Pensions Bill [H.L.]

HL Deb 13 February 1995 vol 561 cc440-502

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[Amendment No. 105 had been withdrawn from the Marshalled List.]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 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 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 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 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 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 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 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 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.

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 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 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 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 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.

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, 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 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 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

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 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 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.

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 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, 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 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.

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.

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 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—

1. (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
2. (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 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 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.

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 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 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 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 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 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 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 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, ( ) 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 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 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.

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 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 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 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.

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 Camdens 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 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 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 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 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 moved Amendment No. 113B:

Page 8, line 2, at end insert: ("( ) Where either—

1. (a) the statutory consultation procedure has not commenced within the prescribed time after the coming into force of this Act, or
2. (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 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 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 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 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 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 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 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.

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.

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. 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 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 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 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 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 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 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.

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 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 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.

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 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.