator will operate and the Minister said that she will write to us about that. The main point he was making was that the Explanatory Notes make great play about the Higgs report on corporate governance in relation to the governance requirements of the regulator, but when one comes to look at the detail, it does not seem to be the case that Higgs is reflected. For example, the case my noble friend gave about whether the non-executives should meet at least once a year to consider the position of the chairman is tremendously important.
  Over recent years, we have seen considerable developments in the role of non-executives. I know from personal experience that the relationship between chief executive and chairman can be very important for effective governance in any organisation. I think that the point my noble friend made is important. I also think that the idea of a non-executive committee undermines the unity of the board to some extent; it is not helpful. Having sat on various boards, I think that once the non-executives start getting together, particularly in a formal situation such as a committee, it does not, on the whole, result in the governance being as coherent as it would normally be.
  I shall not go over all the specific points made by my noble friend but I think that the claim that this is based on the Higgs report is open to considerable doubt when one goes into the matter. I hope that the noble Baroness will write to us about it. I wonder specifically whether at the moment the arrangements are as correct as they ought to be. We have some doubts about the structure of the regulator, which is obviously very important.
  Lord Lucas:I entirely agree with what my noble friend said. This is not a Higgs arrangement. In England, we do not have supervisory boards in the general run of corporations, which are what the Bill is moving towards creating. Non-executive directors act as part of the board; we have a single board and non-executive directors work through that. There will be committees of the board and there will be functions that will be operated separately, but the responsibilities belong to the board. That is, by and large, the structure that Higgs addresses in his report.
  We obviously want to be informed by what my former colleague says about the way in which companies should be run. I hope that we will produce something in line with current thinking. But if we are

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  producing a structure that is as far from the basic structure that Higgs addresses in his report as the one we are now contemplating—which is much closer to a continental model of how a board should be run than to a UK model— then we must review matters from the base upwards. Higgs cannot be applied as if it is the current best practice because it does not address this kind of situation. Either we have to go to something that more closely reflects the way in which a best-practice company operates or we must review the conclusions that Higgs reached to see whether they apply to the rather strange model in front of us.
  I have not heard any arguments advanced about why this is the right way to do things. Why do we have to invent our own way of doing things just for pensions? Why is the existing model, as it works with companies and corporate boards, not the one to follow? What is wrong with the unitary board? Why do we need to create this second tier? If we are creating a second tier, we need to be much more precise about what it is and what the relationship between it and the executives is. On the continent, there is a structure and a tradition that governs the way in which the two parts work together and the relationship between them. It is quite different in concept. Although one uses the same words when talking about it, it is quite different in concept from the way in which non-executives work with boards in this country. It may be the best way of doing things, but I want to hear the arguments about why we should follow the Dutch model rather than the English one.
  6.15 p.m.
  Baroness Hollis of Heigham:I am slightly puzzled by this. Obviously, this has been discussed and consulted on. We have had either silence or support for these proposals. I do not quite understand why we are trying to reinvent either Higgs or Cadbury when, as I understand it, we are proposing to extract from Higgs the appropriate bit that fits a non-departmental public body. That is what we are doing. That separation is in the Bill in Clause 9 and other clauses, clearly laying out the functions of the non-executive committee—a strategic review function that needs to be set aside from the daily running. One reason why the chairman is an appropriate member of that body is that his salary is determined by the Secretary of State rather than by the rest of the board, which is perhaps different from private companies.
  Lord Higgins:Would the noble Baroness say that sentence again? I did not quite catch it.
  Baroness Hollis of Heigham:The chairman's pay is set by the Secretary of State. Therefore, it is not subject to review by the rest of the non-executive members. I was being pressed on why the chairman was a member, and that is one distinction from a non-departmental board, because it comes within the guidelines of the Cabinet Office.
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  So I am a bit puzzled about why people are puzzled by this structure. It seems to me consistent and congruent with developing good practice, following Cadbury and Higgs—and following abuses in the City—as applied to non-departmental public bodies in the light of the review of OPRA and other consultation exercises we have had. As I understand it, until today we have had no dissent from anywhere about this structure.
  I am perfectly willing to believe that your Lordships have concerns that have not been picked up outside. However, I am a little surprised by this. I am very happy to write back more fully on the detail of how we expect this to operate. If there are still concerns, then your Lordships will no doubt want to revisit them. My understanding, however, is that across the industry there has been either silence or consent to this structure as the appropriate way forward given the responsibilities that we are asking this body to carry. So I am a little taken aback by the assault on this structure as somehow un-British. If British structures have led to some of the problems we have seen in the past, perhaps it is time we moved on.
  Baroness Turner of Camden:Did the noble Baroness say that the FSA had been consulted on this and had approved?
  Baroness Hollis of Heigham:I did not say that any particular body had been consulted. However, two or three weeks ago when I myself had discussions on this and other matters with senior FSA members, they seemed entirely comfortable with the structure. I was interested in exploring whether we shared some of the concepts of risk, analysis of the structure and ideas on the roles of the regulator and the appropriateness of the division of responsibility between the two bodies. I was given full reassurance on all those points.
  Lord Higgins:Will the noble Baroness tell us which bodies have been consulted? It seemed to us apparent that the claim in the Explanatory Notes about Higgs was not well founded. It was a fashionable thing to say, "This is in conformity with Higgs", but when you begin to look at it, it turns out that it is not. For example, the point I made earlier about whether the non-executives will meet at least once a year without the chairman present does not seem to appear at all. There are real issues here. Although the noble Baroness apparently has not had representations on them, these issues are important. Can she tell us who has been consulted on this specific aspect of the Bill?
  Baroness Hollis of Heigham:It is not like that. We are proposing this structure as a result of Cadbury, Higgs and the like. The structure is known and has been exposed and is in the Bill. I had a meeting a fortnight or 10 days ago with the senior players, including the chairman, from NAPF. Of all the concerns they could have raised with me, one that they did not raise was this structure. Obviously we have consulted with OPRA members about their experience, but both myself and my colleagues in the other place have had a series of meetings with

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  interested and very powerful parties, including NAPF and the FSA, at which we discussed a whole agenda of issues of mutual concern. This could have been raised by them if they thought it inappropriate. In all the meetings that I have had, no one has mentioned at any stage that this is not the appropriate way forward.
  As far as I am aware, we seem to have narrowed this down to one issue—we discussed it previously with the noble Lord, Lord Skelmersdale—and that is whether the chairman of the regulatory authority should chair the non-executive committee, which is not a Higgs recommendation. One of the distinctions I made was that a non-departmental government body chairman has his or her salary or pay determined by the Secretary of State. That is why there may not be a parallel with private companies, which may wish the non-executive directors to consider that role. It is not appropriate here.
  Apart from that, I have not heard anything from Members opposite to suggest that the structures we have in place are in no sense appropriate or, indeed, are inappropriate. I have been asked why we have developed them in this way; I have gone through the history of the corporate governance structure we have pursued. It has been exposed in the form of the Bill and through numerous meetings with important players, who have not shown any concern about the structure.
  I am a little puzzled why Members of the Committee opposite seem to be labouring the point. Let me put a question back to the noble Lord. Has he had representations from any bodies or professional groups indicating that they have worries about the structure, in particular the role of the chairman, that he feels we should have addressed but have not done so? If he has, I shall be very happy to take them away and consider them, but I have not heard him or any noble Lords opposite put such an argument. Obviously we can argue about particular words, but does the noble Lord have any evidence that this is a concern to other bodies?
  Lord Higgins:The arguments put forward by my noble friend Lord Skelmersdale spell out very clearly where the concerns exist. The Higgs report is the basis on which the Government have promoted their view. It is not the case, as the noble Baroness said, that there is only one outstanding item. When she reads Hansard she will find that there are a number of areas where we have expressed concern.
  But let us not delay the Committee longer at this stage. These are important points. We need to ensure that the regulator, which will have a much more active role than OPRA, is itself operating in terms of best governance. It is something that we should all be concerned about.
  Clause 4 agreed to.
  Clause 5 [Regulator's objectives]:
  Lord Higginsmoved Amendment No. 31:
  Page 3, line 7, leave out paragraph (d).
  The noble Lord said:In moving Amendment No. 31, I shall speak also to Amendments Nos. 32 and 33. The amendments are concerned with the clause, which sets out the regulator's objectives. Clause 5(1)(d) states that the regulator has a function,
  "to promote, and to improve understanding of, the good administration of work-based pension schemes".
  I can see that, in a way, that is an appropriate function, but is it really appropriate for someone regulating a part of our society to seek to tell us how to go about it? Is it really an educational function of a regulator? There may be a strong case for ensuring that trustees and others understand their responsibilities—we shall come to that at a later stage—but I have some doubts whether that educational function is an appropriate role for the regulator.
  Amendment No. 32 seeks to insert an additional objective for the regulator—namely, to promote occupational pension provision by minimising regulatory burdens applying to well run schemes and their sponsoring employers. The trouble with this is that the regulator itself will impose considerable extra burdens on employers sponsoring schemes and on trustees, so some injunction to the regulator to minimise those burdens is important. Similarly, at page 3, line 8, it is suggested that, in conjunction with the pension protection fund, the regulator should take steps to ensure that the cost of the levy on occupational schemes is kept to a minimum.
  Our concern is that while the objective of the Bill is desirable, its effect is likely to reduce rather than increase the number of occupational pension schemes that survive—I think that that is the right word—in the present environment. While it is clearly desirable that the regulator should carry out its operations that protect pensioners, the fact that the regulator will be more intrusive is no great help if a particular group of pensioners finds that its scheme closes or closes to new members as a result of employers getting fed up—I think that that is the right expression—with additional burdens on top of those they are carrying at the moment.
  Elsewhere, particularly in the Finance Bill, the Government have sought to simplify matters. But there is no doubt that, as a result of introducing the Bill, the regulator will increase the burden on pension funds and the amount of work that they have to do, without any benefit to their members. These amendments seek to ensure that that is kept to a minimum. I beg to move.
  Baroness Turner of Camden:I hope that the Minister will not feel disposed to accept these amendments. I do not suppose that she will. Clearly, they would set out in the Bill the desire to keep regulation down. No one wants to have unnecessary regulation or to have an unnecessarily high levy. However, to put these two requirements in the Bill sends out entirely the wrong message. One has to have regulation in order to protect people. That is what all this is about. If one does not have regulation, one does not have protection. It is a question of getting the balance right. If this is put in the

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  Bill, it looks as though the balance is too much in one direction and not enough in the direction of the protection of members.
  Lord Borrie:I entirely agree with my noble friend Lady Turner. I also hope that the Minister will not agree to Amendment No. 31, which would leave out the objective of promoting and improving the understanding of good administration. Surely, the noble Lord, Lord Higgins, would be only too glad if pension schemes were carried out better. It would produce fewer problems for the regulator.
  Lord Oakeshott of Seagrove Bay:I support Amendment No. 31. It may seem odd to seek to take out an objective to promote and improve understanding of the good administration of work-based pension schemes. But it is important to be clear about the functions of the regulator. If we look at the Financial Services Authority, there is increasing evidence that it is getting itself into hot water and is undermined in carrying out its proper functions in cracking down on the split capital trust scandal because it also has a duty to promote, inform and educate. Some of the material it issued a year or two ago is being used by the people in the split capital scandal to say that it was partly encouraging people. A regulator in this position, with very important quasi-judicial powers, should not at the same time have this sort of wiffley-waffley clause saying, "promote these things". That is a different job. It is not an appropriate job for the regulator and we support Amendment No. 31.
  6.30 p.m.
  Baroness Hollis of Heigham:First, Amendment No. 31 would remove the responsibility to promote good practice. It is important that the regulator has clear objectives. It provides a framework for regulatory activities. The establishment of such objectives was a strong recommendation of the National Audit Office study of OPRA in 2002. We hope to combine that, as my noble friend said, with appropriate flexibility.
  The two major changes proposed by the noble Lord are to add in two additional amendments that were criticised by my noble friend Lady Turner. The concern is to reduce burdens on pension funds. Obviously, we seek to minimise inappropriate regulatory burdens; it would be wrong to seek to minimise appropriate regulatory burdens. The risk-based approach will concentrate on those schemes where scheme members' benefits are most at risk, with minimal regulatory intervention for well run schemes. Surely, that is what we all wish for. Well run, appropriately funded schemes will have less contact with the regulator than they did with OPRA, which did not have the discretion to make that judgment and did not operate in a risk-focused way. A risk-focused approach to regulation does exactly what my noble friend asked for, which is seeking to protect members' benefits where they could be at risk, without in any
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  sense being oppressive to a well run scheme. By a well run scheme, we also mean an adequately funded scheme where benefits are not at risk.
  The second new objective laid down by the noble Lord is that, in conjunction with the PPF, the regulator should take all reasonable steps to maintain the cost of the levy to the minimum compatible, which would oblige the regulator to work with the board of the PPF to minimise the levy payable by occupational pension schemes. Obviously, we want that partnership, but the board of the PPF will be responsible for setting PPF levy rates and structures. It will be the responsibility of the board to understand the implications that the levy structure will have on pension schemes and the overall funding position of the PPF.
  Before altering the levy rate or the structure, the board will be required to consult the stakeholders and publish any determination that it makes relating to the levies. There are already appropriate measures in the Bill to check the cost of the levies payable by schemes. The cost of the PPF rather than the cost of the regulator is the most significant financial responsibility of the companies affected. The regulator, like OPRA, is being funded indirectly through a levy on pension schemes. The regulator will collect that levy on behalf of the Secretary of State, who will set the rate as he does for OPRA. As previously discussed, we envisage that being around £23 million a year, compared to £17 million a year.
  It is not right to expect, or to require, the regulator at this stage to move into the territory of determining the levy rate, which is the responsibility of the PPF board and will be subject to consultation in the appropriate way. I hope that with those responses, the noble Lord will feel able to withdraw his amendment.
  Lord Lucas:I very much hope that the noble Baroness will address herself to what the noble Lord, Lord Oakeshott, said about Amendment No. 31. It causes problems when an organisation that sets out to be a regulator becomes at the same time an adviser. They will presumably under the powers in the Bill put forward suggestions and schemes as to how a pension fund should be organised. When one of those proves to be deficient, and some new way is discovered of defrauding pensioners, the defence will be, "Oh well, you told us how to run a good scheme and you did not warn us against this". That is happening to the FSA at the moment. It is not necessary to dig that pit in front of this regulator. It has a job to do; it should do that job, which is to protect pensioners. If it gets into the business of advising companies on how to run pension funds, it will only make its future work more dangerous and difficult.
  Baroness Dean of Thornton-le-Fylde:I hope that the Minister does not give way on that point. I was somewhat taken aback by the support for paragraph (d) coming out. I take the point about the FSA. I accept that it is not just in one area, but in two areas, that it is in trouble because of its advice. Here, we are dealing with the administration of work-based pension

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  schemes. Many of those schemes have got into trouble because they have not had anyone to advise them properly. Hopefully, that is what the regulator will do in the areas of good administration. Certainly, improved understanding is absolutely necessary. If they do not go to the regulator, where do they go? It is terribly important that this paragraph stays in.
  While I am on my feet, I have some difficulty with Amendments Nos. 32 and 33. Having been the chairman of a regulatory body, a housing corporation, I can see people having a field day with these amendments if they go into the Bill. You have only got to judge by "minimising regulatory burdens". Who decides? To some people, that means no regulatory burdens.
  I will try not to take up too much time. Amendment No. 33 includes the phrase,
  "to maintain the cost of the levy".
  It is important that in our exchanges, as recorded in Hansard, it is noted that we must somehow keep the levy level down as low as possible. We cannot let the regulator run away with that. Once we take on board in the primary legislation,
  "take all reasonable steps, maintain the cost of the levy on occupational pension schemes to the minimum compatible",
  what you are trying to do is have hurdles that are far too high for a regulator to be able to do its job properly.
  Lord Lucas:I will answer the point raised by the noble Baroness. If you are running a company, you do not go to a regulator for advice on how to run it. The most immediately obvious adviser that you would turn to is your accountant, or perhaps your auditors. Amendment No. 156, in my name, brings in that part of the European directive that requires schemes to be properly run. That becomes a matter on which the auditors report and the auditors have an interface. That would be the ordinary way in which a scheme would become and be seen to be well-regulated. To my mind, that is how it should be done, rather than compromising the regulator.
  Baroness Dean of Thornton-le-Fylde:The noble Lord has more confidence in accountants and auditors than I do.
  Lord Lucas:That is because I am one.
  Baroness Dean of Thornton-le-Fylde:Yes, well, that is fine. We talked about two cases that are with the FSA at the moment. If we look at the record of the City, the scandals and their implications for the position of the professional bodies, accountants, auditors, lawyers, I suggest that their record is far worse than the record of the FSA.
  Lord Lucas:Yes. That is exactly why the regulator should stick to its business of criticising and leave advice to other people.
  Baroness Hollis of Heigham:Before the noble Lord, Lord Higgins, decides what to do with his amendment, I shall come back. I am disappointed that noble Lords
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  opposite, certainly the noble Lord, Lord Lucas, have such a negative, disciplinary idea of the role of the regulator. We are trying above all to create a culture of compliance, information and best practice. One should not extract that from what else is going on in the Bill. For example, I referred earlier to the fact that for the first time all companies will be required to have at least one third of their trustees nominated by members. That will mean that for the first time we will have a new cohort of trustees who possibly have not been trained. We hope and expect that they will be trained and will act in a responsible way, and there are clauses dealing with that.
  That is the sort of thing that I would expect the regulator to be issuing as guidance; whether you call this information, education, or a climate of compliance, I do not really mind. It might also be guidance to trustees to ensure that accounts are provided on time, or checking the cash equivalent transfer values.
  I was talking to an old friend who is chief executive of a major media company, and he is also on the pensions board of the consortium of those companies, from the Anglia region. I asked him what percentage, in his major company, of member nominations trustees there were. There was something like half. I asked him if they were useful, and he said "Yes. For example, we wanted to adapt, or change, the cash equivalent transfer value of schemes, which as far as existing employees were concerned, was absolutely fine by them, but none the less the trustees, including the member nominations, said that we had to do a broad consultation exercise, which we had not expected to do". That was their experience.
  If you are trying to lay down lines for CETV—and there are new rules under the Pensions Bill which will allow you to do that—you will want to establish the good practice in the minds of employees and employers alike that you do not milk people who are leaving the scheme and who may as a result never build up a decent pension portfolio.
  Whether you call this information, education, compliance or informed choice I do not really mind or care, it is a job that needs to be one—particularly given the increased responsibility of trustees for the scheme specific funding, which they will have to monitor with the aid of the one-size-fits-all minimum funding requirement that we have had in the past. This suggests that the regulator needs to act in a proactive way, which I think is highly desirable.
  I cannot conceive that the regulator and members of the regulatory body will wish to go down any route that interferes with their task of ensuring the protection of members' benefits. The best way to do that is to have alert and empowered trustees. The regulator has a part—but only a modest part—to play in developing that expertise.
  Lord Higgins:I shall come back to the role of trustees, which is extremely important, at a later stage of the Bill.

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  I do not think there is any difference between the noble Baroness, Lady Turner, and myself; we are all agreed that it is important that the position of pensioners should be protected. But if one is not to deter companies from continuing to have such schemes, then it is important that the burden on them should be minimised. That is what the amendment seeks to do. Whether it is a function or an objective is an arguable point.
  So far as concerns the first amendment, the question is whether it is an appropriate objective of the regulator—it is interesting that it appears as an objective and not as a function—to promote better understanding and so on. The noble Baroness, Lady Dean, saw it as more of a function. If the regulator is to intervene in the kind of situation she described—where a particular fund has problems and so on—it may be appropriate for it to intervene in ensuring that pensioners are protected. but a role in educating trustees across the board would seem to be a quite different function.
  There are various other organisations to which trustees can go for advice.
  Baroness Hollis of Heigham:How I envisage that might happen, for example, is that the regulator would issue a document offering advice about best practice which may or may not have statutory authority. Why would it not be appropriate for the regulator to issue a code of guidance on some aspect of best practice to all trustees, not only in the major companies but in the tiny companies that will come within this remit for the first time? Why should it not do that?
  If we do not have this power in the way laid out, it is conceivable that someone could complain on the grounds of ultra vires that it did not have the power to use it. That would be absurd.
  Lord Higgins:If it were a power it would be under "regulatory functions". I think I am right in saying that this is an objective, not a power. But, by all means, let us transfer it to regulatory functions. In that case it is clear what it will be doing; it will be issuing codes of practice and so on.
  It will certainly not be possible to operate within the very tight manpower restraints referred to by the noble Baroness earlier; there will be only £7 million a year more than for OPRA to go into the highways and byways and carry out a broad educational process. It does not seem to me that that is what a regulator is about. The regulator's function and its objectives are rather different. I should like an exhortation, if you like, on the face of the Bill that the carrying out of its prime responsibilities to protect the benefits set out in paragraphs (a), (b), (c) and so on should be exercised with the minimum of cost to pension schemes. I think that is important. I would very much like to believe the Minister when she says that there will be interventions only in badly run schemes. I will probably never know, but I would be astonished if the scheme of which I was chairman until recently£it was even commended as a
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  well run scheme by the NAPF—did not find itself having heavier burdens imposed on it as a result of the change.
  6.45 p.m.
  Baroness Hollis of Heigham:It is not a change. OPRA already does everything about which we are talking. Again, I am puzzled.
  Lord Higgins:I am not on the promotion point, but on the one about the extent to which there is intervention. I take note of what has been said. Again, the question is one of balance. We must make sure that we do not create a situation where, because things become too interventionist and heavy handed, schemes close down and pensioners do not have the benefit of a scheme. It is all very well to protect them in the existing scheme, but if employers get fed up and decide that they will not have it anyway, the object is pointless.
  The amendment sought to ensure that the risk of schemes closing down was reduced, as the regulator would always have in mind the costs that it was likely to impose on business. There may not be any difference between us, but the balance seemed better restored with the amendments. If we do not have them, things are more lopsided. However, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendments Nos. 32 and 33 not moved.]
  On Question, Whether Clause 5 shall stand part of the Bill?
  Lord Higgins:I have only a very small point on the matter. I do not quite understand the terminology, and one would have thought that I would by now. Subsection (2), at line 11 of page 3, refers to,
  "members who are employees in respect of whom direct payment arrangements exist".
  I do not think that I have previously come across the expression "direct payment arrangements". I do not know what it means, and it might help if the noble Baroness told us.
  The subsection refers to subsection (1)(b), which protects the benefits and so on. That seems rather restrictive, as it applies to only those who have direct payment arrangements, whatever they may be, and when the pension is a stakeholder pension. We agree that most of the Bill is concerned with defined benefit schemes, but the provision seems to extend it to defined contribution schemes. Is that why the provision is there? Is it simply to make it clear that not merely defined benefit schemes are covered?
  Alas, we do not appear on television in this Room, so the nods from the advisers behind the noble Baroness will not be seen. I have often been inclined to agree with Edith Sitwell, who said that television was a good way of killing time for those who like it dead. At all events, one disadvantage of being in Grand Committee rather than downstairs is that we do not

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  appear on Sky at four o'clock in the morning. Be that as it may, perhaps the noble Baroness will clarify the point.
  Baroness Hollis of Heigham:I did not understand that there was such a time gap, and that the noble Lord suffered such jetlag, in moving from here to the Hague. Clearly that is how he occupies his early morning hours. He was querying his understanding of Clause 5(2)(a), but he is exactly right. It is about where the employer pays on his behalf to the pension scheme. It is in existing OPRA legislation.
  Lord Higgins:I am so sorry, but I understand the matter even less than I did earlier. Subsection (2) states that:
  "For the purposes of the preceding subsection (1)(b)",
  which outlines the protection of benefits and so forth—
  Baroness Hollis of Heigham:The noble Lord is referring to Clause 5(2)(a).
  Lord Higgins:Let me start again. Subsection (2), set out on page 3 at line 9, states:
  "For the purposes of subsection (1)(b)",
  which is the subsection above, or perhaps it is the subsection below. The problem is that there are two subsections (1)(b). It is not clear which subsection is being referred to.
  Baroness Hollis of Heigham:It refers to subsection (1)(b) above. It is a cross-reference back to subsection (2).
  Lord Higgins:It is not made at all clear. There are two subsections (1)(b). I had assumed that subsection (2) refers to subsection (1)(b) above, but it does not say so. There is also a subsection (1)(b) below, but it cannot mean that because it refers to a stakeholder pension scheme.
  Baroness Hollis of Heigham:Subsection (1)(b) above cross-refers back down to subsection (2), which is the subsection the noble Lord is dealing with.
  Lord Higgins:I believe we are agreed that subsection (2), where it refers to subsection (1)(b), is to protect the benefits under personal pension schemes and so forth. It then specifies those who are to be the subject of the regulator's objective set out in subsection (1)(b) above; namely,
  "the members who are employees in respect of whom direct payment arrangements exist",
  or stakeholder pension schemes. I do not understand why one of the objectives of the regulator does not apply to pension schemes in general. Moreover, I still do not understand the explanation given by the Minister about the meaning of "direct payment arrangements".
  Baroness Hollis of Heigham:Clause 5(2) expands on the understanding of subsection (1)(b). I understand that there are personal pension schemes that are quasi-occupational schemes, into which the employer pays.
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  That includes stakeholder schemes. This provision would establish that the regulator has an overview of such schemes.
  Lord Lucas:I should like to know where this definition arises. To what do we refer in order to get a definition of "direct payment arrangements"?
  Baroness Hollis of Heigham:They are set out in the Welfare Reform and Pensions Act 1999. The obvious case is where an employer pays a 5 per cent contribution into stakeholder personal pension. If the employee pays in 5 per cent, the employer hands over 10 per cent to the pension scheme administrators. This provision would cover that situation, which is a version of direct payment, thus bringing it within the remit of the regulator.
  Lord Higgins:In that case, which pension schemes are not covered by it?
  Baroness Hollis of Heigham:It would not necessarily cover some defined contribution schemes. The regulator will have two functions: protecting the security of the pension promise so far as defined benefits are concerned; and taking responsibility for ensuring that there is no fraud in all schemes. That function would include defined contribution, stakeholder and other schemes. The Pensions Regulator will undertake both functions.
  Lord Higgins:I still do not understand why the protection of subsection(1)(b),
  "to protect the benefits under personal pension schemes",
  is then limited to those specified in subsection (2). If the objective of the regulator is to protect the benefit under personal pension schemes and so forth, which schemes are not covered?
  Baroness Hollis of Heigham:I shall take a moment to check that I understand the point. There will be pension schemes where the employer makes no contribution whatsoever. The regulator has no remit to ensure that the conditions of the scheme are met because it does not exist. It is a private personal pension and is therefore not covered.
  We are talking about schemes, of which hybrid schemes are an example, where the employer and the employee make contributions and the employer pays the total sum across to the pension scheme managers. The purpose of the provision is to make it clear that the regulator has only a limited role for personal pensions because the FSA looks after the regulation of personal pension providers. However, in so far as these are versions of workplace schemes to which the employer contributes, the remit of the regulator would extend to them.
  Baroness Turner of Camden:As I understand it, this is where the individual himself pays for a personal pension and the employer makes no contribution. That case would fall outside the remit of the regulator.
  Baroness Hollis of Heigham:You could have a situation in which a husband takes out a stakeholder

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  pension for a non-working spouse. In that case it is clear that no contribution would be made by an employer. I do not see how that arrangement would be any business of the regulator.
  Lord Lucas:I am having difficulty in finding the definition. If I could be directed to the right page, I would be most grateful.
  Baroness Hollis of Heigham:Yes, indeed.
  Lord Higgins:I had rather assumed that the Pensions Regulator would regulate all pensions, but obviously I am mistaken in that. Perhaps that is why I have delayed the Grand Committee unnecessarily. Can we be clear which pensions will not in any way come under the remit of the regulator?
  Baroness Hollis of Heigham:I shall be happy to write to noble Lords at greater length on this point. The regulator will regulate what conventionally would be called defined benefit salary schemes; that is, occupational, workplace-based salary schemes. But also, where appropriate, the regulator will ensure that schemes to which the employer as well as the employer makes contributions and which are paid direct may also come within the regulator's protection. That is not necessarily in terms of the benefits that may accrue, because a defined contribution scheme does not guarantee the benefits that may accrue, but the regulator will provide protection against fraud, for example.
  Essentially, the regulator will ensure that final salary schemes or, where appropriate, hybrid schemes that are workplace based and to which the employer on behalf of the employee makes contributions are sufficiently funded to meet the pension promise that formed part of the original pension contract. However, the Pensions Regulator will also take on wider functions, such as against fraud, where contributions are made by both the employer and the employee. But there will some pensions, such as my example in which a husband purchases a stakeholder pension for his non-working spouse, which are not workplace based and are therefore not in any sense the function of the regulator. However, if such pensions have been inappropriately sold, they may be the responsibility of the Financial Services Authority, to be dealt with under the remit of mis-selling. That is my understanding of the structure of the pension schemes. I am not quite sure why we are at odds on this point.
  Lord Higgins:I do not think that we are at odds; it is merely a question of my being educated. I had mistakenly thought that, overall, the regulator was a pension regulator and would regulate all pensions. However, clearly that is not the case. As the noble Baroness has made clear, there is a division between the Pensions Regulator and the Financial Services
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  Authority and, presumably, other bodies. However, it would be very helpful to have a note on which pensions are covered and which are not.
  Baroness Hollis of Heigham:I thought that we had covered some of this in the briefing file I made available to Peers, but I shall check it and, if it is incomplete, I shall be happy to augment it.
  Lord Higgins:I am most grateful to the noble Baroness.
  Lord Lucas:Since minds greater than mine are having difficulty finding the definition, would the noble Baroness consider including either the definition itself or a reference to it in the Bill?
  Baroness Hollis of Heigham:I am looking at Clause 5(3), which states that,
  "In this section—'stakeholder pension scheme' means a personal pension scheme which is or has been registered under section 2 of the Welfare Reform and Pensions Act 1999 (c. 30) (register of stakeholder schemes)".
  Lord Lucas:I do not see a definition of "direct payment arrangements".
  Baroness Hollis of Heigham:"Direct payment arrangements" refers to where the employer—
  Lord Lucas:I understand exactly what it is, but so far as I know there is no definition set out in the Bill. The estimable experts behind the noble Baroness cannot find it either.
  7 p.m.
  Baroness Hollis of Heigham:The definition of subsection (2)(a) on direct pension arrangements is covered by the Pensions Act 1995, but the stakeholders come in under the 1999 Act, which was when such pensions were set up.
  Lord Lucas:A reference to it would help.
  Baroness Hollis of Heigham:Let me look at whether a reference to it as defined in the Pensions Act 1995 would be helpful. I am perfectly happy to see whether we could include those words.
  Clause 5 agreed to.
  Clause 6 [Supplementary powers]:
  Lord Higginsmoved Amendment No. 34:
  Page 3, line 25, leave out "(except borrow money)"
  The noble Lord said:I have just realised that there was a point on the previous amendment that I forgot to make.
  Amendment No. 34 is nice and straightforward, so we need not worry unduly. Clause 6 states:
  "The Regulator may do anything (except borrow money) which ... is calculated to facilitate the exercise of its functions, or…is incidental or conducive to their exercise".
  When I first tabled the amendment, I thought that it concerned the Pension Protection Fund which, when we come to discuss it, I will suggest is very likely to be short of money and may need to borrow. That is not

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  the case at all at this stage and the amendment is actually concerned with the regulator. For reasons about which we are not clear, the regulator is not allowed to borrow money. The regulator may well find that it needs to borrow money because it has underestimated the levy or its costs are more than originally thought, and the Treasury will not give it any more.
  I have an incidental point that the noble Baroness may be able to clarify, again based on my failure to understand the situation. There is obviously a levy so far as the Pension Protection Fund is concerned, but is the levy to be used to finance the regulator the same levy or part of the same levy? They are two quite separate levies. We will come to how the levy for the Pension Protection Fund is calculated, but I am not clear how the levy for the payment of the regulator will be calculated. If it is inadequate and the regulator needs to borrow money, perhaps we should be clear about the situation and why the paragraph is in the Bill. I beg to move.
  Baroness Hollis of Heigham:It is delightful that the noble Lord is encouraging us to allow the regulator to increase his expenditure. A previous amendment would have reduced his expenditure on the grounds that it was a burden on business, but I am sure that he will not mind the tease.
  The provision on not borrowing money is also the position for OPRA. Given the concern of the noble Lord, Lord Lucas, for sources, I should say that paragraph 2 of Schedule 1 to the Pensions Act 1995 limits that power. The basic reason for the provision is that the regulator's expenses, apart from staffing, are the likes of office leasing, IT equipment, stationery and so on. The resources produced by the levy of £23 million should be more than adequate. If not, it is obviously available to the regulator to increase the levy in due course.
  That is entirely different from the Pension Protection Fund. When we reach that part of the Bill, we will all agree that its costs are much more volatile and unpredictable. When a scheme goes under, for example, one does not know whether it has 200 members or 2,000 members. One does not know what assets may be brought into the scheme or what degree of transfer has already taken place. One does not know the proportion of existing pensioners to employees and deferred pensioners, and therefore what the liabilities will be. For the Pension Protection Fund, apart from the assets coming in and the levy, there is therefore a fallback power to be able to borrow money if necessary, as a smoothing activity, to deal with quite substantial contingencies. A major company going under could produce a very swift and substantial contingency.
  That is not the case with the administrative levy, which is essentially predictable and continues from year to year. We think that it is adequately funded and so we do not see the need for the amendment. I am intrigued that the noble Lord would like the regulator
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  to have this power, but we do not think that it is necessary and, if your Lordships agree, we are not minded to give it to him.
  Lord Higgins:I shall seek to persuade your Lordships otherwise on this occasion. It is not the case that this is a proposal for the regulator to ask for more money. If it has the power to borrow, it will have a little flexibility and, instead of over-estimating how much it needs to levy to make sure that it does not have to borrow, it will be able to steer a more moderate course between being in surplus and being in deficit. If it is not allowed to borrow, it must make absolutely sure that the levy is enough, and to be safe, more than enough, than would otherwise be the case. So it will levy more than it needs. It can levy less if it can borrow. I leave the Minister with that thought.
  Baroness Hollis of Heigham:That is very interesting. I had not thought of that before. Surely the point is that we are dealing with a budget of £23 million, which is an increase of £6 million or so on OPRA's budget. The costs are essentially those of administrative, recurrent revenue expenditure. They are not lumpy, but predictable and therefore, we do not see the need for this power in the same way that we did not see it as necessary for OPRA. If the regulator finds after one year that the flat-rate levy is inappropriate, he can come back to the members and, if necessary, seek to raise the levy for the following year. We think that that is better than having borrowing powers.
  Lord Oakeshott of Seagrove Bay:I do not think I heard the Minister answer the question of the noble Lord, Lord Higgins, about the basis on which the regular budget is raised. I have been leafing through the Bill and I cannot spot it. Can the Minister help us with the section number so that we can see it?
  Baroness Hollis of Heigham:The levy provisions are in Section 175 of the Pension Schemes Act 1993. They are wide enough to allow a carry-over or carry-under from year to year. My point about predictability has been confirmed as OPRA has not changed its levy. It has remained fixed at the same rate for the past three years. Apart from the theoretical point made by the noble Lord, I do not see any need for this power.
  Lord Oakeshott of Seagrove Bay:Given that we all accept that the Pensions Regulator is quite a change from OPRA, would it not be a good idea to have the basis of the levy stated in the Bill rather than referring to old Acts? Have we just got a blank cheque?
  Baroness Hollis of Heigham:I am puzzled by this. We are talking about the administrative levy for the Pensions Regulator. We are not talking about the infinitely more complicated issue for the Pension Protection Fund. The levy is a flat-rate levy for all members of appropriate schemes, as it was for OPRA. That was raised by OPRA and will be raised by the regulator in accordance with deemed expenditure. OPRA has got it right over the past three years and kept the same levy, so in real terms it is fractionally reduced. There are powers to carry over or carry under

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  if it has not been fully or appropriately calculated. I do not see the problem. It has been a regular, routine administrative levy.
  Lord Oakeshott of Seagrove Bay:We are not seeking to question the whole matter. It is just a straightforward question. Is it just a straightforward bob-a-nob, flat-rate levy per member?
  Baroness Hollis of Heigham:Yes, it is. I said that just now.
  Lord Oakeshott of Seagrove Bay:I thank the Minister.
  Lord Higgins:It may be, but it is not in the Bill. The fact that there are levy provisions in earlier legislation to finance OPRA, which is going to disappear and be replaced, does not on the face of it give the new regulator power to raise the levy unless it somehow appears like the smile on the face of the Cheshire cat after he has disappeared. Surely there must be provision in this Bill for raising a levy to finance the regulator. The fact that there was earlier legislation enabling OPRA to be financed cannot be right.
  Baroness Hollis of Heigham:As noble Lords will know, many of the regulator's powers have been taken over directly from OPRA, and the Bill makes that clear. I share the noble Lord's view about schedules and clauses. Paragraph 26 of Schedule 1, on page 240, in volume II, spells out exactly what is happening, does it not? It states:
  "Section 175 of the Pension Schemes Act 1993 (c. 48) (levies towards certain expenditure) is amended as follows".
  It then goes on to say how it is amended. So I should have thought that noble Lords' concerns are covered by the cross-reference in the schedule.
  Lord Oakeshott of Seagrove Bay:I read that provision when I was leafing through the Bill, but it was certainly not very clear to me. If we believe that it is right that this should be done on a straightforward flat-rate levy, why not say so in the Bill?
  Baroness Hollis of Heigham:That is current practice.
  Lord Oakeshott of Seagrove Bay:Why does it not say so?
  Baroness Hollis of Heigham:As we discussed earlier, when an employer is, for example, facing a surplus, part of OPRA's job is to interrogate members of the scheme on whether the surplus should be returned to the employer. In this case it was a £50-million scheme, and I am very happy to give any of your Lordships the details of the company to which I am referring. That cost OPRA £75,000. Would it be right to have that as the levy or to have it as a recharge of fees? It seems to me that we can discuss that type of issue later when we look at the detail of the Pension Protection Fund and other matters.
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  As for earlier legislation, no Bill starts anew unless it is a consolidation Act. As a Pensions Bill, this Bill is amending relevant previous legislation that continues. Therefore, as we discussed, quite a few OPRA functions go over into the new regulatory body to which are added new functions, which may or may not be welcomed by the regulator, and new powers.
  In this legislation we are saying that previous provisions have been amended by other legislation. That is normal drafting. One does not go back and restate the whole provision. I suppose that we could do that and have a Bill of four volumes rather than two. What we are doing is absolutely conventional practice. In the Welfare Reform and Pensions Act, for example, we were amending the Child Support Act with new child support proposals. We did not spell it all out in a consolidating Bill and then put it all in the relevant Bill. We cross-referred continuously back to the previous legislation. I do not think that there is anything unusual about that. The time to clarify that is, I think, when one makes a consolidation Bill.
  Lord Oakeshott of Seagrove Bay:We are trying to keep things simple here. Can the noble Baroness tell those of us who do not have her extensive knowledge of previous Acts whether the Act that is being amended states the basis on which the levy shall be raised and whether it should be flat-rate? I have read in the Bill—I have just gone through it£that the regulator will have power to make a specific charge for a specific fund, which was the example that the noble Baroness raised, but what does the "old Act" say about how OPRA, now the regulator, shall fix its normal annual running charge? In terms of this amendment, that is the relevant factor in whether it is likely to need to borrow money.
  Baroness Hollis of Heigham:The regulations as approved by Parliament within the framework of the 1993 Act specify precisely that.
  Lord Oakeshott of Seagrove Bay:That they should be flat-rate?
  Baroness Hollis of Heigham:Yes.
  Lord Higgins:It has always been the case that parliamentary draftsmen are paid huge sums and have nervous breakdowns pretty regularly. From time to time we can see in the legislation when that situation has arisen. However, following the point made by the noble Lord, Lord Oakeshott, I will take a bet with the noble Baroness—though I may not be here to cash in—that it is most unlikely that there will be a consolidation measure affecting this legislation in the next 20 years. I think that the noble Lord the Deputy Chairman of Committees is inclined to agree with that view. When a member or the chairman of trustees of a pension scheme comes along and says, "Why am I paying this levy?", would it not be a good deal easier to answer "Look at the clause in this Bill" and not go on to say "but you must dig out the other Bill"—which is probably out of print and only annotated in the Libraries of the House of Lords and the House of

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  Commons? There is no reason at all why it should not be done in a straightforward way. The argument that it will be eventually consolidated is absurd.
  7.15 p.m.
  Baroness Hollis of Heigham:I respect that argument, but frankly that would have to be done with practically every line throughout the Bill.
  Lord Higgins:Good.
  Baroness Hollis of Heigham:In that case you would expect to turn the Bill into a consolidation measure. You cannot have it both ways. You cannot have a Bill of two chunks—the noble Lord has complained already, perfectly legitimately, about the length of the Bill—spelling out and specifying every time it cross-refers back to the 1995 Act, the 1993 Act, or any other previous amendments.
  In all my history in social security—I am sure that the noble Lord has had the same experience—I have found that Bills build on each other by cross-referencing back. You can clarify them and bring them up to date with a consolidation measure, but that may or may not happen. The Bill will be for scheme actuaries, scheme trustees and so on to operate. It is not for the general public.
  Existing members already pay a flat rate levy and there is no proposal to change that. They would not expect there to be any changes to the system, and that is what we are proposing here. It is possible that at some stage in the future Parliament may, through regulations or whatever, decide to amend it because it wishes to see certain expenses incurred by the regulator referred back to the organisation that generated the costs—for example, in the paying back of surpluses. I can conceive that in that situation regulations may come before your Lordships' House for approval.
  At the moment, it seems to me that the Bill is absolutely conventional in its handling of pensions and other social security legislation. We are not doing anything new. If we were, there might be a case for the amendment. However, we are continuing existing practice and we are not dealing with a consolidation Bill. If we were to take the approach suggested by the noble Lord, almost every clause would require a fuller explanation because we could not rely on the heritage of existing Bills as we do in all other areas of government legislation.
  Lord Higgins:The justification for referring back is that there have been settled court cases setting out what the legislation actually means. I very much doubt that that is true in this case. Together with the noble Lord, Lord Oakeshott, I do not understand why it is necessary to do this in a form that requires actuaries to tell you how much you are going to be charged. The actuaries or other advisers will charge you even more for telling you. I do not wish to pursue the matter further.
  Lord Lucas:Before my noble friend withdraws the amendment, what definition of "borrowing" are we
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  using? Would it preclude PFI projects? Would it preclude equipment leasing? Where do 1 go to find out what is and is not allowed?
  Baroness Hollis of Heigham:I shall be happy to write to the noble Lord about what we mean exactly by "borrowing money". My understanding is that anything that came within ongoing revenue expenditure would not count as borrowing money. Most of the equipment will come across from OPRA: it already exists; it is already out there; it is already in place; it is already being run by 260 staff. The IT system might be updated at an appropriate point to take on additional functions. In that situation I doubt whether we will get into PFI issues. We might, I suppose—it might he appropriate—but I think that would come within the normal Exchequer guidelines.
  Given that we are referring to ongoing, regular. predictable administrative expenditure—as shown by the fact that OPRA has not increased its levy over the past three years—there will be no need to borrow money. The regulator can fine tune from year to year the levy he needs to raise. I think we all agree that it is very different with the Pension Protection Fund, where we are dealing with a much more volatile and unpredictable situation without such capacities.
  Lord Higgins:We have had an interesting set of exchanges. The only matter I am unclear about is if the levy is to be the same as the levy raised for OPRA, and as the regulator will clearly be more expensive than OPRA, how will it be financed in full?
  Baroness Hollis of Heigham:The point that I was making was not that the OPRA levy will stay the same; merely that given OPRA's current responsibilities the level of funding necessary to deliver those responsibilities has been predictable in such a way that the levy has remained unchanged for the past three years. I said earlier that I thought that there would be another 40 or so added to the 240 to 260 members of staff that are currently part of OPRA. Obviously, more staff would require an additional levy. That is reflected in the fact that it is going up from £17 million to £23 million. In so far as that is borne by schemes, there will be a modest increase in the levy paid by members to do that. I am surprised that noble Lords are surprised by that.
  Lord Higgins:If the levy is not going to be the same, I am not sure why the noble Baroness must refer back. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Clause 6 agreed to.
  Clause 7 [Transfer of OPRA's functions to the Regulator]:
  On Question, Whether Clause 7 shall stand part of the Bill?
  Lord Higgins:I have only one point. As far as the pensions of the employees of OPRA are concerned, are those provisions going to be transferred in most cases to the new authority? Is the procedure consistent with

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  that which we would normally regard as best practice in the private sector? Will the pensioners in OPRA who transfer over—
  Baroness Hollis of Heigham:In TUPE?
  Lord Higgins:Yes, TUPE, in short. I do not like the word TUPE.
  Baroness Hollis of Heigham:Neither do I; we are agreed.
  Lord Higgins:In short, will they be TUPE-d? If so, will all of them be TUPE-d, or will some of them be made redundant?
  Baroness Hollis of Heigham:Will some of them be made redundant? That is territory that I do not have the faintest intention of straying into. Basically, the existing staff of OPRA will all shift over into the new regulator, and their existing conditions of service, particularly as regards pensions, as I understand it, will be protected accordingly.
  Clause 7 agreed to.
  Clause 8 [The Non-Executive Committee]:
  On Question, Whether Clause 8 shall stand part of the Bill?
  Lord Higgins:As far as Clause 8 is concerned, we have a non-executive committee, which includes the chairman, which is partly the point that we referred to earlier. That reflects our concern that it will tend to be a divisive arrangement rather than otherwise. I will not pursue the matter at this stage.
  Clause 8 agreed to.
  Clause 9 [Functions exercisable by the Non-Executive Committee]:
  Lord Skelmersdalemoved Amendment No. 35:
  Page 4, line 33, leave out "and targets"
  The noble Lord said:I must admit to a rather personal prejudice. The prejudice is not that were I a detective story writer I would be preparing to write a book about the metaphor that got away after the last amendment; the prejudice is that I hate the word "targets", especially when I do not know what they mean. Ever since this Government came into power, my hackles have risen at the very mention of the word. The noble Baroness earlier admitted to having been a member of a health authority. That was under a Conservative government. That is a political point that she can forget about.
  Baroness Hollis of Heigham:That is why I was sacked. I was sacked because of my political affiliation.
  Lord Skelmersdale:So was I, but in a different context. We will leave that aside.
  One only has to read reports of patients spending hours in ambulances in order to meet the centrally-set targets for time spent in accident and emergency departments. The fact that the parliamentary website
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  contains 97,147 other references to targets shows that this Government have gone target mad. Why this obsession with targets? I am not asking the noble Baroness, but I am making a general point. It is not quite a rhetorical question, that would be under-kill. I do not particularly want to have a philosophical discussion about targets but I note that the Little Oxford Dictionary describes them as "anything aimed at". I would have thought that that is fair enough. But if one looks up the word "objective", definition 2 states that it is a noun meaning:
  "object or person aimed at".
  Does that not say it all? Objectives and targets, certainly in the way they are mentioned here, are one and the same thing. Years ago, I was taught that that amounts to tautology, which, in my children's language, is a "no-no". Why do we need both words in the Bill? I beg to move.
  Baroness Hollis of Heigham:Being very crude about this, objectives are strategic goals or aims, maybe to eradicate child poverty or something like that. Targets are when one turns the qualitative into the quantitative so that progress can be measured down the road. They may break down into low level targets about how many phone calls are answered within nine rings or how quickly letters are returned or, in the example about child poverty, they could be that one wishes to do half by such and such a date or a quarter by such and such date so that the target is measurable. For example, one could have a target for the regulator to reduce the number of schemes in the high-risk category by 10 per cent, which is to fulfil the objective of protecting members.
  My experience in government is that the target is something one can quantify and therefore measure on one's way to fulfilling the objective. It is the difference between the blue-sky high level and the accountable and measurable way of delivering it. One might say that the objective is to protect members and the target might be to reduce the number of schemes in the high risk category by 10 per cent, or it might include a much lower level target, for example to ensure that all scheme returns are produced within 30 working days. One could have a range of different targets at different levels of blue skyness in order to meet the bigger objective.
  It seems to me to be perfectly proper to have the objective on the face of the Bill. It seems to be perfectly proper to allow the organisation to work out how best to meet those objectives by specifying its targets, which would then be widely available and known. I do not know any organisation that does not work in that way.
  Baroness Barker:I am struggling to remember who the management consultant was who said that an objective is what one tells the world one's organisation aims to do and a target is what one tells one's boss one will struggle to achieve in the perfect knowledge that one can do so very easily.
  Baroness Hollis of Heigham:This is a digression but we are coming to the end of the day. The point is that

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  the trouble with targets is that staff tend to perform to the targets because pay is very often related to them. By definition, targets have to be quantifiable. One ends up putting more value on quantifiable things than qualitative things. There is a problem about turning qualitative objectives into measurable ones for staff at quite modest junior levels whose pay is related to them. This happens in every field whether in universities, research publications, health authorities or in this body. But I am in no doubt that there is a distinction. It is sensible to preserve that distinction, which the Bill currently does.
  Lord Skelmersdale:This is a very academic argument. I am not sure that after four hours on the Bill I can quite take it in. But who will set the targets? Will they be set by the regulator so that it aims at its own benchmark or will it be set by the Secretary of State and the department? Does this apply to both the objectives and the targets?
  Baroness Hollis of Heigham:If I am wrong on this I shall write to the noble Lord, but my understanding is that we will expect the regulator and his regulatory body to come up with proposed targets and to see that they satisfy the Secretary of State. This happens with the Child Support Agency, for example. The chief executive of the agency produces a proposed list of targets on matters such as accuracy, speed in answering letters and telephone calls, the number of complaints that go to the independent case examiner and so on. Those come through to me so that I can make a recommendation to the Secretary of State on whether those targets are sufficiently demanding or whether they perhaps need to be revised upwards. On that basis, the targets are publicly available. When the agency's annual report is done, its performance is measured by the agreed targets.
  I have no reason to think that the procedure will be any different here. If it is, I will write to the noble Lord.
  Lord Skelmersdale:I am very grateful. Like the noble Baroness, I hope there is not a need for a letter. But if there is, I shall receive it very gratefully, and I am sure that I will understand it at that point. In the mean time, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  7.30 p.m.
  On Question, Whether Clause 9 shall stand part of the Bill?
  Lord Higgins:One of the advantages of sitting in this room is that one can hear Big Ben. I have only three
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  very brief points on the clause, which is about the functions exercisable by the non-executive committee. First, the committee has to scrutinise the performance of the chief executive, but, as we have pointed out before, no one seems to be scrutinising the performance of the chairman.
  Secondly, there is a kind of throwaway line about Northern Ireland here. After the interesting exchanges we had on the Civil Partnership Bill last week as far as Northern Ireland is concerned, I am not clear why that is not spelt out in rather more detail.
  Thirdly, it is said that the committee will contribute to and keep under review the strategic direction. I am not the least bit clear why the whole organisation, the non-executive committee and the rest of the board, are not simply all working together to look at the strategy. To have it divided so that the rest of the board decides the strategy, but the non-executive committee contributes to it and then monitors it, seems an excessively complicated system and not one likely to produce a united front on the overall position.
  Baroness Hollis of Heigham:I will be as quick as I can, as I too am aware of Big Ben. The non-executive committee does not scrutinise the chairman, who chairs that committee, because that is the function of the Secretary of State, whereas the committee does scrutinise the other functions.
  I wonder whether I need to answer any other point. Perhaps I can write to the noble Lord on the Northern Ireland point. The provision of Clause 5 objectives will be enacted in Northern Ireland by Order in Council, exactly the same as in the proposals we considered the other day—
  Lord Higgins:I hope that we are not going to deal with it as we did on the Civil Partnership Bill, which was an unmitigated disaster.
  Baroness Hollis of Heigham:The problem in Northern Ireland was not the process—an Order in Council—but the strong views, I think, held by those who have affiliations to Northern Ireland. I think that that produced the problems that we ended up in.
  Clause 9 agreed to.
  Baroness Andrews:This might be a convenient time for the Committee to adjourn until Thursday 8 July at 3.15 p.m.
  The Deputy Chairman of Committees (Lord Tordoff):The Committee stands adjourned until Thursday at 3.15 p.m.
  The Committee adjourned at twenty-seven minutes before eight o'clock.