Lords Sitting of 13 February 1995

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Portsmouth.

World Sustainable Development: G7 Talks
Lord Judd Lord Judd asked Her Majesty's Government:
What steps they are taking together with other members of the G7 group of nations to review the international machinery available to sustain global and social development.
The Minister a State, Foreign and Commonwealth Office (Baroness Chalker of Wallasey): My Lords, at the Naples summit G7 leaders agreed to consider at their June 1995 meeting in Halifax what institutional changes might be necessary to meet the goal of sustainable development with prosperity and well-being for the world's people. Her Majesty's Government will play a full role in that discussion.
Lord Judd: My Lords, I thank the Minister for that reply. However, does she agree that there is an urgent need to review the global accountability of the international financial institutions and their relationship to the UN system as a whole? Is there not a danger, for example in Rwanda, that past financial and trade policies may have aggravated a grave situation? Can the Minister assure us that the G7 will have in mind in its deliberations both the Secretary-General's agenda for development and the outcome of the world summit on social issues which will take place in Copenhagen next month?
Baroness Chalker of Wallasey: My Lords, the noble Lord is correct in saying that the G7 leaders should address those issues. I cannot agree with him that the international financial institutions' relations with Rwanda and Burundi actually aggravated a situation which had been going on in those two countries for a long while. However, I agree with him that more account must be taken of the Secretary-General's agenda. We now have the constitutional review in this 51st year of Bretton Woods and the 50th anniversary this year of the UN. That makes the G7 review of institutional questions very important indeed. We should be deciding where we go in the future as well as learning from the lessons of the past.
Lord Judd: My Lords, I again thank the Minister for that reply. Does she agree that it is unfortunate, when so many world leaders will be attending the social summit in Copenhagen, that the Prime Minister is not going and is leaving attendance to a departmental Minister? Does she agree that that situation is difficult
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to reconcile with our ambition to remain central to world affairs and continued permanent membership of the Security Council?
Baroness Chalker of Wallasey: My Lords, it has not even been decided who will go to the social summit in Copenhagen in March, so the noble Lord is a jump ahead of me. We want the summit to improve the focus of the international debate on issues related to development. Of course Her Majesty's Government, and my department in particular, have been actively involved in the preparations for Copenhagen.
Lord Shepherd: My Lords, will the noble Baroness give an assurance that she herself will be going to the conference?
Baroness Chalker of Wallasey: My Lords, whether or not I can go will depend on your Lordships' business.
Baroness Williams of Crosby: My Lords, given the conference on the role of women in the world later this year and the Minister's own interest in the subject, will Her Majesty's Government consider making a submission about the role of women in economic development? The Minister may agree that the subject has been consistently somewhat neglected by international financial institutions despite the fact that, with regard to both subsistence fanning and local trading in Africa and elsewhere, women are in many cases more important (dare I say it?) than men in terms of economic development.
Baroness Chalker of Wallasey: My Lords, the noble Baroness is absolutely right on the last point. Given that the summit in Peking takes place in September, I hope to be able to attend without inconveniencing your Lordships. The role of women in economic development is brought home to one time and time again out in the field. Only a week ago, in Malawi, I saw how the National Association of Businesswomen of Malawi has started up small-scale projects by which women are becoming the earners in the family. That is spreading throughout the country. The whole matter of how much women contribute to subsistence farming should arise in Peking, and I shall do my best to ensure that it does.
Lord Bruce of Donington: My Lords, when considering social development within its wider world context, will the noble Baroness bear in mind that, in the light of the recent Rowntree Report, a certain amount of social development is required here at home?
Baroness Chalker of Wallasey: My Lords, that may be the reason why my old constituency area has asked me to speak on development in Merseyside in a couple of weeks' time.
Lord Chalfont: My Lords, when the G7 nations consider the machinery .of international co-operation, can the noble Baroness say whether they will take into account the possible role of Internet and what is now fashionably called the information superhighway?
Baroness Chalker of Wallasey: My Lords, I believe that the main challenges must be reducing poverty through sustainable development, promoting sustainable

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non-inflationary growth, enhancing global trade, protecting the environment, managing international conflicts and tensions and fighting international crime and drug trafficking. Since to do that the use of information technology is essential, I am sure that even if the subject is not a heading on the list it will be considered.
Lord Cledwyn of Penrhos: My Lords, will the Minister agree that the United Nations has been severely criticised for the failure of its continuing policies in seeking to resolve the awful problems in Bosnia? In agreeing with that, will the Minister say whether it is a matter which G7 will consider?
Baroness Chalker of Wallasey: My Lords, that lies slightly outside the review of institutions which I believe was the purpose of the original Question. It is true that the United Nations has been criticised but often, I believe, most unfairly. When one assesses some of the efforts of the United Nations, not only to resolve the great difficulties of Bosnia but also to ensure that food, shelter and medicines reach the places for which they are intended, it has done well. One has to keep the problem in proportion. As was said on the radio this morning, the difficulty is that whereas the United Nations started with under 80 countries, we are now talking of about 180 countries. The United Nations membership does not find it nearly as easy to reach sensible resolutions on many of the issues of today.
Lord Monkswell: My Lords, are the Government aware that prior to the outbreak of social instability in Rwanda and Burundi, the per capita incomes of those countries decreased significantly in the two years prior to the instability? Are the Government further aware that the same pattern of reduction of incomes and social instability were exhibited in this country in the early 1980s and more recently due to recession? What steps are the Government taking to learn from that both at home and in the international arena?
Baroness Chalker of Wallasey: My Lords, I find the comparison which the noble Lord makes somewhat strange. I remember the difficulties of 1976 in this country. It would probably be stretching your Lordships' patience too much to go into all that.

St. Bartholomew's Hospital: Future
2.46 p.m.
Lord Molloy Lord Molloy asked Her Majesty's Government:
Whether they are aware of the concerns of the professional staff at St. Bartholomew's Hospital about the hospital's future; and what plans they have for the hospital.
The Parliamentary Under-Secretary of State, Department of Health (Baroness Cumberlege): My Lords, Ministers have received a number of representations from professional staff at St. Bartholomew's Hospital. My honourable friend the Minister for Health has visited the hospital and met staff there recently.
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The Royal Hospitals Trust—of which St. Bartholomew's is a part—has drawn up plans for the future organisation of services across its sites. East London and the City Health Authority is currently conducting public consultation on those proposals.
Lord Molloy: My Lords, I am grateful to the Minister for that comprehensive reply. Is she aware of Professor Jarman's report which states that the number of people now waiting for treatment in hospitals is increasing, and that, in particular, the accident rates are increasing? On its first visit, the King's Fund Commission recommended that St. Bartholomew's should be closed. It was then called back to make a second more thorough investigation and it said that its first decision was wrong and that St. Bartholomew's should in no way be removed.
Baroness Cumberlege: My Lords, with regard to Professor Jarman's proposals, although the number of people waiting in London has increased, the time it takes to treat them is decreasing and progress has been considerable.
As regards the King's Fund Commission, I am interested that it should have reviewed its findings, but some members of the original commission still feel that the original findings were correct.
Baroness Gardner of Parkes: My Lords, will my noble friend inform me of the position regarding the Homerton Hospital? Is it a fact that the population has largely moved away from the St. Bartholomew's area towards Homerton? I understand that the two hospitals have always worked together. Is the Homerton Hospital now taking a great load of the work which would previously have been done at Bart's?
Baroness Cumberlege: Yes, my Lords, the Homerton is certainly taking some of the accident and emergency cases. However, the Royal London Hospital, which is twinned with St. Bartholomew's, will take most of the specialist services in the future.
Baroness Jay of Paddington: My Lords, what is the Minister's response to the report published last week by the inner London health authority chief executives, called Hospital services for Londoners? The report states that people in inner London are using NHS beds at a 17 per cent. higher rate than was previously expected. Does the Minister agree with the report's conclusions that:
"London's … hospitals are operating under very considerable pressure"?
Baroness Cumberlege: My Lords, in the report the chief executives of inner London reinforced the direction the Government are taking. They said that we should invest in primary care; that we should strengthen specialist services by concentrating expertise and patient numbers in fewer, larger centres; that we should bolster medical research in education by bringing undergraduate and postgraduate teaching together; that we should find better ways of providing care and treatment for elderly people in their own homes and neighbourhoods; and that we should provide the general

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hospital services which we need for routine medical and surgical treatment as close as possible to where people live.
Lord Strabolgi: My Lords, what is the noble Baroness doing about the shortage of emergency beds which is now reaching a dangerous level?
Baroness Cumberlege: My Lords, we are expanding considerably the number of emergency beds at the Royal London Hospital. In fact, we are investing £3 million in that in the current year; at the Homerton an extra £2 million; and at UCL £800,000.
Baroness Jay of Paddington: My Lords, I thank the Minister for her original reply to my question. But can she please respond to the point that I made about chief executives saying that it seemed that Londoners were using NHS beds at a 17 per cent. higher rate than had been expected? Does that not suggest that bed closures have been premature?
Baroness Cumberlege: No, my Lords. The chief executives were quite firm in saying that with the proposals that I have just outlined to the noble Baroness, there would be less need for inappropriate use of hospital beds in London.
Lord Molloy: My Lords, does the Minister agree that St. Bart's is famous throughout this country and the Commonwealth, not because of the building but because of the remarkable staff who work there? It appears that they will now lose their jobs and that is a great shame. Would the Minister be prepared to consider meeting a small delegation from the remarkable staff of a remarkable hospital to listen to their case?
Baroness Cumberlege: My Lords, I appreciate the very strong emotional feelings as regards this hospital, and I am grateful for the noble Lord's comments about buildings. With regard to the expertise of the people who work there, the London Implementation Group has already set up an agency to help staff find new posts. But I am very confident that with the skills and expertise of the people who are involved, the vast majority will continue to work in the National Health Service, and many of them in London.
Lord Dean of Beswick: My Lords, can the Minister give an assurance that, whatever the final outcome of the changes in this area, they will result in a better service for the people who live there?
Baroness Cumberlege: Yes, my Lords.
Lord Annan: My Lords, is the Minister aware that in 1968 the noble Lord, Lord Todd, reported that there should be an amalgamation of the medical schools of St. Bartholomew's and the London? Is she further aware that in 1980 a similar report by the noble Lord, Lord Flowers, recommended exactly the same thing? Since then there have been a multitude of reports, some initiated by members of the medical profession and some by the Minister's department; all of them pointed inescapably to the fact that St. Bartholomew's must recognise that some change in its status is bound to take place. Is it not a fact that when the forcible
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amalgamation took place of regiments in the. Army, after the initial dismay the amalgamations were conducted with great expertise and with a good effect on morale?
Baroness Cumberlege: My Lords, the noble Lord, Lord Annan, is correct in every word that he says. Countless reports have said that there should be changes in London. With the changing needs of populations; with different aspirations; with clinical practice changing; with developments in science, technology and medical education; and with rising costs, we simply cannot freeze all the London services into a time warp. That would be totally wrong. We have to produce a better service for London. These changes will ensure that that happens.

Pergau Dam
2.53 p.m.
Lord Dubs Lord Dubs asked Her Majesty's Government:
How they propose to reimburse the overseas aid budget for the sums that have been used to finance the Pergau Dam.
Baroness Chalker of Wallasey: My Lords, as my right honourable friend the Foreign Secretary announced in another place on 13th December, the aid programme will be enhanced this year and next by amounts reflecting the expenditure on Pergau and on three other ATP projects. He made clear that we do not propose to increase public expenditure still further in respect of payments made on Pergau before the current financial year.
Lord Dubs: My Lords, does the Minister agree that those payments made in respect of Pergau before the current financial year come to some £24 million; and that many people find it unacceptable that the Government should seek to evade their legal and moral responsibilities in this way? Please will the Government reconsider their decision?
Baroness Chalker of Wallasey: My Lords, I can indeed confirm that the figure spent on Pergau is £24 million. But we cannot rewrite the past. The financial books for past years are closed. As the Foreign Secretary said in his statement, the funds spent on these projects were voted by Parliament. The Government do not believe that the taxpayer should be asked to find offsetting funds for the aid programme in the present year or in future years for which enhanced provision has recently been announced by the Chancellor because of the court's decision.
In answer to Mr. Rowlands in another place on 13th December last, the Foreign Secretary made it quite clear that he had dealt with the larger sums involved in this year's and next year's budget in an equitable way. But the clock cannot be turned back.
Lord Judd: My Lords, does the Minister agree that, while it is not possible to rewrite the past, the facts are that money which was voted for humanitarian purposes was used for other purposes; and therefore it is only proper that that money should be reimbursed to the aid

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programme? Can she give a specific undertaking that in future years there will be no question of cutting aid budgets in order to accommodate payments for Pergau and other projects, which will now have to be made from elsewhere?
Baroness Chalker of Wallasey: My Lords, first of all, unusually, the noble Lord is wrong today. No humanitarian money was spent on ATP when it was agreed. It was a project with a developmental output, because that area of Malaysia needed electricity badly. No humanitarian money was used for the project. I cannot foresee all the things that will happen in future years, but, as the noble Lord knows, it is planned that the aid programme will increase by £56 million in 1996–97 and £115 million in 1997–98. We have a very sound programme. When we allocate money for ATP, as we do on an annual basis, we will now do so in the full knowledge of the decision that was made by the court on this case. Certainly we are not legally obliged to compensate the aid programme for the previous payments.
Lord Avebury: My Lords, does the Minister agree that it is a pity that the noble Baroness, Lady Thatcher, could not be surcharged for the £24 million that was unlawfully spent, as she would have been had she been a member of a local authority?
Baroness, Chalker of Wallasey: My Lords, the noble Lord's comment is very wide of the issue. It is not only that. In government—which the noble Lord has never known and never will—one has to take a whole range of issues into account. The court held that, had there been a developmental promotion purpose in Section 1 of the 1980 Overseas Development and Co-operation Act, it would have been entirely proper for the Foreign Secretary to have taken account of the impact of withdrawing the 1989 offer of support for Pergau on our political and commercial relations with Malaysia. That was the consideration that my noble friend took into account in reaching her decision.
Lord Richard: My Lords, I wonder whether the Minister can help me a little. As I understand it, the £24 million is part of the money that the courts decided should not have been used on Pergau. In addition to the £24 million, there are the sums that will be reimbursed; namely, the sums that the Minster says are payable this year and next year. That money will come back to the aid budget despite the fact that it has to go to Pergau as well. What is the logic for making the distinction between the £24 million and the rest of the money, if indeed it is all covered by the court judgment and the court said that the money should not have been used for Pergau? What is the logic of drawing the line there?
Baroness Chalker of Wallasey: My Lords, the logic of drawing the line is that you cannot change the past. Current year and future year payments are down to ECGD, and the aid programme is being reimbursed. Indeed, some of the reimbursement this year will provide further emergency aid for, for instance, the crisis in Chechnya. The point is that, once the financial
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books are closed, the past cannot be changed. You can change the present and you can change the future. We are doing that.
It may be wise just to remind the noble Lord that the judgment said that the unravelling was not a matter for the court; it is for Parliament to decide for the future how finance should be provided. We announced those steps on 13th December.
I want to make it quite clear that the aid programme will not be cut this year or next. I mentioned its having next year an additional £65 million available for other uses. That seems to me to be a wholly reasonable response to the court's decision.
Lord Dubs: My Lords, a commercial company that has been accused of misspending money could not say that its books were closed. Why cannot the same principle apply to the Government?
Baroness Chalker of Wallasey: My Lords, because, commerce is commerce and government is government.

The Gambia: Advice to Tourists
3 p.m.
The Earl of Kinnoull: My Lords, in asking the Question standing in my name on the Order Paper, I should like to declare a very small interest.
The Question was as follows:
Whether Her Majesty's Government are likely to change their advice to tour operators and United Kingdom citizens not to seek holidays in The Gambia.
Baroness Chalker of Wallasey: My Lords, our advice to British tourists and tour operators is kept under constant review. Updated advice, issued on 9th February, continues to recommend that tourists consider postponing non-essential travel. The situation in the country remains uncertain and security could still deteriorate quickly.
The Earl of Kinnoull: My Lords, I thank my noble friend for that reply. Bearing in mind the need to return to democracy, can she say what is the Government's attitude to a recently announced timetable by the military council to return to democratic rule? Can she also say whether bodies such as the European Union and the Commonwealth countries are in accord with the Government's policy?
Baroness Chalker of Wallasey: My Lords, I thank my noble friend. The two years announced by the regime in The Gambia is still too long. Effectively it means that the Gambians will suffer at least another 17 months of military rule and there is no guarantee that the military would leave even then. It is completely unnecessary in a country which had a functioning constitution and democratic elections as recently as spring 1992. Frankly, the longer the military junta stays, the greater the harm to the economy and the longer it will take to build it up again. I can assure my noble friend that we are working very closely with our European Union partners and our Commonwealth

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partners at every stage of the developments in The Gambia. My officials are working in Brussels this very day, as we speak, in the Africa Working Group, to see how we can all persuade The Gambia to return to democratic rule.
Lord Judd: My Lords, will the Minister accept that on this side of the House we shall support her to the full in anything that she finds necessary to see the restoration of democracy in The Gambia? Does she agree that it is not simply that democracy and human rights have been trampled upon by the military regime but that as a result, in the economic chaos which has followed, perhaps 150,000 more people are destitute than was the case before the coup? Does she recognise that in the light of that we want to see pressure increased, not diminished, at this juncture?
Baroness Chalker of Wallasey: My Lords, I am most grateful to the noble Lord for his question. It is the state of the people of The Gambia which worries us. They have every right to expect a speedy return to democratic government in their country.
Lord Merrivale: My Lords, will Her Majesty's Government seek to encourage UK citizens in the meantime to take their holidays in Senegal, which is south and north of The Gambia?
Baroness Chalker of Wallasey: My Lords, I know the great interest my noble friend takes in matters Senegalese. He knows that there are some delightful places to visit. Unfortunately, some people are not so able as he is in speaking fluent French and therefore prefer to go to English-speaking territories. Anyway, we want to see the Gambian economy build up again for the sake of the Gambian people. It was an unnecessary, illegal coup. There was a democratic government who were pushed out. The sooner the country returns to civilian democratic rule the better.
The Earl of Kinnoull: My Lords, will my noble friend confirm that the current aid programme to The Gambia still remains in place?
Baroness Chalker of Wallasey: My Lords, I can assure my noble friend that humanitarian aid and health and education aid is still going to The Gambia. We are trying to help the people in those priority sectors. With the present regime in power, we shall not give aid in the police sector because it could well be misused. That is why we are limiting ourselves to humanitarian aid. But we hope before long to resume other forms of aid to help them get back on their feet once more.

Olympic Symbol etc. (Protection) Bill
3.5 p.m.
Brought from the Commons; read a first time, and to be printed.

Building Societies (Joint Account Holders) Bill
Brought from the Commons; read a first time, and to be printed.

South Africa Bill [H.L.]
Lord Inglewood: My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the order of commitment be discharged.
Moved, That the order of commitment be discharged.—(Lord Inglewood.)
On Question, Motion agreed to.

Pensions Bill [H.L.]
3.6 p.m.
The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Lord Mackay of Ardbrecknish.)
On Question, Motion agreed to.
House in Committee accordingly.
[The CHAIRMAN OF COMM111EES in the Chair.]
Clause 14 [Requirement for member-nominated trustees]:
[Amendment No. 105 had been withdrawn from the Marshalled List.]
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 105A:
Page 6, line 25, leave out ("deferred members of the scheme") insert ("such class or classes of deferred members of the scheme as the trustees may determine").
The noble Earl said: In moving this amendment, I shall speak also to my Amendment No. 111B. Amendment No. 105A is a probing amendment. It would increase the discretion of trustees by allowing them to choose an appropriate class of deferred members when they consult regarding changing scheme rules to implement their requirement for member-nominated trustees.
The reasons for the amendment can be quickly summarised in three parts: trustees have to consult members about rule changes to the scheme, they have to consult current pensioners and active members; but they have a discretion as to whether they consult deferred members. The current drafting of the Bill suggests that, if the trustees decide to consult with deferred members, they have no option but to consult with all deferred pensioners.
That could be difficult in practical terms. Deferred pensioners' addresses, for instance, may not be available and in many schemes the amount of deferred pension can be quite small in terms of money. With this amendment I suggest that it would be unnecessary to consult all the deferred pensioners as a class. I beg to move.
Baroness Hollis of Heigham: We haw; no objection to the amendment on our side of the Committee. It

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seems to us to give additional flexibility to the trustees, as described by the noble Earl. Therefore, we support the amendment.
Lord Mackay of Ardbrecknish: My noble friend has a valid point with his amendment and in his remarks when bringing it to our attention. As he said, not all deferred members may be known to the trustees; for example, trustees may not hold an up-to-date address list for all deferred members. If trustees are faced with the difficulty and expense of tracing deferred members, they may be reluctant to use their discretion to include them in the statutory consultation process. We do not want this clause to work to the detriment of deferred members.
However, I am sorry to say to my noble friend that I am not content with the drafting of the amendment. As it stands, trustees could determine that they wish to consult only particular deferred members; for example, they could decide to consult only those members who they felt might respond in a particular way and to exclude those who might have opposing views. I am sure that that is not the effect that we want to achieve.
Therefore we accept the principle of the amendment and should like to make it easier for trustees to include deferred pensioners. However, we do not want to make it possible for schemes to discriminate against certain classes of deferred members, especially in the circumstances I outlined. If my noble friend therefore will withdraw his amendment, I shall undertake to consider it further and see what we can do to answer the point.
The Earl of Buckinghamshire: I thank my noble friend for his reply. I stand chastised. However, I know that he will come back with a better amendment than mine. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 106 not moved.]
[Amendment No. 107 had been withdrawn from the Marshalled List.]
The Chairman of Committees (Lord Boston of Faversham): In calling Amendment No. 107A, I must inform the Committee that if the amendment is accepted, I cannot call Amendments Nos. 107B or 108.
Baroness Dean of Thornton-le-Fylde Baroness Dean of Thornton-le-Fylde moved Amendment No. 107A:
Page 6, line 42, leave out from beginning to first ("of") in line 44 and insert ("a majority").
The noble Baroness said: The effect of Amendment No. 107A would mean that the majority of trustees on an occupational fund trust board would be member-nominated instead of, as currently provided in the Bill, only one-third. I have heard the arguments that one-third should be satisfactory because the employer has an enormous cost to meet on the balance should there be a shortfall. But most employees pay around 5 per cent. of their gross income into their pension fund, which is an enormous investment. It may not be the largest investment of their lives, but it may be more of
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an investment than the cost of their home through a mortgage. There is therefore a lot riding on this matter for each individual employee.
People say that it is not fair because the employer, in a shortfall, will be required to pay the balance. But what about the employers who over the past few years have consistently taken pension contribution holidays while employees have had to continue to pay at the normal level of pension fund contribution? It is swings and roundabouts based on an actuarial assessment.
My argument is that the contributions to a pension fund scheme are deferred wages. I know that some people do not accept that, but a number of court rulings confirm that interpretation. Indeed, Barber v. Royal Exchange is a case where the court found that pension contributions were deferred wages for the employees.
Amendment No. 107A brings equity into a scheme. It means that the individuals whose lives may be substantially affected will be given a greater say than is currently provided for. Come what may, at the moment they have only a minority say in whether there is a pension surplus or a deficit; and the Bill continues to provide for only a minority say. I hope the amendment gains the Committee's support. It is necessary bearing in mind that only 35 per cent. of all occupational schemes have nominated member trustees on their boards. I beg to move.
3.15 p.m.
Baroness Hollis of Heigham: In speaking to Amendment No. 107A I should like to speak also to Amendment No. 108 standing in my name, the name of the noble Baroness, Lady Seear, and that of my noble friend Lady Castle. The amendment is grouped with Amendment No. 107A but is a more modest amendment. It calls for at least 50 per cent. of the trustees to be scheme members.
Most European countries do not have operational pension structures and schemes similar to those in the UK. However, where they do—Ireland, Australia, Switzerland and Spain—50 per cent. member trustees are the norm. More to the point, it is also the norm in some of the biggest and best of British companies at the present time. For example, Rothmans, Jaguar and Leyland Daf have 50 per cent. member trustees. Thomas Cook and, if we include the pensioner member, Shell, Allied Lyons and Boots all have 50 per cent. member trustees. Since 1926, ICI has had six employer trustees, six employee trustees and one independent. Unilever has 12 employer and 12 employee trustees and one pensioner trustee. Albright & Wilson, Courtaulds, Lucas and Sainsbury are all companies that already draw 50 per cent. of their trustees from their scheme membership. That is a roll-call of the best names in British industry, as I am sure your Lordships will agree. It is therefore already established practice in our best schemes.
The amendment would bring all schemes, unless members chose otherwise, up to the best practice of already established and well-run schemes. There is nothing provocative about it; nothing syndicalist; nothing revolutionary. It is an amendment which reflects

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and embodies best practice. By itself it is not enough to prevent fraud or theft, but all the evidence suggests—and employers confirm—that where there are 50 per cent. member trustees, there is less fraud, there is more scrutiny, there is better information flow, there is more confidence in the pension promise and there is more employee commitment to the company.
In a previous Committee debate the noble Lord, Lord Marsh, made a powerful speech which won the support of many Members when he argued that the best protection against pension fraud cannot come from the regulator; it must come from the trustees acting where necessary as whistle blowers. I am sure that he is right. Amendment No. 108A would help to ensure that.
If it is already best practice among the roll-call of our best companies, what are the possible objections to the amendment? The first is that scheme members may elect unsuitable people; secondly, that it may tip the balance of power unfairly away from the employer in a situation where such issues could be delicate.
Let me deal first with the objection, that unsuitable people may be elected. I asked around in some of the other company schemes and there is no evidence for that at all. Too often when one hears the word "unsuitable" becomes a euphemism for the trustee asking the awkward questions, as in the Maxwell companies where such trustees found their services speedily dispensed with by Maxwell. That is one of the reasons why my noble friend Lady Turner will be moving an amendment later to give the trustees protection.
If trustees elected by the membership are corrupt, they will be discharged; if they are inexperienced, they will be trained; if they are unsuitable, they will not be elected. Do we believe that employees will not choose the most sober, cautious and careful of people to safeguard their pensions? They will be looking for Methodist chapel stewards if they can find them.
The second argument that may enter the considerations of the Committee is that such an amendment may be unfair to employers; it may reflect a sectional interest. I have two answers: first, as with all trustees, the fiduciary duty of scheme member trustees is to the scheme for which they are stewards, not to the constituency from which they come. That applies as much to the financial director nominated by the employer as it does to the scheme member elected by his colleagues. After all, benefits and so forth will remain a matter of employer/employee negotiations, not a matter for trustees who are stewards for the scheme as a whole.
Secondly, such fears perhaps under estimate the power that will remain with the employer after the Bill becomes an Act. Most of his existing powers will remain firmly in place. It will not disturb the balance. Were the Committee minded to accept the amendment to make 50 per cent. of the trustees come from the scheme membership it would still be the case that employers would have a voluntary choice on whether to set up occupational pensions; it would still be the case that employers could wind up schemes; it would still be the case that the employers would define the rules of eligibility, including new members; it would still be the case that the employer could veto any benefit improvements to the scheme; it would still be the case
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that the employer could take a contributions holiday without even a quid pro quo in the form of improved benefits for the scheme members; it would still be the case, crucially, that any change in the scheme rules, such as altering benefits or improving accrual rates, must have his consent. The employer will still have half the trustees. Whatever percentage of trustees is drawn from scheme members, all the long stop powers that the employer will have under the Bill will remain intact. It will not affect the delicate balance between them.
Finally, Members of the Committee may have a third fear that somehow the amendment will generate additional costs for the employer. Whatever the percentage of member trustees the costs for the employer cannot be increased beyond the current benefits as promised. Whether there are fewer than one-third member trustees, 50 per cent. or 75 per cent., none of that will affect the employers' commitment to financing benefits in any way. It is true that under the Bill the employer may face additional costs to meet what is called the minimum solvency standard; and so he should if the scheme without it is not financially sound. But that will happen by virtue of the Act itself. It will have nothing to do with the percentage of trustees. In other words, the issue of potential financial liability for the employer under the Act and the issue of trustees drawn from the membership are completely unconnected. Whatever the percentage of trustees, the employers will have to meet those financial responsibilities. Whatever is the percentage of trustees that will not add to the employers' financial responsibilities.
Why then are we pressing the amendment? I have tried to suggest that the good employer has nothing to lose because good employers already do it. Who will lose? It will be those employers who sail close to the wind in their practices, whether in terms of self-investment, favourable loans or seeking delays in passing over contributions to trustees. They will be affected. However, given that the Bill is brought forward to protect the pension promise from just such practices—practices that lead to insolvency or are fraudulent—is this not exactly what we want to happen?
I hope that the Committee will support the amendment. It would produce 50 per cent. trustee members drawn from the scheme members. It is the current good practice in the best firms of this country. It will have no financial implications for the employer as such, but it will strengthen the capacity of trustees to take on the role that the Bill intends them to do: to monitor and to act as good stewards for the pension promise.
Baroness Seear: I wish strongly to support the amendment particularly because it suggests at least 50 per cent. A number of schemes are already above 50 per cent. and they have proved very satisfactory. We are very much of the view—it is a widely-held view—that pensions are deferred pay. As the noble Baroness, Lady Hollis, said, the employer has the ultimate weapon, if he needs to use it, of withdrawing the scheme. That is a powerful weapon where employee members are determined to keep the scheme going. They are extremely unlikely—it would be extremely foolish—to

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act in such a way that would lead to the employer winding up the scheme. I cannot see that the employer has anything to fear. I should like to see the figure higher than 50 per cent. The amendment would enable that to happen in those places where it was agreed that it should.
Baroness Castle of Blackburn: I wish to support Lady Hollis's amendment which, of course, subsumes mine. I tabled something on the same lines at the suggestion to me of one of Maxwell's long-suffering pensioners. That is straight from the mouth of someone who has gone through all the suffering, anxiety and miseries of the past few years following Maxwell's gigantic fraud.
The pensioner pointed out to me that there are grave risks that are taken by member trustees who are trying to deal with a fraudulent employer. There are such things as intimidation. There are also such things as bribes by saying, "You were wanting promotion, weren't you? Well you had better shut up". He has seen it in action among fraudulent employers. There is safety in numbers. The very minimum ought to be 50=50 representation. I am glad that Lady Seear has pointed out that it is at least 50 per cent.
I want to stress the point that Lady Hollis made which seems to be the very centre of our argument. The good employer does not need this legal obligation placed on him. But we are trying to protect members of a pension scheme from the fraudulent employer. In that way we have got to give the member trustees a sense of strength that they have real equal status and that they speak as people of equivalent importance to the employer at the very least. I do hope that the Committee will see the sense and logic of that and listen to my Maxwell pensioner friend who has urged that this kind of amendment should be made.
Viscount Caldecote: Is the noble Baroness, Lady Dean, correct in saying that in the case of a pensions holiday it is legal for the employer to take a pensions holiday while insisting on the employees continuing to pay? That has never been the case in my experience, but I should like to know whether that was just good practice or whether it is a statutory requirement.
Lord Dean of Harptree: I am strongly in favour of member trustees of pension schemes and, as has already been pointed out in the debate, best practice suggests very strongly that that development should be encouraged. However, I should like to express some doubts about the amendments.
We live, unfortunately, in an age where very few new occupational final salary pension schemes are being set up. That is a serious development. It may be something to do with the recession that we have gone through but it is a harsh reality. We must be very careful before we place additional obligations on employers which might discourage the setting up of new schemes, particularly final salary schemes. We have to take into account that the Bill already lays a statutory obligation for one-third of the trustees to be members. That is a new obligation
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which employers will have to meet. Some of them meet it already, but not all do. The disincentive effect is a factor which we have to take into account.
We also have to bear in mind that in most occupational pension schemes the employer contributes about twice as much as the employee. That financial fact has to be taken into account when one considers the balance on trustee boards. For those reasons I hope that my noble friend the Minister will resist the amendments.
3.30 p.m.
Lord Ezra: I have not been a trustee of a pension fund, but I have been on the employers' side as chairman of the companies concerned in both the public and private sectors. In the schemes with which I have been involved in that way there has been at least an equal part of member trustees. That has worked perfectly. The clinching argument in this debate is that put forward by the noble Baroness, Lady Hollis, when she reminded us that the fiduciary duty of trustees, whether they come from the employers' or the members' side, is to the scheme. Once appointed they should forget any "party view" if I can so describe it, and simply do what is in the best interests of the scheme. Therefore, it may be asked: why argue about it? As soon as they are appointed the best people from whatever side have to do their duty.
One then comes up against the question of perception. We are dealing with legislation which originated from the Maxwell affair. People want to be satisfied that the steps which are being taken will effectively safeguard the interests of the beneficiaries. Therefore, from the point of view of general public perception and of those in schemes, I very strongly support the proposition that although all trustees will, we hope, henceforth have only one duty towards the scheme they serve, nonetheless the Government will agree, if they are to fulfil the main objective of this legislation, that this amendment should be supported.
Lord Allen of Abbeydale: This is not a party political matter and, as has been explained, there are not any great financial implications. I believe that it is legitimate for a Cross-Bencher to express very briefly a view on the merits of what is proposed.
I recognise that my own detailed knowledge of pensions is becoming out of date, but the arguments for or against this particular proposal are fairly clear cut. The proposal by the noble Baroness, Lady Dean of Thornton-le-Fylde, goes a little too far. The swings and roundabouts arguments ends up with perhaps 50 per cent. and not more. A strong case has been made out for Amendment No. 108. It seems to be the fact that a number of very successful companies operate that arrangement with perfect success. I am glad to add my word briefly in support of that amendment.
Lord Mackay of Ardbrecknish: This is clearly one of the important parts of the defences that we are erecting on pensions in the light of the Maxwell affair which brought Professor Goode's Committee into being and led to this Bill.

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Perhaps I may go back a little and point out that the requirements in the Bill itself are that members should have a right to nominate at least one-third of their scheme's trustees. We believe that that statutory minimum will ensure that trust boards include at least some people whose perspective differs from that of the scheme sponsor who, typically, does appoint the majority, if not all, of the trustees. We fully accept the Pension Law Review Committee's view that there is an important role for member-nominated trustees in providing scheme security. I set out in my Second Reading speech the general advantages we see for schemes in having member-nominated trustees.
But I believe that this provision is quite different from requiring a majority of member-nominated trustees on a trust board or requiring that a proportion of member-nominated trustees shall be equal to that of the trustees appointed by the sponsoring employer. The scheme and its associated fund is established by an employer to achieve a business objective. My noble friend Lord Dean of Harptree mentioned the very worrying fact that employers are not creating new schemes in a way that we would like to see. We do riot want to make schemes look unattractive to employers and discourage them from starting schemes or decide that they should back off from the schemes they already have. The employer retains a considerable business and financial interest in the performance of the fund and in the effectiveness of the scheme. We have to remember his interest in all this and how he could bring the scheme to a close if he felt it was perhaps in the interest of his business. We do not want that, or to add factors which may make schemes less attractive.
The fund belongs neither to the members nor to the sponsoring employer. It is held in a trust by the trustees to be distributed on the basis set out in the trust deed and the rules. That leads straight back to the argument that the balance between member and employer-nominated trustees on the board should reflect the balance of interest in the fund.
In a defined benefit scheme where the employer is bound to meet the pension promise and to make good any deficit, the fund is almost incidental as far as the members are concerned. Of course, it offers a degree of security against employers becoming insolvent and provides a vehicle for delivering their pensions. But the pension they receive is not dependent on the existence or performance of the fund. By contrast, the existence and performance of the fund is crucial to the sponsoring employer. It offers a tax-efficient way of providing an important part of the remuneration package. It smoothes out the cash flow problems which a pay-as-you-go system might incur. Its performance and any consequent need to increase pension contributions could have a dramatic effect on company cash flow. The employer is the one giving the guarantee. He is the one who has to top up or make good the fund in the event of any deficiency. Therefore, the employer has a major interest in the successful operation of the fund. We believe that it is appropriate that that should be recognised in the
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composition of the trust board. That is why the Goode Committee opted for a one-third/two-thirds split in favour of the employer as the minimum provision.
The running of the trust fund is of such significance to many employers that without the security of this level of influence, as I mentioned when answering the point made by my noble friend Lord Dean, they could well decide to move away from defined benefit pension provision which may well not be in the interests of scheme members. For those reasons, we have supported the PLRC approach.
In June of last year we ran a consultation exercise on our proposals for member-nominated trustees. Views were very widespread and there was no consensus at all on an ideal constitution. Some respondents said that the balance should tilt towards the employer; some said towards the members and others went for a 50–50 split. Sometimes the casting vote went to either the employer or the member.
Many of the replies spoke of member representatives or employer representatives. It is important to recognise that trustees are not representatives; they are individuals who are appointed under trust law to act independently and collectively, putting aside their own personal preferences in the best interests of all the beneficiaries.
It is with that in mind and the recommendation of the Pension Law Review Committee for defined benefit schemes that we have opted for the one-third minimum. Our objective is not to give scheme members a representative as such on the trustee board, but to ensure that the board as a whole has a sufficiently broad perspective on the issues for which it is responsible. Any pension legislation should provide an even-handed approach between promoting the interests of scheme members and preserving the legitimate interests of the employers. I trust that the two are not mutually exclusive.
I recognise, of course, that many excellent schemes already have an equal number of employer-appointed and member-nominated trustees. The noble Baroness, Lady Hollis, read out a list of a number of firms in this country which already go either at least as far as she wants to go or further. She also read out, as is usual in these matters, a list of countries who reputedly do better than we do in the view of the noble Baroness. It is fair to say that we have so much bigger resources in pension funds that I do not believe that we should be looking for examples—dare I describe them without being unkind?—to the minnows in this particular business. In Ireland, members have to approach their employer and ask for member-nominated trustees. I understand that in Spain only the larger, government-approved schemes have 50 per cent. such members.
For those schemes which are not currently familiar with member-nominated trustees, our requirement of one-third as the minimum gives them a chance to test the water, with the possibility of building on the statutory minimum—as other schemes have already done—once they become accustomed to the change. In some cases, employers are happy to take a minority interest on the trust board. However, I believe that we

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have to be realistic and acknowledge that employers voluntarily set up and maintain pension schemes and that they may be dissuaded from doing so if they are coerced into what may be unfamiliar territory to many of them.
I am not sure whether we should be speaking also to Amendment No. 107B, which brings us into the territory of small schemes, but, for the sake of completeness, I should like to refer to small schemes because they are part and parcel of the clause. The Pension Law Review Committee said:
"We recognise that in the case of schemes with a very small number of members—say, those with fifty active and pensioner members or fewer—a legal obligation to have additional trustees not appointed by the employer could cause difficulties".
The difficulties that were envisaged related to cost and to the possible shortage of members willing to be nominated by their fellow members.
We have gone one further than the Pension Law Review Committee and made member-nominated trustees a requirement for all schemes which cannot be evaded unless members approve alternative proposals. However, we took account of the note of caution that was sounded by the committee and reduced the basic number of member-nominated trustees from at least two to at least one for schemes with fewer than 100 members. Schemes are free to invite members to select more than one trustee if the circumstances of that scheme permit. I see no justification for increasing the basic number of member-nominated trustees for small schemes.
My noble friend Lord Caldecote asked me about contributions holidays. I hope that I understood his question correctly. Employers can currently take a contributions holiday. The employer is standing behind the scheme. He is taking the risk. We shall come later to some of the circumstances surrounding dealing with surpluses, so perhaps we should leave this debate until then.
The clause provides that there should be a statutory minimum of one-third member-nominated trustees for all schemes. As I have said, I believe that that strikes a fair balance between the interests of all the parties to the trust deed. I fear that, by compelling employers irrevocably to relinquish the strength of their association within the trust board, the amendment could prejudice the long-term prospects of the pension schemes. Therefore, I am afraid that I cannot accept the amendment. I invite noble Lords to agree with me in this discussion and, if it comes to a vote, to vote against the amendment.
Baroness Seear: Before the Minister sits down, I think I understood him to say something that confirms that he accepts that pensions are deferred pay. Am I right in my recollection? It would be useful to have that confirmed.
Lord Mackay of Ardbrecknish: One has to look at what one says in such cases, but my recollection is that we reached one of the issues that we now have to face by way of the European Court which considered that pensions were deferred pay. I do not
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think that I would greatly argue with that. I am not sure what point the noble Baroness is seeking to make, but this is part and parcel—
Baroness Seear: If the Minister reads Hansard tomorrow, I think that he will find that that is what he said.
Lord Mackay of Ardbrecknish: A pension is part and parcel of the remunerative package that someone gets from a firm. The point that I was trying to make—the noble Baroness should take this a bit more on board because she seemed cavalierly to dismiss the employer's position—is that the employer is the person who decides to create a scheme. He stands behind the scheme and has a considerable interest in ensuring that it is properly run. If it is not properly run, he is the person—unless he decides to take drastic measures—who has to put cash into the scheme to make it up.
3.45 p.m.
Lord Desai: Perhaps I may ask the Minister another question before he sits down. I detect a logical flaw in his argument. On the one hand, the Minister has said that trust members do not represent any interest except their fiduciary duty to the trust; but, on the other hand, he seems to be speaking in terms of "employers' interests" and "employees' interests" and saying that unless an employer has at least a majority of members on the trust board, he will not set up a scheme. Are the trustees partisan, playing for one side or the other, or are they all neutral? If it is the case that employers cannot set up schemes unless they have a majority, that changes the logic of the trust. Could the Minister please clarify that point?
Lord Mackay of Ardbrecknish: I have tried to explain where we are on this point. Of course, the trustees have a duty to the whole scheme. They are not there as representatives. That is perfectly clear. However, that does not get away from the fact that if something goes awry with the scheme, it is the employer who stands behind the guarantee. That has to be in the interests of all the members of the scheme. I should not think that anything would divide us on that aspect.
The point that I am making is an important one about how people become trustees. We have clearly gone a long way from the current position by establishing a minimum of one-third. I believe that going further would upset a balance which takes many issues into account. That question of balance includes whether one wants to encourage employers to set up occupational pension schemes and to continue with them. Those are questions of considerable importance which we have to take into account. At the risk of sounding like Members on at least one of the Benches opposite, I think that we must appreciate that there is a balance in all these things.
Viscount Caldecote: I wonder whether my noble friend could clarify his answer to my question about a pensions holiday. Was he saying that it is possible—that it is legal—for an employer to say, "I'm going

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to cease paying contributions because of the over-funding", but to insist that the employees continue to pay their contributions? That seems to have a bearing on the merits of the amendment.
Lord Mackay of Ardbrecknish: We shall come to the problem of a contributions holiday later, but my understanding—I hope that my noble friend will forgive me if I say "my understanding" because this is all pretty complicated—is that under the Bill an employer will be able to take a contributions holiday if that is the way in which it has been agreed to deal with any surplus. I hope that that answers my noble friend's point.
Viscount Caldecote: Can the employees be forced to continue their contributions while the employer is not contributing?
Baroness Hollis of Heigham: Yes.
Lord Mackay of Ardbrecknish: I think that was implicit in what I said. Yes, of course he can. The employees will continue with their contributions at whatever rate has been agreed. The employer may take a contributions holiday in the circumstances that we shall come to if the fund is in surplus. I do not want to go into the debate about why that should be the case, but I want to make the point now that the employer is in that position because, if the opposite happens, it is the employer who has to pick up the tab for the deficit.
The Earl of Buckinghamshire: Perhaps I may answer my noble friend by saying that the question of legality will be covered in the trust deed and rules. The scheme will be run in accordance with the trust deed and rules.
Perhaps I may quickly clarify the position on the issue of deferred pay of which much was made at Second Reading and which has been raised today by the noble Baroness, Lady Dean. The case that we are referring to is the Barber case of May 1990 which reached the European Court, which held that for equal treatment purposes, pension rights were to be treated as pay. That judgment did not hold that the assets guaranteeing the pension rights were pay, except possibly in money-purchase schemes. The ownership of the assets was examined at length by Professor Goode who did not reach a definite conclusion about where the ownership of the assets lay but, on balance, in a balance of cost and defined benefits plan, he came down on the side of the employer.
That is the view of the judiciary also, as we can see in Imperial No. 1, the Hillsdown case, which is based on the view that a pension fund in a final salary scheme acts as a guarantee of the employer's promise to pay a pension on retirement. There is no such need for a guarantee of the employer's promise to pay a pension on retirement in public sector schemes because the Government stand behind them. The reason Civil Service schemes are not funded is that there is that guarantee behind them.
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I wanted to clarify the position of whether a pension is deferred pay. The assets have nothing to do with the issue. The pension rights have. The Committee may not wish that to be so, but it is the actual position.
Baroness Hollis of Heigham: That explanation from the noble Earl is helpful, because it is our understanding of the situation. Some extraordinarily distinguished voices have taken part in the debate. They range from my noble friend Lacy Castle who, as Minister, introduced some of the most significant pensions legislation, to the noble Lord, Lord Ezra, a company chairman, and the noble Lord, Lord Allen, who founded the Occupational Pensions Board. They have all given the same message: they support the amendment.
The noble Lord, Lord Dean of Harptree, raised some entirely appropriate points. First, he accepted that 50 per cent. of trustees drawn from scheme members is already good practice in most of this country's major companies. There is no dispute between us. This is not some leap into the dark, some will of the wisp, but is standard practice in this country's best blue chip companies. The point made by the noble Lord—this was supported by the Minister in his reply—is that he fears that such a requirement may deter employers in the future who are considering setting up occupational pensions schemes.
At the moment, as I understand it, about 92 per cent. of scheme members are in final salary schemes. The noble Lord is right: employers are looking increasingly to money and money purchase schemes within the company. But, of course, in a money purchase scheme, Goode recommended that there should be two-thirds member trustees, because the financial weight carried by the scheme members vis à vis employers was that much greater. Given the argument put forward by the noble Lord—if he accepts, as I am sure he does, that companies are moving increasingly to money purchase schemes—then there is a even greater need for the amendment than he might otherwise suggest.
I think the Committee will agree that experience seems to suggest that most companies go into hybrid schemes. People in their late 30s and 40s, when they are making a lifetime commitment to the company, often move on to final salary. Amendment No. 108 meets both those needs. Otherwise, particularly with money purchase schemes—the noble Lord, Lord Dean, is probably right that employers are going that way—those people who are making substantial, significant contributions will be left relatively exposed because there the employer has no such responsibility to pick up the deficit. All that is promised is a defined contribution, not a final benefit. Following the noble Lord's argument, it is even more important that the amendment be accepted.
The Minister emphasised the point about the employer's interest, and called on us to go for an even-handed approach. That is what the amendment does. It is an even-handed approach which is reflected in Boots, ICI, Unilever, Sainsbury, Shell, Courtaulds,

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and Allied Lyons. They think that it is in their companies' interest to have an even-handed—to use the Minister's words—approach to scheme members.
I have asked around whether any company with a 50:50 approach has found any disadvantages. I have not been told of one company. Through the organisations representing employers, not one company has said, "This is a disadvantage". On the contrary, major companies such as Sainsbury have said to the Social Security Select Committee in the other place what an asset it has been to the company to have such an arrangement. It hopes that smaller company schemes will follow suit.
Lord Mackay of Ardbrecknish: I thank the noble Baroness for allowing me to intervene. In the list of companies she has read out, I wonder whether she is distinguishing properly between member trustees and member-nominated trustees. That is my first point. The second point I should like to make, having listened to the last few sentences, is that one may perhaps be led to believe that we are going to say that there must be one-third only. In fact, it is a minimum of one-third. So all the companies to which she has pointed and which, I agree, are doing something sensible and splendid for them, can continue to do that. She should not be sounding as if somehow this provision will in any way endanger what the schemes are already doing.
Baroness Hollis of Heigham: I thank the Minister for that intervention, because if it means that he concedes that the amendment is desirable—because that is what the Bill will permit—I welcome him to our side of the Committee. As for the distinction between employee-elected and employee-nominated trustees, no, I am not making that distinction because a number of the major schemes—there may be Members of the Committee who know more about the detail of those companies than I do—draw their people from electoral colleges because their membership base is so large. That would confuse the either/or that the Minister has suggested. I believe that that is the case with ICI, Unilever and Shell.
I should like to repeat the basic point: this is an even-handed amendment which will have two advantages. First, it will not result in the employer acquiring any additional financial responsibilities so far as concerns benefits. As the noble Viscount, Lord Caldecote, asked, once a Bill becomes an Act the employer may still take contribution holidays while the employees continue to make their contributions. That remains unchanged, as does the employer's power to wind up a scheme or to refuse to make any changes that he does not think to be in the company's financial interests. The employer's powers of veto as a long-stop are unaffected by the amendment.
What the amendment will do is to bring up to the best the practices of the weaker schemes. It will provide an even-handed approach which will ensure
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that all trustees, wearing their fiduciary duty hats, will seek to deliver the pension promise that we all want. I hope that the Committee will support the amendment.
Baroness Dean of Thornton-le-Fylde: I speak in support of the amendment. I wish to clarify a couple of points that have quite rightly been raised. The first relates to the pensions holiday. There is no law that provides that the employer who takes a contributions holiday has to allow the employee a reduction in contributions or a pensions holiday. There is nothing to stop the trust rules from saying that. There is nothing to stop the trustees agreeing to do that, but in my experience it happens in a minority of cases only.
I have been a trustee of two pension schemes. Both those schemes reduced contributions from the employees when they were in surplus. However, one must bear in mind that over the past half decade a substantial number of schemes have been working in surplus and so a substantial number of employees have been taking pension holidays.
My noble friend Lady Castle talked about her friend who was affected by the Maxwell pension fund. A number of Maxwell pension funds were in surplus. Maxwell did not pay a penny piece in employer's contributions into the very funds he was defrauding of their assets. So the balance is unfair.
The Minister said that there should be a one-third/two-thirds split because that would enable employers to stand behind their schemes. He said that it was in their interests that the schemes should be well run. What about the employees? It is in their interest that a scheme is well run. They are the people who have to pick up the pieces at the end of their working lives if the scheme is short, not the employer. Few employers are in the same scheme as their employees, as we have seen recently with some of the alleged public sector scandals.
As regards the Civil Service, when I was negotiating on behalf of people in HMSO, for instance, I was always made aware during the annual pay negotiations that I should take into account the fact that the payment to the members that I represented included an equivalent 9 per cent. contribution towards their pension. It is totally incorrect to say that a pension is not deferred pay. However, I am a realist. I am also a pragmatist. I have heard the tremendous well of support that the 50:50 rule for trustees has gathered. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 107B not moved.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 108:
Page 6, line 44, leave out ("one-third") and insert ("one-half").
The noble Baroness said: I wish to test the opinion of the Committee. I beg to move.
4 p.m.
On Question, Whether the said amendment (No. 108) shall be agreed to?
Their Lordships divided: Contents, 116; Not-Contents, 129.

Division No. 1

CONTENTS

Acton, L.

Jenkins of Putney, L.

Addington, L.

Judd, L.

Airedale, L.

Kennet, L.

Allen of Abbeydale, L.

Kinloss, Ly.

Archer of Sandwell, L.

Lauderdale, E.

Avebury, L.

Lawrence, L.

Barnett, L.

Lester of Heme Hill, L.

Beaumont of Whitley, L.

Listowel, E.

Blackstone, B.

Lockwood, B.

Bottomley, L.

Longford, E.

Bruce of Donington, L.

Lovell-Davis, L.

Callaghan of Cardiff, L.

Mallalieu, B.

Carmichael of Kelvingrove, L.

Mason of Barnsley, L.

Carter, L.

Mayhew, L.

Castle of Blackburn, B.

McCarthy, L.

Cledwyn of Penrhos, L.

McIntosh of Haringey, L.

Clinton-Davis, L.

Milne, L.

Darcy (de Knayth), B.

Milner of Leeds, L.

David, B.

Molloy, L.

Dean of Beswick, L.

Monkswell, L.

Dean of Thornton-le-Fylde, B.

Morris of Castle Morris, L.

Desai, L.

Morris of Kenwood, L.

Diamond, L.

Nicol, B.

Donaldson of Kingsbridge, L.

Ogmore, L.

Dormand of Easington, L.

Peston, L.

Dubs, L

Plant of Highfield, L

Eatwell, L.

Portsmouth, Bp.

Elis-Thomas, L.

Prys-Davies, L.

Ezra, L. [Teller.]

Rea, L.

Falkender, B.

Richard, L.

Falkland, V.

Richardson, L.

Farrington of Ribbleton, B.

Ritchie of Dundee, L.

Fisher of Rednal, B.

Rochester, L.

Fitt, L.

Rodgers of Quarry Bank, L.

Foot, L.

Sainsbury, L.

Freyberg, L.

Seear, B.

Gallacher, L.

Sefton of Garston, L.

Gladwyn, L.

Serota, B.

Glenamara, L.

Gould of Pottemewton, B.

Shaughnessy, L.

Graham of Edmonton, L. [Teller]

Shepherd, L.

Simon, V.

Stallard, L.

Stedman, B.

Greene of Harrow Weald, L.

Stoddart of Swindon, L.

Grey, E.

Strabolgi, L.

Halsbury, E.

Taylor of Blackburn, L.

Hamwee, B.

Thomas of Walliswood, B.

Harris of Greenwich, L.

Thomson of Monifieth, L.

Haskel, L.

Thurlow, L.

Healey, L.

Tordoff, L.

Hilton of Eggardon, B.

Turner of Camden, B.

Hollick, L.

Varley, L.

Hollis of Heigham, B.

Wallace of Coslany, L.

Holme of Cheltenham, L.

Wedderbum of Charlton, L.

Howie of Troon, L.

White, B.

Hughes, L.

Wigoder, L.

Jacques, L.

Williams of Crosby, B.

Jay of Paddington, B.

Williams of Elvel, L.

Jenkins of Hillhead, L.

Winchilsea and Nottingham, E

NOT-CONTENTS

Aberdare, L.

Blatch, B.

Ailsa, M.

Blyth, L.

Aldington, L.

Boardman, L.

Ampthill, L.

Borthwick, L.

Archer of Weston-Super-Mare, L.

Boyd-Carpenter, L.

Astor, V.

Brabazon of Tara, L.

Balfour, E.

Braine of Wheatley, L.

Belhaven and Stenton, L.

Bridgeman, V.

Birdwood, L.

Brigstocke, B.

Blaker, L.

Brougham and Vaux, L

456

Bruntisfield, L.

Kinnoull, E.

Buckinghamshire, E.

Lindsay, E.

Butterworth, L.

Lindsey and Abingdon, E.

Buxton of Alsa, L.

Long, V.

Cadman, L.

Lucas, L.

Caithness, E.

Lyell, L.

Campbell of Alloway, L.

Mackay of Ardbrecknish, L.

Campbell of Croy, L.

Mackay of Clashfern, L. [Lord Chancellor.]

Carnegy of Lour, B.

Carnock,L.

Macleod of Borve, B.

Chalker of Wallasey, B.

Mancroft, L.

Charteris of Amisfield, L.

Manton, L.

Chelmsford, V.

Merrivale, L.

Clanwilliam, E

Mersey, V.

Constantine of Stanmore, L.

Miller of Hendon, B.

Courtown, E.

Montgomery of Alamein, V.

Cranbome, V. [Lord Privy Seal.]

Mowbray and Stourton, L.

Crathome, L.

Moyne, L.

Cross, V.

Munster, E.

Cullen of Ashboume, L.

Murton of lindisfame, L.

Cumberlege, B.

Nelson, E.

Davidson, V.

Newall, L.

De Freyne, L.

Norrie, L.

Dean of Harptree, L.

Northesk, E.

Dixon-Smith, L.

O'Cathain, B.

Elibank,L.

Orr-Ewing, L.

Ellenborough, L.

Oxfuird, V.

Elliott of Morpeth, L.

Pender, L.

Elton, L.

Peyton of Yeovil, L.

Faithfull, B.

Rankeillour, L.

Ferrers, E.

Rawlings, B.

Finsberg, L.

Rennell, L.

Flather, B.

Renwick, L.

Gainford, L.

Rodger of Earlsferry, L.

Gardner of Parkes, B.

Romney, E.

Geddes, L.

Saltoun of Abernethy, Ly.

Goschen, V.

Sanderson of Bowden, L.

Gridley, L.

Seccombe, B.

Hacking, L.

Shannon, E.

Hailsham of Saint Marylebone, L.

Shaw of Northstead, L.

Harding of Petherton, L.

Skelmersdale, L.

Harmar-Nicholls, L.

Slim, V.

Hayhoe, L.

Soulsby of Swaffham Prior, L.

Hayter, L.

Strathclyde, L. [Teller.]

Henley, L.

Sudeley, L.

Hives, L.

Swansea, L.

HolmPatrick, L.

Terrington, L.

Hood, V.

Teviot, L.

Hooper, B.

Teynham, L.

Hothfield, L.

Thomas of Gwydir, L.

Howe, E.

Tugendhat, L.

Hylton-Foster, B.

Ullswater, V.

Inglewood, L. [Teller.]

Vivian, L.

Johnston of Rockport, L.

Wynford, L.

Kimball, L.

Young, B.

Resolved in the negative, and amendment disagreed to accordingly.
4.10 p.m.
Lord Lucas Lord Lucas moved Amendment No. 109:
Page 6, line 45, leave out from ("not") to end of line 2 on page 7 and insert ("provide for a greater number of member-nominated trustees than that required to satisfy that minimum unless the employer has given his approval to the greater number".).
The noble Lord said: This is a technical amendment to clarify the intention behind the clause. Schemes must permit their members to select at least one-third of the trustees, with a minimum of two, or one if the scheme has fewer than 100 members unless they opt out of the member-nominated trustee requirements.
However, we recognise that there are many excellent schemes which currently exceed that minimum and we wish them to continue if the sponsoring employer is content. The current wording of Clause 14(7) (b) may suggest that employers have the right to approve or reject particular individuals as trustees, which is certainly not our intention. The amendment makes clear that the employer's agreement is required only for the member-nominated trustees if that number is above the statutory minimum. I beg to move.
Lord McIntosh of Haringey: We have no objection to the amendment which seems to improve the wording. I ask the noble Lord not to describe the amendments as "technical" all the time. He did so on the first day of our Committee stage and on a number of occasions that simply was not the case. Real changes of policy were involved even though the amendments had been described as "technical". The amendment is not objectionable but it is not a technical or drafting amendment.
On Question, amendment agreed to.
Baroness Seear Baroness Seear moved Amendment No. 109A:
Page 7, line 2, at end insert:
("( ) The arrangements must provide for at least one trustee to be nominated by pensioner members of the scheme, once pensions are paid from it.").
The noble Baroness said: This amendment seeks to include on the trustee board a number of existing pensioners. I anticipate that the noble Lord will say that such a pensioner represents a special interest. We ask that a pensioner should be there because he has a special point of view, knowledge and appreciation of how the scheme works. Therefore, he can contribute to the collective knowledge of the unified group of trustees which will make the decision regarding the pension scheme.
It is true also that the interests of the member trustee who is still working in the organisation are not necessarily exactly the same as those of the pensioner who is benefiting currently from the scheme. At times, when there is any doubt as to whether the scheme is being properly run, it would be easier for a pensioner member to "blow the whistle"—the phrase we agreed to use to describe the situation when the regulator needs to be alerted to the fact that things are going wrong. He could not be victimised or lose his job because he does not have a job to lose, which would not be the case for a member trustee. Therefore, the argument for having a pensioner as a member of the trustee board is very strong. I beg to move.
Lord Desai: I support the amendment. I have been approached by the BT and Post Office Pensioners Association which is strongly in favour of the amendment. I agree with what the noble Baroness said. As a group, pensioners have an interest in how schemes are run. Although we take the point that trustees are trustees and are not representing sectional interests, I believe that it is fair and just that one pensioner should be on the board, especially when a scheme is mature and pensions are being paid through it.
458
This proposal has commanded a great deal of support in the briefings I have received. Some Members of the Committee may have seen a letter in The Times on 4th February by Mr. Don Langford who is chairman of the English China Clays Executive Retirement Benefits Scheme Pensioners' Association. He believes that the proposal is in the interests of pensioners. Therefore, I support the amendment.
Baroness Hollis of Heigham: I support the amendment for three reasons. There are three rather than two parties to the pension promise—the employer, the employees and pensioners, both active and deferred. It is right and fair that the trustees should reflect the experience of the three parties, even though they are acting in an overall fiduciary way. There are 5,000 schemes with 1.83 million members which have a pensioner trustee and that is regarded as a valuable addition. It is necessary to ensure that the trustees reflect the balance and breadth of interest we wish to see.
Secondly, to emphasise a point already made, the experience and interests of pensioners may differ from those of employees. It is important that the trustee board should hear that voice. For example, issues as regards the eligibility of new members which may dilute schemes; changes in benefits for contributions; or changes in accrual rates which may add to future liabilities, are all matters of considerable significance to pensioners. Their interests may be at odds with those of active members. That is especially important when the scheme has in it more retired than active members.
The third reason for supporting the amendment is that a pensioner—in particular a pensioner who is elected or selected by his fellows—has time to give, very often has a real expertise, and has the retirement status to make him independent of improper pressure from any quarter. In a very real sense, a pensioner is less likely to be sectional and more likely to carry a fiduciary responsibility and stewardship than the other parties to the pension promise. For those reasons, we strongly support the amendment.
Lord Ezra: It seems to me that the argument is unassailable that we need to have on the boards of trustees members who represent all interests. Of course they will serve the scheme jointly, but in performing that service they would bring to it the expertise which has come to them from being concerned mainly with management, being working members of the scheme, or being pensioners. I should have thought that the Government could agree that such an amendment would strengthen the legislation.
Lord Mackay of Ardbrecknish: As has been pointed out clearly by those who have spoken, the amendment would oblige schemes to give pensioner members the right to select trustees. Therefore, it would give pensioner members a status and privilege greater than that given to other 'members and would limit the freedom of schemes to develop the selection arrangements best suited to their circumstances. Indeed, some schemes operate along the lines suggested by the noble Baroness and a number go even further and have specifically selected or elected pensioner members. Nothing in the Bill prevents that continuing. As I shall

459
say on a number of occasions, after the Bill is enacted it will be very much a matter for the active and pensioner members as to how the member-nominated trustee section of the Bill should be dealt with when the scheme is put before them by the employer for their approval.
As I said, a wide variety of schemes operates at present. It would be wrong to impose a rigid and uniform selection process which may be quite unsuitable for some of them. Schemes should be free to develop their own arrangements for the selection of trustees, but such an arrangement must command the approval of active and pensioner members. That may be extended to deferred members if the trustees so wish.
Those arrangements will determine who is eligible to nominate trustees. Members' interests, including pensioner members' interests, will thus be protected by the regular statutory consultation procedure. The Bill gives equal opportunities and rights to both active and pensioner members. I hope that the Committee will agree that it is for scheme members to decide the best way to nominate their trustees.
The amendment would in fact introduce a mandatory pensioner trustee by the back door, although I know that some Members of the Committee would be quite open and would want to introduce such people by the front door. I fully accept that various organisations representing pensioner interests have lobbied us on the point. We have listened most carefully to their arguments; indeed, as I indicated, I share their view on the diligence and competence of the vast majority of pensioner trustees. I do not argue at all with the noble Baroness about that aspect of her speech, although she said it in a way that rather assumed that I opposed it. That is not the case.
I know that many schemes have pensioner trustees. We have received evidence from many sources of the considerable contribution that they can make to running schemes. That evidence may well encourage scheme members to nominate a pensioner member as a trustee voluntarily. We want to see the best possible trustees running schemes. We have no objection to pensioner trustees, or any other type of trustee, if that is what the members want.
The noble Baroness, Lady Hollis, gave three reasons why she thought pensioner trustees were a good idea and should be made mandatory. There is no dispute between us about them being a good idea if that is what scheme members want. However, the dispute between us concerns whether that should be made a mandatory requirement and written on the face of the legislation.
The noble Baroness mentioned the fact that pensioners would somehow be free from improper pressures, although, interestingly enough, she instanced as one of her reasons the particular interest that pensioners would have against what may be the interests of active pensioners. That is not really an argument that I should like to see developed—namely, the role of one trustee against another—as regards members' interests.
One of the noble Baroness's main arguments was about the pressures exerted on employee trustees by an employer. We have heard a good deal about that during our deliberations from the noble Baroness, Lady Dean,
460
who has the experience of the Maxwell pension business to fall back upon. Indeed, no one could argue with the horrors of that particular case.
However, similar claims could be made against pensioner trustees—for example, that they were only interested in enhancing pensions and that they see themselves as representative of pensioners. I do not believe that we should give weight to any of those suppositions. I wish to avoid anything that could lead members to regard the trustees whom they select as representative of a particular group or faction among the members of the scheme, whether they be active members, deferred members or pensioner members. If pensioner members were singled out to have the right to nominate their own trustee, there could be a danger that that trustee might not enjoy the confidence of active members. It would of course be quite a different situation if a pensioner member is selected to be a trustee under impartial rules agreed by both active and pensioner members.
As I have said, trustees are not representative of any particular party to the trust deed. They are required to act in the best interests of all parties. Their conduct will very much depend on their qualities as individuals rather than their category within the scheme. However, in the event of improper interference by an employer in areas covered by trustees' powers, there are several safeguards. Trustees will be free to approach the occupational pensions regulatory authority if they feel that the employer is obstructing them in the performance of their duty. There is the duty on scheme professionals to report any irregularities to the authority and the employer will not be able to dispose of a member trustee simply by terminating his employment. Trustees will enjoy the same protection under employment law as other employees.
Pensioner members should have the same rights as active members in approving any selection rules proposed by the trustees of their schemes. However, accepting the proposed amendment would fetter members' choice by imposing preconceived selection arrangements. It would restrict the freedom of schemes to develop their own selection rules which would be developed to meet their own particular requirements. If the matter becomes the subject of a Division, I would urge Members of the Committee to reject the amendment.
Baroness Seear: I must say that I find the Minister's response most astonishing. To have a pension trust scheme without a pensioner on it is surely "Hamlet" without the prince writ large. What is it for, except pensioners? Why on earth—
Lord Mackay of Ardbrecknish: I am sorry to interrupt the noble Baroness but I cannot allow her to get away with that remark. That is not what I said. The noble Baroness wants to make the position a mandatory one in respect of pensioners. Nothing in my speech could possibly have been interpreted as meaning that I

461
do not approve of pensioners being trustees. What I do not approve of is the fact that, under the amendment, they would have a mandatory place on trust schemes.
Baroness Seear: I understand that, but the Minister has left the matter in such a way that the producer of the play is still free to leave out Hamlet. That is my contention. It should be a mandatory requirement for a pensioner to be on the trust scheme. That is the difference between us. The Minister said that if a pensioner gets there, then that is fine and he would have no objection. However, we are saying that this is a scheme for pensions and, to say the least, it seems odd that there should not be a pensioner on the trustee board.
I hope that we do not have to say at every stage of the Bill that we accept that pensioners do not represent interests. Indeed, we have accepted that fact at least three times during our debates this afternoon. I hope that we shall not have to do so again. However, we are saying that pensioners have an approach, the knowledge and the experience of how the scheme is working that is not available to those who are still working or to someone who is an employer. Their experience is different and such experience is well worth having.
I do not accept the Minister's contention that protection against victimisation is sufficient for the people who are already there. A wink is as good as a nod to a blind man. You do not have to tell the member of the trust scheme that he is out if he does not go along with what the employer wants. It is very easy for an employee member to sense what the feeling is and to hold back from the kinds of suggestions and criticisms that he would otherwise make for fear of what the consequences might be. The pensioner is in no such position. He has a freedom to speak that the working member does not have. I believe that all the points at issue have been put most clearly. I must test the opinion of the Committee.
4.27 p.m.
On Question, Whether the said amendment (No. 109A) shall be agreed to?
Their Lordships divided: Contents, 115; Not-Contents, 131.

Division No.2

CONTENTS

Acton, L.

Cocks of Hartcliffe, L.

Addington, L.

Craigavon, V.

Airedale, L.

Darcy (de Knayth), B.

Allen of Abbeydale, L.

David, B.

Archer of Sandwell, L.

Dean of Beswick, L.

Avebury, L

Dean of Thomton-le-Fylde, B.

Barnett,L.

Desai, L.

Beaumont of Whitley, L.

Diamond, L.

Blackstone, B.

Donaldson of Kingsbridge, L.

Bottomley, L.

Dormand of Easington, L.

Bridges, L.

Dubs, L.

Bruce of Donington, L.

Eatwell, L.

Callaghan of Cardiff, L.

Erroll, E.

Carmichael of Kelvingrove, L.

Ezra, L. [Teller]

Carter, L.

Falkender, B.

Castle of Blackburn, B.

Falkland, V.

Cledwyn of Penrhos, L.

Farrington of Ribbleton, B.

Clinton-Davis, L.

Fisher of Rednal, B.

462

Fitt, L.

McIntosh of Haringey, L.

Foot,L.

Merlyn-Rees, L.

Freyberg, L.

Milner of Leeds, L.

Gallacher, L.

Molloy, L.

Gladwyn, L.

Monkswell, L.

Glenamara, L.

Morris of Castle Morris, L.

Gould of Potternewton, B.

Morris of Kenwood, L.

Graham of Edmonton, L.

Nelson, E.

Greene of Harrow Weald, L.

Nicol, B.

Grey, E.

Ogmore, L.

Halsbury, E.

Peston, L.

Hamwee, B.

Plant of Highfield, L.

Harris of Greenwich, L.

Prys-Davies, L.

Haskel, L.

Redesdale, L.

Healey, L.

Richard, L.

Hilton of Eggardon, B.

Ritchie of Dundee, L.

Hollick, L.

Rochester, L.

Hollis of Heigham, B.

Rodgers of Quarry Bank, L.

Holme of Cheltenham, L.

Sainsbury, L.

Hooson, L.

Seear, B. [Teller.]

Houghton of Sowerby, L.

Sefton of Garston, L.

Howie of Troon, L.

Serota, B.

Hughes, L.

Shaughnessy, L.

Jacques, L.

Shepherd, L.

Jay of Paddington, B.

Stallard, L.

Jeger, B.

Stedman, B.

Jenkins of Hillhead, L.

Stoddart of Swindon, L.

Strabolgi, L.

Jenkins of Putney, L.

Taylor of Blackburn, L.

Judd, L.

Thomas of Walliswood, B.

Lawrence, L.

Thomson of Monifieth, L.

Lester of Heme Hill, L.

Tordoff, L.

Listowel, E.

Turner of Camden, B.

Lockwood, B.

Varley, L.

Longford, E

Wallace of Coslany, L.

Lovell-Davis, L.

Wedderburn of Charlton, L.

Mallalieu, B.

White, B.

Mason of Bamsley, L.

Williams of Crosby, B.

Mayhew, L.

Williams of Elvel, L.

McCarthy, L.

Winchilsea and Nottingham, E

NOT-CONTENTS

Aberdare, L.

Clanwilliam, E.

Ailsa, M.

Courtown, E

Aldington, L.

Cranbome, V. [Lord Privy Seal.]

Ampthill, L.

Cullen of Ashboume, L.

Archer of Weston-Super-Mare, L.

Cumberlege, B.

Ashbourne, L.

Davidson, V.

Astor, V.

Dean of Harptree, L.

Balfour, E.

Dixon-Smith, L.

Barber, L.

Elibank, L.

Birdwood, L.

Elliott of Morpeth, L.

Blaker, L.

Elton, L.

Blatch, B.

Faithfull, B.

Blyth, L.

Ferrers, E.

Boardman, L.

Finsberg, L.

Borthwick, L.

Flather, B.

Boyd-Carpenter, L.

Gardner of Parkes, B.

Brabazon of Tara, L.

Geddes, L.

Braine of Wheatley, L.

Goschen, V.

Bridgeman, V.

Gowrie, E.

Brigstocke, B.

Gridley, L.

Brougham and Vaux, L.

Haddington, E.

Bruntisfield, L.

Hailsham of Saint Marylebone, L

Burnham, L.

Harding of Petherton, L.

Butterworth, L.

Harmar-Nicholls, L.

Buxton of Alsa, L.

Hayhoe, L.

Cadman, L.

Henley, L.

Caithness, E.

Hives, L.

Caldecote, V.

HolmPatrick, L.

Campbell of Alloway, L.

Hood, V.

Campbell of Croy, L.

Hothfield, L.

Camegy of Lour, B.

Howe, E.

Camock, L.

Inglewood, L. [Teller]

Chalker of Wallasey, B.

Jellicoe, E.

Charteris of Amisfield, L.

Johnston of Rockport, L.

Chelmsford, V.

Killearn, L.

463

Kimball, L.

O'Cathain, B.

Kinnoull, E.

Orr-Ewing, L.

Lauderdale, E.

Oxfuird, V.

Lindsay, E.

Pender, L.

Lindsey and Abingdon, E.

Peyton of Yeovil, L.

Long, V.

Quinton, L.

Lucas, L.

Rankeillour, L.

Lyell, L.

Rawlings, B.

Mackay of Ardbrecknish, L.

Renwick, L.

Mackay of Clashfern, L. [Lord Chancellor.]

Romney, E.

Saltoun of Abernethy, Ly

Macleod of Borve, B.

Sanderson of Bowden, L.

Manchester, D.

Seccombe, B.

Mancroft, L.

Shannon, E.

Manton, L.

Shaw of Northstead, L.

Marsh, L.

Skelmersdale, L.

McColl of Dulwich, L.

Slim, V.

Merrivale, L.

St Davids, V.

Mersey, V.

Strathclyde, L. [Teller.]

Miller of Hendon, B.

Sudeley, L.

Milne, L.

Swansea, L.

Milverton, L.

Teviot, L.

Mountevans, L.

Teynham, L.

Mowbray and Stourton, L.

Thomas of Gwydir, L.

Moyne, L.

Tugendhat, L.

Munster, E.

Ullswater, V.

Murton of Lindisfarne, L.

Vivian, L.

Newall, L.

Weatherill, L.

Noel-Buxton, L.

Wise, L.

Norrie, L.

Wynford, L.

Northesk, E.

Young, B.

Resolved in the negative, and amendment disagreed to accordingly.
4.35 p.m.
[Amendment No. 110 not moved.]
Clause 14, as amended, agreed to.
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 111:
After Clause 14, insert the following new clause:
Protection against victimization
(" . In relation to a member-nominated trustee appointed under section 14 above, the Employment Protection (Consolidation) Act 1978 and the Trade Union and Labour Relations (Consolidation) Act 1992 (referred to in this section as "the 1992 Act") shall each have effect as if—

(a) the purposes specified in section 146(1) of the 1992 Act (action short of dismissal on grounds related to trade union membership or activities) included preventing or deterring him from carrying out any relevant functions as a trustee, or penalising him for doing so; and

(b) the reasons specified in section 157(1) of the 1992 Act (dismissal on grounds related to trade union membership or activities) included the reason that he had carried out, or proposed to carry out, his functions as a trustee.").

The noble Baroness said: We now come to what I believe is one of the most important issues in the whole of this Bill. As we know, the Bill is devised ostensibly to provide more security for members of occupational schemes. In order to do this, it has been acknowledged by the Government that the role of trustees is absolutely crucial. They are likely to be the first people to know if things are going wrong. Therefore, they are in the best position—better even than that of professional advisers—to prevent such calamities as the Maxwell affair from happening again.
There is an acknowledgment in the Bill that there should be member trustees; in other words, people who are currently in employment and who have been nominated or elected to serve the beneficiaries and to protect the fund. We have had our discussions this evening about the number of such member trustees. Our view remains that at least a majority should come from the members themselves and we also want pensioners to be represented. Unfortunately, so far, the Chamber has decided against those two suggestions. But consider the position of an employee trustee when faced with a Maxwell-type employer. In the Maxwell scheme there were employee trustees but there were few people who ever challenged Maxwell about anything, let alone an employee. It therefore becomes necessary, I would suggest, to build into the Bill some protection against unfair dismissal or action short of dismissal for people who come forward to act as pension scheme trustees. The internal whistle blower has to be protected.
At present, as the Bill stands the member trustee will obviously, when he takes up his or her post as a trustee, come into the employer's sights, perhaps for the first time. As we know, the Bill contains quite severe penalties for the trustee who falls down on the job. But the trustee has no protection against his employer, should that employer decide that the questions he is asking are causing problems, or that he or she is seen to be making a nuisance of himself or herself by stirring things up a bit.
The amendment before the Committee seeks to give member trustees some kind of protection. Some Members of the Committee may remember that several years ago, together with my noble friends Lord Wedderburn and Lord McCarthy, we were able to persuade the Government and the Chamber that it was necessary to give some protection against victimisation to individuals working on oil rigs in the North Sea who blew the whistle on unsafe practices. At that time they had no such protection and as many were on short-term contracts they tended to keep quiet when it might have been better had they spoken out. The Chamber supported our Private Member's Bill and it later became incorporated into general health and safety legislation.
What we are seeking to do here is something very similar and in its way almost as important. The North Sea issue, of course, affected lives and safety: this could affect the living standards in retirement of many people, and therefore indirectly their prospects of a longer life. The amendment lays down that anyone who becomes a trustee has the same protection against unfair dismissal—and that protection dates from the commencement of employment—as someone undertaking trade union activity. It also provides that should he or she be dismissed in such a way that it stems from his work as a trustee—and the onus of proof rests on the employer rather than the employee—the employee is then entitled to compensation at the top rate, which I believe could now be of the order of £32,000. I know that there is absolutely no way in which individuals can have complete protection. However, I believe that such a provision in the Bill will surely cause

465
employers who could think of getting rid of or making things difficult for awkward trustees to pause, think again, and then perhaps not do it.
4.45 p.m.
Lord Marsh: As the noble Baroness said, the legislation poses some onerous liabilities upon trustees. Indeed, one of the reasons why I have been somewhat less than enthusiastic for the growing attempts to represent ever more employees among the trustees is precisely because of the sheer size of those liabilities.
Perhaps I may refer briefly to the investment power. The Bill refers to,
"Liability for breach of an obligation under any rule of law to take care or exercise skill in the performance of any investment functions".
That is a pretty heavy and onerous liability.
As one becomes more and more concerned about the situation, one turns to the amendment. My immediate reaction to the amendment was that the situation would be so outrageous that it could be dealt with under the heading of wrongful dismissal or constructive dismissal.
Lord Hailsham of Saint Marylebone: Or unfair dismissal.
Lord Marsh: As the noble and learned Lord says, or unfair dismissal. That is not my belief, on reflection. I shall say why in a moment.
In the case of directors, the Cadbury Report concentrated strongly on ensuring that directors were forced to a realisation of the liabilities which they face. The provision has worked well. It is now common for directors of companies, including people now known as shadow directors, to refuse to continue a discussion with a company in difficulties until there is legal advice available in the room. A few years ago that position would have been regarded as ludicrous.
The Cadbury Report was also anxious to ensure that some directors should not be totally reliant upon the company for their employment and living. In this case, we have trustees with liabilities every bit as serious as those for directors of public companies, many of whom will owe their entire standard of living to the employer concerned. Therefore, I believe that the provision is extremely important. We shall come to the liabilities on trustees in general later. In those circumstances, it is difficult to conceive of any situation in which the trustees could be more at risk.
Reference has been made to very large companies, the numbers of employee trustees, and even pensioners. Those large companies have literally hundreds of people as executives in every conceivable discipline. Medium-sized housebuilding companies do not. Many of those people will find themselves for the first time in a situation where they have to challenge people sitting on the other side of the room who have education, sometimes in quite technical areas. If those people seriously intend to do their job, they will sometimes make mistakes and it is possible that a bad employer
466
will seek either to threaten or actually ensure that those persons lose their jobs as a result. Therefore, why does the existing law not protect them?
The law does not do so because we all know what will happen in the real world in an unfair dismissal case. First, the employer hires counsel. Secondly, the employer spins the matter out for as long as he can in the run-up to attending court; and unless that employee is defended by a trade union or has some legal liability insurance, which is unlikely, he will have to give up because he cannot afford to go on—he will lose his job—or have second thoughts and not raise the issue anyhow.
Therefore, I believe that the amendment is important. The provision is crucial if people are not to be faced with running the risk of losing their employment when seeking to discharge their duties, or caving in and sitting quiet. If that occurs, as I believe it will in some circumstances without such a provision, it strikes at a major protection of pensioners in the Bill. I therefore support the amendment.
Lord Boyd-Carpenter: On the face of it, the amendment seems reasonable. There may well be an answer and I await the Minister's reply with interest. However, I say to the Minister that on the face of it, as matters now stand, it certainly looks a reasonable proposition. If the Minister decides to reject it, the onus is on him to demonstrate what is the matter with the provision.
Baroness Seear: The amendment stands in my name, too. However, with such powerful support from the noble Lords, Lord Marsh, and Lord Boyd-Carpenter, there is little for me to add. That support has come from quarters from which one might not expect it. I made this point on the previous amendment, but I did not notice either of those noble Lords in the Lobby supporting that amendment. However, that is water under the bridge.
This is plainly one area in which the Government can show that they have second thoughts. I beg the Minister to take on board this most important amendment if he wishes the whole scheme to be taken seriously, with member participation a real and effective part of the scheme.
Lord Finsberg: I speak as trustee of a large pension fund. I have not experienced this problem but I agree very much with my noble friend Lord Boyd-Carpenter and the noble Lord, Lord Marsh, that there is a real danger. It is an even more subtle danger. Somewhere down the line someone may quietly say, not necessarily with the authority of the directors, "Watch out for your promotion". One can never take such a subtle statement to court. The Minister is bound to say—I have said it myself when I was a Minister—that the amendment is technically deficient. However, if he says that, I hope that he will undertake to come back at the next stage with a provision which covers this important issue.
Lord McCarthy: With such degree of support throughout the Chamber, one hesitates to enter into the debate in case one queers the pitch. However, I seek to anticipate the Minister's answer because no one else seems able to do so.

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We seek to put a trustee in the position of an employee who is dismissed on the ground of trade union activity, or because he is not a trade unionist, or on grounds of race or sex. In effect, we seek to make the dismissal of a trustee an unfair reason. Whenever one seeks to put an "unfair reason" into the unfair dismissal legislation, it is always said, "You do not need to put in another unfair reason because there is a residual. You can dismiss someone for some other substantial reason". It may well be said—I hope that it will because if not I am giving the Minister an argument—then why do we not have that protection already? Any tribunal considering a case of someone dismissed for action as a trustee could hear that that is the reason why it happened. If the tribunal agreed, it would say, "It is not sex, it is not race, it is not indiscipline. It is none of those things but we can find some other substantial reason. There is a residual". But that will not do, for many of the reasons already given, not least by the noble Lord, Lord Marsh.
In the first place, it will not do because it does not cover the two-year rule. Anyone who acts as a trustee in the newly established system and who has not been an employee for two years is not covered by the present unfair dismissal legislation. That is why we have special provisions for sex, race and trade union activities, to cover them completely. Secondly, once one can show that it is an unfair dismissal for a particular reason, such as sex or race, the onus of proof moves to the employer. The employer has to prove that he has not carried out the dismissal for those reasons.
Most important, I should have thought that the Government would wish to declare to all those who might be trustees that they have some protection. It is not much protection to tell someone, "Be a trustee of this kind of scheme and you will be protected because I happen to know that, although there is nothing in the statute and nothing in the law, if you were actually dismissed and went along to an as yet unnamed, unspecified tribunal, it would be bound to say that there was some other substantial reason". It is not much protection, not much encouragement. That is why, if the Government believe in trustees, they should give them this minimal protection.
Lord Mackay of Ardbrecknish: The noble Lord, Lord McCarthy started by trying to work out what the Minister might say in reply. I noticed that the one outcome he did not envisage was the Minister saying: "I surrender". The noble Lord is probably quite right not to have done that. However, given the number of speeches on the amendment, I feel just a tinge beleaguered as I stand at the Despatch Box. I say that especially because although on two occasions we all agreed that scheme members should be able to have member-nominated trustees and we all agreed that if a pensioner was selected and elected by the active and pensioner members it was a good thing we then had an argument leading to a Division on both the numbers and the specific place of the pensioner member.
So it is with some trepidation that I start by saying that I very much support the purpose of the amendment but do not believe that such provisions are necessary. We are satisfied that the existing provisions in the
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employment protection legislation, together with further measures provided in the Pensions Bill, will afford adequate protection for member-nominated trustees against unfair treatment by the employer. It is on that basis that I urge the Committee not to accept the amendment.
The provisions of the employment protection legislation making it unlawful to dismiss or to take action short of dismissal on trade union grounds constitute a strictly limited enhancement of the rights generally available to employees under the employment protection legislation. They were established in recognition of the fact that there are certain types of behaviour by employers which are so unacceptable that special protections were merited.
I should certainly not wish to understate how serious a matter it would be for an employer to victimise an employee because of his or her functions as a pension scheme trustee. But I do not believe that this would generally fall into the same category as infringements of a fundamental right, such as discrimination on grounds of sex or race.
In any event, I believe that provision; already in the Bill make the amendment unnecessary. Paragraph 2 of Schedule 3 amends the Employment Protection (Consolidation) Act 1978 and makes it automatically unfair for an employer to dismiss an employee trustee, regardless of the employee's length of service, on the grounds that he or she has sought to exercise the new statutory right to reasonable time off for training or performance of duties. Except in relation to such fundamental rights as I mentioned earlier, we are convinced that the general employment protection legislation affords a sufficient safeguard for employees against unreasonable treatment by their employers. Pension scheme trustees who are dismissed for carrying out their functions can, of course, complain of unfair dismissal, provided they have completed the normal two-year qualifying period of continuous service, as the noble Lord, Lord McCarthy, pointed out. I believe that in the case of employee trustees it will invariably be the situation that they have served for at least two years before they could possibly be elected or selected as trustees.
In the same way, employee trustees who have action short of dismissal taken against them in those circumstances may be entitled to resign and make a complaint of constructive unfair dismissal, again subject to having completed the normal two years' service, or may be able to claim damages for breach of contract.
Industrial tribunals in such cases would consider all the circumstances in reaching their decision. Dismissal solely on the grounds that an employee had carried out, or proposed to carry out, functions as an employee trustee would almost certainly be found to be unfair.
The Pensions Bill itself contains a number of additional protections for member-nominated trustees. Clause 14(3) (c) prevents member-nominated trustees from being removed from the trustee board except by unanimous agreement of all the other trustees. Clause 14(10) provides that a member-nominated trustee who ceases to be a member of the pension scheme will cease to be a trustee. However, if he merely ceases to be

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employed by the sponsoring company but leaves his pension rights in the scheme—that is, he continues to be a deferred member—he will be able to remain as a trustee. So, at its bluntest, the simple act of sacking someone does not necessarily remove him from the board of the trust fund if he remains in the pension scheme as a deferred pensioner. The noble Baroness, Lady Hollis, is making interruptions from a sedentary position. I am considering a number of examples of what Members of the Committee say might happen. I am now examining the case of an employee who has been dismissed because of what he is doing. I suggest that that would not remove him from the trust fund. Under the provisions of Clause 14—
Lord McCarthy: Is the noble Lord therefore saying that the employee should not worry, because although he has got the sack he is still in the pension fund?
Lord Mackay of Ardbrecknish: No, I am not saying that at all. There are two aspects to the argument with which I hope the Committee agrees. One is the aspect of the protection of the employee himself which I have already covered. I suggest that between the Bill and the various employment protection measures, that provision already exists. But there is the other aspect of the protection of the fund. Probably the point I have just made is more with regard to the protection of the fund and the interests of all the scheme members in the fund against someone trying to get rid of a member-nominated trustee who is being difficult.
Under the provisions of Clause 14, if a member-nominated trustee resigns or is removed from the board he must be replaced by another member-nominated trustee. Again, that is for the protection of the fund, the scheme and other scheme members. Additionally, a member-nominated trustee, or, for that matter, any individual who considers the pension scheme is not being run in accordance with the law can bring the matter to the attention of the regulatory authority. The authority will in turn be able to investigate any complaint. When we examined the amendment by the noble Baroness, we took—
Lord Marsh: I apologise for interrupting the Minister, but this is quite a complicated point. He said that the employee concerned would be able to appeal to the regulatory authority. Presumably that would enable the authority to consider whether there had been a breach of the rules of the scheme. However, I should have thought it did not provide direct protection to the employee.
Lord Mackay of Ardbrecknish: I was not trying to argue that point. As I mentioned before, there are two aspects to it. Members of the Committee have understandably been more concerned about the individual employee. I tried to address that aspect. I am now addressing the more general point of the employer removing an employee because of what he wishes to do with the fund and the protections that exist, including the one on which the noble Lord intervened. It is that the
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person involved could blow the whistle to the regulatory authority if the argument was about something which the regulatory authority ought to investigate.
We looked at this amendment not with regard to Section 157 of the 1992 Act, to which the text of the amendment relates, but with regard to Section 152 of the Act, as we believe that that is probably where the noble Baroness, Lady Dean, is looking for the kind of support for an employee that she seeks. This is a difficult issue. I hope that I have managed to explain why we think that this particular amendment is unnecessary. It is not that the protection is not desirable; it is that this way of doing it is unnecessary, because the protection is already there between employment legislation and some of the new provisions in the Bill for the employee. As I outlined, in regard to the fund, the provisions in the Bill would give the fund protection if the employee who was being removed was on to what might be called a good point; namely, one in which the regulatory authority would be more than interested if it were not resolved.
Looking at all the issues that I have mentioned, we believe that existing employment legislation provides sufficient safeguards for employee trustees without the need for further provision in the amendments. As I think I made perfectly clear, I do not want to see employees placed at a disadvantage in this regard. I have listened with some interest to what has been said. Nobody has yet made any comment about my contribution, but on the assumption that I have not totally convinced some Members of the Committee—I see the noble Lord, Lord Monkswell, already rising to his feet—I will of course consider what has been said. As in the previous two examples, I believe that we are at one in what we want to achieve. Noble Lords believe that some amendment to the Bill is required. I believe that we do not need anything other than what is already in the Bill and in employment protection legislation. I look forward to seeing how the argument develops.
5 p.m.
Lord Hailsham of Saint Marylebone: I say first to my noble friend on the Front Bench that I start this controversy by participating in it with an absolutely open mind; that is to say, I am not necessarily wedded to the particular route that has been selected by those who propose this particular amendment via the two consolidation Acts which have been referred to. I do not think that that is the way to begin looking at the problem. On the other hand, I entirely agree with my noble friend on the Front Bench that probably the route (if there is one) that one should follow is by way of the comparatively modern jurisprudence of unfairness principle. Perhaps my noble friend will forgive me for talking in terms of English law, which is the only system that I have ever studied. I refer to unfair dismissal, rather than wrongful dismissal through the courts or discrimination.
What one really wants to guard against is that a person who is a member, as a trustee, of a pension scheme, because he gets the reputation of being what I might call an awkward customer, a loose cannon or something like that, does not have some protection

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against the conditions in which he continues to be employed, or indeed in relation to his chances of promotion. That is the point of the case. The only question is how one addresses it. I would have thought that my noble friend could have gone rather further in the direction of those who support this amendment than he has already done.
The unfair dismissal route—again I am talking in English terms—involves appearance before a tribunal. The tribunal is not an ordinary court of law. It is one of those tribunals that have developed into English (and therefore British) jurisprudence since the war. It acts informally and it is not bound strictly by the rules of evidence or the conventions of the legal system as such. I wonder whether something could be put into the employment protection legislation that would put the burden of proof on the employer who wanted to disadvantage a person who happened to be a trustee of the scheme in the conditions of his employment to show that it was nothing to do with the way in which he had behaved as a trustee.
I feel that those who propose this amendment, irrespective of technicalities (I do not want to indulge in too much technicality) have a point. If a person acting as a trustee has a reputation as an awkward customer—which he is bound to be from time to time, because, as has been said repeatedly during the course of this afternoon's debate, a trustee owes his duty to the fund rather than to either side o f the employment contract—there should be something in the tribunal jurisprudence which puts the burden of proof on the employer to justify action against that person who is both a trustee and an employee. I wonder whether my noble friend could perhaps try a little harder than he has done in his very capable and probably persuasive reply if one relies solely on the technicalities.
Lord Mackay of Ardbrecknish: I did not think that I was depending on the technicality. I try not to do that. I simply wanted to point out, so that when noble Lords read my speech in Hansard they would realise how we had decided, in looking at the amendment, which way it had really meant us to go rather than what was on the Marshalled List.
My noble and learned friend strays into territory which is a little beyond me as a simple non-lawyer—as opposed to simple lawyers! I see the point that he makes. Certainly, I would like to consider the reversal (if I understand him) of what would in ordinary courts be considered the quality of proof, the need for the employer to prove that his action in dismissing (or whatever it is) the employee had nothing to do with the employee's action as a trustee. I would have to take some fairly firm advice on whether that was a route that was necessary to strengthen the purposes about which we all agree and which are behind the amendment. That is the best I can do in answer to my noble and learned friend.
Baroness Turner of Camden: I am very grateful to all the Members of the Committee who have participated in this debate and who have supported what we are trying to do in this amendment. Unfortunately, I
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really do not think that the Minister's response goes far enough. It does not address the concerns that have been expressed on all sides of the Committee.
As the noble and learned Lord, Lord Hailsham, rightly said, we are concerned about what happens to the awkward person who is in employment and keeps asking questions and who gets the reputation of being a bit of a stirrer. He is not protected by anything that I can see in this Bill. Certainly the sections of the Bill to which the Minister drew our attention relate to refusal to provide training, for example, which is not the issue at all. The Minister also made reference to existing legislation under which people may apply to the industrial tribunal if they believe that they are being unfairly dismissed. But of course, there is a two-year qualifying period involved; and it could very well apply to trustees—perhaps a trustee in a new scheme that has recently been established in a comparatively new company; if there had been a change as a result of a takeover; or as a result of a merger of companies, or something of that kind. The protection that we seek to provide to such employees would, by making reference to the Employment Protection (Consolidation) Act 1978 and the consolidation Act of 1992, have the desirable effect of putting the onus of proof upon the employer.
As I said at the beginning, in drafting this amendment we looked at the kind of amendment that we had drafted for our Private Member's Bill, when we sought to protect employees working on oil rigs who blew the whistle on unsafe practices. Noble Lords accepted that Private Member's Bill, and it eventually got into legislation. It seemed to us that it was equally important to try to protect the trustee whistle-blower in this situation. I was waiting to hear whether the Minister would say that they do not like the wording but that they will come back with something else.
Lord Mackay of Ardbrecknish: Would the noble Baroness like to tell me whether we are right in thinking that "Section 157" ought to have been "Section 152"? To be honest, that would be quite important if the noble Baroness were to force the matter to a Division. It means that I can take refuge in the ultimate bolthole of the amendment being defective. As I said, it would help us. We would certainly consider all that has been said.
Baroness Turner of Camden: Is the Minister saying that he is willing to consider what we have to say in the context of Section 152 rather than Section 157?
Lord Mackay of Ardbrecknish: I wanted to be clear that we were right in thinking that it was Section 152. As we do not disagree on what we want to do, I am reluctant to allow the Committee to proceed on the basis that I am totally opposed to looking at what has been said. I would certainly wish to take away all the points raised, including the one made by my noble and learned friend and other noble Lords, to see whether my advice is correct and that examples such as those that have been brought to us are adequately and safely dealt with. If the

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Committee is dissatisfied with what I eventually decide, there is Report stage at which to come back and have another go at me.
Baroness Turner of Camden: While the Minister was speaking, I took counsel from my noble friends. We are not anxious to push amendments to a vote or a Division, if it looks as though we might be able to reach agreement between ourselves on some way of giving protection to the people who will act as trustees and might be regarded as rather awkward and in need of special protection. When the Minister responded to me earlier, he said that special protection had been needed in other cases when certain types of behaviour by employers was unacceptable. I ask him to accept that the amendment acknowledges that there could be very unacceptable behaviour by employers. I believe that all sides of the Committee are agreed on that.
If the Minister is willing to say that he will look at what has been said in this debate and come back at Report perhaps with something to which we can all agree—we seem to have a measure of agreement between us—I certainly shall not press the amendment to a Division this afternoon.
Lord Mackay of Ardbrecknish: I am not sure that I can go much further than I already have gone. I should like to look carefully at what has been said. I should like to see whether the points that I made about protection are correct or whether the concerns of other Members of the Committee are justified. Obviously, if I am looking at that, I cannot promise one way or another to come forward inevitably with an amendment. I can certainly give the noble Baroness an assurance that we will take very seriously indeed everything that has been said today. If, in my view, a serious loophole has been opened up, we shall give serious consideration to how we can close it.
Baroness Turner of Camden: I thank the Minister for that statement. We shall look very carefully at the way in which this matter develops. Again, I thank all those who have participated in the debate. In view of what has been said this afternoon, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 15 [Exceptions]:
5.15 p.m.
The Deputy Chairman of Committees (Lord Murton of Lindisfarne): If the Committee agrees to Amendment No. 111A, I shall not be able to call Amendment No. 111B tabled by the noble Earl, Lord Buckinghamshire, because of pre-emption.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 111A:
Page 7, line 15, leave out from beginning to ("and") in line 21, and insert:
("( ) a ballot of active and pensioner members has been carried out by the employer under the statutory consultation procedure,
( ) in that ballot a majority of members eligible and voting supported that alternative,
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( ) any complaint made to the Authority under the statutory consultation procedure has been considered and rejected, or action taken to rectify the position,").
The noble Baroness said: In moving this amendment I shall speak also to Amendments Nos. 116B and 158B.
This is a modest amendment but we believe that it is rather important. Two-thirds of all schemes, covering a third of members, have no elected or nominated member trustees and at the moment many of the rest will not contain one-third such trustees. In other words, after the passage of this Bill, most schemes will need to change, unless the employer and scheme members wish to keep the present trustee arrangements undisturbed; for example, where the scheme employs an independent professional trustee. That is their right, provided that members have been fully informed and fully consulted and that members' rights have been properly exercised. But will that be the case? I hope to persuade the Committee that this amendment will make that choice very clear.
Under the Bill at present, if the employer wishes to keep the existing arrangements of fewer than one-third trustees coming from scheme members, he must notify employees; and only if 10 per cent. of the staff require it he must then proceed to a ballot to ascertain their views. In other words, scheme members have to take the initiative to seek a ballot. We believe that it should be the other way round.
We believe that employers should be required to provide a ballot as part of the statutory consultation process itself. It should not be left to the energy of members to ask for a ballot. It should be the duty of the employer to provide one. Otherwise, how can the employer genuinely know members' views?
Perhaps I may use an analogy which I am sure will be familiar to the Committee. On a matter of such importance, we want, so to speak, the affirmative rather than the negative procedure when employees are perhaps being asked whether they wish to opt out of their legal rights under this Bill. We want to ensure that there must be a positive vote to relinquish rights rather than having scheme members merely trigger a vote because 10 per cent. of them have demanded it. I believe that that is only fair.
This is a very modest change but it ensures that people know what they are doing because they have balloted on the issue when they are asked or invited to forgo what would otherwise be their legal rights. That seems only fair. I beg to move.
Lord Finsberg: I hope that my noble friend will advise the Committee to reject the amendment. It seems to treat as incompetent, uneducated, second-class citizens those in pension funds and pensioners. It suggests that if they have a problem, they will not be competent enough to form part of the 10 per cent. who can ask for a ballot. Moreover, the amendment will involve in unnecessary cost every scheme of every employer, or mixture. I do not believe that that is an advantage to the pension fund.
Those who are in pension funds will, after all, not be coming to something that is totally new. If, in the past, they have been less than satisfied, they will be active in

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asking for a ballot and for the 10 per cent. to be forthcoming. If it concerns anything else, I still believe that individuals in a pension scheme or pensioners will have enough wit to say, "There is something that I should like to put right. I should like my chance of having a ballot." They would ask for it.
I hope that my noble friend will not be tempted into accepting the amendment. It is in fact a far more unnecessary—dangerous is not quite the word to use—amendment than those we have already discussed.
Baroness Seear: My name is also on the amendment. It is not about a vital principle, as perhaps those amendments that we have discussed previously have been. However, such things can go by default and we want to make sure that they do not do so. The noble Lord, Lord Finsberg, said that members will not be coming to something new. But the scheme could be a brand new one. People might not be very familiar with it.
This is not an issue of the highest level of importance. However, we want to make sure, particularly in the small schemes, where the organisation may not be very strong, that the employer cannot set up the kind of arrangement that he wants simply because the matter goes by default. That is all I want to say. I support the amendment.
Lord Monkswell: I hesitate to rise in this debate except to say this. We have just debated protection for employees who are members of boards of trustees, and there was general agreement that they should be protected from the pressure that may be placed upon them by an employer. We are now envisaging a similar situation in that the proposal by the Government suggests that there should be a form of trigger mechanism. The implication of such a mechanism is effectively to say to the employer, "We think there is something wrong with the scheme and therefore want a change". Exactly the same pressures arise. It may be a wider group of employees, but an employer may threaten that if an employee starts the trigger mechanism he will wind up the scheme.
That may prove to be a bar on employees becoming involved in schemes, seeking representation among the trustees and, through the trigger mechanism, ensuring that their pension scheme is operating satisfactorily. The provision therefore needs to be considered as part of the structure of safeguards that should be built into the Bill for the benefit of future schemes.
Lord Marsh: My anxiety at the moment is that I cannot work out what the Minister's objection, if objection he has, can possibly be based on.
Perhaps I may take issue with the noble Lord, Lord Finsberg, on two points that he raised. First, cost is obviously a factor; but it will be extremely small for this kind of activity. A large company will have an administrative machine well capable of dealing with the situation, and small schemes will not encounter high costs.
On the noble Lord's second point that members of schemes may be third-rate citizens without the skills required, he may well be right—not that the members
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are second-rate citizens but that in many cases they will be people who are not articulate; who are not used to campaigning, setting up a ballot and going against the employer.
A third point made by the noble Lord, Lord Monkswell, is that this is another example where people have to stand up and be counted against their employer. The fewer cases of that, the better. However, I look forward to hearing the Minister say that he had intended to provide something on the lines of the amendment but that this is the first opportunity he has had to put it in.
Lord Mackay of Ardbrecknish: Amendments Nos. 111A, 116B and 158A concern incorporating minimum standards on the face of the Bill and whether that would be prudent. I can assure the Committee that in our proposed statutory consultation procedure members will be left in no doubt about their rights and options. It may be helpful, even though I may need to address the Committee for a few minutes more than I try to at each intervention, for me to set out the statutory consultation procedure that we believe should operate and what our current thinking is on the prescribed rules. I hope that after I have done that the noble Baroness will accept that it is unnecessary to pursue the amendments.
I shall also argue that there could be disadvantages in placing too much detail about the consultation procedure and the prescribed rules on the face of the Bill. The features set out in the amendment may not be appropriate in all circumstances for all time, and incorporating them in the Bill could give rise to unnecessary difficulty in some cases and a loss of flexibility.
To return to the detail of the statutory consultation procedure and prescribed rules, the Committee may find it helpful if I set out in some detail what we propose to incorporate in these important regulations which trigger the whole mechanism for member-nominated trustees. For the statutory consultation procedure we propose to provide that it should incorporate detailed notification requirements. Members must be told clearly what their rights are under Clauses 14 or 15 as appropriate and what is proposed by way of an alternative. They will need to be told about their rights to object to what is proposed, and by when, and be given clear information about how to go about registering that objection.
Our current thinking is that the notification should be in writing and incorporate a tear-off slip for members to use if they wish to register an objection—we dealt with that in passing on Committee day one—but it may be appropriate to allow less formal methods in limited circumstances. The safeguard for the members is that, if there is any suggestion that the employer or trustees have failed to carry out the requirements of Clauses 14 or 15—for example, by ignoring objections—the regulatory authority could be asked to investigate; and the onus would be on the employer or trustees to show that they had acted properly. Given that, I would argue that the appeal role for the regulatory authority envisaged in Amendments Nos. 116B and 158B is unnecessary.

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As to who should be consulted, that is already set out on the face of the Bill. In all cases, all active and pensioner members will need to be consulted and the trustees may determine at their discretion that deferred members should be consulted. That is an important feature of the proposals and it is clearly right that that should be on the face of the Bill. As we have already discussed this afternoon, it gives significant influence over the composition of the trust board to pensioner members of the scheme. What the statutory consultation procedure will not do is to provide for separate consultation arrangements for different classes of member. We believe that the issues should be considered by eligible members collectively and that all should have an equal voice.
That would not of course prevent employers or trustees from proposing, or members from agreeing to, actual arrangements for selecting the trust board which gave different weight to different groups or involved different electoral colleges. We are keen that schemes should be able to maintain or introduce whatever arrangements best suit their particular circumstances, so long as members eligible to be consulted are content. If an appropriate percentage of scheme members register an objection to what is proposed, there would need to be a positive test of opinion. We believe that that is a better way to proceed than holding a ballot in every case, as the three amendments would require.
We come to that view because we want to minimise the cost and procedural hurdles for schemes which want to maintain or introduce arrangements for constituting their trust board which are indeed likely to be acceptable to the scheme members and which may well be within the spirit of the requirement to appoint at least one-third member-nominated trustees. We are mindful of the conclusion of the Pension Law Review Committee that the constitutions of many trust boards, while not based on member election, are likely to be quite acceptable to the members and we are anxious—like the PLRC—not to disturb existing perfectly satisfactory arrangements. If, however, the proposed arrangements were opposed by a percentage of those consulted—we believe it would be right to specify a level of around 10 per cent.—there would need, as I have said, to be a positive test of opinion by way of a ballot.
To complete the picture, we intend that the statutory consultation procedure should indeed be activated within a minimum period after the commencement of the Act. Our current intention is that trustees selected in accordance with approved arrangements under either Clauses 14 or 15 should be in place within six months of the commencement of the Act. There will be substantial notice of this requirement, so it should not prove too onerous; but we intend to consult about its practicality. We believe it would be unhelpful to have an unamendable timetable laid down in primary legislation.
We intend to provide under the statutory consultation procedure that eligible members should be consulted afresh at least every six years. We also believe it would be appropriate to require trustees to consider whether further consultation is appropriate following specific developments such as a merger or bulk transfer; and to
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give them the right to request or conduct a further consultation exercise at any time. Acting in a fiduciary capacity, they would be bound to give consideration to any views on this point expressed by scheme members.
A further consideration is that we feel it is necessary to consult widely about the procedures I have just outlined to ensure that they take account of all the possible variations of circumstances which may be relevant. There may also be a case for limited exceptions or modifications to apply in specific circumstances, and we believe it is right to retain the flexibility to do this by providing for the procedure to be specified in regulations.
The arguments affecting the proposed "prescribed rules" are a little different. The Committee will recall that these rules will be the statutory arrangements for the selection of member-nominated trustees which will apply if it proves impossible to agree "appropriate rules"; that is, rules accepted or approved by eligible scheme members under the statutory consultation procedure.
Thus the prescribed rules can be seen as being something of a default procedure. It would be wrong to view them as some kind of statutory minimum: they are arrangements which might need to be implemented quickly, perhaps following a disagreement. As such they must be relatively straightforward and uncontroversial and deliver the basic policy intention of securing at least some members of the trust board who have a different perspective from that of the employer. Our present intention therefore is that under the prescribed rules active members only should be invited to make nominations and then given the opportunity to vote on those nominations. As I say, this does not represent our view of the ideal arrangement; but it does seem to be one which could be implemented quickly and without fuss. Any attempt to complicate this arrangement could frustrate or delay the achievement of the basic policy objective.
I am sorry that I have spoken at some length but I think it is important at least to put on record for your Lordships to read in Hansard what our intentions are with regard to the regulations. For all these reasons, I hope that Amendments Nos. 116B and 158B will not be pursued. I hope that my explanation helps.
On the specific question of Amendment No. 111A, although I am unable to agree with the noble Baroness, Lady Hollis, I think that she may have identified an important lacuna in that, if an employer had failed to conduct a statutory consultation procedure, the Bill as drafted does not currently provide for the arrangement for constituting that trust board to be invalid. We shall certainly have to consider that point further. That having been said, and with an undertaking to consider the specific point where an employer fails to conduct a statutory procedure, I hope that the noble Baroness will feel able to withdraw her amendment.
5.30 p.m.
Baroness Hollis of Heigham: The Minister addressed himself to subsection (3) without dealing with the substance of subsections (1) and (2). Three basic

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issues have been raised. The Minister has not set aside my concerns on those issues although he may go on to do so later this evening.
The first is the basic general principle that statutory consultation should means what it says. It should include the testing of opinion by ballot and not merely by default. Perhaps I may refer to other areas of which we have had experience. I have in mind housing action trusts or opt-out schemes. In those situations, when local governors, tenants' associations or residents' associations wish to move down that path, there has to be a ballot. There is not a ballot triggered by 10 per cent. who are agreed. The presumption does not go with the governors or with the local housing authority. It must be tested by ballot. The Government have accepted that in almost every sphere of policy. Where people are deciding to opt out of something their opinion must first be tested by a vote. That is reasonable and I believe that we should hold to it.
The Minister's second argument, which was repeated by the noble Lord, Lord Finsberg, is one of cost. The Minister spent a helpful amount of time detailing the consultation procedure to follow. I think I heard him rightly when he said that all the papers will go out, there will be full documentation explaining the issues and there will be a tear-off slip to register an objection. Why not use that tear-off slip as a ballot paper? If 10 per cent. of the members use the tear-off slip to say they want a ballot, far from the employer saving costs the employer will face double costs because he will have sent out all the papers in the first place asking whether members want a ballot and when 10 per cent. say they do he will have to send out a second set of papers for the ballot. If the noble Lord, Lord Finsberg, is concerned about the cost, it is surely sensible to use that slip of paper which apparently is part of the statutory procedure to make it a ballot. What could be simpler? It will save the cost, the time and the energy of going over the whole issue a second time because 10 per cent. of members have indicated that they want a ballot. Why have two pieces of paper when one will do and when at the same time we could uphold the democratic principle? I am baffled.
The Minister explained clearly that there will be a tear-off piece of paper. Why should there be a tear-off piece of paper asking whether members want a ballot when that could be used for the ballot? Employers will have to come out with another piece of paper. That cannot be sensible. It is daft. It is Alice in Wonderland stuff.
A third point was made by my noble friend Lord Monkswell and the noble Lord, Lord Marsh. They are absolutely right. By asking employees to trigger a ballot one is setting up, whether one wishes it or not, a confrontation. Whether one likes it or not the impression will get out that somehow employees are extracting from a grudging employer the democratic right to vote. That is not a sane and healthy way to approach the construction of a trustee board which should represent the fiduciary interests of the entire company and all the parties to it. We are inviting people to see whether they wish to opt out of their legal rights. We believe that that should be done by the affirmative rather than by the negative procedure. We think it is more democratic and that it will save costs. It
480
will happen only every six years or so. Above all, it will appear to prevent any notion of sectionalism or of confrontation which otherwise will be set up when the employees have to extract from an employer what I am sure most of us believe is an inherent right. I feel that I should test the opinion of the Committee.
5.35 p.m.
On Question, Whether the said amendment (No. 111A) shall be agreed to?
Their Lordships divided: Contents, 114; Not-Contents, 131.

Division No. 3

CONTENTS

Acton, L.

Jacques, L.

Addington, L.

Jay of Paddington, B.

Airedale, L.

Jeger, B.

Archer of Sandwell, L.

Jenkins of Hillhead, L.

Barnett, L.

Jenkins of Putney, L.

Beaumont of Whitley, L.

Judd, L.

Blackstone, B.

Lester of Herne Hill, L.

Bottomley, L.

Listowel, E.

Bridges, L.

Lockwood, B.

Brooks of Tremorfa, L.

Lovell-Davis, L.

Bruce of Donington, L.

Mallalieu, B.

Callaghan of Cardiff, L.

Marsh, L.

Carmichael of Kelvingrove, L.

Masham of Ilton, B.

Carter, L.

Mason of Barnsley, L.

Castle of Blackburn, B.

Mayhew, L.

Cledwyn of Penrhos, L.

McIntosh of Haringey, L.

Clinton-Davis, L.

McNair, L.

Cocks of Hartcliffe, L.

Merlyn-Rees, L.

Darcy (de Knayth), B.

Milne, L.

David, B.

Milner of Leeds, L.

Dean of Beswick, L.

Mishcon, L.

Dean of Thornton-le-Fylde, B.

Monkswell, L.

Desai, L.

Morris of Castle Morris, L.

Diamond, L.

Mulley, L.

Donaldson of Kingsbridge, L.

Nicol, B.

Dormand of Easington, L.

Ogmore, L.

Dubs, L.

Peston, L.

Eatwell, L.

Prys-Davies, L.

Ezra, L.

Rea, L.

Falkender, B.

Redesdale, L.

Falkland, V.

Richard, L.

Farrington of Ribbleton, B.

Ritchie of Dundee, L

Fisher of Rednal, B.

Robertson of Oakridge, L.

Freyberg, L.

Rochester, L.

Gallacher, L.

Rodgers of Quarry Bank, L.

Geraint, L.

Seear, B.

Gladwin of Clee, L. [Teller.]

Sefton of Garston, L.

Gladwyn, L.

Serota, B.

Glenamara, L.

Shannon, E.

Gould of Potternewton, B. [Teller.]

Shepherd, L.

Graham of Edmonton, L.

Stallard, L.

Greene of Harrow Weald, L.

Stedman, B.

Grey, E.

Stoddart of Swindon, L.

Halsbury, E.

Strabolgi, L.

Hamwee, B.

Taylor of Blackburn, L.

Harris of Greenwich, L.

Thomas of Walliswood, B.

Haskel, L.

Thomson of Monifieth, L.

Healey, L.

Tope, L.

Hilton of Eggardon, B.

Tordoff, L.

Hollick, L.

Turner of Camden, B.

Hollis of Heigham, B.

Varley, L.

Holme of Cheltenham, L.

Wallace of Coslany, L.

Hooson, L.

Whaddon, L.

Houghton of Sowerby, L.

White, B.

Howie of Troon, L.

Williams of Elvel, L.

Hughes, L.

Williams of Mostyn, L.

Irvine of Lairg, L.

Winchilsea and Nottingham, E.

481

NOT-CONTENTS

Aberdare, L.

Hylton-Foster, B.

Ailsa, M.

Inglewood, L. [Teller.]

Aldington, L.

Kinnoull, E.

Astor, V.

Lauderdale, E.

Balfour, E.

Leigh, L.

Belhaven and Stenton, L.

Lindsay, E.

Blaker, L.

Lindsey and Abingdon, E.

Blatch, B.

Long, V.

Blyth, L.

Lucas of Chilworth, L.

Boardman, L.

Lucas, L.

Borthwick, L.

Lyell, L.

Boyd-Carpenter, L.

Mackay of Ardbrecknish, L.

Brabazon of Tara, L.

Mackay of Clashfern, L. [Lord Chancellor.]

Braine of Wheatley, L.

Bridgeman, V.

Macleod of Borve, B.

Brigstocke, B.

Mancroft, L.

Brougham and Vaux, L.

Manton, L.

Buckinghamshire, E.

McColl of Dulwich, L.

Burnham, L.

Merrivale, L.

Butterworth, L.

Mersey, V.

Buxton of Alsa, L.

Miller of Hendon, B.

Cadman, L.

Milverton, L.

Caithness, E.

Mottistone, L.

Caldecote,V.

Mountevans, L.

Campbell of Alloway, L.

Mowbray and Stourton, L.

Campbell of Croy, L.

Moyne, L.

Carnegy of Lour, B.

Murton of Lindisfarne, L.

Carnock, L.

Newall, L.

Chalker of Wallasey, B.

Norrie, L.

Charteris of Amisfield, L.

Northesk, E.

Chelmsford, V.

Orkney, E.

Clanwilliam, E.

Orr-Ewing, L.

Clark of Kempston, L.

Oxfuird, V.

Colwyn, L.

Pender, L.

Courtown, E.

Perry of Southwark, B.

Craigavon, V.

Peyton of Yeovil, L.

Cranborne, V. [Lord Privy Seal.]

Prior, L.

Crathorne, L.

Quinton, L.

Cross, V.

Rankeillour, L.

Cumberlege, B.

Rawlings, B.

Davidson, V.

Rees, L.

Dean of Harptree, L.

Renwick, L.

Dixon-Smith, L.

Rodger of Earlsferry, L.

Elibank, L.

Romney, E.

Ellenborough, L.

Saltoun of Abernethy, Ly.

Elles, B.

Sanderson of Bowden, L.

Elliott of Morpeth, L.

Seccombe, B.

Elton, L.

Shaw of Northstead, L.

Faithfull, B.

Skelmersdale, L.

Ferrers, E.

Skidelsky, L.

Finsberg, L.

St. Davids, V.

Flather, B.

Stewartby, L.

Gardner of Parkes, B.

Strathclyde, L. [Teller.]

Goschen, V.

Strathcona and Mount Royal, L.

Haddington, E.

Sudeley, L.

Harding of Petherton, L.

Swansea, L.

Harmar-Nicholls, L.

Swinfen, L.

Harmsworth, L.

Swinton, E.

Harrowby, E

Thomas of Gwydir, L.

Hayhoe, L.

Tugendhat, L.

Henley, L.

Ullswaler, V.

Hives, L.

Vivian, L.

Holderness, L.

Whitelaw, V.

HolmPatrick, L.

Wise, L.

Hothfield, L.

Wynford, L.

Howe, E.

Young, B.

Resolved in the negative, and amendment disagreed to accordingly.
5.45 p.m.
[Amendment No. 111B not moved.]
Baroness Turner of Camden Baroness Turner of Camden s moved Amendment No. 112:
Page 7, line 22, at end insert ("provided that in no case may the employer appoint all the trustees").
The noble Baroness said: This very simple amendment provides that in no case may the employer appoint all the trustees. Prior to the Goode Report, one of the criticisms frequently made of occupational pension schemes, particularly small pension schemes, was that the employer was too dominant and in many instances where there were no employee trustees the employer appointed all the trustees or acted as the trustee himself.
The whole tenor of the Goode Report and much of the Bill before the Committee, is against that concept. If the Bill is about anything at all it is about empowering the beneficiaries and their dependants. There is now absolutely no reason at all why the employer should ever appoint all the trustees. This part of the Bill specifies that where existing arrangements are acceptable there is no need to change them—at least, that is what it appears to be saying. But that is not acceptable if the employer appoints all the trustees and we must say so on the face of the Bill. I invite the Minister to accept this amendment. I beg to move.
Lord Mackay of Ardbrecknish: The noble Baroness has raised an important issue and I acknowledge that the Government did indicate their support for the relevant PLRC recommendation No. 36 in our White Paper in June 1994. However, I believe the underlying point is fully addressed by the statutory consultation procedure. Under this proposed procedure, scheme members will be able to use their statutory right to object to their existing scheme arrangements or to any other suggested constitution of the trust board proposed by an employer. These are the matters which we have just discussed. In this way they can, if they choose, defeat arrangements which give an employer the sole right to appoint trustees.
However, members may be perfectly content with their scheme arrangements, notwithstanding that the employer appoints all the trustees. They may not want a change to something new or to select member-nominated trustees. In these circumstances my instinct is to respect the wishes of members. They, after all, are in the best position to decide the most suitable arrangements for their scheme. The noble Baroness agreed with that when she said—if I got her words right—that we wanted to empower scheme members. That is indeed what our proposed system would do.
The amendment proposed by the noble Baroness would prevent some schemes from keeping their existing arrangements if those arrangements give the employer the sole power to appoint trustees. Many employees enjoy excellent relationships with their employer, and as long as they are happy with an arrangement, it would be wrong for the Government to intervene. I am not convinced that this amendment would ultimately be in the best interests of pension schemes and scheme members and, therefore, I am unable to accept it.
Baroness Turner of Camden: I am somewhat disappointed by the Minister's response. If the onus is put on the schemes to ensure that trustees are appointed and not simply by the employer, one is taking an important

483
step forward in empowering the members of the scheme. You are saying to them, "It is up to you now; you have to appoint someone". There are many small schemes in existence where individual employees simply would not know about statutory consultation arrangements and statutory rights. Therefore, if something is written on the face of the Bill which makes it obligatory on the employer to set about finding a member trustee, that will eventually be very much in the interest of scheme members. However, it is not my intention to press this amendment to a vote. It is not one of the most crucial before the Committee tonight.
Nevertheless, I feel that it is important to try to underline the fact that that is not an acceptable practice or one that we should in any way seek to encourage. The employer should not be allowed to appoint all the trustees. Everything possible should be done to ensure that the members of the scheme take their responsibilities seriously and set about appointing trustees who will properly represent the beneficiaries' and members' interests. Having said that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Dean of Thornton-le-Fylde Baroness Dean of Thornton-le-Fylde moved Amendment No. 112A:
Page 7, line 33, leave out from ("appointments") to end of line 34.
The noble Baroness said: This a probing amendment because we are not absolutely clear about the wording of the provisions. We have just had a debate in which it has been said that many pension schemes do not have member trustees and that there will be many changes when the Bill comes into force in 1997. For the first time scheme members will be electing trustees, but during the consultation process they will be given the opportunity for the situation to remain as it is.
Clause 15 deals with exceptions and begins by stating:
"Section 14 does not apply".
Therefore, none of the provisions relating to trustees applies. I highlight that fact because Clause 14(8) states clearly:
"The arrangements must not provide for the functions of member-nominated trustees to differ from those of any other trustee".
The amendment relates to subsection (3) of Clause 15, which, after giving some details, states:
"and the terms of their appointments and any special rules for decisions to be made by particular trustees".
I suggest that if there is already bad practice in the trustee arrangements, the provisions allow that bad practice to continue. The subsection allows,
"special rules for … particular trustees".
We find those provisions very worrying. Do they mean that a member-nominated trustee on a trust board may be disenfranchised from having full involvement because the clause specifically states that Section 14 does not apply? Do the provisions mean that employer-nominated trustees will have special additional rights over other trustees? We need answers to those questions and I hope that the Minister will be able to cover those points when he replies. Indeed, if he accepts the amendment as it stands, his reply will he quite short. He would make my day if he did that, but we shall have to wait and see.
I advise the Minister that we have serious concerns about this. When the Bill becomes an Act, its provisions must be absolutely clear. Both from my personal experience and as a result of having read the relevant papers, I can advise the Minister that the matter is not clear at the moment and that the Bill provides a gateway allowing bad practice to continue despite the fact that there will be a statutory consultation process. I beg to move.
Lord Mackay of Ardbrecknish: This amendment could seriously undermine the security of members in schemes which currently have an independent trustee on the trust board; and it would detract from the right of those members to choose to maintain such arrangements.
Many schemes have set up arrangements involving trustees independent of the sponsoring employer for the specific purpose of, say, avoiding a takeover bid. The aim of such bids can be to take advantage of the healthy state of the pension funds. Some of the schemes have made representations to us, arguing that member-nominated trustees would not be the best solution to their problems and have urged us to enable them to opt-out. Without commenting on the merits of the case, I know that many people would say that this type of arrangement offers comparable security to member-nominated trustees. But I can say that they expressed a very reasonable aspiration to he able to determine, with members' approval, the arrangements best suited to the circumstances of their schemes.
In these schemes different powers may be given to a professional corporate trustee who is independent of the employer and may sit alongside other trustees. This trustee may be able, for example, to appoint other trustees or wind up the scheme in certain circumstances and he may have been placed on the trust board specifically to protect scheme members.
The requirements of subsection (3) ensure that employers must be explicit about the exact nature of their arrangements and give details which members have a right to know about. It places a requirement on them to inform members during the statutory consultation procedure if, among other things, the powers of certain trustees differ from the others. It is for scheme members to decide whether or not they should approve such arrangements.
The amendment restricts members' rights to choose the arrangements best suited to their needs. It could jeopardise the many excellent arrangements which involve professional corporate trustees, many of which, I am informed, were set up to avoid hostile takeover of the sponsoring employer.
With that explanation of why the provisions are in the Bill, I hope that I have reminded the noble Baroness that, whatever the arrangement that is made, it has to go through the statutory consultation procedure and members have to agree to it, via the procedures that we talked about earlier. That provides protection against anything that might be—dare I say the words?—devious

485
or underhand. As it stands, the clause provides for independent trustees and the important role that they can play in a fund.
Lord Monkswell: I understand the Minister's description of the important role of independent trustees and their ability to take decisions which are independent of either the employer or the employee. However, I find the suggestion that they should have special rules and special powers rather difficult. On the one hand, we are asked to believe that all trustees are equal and have responsibility for the fiduciary interests of the fund, but, on the other hand, we are asked to believe that it is all right for some trustees to have special powers.
I wonder whether a different way of dealing with it might resolve the problem. We could have special independent trustees without giving them any special powers in terms of their work as trustees. We could give them the same powers and responsibilities as other trustees but, by virtue of their independence—and, if I dare say so, of their financial independence—they would be enabled to take action that would be debarred other trustees. In effect, we would be ensuring that every trustee has the same powers and responsibilities, but there would be an independent trustee with a special ability to act because of his or her independence. I suspect that the Minister will not be able to respond to my comments this afternoon and I know that this is a probing amendment, but I wonder whether he could bear them in mind for consideration at a later stage. I am trying to suggest a way in which we might go forward and resolve the problem.
Lord Mackay of Ardbrecknish: Perhaps it would be helpful if I were to reply to that point. I always bear the noble Lord's comments in mind. If I understood his comments correctly, I would argue something like this: the point about having independent trustees (where they exist) is that they may need to take decisions, but may not be able to get the support of the majority of the trustees for the actions that they want to take, so they may need special powers. So the noble Lord's suggestion would remove the very protection that the independent trustees give because they would no longer be able to act independently and independent of the other trustees who may want to go down a different road which the independent trustee considers is not in the best interests of the scheme. If they all had the same power they would be able to vote down the independent trustee on those matters which the employer and the scheme members had agreed to be powers reserved for him. I hope that that answers the noble Lord, but I shall look tomorrow at his question in the Official Report and my answer to see whether I have answered his point.
6 p.m.
Baroness Dean of Thornton-le-Fylde: I thank the Minister for his detailed response, because he kindly highlighted the fact that the clause protects the position of independent trustees. I have represented many people who have been covered by pension schemes that have had independent trustees called in to protect the members of the fund. I am aware of the value of many of those independent trustees. There is provision elsewhere in the
486
Bill (Clause 20, I believe) relating to independent trustees. It was not my intention to eliminate any powers that independent trustees may have conferred upon them by the receiver or the court. There is a well-known case of which I am aware.
But if that is the case, why does not the Bill say so? Why does it not say so with regard to independent trustees? That term is used in several places in the Bill and is clearly understood. The reference to special rules for particular trustees is so open-ended that I do not believe that it will protect schemes sufficiently. However, I do not intend to press this matter to a Division at this stage. I shall read what the Minister has said. I ask him to reconsider the wording and to come back with an amendment which will provide coverage for independent trustees. I can assure the Minister that if he does not, we will cover this matter on Report. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 112B to 113A not moved.]
Clause 15 agreed to.
Clause 16 [Member-nominated trustees: supplementary]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 113B:
Page 8, line 2, at end insert:
("( ) Where either—

(a) the statutory consultation procedure has not commenced within the prescribed time after the coming into force of this Act, or

(b) the statutory consultation procedure having resulted in approval of the prescribed rules as the method of obtaining member-nominated trustees, the procedure for appointing such trustees has not commenced within 6 months of the conclusion of the statutory consultation procedure, the Authority shall issue a notice to the existing scheme trustees warning them that the relevant procedure must be commenced forthwith.

( ) If, after the expiry of 28 days of the issue of such a notice, no procedure under the prescribed rules has yet commenced, the Authority shall appoint an independent trustee under section 4(4) of this Act to ensure that the relevant procedure is carried out.").
The noble Baroness said: I shall be brief. The point of the amendment is that in the event of a default, civil penalties under Clause 9 are not enough. We ask that the regulator should be able to impose statutory arrangements instead by providing that an independent trustee do the job. I beg to move.
Lord Mackay of Ardbrecknish: The noble Baroness has identified an important issue. I accept that the statutory consultation procedure which must be undertaken when schemes develop their own rules for selecting member-nominated trustees, or if an employer proposes alternative arrangements under Clause 15, should be commenced promptly and brought to a conclusion within a reasonable period after the commencement of the Act.
Our intention is to prescribe appropriate timescales in regulations under Clause 16(3). Our current intention is that member-nominated trustees, selected in accordance with Clause 14, should be in place within six months of the Act coming into force. Similar arrangements are proposed under Clause 15. We currently intend to require that employers complete the statutory consultation

487
procedure and have the arrangements in place within six months. However, that is not something on which we have a closed mind. We intend to consult schemes and individuals who have experience of the day-to-day running of schemes and gauge their opinion on the best timetable for implementing those requirements.
The second part of the amendment is superfluous. It proposes that the authority should issue warning notices to schemes and in the final event be able to appoint an independent trustee to carry out relevant procedures. The authority already has the power to sanction trustees and employers for failing to comply with statutory requirements. The Bill also already contains a power for the authority to remove existing trustees and appoint an independent trustee (under Clause 6) to ensure that statutory duties are carried out. However, I do not believe that it would be sensible, as this amendment would do, to fetter the authority's discretionary powers to examine the merits of each case and decide on the appropriate action.
I hope that with that explanation the noble Baroness will be able to withdraw the amendment.
Baroness Hollis of Heigham: I thank the Minister for that reply. We shall obviously study it in Hansard to see whether we are confident that the interlocking of the clauses will serve the function that he suggests. It is our belief that he has given the regulator power to penalise but not power to impose a solution. If that is incorrect, we shall obviously need to come back on it. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas Lord Lucas moved Amendment No. 114:
Page 8, line 3, after ("15(2)") insert ("or any corresponding provisions in force in Northern Ireland").
The noble Lord said: For the convenience of the Committee I shall speak also to Amendment No. 115. Technically speaking, these are drafting amendments which correct an error in the Bill by moving the phrase,
"or any corresponding provision in force in Northern Ireland",
from the end of Clause 16(2) and inserting it in the first line of that subsection. Its purpose is to clarify that the Northern Ireland provisions referred to are those which correspond to the selection of member-nominated trustees and not to Section 591B of the Taxes Act 1988. I beg to move.
Baroness Hollis of Heigham: The Minister has convinced us by his eloquence that this is a technical amendment. We are therefore happy to accept it.
Lord Monkswell: On a technical point, I wonder whether I may point out to the Government that the reference to the Taxes Act 1988 is not recognised by the Printed Paper Office. After some investigation, it was found that the provision related to the Income and Corporation Taxes Act 1988. It may be worth having that in Hansard for future reference.
Lord Lucas: If a further technical amendment is necessary, we shall bring that forward.
On Question, amendment agreed to.
Lord Lucas Lord Lucas moved Amendment No. 115:
Page 8, line 5, leave out ("or any corresponding provisions in force in Northern Ireland").
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 115A:
Page 8, line 17, at end insert:
("( ) Regulations made under subsection (3) above shall not specify a time period of more than six months for making of arrangements under sections 14(1) or 15(2), or one year for the selection of trustees in pursuance of such arrangements, both periods to run from the date of this Act coming into force.").
The noble Baroness said: I shall be brief, because the substantive points should be made on Amendment No. 116. Currently, the clause is open-ended, allowing the Secretary of State to take as long as he likes to bring it into force. We are apprehensive, because the Government have a record in previous pension legislation of putting proposals in legislation but not then bringing them forward; for example, there was a registrar of pensions scheme with important powers in the 1985 Act; and there were statutory increases for pensioners in the Social Security Act 1990. The amendment is intended to prevent the Government from dragging their feet en this matter. I beg to move.
Lord Mackay of Ardbrecknish: I am having a little difficulty with Amendment No. 115A. Perhaps the noble Baroness will explain it to me in a little more detail.
Baroness Hollis of Heigham: It is grouped with Amendment No. 113A, which was not moved by my noble friend Lady Turner.
Lord Mackay of Ardbrecknish: I realise that it was grouped with several amendments in respect of which I had a long speaking note. My trouble is that I must try to dissect that speaking note in order to find the appropriate part. I do not wish to bore the Committee by dealing with all the amendments in the group.
Amendment No. 115A asks me to insert:
"Regulations made under subsection (3) above shall not specify a time period of more than six months for making of arrangements under sections 14(1) or 15(2), or one year for the selection of trustees in pursuance of such arrangements, both periods to run from the date of this Act coming into force".
I covered the matter when dealing with the regulations that we would introduce in respect of time limits. It is better that the matter is left to regulations rather than being put on the face of the Bill. I explained some of the time limits and I believe that we should be able to change them after consultation. Furthermore, as time passes they may require to be changed because circumstances may arise which suggest that that would be good sense. I believe that that is the best way to proceed. To do otherwise would incorporate into the Bill the two time limits of six months and 12 months, which are best left to regulations.
I understand the laudable desire to put the them onto the face of the Bill. However, before putting the requirements into place we must consult all the pension scheme people and individuals with experience of the day-to-day running of the schemes. We expect the arrangements to be in place six months after the enactment of the Bill; that is, by

489
autumn 1997. We shall take account of the responses that we receive to consultations before making that final decision.
I am sorry about my hesitation in trying to find my way through four amendments, three of which have disappeared. I hope that with that explanation the noble Baroness will be satisfied.
Baroness Hollis of Heigham: We did not mean to throw the Minister. We are conscious of the time and the number of amendments that the Committee has yet to explore. I am sorry if the Minister was caused inconvenience in disentangling his briefing.
The Minister conceded the substance of the point and said that the Government expect to bring the arrangements into force within six months of the passing of the Act. We believe that the matter should be on the face of the Bill because where on several occasions it has been open-ended the Government have not delivered. We have had soothing words in Committee and a failure to act in practice.
I realise that we have had Pepper v. Hart and that we understand the provisions in terms of what the Minister said. Although the Minister has given an indication of the way in which the thinking will go, we remain uncomfortable that such an important issue can be discarded simply because the Minister has not given himself a time limit by which he must introduce the provision. I do not wish to raise the big issue of regulations now, but we shall return to the matter on Report. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 115B not moved.]
6.15 p.m.
Lord Peyton of Yeovil Lord Peyton of Yeovil moved Amendment No. 116:
Page 8, line 18, leave out subsection (5).
The noble Lord said: I can deal with this matter briefly. I have had occasion to raise it during the course of a number of Bills. There are in the Bill about 100 lines of words or almost three pages of "material" which relate to this matter. I use the politest description that I can think of. Then in subsection (5) we are told:
"The Secretary of State may by regulations modify sections 14, 15 and this section in their application to prescribed cases".
If the impression is not to be given that the Secretary of State has a low opinion of Parliament and believes that its procedures can be taken for granted and its decisions altered with a stroke of the pen, further explanation is required. I entirely exempt my noble friend from any breath of criticism. He is merely the messenger, which is sometimes a difficult role to fulfil.
We are dealing with what has been recognised during our protracted debates on the issue as member-nominated trustees. It is a matter of great importance. Once agreement has been reached in Parliament it is unwise to allow Ministers too much discretion to tamper with it just as they wish.
There was a time during my career when I had tremendous respect for all Secretaries of State. During the succeeding years Secretaries of State of all parties have
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taught me to be a little more discriminating. Therefore, I say to my noble friend that I look forward with eagerness to being satisfied that his right honourable friend understands what he is doing and is not merely looking for a licence to alter Acts of Parliament merely for reasons which appear to him, but to no one else, to be good and with only a minimum of consultation.
It is not my intention to divide the Committee on this issue today. I look forward to hearing some honeyed words from my noble friend. I shall then digest them and I am sure that I shall be wholly convinced because I have such regard for him. I beg to move.
Lord Simon of Glaisdale: It is always valuable when the noble Lord, Lord Peyton of Yeovil, shifts his baleful glare from the building of the Department of the Environment, which he has shaken so severely to its foundations that it is to be dismantled and, we hope, left an open space. He has rightly shifted his gaze on the various attempts by the Executive to allocate to themselves power to alter Acts of Parliament. The provision now in question is such a one.
I am afraid that we come with great suspicion to any measure put forward by this department. It was responsible for the Child Support Act and we cannot help but reflect that that Bill, apart from its schedules, had more than 100 Henry VIII clauses, of which only 15 were subject to the affirmative resolution. We shall deal with amendments to that Act later this Session. I am sure that the noble Baroness is raring to have a go at it. I have offered her a small prize if she can show sufficient restraint and not say, "We told you". So far, she has managed to be in the running for that prize.
The main provisions of the Child Support Act were only part of the unconstitutional measures that were rammed through your Lordships' House. Above all, there was the claim that officials should be put above the law and should have special rights in contradiction to what Dicey defined as the rule of law; namely, that officials are subject to the ordinary law of the land. However, in that Act we found that special powers were given to officials to enter private property and to interrogate employers and fellow employees and even that power was given for the Inland Revenue to breach its duty of confidentiality. Therefore, the noble Lord in charge of the Bill cannot be in doubt that we view with considerable suspicion any measure coming from his department.
As against that, we remember that the noble Lord himself was an original member of the scrutiny committee. We remember also that we owe that committee not only to the noble Earl, Lord Jellicoe, and his committee but also to the Committee of Selection which instituted such a very strong body as it subsequently proved to be and continued to be even after the noble Lord's departure from it.
As I say, this is in the nature of a Henry VIII clause. There were more than 100 regulation-making powers in the Child Support Act. As the scrutiny committee pointed out, there are more than 200 such powers in this Bill. Therefore, we are bound to regard what is claimed with considerable reserve.

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On this occasion, as in the past, the scrutiny committee has shown great discrimination. It has drawn specific attention to only four provisions in the Bill, of which two may overlap. It has signalled clearly that your Lordships are likely to insist on amendments in relation to those four provisions.
An addition which may not be covered entirely by the scrutiny committee's report is the very important point made the other day by the noble Baronesses, Lady Hollis and Lady Seear; namely, authority being taken to create criminal acts by subordinate legislation. The provision to which the noble Lord, Lord Peyton, directed the attention of the Committee is not one which the scrutiny committee clearly signalled against but it gives us an opportunity to say that we rely on the Minister in charge of the Bill—he is entirely in charge of the Bill in this Chamber—not to yield to departmental pressures to derogate from the recommendations of the scrutiny committee.
The noble Lord, Lord Peyton, does not intend—I think rightly—to divide the Committee on the amendment. But I support it strongly because it directs our attention to the powers being sought in the Bill.
Baroness Hollis of Heigham: I am delighted to follow two such distinguished speakers as the noble Lord, Lord Peyton, and the noble and learned Lord, Lord Simon of Glaisdale. On the one hand, we had the elaborate touch of the noble Lord, Lord—I nearly said Lord Satan—Peyton and the noble and learned Lord, Lord Simon, who is indeed a heavyweight on such issues.
The noble Baroness, Lady Seear, and I tried to put down a marker on the last Committee day in relation to the nature, number and significance of the regulations in the Bill. As the noble and learned Lord, Lord Simon, said, there are something like 200 of them, several of which obviously caused the scrutiny committee very real anxiety. I hope that Members of the Committee will share that anxiety when we reach the relevant clauses.
The matter which we raised last week was relatively modest. It was merely a marker or peg on which to raise the general issue. This amendment deals with a more substantial matter, as has been made clear. It means that all the arrangements that we have been discussing for the past three and a half hours of parliamentary time in relation to member-nominated trustees, basic rights to statutory consultation and so on, may be dispensed with by the Secretary of State in particular cases as he sees fit.
What have we been doing? Why have we bothered to do that if all that has been said, including the warmth of response which we received from the Minister on the amendment concerned with unfair dismissal, can be dismissed if the Government so wish?
I invite the Committee to look at the relevant provision. The Secretary of State may make arrangements as he sees fit; and that is wrong. He should not have that power. It is an unreasonable extension of executive power. It is far too sweeping and it enables him to negate wide swathes of the Bill. I am sure that the Minister would not dream of doing that but he cannot bind his successors. He cannot bind them in relation to their good intentions, good humour or their commitment to the principles of the Bill. As a result, we are extremely uneasy about it.
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This clause contains a double jeopardy. The Secretary of State has the power by regulation to alter any or all of the trustee-member arrangements. He has then given himself additional powers, by regulation, io regulate the first set of regulations. The result is that there are regulations acting upon regulations and we get so far away from the text of the Bill that no one—professionals, trustees, the regulator, scheme members, employers, companies and ourselves—will know what the Secretary of State can, may, must, should, ought and will do or not, as the case may be. It will be like trying to traverse quicksands in the dark, an activity which is usually held to be somewhat unwise. We support the amendment.
Lord Boyd-Carpenter: With reluctance, I find myself very largely agreeing with the noble Baroness. These are extraordinarily wide powers. I believe that the Committee is entitled to an explanation, first, as to why the Government seek to give such very wide powers to the Secretary of State; and, secondly, how he intends to use them.
6.30 p.m.
Lord Mackay of Ardbrecknish: I should like to take counsel from some noble Lords opposite who are not present in the Chamber today but who were probably Secretaries of State when my noble friend Lord Peyton was in opposition in the other place—if indeed he was always so deferential to Secretaries of State in the past as he suggested in his speech. I was happy to see that he excluded Ministers of State, though that may be just a temporary blip—
Lord Peyton of Yeovil: I do not want my noble friend to misunderstand me. I did my best to assure him that my deference to Ministers of State remains unwounded by the conduct of Secretaries of State.
Lord Mackay of Ardbrecknish: I am grateful for my noble friend's assurance. I hope that I can keep it for the next five minutes or so as I answer his point.
The noble and learned Lord, Lord Simon of Glaisdale, reminded the Committee—as, indeed, I suppose he will on a number of occasions—that I was a founder member of the scrutiny committee. I appreciate the general point about the need to explain to Parliament as fully as we possibly can exactly why we should be seeking to give future Secretaries of State powers to modify, in the words of the subsection,
"sections 14, 15 and this section in their application to prescribed cases".
I hope that I can explain exactly what we have in mind in relation to that power.
We consider that we require the power primarily to have the potential to make adjustments to the member-nominated trustee requirements or opt-out provisions to enable them to be used by certain categories of schemes. Those schemes could otherwise have difficulty in operating them. The requirements might cause considerable practical difficulties or involve excessive costs for certain types of schemes.
Representations were made on behalf of some insured schemes, schemes which provide only death benefits and from centralised or industry-wide schemes.

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Industry-wide schemes are those which have more than one unassociated sponsoring employer. In some cases schemes may have hundreds of unassociated employers. I am sure the Committee can appreciate that those schemes could experience considerable difficulty in implementing the member-nominated trustee requirements or following through opt-out arrangements as set out in Clause 15.
The intention is to modify the requirements if it becomes apparent that some schemes would have considerable practical difficulties in implementing them or the procedure would involve excessive expense. My department will consult with pensions professionals and the types of schemes which have made representations. That will enable us to ascertain the circumstances, if any, in which the member-nominated trustee requirements should be modified to accommodate the difficulties faced by those schemes. However, if we choose to modify the requirements, we intend to preserve members' rights to select at least one-third of their scheme's trustees. We also intend to use the power to include corporate trustees under the member-nominated trustee provisions. Many sponsoring employers set up subsidiary companies to act as a trustee for their pension schemes. While the company is a trustee, the individuals who run the scheme are not. They are trust company directors.
The Pension Law Review Committee recommended:
"In cases of subsidiary companies acting as corporate trustees, legislation should provide that the constitution of the board of directors reflects our recommendations for a board of trustees".
We, too, consider that members of those schemes should have the right to nominate at least one-third of their schemes' company directors.
I turn now to what is perhaps the most difficult point for my noble friend Lord Peyton, the noble and learned Lord, Lord Simon of Glaisdale, and indeed the noble Baroness, Lady Hollis, to accept. It must be said that provisions in the Bill, especially Clauses 14 and 15, are extremely complex. Indeed, we are dealing with a very complex area, as all of us who have had to get on top of it are well aware. To be realistic, there will be circumstances where some unforeseen difficulties will arise which require some kind of amendment. Everyone knows the problem of primary legislation.
In conclusion, my last point is in answer to the general question about secondary legislation. If we had to devise legislation and come to this Chamber with a Bill containing all the regulations, it would, first, be an extremely large Bill. Secondly, because of the detail thereby contained in the legislation, there would be a danger, even with the best will in the world, of our not managing to get absolutely everything right and then having to fix it in concrete for a considerable amount of time to come. That is a general point about regulations. However, with that explanation of what the subsection under discussion seeks to empower my right honourable friend the Secretary of State to do, I hope that my noble friend will be satisfied that there are no ulterior motives or reasons behind taking such a power.
Baroness Seear: Surely the Minister must explain to the Committee why there has to be such a sweeping
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provision giving powers to alter everything in the clauses. We recognise the fact that there may be certain circumstances in which alterations will have to be made. However, I cannot believe that it is beyond the wit of the Minister and of the mandarins in his department to devise a clause which could appear on the face of the Bill covering the kind of exceptions that he has in mind—and not, therefore, to give the Secretary of State such extraordinary powers to alter by regulation as he sees fit the whole of Clauses 14 and 15. Can the Minister take the matter back and reconsider whether there is some way in which he can put the kind of exceptional powers that he wishes the Secretary of State to exercise on the face of the Bill?
Lord Mackay of Ardbrecknish: I should point out to the noble Baroness that we are discussing "prescribed cases". I thought that I gave the Committee an indication of the kind of pension funds and trustees that we believe we shall need to exempt from some parts—not all—of the two clauses. I should have thought that some of the points that I outlined in my speech show just how complicated the matter is and how deeply difficult it would be to reach the nice, simple solution preferred by the noble Baroness.
Lord Monkswell: I believe that we are entitled to raise the point that such a provision may be acceptable if it is felt that at some time in the future a problem will arise which will need to be tackled in a different way. However, from what the Minister said, it seems that the Government know that there are problems and that they will have to tackle them in different ways; but they are not prepared to include such provision in the Bill. They propose to insert the mechanism to re-write the three clauses without advising Parliament how such clauses will be re-written, even in broad outline. I am most concerned about the Government's philosophy of recognising a problem and the difficulty of tackling it, while not being prepared to provide for it on the face of the Bill.
Lord Peyton of Yeovil: I should like, first, to express my gratitude to the noble and learned Lord, Lord Simon of Glaisdale, and to my noble friend Lord Boyd-Carpenter for supporting my amendment. Perhaps I may take up one point which I should not have dared to refer to without the authority of the noble and learned Lord. I have in mind the building in Marsham Street which we all hope will come down. If, by chance, my noble friend the Minister has a spare moment, perhaps he will pass on just a word of my interest as to when that ghastly building will be pulled down. Alternatively, are they going to leave it to fall down, because I believe it is making some progress in that respect? I am obliged to the noble and learned Lord for referring to the matter.
I had also intended to overwhelm the noble Baroness, Lady Hollis, with my thanks. However, I then found myself stunned by her ingratitude—after all, I raised a point that she seemed to think was quite useful—as she made a muddle of my name. I hope that that was a

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genuine slip of the tongue and did not reflect her true opinion. I must ask the noble Baroness to understand how sensitive I am.
Baroness Hollis of Heigham: I was once told that what one needed to know about people was whether they liked their compliments forehand or backhand. I can assure the noble Lord that the aligning together of the two names was indeed a backhanded compliment.
Lord Peyton of Yeovil: From whichever side of the court the noble Baroness's compliments come, I shall look at them with a good deal of suspicion in the future. I assure my noble friend that I was not accusing him of any ulterior motives. I am complaining about something that he has not really removed. The noble Baroness, Lady Seear, has just referred to the point. Why is it necessary to use the blanket phrase, "We can do anything we like to anything in Clauses 14, 15 and 16"? I must admit that I have not read every word with all that care. However, Clause 14(3) and (7) are examples of this matter. I cannot believe that my noble friend's right honourable friend the Secretary of State will be troubled in his sleep overnight with the thought that he may need powers to amend those provisions. They seem to me to be a cardinal part of the Bill. To take this broad brush approach to questions of this kind is a bad habit for Ministers to get into.
There may well be points of detail as regards which there is no purpose in having to bring back an amending Bill to Parliament. That is accepted. However, it is the broad brush approach that I find difficult. This Chamber has been discussing this matter of member-nominated trustees for some hours now. Obviously the Committee has views on this matter. I think it is bad for the Government to say, "It does not matter what we agree today. If it is convenient to us—without worrying to inform you—we will change this by regulation". I do not think that is good enough. I hope that my noble friend will at least say that he will take a closer look at the clauses concerned and retain this power where it is really necessary and dispense with it for those parts of the clauses where it is not called for.
Lord Mackay of Ardbrecknish: I will—as I always do—consider what has been said in the debate. However, I wish to make it clear that any exceptions will be for specific kinds of schemes. I do not think the power is here simply to decide that we will not bother with member-nominated trustees for all the schemes. This is a matter of specific schemes. I have tried to outline the kinds of special schemes which exist among the 150,000 schemes that have hugely different patterns. It is for that reason that we feel we need this power. My noble friend has already said that he will not press this amendment. However, I can assure him that we will consider what has been said and see whether there is some way in which we can perhaps allay some of his worries if possible, but which at the same time will allow us to be able to deal with those special schemes which may require some special attention.
Lord Boyd-Carpenter: Will my noble friend, when considering this matter, bear in mind that some of us feel very strongly about powers as wide as this to
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proceed by regulation and to deal with a statute in this way? Unless he can come forward at the next stage with some limitation on this power, he may find that many of us who are on the whole loyal supporters of the Government will not support him.
Lord Mackay of Ardbrecknish: I think I was beginning to get the flavour of that even before my noble friend's intervention.
Lord Peyton of Yeovil: I am grateful to my noble friend. I realise that he is not in the easiest of situations. I very much welcome what he said and on that basis I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
6.45 p.m.
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 116A:
Page 8, line 19, at end insert:
("( ) The Secretary of State may, on application to him by the trustees of a trust scheme, by order modify sections 14, 15 and this section in their application to that scheme.").
The noble Earl said: Clause 16 allows the Secretary of State to make modifications to Clauses 14 and 15 regarding member-nominated trustees, but only in general classes. This amendment would allow trustees who felt they had a particular case to apply to the Secretary of State to have their scheme considered separate from a general class of schemes. This is a probing amendment. Scheme rules vary so greatly that there may be particular circumstances that may be missed by general class rules. Would the Minister allow the trustees of those schemes to make an application for exemption? I beg to move.
Lord Mackay of Ardbrecknish: I think my noble friend is inviting me to go a little further than I went in the previous debate. I hope we do not re-run that and bring everyone to their feet again. We do not believe that the arrangement he proposes is necessary. Clauses 14 and 15 will be sufficiently flexible to allow the majority of schemes to comply with them. Where it is clear—this was the point of the previous debate—that certain types of scheme would have considerable difficulty implementing the requirements, the Secretary of State has a power, in the subsection we have just discussed, to modify these clauses with regard to these types of schemes.
If we decide to use this power to modify., it will be to cater for types of schemes, not individual schemes. As I have already explained in my view the main category who may wish to take advantage of this power, will be industry-wide schemes (schemes with several, often hundreds of non-associated employers). To allow individual schemes to apply to the Secretary of State for modification would be costly as well as difficult to control and administer. I do not think that would be desirable and I also think that I would run into exactly the kind of roadblock that was set for me on the previous amendment. I hope with that explanation my noble friend will feel able to withdraw his amendment.
The Earl of Buckinghamshire: I am grateful to my noble friend the Minister for his reply. I was aware that

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we could be going backwards in coming forward as one might say. But on the basis of his reply, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 116B not moved.]
Clause 16, as amended, agreed to.
Lord Haskel Lord Haskel moved Amendment No. 116C:
After Clause 16, insert the following new clause:
("Power to alter benefits
.—(1) This section applies where, at any time, a member is appointed to be a trustee of a trust scheme, pursuant to section 14, section 15 or otherwise.
(2) In any case where this section applies, the trustees of the scheme shall have power to make or to approve, as the case may be, benefit improvements affecting all of the members of the scheme or some class of members, or to make or to approve, as the case may be, a reduction in benefits affecting all members of the scheme or some class of members notwithstanding that one or more trustees is a member of the scheme or of the class of members affected by the improvement or reduction.").
The noble Lord said: This is a lawyer's amendment and draws attention to the .fact that in a recent case, Manning v. Drexel Burnham Lambert, the judge raised an important point. It is one of the principles of trusteeship that trustees must not allow their duty to the beneficiaries of the scheme and their self-interest to conflict or be seen to conflict. In the Manning case this principle appeared to be insuperable because all the trustees were members of the scheme and the benefit improvements which were proposed when the scheme was wound up, and to which the trustees had to consent, would have improved their own prospective pension rights. They could not therefore exercise their discretion to use the surplus in the pension scheme to improve such benefits, and the only course of action available to them was to apply to the court.
The court held that it could approve the proposed distribution but upheld the general rule that trustees cannot benefit from the exercise of their discretion even when they only receive the same level of benefit as any other scheme member. The court went on to say that this principle appeared to be in conflict with the recommendations of the Goode Report, and confirmed in the White Paper. The judge called for a reform in the law to avoid the need to apply to the court in such cases. The court's urging for this reform does not seem to have been picked up in the Bill and this amendment is intended to deal with it. I beg to move.
Lord Mackay of Ardbrecknish: I hope that I shall be able to reassure the noble Lord that his amendment is unnecessary.
The Government have, of course, carefully considered the issues in the light of Mr. Justice Lindsay's comments. If there were any grounds for thinking that recent judgments—in the Drexel or in the earlier Makin case—cast serious doubt on the validity of decisions reached by trust boards containing individuals who also happen to be members of the scheme, we would ourselves have introduced an amendment on similar lines.
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However, we believe that the present legal situation, as reflected in developing case law, is satisfactory. In particular, it poses no threat to the arrangements for member-nominated trustees. This conclusion is perhaps not surprising given the very large numbers of schemes which have operated, and continue to operate, with trustees who happen to be beneficiaries or potential beneficiaries of the scheme. There is a general acceptance that decisions in which such individuals participate need not be called into question simply because they, among others of a class, could benefit.
Of course, there must be some limits on this. To be acceptable such decisions must be taken in good faith. Trustees must live up to their fiduciary responsibility to act in the interests of all the beneficiaries. But I am assured that trust law is adequate to take account of this and to deal with the situations in which a decision may have been improperly influenced.
One further argument against this amendment is that it could unduly constrain the sensible operation of existing trust law.
The Drexel and Makin cases had particular, unique features which made it difficult to avoid the need for a reference to the court. Most of the schemes would probably have avoided any such need. Many schemes have so-called "protective clauses" in their trust deed which prevent any suggestion that the mere fact of a trustee being a potential or actual beneficiary should invalidate decisions in which he or she had participated.
It is also relevant that the Drexel and Makin cases arose before the commencement of the provisions in the Social Security Act 1992 which require the appointment of an independent trustee on the insolvency of the sponsoring employer. As any difficulties are most likely to arise—as they did in the Drexel and Makin cases—in the event of a need to determine the distribution of surplus on scheme wind-up, we can expect the appointment of independent trustees in such cases to minimise the risk of difficulty in future.
In so far as it may be necessary, the passage of this Bill, with its provisions for member-nominated trustees, will send a very strong message to the judiciary that Parliament is quite content for pension fund trust boards to include beneficiaries and potential beneficiaries of the scheme.
I hope that with that explanation the noble Lord will see that his concerns are not justified. I hope that I have reassured him.
Lord Haskel: I thank the Minister for those assurances. It is a complicated legal matter. Rather than waste the time of the Committee, we shall read Hansard for the detail of what the Minister said and refer to our legal advisers. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 17 [Circumstances in which following provisions apply]:
Lord Haskel Lord Haskel moved Amendment No. 116D:
Page 8, line 24, at end insert ("or a scheme created by board resolution").
The noble Lord said: The amendment deals with schemes without trust deeds. Powers to appoint an independent trustee—they come from Section 57D of the Social Security Pensions Act 1975, and provisions introduced by the Social Security Act 1990—apply only to schemes where there is a fully fledged trust deed. That has been much criticised by insolvency practitioners in particular, and lawyers in general, because they cannot appoint an independent trustee where the scheme has been set up by a board resolution but has no trust deed. The amendment is intended to rectify that. Perhaps the Minister will confirm that the Bill indeed covers schemes which are set up by board resolution.
The real remedy is that there should be a model set of basic rules, as there is under the Companies Act, and people can then elaborate as they wish. I beg to move.
Lord Mackay of Ardbrecknish: This amendment would extend the definition of schemes to which the independent trustee provisions apply by including schemes created by resolution of the board of directors. However, as the definition of trust schemes in Clause 112 already includes schemes created by board resolution I hope that I can again persuade the noble Lord that his amendment is unnecessary.
Clauses 17 to 21 broadly replace Sections 119 to 121 of the Pension Schemes Act 1993. In the original wording of Section 119, the independent trustee provisions applied to schemes "constitued by trust deed". It was considered that this did not take account of those schemes which had been created by resolution of the board of directors and the wording was amended in the present Bill expressly to reflect that fact.
This amendment has been effectively incorporated in the present wording of Clause 17. I hope that with my assurance and explanation the noble Lord will be content that his amendment is therefore unnecessary.
Lord Haskel: I seek to find the reference. Clause 112 (Page 63, line 34) refers only to "trust" and not "trust deed". Does that mean that board resolutions are covered?
Lord Mackay of Ardbrecknish: Perhaps I may assist the noble Lord. As he rightly said when introducing the amendment, it is a complex legal point. I have explained to him that it is possible to set up trusts by resolution. Although, like myself, he is having some difficulty in getting around two pages of fairly closely argued text, perhaps it might be helpful if he were to take the amendment away, read what I hope are wise remarks, and consult those people who understand these matters. If he requires to do so, he can come back at Report stage and take me to task again.
Lord Haskel: Rather than waste the time of the Committee, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 17 agreed to.
Clause 18 [Requirement for independent trustee]:
Baroness Turner Baroness Turner moved Amendment No. 116E:
Page 9, line 9, leave out ("practitioner or official receiver") and insert ("Authority").
The noble Baroness said: This is a simple amendment to Clause 18. As the clause stands, it refers to the requirement for an independent trustee. It states:
"While section 17 applies in relation to a scheme, the practitioner or official receiver must satisfy himself that at all times at least one of the trustees of the scheme is an independent person",
and so on. The intention of the amendment is to remove the words "practitioner or official receiver" and replace them with "authority". The other amendments in that grouping are consequential upon that amendment. Indeed, it is grouped with other amendments which have a similar effect: to introduce the authority into the scene instead of the practitioner or official receiver.
The reasons for that are that it is felt that the authority must have the status to undertake a whole series of important functions. We think that one of them relates to independent trustees. We do not see that the practitioner or the official receiver may be the appropriate person in those circumstances. It seems to us that the authority is the right body to carry out those duties, to satisfy itself that at all times at least one of the trustees of the scheme is an independent person and, if not so satisfied, to secure the appointment of an independent person as a trustee of the scheme. I beg to move.
7 p.m.
Lord Mackay of Ardbrecknish: Although this is a complex group, it is nothing like as complex as the legal points we have just been discussing and I turn to it with some relief.
The group of amendments deals with the appointment of an independent trustee on the employer's insolvency. One suggestion is to place the obligation to appoint with the regulatory authority. An alternative is to leave it with the insolvency practitioner but to give the authority the power to apply to the court for an order requiring the insolvency practitioner to discharge his duties. There is a further suggestion that the authority should have the power to determine the reasonableness of an independent trustee's fees.
These amendments seek to place the obligation for appointing independent trustees on the regulatory authority instead of on the insolvency practitioner. This would represent a significant move away from the independent trustee provisions which have received widespread support since they were first introduced in 1990.
The authority is there to ensure that those involved with the running of schemes comply with the regulatory provisions. Once in place the independent trustee will be subject to the same statutory obligations as any other scheme trustee. If there were suspicions that an independent trustee was not complying with the regulatory provisions, the authority would be able to investigate and impose penalties to secure compliance.
There is no evidence of major breaches by independent trustees appointed by insolvency practitioners. The provisions are generally working well for the benefit of schemes and their members, and we see no reason to change something that is operating satisfactorily.

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The task of appointing an independent trustee on the insolvency of an employer is not a regulatory function. I would not wish to accept amendments to give the authority new responsibilities which are not in keeping with its regulatory role. These can only detract from its effectiveness and create unnecessary costs, which would be passed on to employers through the levy. I hope that the noble Baroness will withdraw her amendments after she has considered what I have said.
Insolvency practitioners appoint the independent trustee because, on the insolvency of the employer, these professionals are already dealing with the employer's financial liabilities, including the pension scheme. They will have knowledge of the particular circumstances and their effect on the pension scheme. They are best placed to ensure that the trustee appointed is truly independent and has a suitable background to deal with any particular problems with the scheme. The authority, on the other hand, would not be able to act as quickly nor as effectively as practitioners and would have to intervene in every case even where there was no problem with the scheme.
Amendment No. 118C would give the authority the power to apply to the appropriate court for an order requiring an insolvency practitioner or official receiver to discharge his duty. We consider that it is an unnecessary amendment as Clause 18 already empowers scheme members to take any necessary enforcement action through the courts.
The Department of Trade and Industry already regulates insolvency practitioners and official receivers. As a way of ensuring that an independent trustee is appointed as quickly as possible, we are in discussion with the insolvency service about drawing up guidance notes for insolvency practitioners. These will include a recommended time limit for the appointment of an independent trustee.
Amendment No. 118D provides that an independent trustee appointed under Clause 18(1) (b) is entitled to be paid out of the pension scheme's resources only if his fees for acting in such a capacity are certified by the authority as being reasonable. That would involve the authority in checking the fees of any independent trustee. We consider that unnecessarily bureaucratic; it would require the authority to spend time carrying out routine checks. We do not wish the authority to be bogged down with routine checks, taking it away from its major task of regulating and of giving its attention to those schemes with problems.
With those explanations of what we envisage the situation to be and with my explanation of the current practice which seems to be working reasonably, I hope that the noble Baroness will withdraw her amendment.
Baroness Turner of Camden: I thank the Minister for that detailed response, some aspects of which I welcome. What prompted the amendments was the feeling that in insolvency situations the members are even more vulnerable. Therefore it seemed necessary that the regulator should have a role in relation to the appointment of independent trustees. I note what the Minister said; in particular I am glad to hear that the
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intention is to have discussions with the insolvency service to try to draw up notes of guidance in relation to insolvency practitioners. That is a welcome development. We look forward to hearing more about it.
I do not intend to press the matter to a vote tonight. However, there are probably instances of disappointments and anxieties about the way in which official receivers have sometimes dealt with pensions schemes. That is another reason why we thought it a good idea to replace "practitioner or official receiver" with the regulator. However, having heard what the Minister said, we shall look closely at his remarks in Hansard tomorrow. If we think it necessary, we may come back with a variant of the amendments on Report. Meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 116F and 116G not moved.]
Lord Lucas: I beg to move that the House do now resume. In moving the Motion I suggest that the Committee stage begin again not before 7.50 p.m.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Law Reform (Succession) Bill [H.L.]
7.7 p.m.
The Lord Chancellor (Lord Mackay of Clashfern): My Lords, I beg to move that this Bill be now read a second time.
I am, as ever, pleased to be able to bring before your Lordships a Bill to give effect to recommendations of the Law Commission. The Bill effects reforms of the technical rules governing the distribution of estates of persons who die intestate, claims for financial provision by members of the deceased's family circle and the effect of divorce or annulment of marriage on testamentary gifts or appointments in favour of the former spouse.
Full Notes on Clauses are available for any Members of this House who may wish to examine the technical provisions in greater detail, and fuller explanation of the current law and the proposed changes may be found in the two Law Commission reports from which the Bill derives, on Distribution on Intestacy (Law Com. No. 187) and The Effect of Divorce on Wills (Law Com. No. 217). With your Lordships' leave, however, I propose to explain the Bill's provisions in fairly broad terms. Although the Bill implements most of the recommendations in the two Law Commission reports I have mentioned, it does not implement all of them, as I shall explain in a moment.
Clauses 1 and 2 of the Bill give effect to the minor recommendations made by the Law Commission in the intestacy report, which were all considered to be uncontroversial. The starting point is Sections 46 and 47 of the Administration of Estates Act 1925 which provide an order of priority for sharing in the estate of a person who dies either wholly or partially intestate. This is a safety net calculated to reflect both the way in which those who make wills tend to dispose of their property

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and the policy that the surviving spouse should generally be enabled to remain in occupation of the matrimonial home. Consequently, a surviving spouse heads the order of priority and will receive the deceased's personal chattels plus a fixed net sum (the "statutory legacy") out of the estate and will share the residue (if any) with other relatives. The amount of the statutory legacy depends upon whether the deceased left issue. If there is no issue then the statutory legacy will be greater than it otherwise would be.
The commission's primary recommendation was that the surviving spouse should not share at all with relatives on intestacy but should automatically receive the whole estate, whatever its size. This proposal was conceded by the commission itself to be contentious, and I am obliged to the noble Lord, Lord Mishcon, who raised the issue in this House in June 1992, when it became clear that there was anxiety about it on all sides of the House as well as on the part of such bodies as Justice and the Law Reform Committee of the Bar. Despite the attractions of simplicity and clarity, I am not persuaded that it would be appropriate to exclude other members of the family completely in all cases, particularly where the deceased left children from a previous marriage. However, the need for the amount of the statutory legacy to be kept under review is recognised, and indeed it was raised in December 1993 to its present rate of £125,000 at the lower level and £200,000 at the higher level.
The other recommendations of the Law Commission give rise to no such concerns. Clause 1 of the Bill will introduce a rule that a surviving spouse should inherit on intestacy only if he or she survives the deceased by a period of 14 days. As the commission pointed out, it has long been considered good practice for a provision to similar effect to be inserted in wills in order to prevent arbitrary results where the family of just one spouse inherits the property of both should the two die within a short time of one another, as, for example, after a road accident.
Clause 1 also abolishes the "hotchpot" rule, by which certain payments made by a person who dies intestate, and certain interests acquired under the will of a person who dies partially intestate, must be brought into account by the recipient against the share in the estate to which he would otherwise be entitled. The rule has proved difficult to operate in practice, causing particular difficulties for lay administrators and resulting in consequences which would probably not have been in accordance with the deceased's intentions.
Clause 2 amends the Inheritance (Provision for Family and Dependants) Act 1975 which enables members of a deceased's family circle to apply for financial provision from the estate if the will or intestacy rules leave them without reasonable provision. At present, someone who lived with the deceased as husband or wife must demonstrate that he or she was actually dependent on the deceased. This can leave a long-term cohabitant who contributed fully to the household without provision and unable even to use this safety net. The commission considered this to be unfair and proposed the change implemented by Clause 2 whereby a cohabitant (using the well-settled definition
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in the Fatal Accidents Act 1976) may make an application without having to show actual dependence. The definition of "reasonable financial provision" remains the same as for other applicants apart from spouses, but the factors to be taken into account in assessing what is reasonable include, mutatis mutandis, those relevant for spouses. This recognises the contribution which each cohabitant may make to the common household, while preserving the distinction between the respective claims of married and unmarried partners.
Clauses 3 and 4 of the Bill give effect to the commission's recommendations in the report The Effect of Divorce on Wills. The basic principle of the present law is that, unless there is a contrary intention apparent from the will, a former spouse should not benefit from a will made before the marriage was dissolved or annulled but that the will should not be affected in any other way.
No change is proposed to this basic principle, but the commission criticised the current means of achieving it by the "lapse" rule (contained in Section 18A of the Wills Act 1837). This provides that a gift to a former spouse lapses; it does not take effect and reverts to the testator. This rule can fail to give effect to the presumed intention of the testator and can bring about unintended results, such as where the will provides for a gift over should the spouse fail to survive the testator. An example is the case of Re Sinclair in 1985, where the Imperial Cancer Research Fund was deprived of the gift over because the conditions of the gift were not fulfilled, the former wife still being alive, and the estate fell into intestacy.
Clause 3 counters this difficulty by providing instead for any gift to a former spouse to be revoked and for the property which would otherwise have passed to the former spouse to pass as if the former spouse had died on the date when the marriage was dissolved or annulled. In this way only the former spouse, and not any other beneficiary, will be deprived of any benefit which he or she might otherwise have acquired. Unintended results such as that in Re Sinclair will be avoided. As at present, the rule will be displaced by a contrary intention of the testator.
The new rule will also apply to all appointments in the will. Consequently, again subject to any expressed contrary intention, any appointment of a former spouse as an executor or as a trustee, or as a donee of a power of appointment, will take effect as if the former spouse had pre-deceased the testator.
Clause 4 of the Bill deals with the appointment of a former spouse as guardian of the testator's children. The current law, under which divorce has no effect on testamentary guardianship, is unsatisfactory, since in those cases where the child is the child of the testator but not of the former spouse, and the former spouse does not have parental responsibility, it is very doubtful that the testator would want the appointment of his former spouse as guardian to remain effective after their divorce. This is less likely to be the testator's view where the child concerned is the child of the testator and the former spouse; but in such cases the former spouse will already have parental responsibility for the child,

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which is not affected by divorce, and therefore the revocation of any such appointment will not have any practical effect. Therefore, in order to achieve the practical effect which is most likely to reflect the testator's wishes, and in the interests of clarity and simplicity, Section 6 of the Children Act 1989 will be amended to provide that, subject to any expressed contrary intention, any appointment of a former spouse as guardian should be revoked.
Clauses 5 and 6 cover repeals, the Bill's title and its extent, which is limited to England and Wales.
Each of these reforms is to come into effect in respect of estates of, or wills or appointments made by, persons dying on or after a fixed date. The date chosen is 1st January 1996, both to ensure a memorable date and to allow sufficient time to ensure that proper publicity may be given to the changes before they have effect in any individual case.
This Bill represents a useful and uncontroversial measure of law reform. We are all grateful to the Law Commission for the careful work which it put into the preparation of the reports on which the Bill is based. My normal assumption is that one would wish to give effect to Law Commission proposals. As regards the main one with which I have dealt in connection with the intestacy proposals, I have explained why, so far, I have not thought it wise to give effect to it. I accordingly ask the House to give the Bill a Second Reading.
Moved, That the Bill be now read a second time.—(The Lord Chancellor.)
7.17 p.m.
Lord Irvine of Lairg: My Lords, we on these Benches strongly support the expeditious placement on the statute book of Law Commission recommendations concerning lawyers' law where those recommendations are not politically controversial. We have felt able to agree this Session that a number of measures which are not politically controversial and which concern technical law are suitable for enactment by way of the procedures of a special Public Bill Committee.
This Bill would in principle have been suitable to be committed to such a committee. But its brevity and clarity are such that it can perhaps be considered most expeditiously on the Floor of the House in the usual way. That leaves for special Public Bill Committees more substantial measures of law reform, which are especially likely to benefit from the procedures of these committees, in particular the facility to take evidence from and to question experts in the field of law at issue and representatives of special interest groups.
I also think it appropriate to put on record the appreciation on the part of these Benches of the fine work of the Law Commission and to express the support of these Benches for fast-track procedures to give effect to many of its reports. That is not to say that its recommendations should be uncritically accepted, nor that the commission would wish them to be; although I tend to agree that we start with a strong presumption in their favour.
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That they should not be uncritically accepted is well illustrated by the fact that the Government have not—and we think rightly not—accepted the commission's primary recommendation that the surviving spouse should automatically, on an intestacy, receive the whole of the estate, regardless of its size, to the exclusion of the interest of other relatives. The noble and learned Lord has been good enough to remark on the important role of my noble friend Lord Mishcon in calling attention to the concern that is felt in many quarters about that particular recommendation.
The noble and learned Lord summarised the provisions of the Bill and explained them clearly. I do not feel that this debate would be enhanced by my seeking to offer an additional summary and explanation of the provisions of the Bill. Therefore, I confine myself to putting on record the fact that we support the Second Reading of the Bill and its expeditious progress thereafter through your Lordships' House.
7.20 p.m.
Lord Meston: My Lords, I, too, would like to thank the noble and learned Lord for his explanation of the Bill. As is clear, the Bill gives effect to only part of the recommendations of the Law Commission on intestacy. Clause 1, dealing with survivorship and with "hotchpot" makes useful changes, for the reasons advanced by the Law Commission. However, the significance of that part of the Bill lies not in what it contains but in what it does not contain. The Law Commission described the defects in the present intestacy rules and recommended a major reform, whereby on intestacy the surviving spouse could receive the whole estate.
The Law Commission described the case for reform as overwhelming. However, the Government and others, including, I believe, the noble Lord, Lord Mishcon, were not overwhelmed. I well understand why. Most recently Professor Cretney, in The Law Quarterly Review, only last month suggested that, although the Law Commission may have overstated the case for reform, its principal recommendation had much to commend it. He suggested further reflection. I hope that will take place.
The Law Commission emphasised the need for rules which are "certain, clear and simple". Intestacy rules are inevitably a second-best means of distribution of estates. There is no substitute for a considered, up-to-date will. Intestacy rules are the price that some families have to pay if their nearest and dearest do not get round to making a will. There are still a remarkable number of people who do not make wills, for all sorts of reasons, including superstition.
Neither the present rules nor the Law Commission's straightforward alternative can reflect the justice of every situation. They cannot distinguish between happy and unhappy marriages; between long and short marriages; between marriages where the survivor made particular contributions or sacrifices and those where the survivor's moral claims are less strong; or between cases where the survivor is wealthy or has been well provided for or badly treated during the lifetime of the deceased. The existing rules cannot take account of the geographic variation in property values. Likewise, where there are

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children as well as a surviving spouse, under the existing rules there may be cases in which a mother has to make a claim for more provision from the estate and her children become respondents to her application to the court. Under the Law Commission's proposal, I readily understand that it could be the other way round.
A particular problem of the existing system is that it requires periodic uplifts in the statutory legacy. I have recently acted for a widow, whose husband died suddenly and unexpectedly just before the statutory legacy went up from £75,000 to £125,000. Had her husband died only weeks later, she might well not have considered recourse to the family provision legislation. Whatever else may occur, I urge on the Government the view of Professor Cretney in his recent article. He said:
"it is not satisfactory to proceed by using delegated legislation at irregular and unpredictable intervals to vary the amount of a surviving spouse's entitlement without any clear statement of the principle upon which the variation is made".
It may well be that, after further consideration, it is decided that the existing rules are as fair and reasonably predictable as any arbitrary system can be expected to be.
Certainly, one objective must be to try to minimise the need for recourse to the discretionary family provision legislation. Litigation under the 1975 Act is costly to estates, which are seldom able to sustain the luxury of legal expenses. It is litigation which is often divisive and distressing to the competing relatives, each of whom may have his own idea of what the deceased would or would not have wanted had he got round to making a will. The 1975 Act has a number of distinct limitations and it is also an area of discretionary law in which practitioners do not find it particularly easy to advise with certainty on the outcome, if the case has to go to a court.
Therefore, I support the view that, before the safety net of the intestacy rules is altered, the underlying further safety net of the family provision legislation should also be checked for holes, strength and positioning. That review is almost certainly too wide ranging to involve this Bill in the special committee procedure of this House.
This Bill deals with one reform of the 1975 Act, which is a useful new provision for cohabitees. It will apply to situations in which there may be inadequate testate provision as well as where there is an intestacy. The existing law requires proof of dependency. Mere financial or other sacrifice for the sake of the deceased does not qualify for a claim under the 1975 Act. That is probably the result of insufficient thought being given to that problem during the parliamentary passage of the 1975 Act. Clause 2 of the Bill goes some way towards changing that. I assume that it will not extend to cohabitants of the same sex, but I should welcome clarification.
Clauses 3 and 4 of the Bill are welcome. They strive to achieve what most testators would wish. Clause 3 minimises inconvenience to innocent third parties, both individuals and charities. I am not so sure about the Law Commission's suggestion of a booklet to accompany the decree absolute of divorce in place of the existing simple notice. Certainly that notice, as now printed on a
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decree absolute, warning of the effects of a divorce on wills, may well have to be modified when the Bill becomes law. Good solicitors will always draw the consequences of the decree to the attention of their clients. However, perhaps it is not too much to hope that, with the possibility of a do-it-yourself divorce being followed by a do-it-yourself will, there could be something left over for the lawyers.
7.27 p.m.
Lord Mishcon: My Lords, times change and social conditions change, but sometimes the law does not. I believe that we all pay tribute to the Law Commission and to the great Lord Chancellor, Lord Gardiner, who set it up, for the fact that we now have a body of people looking at our law from time to time and bringing before Parliament, as indeed we are experiencing now, suggested changes to bring things up to date. I shall not repeat what noble Lords have said so well. Certainly I shall not summarise the provisions of the Act, which the noble and learned Lord the Lord Chancellor did with his usual lucidity. I intend merely to comment upon some of the provisions of the Bill.
One first notes that survivorship for 14 days is established by the Bill as being a necessary condition for inheritance (if I may put it that way) on intestacy. As a practising lawyer drawing up wills, it is my practice, following upon the practice of my learned colleagues and predecessors, to provide for a survivorship clause in a will. We do that for a minimum period of one month and usually for a maximum period of three months. So I pause for a moment to consider whether it is not wise to carry that practice into effect when dealing with intestacy. It is most unlikely that letters of administration will be granted within 14 days or even 28 days. Therefore, in order to protect the position, one would have thought it sensible not to make the period 14 days but the minimum of 28 days. I merely throw that suggestion most respectfully to the noble and learned Lord for his consideration.
I turn next to what the noble and learned Lord described as an alternation of the "hotchpot" rule, indeed, its abolition in the case of intestacy. I have one query. The law at the moment is this. On a partial intestacy, where a will bequeaths an interest to a surviving spouse, that surviving spouse must bring that into account when looking at the statutory grant which is made to the surviving spouse on an intestacy. The Bill abolishes that provision and I wonder why. It seems to me a little illogical.
If we look at the report of the Law Commission on Family Law: Distribution on Intestacy, upon which the Bill is based, and turn to page 14, paragraph 55 states:
"Two special hotchpot provisions apply on partial intestacy. The first provides that a surviving spouse who acquires any beneficial interests under the will takes the statutory legacy less the value at the date of the deceased's death of those beneficial interests. As we have recommended that the surviving spouse should receive the entire estate this rule becomes redundant".
It is a decision of the Government and one I fervently support that the surviving spouse should not receive the entire estate and that provision therefore is not in the Bill. Since that rule is no longer redundant in the sense

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that the surviving spouse must bring in "hotchpot", why does the Bill abolish the hotchpot rule in the case of the surviving spouse?
I turn to the all-too-gracious remarks of the noble and learned Lord and my noble friend in regard to my intervention earlier in the history of this House in relation to the recommendation of the Law Commission that the surviving spouse should inherit everything. I confess that I should not have done more than say thank you for those remarks were it not for the comments of the noble Lord, Lord Meston.
The noble Lord correctly referred to an article in The Law Quarterly Review by Professor Cretney. I was grateful to receive that article from him, as no doubt was the noble Lord, Lord Meston. But on reading it I did not follow the same thought pattern in relation to that article as did the noble Lord, Lord Meston. Perhaps I can mention two passages from the article so that we do not in any way misunderstand what the professor was saying. First, in regard to the question of a surviving spouse inheriting all, at his conclusion on page 98 the professor said,
"The Law Commission's principal recommendation that a surviving spouse should inherit the whole of an intestate's estate has much to recommend it in terms of achieving a simple code of succession law which would give effect to the intestate's presumed wishes in the majority of cases. However, social and economic changes have the consequence that such a code would lead to injustice in some cases".
Earlier, at page 87 of his article, the professor said—and this is extremely important—
"In 1925, there were only 2,657 divorces in England and Wales; in 1952 there were 31,966; today there are some 160,000 divorces each year. For present purposes, these figures are significant not so much because of the vastly increased probability that an intestate will leave more than one former spouse—the divorce court has extensive powers to reallocate property at the time of the divorce—but because of the likelihood that the deceased's widow may never have had any parental relationship with the children of his first marriage, and may not feel under any obligation to pass on to them any of the property she inherits from their father".
In days gone by I deemed that to be a reason for my venturing to differ from the recommendation of the Law Commission. Professor Cretney underlines that point as one of the things to be taken into account.
There is one other point I wish to mention before I endeavour to make your Lordships smile, if only a little. The noble and learned Lord said, quite correctly, that it was a good idea, one promulgated by the commission, that one should adopt the wording of the Fatal Accidents Act in dealing with the inheritance provisions Act which would now apply under the Bill to cohabitees. If one looks at the draft bill, at page 20 of the Law Commission's report, one sees that it faithfully copies the wording of the Fatal Accidents Act:
"Where on or after 1st January 1991 a person dies domiciled in England and Wales and is survived by a person who was living with the deceased in the same household".
That is the wording of the draft Bill and is the actual wording of the Fatal Accidents Act. If one turns to the Bill, one finds that for some reason, in Clause 2(3), after the words "the person was living", the words "with the deceased" are left out. I do not know why. As I said, the draft Bill was faithfully followed and includes those
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words. The Fatal Accidents Act has those words and I can see the reason for them. Somebody may live in the same household who has decided to live separately from the cohabitee and in those circumstances will not fulfil the requirements—one may think justly so—for benefiting under the Bill. That person would not have been living with the deceased. As I said, the Fatal Accidents Act contains those words and the draft Bill contains those words. I ask as a meaningful question why the words are omitted from this Bill.
As I said, I wanted only to bring a smile to your Lordships' faces by saying that presumably the Law Commission has decided to find a reason why a former spouse has become a former spouse. If your Lordships will look at the top of page four of the report you will find that on two occasions in paragraph 2.7 the reason that has been given is that the former spouse has "pre-decreased" the testator, presumably meaning that her extravagance has led to her becoming a former spouse. The word "pre-decreased" is used with the testator twice in that paragraph. If that remark proves nothing else, it proves that I took the trouble to read the Law Commission's report.
7.40 p.m.
The Lord Chancellor: My Lords, I am extremely grateful to all noble Lords who have spoken. I would have assumed, before we had our debate on a previous occasion, that the noble Lord, Lord Mishcon, had read the Law Commission's report. However, if there was any lingering doubt in my mind about that, he has demonstrated tonight beyond all possible doubt that he has read it carefully.
There is a good deal in Professor Cretney's article which merits careful consideration. I am grateful to Professor Cretney, who was a colleague of mine on law commissions in the past, for also sending me a copy of his article. He had kindly provided the typescript to my officials earlier. He is advocating that further consideration be given to the question of what should replace the Law Commission's proposal. He thinks that it was understandable to some extent as to the question of to what degree we should not have adopted it. But his plea is for further consideration of that question. Your Lordships may think that it is a question which could merit further consideration. That is the main matter of general importance that has been raised.
The noble Lord, Lord Mishcon, asked about the Law Commission's repeal of the "hotchpot" rule relating to the statutory legacy. The view was taken on the decision not to proceed with the Law Commission's main recommendation that, since it was recommending the abolition of the "hotchpot" rule, that particular aspect of the "hotchpot" rule should be repealed as part of the abolition of the "hotchpot" rule. On the question of cohabitants who will not require to demonstrate dependency, the view that was taken on the drafting of this Bill—the clause is slightly different in appearance—is that the words to which the noble Lord, Lord Mishcon, referred are now superfluous because they appear not only in the first part of the definition in the Fatal Accidents Act but also in the last part. If your Lordships look at the definition as counsel has framed

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it for this Bill, you will see that he has used the words of the 1975 Act without unnecessary repetition whereas if he had put in the whole of the provision it would have appeared that "with the deceased" would have come in twice and therefore be superfluous.
That is the kind of matter which needs to be looked at with the clause fully in front of one. In view of the noble Lord's question, I shall certainly ask parliamentary counsel to reconsider the matter. However, my understanding of why this phrase has been couched in the way that it has is that it was thought that from the way in which it is expressed in this Bill to repeat the phrase "living with the deceased" would have been superfluous. The clause requires that for all the period in question the person should live with the deceased as husband and wife.
With regard to the question of the noble Lord, Lord Meston, "living as husband and wife" appears to us, as the law stands, to apply to partners of opposite sexes and not to partners of the same sex.
I am grateful to the House for the support that has been given to the Bill. I agree with the view that the Bill would have been suitable for a Special Standing Committee, but in the light of the consideration that has been given and the fact that some time ago before the Bill was brought forward we had a debate in the House about the really substantial departure from the Law Commission's recommendations, I have reached the view—I hope your Lordships agree with it—that in the circumstances of this case the ordinary procedure in the House is appropriate. Therefore, I am not asking for any special procedure here. I commend the Bill to the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.
Viscount Long: My Lords, I beg to move that the House do now adjourn during pleasure until 7.50 p.m.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 7.45 to 7.50 p.m.]

Pensions Bill [H.L.]
House again in Committee on Clause 18.
Lord Lucas Lord Lucas moved Amendment No. 117:
Page 9, line 13, leave out ("within the prescribed period").
The noble Lord said: In moving this amendment I shall speak also to Amendment No. 118. The Bill as it stands requires us to prescribe in regulations a time limit within which the appointment of an independent trustee must be made. In these two amendments we propose to relegate our power of prescription to a back-up role. We wish to substitute a requirement to appoint an independent trustee as soon as reasonably practicable. We intend that guidelines should be drawn up by the insolvency service and that we should resort to regulation only if these guidelines do not work. I beg to move.
On Question, amendment agreed to.
Lord Lucas Lord Lucas moved Amendment No. 118:
Page 9, line 15, at end insert:
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("( ) The duty under subsection (1) (b) must be performed as soon as reasonably practicable and, if a period is prescribed for the purposes of that subsection, within that period.").
On Question, amendment agreed to.
Lord Haskel Lord Haskel moved Amendment No. 118A:
Page 9, line 24, at end insert:
("( ) he is not an employee or partner of any company which, for the purposes of the Companies Act 1985, is an associated company in relation to a company that practises as an insolvency practitioner, and").
The noble Lord said: Without casting any aspersions on the insolvency profession, this amendment is a safeguard against those very few accountants and insolvency practitioners who ignore the rules. Sadly, there are people who have lost their licences through making what are called "reciprocal arrangements". That misconduct not only creates problems with their current work but also casts doubt on their previous work. This amendment states quite unequivocally that there should be no reciprocal arrangements between trustees. I beg to move.
Lord Mackay of Ardbrecknish: I do not believe that this amendment is necessary. One of the requisite qualifications for an insolvency practitioner under the Insolvency Act 1986 is that a person must be an individual. It follows that the amendment cannot have the effect intended, since no company can practise as an insolvency practitioner. Any problems with an independent trustee being connected with, or an associate of, an insolvency practitioner is covered in Clause 18(2) (b) (ii), which is itself re-enacting a similar provision in the Pension Schemes Act 1993. With that explanation I hope the noble Lord will withdraw the amendment.
Lord Haskel: I thank the Minister for that response. I was under the impression that although they act as individuals the practitioners have to be licensed. However, in view of what the noble Lord said we shall study his response. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 118B:
Page 9, line 25, at end insert ("and—
( ) his name is included in the Register of Independent Trustees to be maintained by the Authority;").
The noble Baroness said: This is a very simple amendment and it follows on from what we were saying earlier as regards the section dealing with the requirement for an independent trustee. This amendment simply adds to the list of requirements that the name of the independent trustee should be included in the register of independent trustees to be maintained by the authority. I believe that the reason for that is fairly clear. Quite obviously, if there were a register it would be available for inspection. It would be an assurance to members of the scheme that an individual who is an independent trustee is an approved person because he or she is on the register of independent trustees. It is some extra assurance for scheme members that an

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independent trustee when appointed is a person acceptable to the authority and a member of the register to be maintained by the authority. I beg to move.
Lord Mackay of Ardbrecknish: The amendment adds to the definition of an "independent trustee" provided in clause 18(2). It provides that an independent trustee must be included on a register of independent trustees which is to be maintained by the authority. This would mean that only a trustee included on the register could be appointed to a scheme under Clause 18(1).
The purpose of Clause 18 is to ensure that a person is independent in relation to the particular scheme for which he acts. Such a person might never take on the duties of trustee again. But there is no reason why he should not, provided he is independent of any new scheme for which he acts. Consequently, requiring the authority to maintain a register of independent trustees seems to me to serve no useful purpose.
If the intention behind this amendment is to introduce a form of regulation for professional independent trustees, I have to say that I do not believe that OPRA is the appropriate mechanism. OPRA will be an enforcement agency for occupational pension schemes, and independent trustees do not act exclusively for pension schemes.
More importantly, OPRA has the necessary powers to deal with any trustee of an occupational pension scheme who is found to be in breach of an obligation. It has the power to fine them and the power to remove them. These powers and how they can be used by the authority are set out in Clauses 9 and 3 of the Bill respectively. OPRA can also disqualify a trustee under Clause 24. An independent trustee disqualified under this clause would be prevented from acting as a trustee of an occupational pension scheme ever again.
I hope that what I have said will persuade the noble Baroness that there are already pretty reasonable safeguards in the Bill in this regard and that we do not need to add to it the complication of a register of independent trustees.
Baroness Turner of Camden: I thank the Minister for that explanation which we shall look at with interest in Hansard tomorrow. I note that he believes that reasonable safeguards already exist in the Bill. It was because we were worried whether or not they did that we wanted to establish a register of suitable people who would be independent trustees. However, having heard what the Minister said, I do not intend to press this provision, which is somewhat of a probing amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 18, as amended, agreed to.
Clause 19 [Members' powers to apply to court to enforce duty]:
[Amendment No. 118C not moved.]
Clause 19 agreed to.
Clause 20 [Appointment and powers of independent trustees: further provisions]:
[Amendment No. 118D not moved.]
8 p.m.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 118E:
Page 11, line 20, after ("actuary") insert ("or otherwise as a paid professional adviser").
The noble Baroness said: In moving Amendment No. 118E, I should like to speak also to Amendments Nos. 118F to 118K which stand in my name. Amendment No. 118E is the first of a series of amendments about the role of professional advisers. Wherever possible, we want to avoid conflicts of interest. Such a conflict may arise because the professional adviser is advising both the trustees and the employer, an issue to which we shall return later. In addition, we do not believe that it is right that the same scheme professionals giving disinterested, paid, professional advice to the trustees should also be trustees. The Government have accepted that argument for auditors and actuaries, but not in the case of other paid professionals. We believe that that principle should be extended to other paid professionals. Nobody can doubt that lawyers abide by the highest standards of professional ethics, but, as a general principle, it seems wise to avoid potential conflicts of interest wherever they might occur. I beg to move.
Lord Mackay of Ardbrecknish: The amendments seek to broaden the authority's power by placing a general duty to enforce trust law, to prevent all professional advisers to the scheme from acting as trustees and to prevent exceptions to the general rule that a trustee and any person who is connected with or an associate of such a trustee should be ineligible to act as an auditor or actuary of the scheme.
Turning to Amendment No. 118K, the authority is there to ensure that those involved with the running of schemes comply with the regulatory provisions. We believe that we have underpinned the key trustee responsibilities with the obligations placed on them by Part I of the Bill. Trustees who are found to be in serious or persistent breach of these provisions may be removed by the authority and disqualified. That means that removal and disqualification relate to breaches of clear duties, rather than leaving it open to wide interpretation and potential dispute as to whether someone has rendered themselves unfit to continue to act as a trustee.
I have been asked to introduce more robust rights of review and appeal against such decisions. If we were to go down that route, the authority would need to have clear grounds on which to base its decision; otherwise the process of review or appeal would become extremely protracted and the subject of prolonged and contentious argument. I am afraid that I cannot accept amendments which place a general duty on the authority to enforce trust law. Amendment No. 118K would do just that. I believe that the enforcement of trust law is best left to the courts.
We agree with the Pension Law Review Committee that the existence of the professional relationship that the actuary and auditor have with a scheme would be incompatible with trusteeship because of the potential conflicts of interest involved. Clause 22 extends that

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provision so that a person who is connected with or an associate of the scheme actuary or auditor is also ineligible to act as a trustee of the scheme. However, under subsection (2) we are proposing that in prescribed circumstances it should not apply to actuaries who are connected with or an associate of the scheme trustee.
We consider that there is a fundamental difference in the role of actuaries and auditors that justifies a slightly different approach. The actuary's basic role is to give advice to the trustees on funding matters. His job is to take a broad, full view of the scheme and to provide the trustees with advice on funding matters, valuations, including statements, contribution levels and calculation of transfer values. His role is one of advice-giver whereas the auditor is more of a policeman to the scheme. The actuary is not involved in matters of scheme security in quite the same way as the auditor and we do not therefore see the same need to extend the bar to the firm by which he is employed. To do so would prohibit the sort of "package" arrangements which many schemes, particularly small and medium-sized schemes, purchase from firms of actuaries, pension consultants and insurance companies. We see no justification for upsetting that. Actuaries are bound by professional codes of conduct and discipline and we have no reason to believe that "package" arrangements are anything but effective and secure. To outlaw such arrangements is likely to incur extra costs for the schemes that use them and this is of course something we wish to avoid.
Turning to Amendments Nos. 118E, 118G, 118H and 118J, as the Committee will recall, in Clause 22 we are endorsing the Pension Law Review Committee recommendations that the actuary and the auditor should not act as scheme trustees because of unacceptable conflicts of interest. We believe it is right that those professionals should be under an obligation to whistle-blow. We have placed the whistle-blowing duty on the key individuals that the schemes will be required to appoint; namely, the actuary and the auditor. They will have access to all the key scheme documentation. We want to encourage others to report to the authority if they believe that a scheme is not being run properly. However, we believe that it is neither appropriate nor necessary to place them under a duty to do so.
If the other scheme professionals are not under a duty to whistle-blow, they will not have a conflict of interest. If we debarred those individuals from acting, trust boards would effectively be purged of any professional employed by the scheme. We do not believe that that is in the interests of ensuring that schemes are properly run. With that long explanation of the details, I hope that the noble Baroness will withdraw the amendment.
Baroness Hollis of Heigham: I am not particularly persuaded by a number of those arguments, but obviously we shall want to consider them. Therefore, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 20 agreed to.
Clause 21 agreed to.
Clause 22 [Trustee not to be auditor or actuary of the scheme]:
[Amendment No. 118F not moved.]
Clause 22 agreed to.
Clause 23 [Section 22: consequences]:
[Amendments Nos. 118G to 118K not moved.]
Clause 23 agreed to.
Clause 24 agreed to.
Clause 25 [Persons disqualified: consequences]:
Lord Haskel Lord Haskel moved Amendment No. 118L:
Page 13, line 39, after ("scheme") insert ("or a trustee, a member of a scheme or an independent recognised trade union").
The noble Lord said: This amendment deals with the register of disqualified trustees. It is important to have a register, but why is it available only to people connected with the administration of the scheme? Surely it should be a matter of public record. However, the amendment does not go as far as that, but suggests that the register should be available to other trustees, members of schemes or to their trade unions or advisers. It is another small attempt to make the work of the regulator more open and accountable. I beg to move.
Lord Mackay of Ardbrecknish: The amendment provides that the authority must, if requested to do so by a trustee, a member of a scheme or an independent recognised trade union, disclose whether the name of the person specified in the request is included on the authority's register of persons disqualified under Clause 24(3).
I am pleased to be able to say that we are at one on this. We intend that anyone who has concerns about a particular person who is either already acting as a trustee of an occupational pension scheme, or is under consideration for appointment as such, can contact the authority to check whether the authority's register shows the person in question to be disqualified in respect of a particular scheme.
We had hoped that subsection (7) would allow any person who has an interest in a scheme to ask the authority such a question and require the authority to provide an answer. That would cover trustees, scheme members and independent trade union officials. The subsection has been drafted to ensure that the authority is required to state only whether a person named by an inquirer is disqualified in respect of a particular scheme named by the inquirer. This is because some people may be disqualified in respect of a particular class or group of schemes only, and because there is a need to protect those listed in the register from having the information held on them being used for purposes that have nothing to do with whether or not they should act as the trustee of a particular scheme. That is why the register will not be available for public inspection.
I think that we have dealt with the issue in the subsection but, given that the noble Lord and I are at one on this and he has raised a doubt, I shall take the issue away so that I can determine whether, and to what

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extent, an amendment is necessary or possible. I hope that, with that assurance, the noble Lord will feel able to withdraw his amendment.
Lord Haskel: I thank the Minister for that long explanation and in view of the fact that, as he said, we are at one on this, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 25 agreed to.
Clause 26 [Trustees not to be indemnified for fines or civil penalties]:
Lord Lucas Lord Lucas moved Amendment No. 118M:
Page 14, line 9, at end insert:
("(4) Where a trustee of a trust scheme—

(a) is reimbursed, out of the assets of the scheme or in consequence of provision for his reimbursement made out of those assets, in respect of any of the matters referred to in subsection (1) (a) or (b), and

(b) knows (or has reasonable grounds to believe) that he has been reimbursed as mentioned in paragraph (a),

then, unless he has taken all such steps as are reasonable to secure that he is not so reimbursed, he is guilty of an offence.
(5) A person guilty of an offence under subsection (4) is liable—

(a) on summary conviction, to a fine not exceeding the statutory maximum, and

(b) on conviction on indictment, to imprisonment, or a fine, or both.").

The noble Lord said: The amendment introduces a new criminal offence. Clause 26 places an overriding obligation on trustees not to use the assets of the scheme to reimburse any fine imposed on them by the courts, or civil penalties imposed on them by the Occupational Pensions Regulatory Authority.
Subsection (3) already provides that any trustee who does not take appropriate action to prevent such a reimbursement being made is liable to removal by the authority and/or to a civil penalty. However, we consider that that does not go far enough. We want to ensure that any trustee who breaches the provisions in Clause 26 for his own benefit can be prosecuted. And that is what subsection (4) of this amendment does. It provides that a trustee who is reimbursed out of the scheme assets, or out of provisions (for example, an insurance policy) paid for out of them, in respect of any matters referred to in subsection (1) (a) or (b) is guilty of an offence if, first, he knows (or has reasonable cause to believe) that he has been so reimbursed; and, secondly, he does not take all reasonable steps to secure that he is not so reimbursed.
The new subsection (5) of the amendment sets out the penalty that can be imposed upon a person convicted of an offence under subsection (4). On summary conviction, a person would be liable to a fine not exceeding £5,000. On conviction on indictment, a person would be liable to an unlimited fine, or a term of imprisonment not exceeding two years, or both. We believe the penalty set out here reflects the serious nature of the breach.
Sanctions will not provide an effective deterrent to wrongdoing if the trustees are able to reimburse themselves from scheme assets for any financial penalties imposed upon them. People who breach the provisions in Clause 26 for their own benefit shall also be punished appropriately. I beg to move.
On Question, amendment agreed to.
Clause 26, as amended, agreed to.
Clause 27 [Decisions by majority]:
Baroness Dean of Thornton-le-Fylde Baroness Dean of Thornton-le-Fylde moved Amendment No. 118N:
Page 14, line 11, at beginning insert ("Except where otherwise provided in the trust deed, or in the Memorandum and Articles in the case of a trust company,").
The noble Baroness said: I shall speak also to Amendments Nos. 118P, 118Q, 118R, 120B and 120C. The amendments tidy up the area relating to the functions of trustees and decisions being taken by a majority. Amendment No. 118N clearly covers trustees' responsibilities, in that trustees, or the memorandum and articles in the case of a trust company, cannot be overridden by a decision of the trustees of a scheme to do just that and move to a majority decision.
Amendment No. 118P removes the words "and only the trustees", because clearly there must be occasions when the authority has the right to step in. The words, "from time to time" are covered by Amendment No.118Q.We do not believe that those words are necessary. If the Minister feels that they are, we should like him to tell us why. Why include the words "from time to time", because that is very open ended? It is not specific. That feeds through to the reasoning behind Amendment No.118R. I have nicknamed subsection (2) (b) "ad hocery" because it may have effect for a specific occasion or for a class of occasion, and if neither of those do it can have effect generally. That is wrong. If the Minister opposes the deletion of paragraph (b) will he tell us why it has to be in? It leaves again an open-ended situation and decisions made by a majority of trustees.
Amendment No. 120B introduces again "with the consent of the Authority". Amendment No. 120C is important because it covers that a determination under the clause:
"shall override anything to the contrary in any rule of law, enactment, instrument or agreement".
The words in the amendment make it clear that decisions of the trustees cannot override anything in law, enactment, instrument or agreement. I beg to move.
8.15 p.m.
Lord Mackay of Ardbrecknish: As the noble Baroness explained, the amendments seek to overturn the main thrust of Clause 27, which is that the trustees of a scheme can decide whether or not the determinations of the board should be by majority. Under current trust law, decisions of the trustees must be unanimous, unless otherwise provided in the trust rules.
Like the Pension Law Review Committee, we believe that the rule of unanimity is no longer suitable in the present day and that, in fact, most schemes already provide in their rules for majority decisions. We therefore propose to legislate so that trustees have the

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right to determine the appropriate voting rule for their scheme, despite what scheme rules may say. The trustees can determine for themselves whether voting should be unanimous or by majority, and, if by majority, they can also decide that certain specified decisions should be unanimous. I believe that answers one of the points raised by Amendment No. 118R.
Taken together, the amendments would mean that, if scheme rules already provide for unanimous decisions, schemes would be able to change that position only with the consent of the authority.
The noble Baroness asked me about the phrase "from time to time". Not being a lawyer, I have some difficulty with this, but I suspect that the phrase is used so that it is not a once-and-for-all decision. That is my answer to that amendment.
The whole basis of Clause 27, and indeed many of the other provisions in Part I, is that schemes' trustees are the ones responsible for running schemes. They are there to run their own schemes. It is not necessary to involve the authority in matters such as this. If the trustees believe they should be dealing with decisions on a majority basis, it should be for them to decide that for themselves. Of course all that is subject to the minimum requirements which outline what a majority means.
Baroness Seear: Does what the Minister said mean that where there is only one-third of employee members, the employer members can override on every occasion if a majority decision is required? That makes a nonsense of employee membership based on a third.
Lord Mackay of Ardbrecknish: I do not believe that it does. Clause 27(3) (a) provides that the trustees may determine that a decision be taken provided that a majority of the trustees i s present. The fact that a majority of the trustees is present acts as a protection against a minority of trustees being totally overridden.
Baroness Hollis of Heigham: No.
Lord Mackay of Ardbrecknish: It depends upon how one defines a majority and minority. We believe that there should be provision for majority decision-making in certain circumstances. We are giving the trust board the right to decide if it wants to take that route. It may decide not to take that route or that it wants to take it only in certain circumstances. The rules governing what forms a majority are tightly drawn. They mean that a few members of the board would not be able to take decisions when other members were not there who may or may not wish to vote against them. There are considerable protections in the current situation. I doubt whether we need to enlarge them in the way in which the amendments do.
Baroness Dean of Thornton-le-Fylde: I do not understand the Minister's rationale or arithmetic in respect of majorities. Earlier today the Minister stood by the provision of two-thirds of the trustees in occupational pension schemes being employer-nominated. Therefore, there is an inbuilt majority. Unless at a later stage the Minister is persuaded to give way that provision will remain in the
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Bill. There is reference elsewhere in the Bill to majority decisions. Where amendments have been put forward and the principle has been accepted we shall at a later stage table amendments requiring at least one member-nominated trustee to be present at the trustee meetings.
I rest my case on the recommendation in paragraph 4.5.58 of the Goode Report. It concedes the principle of decision by majority and states:
"There is one further matter to which we wish to draw attention, namely the legal rule that under English law decisions of trustees must be unanimous unless otherwise provided by the trust instrument".
That is what the Minister quoted to us. The report continues:
"We believe that such a rule is not suitable for pension fund administration; indeed, scheme rules regularly provide for decisions to he taken by a majority of trustees".
It concludes:
"We recommend that this should be the law except where the trust deed otherwise provides".
That is specifically what Amendment No. 118N would provide. I had thought that the Minister would respond warmly to the final sentence of that paragraph, which states:
"This would bring English law into line with Scots law".
I ask the Minister to reconsider the matter. We shall look at it again because it is an important principle to concede. Nevertheless, on this occasion—
The Earl of Clanwilliam: Is it not required to specify a quorum of trustees if the whole board is not present at a meeting?
Lord Mackay of Ardbrecknish: Yes, there would be a requirement for a quorum before any decision could be taken by majority voting.
Baroness Dean of Thornton-le-Fylde: Indeed, any meeting normally requires a quorum. If the trust deed provided other than a majority—and some trust deeds could do so—the majority rule would not apply, which is being suggested in the amendment. Nevertheless, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 118P to 118R not moved.]
Lord Lucas Lord Lucas moved Amendment No. 119:
Page 14, line 25, leave out ("reasonable").
The noble Lord said: I shall speak also to Amendments Nos. 120 and 121. The purpose of the amendments is to strengthen the requirement that trustees be given notice of all meetings. They will enable regulations to specify precisely where, in what way and within what timescale, notice must be provided to all the trustees. This will enforce the policy intention that all trustees, including member-nominated trustees, should be able to play their full part in the deliberations of trustee boards. OPRA will have powers of enforcement in case of a breach. I beg to move.
Lord Renton: The word "reasonable" is attractive but it gives rise to a great deal of argument in the courts.

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It would be far better to leave out the word "reasonable" and have definitive arrangements for the giving of notice. I gladly support the amendment.
On Question, amendment agreed to.
Lord Lucas Lord Lucas moved Amendment No. 120:
Page 14, line 27, at end insert:
("( ) Notice under subsection (3) (b) must be given in a prescribed manner and not later then the beginning of a prescribed period.").
On Question, amendment agreed to.
Baroness Dean of Thornton-le-Fylde Baroness Dean of Thornton-le-Fylde moved Amendment No. 120A:
Page 14, line 27, at end insert:
("( ) A determination under subsection (3) (a) of this section shall not be valid unless it specifies that at least one member-nominated trustee appointed under sections 14 or 15 shall be present when any decision is so taken, whether at a meeting of the main trust board or of any committee of trustees.").
The noble Baroness said: I shall speak also to Amendments Nos. 143 and 144. As the Bill is worded there is no reference to the recommendation made by the Goode Committee, nor to the reference in the White Paper accepting that recommendation. The amendment will insert a new subsection requiring at least one member-nominated trustee to be present when decisions are taken. Paragraph 49 of the Goode Committee recommends:
"Schemes should set a quorum for meetings of trustees which should include at least one member-appointed trustee".
The White Paper stated that the Government accept that recommendation, but there is no reference to it in the Bill. We suggest that the Bill is deficient on that basis, even though subsection (3)(b) provides reasonable notice of meetings. I have had experience of such provisions and know that one can run a coach and horses through them. One can always ensure that some trustees do not receive notice or that meetings are held at times and in venues that are not necessarily appropriate.
The new subsection would ensure that a member-nominated trustee was present at meetings of the board and we hope that the Minister will accept that.
Amendment No. 143 provides for "may" being changed to "shall" because it is important to ensure a mandatory requirement. Amendment No. 144 provides that the,
"Regulations shall require that a minimum number of trustees shall be present",
and shall,
"include at least one member-nominated trustee".
I beg to move.
Lord Mackay of Ardbrecknish: Amendments Nos. 120A and 144 refer primarily to the requirement that a member-nominated trustee should always be present at any meeting of the main board or of any committee of trustees when any decision relating to the scheme is taken. In some respects they are linked with the previous debate.
We certainly support the principle that member-nominated trustees should be able to participate fully in the decisions of the trustee board. However, we do not believe that this amendment is an appropriate
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way to achieve that objective. It would effectively give member-nominated trustees a veto, and that is clearly not the intention.
To provide particular trustees with the means to dictate to trustee boards in this way would place disproportionate power in the hands of member-nominated trustees. A less than co-operative trustee, for whatever reason, could have a potentially disruptive effect on the scheme. It is a question of balance—and perhaps I may be forgiven for using that phrase for the second time today. We want to ensure member-nominated trustees are able fully to participate in the decision-making process but not at the expense of the efficient running of the trustee board. To achieve this we are taking steps to ensure that individual trustees have every opportunity to attend trustee meetings so that the full range of views can be heard.
On Second Reading the noble Baroness gave more detailed examples of the ways in which someone might make it impossible for a trustee to attend a meeting. He might say, "I will have the meeting at 11 o'clock tonight in Guadeloupe. By the way, my private plane is the only one that is going and I am sorry that there isn't a seat on it". That may be an exaggerated case but perhaps the noble Baroness has experience of something akin to it. The noble Baroness would be well advised not to accept a lift on a boat in those circumstances.
In Clause 27 we are taking power to require that notice of all meetings, including meetings of any sub-committees, must be given to all trustees in a prescribed manner and at a prescribed time. In that way we believe that the policy intention of providing all trustees with the opportunity to attend all trustee board meetings will he achieved. We fully intend that to be the outcome.
Amendment No. 143 would remove the flexibility provided in subsection (2) to make exemptions in certain cases from the requirements to keep books and records. It is normal practice in the majority of schemes for trustees to keep proper books and records, including records of all their meetings. Subsections (2) to (4) provide powers to make regulations and it is intended that these will set minimum standards of compliance.
We fully intend to bring forward regulations which will require those books and records to be kept by schemes, but there are some schemes for which that requirement would not be necessary. We are still considering what those possible exemptions might be, but there are unlikely to be very many. Those we have in mind at present are schemes with fewer than two members and so-called "unapproved schemes"; that is, schemes which are not approved for tax purposes.
In view of that explanation of what I expect to be in regulations, I hope that the worst fears of the noble Baroness have been removed in relation to catching the plane to Guadeloupe.
8.30 p.m.
Lord Renton: It may be that I did not hear my noble friend correctly and, if I did not, I apologise to him. However, there may be another reason for rejecting the amendment. Clause 14 envisages that there will not

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always be a member-nominated trustee. There may be a vacancy. Arrangements are made to deal with that. Clause 14(5) states:
"If a vacancy for a member-nominated trustee is not filled because insufficient nominations are received";
and then it states what must be done. That is another reason why the amendment moved by the noble Baroness, Lady Dean of Thornton-le-Fylde, presents a difficulty.
Baroness Dean of Thornton-le-Fylde: I understand the point made by the noble Lord, Lord Renton, in relation to Clause 14(5), but I do not accept that it covers this situation. If I were a member-nominated trustee listening to our debates or reading the report of them in Hansard, I should have reached the point at which I wondered whether the Government are committed to ensuring that members of occupational pension funds have the rights and responsibilities which extend to the equity within those funds.
We have put forward reasonable amendments providing for 50 per cent. of trustees on boards, amendments relating to member-nominated trustees being present, and then this amendment. This amendment does not provide for members who do not turn up and are being difficult. It merely provides that a member:
"shall be present when any decision is so taken".
I cannot believe that the Minister is implying that a member may be difficult and not turn up so that business cannot be conducted.
The reality will be that member-nominated trustees will perform an extremely worthwhile and responsible job. The amendment is very reasonable, especially in view of the fact that already inbuilt into the occupational scheme is a provision for two-thirds employer-nominated membership, unless the scheme decides that there will be one-third of member-nominated trustees.
I hear what the Minister says. Clearly I shall not press the matter to a Division. But I must express my personal disappointment, because it seems to me that the Minister is indicating that member-nominated trustees are not as responsible and caring as employer-nominated trustees. I am sure that the Minister did not mean to imply that but I should like him to confirm that he did not. I must reject that view. However, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 120B and 120C not moved.]
Lord Lucas Lord Lucas moved Amendment No. 121:
Page 14, line 30, at end insert:
("( ) If subsection (3) (b) is not complied with, sections 3 and 9 apply to any trustee who has failed to take all such steps as are reasonable to secure compliance.").
On Question, amendment agreed to.
Clause 27, as amended, agreed to.
Clause 28 [Amendments: need for member-nominated trustees]:
On Question, Whether Clause 28 shall stand part of the Bill?
Lord Lucas: I wish to oppose the Question that Clause 28 stand part. This clause was intended to provide that, unless a scheme has secured approval to opt out of the member-nominated trustee proposal, scheme rules cannot be amended if there are no member-nominated trustees on the trustee board. The intention of the clause was to prevent schemes from amending their rules in the absence of a member-nominated trustee: for instance, in any interim period between the expiry of one member-nominated trustee's term of office and the appointment of another.
We believe that, as worded, this clause would give member-nominated trustees an effective veto over amendments and would act against Clause 14(5), which deals with the situation in which no nominations for member-nominated trustees are made. On a detailed scrutiny of the Bill as it now stands, we believe that other provisions in the Bill adequately cover the situation. I hope that the Question will be decided in the negative.
Baroness Hollis of Heigham: I am extremely unhappy that the Government are proposing to withdraw this clause from the Bill. We think that it is a rather useful protective device where bad employers may exploit a situation.
As it now stands, the sanctions against employers and existing boards of trustees who refuse to implement the requirements for member-nominated trustees under Clauses 14 and 15 are not very strong and could, in any case, mean considerable delay while the requirements are being implemented.
If the clause had remained in place, it would have created a blocking mechanism so that for so long as there is no member-nominated trustee, no scheme amendments may be made. That encourages an employer to get a move on. I cannot believe, as my noble friend Lady Dean said, that the Minister is serious when he seems to imply that member trustees uniquely will seek to veto, block and make impossible the workings of a pension scheme for which they have a fiduciary responsibility; for example, by refusing to let names go forward or by not attending meetings. That is a rather cynical attitude towards member trustees, who in other circumstances the Minister expects to be a major part of the whistle-blowing fabric of the whole scheme which is to deliver the pension promise. That is unfortunate and I hope that, on reflection, the Minister will not pursue what is almost bad-mouthing the integrity and motivation of would-be member trustees on schemes. That is what his response to my noble friend and his action in seeking to withdraw this clause seem to suggest. That is extremely unfortunate.
This clause is a useful, protective device to ensure that employers cannot delay unreasonably for their own ends. I hope that the Minister will decide not to withdraw the clause but will seek further guidance on it.
Lord Renton: I saw a further problem with regard to the clause when I first read it and before I knew that my noble friend was going to move that it should be left out.

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Under the Trustee Act and under the general law for centuries, the courts have had power to amend trusts if application is made to them by trustees, or, indeed, by beneficiaries, in case they should need amendment. The clause says that,
"no power to amend the scheme can be exercised by any person".
If my noble friend had not been moving the Motion to leave out the clause, I was going to ask whether it was intended to exclude the jurisdiction of the High Court. If that were so, it would be a great mistake. Fortunately, however, the problem will not arise if we leave out the clause.
Lord Lucas: My noble friend and I both find the clause as it stands unsatisfactory. I propose to continue to oppose its retention in the Bill. However, I shall read carefully the remarks made by the noble Baroness, Lady Hollis. At root I am sure that we are aiming in the same direction. If there is something that the noble Baroness said which we can take account of elsewhere in the Bill, we shall certainly look into the matter.
Clause 28, negatived.
Clause 29 [Investment powers: duty of care]:
Lord Ezra Lord Ezra moved Amendment No. 121A:
Page 14, line 35, leave out ('investment functions") and insert ("functions relating to investments (within the meaning of the Financial Services Act 1986)").
The noble Lord said: In moving the amendment, I shall speak also to Amendments Nos. 123A and 124A. Clause 29 deals with the liability for breach of an obligation relating to,
"the performance of any investment functions".
Amendment No. 121A is a probing amendment which seeks to define more closely what is meant by "investment". In fact, that is done under the Financial Services Act 1986. That is why the amendment has been proposed. It seems that that would be a better way to define investment so as to have consistency in the duty of care and authorisation as laid down in the FSA. Otherwise, investment managers and practitioners could have two different bases upon which to work. Other types of investment that do not come within the FSA could of course be continued with—for example, real property—and would remain covered by trust law and the scheme rules as before. I have now covered the proposals under Amendments Nos. 121A and 123A which relate to Clauses 29 and 30.
Amendment No. 124A is the last amendment in the group. Again, it is a simple proposal. It seeks to bring within the scope of the provision which permits delegation regulated overseas-based investment managers. The reason behind it is that many pension funds have investments overseas; indeed, some of them have done quite well in that respect. They should not be deprived of that facility, nor of making use of properly regulated and authorised agents overseas. That is the purpose of the amendment. I beg to move.
8.45 p.m.
Lord Mackay of Ardbrecknish: I appreciate the noble Lord's wish with Amendment No. 121A to limit
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the risk that trustees may be influenced to move out of investments not covered by the Financial Services Act. However, I do not accept that trustees will become more reluctant to make non-Financial Services Act investments as a result of the Bill's provisions.
It is for trustees to decide the most appropriate investments for them to make in the light of their schemes' circumstances after taking and considering relevant professional advice. Where it is perfectly proper for them to make investments which are outside the scope of the Financial Services Act they will, I believe, continue to do so. They have nothing to fear from the contents of the Act provided they take such steps as are necessary to comply with the general duty of care expected from trustees under trust law when making investments.
In the light of the changes in trustees' investment power that are being introduced to the Bill, I believe that it would be wrong to set in place arrangements which would allow scheme rules to exempt trustees from their duty to take care and exercise skill. The requirements of Clause 29 are clear. We have provided for trustees to be exempted from liability under Clause 30 where they appoint an authorised fund manager, as recommended by the PLRC.
The purpose of Amendment No. 123A will be met by Amendment No. 124 which the Government have proposed and with which we shall deal later. Amendment No. 124 will make it clear that investment decisions delegated to a fund manager authorised under the Financial Services Act 1986 are in respect of decisions only about investments set out in that Act. Therefore, the noble Lord, Lord Ezra, is indeed on to a good point but one which I hope he will agree is dealt with under Amendment No. 124.
With regard to Amendment No. 124A, Government Amendments Nos. 123 and 124 which we shall be discussing shortly are intended to clarify those persons to whom trustees may delegate investment decisions and to whom they may do so without incurring liability for the acts of that fund manager under the provisions in subsection (3). It specifies that a fund manager to whom Section 191(2) (a) to (c) of the Financial Services Act applies is an authorised person for the purposes of the subsection. That may include overseas fund managers appointed in certain circumstances.
We have not, however, gone further. We believe that it could be unwise to extend trustees' ability to delegate decisions to unauthorised fund managers, either in this country, the European Community or abroad, without their retaining their vicarious liability for such actions. We do so, first, because of the regulatory structure provided under the Financial Services Act whereby the PLRC recommended the removal of trustees' liability where they appoint an FSA authorised fund manager.
Secondly, it is for trustees to decide what investments are appropriate in the light of their scheme's particular circumstances. Where it is appropriate for them to invest in overseas markets, they must decide what proportion of the fund should be so invested and in which markets and consider who are the most appropriate people to manage those investments. I do not believe that it is for

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the Secretary of State to deem which overseas regulatory systems are acceptable to UK pension schemes; that must be a matter for the trustees to decide.
Thirdly, as I intimated—and so that the noble Lord will not become confused—the amended definition of an authorised fund manager does provide for overseas fund managers to be appointed. As this occurs under Clause 30(2), trustees will not be held vicariously liable for their acts provided that they take certain steps.
Lastly, I do not believe that trustees would be less likely to make overseas investments which are not covered by the Financial Services Act as a direct result of the clause. Any trustee who takes proper advice on overseas investments, appoints apparently competent persons to manage those investments and takes all reasonable steps to meet his obligations to take care under trust law will have nothing to fear from the provisions in Clause 30.
Having given that fairly long response to what I know is an important matter—indeed, that is why I went into some detail—I hope that the noble Lord, Lord Ezra, will feel able to withdraw the amendment.
Lord Ezra: I thank the Minister for going into such detail. However, I must admit that at one stage I was becoming a little confused as to whether the noble Lord was talking about "unauthorised" or "an authorised" investment manager. I shall consult Hansard tomorrow to ascertain which one he was referring to at various stages. I am glad that the Government regard it as an important issue.
As regards the first two amendments, I am rather sorry that the Government do not accept the fact that there could be some benefit in having greater compatibility with the definition of "investment functions" in the Financial Services Act. However, having said that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 29 agreed to.
Clause 30 [Power of investment and delegation]:
Lord Haskel Lord Haskel moved Amendment No. 122:
Page 15, line 10, at end insert (", provided that this power is exercised, in relation to all matters affecting the fund, to the same degree of care and diligence as an ordinary prudent person would exercise in dealing with the property of another for whom the person felt morally bound to provide and by using such additional knowledge and skill as the trustees possess or ought to possess by reason of their profession, business or calling").
The noble Lord said: We have now reached the part of the Bill which deals with investment. It is notable that the Bill does not set out a standard by which the conduct of trustees can be assessed by the regulator so far as concerns investment. The Bill suggests that trustees should deal with assets as if they were their own. But if you are dealing with your own property you can be reckless or negligent as the whim takes you. Your only responsibility is to yourself. If you are dealing with other people's property, I believe the standard of care should be higher because there is a greater duty of care.
This amendment sets out to impose this higher duty of care as the standard demanded from trustees. One can frivolously bet with one's own money on a horse or on a commodity price, but a trustee should be careful about doing this with other people's money. This amendment clearly sets this out and I understand that it has the support of the Law Society. The wording of this amendment allows a certain amount of discretion according to the trustees' professional skills and ability or calling. This wording is now more commonly used in Australia, in the United States and in Ontario. The wording is more suited to modern investment needs and practices and gets away from the old excessively rigid ones. I beg to move.
The Earl of Buckinghamshire: I should like to support the noble Lord, Lord Haskel, in this amendment. I think that trustees have always had to act as prudent men in this area but I believe there is a need to make what is implicit explicit. I think this amendment is helpful in achieving that objective. Like the noble Lord, Lord Haskel, I, too, am aware that wording like this appears elsewhere in the world. It has been taken, for example, from the United States and the ERISA legislation. I certainly commend it to my noble friend the Minister.
Lord Renton: I agree with the purpose of the amendment and it is perfectly clear that trustees should have such duty. However, the difficulty is that they have already got such duty. This is the kind of duty which time and again has been laid down by the courts in the exercise by trustees of their duties, including their duties with regard to investment. Therefore although the amendment certainly has some merit—looked at as it reads—I very much doubt whether we need to add to the law because it is already part of the law.
Lord Mackay of Ardbrecknish: The standard of care required from trustees when they exercise their investment powers is a complex area involving highly developed equitable principles of law. We were initially attracted to the idea of introducing into the Bill such a standard. But after careful consideration, we have concluded that it would not be appropriate for three important reasons.
First, as my noble friend Lord Renton just mentioned, there is a well developed standard of care required from trustees in making investments under existing trust case law. This will continue to apply and develop. It is not, therefore, necessary for the Bill to introduce a statutory standard of care as set out in the amendment. Secondly, whilst I think we all recognise the PLRC's excellent attempt to encapsulate the principles of case law in this area, the legal advice I have obtained is that such consolidation would result in the statutory standard being applicable to all cases. This carries the danger that the law would become fossilised.
Lastly, the existing standard of care will be reinforced by the provisions in Clause 31, which require trustees to prepare and maintain a written statement of the principles which will govern their decisions about investments. In completing this statement, trustees will

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need to think clearly and consider all of the circumstances affecting the scheme before deciding the most appropriate investment strategy.
I am suggesting to the Committee that this amendment is unnecessary because its purpose is already achieved. Indeed in some ways it could be counter-productive as regards fossilising existing trust case law. I hope, in the light of my explanation, the noble Lord will feel able to withdraw the amendment.
Lord Haskel: Certainly investing the fund's money is probably the most important task of trustees. As the Minister said, the rules governing it are complex. My feeling is, why not make it explicit if the rules are complex? However, if it ossifies—I believe the Minister said that—the regulations, I think we ought to look into that. With that in mind, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas Lord Lucas moved Amendment No. 123:
Page 15, line 12, leave out from ("manager") to ("any") in line 14 and insert ("to whom subsection (2A) applies").
The noble Lord said: In moving Amendment No. 123 I wish to speak at the same time to Amendments Nos. 124 and 125. These three amendments clarify to whom trustees may delegate investment decisions. As drafted the clause could be seen to be preventing trustees from delegating fund management to EC institutions which are eligible to carry on investment business in the United Kingdom. This was never the intention and could place the United Kingdom in breach of EC obligations. I beg to move.
Lord Dean of Harptree: I welcome these amendments. I am advised that they deal with overseas managers but that they do not in fact safeguard the position as regards property investment. I realise this is a complicated issue and my noble friend the Minister may not be able to give a definitive answer at this stage. However, it seems to me that there is a case for protection under this clause to be afforded to trustees who delegate property investment to properly qualified managers. I would be grateful if my noble friend the Minister would consider that point, possibly not this evening as I realise it is a complex matter. However, it seems to me that it is a point which is not covered at the present moment in the clause or the amendments and that it requires consideration.
Lord Renton: Before my noble friend sits down, can he say whether he uses the word "property" in this context to mean landed property and only that—land and buildings in fact?
Lord Dean of Harptree: I mean all sorts of property.
Lord Lucas: My noble friend is quite right that these amendments do not in any way cover property, either as narrowly or as broadly defined. If my noble friend reads Hansard tomorrow and the answer that my noble friend Lord Mackay gave to the noble Lord, Lord Ezra, on his Amendment No. 121A, and those grouped with it, he will find set out there—I hope—he answer which he requires.
On Question, amendment agreed to.
[Amendment No. 123A not moved.]
Lord Ezra Lord Ezra moved Amendment No. 123B:
Page 15, line 16, after ("investments") insert:
("(aa) may delegate such discretion to a person who is not a person to whom subsection (2B) applies, where the purpose of the delegation is solely to enable that person to delegate that discretion to a fund manager who is a person to whom subsection (2B) applies,").
The noble Lord said: I would like to move Amendment No. 123B with which Amendments Nos. 124B and 125A have been grouped. These amendments provide for sub-delegation of investment functions in the limited circumstances where the immediate delegate is not covered by the Financial Services Act but the sub-delegate is. Some pension schemes collaborate in setting up a common investment fund; for example, where an employer has several schemes, or for different companies in a group. Having a common investment fund increases operational flexibility and reduces investment management costs.
Legally, the scheme trustees delegate their investment functions to those of the common investment fund who are not usually authorised persons for the purposes of the Financial Services Act because they do not need to be for the activities that they undertake. As it stands, the Bill does not appear to contemplate sub-delegation in these circumstances. The amendments are intended to make sure that the trustees of schemes that have joined together in a common investment fund are not prevented from still doing so. I beg to move.
Lord Mackay of Ardbrecknish: I am bound to say that despite the arguments put forward by the noble Lord, I cannot agree that trustees should be permitted to delegate discretion over investment decisions to someone who is not appropriately authorised to manage those investments himself, so that that person may then subsequently pass that discretion on to someone who is properly authorised.
Decisions relating to scheme investments are a key responsibility of trustees. Where those investments require the appointment of an authorised fund manager, it is for the trustees to chose who is, in their opinion, the most appropriate person to manage those investments, to appoint that person and to ensure that he is performing his work competently. Those tasks are central to the trustees' role to act in the interests of the schemes beneficiaries. They should be undertaken by the trustees themselves and not delegated to another party to undertake on their behalf. For those reasons I am unable to commend Amendments Nos. 123B and 124B to the Committee.
I note the concern that, without a clear power to sub-delegate as proposed by Amendment No. 125A, trustees and fund managers could be hampered in conducting their day-to-day business, which would be in no-one's interest. However, the interests of security of the scheme must be paramount. I should therefore like to examine this issue in more detail. I shall in particular need to be sure that trustees maintain both control over, and security of, investments. I hope that with the promise that we shall look at the particulars

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which are drawn to our attention in Amendment No. 125A the noble Lord will feel able to withdraw the amendment.
Lord Ezra: I am obliged to the noble Lord for promising to have another look at Amendment No. 125A. I am sorry that he has spoken quite so categorically about Amendments Nos. 123B and 124B. I believe that at present a number of perfectly proper investments would fall foul of the provision for none other than a technical reason. I therefore wish to consider the matter further. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
9 p.m.
Lord Lucas Lord Lucas moved Amendment No. 124:
Page 15, line 19, at end insert:
("(2A) This subsection applies to a fund manager who, in relation to the decisions in question, falls, or is treated as falling, within any of paragraphs (a) to (c) of section 191(2) of the Financial Services Act 1986 (occupational pension schemes: exemptions where decisions taken by authorised and other persons).").
The noble Lord said:. I have spoken to this amendment. I beg to move.
On Question, amendment agreed to.
[Amendments Nos. 124A and 124B not moved.]
Baroness Dean of Thornton-le-Fylde Baroness Dean of Thornton-le-Fylde moved Amendment No. 124C:
Page 15, line 30, after ("number") insert ("(of whom at least one shall be a member-nominated trustee)").
The noble Baroness said: As my noble friend Lord Haskel said a few moments ago, the investment of pension funds is probably the most crucial role that trustees have to carry out. It is therefore regrettable that Clause 30(4) does not provide that member-nominated trustees will have a role in decisions regarding investments. Clause 30(4) (a) provides that the trustees of a trust scheme may,
"authorise two or more of their number to exercise on their behalf any discretion to make any decisions about investments".
My experience has been that when problems of any magnitude regarding pension funds have arisen they involve money. That is not surprising. However, the problems relate to the manner of investment and the misuse of pension funds. The clause as drafted makes no provision for member-nominated trustees to have a role in that function.
The general thrust of the Bill provides that only one-third of trustees will be member-nominated trustees unless otherwise decided by the trustees. However, decisions can be taken by the majority. If one adds those two provisions to Clause 30 as drafted one could exclude totally member-nominated trustees from the very heart of investing the funds to ensure the viability of the scheme.
The Bill when enacted will not make rogues disappear; they will still be with us. But we hope that the new Act will make it nigh impossible for rogues to take the advantage that they have chosen to take over the years. We need to learn from the experience we have
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gained thus far on pension funds. One experience has involved the exclusion of member-nominated trustees from any crucial decisions that are taken.
It is for those reasons regarding the power of investment and delegation that we put forward the amendment. I beg to move.
Lord Renton: I agree with the noble Baroness that it is important that if possible, a member-nominated trustee should be required to act in the circumstances envisaged in subsection (4). But, again, we are up against the problem that Clause 14 envisages that there may be a vacancy among the member-nominated trustees. Indeed, there may not be a member-nominated trustee when one is urgently needed. I believe that we should envisage such a contingency. Therefore, although I have a great deal of sympathy for the case put forward by the noble Baroness, her amendment would have to be somewhat differently worded in order to cover the circumstance of there not being for the moment, a member-nominated trustee.
Lord Mackay of Ardbrecknish: Like my noble friend Lord Renton, I am as anxious as the noble Baroness to ensure that member-nominated trustees play a full part in the work of the trust board.
However, I believe that the amendment is unnecessary and would unduly constrain the ability of a trust board to make sensible provision for handling investment matters. The subsection as a whole makes clear that responsibility for investment decisions should rest with the whole trust board and cannot be delegated.
In practice, many trust boards will be content to authorise an investment sub-committee to operate on behalf of the board. This enables the fund's investments to be kept under regular review, possibly by those trustees with a particular expertise in that area, and for decisions to be taken relatively quickly without needing to convene the whole board.
It could be an inappropriate and unnecessary constraint on the trust board if it were required to appoint a member-nominated trustee to the sub-committee.
I should remind the Committee that any such sub-committee will be operating within the investment principles laid down by the board as a whole under Clause 31. This, as well as the fact that the trust board as a whole cannot delegate its responsibility for investment decisions, means that there is no risk of any investment sub-committee running wild.
There is a further technical objection to the amendment. I wish to explain to the Committee that I do not take refuge in technical objections, but it is sensible to point it out. Not all schemes will have member-nominated trustees. Therefore, the amendment would not fit into the Bill. I do not particularly rest on that last point. I merely make it in passing. The main points which I hope the noble Baroness will take on board and accept are that the investment principles are

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laid down by the board as a whole and the board cannot delegate its responsibility for taking the investment decisions.
Baroness Dean of Thornton-le-Fylde: I thank the Minister for that response. It ebbed and flowed a little. For a moment I thought I was receiving support; then I was not; and then I thought perhaps there was a chance. I am not absolutely clear where the Minister stands. I shall read his remarks with a great deal of interest in Hansard tomorrow.
Before concluding, I should like to pick up a point made twice by the noble Lord, Lord Renton. I do not believe that we can operate the law by saying that something is desirable. I take the point he made in regard to Clause 14 and the vacancy, but, from my experience as a trustee, boards do not meet day in, day out, week in, week out. When vacancies occur on trust boards, they are usually filled pretty quickly without disturbing the work of the board. Within any trust board there is an investment portfolio which provides that such a percentage can go towards equities, international investments, property and so on. However, the clause provides that the trustees of. a trust scheme may,
"subject to any restriction imposed by the scheme",
do certain things. I take the point that the Minister makes about the trust board being responsible, but my understanding is that the trust board can decide by majority decision to delegate by proxy its authority. While not letting go of overall responsibility at the end of the day, it can delegate the role of investment to the small sub-committee. Therein lies the danger.
Once we start to loosen the strings attached to control on investment, breaches can and do take place. If the wording which we put forward does not meet the point and causes technical problems—and I understand that in law technical problems can become insurmountable in certain cases—we would reconsider the point in parallel with what the Minister said. For the time being, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas Lord Lucas moved Amendment No. 125:
Page 15, line 32, leave out from ("manager") to ("any") in line 33 and insert ("to whom subsection (2A) does not apply").
On Question, amendment agreed to.
[Amendment No. 125A not moved.]
Clause 30, as amended, agreed to.
Clause 31 [Investment principles]:
9.15 p.m.
Lord Haskel Lord Haskel moved Amendment No. 126:
Page 16, line 10, at end insert:
("( ) the exercise of voting rights and other powers granted by virtue of the management of investments on behalf of the beneficiaries;").
The noble Lord said: In moving this amendment I also wish to speak to Amendments Nos. 131 and 141. The purpose of the amendments is to oblige pension fund managers and trustees to vote their shares at company meetings, to announce beforehand how they intend to vote and to keep a record of how they voted.
This is a topical matter because it deals with the excessive payment packages and share options paid to directors of recently privatised industries. That is because over one-third of all the shares on the London Stock Exchange are held by pension funds. Support for the amendment is based on the recommendations of the Cadbury Committee, on experience in the USA and on research which shows that companies with more shareholder involvement perform better.
First, Cadbury: the recommendations are clearly stated in the report and paragraph 6.11.2 says:
"Institutional investors should make positive use of their voting rights".
That is covered by my Amendment No. 126. Paragraph 6.12 says:
"We recommend that institutional investors should disclose their policies on the use of voting rights".
That is covered by my Amendments Nos. 131 and 141.
The recommendations by Cadbury have been readily accepted by most businesses because they promote the community of interest between shareholders, directors and all employees and improve the company's performance; and this community of interest will be needed on matters other than pay. Shareholders, employees and pensioners will not determine details of corporate strategy, but they will make their voice heard on matters of principle as laid down by the Cadbury code, probably on such matters as environmental issues, ethical issues and policies towards employment.
Turning to experience in the United States, this is based on the fact that voting has been a duty for pension funds since 1988. That has been a potent force. In harnessing the good sense of individual people interested in the success of their companies, they have found a variety of ways of dealing with pay and other matters and helping their companies to perform better. For instance, in some companies shareholders have insisted that the directors use a proportion of their pay to become significant shareholders themselves. The Committee will not be surprised to learn that research at the Harvard Business School comparing 70 companies concluded that companies where the directors had been obliged to hold stock by their fellow pension fund stockholders did indeed perform better.
Other shareholders have insisted on wage compression. That means that they have set the difference between the highest and the lowest paid employees. If senior executives earn more, they have to carry the rest of the team with them. Research into this has not been carried out, but my instinct tells me that there will be an improved company performance.
Let us compare that position with the awful mess that the Government have got into over the pay and share options of senior executives in the recently privatised utilities, with the Government vainly calling for shareholders to vote while the public get more and more angry. I am sure that the Minister and his friends would have much preferred to have a duty to vote in the privatisation prospectus than put up with all of that. The omission will be highlighted even more: activity by American pension fund managers in the UK is about to increase dramatically.
Since 1994 American pension fund managers have had their duty to vote extended to shares that are held outside the United States in order to reflect the globalisation of capital markets. This became apparent a few weeks ago with the removal of Maurice Saatchi, chairman of the advertising agency. It was fund managers in Chicago who threatened to vote him off the board; they were acting under United States law. Is it riot sensible to bring British law into line with American law, so that we, too, reflect the globalisation of capital markets?
Since raising this matter at Second Reading, I have received a lot of correspondence. Some of the more progressive pension fund managers, such as Mr. Alastair Ross-Gooby, have been strongly supportive. The Pensions and Investment Research Corporation has suggested that for some time and in recent years has provided a service to its members advising them on which way to vote at company meetings. The National Association of Pension Funds and others raised two problems: the question of cost and offending other clients by voting against them. Those objections were remarkably easy to deal with. We dealt with cost by agreeing that abstaining was a voting option. That could very well he the decision in a large number of cases and would have to be recorded as such. Pension fund managers giving offence to their customers is easily dealt with by anonymous voting. Many companies in the United States, in order to encourage voting at their meetings, have instituted a system of anonymous voting so that fund managers can vote without offending their other clients.
I have also been asked why voting should be a duty. My response is that these amendments do not tell people how they should vote; they provide a framework to encourage them to vote. Government and business obviously want people to vote. Surely it is then a duty to provide that framework and not just stand back. Without it, all that we have is vested interests shouting at each other, as they are doing over directors' pay in the privatised utilities. Provide the structures and you will get a result.
Then there is the position of trustees and pension fund managers under trust law. The position is not clear and it is not my intention to try to clear up the whole area of trust law. But it is possible, and timely, to clear up this one area.
There is no doubt then about the benefits of voting. Why should it be in this Bill? My main reason is that improving the performance of British industry is too important to let this opportunity pass us by. It will be many years before there is another pensions Bill. We must take the opportunity that presents itself. We are dealing here with the single largest group of shareholders in UK companies.
This provision will not bring a major improvement in the performance of British industry. Life is not as simple as that. Our performance will be improved by a whole series of small increments, and this is but one of them. I beg to move.
Lord Mackay of Ardbrecknish: This amendment has been well trailed by the noble Lord, Lord Haskel.
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We are in no doubt that institutional investors, as owners of shares, have a responsibility to the companies in which they invest. As part of that responsibility, it is extremely important that shareholders should subject the performance of their companies to critical scrutiny. If shareholders see that their companies are not competitive, they must point out to management the improvements that they want to see. If those improvements are not forthcoming, they must demand changes in the management and impose them if they must. It is not an exaggeration to say, as the noble Lord did, that that function is crucial to our economic prosperity.
The Government strongly believe that institutions should develop constructive, long-term relationships with the companies in which they invest. Regularly voting their shares can be an important part of that relationship. It demonstrates to management that the owners are interested in the company and committed to its future. It is also consistent with the trustees' duties to act in the interests of the beneficiaries.
But there is a significant difference between encouraging best practice, which the Government do encourage, and imposing specific or detailed obligations on pension funds, which risk being regulatory and burdensome. As an example of best practice I commend to the Committee the lead taken by the National Association of Pension Funds. It recommends that trustees should decide on their voting policy and that voting policy should be made public. Thereafter the trustees should exercise that vote prudently in the interest of the scheme beneficiaries.
The Committee will no doubt be aware also of the pressure that Postel, which manages the Post Office and British Telecom pension funds, has brought to bear in encouraging better corporate governance and, for example, seeking to reduce the length of rolling contracts. Those are positive and welcome examples of a trend which I hope will continue.
However, the legislative approach suggested by the noble Lord seems to me to be fraught with difficulties and inconsistencies. On the face of it, the phrase "duty to exercise voting rights" means the creation of a binding statutory requirement on trustees or fund managers to vote or exercise their proxies on any resolution on which they are entitled to vote by virtue of their investments.
I have some difficulties with that particular requirement. Mandatory voting is not even something that we impose on the electorate at large when it comes to elections. I also argue, as I would in a discussion about mandatory voting in elections, that there is a right to abstain. That is a very reasonable and important freedom which the electorate ought to have and which should be paralleled in any duty of trustees to vote.
I would also question the logic of a duty being imposed only on pension funds, which is the primary object of the Bill. It would argue for a similar duty to be placed on individuals who hold shares, other collective investment vehicles and insurance companies. It will not surprise the Committee to know that we are not attracted to going down the road of intrusive legislation of that kind.

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On the practical side, it is perhaps unfortunately the case that forcing people to vote provides no guarantee that they will exercise that vote in a prudent manner. I could talk for a long time about that and give instances of it having happened. But I shall leave that aside. If we go further down that road, the amendment imposes a legislative duty to vote in the interests of the beneficiaries. Taken to its logical conclusion, mere evidence of voting by the trustee on a resolution would not necessarily discharge the duty. To discharge the duty properly, a vote would have had to be made in the best interests of the beneficiaries.
How does one enforce such a duty and how many resolutions would the trustees of an average pension fund have to vote on? I suspect that the number would be high. I do not know how any administrative system could cope with the paperwork and the delving required to check on the trustees' voting records. I understand that the United States Government randomly inspect pension funds to check their practices in relation to corporate governance. To most UK eyes, that would appear to be unnecessarily intrusive and contrary to the Government's general deregulation approach.
In conclusion, the Government believe that the right way ahead in this important area is to encourage higher standards of corporate governance and encourage institutional investors to play their part in that. I do not believe that anything divides the noble Lord, Lord Haskel, and myself in that regard.
We accept that the role of institutional investors and the relationship with the companies in which they invest is an important aspect of corporate governance. But I urge the Committee to be wary of using the Pensions Bill to try to address that wider debate. Any provision introduced into this Bill would, by its very nature, be a partial response. It would risk cutting across initiatives designed specifically to address issues such as those put forward by the Cadbury Committee and its successor body, mentioned by the noble Lord, and the work of the Greenbury Committee on directors' remuneration. The Government will consider any recommendations by those bodies on the need for further action. But this is not the right vehicle to ride that particular horse.
I have clearly explained the Government's position, which I am sure will be read tomorrow, not only by Members of the Committee but also by the outside interests to which some of the remarks are directed. With those assurances and underlining the position of the Government, I hope the noble Lord, Lord Haskel, will feel able to withdraw the amendment.
Lord Haskel: I thank the Minister for that considered response, which I found extremely disappointing. I feel that this whole matter is too important to be left to individual discretion. If we leave it to the individual discretion of busy people it is the kind of thing that they will simply not get round to. By making it a duty to vote it interprets the duties of the trustees of pensions funds as put forward by the Cadbury Report.
The Minister said that the matter was well trailed; that is because there is a lot of interest in it. Only today the DTI published further proposals about best practice in
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British industry. A duty to vote is among the best practices being promulgated by the Department of Trade and Industry. It is all designed to encourage long-term relationships between shareholders and companies. It has been shown time and again that share values increase when shareholders take an interest, partly because the market feels that if shareholders take an interest, then bad management will be jumped on far more quickly.
I do not believe that the provision is regulatory and burdensome. A few companies are coming round to putting it into effect and many pension funds are working along these lines. We have a duty, therefore, to provide a framework in which it can be encouraged. However, at 9.30 in the evening I am not prepared to have a lengthy debate on it. I shall return to it at Third Reading and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Ezra Lord Ezra moved Amendment No. 127:
Page 16, line 11, at end insert:
("( ) In preparing or revising such a statement, the trustees of the trust scheme shall have regard to the timescale over which the liabilities of the trust scheme will fall to be discharged, and accordingly (unless such timescale is of a short duration) such statement shall provide that—

(a) investments are to be evaluated for their expected return over a period commensurate with such timescale; and

(b) investments are not be be made, or realized, by reference primarily or exclusively to considerations of a short-term nature.").

The noble Lord said: In moving Amendment No. 127 I shall speak also to Amendment No. 133. The points I raise follow on logically from the points made by the noble Lord, Lord Haskel. Clause 31 requires trustees to prepare, maintain and periodically review a written statement of their investment policy. The amendment seeks to add to Clause 31 an obligation on the trustees, when preparing or revising that statement, to take a long-term rather than a short-term view.
I am convinced, in view of what the Minister said in response to the noble Lord, Lord Haskel, that I shall be told that this goes outside the limits of the proposals in the legislation and, if dealt with at all, should be dealt with in some other way. But before the Minister takes that stance, perhaps he will reflect upon one or two aspects of the problem.
I am sure that the Minister will agree, and that other Members of the Committee will agree, that short-termism is a defect in the whole British approach to investment. The Bill gives us a chance to do something about it and we should not let it go by without drawing attention to it. It seems to me to he particularly appropriate to do so in the case of pension schemes, whose liabilities are by definition long term in that the trustees have to look ahead to the pension needs of people who are currently employees and may be many years away from retirement. They, of course, will be replaced with young, new entrants who themselves will be looking long term for their pensions.
The nature of the proposed amendment conforms with the general pattern of this part of the Bill in that it simply requires the trustees to have regard to a long-term timescale, except in the case of schemes

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whose liabilities are short-term; for example, where for whatever reason they are being wound up. The general problem of short-termism contains many paradoxical features. No doubt in many cases the chief executives of companies like to take a long-term view but they feel constrained because of the perceived demands of Institutional investors for short-term high returns both for capital and income. The ultimate beneficiaries of pension schemes no doubt also take a long-term view.
However, in the middle there is the investment community whose fund managers compete with each other on the basis of quarterly performance league tables. One cannot blame them because they live in a competitive situation. What is needed to put this right is for pension scheme trustees to direct fund managers as to strategic investment criteria, including moving them firmly towards a culture of long-termism. Unless there is a move in some part of the chain I fail to see how we can get away from this problem.
Amendment No. 133 is also about long-termism but ties in almost precisely with the point made by the noble Lord, Lord Haskel, on voting rights. The proposition made in Amendment No. 133 is that voting should not only be undertaken but should be undertaken with a view to long-term objectives.
I move the amendment in order to take advantage of this legislation to help us move away from the short-term culture. I beg to move.
9.30 p.m.
Lord Haskel: I rise to support the noble Lord, Lord Ezra, and to ask the Minister one question. Will he consult with his colleagues in the Department of Trade and Industry, because we are inundated with requests from the Department of Trade and Industry to take a long-term view? As the noble Lord pointed out, this is an opportunity to have this obligation to take a longer term view on shareholders. I should have thought that the Minster's friends in the Department of Trade and Industry would be delighted if he took this opportunity.
Lord Mackay of Ardbrecknish: This has been an important debate. Its subject matter formed a small part of the debate we had at Second Reading, when the noble Lord, Lord Ezra, raised some of the points which he has just made. While I would not deny that it is important for investors to take a long-term view of the position of the companies in which they invest, one has to look at the role of the trustees in a trust fund when it comes to their decisions, which are related, of course, to the interests of the scheme for which they are trustees.
For example, there is a wide range of factors which pension fund trustees must take into account in setting their scheme's investment strategy. Those factors will be influenced by the level of resources available, by the size of the scheme, by the period within which liabilities have to be met, by the relative rates of return on different types of investment and by the relative volatility of different investment vehicles; in short, all the factors already mentioned in Clause 31. Some more mature schemes may be best advised to hold a large percentage of their assets in gilts. I know that the noble Lord, Lord Ezra, appreciates that point. Indeed, it is
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catered for in his amendment. As pension schemes continue to mature, this factor may well have a noticeable impact on the balance of overall pension fund investment, irrespective of the minimum solvency requirement.
These are all highly complex and technical matters, on which trust boards will be obliged to seek professional advice. Their conclusions will depend on their particular view of the wide range of factors mentioned in this debate and on the particular circumstances of their scheme. Our view is that trustees who draw up their investment principles taking account of the points already listed in the clause, will be bound to take account of the considerations mentioned in this amendment.
Amendment No. 133 requires trustees holding securities in public companies to use any voting or other rights held, for the
"best interests of the trust scheme as a long-term investor".
It then defines "best interests" using criteria which have regard to the
"promotion of the sustainable growth in value of the company concerned".
Trust law clearly provides that trustees must act in the interests of the beneficiaries of the trust. It is clearly in the interests of everybody to encourage any action which will promote growth in UK companies. However, the introduction of any duty which requires trustees always to consider the interests of any other party before those of scheme members would be inappropriate because it would be incompatible with trust law. Such a requirement could lead to severe conflicts of interest between trustees' duties to scheme beneficiaries on the one hand, and their obligations to other parties on the other.
Of course we want to maintain the current high level of investment by pension funds in UK equities. It is a potent source of finance for British industry. I take the point that pension fund investments in gilts rather than equities could, in certain circumstances, be bad news for scheme members in that it may limit the ability of the scheme to provide discretionary increases. Equally, we must not impose the kind of substantial costs on sponsoring employers which would arise if there was an unnecessarily large shift of pension funds from equities into gilts.
The Committee will be aware that my right honourable friend the Secretary of State had this point very much in mind in determining the appropriate valuation basis for the proposed minimum solvency requirement which we shall be discussing at a later stage. Probably the debate deserves a longer airing. I hope that my brevity has not taken away from the fact that I consider this to be a very important issue. For the reasons which I have briefly outlined, I hope that the noble Lord, Lord Ezra, will feel able to withdraw his amendment.
Lord Ezra: I am most grateful to the noble Lord for the care with which he has dealt with this subject. I am not surprised at the conclusion that he has reached, but I regret it. I feel as the noble Lord, Lord Haskel, does, that the Government have spoken time and time again

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about the need for us to take a long-term view of investment. The vast mass of investment in this country is handled through the institutions of which the pension funds form a very large part.
Therefore, this would have been an opportunity to translate exhortation into obligation without in any way in my opinion—or indeed that of the noble Lord—harming the interests of beneficiaries. It must be in their interests to take a long-term view of investment and to persuade the companies that they invest in to take a similarly long-term view. No doubt this is a matter to which we shall try to return, but in the circumstances I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas Lord Lucas moved Amendment No. 128:
Page 16, line 14, after ("the") insert ("written").
The noble Lord said: In moving this amendment I shall speak also to Amendment No. 129. The purpose of these amendments is to ensure that when preparing or revising their statement of investment principles, trustees obtain advice in writing from a person who is properly qualified to give appropriate advice to pension schemes. The effect of Amendment No. 128 is to require trustees to obtain advice in writing. Amendment No. 129 develops further the qualifications required from a person from whom trustees must take advice. I beg to move.
The Earl of Buckinghamshire: My Amendment No. 129A is joined with these amendments. Members of the Committee will be aware that at Second Reading I expressed some concern about the overall impact of Clause 31. I wish to return to that matter at Report stage. At this point I wish to say in general that I believe the words in this clause "consult the employer" seem to change the current status quo where the trustees have to take into account the interests of all parties including the employer, as a contingent beneficiary. The amendment does not deal with that issue, which is why I wish to return to the matter on Report. However, the provisions make clear that the trustees have to consult and that failure to do so will carry penalties under Clauses 3 and 9. I am sure that, in most circumstances, the trustees will consult the employer but there may be circumstances where the relationship has broken down to such an extent that consultation does not take place.
The amendment refers to the penalties, but I am somewhat diffident about loading more penalties onto the trustees. Again, that is a point that, I made on Second Reading. However, as there are limited powers to get rid of trustees, I believe that the provisions complete the circle of the trustee requirements set out in the Bill.
Lord Lucas: To answer my noble friend, we too feel diffident about involving OPRA in these matters, but I can advise him that we shall be giving further consideration to the matter. Therefore, I hope that my noble friend will not seek to move his amendment.
On Question, amendment agreed to.
Lord Lucas Lord Lucas moved Amendment No. 129:
Page 16, line 16, after ("matters") insert ("and to have the appropriate knowledge and experience of the management of the investments of such schemes").
On Question, amendment agreed to.
[Amendments Nos. 129A and 129B not moved.]
Lord Haskel Lord Haskel moved Amendment No. 129C:
Page 16, line 26, at end insert:
("( ) The trustees of a trust scheme must include in the annual report of the scheme a statement by the trustees that they have carefully considered the investments and are satisfied that they conform to the statutory criteria.").
The noble Lord said: In moving Amendment No. 129C, I should like to speak also to Amendments Nos. 138, 140A, 141A, 142A and 142B. Amendment No. 129C is yet another Goode recommendation which the Government accepted but have not included in the Bill. It is designed to ensure that the trustees do not approve the annual report on investments and other matters on the nod but that they pay attention to what has gone on. That is similar to the responsibilities that are laid on directors in relation to the annual accounts of a company. We are talking about the same objective. It is a matter of good practice which needs to be encouraged and specified in the Bill. I beg to move.
Lord Mackay of Ardbrecknish: The first five of these amendments concern the requirements on trustees to obtain and make available certain information. The amendments would require the Government to make regulations which would require trustees of all schemes to produce scheme documents which are readily comprehensible to members within a given maximum time limit. They would also require trustees automatically to send an annual benefit statement to all members.
Amendment No. 142B inserts a new clause which would require scheme advisers who provide information to the employer in relation to the scheme to disclose such information to scheme members and independent trade unions.
Amendment No. 129C mirrors a recommendation made by the Pension Law Review Committee which has been accepted by the Government. However, we consider it more appropriate to give force to that recommendation in secondary legislation. We intend that new regulations concerning the provision of information to members shall be made under the powers at Section 113 of the Pension Schemes Act 1993 and Clause 35. These shall include detailed requirements for the content of scheme annual reports.
Amendment No. 138 would provide a mandatory power rather than a permissive power to make regulations concerning the provision of information to members. The effect would be to require the trustees or managers of all occupational pension schemes to obtain certain documents and make them available to members. Such a requirement would not be appropriate. Certain types of occupational schemes will need to be treated differently and the power to make regulations must provide for this. We have in mind, for example, certain

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exemptions for public service schemes. Those schemes are in the main unfunded and it would clearly be inappropriate to require them to produce accounting documents in the same way as for funded schemes.
The effect of Amendment No. 140A would be to require audited accounts, auditors' statements and actuarial valuations, which are by their nature very technical documents, to be produced in a readily understandable format with important information highlighted. We support the principle behind this amendment, which is to provide members with information which is meaningful and written in plain English. We consider that that is particularly important for documents such as the annual report and scheme booklet which are intended primarily for scheme members. It is perhaps of lesser importance for the documents of the sort covered by the amendment which concern technical issues and are intended to be read by relative experts.
As the Committee will be only too aware, whether something is readily understandable or whether information is important is a matter of opinion. It is not at all something for which we can legislate. Therefore, while we wish to encourage the use of plain English, we do not believe that the Pensions Bill is the place to do so.
Amendment No. 141A would require trustees to provide annual statements of accrued rights to members and others. We support the principle that members of all occupational schemes should have the right to receive an annual benefit statement if they want one. Members of money purchase schemes will continue to receive annual benefit statements automatically and we shall continue to encourage salary related schemes to do the same. However, we appreciate the practical difficulties that requiring all schemes to issue statements automatically would place on some schemes and have no wish to increase their administration costs unnecessarily.
The amendment would also require trustees to obtain and disclose specific items of information within set time limits. We consider that secondary legislation should specify the time limits for the provision of information and should set out all of the information which is required to be disclosed in the scheme annual report or booklet. We intend new regulations concerning the provision of information to members to cover the points made in this amendment.
Amendment No. 142A mirrors two of the recommendations made by the Pension Law Review Committee, both of which have been accepted by the Government. But again we consider it more appropriate to give force to those recommendations in secondary legislation.
Amendment No. 142B seeks to tackle a problem which does not seem to us to exist.
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I hope that I have covered all the main points in the amendments in the group and that the noble Lord, Lord Haskel, having listened to me, or, more sensibly, having read in the morning what I have had to say, will be content.
9.45 p.m.
Lord Haskel: I thank the Minister for his response. He replied to a couple of amendments to which I did not speak. However, from what the Minister said, it appears that he intends to introduce secondary legislation to encourage best practice. I do not wish to stand in the way of that. My only regret is that he is going to encourage best practice in administration only and not in the management, which was the matter to which I was trying to refer previously. However, in view of what the Minister has said, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 31, as amended, agreed to.
Clause 32 [Choosing investments]:
Lord Lucas Lord Lucas moved Amendment No. 1.30:
Page 16, line 28, leave out ("this section") and insert ("subsections (2) to (4)").
The noble Lord said: I shall speak also to Amendment No. 132. Amendment No. 130 clarifies those subsections of Clause 32 to which trustees must have regard when they are making investment decisions themselves. The specific requirements for those trustees are contained in subsections (2) to (4). The amendment removes the reference to the whole clause and substitutes the relevant subsections.
Amendment No. 132 clarifies who may give proper advice when trustees make or hold investments which are outside the scope of the Financial Services Act 1986. I beg to move.
On Question, amendment agreed to.
[Amendment No. 131 not moved.]
Lord Lucas Lord Lucas moved Amendment No. 132:
Page 17, line 12, at end insert ("and to have the appropriate knowledge and experience of the management of the investments of trust schemes").
On Question, amendment agreed to.
Clause 32, as amended, agreed to.
[Amendment No. 133 not moved.]
Baroness Dean of Thornton-le-Fylde Baroness Dean of Thornton-le-Fylde moved Amendment No. 133A:
After Clause 32, insert the following new clause:
("Custody of investments
.—(1) Unless the Authority agrees the contrary, the trustees or managers of an occupational pension scheme or a personal pension scheme must secure that investments held for the purposes of the scheme are held in accordance with an agreement, made between the trustees or managers and an approved person ("the custodian"), which contains the provisions mentioned in subsection (2).
(2) Those provisions are—

(a) that the investments are vested in the custodian's name and he maintains adequate records for identifying them as belonging to the scheme and not to himself or any other person,

(b) that the custodian is required to safeguard the investments,

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(c) that all documents of title relating to the investments are kept in the custodian's possession and may not be delivered to any other person except—

(i) in accordance with a request from the trustees or managers which is signified in the prescribed manner, or

(ii) in prescribed circumstances

(d) that all transactions relating to the investments are conducted and recorded in the prescribed manner and within the prescribed period, and, in particular, that any transactions which do not occur in the normal course of the holding of investments generally or of investments of the description in question are immediately reported to the Authority and the trustees or managers by the custodian,

(e) that the custodian is responsible for securing that the trustees and managers are fully informed of all matters relating to the investments within a period which is reasonable having regard to the importance of the information,

(f) that, in any case where the custodian is also a person to whom any discretion to make any decision about investments has been delegated under section 30, the functions exercisable by him as custodian are adequately differentiated from those exercisable by him by virtue of that delegation,

(g) that the custodian must establish and maintain such arrangements as may be prescribed for the purpose of securing so far as practicable that none of his employees or officers has the opportunity to perform any action which would or might result in a breach of the agreements,

(h) that the custodian is liable for any reduction in value in the assets of the scheme arising from any breach of his obligations under the agreement, and

(i) prescribed provisions.

(3) A person is approved for the purposes of this section if—

(a) he satisfies the prescribed requirements, and

(b) subject to subsection (4), he is not connected with the employer.

(4) Paragraph (3) (b) does not apply—

(a) where the employer is an institution authorised under the Banking Act 1987 and the arrangements made under this section comply with such further requirements as may be prescribed, or

(b) in prescribed circumstances.

(5) Where an agreement in relation to the investments held for the purposes of a scheme has been made with a custodian in accordance with this section—

(a) except in prescribed circumstances, the custodian shall not be regarded as a trustee or manager of the scheme by virtue only of complying with such provisions of the agreement as are mentioned in subsection (2), and

(b) the trustees or managers of the scheme are not responsible for any act or default of the custodian in the course of exercising his functions as such if—

(i) they have taken all reasonable steps to satisfy themselves that he is an appropriate person to appoint as custodian, and

(ii) they have continued to satisfy themselves by periodic review that he performs his functions under the agreement competently.

(6) Subject to any restriction imposed by the scheme, an agreement under this section may include provision enabling the custodian to make arrangements with another approved person for him to exercise any of the custodian's functions under the agreement; and where the custodian makes such arrangements this section shall, except in prescribed circumstances, apply in relation to the other person as it applies to the custodian.").
The noble Baroness said: I am somewhat encouraged by the fact that on Second Reading the Minister said that his mind was not closed to this matter. I hope that he is prepared to listen to my argument and perhaps to agree to the amendment.
I have no intention of speaking for as long as it would take me to read the proposed new clause. When one asks the advice of lawyers and parliamentary draftpersons one is presented with a long amendment such as this. Perhaps one may say it is belt and braces, but I assure the Committee that it is necessary.
The Minister also said that while his mind was not closed to this matter it was no guarantee against wrongdoing. He went on to say that we are talking about a package; and this is one element of that.
The proposal is not a new idea; most pension funds have the independent custody of investments. Understandably, they see it as being sensible. Most city fund managers when offering a service to pension funds automatically include this service. It is not expensive and therefore I hope that the Minister will not plead that it is an extra cost and an extra burden. People within the industry to whom I have spoken assure me that the cost is between one-tenth and one-twentieth of 1 per cent. It is a minuscule amount for the security that one would have with the independent lodging of investments.
On Second Reading the Minister also said that he believed that this change would not have helped the Maxwell scheme because the investments were lodged with independent custodians. That is not correct. Where the Maxwell funds were lodged with independent custodians—and many of them were—many of them were secure. However, a large amount of the assets was not held in custody independent of the employer. It is a fact that Maxwell's companies and his tentacles reached far and wide. Where the pension fund investments were not held within the company they were not necessarily independent of the employer. Had they been so, it would have been more difficult, if not impossible, to gain access to them. I do not say that it would have stopped him, but it would have made him think twice. Now many schemes are lodging funds independently. The additional dimension is the fact that much investment is made outside this country in many different parts of the world. We live within a global economy and it is essential that such investments are lodged independently.
The Minister may say that the custodianship of investments is already regulated. However, whereas the Goode Report did not call for that to be a requirement, it stated that there was no direct regulation of custodians. At paragraph 4.10.38 it stated:
"As stated … while custodians are normally authorised by a regulatory body for other purposes, custodianship is not as such an activity requiring prior authorisation or, indeed, directly regulated in any way".
Therefore, there is a gap in the regulatory system. At paragraph 4.10.33 Goode went on to state that, plainly, independent custodianship,
"places some rein on the freedom of action of an intending fraudster, because the possibility of a query about instructions outside the fraudster's authority will reduce the chances of such instructions being given in the first place".
I hope that the Minister will accept the amendment. It is welcomed generally in the industry. I was interested to read that Prudential Insurance has put out to tender some £400 billion of its assets for independent custodianship. Of course, most insured schemes have independent custodianship of their investments. Therefore, that is something which all good companies are doing. I beg to move.
Baroness Seear: I support the amendment moved by the noble Baroness, Lady Dean. She has direct experience of what can go wrong when custodianship is not properly organised, and I do not believe that I can add very much to what she has said.
Obviously there can be no 100 per cent. safeguard against fraud, but at this stage our obligation is to take all the steps possible to minimise the chances of that happening and to reduce the number of fraudulent cases. This amendment is clearly a practical and sensible way in which to achieve that. As has been said, a number of companies are already following that course. It would surely be wise and appropriate to give that legislative backing in the Bill.
The Earl of Buckinghamshire: I support the amendment moved so competently by the noble Baroness, Lady Dean. I realise that custodianship is a complex issue, in particular in relation to regulation. Indeed, question marks have been placed over the effectiveness of custodial arrangements.
Goode said:
"the fact that the assets are held by a custodian will not by itself be a sufficient safeguard. In other words, custodianship should be seen as an additional barrier to wrongdoing which may or may not prevent it".
That is an extremely important point. It would be an additional barrier to anybody attempting to commit fraud.
I do not believe that costs are an issue in this matter. The custodian business is extremely competitive. More people are trying to enter that market each year. Regulatory difficulties should not prove to be a barrier either. We have moved on in all areas of regulation and I do not understand why custodianship should be exempt from that.
In supporting the amendment, I draw the Committee's attention to compensation arrangements. Is it reasonable to ask schemes which have custodial arrangements to pay out for wrongdoing that has occurred in schemes with no custodian? I think not.
Lord Dean of Harptree: I support the amendment. From our debates, it is obvious that there is a reluctance to impose additional burdens on occupational pension schemes which, after all, are voluntary. If we proceed too far along the road of regulation, there is always a danger that schemes will not be improved or will not be set up.
In this case, we are not asking for anything new. As has been said, many schemes already have provision for independent custodians. That is good practice which is well developed in particular in larger schemes. Many small schemes are insured and, therefore, the intention is fulfilled in that way.
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It has been mentioned already that the expense involved in having independent custodians is minimal in relation to the available resources. II was greatly encouraged to recollect that when he dealt with those points on Second Reading the Minister said that he had an open mind. If he is not prepared to go as far as accepting this rather detailed amendment tonight, I hope that he will at least be able to assure us that his mind is even more open and that he is more sympathetic than he appeared to be on Second Reading.
10 p.m.
Lord Mackay of Ardbrecknish: The amendment before us is very long and detailed. It follows on from the concerns expressed on Second Reading and again this evening by several Members of the Committee. As I said at the end of the Second Reading debate, I do not have a totally closed mind on the issue and I am prepared to listen to the arguments as they are put forward. I should stress that I am still in that position and I still have some difficulty about the amendment which I hope to lay before the Committee as briefly as I can to see what response I receive.
I seem to remember from many of the comments made on Second Reading the desire for the Bill to do something specific with regard to the security of scheme assets. I believe that noble Lords appreciated then—as, indeed, they did tonight—that independent custodianship of scheme assets is not a simple matter.
Several noble Lords made the point that the use of independent custodians would probably not stop a determined fraudster. But I believe that it would be foolish of me or anyone else to pretend that any legislation could give a total guarantee against such wrongdoing. The same considerations were thoroughly considered by the PLRC, which specifically asked:
"Should the use of independent custodians be obligatory?".
The PLRC concluded that they should not be. The committee was not convinced that the use of custodians would provide such a significant obstacle to the determined wrongdoer that their use should be made mandatory. Moreover, in a report which frequently sought to develop codes of practice wherever practical, the PLRC specifically declined to recommend that independent custodians should be a requirement of good practice.
Many issues occurred to me during the debate. For example, as custodians take instruction from the trustees, they would not be able to refuse to hand over assets if properly asked to do so by the trustees. Certainly it would not be a defence against the trustees making a wrong, properly arrived at decision. It is also the case that in the legislation the scheme assets would certainly have to be held separately from the employer. He would not, so to speak, have them in his safe; the pension scheme would have to have them in its safe.
The difficulties associated with this issue are, I believe, brought out in the amendment. It would require trustees to ensure that investments are held by an "approved person", defined as someone who satisfies the prescribed requirements. Nothing further is said on who that person shall be or what criteria would be used

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to judge his fitness to undertake such an important role. Indeed, in introducing the amendment the noble Baroness, Lady Dean, said that custodianship is not presently regulated. My noble friend Lord Buckinghamshire also made that point. If we are to have proper protection here other than some hoped-for protection, it is vital to see what those prescribed requirements would be, what class of persons would be designated as custodians and who would ensure that they actually carried out whatever prescribed regulations are laid down for their task. In considering the question, we have to look at that important issue.
Contrary to what everyone thought—that they were delivering some sort of blow to my case before I stood up to speak—I am not going to pray in aid anything to do with cost. I believe that the answer is in the mechanism proposed by the PLRC. It is for the trustees, employers and scheme professionals, all operating under the new duties contained in the Bill, to ensure that scheme security is fully and rigorously enforced. That is backed by the new regulatory authority with wide-ranging powers and sanctions.
In considering their security needs, many schemes will conclude that it will be appropriate for them to use an independent custodian, and there may be many good reasons for them to do so; indeed, many of them do so at present. However, others may feel that any additional benefit provided by a custodian will be of little use under the particular circumstances of their scheme. It is, for example, in respect of smaller and medium-sized schemes that this is most likely to seem inappropriate because they may hold little in the way of transferable securities. A requirement that such schemes should use an independent custodian would, I believe, be unreasonable and would not add anything appreciable to the security of the scheme.
I recognise the genuine concerns that have been expressed over this matter but I believe—as I said at Second Reading—that a statutory duty to appoint an independent custodian is too prescriptive, especially in the light of the point I made earlier that the amendment, long as it is, does not address the question of how one defines such a custodian and how one regulates such a custodian. One would certainly have to have something in place to achieve that.
I believe that the general thrust of the Bill should remain as it is. The trustees and the scheme professionals are there to put in place the measures most suitable to meet the needs of the scheme as regards the important matter of asset securities. I hope I have not illustrated too closed a mind on the matter. I hope I have indicated to the Committee some of the considerable difficulties that attend to the issue. These difficulties (dare I say?) have not been fully addressed in the amendment or in the speeches of all those who have spoken, including my noble friends.
Baroness Dean of Thornton-le-Fylde: I must confess I am somewhat surprised at some of the comments the Minister has made this evening. Quite apart from myself, other speakers in this debate have a
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wealth of knowledge in this whole area. I respect their knowledge and experience. I refer also to Members on the Benches opposite.
Goode said that this measure places some rein on the freedom of intending fraudsters. The Minister says that this is not a question of cost. Perhaps we have all been indoctrinated with the reputation that people from his part of the country have as regards money. However, I must withdraw that if cost is not a factor as regards obtaining regulation on pensions. I accept that. We shall refer to that in some of the later debates.
Lord Mackay of Ardbrecknish: The noble Baroness should not go too far. I said only that cost was not an important consideration as regards this provision.
Baroness Dean of Thornton-le-Fylde: The Minister cannot pick and choose. He cannot say that cost is not an important consideration only in regard to certain provisions. The Minister says that the measure refers to prescribed requirements. I am surprised that the Minister is such a wilting violet as regards accepting another area of prescription. After all there are already approximately 200 such areas within the Bill. I would not have thought that one more in this major area would have made much difference.
The Minister asks what would prevent trustees signing for the assets to be handed over. If anything is impossible in this life, I think it would be practically impossible to get an entire board of trustees—unless of course they are all employer trustees who connive together, but I think that is highly unlikely although it has happened on rare occasions—to act in that way. The fact is that the industry is calling for this measure. It is supported by the National Association of Pension Funds, by independent investment managers and by independent pension fund managers. The industry itself is calling for this measure. It is not something that we on this side of the Chamber have imposed. There is support all around the Chamber for this amendment.
Perhaps the Minister is taking comfort from his feeling that we do not have the wording correct. If that is so, we shall look at that and come back to it. I believe it is as near correct as we can make it. It has been drafted with a great deal of professional input on the part of people who are experts on pension fund rules and regulations and indeed law. I shall look carefully at what the Minister said but I would ask him also to consider seriously the points made in this short debate on what is a crucial area. This is about ethics, standards and integrity as regards pension funds. It is a matter of how not only the professionals but everyone approaches this whole area. If we had independent custody of investments, that would be yet another finger in the dike to stop some of the abuses that have taken place.
The Earl of Buckinghamshire: Before the noble Baroness decides what to do with the amendment, I ask the Minister to think again. If he would like detailed arguments from ten past ten until midnight I should be pleased to give them. However, I do not believe that that would be helpful to the Committee.

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It is an important issue. I do not believe that authorising a custodian should be a difficulty. If one has authorised investment managers in this country one should be able to pick authorised custodians without difficulty. I hope that my noble friend will take note of what has been said from the Benches opposite and on this side of the Chamber. I wish to return to the issue at a later stage.
Lord Mackay of Ardbrecknish: Perhaps I may answer my noble friend. I sought to major on the point, essentially in shorthand at this time of night, about who the custodians would be.
Perhaps I may say this to the noble Baroness. She made a nice point; that I am not backward in coming forward in other parts of the Bill about regulations. I fully accept her point. Why should I be a shrinking violet in this case? I have not been able to devise such regulations as may be required in this situation to judge whether they are sensible and whether one could encapsulate all the people who should be custodians. That is what I invited her to do rather than to expand her already rather large amendment.
Baroness Dean of Thornton-le-Fylde: I accept that invitation to come back with proposals with regard to the prescribed areas. I take it on board. At this stage, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Monkswell Lord Monkswell moved Amendment No. 134:
Before Clause 33, insert the following new clause:
("Payments to members of scheme
At the end of paragraph 3(3) of Schedule 22 of the Income and Corporation Taxes Act 1988 there shall be inserted—
"( ) making payments to members of the scheme".").
The noble Lord said: In moving Amendment No. 134 I speak also to Amendment No. 135.
I had intended to say only a few words of introduction and then to ask the Minister to respond. However, given the Minister's response to Amendment No. 126, I have to elaborate a little more than I had intended.
Perhaps I may remind the Committee that Amendment No. 126, moved by my noble friend Lord Haskel, provides for the trustees to have a policy regarding the exercise of voting rights. The Minister responded on the basis that it was a requirement that the trustees should exercise their voting rights on shares held. It is important that we address the amendments and the intention underlying them. In that respect, I feel that I have to explain a little more fully than I had intended both what the amendments seek to provide and the reasons why I have put them down.
Amendment No. 134 amends .the Income and Corporation Taxes Act 1988 effectively to enable the making of payments to members of the scheme from pension scheme surpluses. It does not state that pension scheme surpluses have to be paid to members but that they can be paid to members.
Perhaps I may elaborate a little because I am sure that not too many Members of the Committee will have read the Income and Corporation Taxes Act 1988. It is two inches thick and is not the kind of legislation that one
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carries around in one's briefcase. Schedule 22 effectively states that pension scheme surpluses can be reduced or eliminated by:

"(a) making payments to an employer;

(b) suspending … an employer's contribution;

(c) suspending … employees' contributions;

(d) improving existing benefits provided under the scheme;

(e) providing new benefits under the scheme".

Then there is a catch-all phrase,

"(f) such other ways as may be prescribed".

There is an imbalance in that there is no mechanism for enabling payments of scheme surpluses to be made to members of the scheme. That is the intention of my amendment.
Amendment No. 134 to Clause 33 effectively seeks to do the same. Clause 33 enables the making of payments to employers and the fund where there is a surplus. My Amendment No. 135 would enable payments to be made to scheme members.
Having explained the amendments, I thought it might be useful to advise the Committee why I have brought them forward. I must go back in history to my experience which I am sure is shared by many other people working in British industry over the past 15 years. Employers found their pension schemes in surplus at the same time as companies had problems, and employers made employees redundant. Usually they themselves took a pension contribution holiday while requiring employees to continue paying into the scheme. Then, if the surplus was sufficiently large, they took extra money straight into the company. That money has usually been used in two ways: first, to pay redundancy payments, effectively paying their employees off and making them redundant and, secondly, by straight disbursement to shareholders.
If the surpluses had been used for direct investment into the company, buying new plant and machinery, enabling the workers to be more productive and therefore retaining their jobs, there would be far less criticism. But the fact that the surpluses were used directly to benefit shareholders and quite largely to disbenefit the employees has caused anxiety and a real sense of unfairness. Much of the discussion we have had this evening has been between experts in the pension field. But at the end of the day members of the pension schemes are ordinary working people and the pensioners of the schemes are also ordinary people.
One of the problems with the pension industry is the sense of unfairness. The Maxwell case was high profile with horrendous wrong being done. But a whole climate of unfairness pervades our industry and commerce, with employers having a one-sided advantage, where there are surpluses, being able to use them for their own benefit.
My amendment seeks to bring a sense of fairness and equity to the situation. I remind the Committee that the amendments do not require the pension fund surpluses to be distributed to the members of the scheme. I could have argued that strongly, with much support throughout the country. But I felt it was only reasonable

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to put forward amendments to the Committee that provide for the ability for pension fund surpluses to be disbursed to members. I beg to move.
Lord Mackay of Ardbrecknish: I hope to be able to persuade the noble Lord that his amendments are unnecessary. Paragraph 3 of Schedule 22 to the Income and Corporation Taxes Act 1988 sets out the ways in which a statutory surplus may be reduced or eliminated. Among the range of options is to use the surplus to improve members' existing benefits and provide new ones. Such benefit improvements may include lump sum payments to scheme members on retirement or death. It is, however, a condition of tax approval that the benefits payable to scheme members should be subject to upper limits. These are normally up to two-thirds of final salary for the pension and two-and-a-quarter times the pension for lump sums on retirement.
The purpose of these limits is to control the cost of tax reliefs given to approved pension schemes. In its effect the proposed amendment would appear to do no more than duplicate an existing provision of the Income and Corporation Taxes Act 1988 to make approved payments to members. It would also allow payments outside the approved arrangements to be made to members. That would be contrary to the pensions purpose on which the tax reliefs are founded and could add significantly to Exchequer costs. This is a tax matter, and the Committee may consider that it is best left to another place.
Members of the scheme already have the opportunity, subject to trustee approval, to have their benefits enhanced. Amendment No. 135 would not provide members with any more benefits than are potentially available under the existing arrangements. The Income and Corporation Taxes Act 1988 provides the trustees with a range of options to reduce or eliminate a surplus: for example, enhancement of existing benefits or providing new ones, which can include payments to scheme members. Of the options that are available, only a payment to the employer has additional conditions imposed upon it, originally by the Social Security Act 1990.
The effect of the noble Lord's amendment would be to make payment to scheme members subject to those conditions. One of the conditions which have to be met before a payment is made to an employer is that all pensions and payment must be increased annually in line with inflation up to the maximum of 5 per cent. for both past and future service. That may have been the noble Lord's intention, but what it achieves is in fact to curb the freedom of trustees to make benefit improvements for certain members.
The impact of the amendment would be to put at risk the ability to make discretionary payments to members by automatically requiring all pensions in payment to be annually increased in line with inflation first. I am sure that it is best to leave trustees to decide what scheme best fits their particular circumstance, but with the
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safeguards contained in the Bill to cover the payment to employers. I hope, having listened to my explanation, that the noble Lord can withdraw his amendment.
Lord Monkswell: I thank the Minister for his response. I must admit that his reply surprised me a little. I had not expected the use of a tax argument—if I can put it that way—to come to the fore. I thought that the Minister would rely on the argument that employers have the responsibility to top up the fund, being the major contributors to the fund, and are therefore the major beneficiaries. But the Minister did not use that argument.
I feel that the tax argument falls down in the sense that, whatever the tax regime for the employer receiving the surplus from the pension fund—I do not know what the tax regime would be and I think that it is probably not good for this Chamber to consider that—there will be certain tax regulations that apply to that; and as an exceptional item of income to the company no doubt there is some form of taxation on it. But surely the same argument would arise with employees receiving a windfall form of remuneration. They would be liable to income tax in the normal way. So that argument does not hold water.
I hope that the Government will think again on this matter. I shall not press the amendment tonight. It was a probing amendment. Tomorrow I shall read with interest what the Minister said. I hope that he will also read what I have said. Maybe we can return to the subject at a later stage. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 135 not moved.]
The Chairman of Committees: I should inform the Committee that if Amendment No. 135A is agreed to, I cannot call amendment No. 136.
[Amendment No. 135A not moved.]
Lord Lucas Lord Lucas moved Amendment No. 136:
Page 18, line 15, at end insert:
("( ) If, where this section applies to any trust scheme, the trustees purport to exercise the power referred to in subsection (1) (a) by making a payment to which this section applies without complying with the requirements of this section, sections 3 and 9 apply to any trustee who has failed to take all such steps as are reasonable to secure compliance.
( ) If, where this section applies to any trust scheme, any person, other than the trustees, purports to exercise the power referred to in subsection (1) (a) by making a payment to which this section applies, section 9 applies to him.").
The noble Lord said: In moving this amendment I shall speak at the same time to Amendments Nos. 155 and 156.
Clearly it would be detrimental to the interests of scheme members if trustees or others made payments from a pension scheme surplus to the employer without complying with the statutory requirements. These amendments provide for sanctions to be imposed for breaches of the obligations in this regard in the Bill in order to encourage compliance. I beg to move.
On Question, amendment agreed to.
Clause 33, as amended, agreed to.
Baroness Dean of Thornton-le-Fylde Baroness Dean of Thornton-le-Fylde moved Amendment No. 137:
After Clause 33, insert the following new clause:
("Protective cost orders
.—(1) Where, on the application of a member (in this section referred to as "the representative member") representing the views of not less than 10 per cent. of the members of a scheme or of a member-nominated trustee appointed under section 14 above, a court is satisfied that serious or persistent breaches of trust may have been committed which do not fall within section 3, the court may grant an order in such form as it considers appropriate compelling the trustees of the scheme to pay to the representative member or to the member-nominated trustee the reasonable costs of obtaining legal and other advice in order to pursue claims on behalf of the scheme.
(2) Any costs ordered to be paid in accordance with subsection (1) of this section shall be payable only upon the presentation of a certificate by the solicitors acting for the representative member or the member-nominated trustee, as the case may be.
(3) A court may grant an order under subsection (1) of this section if it is satisfied on the evidence before it that—

(a) an independent trustee properly advised would have applied to the court for directions to commence or continue proceedings, and

(b) on such application the court considers that it would have given leave to such independent trustee to proceed.

(4) Where a court grants an order under subsection (1) of this section it may from time to time renew or amend such order.
(5) Where a court grants an order under subsection (1) of this section it may make provision for the payment of past, as well as future costs.
(6) On an application under subsection (1) of this section, a court may grant an order notwithstanding the fact that the breaches of trust which are or which form part of the grounds for the application fall within section 3, if it is satisfied that it is in the best interests of the members so to do.
The noble Baroness said: This amendment provides for the situation in which a minimum of 10 per cent. of members, or indeed a member-nominated trustee, can go to the court and, where the court is satisfied that there is a serious or persistent breach of trust which does not fall within Section 3, for the trustees of the scheme to pay reasonable costs for the legal action to be taken. The powers of the regulatory authority are clearly covered in the Bill under Clause 3 in Part I. On the first day of the Committee stage last week, the Minister said that OPRA would have all the powers necessary to enforce compliance with the law. Later in the debate he went on to say:
"While I am open to considering refinements in relation to OPRA's regulatory powers where there is a good case for doing so, we should not widen its powers in such a way that it becomes involved in trust law and other matters which are best left to the courts".—[Official Report, 7/2/95; col. 161]
I agree with the Minister because trust law goes much wider and has wider duties than has the Pensions Bill. That is why we have put forward this amendment. Presently, in the absence of a protective costs order, the beneficiaries will still be left without any way of seeking redress for grievances where OPRA either has no power to intervene or refuses to intervene. I say "refuses" because there are many cases where the regulatory
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authorities—IMRO, for instance—have been asked to intervene in suspected wrongdoing and have refused and then those suspicions have been proven in fact.
This amendment is put forward because, first, the Bill will have limited powers; and, secondly, the trustees' responsibilities come under trust law. I should like to share with the Committee, even at this late hour, an experience which in my view makes such a clause essential.
In June 1986 a company called Imperial, which had recently been taken over by Hanson, sold two of its paper mills in the north-west to a company called Melton Meads. The trustees were challenged by members. The trustees refused to deal with the matter and investigate the serious concerns that had been raised, which included dishonest breaches of trust, from which the directors may have benefited personally. Certain beneficiaries commenced the action and their union, the GPMU, funded it. But even those funds were stretched to the point that they had to go to the courts. For the first time ever in this country a protective costs award was made.
That was in July 1993. An appeal was lodged and in July 1994 the appeal court upheld the order. The appeal court refused leave to appeal to the House of Lords, but the company petitioned the House of Lords for leave to appeal to the appeals committee, and I gather a decision on that is expected this week.
That concern began with seven beneficiaries who found no regulatory body to support them. In fact the SIB refused to even acknowledge them or help them until the case reached court. The SIB has now started its own action for fraud. The beneficiaries had no help from anybody except their union. The bill today stands at £891,000 for professional advice and support and we still do not know what the outcome will be. If the outcome is against the beneficiaries, the union will be left to fund the £891,000. But what if they had not had the benefit of the union? Who would have come to their aid? The Occupational Pensions Board said that it was outside its remit; they could not obtain legal aid for the action. They would have been left on their own in a situation where the directors of the fund are now being pursued in law.
The noble Earl, Lord Buckinghamshire, said earlier that one could wax eloquent till midnight on a previous clause. It is against that background that I could continue until two in the morning. However, I shall not test the Committee's patience that far. I beg to move.
Lord Mackay of Ardbrecknish: I have no objection in principle to what the noble Baroness, Lady Dean, proposes, but I hope to persuade her, as quickly as I can, that the amendment is unnecessary.
Trust law already provides the facility in the amendment by way of what is known as the Beddoe's summons procedure. That allows trustees and members to protect themselves from the cost of litigation on the very basis which the noble Baroness described.
Under the Beddoe's summons procedure, those wishing to engage in proceedings involving the trust can apply to the court for an order that the costs should be met by the trust. The court would grant such an order

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only where there is some reasonable need for litigation and where there are reasonable grounds for its succeeding.
An additional point which the Committee may bear in mind when considering the amendment is that members who are concerned about the operation of their trust scheme will in future be able to bring their anxieties to the attention of the regulatory authority. The authority in turn will be able to investigate any complaint.
The intentions behind the amendment are already met, either under existing provisions of trust law or by the introduction of the regulatory authority. I hope that I have briefly explained to the noble Baroness that the amendments are unnecessary, and that she will feel able to withdraw her amendment.
Baroness Dean of Thornton-le-Fylde: I thank the Minister for that response, but pose a question back to him although I do not know whether he will be able to answer it this evening. The Minister said that there is a provision in trust law for members to go to court. If the members are not part of a union, who will fund them? There is no legal aid for these matters. The members felt obliged to go to court direct by themselves because the matter is not covered by OPRA, or OPRA does not want to know. So who will fund them? The amendment provides that the scheme will meet those costs where an award has been achieved. It gives some support to the individual member, or to at least 10 per cent. of them, or a member-nominated trustee who is equally concerned.
Additionally, although the Minister says that trust law provides the protection sought by the amendment, I am advised that the Melton Meads case is the first of its kind in the UK courts. I wonder whether that is because the costs involved in taking on such a case are frightening. One cannot simply go to court and plead for an order; one must also provide all the back-up for that application. That involves a not inconsiderable amount. In fact, before the union reached the court the costs had escalated to around £500,000.
I hear what the Minister says. I shall read with a great deal of interest in the morning exactly what he said this evening to the Committee. I may return to the matter at another stage, but in the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 34 [Restriction on employer-related investments]:
[Amendments Nos. 137A and 137B not moved.]
Clause 34 agreed to.
Clause 35 [Provision of documents for members]:
[Amendments Nos. 138 to 141A not moved.]
Lord Lucas Lord Lucas moved Amendment No. 142:
Page 19, line 22, after (" 50") insert ("or 51").
The noble Lord said: The effect of this amendment is to include certificates prepared under Clause 51 among the documents which trustees or managers of
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occupational pension schemes may be required by regulation to make available to scheme members and others. I beg to move.
On Question, amendment agreed to.
[Amendment No. 142A not moved.]
Clause 35, as amended, agreed to.
[Amendment No. 142B not moved.]
Clause 36 [Time off for performance of duties and for training]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 142C:
Page 20, line 16, at end insert:
("(2A) Notwithstanding the provisions of paragraphs (a) and (b) subsection (2) above, "reasonable" shall be deemed to mean not less than ten days' training within the first two years of appointment as a trustee, and not less than three days in every subsequent year.
(2B) Where the trustee, whether an employee of the employer in relation to the scheme or not, does not take time for training at the minimum level specified in subsection (2A) above, the scheme administrator shall report the matter to the Authority who shall, if it deems it appropriate, take action under sections 3 and 9 of this Act.
(2C) Every trustee shall, on his appointment, undertake a short course of training and a failure to undertake such a course within 3 months of appointment as a trustee shall be grounds for disqualification under section 24.
(2D) It shall be for each person who is a trustee, in his own absolute discretion, to decide whether such training should be provided to him by the advisers to the scheme or other firms of advisers, other independent or professional bodies, or an independent trade union recognised to any extent for the purposes of collective bargaining in relation to the scheme members concerned.
(2E) The Authority shall maintain a register of all firms and organisations providing training for trustees in fulfilment of the requirements under this section.
(2F) The Authority shall produce a code of practice for training courses and training material, in consultation with those who appear to the Authority to have an interest in the training of trustees.").
The noble Baroness said: This amendment seeks to persuade the Committee of the need for mandatory training. All trustees should be trained. It should be a condition of their assuming office that they will do so within a defined period. We all agree that a measure of training is necessary. This has been reflected in the Bill, which requires employers to provide time off for that purpose. But we do not think that that goes far enough. Unless there is a requirement, we believe that there will be schemes where the trustees will remain untrained despite the fact that trustees will continue to bear very considerable legal liabilities of which, if they are untrained, they may not be fully aware. Equally, we want to ensure that the training schemes which trustees go through are approved and appropriate. Organisations such as the Pension Trustees' Forum and trade unions could together draw up an approved list of training courses. But if we want trustees to be effective, both in their fiduciary responsibilities and in meeting their legal liabilities, and, if appropriate, to whistle blow, they must be trained. I beg to move.
Baroness Seear: I support the amendment. Given the responsibilities that trustees have to assume, it surely is short-termism and a failure to operate a "stitch in time saves nine" policy not to put money into training. To say that it would cost would be a ridiculous reply if the cost of not training trustees would be very considerable

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indeed. Schemes will not operate properly unless trustees are adequately trained. It would be a very good investment.
Lord Mackay of Ardbrecknish: This amendment would, in effect, require compulsory training. We are fully in favour of trustees being properly trained. But we do not believe that it should be compulsory. The training needs of trustees will vary according to the particular circumstances of each individual and each scheme. What is appropriate for one will be totally inappropriate for another. We believe that schemes themselves must decide the training needs of each of their trustees.
The Bill will require employers to allow trustees time off with pay for training. There will be redress to an industrial tribunal if there is any dispute. We do not believe it is sensible to go further in legislation. It may well be a matter which is more appropriate for the codes of practice which pensions organisations are developing. While I understand and share the wish of both noble Baronesses to ensure that trustees are properly trained, I believe that it would not be correct to be as prescriptive as they both would like to be.
Baroness Hollis of Heigham: I am disappointed by the Minister's reply. However, it is late at night. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 36 agreed to.
Clause 37 [Payment for time off]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 142D:
Page 21, line 1, leave out ("an industrial tribunal") and insert ("the Authority").
The noble Baroness said: In moving this amendment I shall speak to Amendments Nos. 142E to 142N. They are very straightforward. We want to ensure that where an employee does not get facilities for training, in the shape of time off, that he has an adequate recourse. Under the Bill he may take his employer to the industrial tribunal. We have no objection to that except that that system is becoming heavily overloaded with the additional functions placed on it by government. It seems sensible to keep the matter with the regulator and give him powers to make orders which must be carried out. That is what these amendments seek to do by having recourse to the regulator rather than to the more cumbersome industrial tribunal procedure. I beg to move.
Lord Mackay of Ardbrecknish: The Bill sets out a clear commitment to allow trustees time off to attend to their duties as trustees and to undergo training. Employers have given their broad support to the proposal to allow employees time off as appropriate and there is no reason to suppose that large numbers of employers, if any, will not comply. Of course, I accept that employees should have an effective form of redress where an employer chooses to act unreasonably.
Where a dispute arises between an employer and an employee who is a trustee over time off, these amendments would have OPRA rather than industrial
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tribunals adjudicate the matter. I cannot agree with that. OPRA's role is to enforce compliance with obligations concerning the security of pension schemes, not with employment matters. Industrial tribunals are much better placed to examine the full circumstances behind this kind of dispute and settle matters, awarding compensation and restitution of salary where appropriate. Any decision by an industrial tribunal will be in the public domain, so the intention behind one of the noble Baronesses' amendments would be fulfilled.
Our proposals mirror very closely the existing provisions relating to trade union and health and safety officials. In both cases there are limited rights to paid time off for the performance of recognised duties. In both instances it is recognised that disputes are matters relating to employment and fall within the jurisdiction of industrial tribunals. I believe that that is the right place for disputes regarding time off for trustees to stand.
Baroness Hollis of Heigham: I thank the Minister for that reply which clearly hinges on the notion as to whether time off for being a trustee is an employee-employer relationship in which it comes through the industrial tribunal, or whether it is instead a matter of being a trustee. The obligations of trustees to and for their schemes rest with the regulator. Our view is that this is an issue which belongs to the second—the trustee—category. The first category is an employee category.
However, we shall take on board what the Minister said and we may return to the matter on another occasion. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 37 agreed to.
Clause 38 [Time limit for proceedings]:
[Amendments Nos. 142E to 142H not moved.]
Clause 38 agreed to.
Clause 39 [Remedies]:
[Amendments Nos. 142J to 142N not moved.]
Clause 39 agreed to.
Clause 40 [Professional advisers]:
Baroness Hollis of Heigham Baroness Hollis of Heigham: moved Amendment No. 142P:
Page 21, line 28, at end insert:
("( ) Except with the consent of the Authority, the auditor to the scheme shall not be the same person, nor belong to the same firm as, the auditor to the employer in relation to the scheme.").
The noble Baroness said: In moving this amendment I shall speak to Amendment No. 142Q. I am sorry that such an important amendment has to be discussed quite so late at night although I shall try to be extremely brief. All the evidence from the Maxwell affair shows that there were at least six layers of "whistle blowers" who did not blow the whistle. One of the reasons, and only one, was that Maxwell the company and Maxwell the pension schemes used the same professional advisers. The House of Commons Select Committee made much of this point.
There was a conflict of interest and in the face of the powerful presence of Maxwell it was understandable, although regrettable, that many professional advisers resolved that conflict of interest in favour of the employer and not in favour of the scheme. With the experience of Maxwell it is crucial that professional advice be seen as disinterested. It is crucial that, when necessary, professional advisers are able to whistle blow. I ask the noble Lord opposite whether it is more likely that their advice is to be disinterested if they serve the trustees only or the trustees and employers both. Are they more likely to whistle blow if they serve trustees only or if they serve trustees and employers both? We all know the answers to those two questions. As Maxwell has shown, serving two masters inevitably produces conflict.
The Minister may say - he would be right - that the trustees appoint professional advisers, not the employer. But he rejected our previous amendment which sought to ensure some equity or balance on the boards of trustees), thus ensuring a built-in majority for the employer whose interests remain preponderant. Given that the employer will naturally see the advantages of sharing advisers, including that of cheapness, one cannot rely on the trustees being as independent of the employer's view as one might wish.
We are not unreasonable. We recognise that there can be exceptional circumstances; hence the phrasing of the amendment, which seeks to ensure that if a scheme wants to share the same professional advisers as the employer it must first seek the consent of the regulator. That seems to us to give the necessary flexibility in special circumstances where, perhaps because specialist knowledge is required, it would be useful to share scheme professionals. For the main part, we firmly believe that one way of checking Maxwell would have been for the company and the pension scheme to have separate advisers. We want to ensure that at least that never happens again. I beg to move.
10.45 p.m.
Lord Mackay of Ardbrecknish: The amendments relate to Clause 40 which deals with the appointment, role and responsibilities of pension scheme professional advisers. The noble Baroness referred to previous schemes which have gone wrong, such as the Maxwell scheme. I should like to point out that at that time there was no one to blow the whistle to, whereas in the future the whistle can be blown to the regulatory authority.
Amendment No. 142P prevents the same person or firm from acting as auditor for both the scheme and the employer without the consent of the regulatory authority. To inhibit appointments in this way may increase costs to both schemes and employers by complicating flows of information and knowledge without necessarily providing any greater security to the scheme.
In fact, the Pension Law Review Committee was in no doubt that there can be significant advantages in having the employer's auditor as the auditor of the scheme; for example, it is the employer who is
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ultimately responsible for adequate funding in a balance of cost scheme and it is therefore helpful if the scheme auditor is familiar with the employer's business. For that reason we accepted its recommendation that the trustees should be free to appoint the auditor acting for the employer.
It is intended that regulations made under subsection (5) will require trustees to draw up terms of engagement with auditors. Such terms will make clear the respective roles and responsibilities of employer, trustees and auditor. They will require the auditor to take instructions from, and report to, the trustees and to make known to the trustees any areas of conflict.
The PLRC recognised, as we do, that there may be cases where it may be improper or inappropriate for the auditor to act for both the scheme and the employer. It saw no role for the regulatory authority because professional bodies are well experienced in issuing guidelines for managing such conflicts. Indeed it recommended no change, and nor do we.
I now turn to Amendment No. 142Q. The Government support the objectives of Amendment No. 142Q and in fact we intend to make regulations under Clause 40(5) (b) which will make provisions as to the terms on which the trustees will appoint professional advisers. Our intention is that the regulations will require an actuary working for both the employer and the scheme to declare this fact, to disclose any conflicts of interest and to notify the employer and trustees if such conflicts make it improper for him to act for either party. It is this kind of detail which we believe is best attended to via regulations rather than in primary legislation. The use of regulations also confers the flexibility to prescribe any additional requirements which may become necessary in future.
I thought it important to address the two issues which the noble Baroness raised even at this late hour and at perhaps a little more length than is usual. However, both points are extremely important and I wanted to get on the record the way in which I believe that the abuses she mentioned might be avoided.
Baroness Hollis of Heigham: The Minister has drawn our attention to Clause 40, to which this is an amendment. I take little comfort from his reply, although I take comfort from the fact that under Clause 40(4) regulations may make exceptions to subsections (1) and (2), and this may be a case where a different government might seek to make regulations to do by regulation that which the Minister is not prepared to accept on the face of the Bill. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 142Q not moved.]
Clause 40 agreed to.
Clause 41 ["Blowing the whistle"]
[Amendments Nos. 142R to 142W not moved.]
On Question, Whether Clause 41 shall stand part of the Bill?
Baroness Seear: I wish that this matter had not come at 10 minutes to 11 when the Chamber is

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practically empty because I regard the clause as very important and one that we should not accept. It should be considered in conjunction with the amendment rejected by the Minister in Committee last week when we asked to strengthen the regulator's powers. It is complementary to that desire to see a far stronger regulator able to take pro-active action, and to take it effectively, and it is why I oppose Clause 41.
Clause 41 relies for the operation of the scheme upon the whistle-blowing which will come primarily, if the Bill remains as it now is, from the accountant, the auditor or the actuary. It is not good enough to rely on those people to blow the whistle in order to make the scheme function properly. But that is what the Government are doing.
We believe that the responsibility should rest with the regulator. We want a different, much stronger regulator than is envisaged in the Bill, partly because we do not believe that it is satisfactory to put actuaries and administrators in a position in which they are serving the scheme or the company and at the same time reporting to the Minister. That is a conflict of interest about which they are much concerned. But while that is important, what is more important is that we are relying on the whistle-blowing coming from those professionals rather than being in the hands of an outside authority which can take action to see that the schemes are running properly.
I know that the Minister will say that there are 150,000 schemes and ask how a regulator can thus regulate them. Factory inspectors have been doing this for a long time. They go into an organisation whenever they see fit and take the action that they then think is necessary. Factory inspectors can do that. Why cannot the regulator do it to enforce the Bill's requirements? I know that the Minister is dead against this, but I want to put on record the fact that it weakens the scheme to rely on whistle-blowing by the actuary and the administrator. It is an excuse for not having the kind of regulator that we need, with the power that could be given were the Government prepared to spend the money.
This time of night is not the moment to have a great debate on the issue. I am aware that the Minister's mind is completely closed on this, but I want it on the record that this is not the right way to go about this; the scheme is undermined before it starts; and the regulator does not have adequate powers. I oppose Clause 41.
Lord Dean of Harptree: I hope that the clause will remain in the Bill. I like the concept of whistle-blowing. It is fair better that the authority should concentrate on those schemes where something appears to be going wrong rather than crawl over the large number of schemes that exist.
Perhaps I may raise two detailed points with my noble friend the Minister before he replies. First, the Bill provides that if the auditor or actuary believes that something is going wrong he must immediately give a written report to the authority. I hope that that does not preclude giving those in the scheme the opportunity of putting things right.
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Secondly, as regards the whistle-blowing, reference is made in the clause only to the auditor or the actuary. I hope that it is made clear somewhere in the Bill that anyone directly related to the scheme—in particular, trustees or members of the scheme—will be able to blow the whistle if they believe that to be appropriate.
Lord Mackay of Ardbrecknish: The noble Baroness, Lady Seear, returned to an issue that we debated on the first day of Committee and on Second Reading. Perhaps I may say first to my noble friend Lord Dean that the lack of "immediately" in the scheme means that professionals might be inhibited from having informal contact with OPRA before making a formal report. We believe that wherever there is a suspicion of irregularity a report should be made and the authority should be left to decide whether or not that constitutes a breach of obligation. However, we shall continue to talk to the professional bodies about both the material matter and the immediacy to ensure that proper account is taken of their concerns.
I was asked whether only actuaries and auditors may blow the whistle and be heard. This is an important point and I re-emphasise that anyone associated with the scheme will be able to blow the whistle. Only the actuaries and the auditors will be under a duty to do so.
The noble Baroness, Lady Seear, is mistaken in her desire to widen the role of the regulator to be the investigator of every single scheme on a monthly or yearly basis. It is better that the regulator should concentrate on the schemes that have been brought to his attention and which may have something wrong with them.
The noble Lord, Lord Marsh, who I am sorry but not surprised to see is no longer in his place at this late hour, spoke eloquently to the Committee on this subject. He rightly drew attention to the fact that vigilance and whistle blowing by professionals, trustees and members themselves is an extremely effective way of preventing abuse. In the past, the problem was that there was no one with the power to act on such reports. By setting up the authority we are providing the means to investigate and act wherever a report either from those who have a duty or from any other source indicate that there is a need to do so. I urge the Committee to reject the noble Baroness's opposition to Clause 41.
Baroness Seear: I wish to raise one further point even at this late hour. The time when it is important for the regulator to go in is before things have developed into a serious condition. Surely, in real life what will happen will be that in relation to a borderline case, when things are beginning to look unsatisfactory but have not developed into a serious state, the temptation will be not to take action because it will be difficult. However, that is the time when action ought to be taken, not when the scheme has practically collapsed. Anyone can see that action should then be taken but it will be too late.

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I cannot believe that in real life one will have the kind of warning that is necessary; when it is doubtful that things are going wrong but nonetheless there are suspicions. If there is widespread whistle blowing from anyone who is interested that will be sufficient without putting the onus on the authority, which will believe that it is its responsibility but will be reluctant to undertake it.
Lord Mackay of Ardbrecknish: I hope that I have made clear to the noble Baroness that, whoever blows the whistle, the regulatory authority will look into the matter that is brought to its attention. We are saying that there is an obligation on the two specified people—the actuary and the auditor—to blow the whistle because we believe that they are in a special position.
In the circumstance of a scheme going wrong, which was outlined by the noble Baroness, if the regulatory authority carried out its weekly, monthly or annual inspection of the scheme the week before something went wrong, frankly, our criticism would be well made. That is why it is important that the actuary and the auditor are under an obligation to blow the whistle whenever they see something going wrong, and anyone else connected with the scheme is able to do the same.
On Question, Clause 41 agreed to.
Clause 42 [Other responsibilities of trustees, employers, etc.]:
[Amendments Nos. 143 and 144 not moved.]
Lord Lucas Lord Lucas moved Amendment No. 145:
Page 23, line 6, at end insert ("and for a prescribed period").
The noble Lord said: The purpose of this amendment is to enable us to require that scheme books and records should be retained for at least a specified period. I beg to move.
On Question, amendment agreed to.
Clause 42, as amended, agreed to.
Clause 43 [Resolution of disputes]:
[Amendments Nos. 145A and 145B not moved.]
Clause 43 agreed to.
Lord Lucas: I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.
House adjourned at one minute past eleven o'clock.