Lords Sitting of 13 March 1995

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

World Summit for Social Development
Lord Judd Lord Judd asked Her Majesty's Government:
What action they will take following the World Summit for Social Development held in Copenhagen from 6th to 12th March.
The Minister of State, Foreign and Commonwealth Office (Baroness Chalker of Wallasey): My Lords, we shall decide what action to take once we have studied all the detail in the summit's conclusions, and in the light of national circumstances and priorities.
Lord Judd: My Lords, I thank the Minister for that reply; I recognise that, again, she has demonstrated her personal commitment. However, will she agree that the gap between her own position and that of the Government as a whole remains as wide as ever? Exactly what additional resources were generated at Copenhagen for the fight against poverty and injustice to which she so powerfully referred? What are the Government going to do to meet their share of 20 per cent. in the 20:20 compact to direct aid towards those in greatest need in the third world?
Baroness Chalker of Wallasey: My Lords, first, the Government are completely at one. The speech that I gave in Copenhagen had the full support of the Prime Minister and the Cabinet. The conference was clearly not about additional resources. I have just come here from being with the president of the Philippines, who spoke about the conference in almost identical terms to those in which we have spoken; namely, that there is a need for growth before you can create the industry and the productivity to alleviate the conditions of the poor. But in every project there ought to be concentration on the needs of the poor. The British aid programme is already working well towards the 20:20 concept, which was accepted in essence but not in detail at the Copenhagen Summit.
Lord Ennals: My Lords, bearing in mind that there were 121 heads of government and heads of state present at the conference, and that the Prime Minister, Mr. John Major, was not there, I should like to know whether he was invited, and if not, why not? If he was invited, why did he not go?
Baroness Chalker of Wallasey: My Lords, there were about 100 heads of state and heads of government. Other delegations were led by the responsible Ministers, who were considered by their heads of government to have appropriate knowledge, and possibly even more detailed knowledge than the heads of government might
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have had. Indeed, the Prime Minister was invited, but the noble Lord may note that, as he was in Palestine from yesterday morning onwards, he would have found it extremely difficult to be there for this weekend. I can assure noble Lords that all that could be done to help this summit forward was done by me and my delegation.
Viscount Waverley: My Lords, what action was agreed for debt relief, and on how to make the developing world more competitive?
Baroness Chalker of Wallasey: My Lords, the conference was not about debt. But the noble Viscount may have noted that in addition to bringing the Trinidad terms up to full Trinidad terms at the Pans Club meeting in December, the United Kingdom has also put forward suggestions that will be discussed in April on the whole question of relieving multilateral debt. We have also welcomed the reduction in commercial debt through the Brady plan.
Lord Redesdale: My Lords, under what conditions would the Government think of implementing the 20:20 compact, considering that 11 other EC nations already believe that the time is right, including Japan?
Baroness Chalker of Wallasey: My Lords, first, I should tell the noble Lord that there are not 11 EU nations which believe that the 20:20 proposal is right. The noble Lord's figures are wrong. The whole concept of 20 per cent. of aid being devoted by donors to social projects and 20 per cent. of government assistance from the country that receives the aid is not one that can be put in the simplistic terms in which many have spoken. We seek to target our aid, not only country by country on the poorest, but within country on the poorest, so that basic education and health form part of our assistance.
Baroness Gardner of Parkes: My Lords, will the Minister confirm that one way in which she is carrying out the better targeting of aid—here I declare an interest as chairman of one of the charities that is helping the third world—is through the NGOs using money on behalf of the ODA? Is that not a more effective way of using the money in terms of aid?
Baroness Chalker of Wallasey: My Lords, the non-governmental organisations can be very good with specific projects and specific work. We use the services and work with more than 150 non-governmental organisations in the British aid programme. However, there is no doubt that their work is best done on the ground in these countries. I am glad to say that most of the NGOs who were at Copenhagen with me, and many of whom met me at 8 o'clock on Saturday morning, were extremely supportive of the way in which we work with them.
Lord Elton: My Lords, does my noble friend agree that the proper treatment of the poor nations by the rich is essential to the future of the world economy and stability? Is she aware that we on this side believe that she is fully seized of that and is an utterly fit person to proceed with these policies?
Baroness Chalker of Wallasey: My Lords, I am extremely grateful to my noble friend for his kind

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remarks. Let me say that we have increasingly sought to target our assistance better. A successful outcome of this conference will mean that people all over the world, donors and recipient governments, concentrate on people-centred sustainable development. That can be brought to the best conclusion, namely, the real alleviation of poverty, only if they also have economic growth—and that means sound economics too.
Lord Monkswell: My Lords, will the Government advise the House whether their policy with regard to social development internationally is the same as their policy for social development in this country, which I believe was typified by the Deputy Chairman of the Tory Party as the rich getting richer on the backs of the rest of the population?
Baroness Chalker of Wallasey: My Lords, it is rare that one of your Lordships speaks without knowing what is really going on. But we have one such case now. UK unemployment has fallen by 572,900 and the measures in the last Budget—a package of work incentives worth over £600 million—are part of our programme. That is a very good mirror of what we are trying to do in our overseas development programme.
Lord Judd: My Lords, does the Minister accept that we are all agreed that growth is essential to generate the wealth from which social programmes can be financed? So why is it that, at a time when the Government speak of economic recovery, our aid programme, as a proportion of gross national product, continues to plummet to about half the level that it was when the Conservatives came to office in 1979?
Baroness Chalker of Wallasey: My Lords, as we have said often in this House, it is not just a matter of the quantity of aid; it is about targeting and quality. If we had had the same targeting and the same quality in 1979, then the noble Lord would have a point to make. But we did not. We now have a very much better delivered aid programme. While I shall always be glad to see more resources for it, I shall make the very best of what I have got.

Newbury Bypass
2.41 p.m.
Lord Boyd-Carpenter Lord Boyd-Carpenter asked Her Majesty's Government:
What action they are now taking to secure the early construction of the Newbury bypass.
The Parliamentary Under-Secretary of State, Department of Transport (Viscount Goschen): My Lords, the Secretary of State for Transport has asked the Highways Agency to look again at the plans for the bypass and to explore other options. He will announce his decision on the way forward after he has had the opportunity to consider carefully the Highway Agency's report.
Lord Boyd-Carpenter: My Lords, can my noble friend say when that consideration will be concluded?
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Is he aware that the situation is extremely urgent? Newbury is crowded out with traffic. The noble Earl, Lord Carnarvon, who unhappily is not able to be present, has reported a four-and-a-half mile queue on the A.34 running into Newbury. Is my noble friend aware that this matter is very urgent indeed and has been delayed for a very long time?
Viscount Goschen: Yes, my Lords, we appreciate the congestion difficulties in Newbury. My right honourable friend has said that he expects to be able to make an announcement in time for the publication of the road scheme starts for the year 1996–97.
The Earl of Huntingdon: My Lords, can the Minister tell us what other options there can be for the bypass? Does he realise that the traffic management schemes put in place for the Sainsbury development only last until 1997? Does he also realise that there is a new development to put alongside the A.343 roundabout which will cause even more problems for the residents of Newbury and travellers through it if it goes ahead before the bypass is built?
Viscount Goschen: My Lords, those are just the kind of issues that have been taken into consideration and will continue to be taken into consideration. The remit of the review is to consider all practical options.
Lord Clinton-Davis: My Lords, will the Minister indicate the stage at which the Government decided to change course on this matter and the specific grounds that necessitated that change of view?
Viscount Goschen: My Lords, my right honourable friend made an announcement in December last year. The Secretary of State felt that this was a scheme which had an unusual degree of continuing public interest. In the light of that, he decided that he would initiate a review to make sure that we had the right solution for the people of Newbury and to investigate other solutions.
Lord Orr-Ewing: My Lords, is my noble friend aware that this scheme has been under considerable discussion for nearly 20 years? Does he appreciate that when anything is stopped it means an exceptionally long delay before it starts up again? Will he accept that we must have an early decision on this matter; otherwise, there are two sets of planning blight—on the west route and the east route—so that many people are affected while nothing is going ahead at all?
Viscount Goschen: Yes, my Lords, this situation has been going on for a long while. We seek to make a decision as soon as possible.
Earl Russell: My Lords, does the Minister agree that some part of the congestion in Newbury arises because it lies between the Midlands and Southampton Docks? Would he therefore consider doing something to avoid the choice between causing congestion in Newbury or pollution in the surrounding countryside, by making progress with the high speed rail link to the Channel Tunnel?
Viscount Goschen: My Lords, that is slightly wide of the Question on the Order Paper. We are indeed making

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progress on the public transport issue. But the point is that there is continuing demand in Newbury. At the moment there is a bad situation. There is extensive congestion and we need a solution to address that problem which already exists, never mind what might happen in the future.
Lord Clinton-Davis: My Lords, if a decision were to be made in favour of the bypass within the timescale indicated by the Minister, can he say when work would be likely to commence, having regard to the concerns already expressed on both sides of the House about this matter?
Viscount Goschen: No, my Lords, I do not think that I can say that. It would depend on what the review says. I do to want to pre-empt the review. But I said that we would seek to make an announcement as soon as possible and to take forward as soon as possible any further work that might develop.
Lord Stoddart of Swindon: My Lords, is the Minister aware that when I fought the Newbury constituency on two occasions in 1959 and 1964 a grave traffic problem existed at that time also? I have listened carefully to the answers given both now and previously by the Minister and I still cannot understand why the Government ordered the review. What is the mystery? Can the noble Viscount explain why, on the eve of the project being started, the Secretary of State suddenly decided to have a review? We have not had that question answered and I should like it answered now.
Viscount Goschen: My Lords, ultimately, as proposer of the scheme, it is up to the Secretary of State for Transport whether a project should go ahead, even after the statutory processes have been gone through. We have now been through two public inquiries on the issue. I stated that the Secretary of State felt that a review was necessary because of the continuing level of public interest in the scheme. It is the responsibility of the Secretary of State and he must satisfy himself that the right solution has been found.

Barings
2.51 p.m.
Lord Spens Lord Spens asked Her Majesty's Government:
Whether they have assessed the long-term consequences of the decision to allow Barings Bank to be put into "administration" on the earning capacity of United Kingdom financial institutions.
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Henley): My Lords, the directors of Barings applied for administration when they formed the view that the bank was unable to continue trading. The Bank of England took the view that the problem was specific to Barings and would not result in major systemic risk to the financial system. The Governor did not recommend the use of taxpayers' money to rescue Barings, and subsequent events vindicated that approach.
Lord Spens: My Lords, while thanking the Minister for that Answer, does he and the Treasury realise that a
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second Wimbledon has been created in the City of London? It is now a place where it is wonderful to come and play as a foreigner to win the large prizes that exist, but not much good if one is British. Does the Minister realise that 40 per cent. of that business is already in the hands of overseas companies and will rapidly increase. As I understand it, last week the Japanese banks decided to remove all their deposits from London banks, other than the major ones, and put them with German, Swiss, French, American and other banks of that ilk.
Lord Henley: My Lords, I do not accept the analysis of the position as related by the noble Lord, Lord Spens. It was a sad and regretful episode but the circumstances which brought Barings down were unique to that bank and ought not to apply to other banks.
Lord Eatwell: My Lords, is the Minister aware that the 1987 Banking Act defines the Bank of England's Board of Banking Supervision as an advisory and not an investigative body? Is he aware also that the Economic Secretary to the Treasury, Mr. Anthony Nelson, described the Board of Banking Supervision as a,
"cosy club of Governor's appointees"?
Is it not clear that the board is an entirely inappropriate body to investigate the role of the Bank of England in the Barings affair? Only a fully independent inquiry will enjoy the confidence which is so vital to the economic future of the City of London. Why are the Government afraid of an independent inquiry?
Lord Henley: My Lords, the noble Lord's point in relation to my right honourable friend the Economic Secretary to the Treasury is a silly one. My right honourable friend made that comment when he was a Back-Bencher in another place. At the time he was concerned about the number of independent members on the board. Following his intervention in that Bill, the number was increased. At the time he agreed that the increase would enhance the weight and power of the Board of Banking Supervision. As a Treasury Minister he is fully confident that the board can fulfil the tasks set for it by the Chancellor. The board was set up by the 1987 Act and its role is to advise the Bank of England on the discharge of its supervisory responsibilities. It will produce a report in due course which my right honourable friend the Chancellor of the Exchequer will consider.
Lord Eatwell: My Lords, can the Minister say why the Government are afraid of an independent inquiry?
Lord Henley: My Lords, the Board of Banking Supervision is independent. It consists of nine members—I can list them if the noble Lord wishes me to—six of whom are totally independent. The other three are ex officio—the Governor of the Bank of England and two other members of the Bank.
Lord Monkswell: My Lords, will the Government advise the House, and thereby the nation, as to which British banks are secure for the deposit of money

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belonging to individuals, local authorities and charities and will be safe and guaranteed by the Bank of England?
Lord Henley: My Lords, I presume the noble Lord is aware—he tabled a similar Written Question—that I shall shortly be answering his Question. I can give a preview of that Answer. No lists of such banks exist. Local authorities are responsible for making their own decisions on the creditworthiness of deposit takers.

Iraq: British Exports
2.55 p.m.
Lord Haskel Lord Haskel asked Her Majesty's Government:
Whether they have any plans to encourage and support British industry to export to Iraq.
The Minister of State, Department of Trade and Industry (Earl Ferrers): My Lords, while sanctions continue in force Her Majesty's Government neither encourage nor discourage the supply of those goods which are permitted to be supplied to Iraq by the United Nations.
Lord Haskel: My Lords, I thank the Minister for that Answer. However, is he aware of the pressure on some UK companies to engage in sanctions busting on the grounds that, if we do not trade with Iraq, other firms and other countries will get in first? Does not the Minister agree that the two visits made by groups of 25 people to Baghdad during the past few months sent entirely the wrong signals, particularly as some of the companies represented deal in goods unrelated to humanitarian purposes? Those visits were used to great propaganda effect by the Iraqi authorities.
Earl Ferrers: My Lords, if that is so, it is highly regrettable. I hope that those companies which feel that they are being pressured into sanction busting will have the good sense to reject those pressures. The Iraqi regime behaved in such an intolerable way during the 1990s that all 186 member countries of the United Nations approved the decision to impose sanctions, including Britain. We intend to apply those sanctions rigorously and any company that tries to break the sanctions is doing a disservice both to this country and to the world.
Lord Beloff: My Lords, does not my noble friend agree that the Prime Minister yesterday, in his speech in Israel, made it absolutely clear that this country does not regard the lifting of sanctions from Iraq within the near future as being in any way on the table?
Earl Ferrers: My Lords, I am grateful to my noble friend Lord Beloff for drawing that point to our attention. He is entirely right. The sanctions will not be removed until Saddam Hussein fulfils all the obligations made upon him. First, he must withdraw from Kuwait—which he did. Secondly, he must recognise Kuwait's borders—which he does. Thirdly, he must recognise Kuwait's sovereignty—which he does not. He must dispose of and destroy all the weapons of mass destruction in his
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possession, and that is presently the subject of a United Nations report. Finally, he must return the 600 Kuwaiti detainees, which has not yet been achieved. Until all those objectives are satisfied, the sanctions will remain in place.
Lord Avebury: My Lords, does not Saddam Hussein also have to comply with the provisions of Resolution 688 which require him to cease repression of the Iraqi people? Is not the report of the UN rapporteur on Iraq, tabled by the Commission in Geneva, proof that the situation for the people of Iraq has deteriorated in the past year? In those circumstances, will the Government resist any proposals to weaken or remove sanctions? In particular, will they draw to the attention of the Security Council the serious breach of sanctions occurring with the traffic of 1,200 trucks a day crossing between Turkey and Iraq and bringing back oil in contravention of the UN resolution?
Earl Ferrers: My Lords, I can assure the noble Lord, Lord Avebury, that we have no intention of weakening the sanctions regime. We intend to keep those sanctions until such time as it is proved that they should be given up. With regard to the latter point, I shall ensure that the anxieties of the noble Lord are drawn to the attention of my right honourable friend.
Lord Bruce of Donington: My Lords, is the noble Earl aware that so long as Her Majesty's Government follow precisely the lines indicated by the Minister this afternoon, many of us on this side of the House will support the Government in their stance?
Earl Ferrers: My Lords, I became rather frightened when the noble Lord, Lord Bruce of Donington, stood up; I felt that he was about to disagree with what the Government were doing. I am deeply indebted to him for reinforcing what we are doing in his usual characteristically forthright way and I entirely agree with him.
Lord Clinton-Davis: My Lords, is the Minister aware that the Official Opposition share the view that for once the Government have made the right decision in relation to this matter? Is he also aware that a carefully orchestrated campaign is being undertaken by the Iraqi Government to which some very ill-advised businessmen, not only here but in France, seem to be subscribing and that the views which the noble Earl has expressed as to the conditions upon which the embargo proposed by the Security Council might be lifted are utterly inconsistent with the views that are being taken by those people? Is he further aware that, in the light of what he said, the view of the French Government that the sanctions might be lifted once the United Nations Security Council representative says that Iraq is complying with resolutions on weapons of mass destruction is wholly inadequate?
Earl Ferrers: My Lords, I am grateful to the noble Lord for saying that the Opposition Front Bench are in agreement with what the Government are doing.
Lord Shepherd: My Lords, it is not just the Opposition Front Bench but the party as a whole which takes that view.
Earl Ferrers: My Lords, perhaps the Cross Benches would like to agree to that, too. I am grateful to the

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noble Lord, Lord Clinton-Davis, for expressing that approval. The point that he makes is a very real one. There are those people, and sometimes those countries, who always try to seek a way round a regulation in order to try to benefit themselves momentarily and personally. I deplore that totally and I think that your Lordships would deplore it totally. It is up to each country to enforce United Nations sanctions as best they can. As far as I know, they are all doing it correctly. If there is evidence that any country is breaking those sanctions, I should be glad to know of it.
Lord Molloy: My Lords, will the noble Earl acknowledge that many people in countries bordering Iraq were most grateful for the immediate action taken by the British Prime Minister and our American allies which resulted in Kuwait being restored to its people? Are the Government still insisting that those who were taken away by the Iraqis should now be returned? Does he agree that we should not in any way seek any help from Iraq or acknowledge its leadership until those conditions which the British initiated are fully honoured?
Earl Ferrers: My Lords, the noble Lord is quite right. One of the reasons why sanctions were introduced in the first place was to ensure the return of those 600 or so detainees to Kuwait. At present, Iraq has not clone that.
Lord Rea: My Lords, can the noble Earl foresee a way in which some form of sanctions-lifting towards the Kurdish parts of Iraq could be thought about in such a way that an alternative government might be founded there which could offer the Iraqi people a choice against the current murderous dictator?
Earl Ferrers: My Lords, there are always ways of trying to get round a position, but we have to see the position as it is. The position is that Saddam Hussein is in control of Iraq. He is carrying out his activities in a way that is totally reprehensible to the rest of the world. Until that is finished and Saddam Hussein approves and agrees to that which the United Nations has suggested, sanctions will continue.

Pensions Bill [H.L.]
3.4 p.m.
Report received.
Clause 1 [The new authority]:
Lord Ezra Lord Ezra moved Amendment No. 1:
Page 1, line 9, at end insert:
("() It shall be the duty of the Authority to exercise general supervision over the operation of occupational pension schemes coming within the scope of this Act, with a view to ensuring that schemes are efficiently and satisfactorily administered and that the interests of beneficiaries as a whole are safeguarded and to this end the Authority shall be provided with adequate staff and resources to intervene where appropriate in schemes which do not appear to the Authority to meet the standards laid down in this Act.").
The noble Lord said: My Lords, this amendment deals with the general duties of the authority. This issue was debated on an amendment moved by the noble Baroness, Lady Turner, in Committee on 7th February.
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On that occasion the noble Lord, Lord Mackay, spoke against it, mainly on the grounds that it appeared to ask for the authority to monitor every one of the pension schemes. This amendment does not do that. It pays regard to that view and it talks in terms of general supervision.
Subsequent to the debate which we had in Committee I did a little personal research, and I found that the Government, in introducing all the measures which established bodies of this kind—regulatory bodies—since they came to power, have given in the Acts of Parliament concerned a statement of their general duties right at the start. That goes for the Telecommunications Act 1984, the Gas Act 1985, the Water Act 1989, the Electricity Act 1989, the Railways Act 1993 and the Coal Industry Act 1994. In every one of those cases the general duties of the regulatory body are set out at the start of the Act.
Furthermore, my researches took me back to 1946, when the reverse process was undertaken by the post-war Labour Government when these industries were put into nationalisation. In every one of those cases the duties of the new statutory bodies, which were then the boards, were also defined right at the beginning of the Act. Therefore, I feel that the precedent in the actions of the Government and of previous governments is overwhelming for this to be done. I shall not be able, therefore, to understand any further resistance that the Government might have to the wording as now proposed because it is in very general terms.
My surprise if the amendment were to be opposed would be even greater having regard to what the Government themselves have said about the functions of the new authority. I ask your Lordships to turn to Schedule I on page 98 of the Bill as now amended. Paragraph 2 states:
"The Authority may do anything (except borrow money) which is calculated to facilitate the discharge of their functions, or is incidental or conducive to their discharge".
It seems to me that if the authority were disposed, pour encourager les autres, to execute a few recalcitrant trustees and considered that that was in the interests of discharging its functions, or was incidental or conducive to the terms of the instrument appointing it, it would be entitled so to do. This is an extremely wide-ranging statement. I am surprised that the Government should have included it in the Bill. The proposed amendment is much more limited than that. It attempts in simple terms to set out what the authority should be doing. On those grounds, I hope that the amendment will command the support of the House. I beg to move.
Baroness Turner of Camden: My Lords, I rise to support the amendment moved by the noble Lord, Lord Ezra. I have put my name to it because I believe it to be essential to have the functions of OPRA clearly set out right at the very commencement of the Bill. The establishment of a regulatory authority was a key part of the recommendations of the Goode Committee. Indeed, the report went so far as to spell out what it thought the duties of the regulator should be. In Committee we on this side of the Chamber sought to persuade the Government to write into the Bill the recommended duties. The Minister was not prepared to

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accept that. Nor was he prepared to accept a much more modified form of wording which dealt with a monitoring role.
The form of wording suggested in this amendment is even more modified, as the noble Lord, Lord Ezra, said. It gives OPRA the duty of exercising general supervision. It seems to me that the role envisaged by the Government for OPRA is essentially a passive one. It seems to be to react to complainants and whistle-blowers. By that time, of course, irreparable damage can already have been done. Any powers such as those envisaged by Goode which involve the setting of standards, and the checking of trustees' or administrators' behaviour against such standards, have been excluded from the Bill and so has any general overview of the pensions field.
The Goode Committee said quite specifically,
"The new legal framework we have recommended depends for its effectiveness on proper supervisory and enforcement machinery. We therefore recommend that the Pensions Regulator should have wide ranging functions and powers".
Furthermore,
"The tasks we have identified for the Regulator are substantial. If they are to be performed in the way we consider necessary for pension schemes to be properly safeguarded, it is important that the Regulator should be organised in an effective way and that the resources necessary should be made available".
As I have said before in discussions on this Bill, for many years I was a member of the Occupational Pensions Board. One of our problems was that people thought that we had much greater powers than in fact we actually had. It seems to me that we are in danger of repeating exactly that with the establishment of OPRA. At least the Occupational Pensions Board was not, and never claimed to be, a regulatory authority for the whole of the pensions field. But here we have some new legislation, the objective of which is to provide security for occupational pensioners and scheme members generally with a regulatory authority. But, unfortunately, unless we can have the Bill amended, that regulatory authority seems to have no greater powers, at least on paper, than the Occupational Pensions Board—perhaps even less, because the OPB does require certificates from the scheme actuaries stating whether the scheme is solvent, a statement from the scheme auditors that the accounts have been audited and, as a matter of routine, a copy of the accounts where they have been qualified in any way.
The board also has a duty to make reports to the Secretary of State on general issues of importance in the pensions field. It has produced a number of excellent reports, not all of which have resulted in legislation, although some have. After the board has gone, it is not clear whether anyone or any institution will have that function.
The Government's opposition to giving OPRA the type of role envisaged by Goode seems to be based on the large number of schemes. But many of the smaller schemes are insured schemes. There is no reason why there should not be a simplified, streamlined procedure for dealing with insured schemes. It is not satisfactory that, with large numbers of people (perhaps 20 million) relying on occupational schemes for the bulk of their
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retirement income, there should be a regulatory authority that does not have its functions clearly set out at the very commencement of the Bill. It should be a regulatory authority which lives up to its name and to everyone's justifiable expectations. I support this amendment.
3.15 p.m.
Lord Dean of Harptree: My Lords, this amendment appears to be contrary to the principles on which the regulatory authority is to be based. As I understood my noble friend the Minister at Second Reading and during the Committee stage, we were rightly told that it should be the job of the regulator, through the whistle-blowing procedure, to concentrate on those areas where he felt that there might be difficulties arising. Those seemed to me to be the right priorities to adopt.
If the regulator were to have the role of crawling over every single occupational pension scheme which is in existence, how many staff and how much in terms of resources would he require and who would meet the substantial cost involved? With great respect to the noble Lord, Lord Ezra, I do not believe that he gave the House any indication of what the cost would be. When my noble friend the Minister replies, if he is minded to accept this amendment—which I hope he will not—will he say what the cost will be either to the taxpayer or to members of occupational pension schemes?
Baroness Seear: My Lords, it was in order to meet the very point raised by the noble Lord, Lord Dean, that the terms of this amendment were changed from those introduced at Second Reading. That included the word "monitor", which could create the false impression that the regulator was intended, as the noble Lord said, to "crawl all over" all the 150,000 schemes. Nobody seriously imagines that any organisation can crawl all over 150,000 schemes. The provision is to give the regulator a responsibility for general supervision, which is a very different matter from saying that it has to supervise in detail 150,000 schemes.
Therefore, I hope that noble Lords will realise that what is proposed is not in the least what the noble Lord, Lord Dean, has said. It is a general supervisory function and, if the regulator has not got it, it is extremely difficult to see what function he will have. If that is not the function, why may we not be told in a clause which defines what the authority is supposed to do? It is most extraordinary to set up an authority and in the Bill which establishes it to say that an authority shall be set up and then give a list of the things it will do to carry out its duties without at any point telling us what the duties are. It is a matter of clarity and logic. In the tradition of legislation which we have passed on previous occasions, such an amendment should be included in the legislation before your Lordships' House.
The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, the amendment before us this afternoon seems to me to do two things. One is the rather innocent objective put forward at the beginning of this debate of trying to bring together in five or six lines for the layman, so to speak, what the regulator will do. As the debate has gone on,

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a second motive has come forward and has been rightly exposed by my noble friend Lord Dean of Harptree; namely, to extend the scope of OPRA's responsibilities much wider than those laid out in my speech in Second Reading, or indeed in my speeches at Committee stage, or than what is in the Bill itself.
It seems to me that the amendment may well achieve the widening to which the noble Baroness, Lady Turner, addressed herself, but I am not sure that it achieves the clarity which the noble Lord, Lord Ezra, set out to achieve. A quick and readily accessible guide to what the authority can do is already there at the beginning of the Bill. The part of the Bill containing the list of clauses shows a list of the authority's powers, which are provided in Clauses 3 to 13 and 87 to 92. It also gives a good indication of what those clauses are about. As the Bill goes through both Houses, further information about what those clauses do can be found in the Notes on Clauses published with the Bill.
It is a very risky business to put into a Bill clauses which are not supposed to do anything in their own right. It can cause problems when a particular clause is being interpreted in isolation in the courts. We do not want to compromise the provisions of Part I of the Bill. We do not want to risk widening or restricting the scope of the authority by introducing a general list of functions on the face of the Bill. The amendment could jeopardise our common interest, which is the protection of scheme members' interests.
The functions of the authority will be those conferred on it in the Bill. Its role is to investigate schemes; to ascertain whether regulatory provisions are being or have been complied with and to take action as the authority considers necessary to rectify any non-compliance discovered. Such actions could include the imposition of civil penalties, taking criminal proceedings and appointing, prohibiting or disqualifying trustees. Many of these are issues which we shall discuss during the course of the day.
In line with the Government's policy for enforcement agencies, the authority will be expected to publish information about the manner in which it will carry out its function and the standard it will be aiming to achieve. Thus the public will be able to find out about the authority, not by going to the Bill and trying to get it from five or six lines, but by getting it from information published by the authority itself.
We also intend to amend the disclosure regulations to introduce a requirement for schemes to disclose to their members the existence of the new authority. That should ensure that those in whose interest the authority is acting will be aware of and understand the authority's role. We believe that that will be an effective way of disseminating information in a readily digestible form. We do not want pension scheme members to have to go to a copy of an Act of Parliament simply to try to establish what the authority will do. If the aim is to try to inform the public and scheme members about what the authority will do, I must submit to the House that what I have suggested meets that bill.
564
The wording of the amendment that has been suggested by the noble Lord, Lord Ezra, would go considerably further than simply specifying the functions of the authority which are conferred upon it by the Bill. It seeks to widen those functions to include,
"general supervision over the operation of occupational pensions schemes".
The noble Baroness, Lady Turner, said that she saw that as one of the advantages of the amendment. However, as I explained in Committee, we do not want the authority to be a general supervisory body for the reasons that my noble friend Lord Dean mentioned. There are 150,000 schemes and I thought that we were all agreed in Committee that we do not want the authority to ghost every pension fund in the country. We want OPRA to have a range of well-defined powers to enforce compliance, with the specified obligations that are set out in both this Bill and the Pension Schemes Act 1993. We want it to target its resources and expertise accordingly, carrying out investigations where there are suspicions or reports of things going wrong or spot-checking schemes where it has good reason to think that there is a risk of something going wrong.
The noble Lord, Lord Marsh, pointed out in Committee that it is the members themselves and those actively involved in the administration and management of the schemes who are best placed to alert the authority to problems. That is why we are introducing the requirement for auditors, actuaries and trustees to blow the whistle on schemes which do not conform to the provisions of the Bill. We believe that that will be a far more effective means of ensuring that schemes comply with the law than giving the authority general supervisory functions which would increase its costs without, we believe, providing any additional benefit.
The noble Lord, Lord Ezra, prayed in aid the regulators for, among others, the telecommunications, gas and electricity industries. We do not believe that any of the bodies which the noble Lord mentioned is sufficiently similar in nature to the authority that we are proposing to provide a relevant analogy. The significant difference is that this authority is not intended to have general duties. Instead, it is intended that it will have the specific duties that are spelt out in the Bill.
The noble Lord prayed in aid Schedule 1(2). I must advise the noble Lord that those provisions do not describe or widen the functions of the authority. That paragraph simply enables the authority to discharge powers and functions which derive from the provisions of the Bill. The authority does not have completely unfettered power to do what it chooses. It can do only what the Bill allows it to do. There will, of course, be checks and balances to ensure that it acts in a fair and reasonable manner and uses its resources wisely. It will be accountable to Parliament through the Secretary of State, and will come within the jurisdiction of the Parliamentary Commissioner for Administration. I hope that that answers the point about Schedule 1(2).
We have had this debate before and I do not believe that it is reasonable to try to encapsulate in about five lines what the Bill does. I believe that the information that will be required by those people who need to know—pension scheme members and the like—will be

565
provided by the steps that the authority will take and those that we shall ensure that pension schemes take. I believe that that will provide people with much more detailed knowledge of how the authority works than would the provisions set out in the amendment—and perhaps less legalistically.
Finally, if the four or five lines of the amendment were just a piece of harmless fun, your Lordships might think that it would be rather churlish not to add them to the Bill, but I hope that I have shown the House that they are a bit more than that. They introduce some new ideas about the duties and responsibilities of the authority. With that explanation, I hope that the noble Lord will feel able to withdraw his amendment. If he does not, I ask my noble friends to support me in the Division Lobby.
Lord Ezra: My Lords, the Minister's remarks disturb me on two counts. First, I think that his arguments about not including in the Bill anything about the general duties (however they might be defined) of the new authority fly in the face of precedent. The regulatory bodies that have been set up for the other industries that I mentioned are similar in that they are regulatory bodies. They have certain powers. It might have been argued that their powers could have been found by reading the whole of the relevant Bill and that there was no reason to state their general duties at the beginning of that Bill, but that is what was done. My noble friend Lady Seear made that point strongly.
The other difficulty is that the Minister said that paragraph 2 of Schedule 1 states that the authority can do anything within its powers according to the Bill. In fact, that is not the wording. The provision states that the authority can do anything that is "conducive" to carrying out its duties. That goes very much further than anything that I have seen in any comparable Bill. I was trying to identify more precisely what the general duties of the authority should be in these circumstances and in this Bill.
I do not agree with the view that that involves monitoring every single scheme. The word "monitoring" was introduced in the previous amendment on this matter, which was moved by the noble Baroness, Lady Turner. That word has been removed. Indeed, if it is felt that the words "general supervision" are too strong, I am sure that other words could be used. The whole burden of the amendment is to indicate that the authority would intervene only where it was necessary to do so. I believe that that is common ground. The purpose of the legislation is to ensure that intervention takes place only where it is shown that schemes are not conforming with the provisions of the Bill as laid down in Parliament.
I feel that a strong case has not been made against the amendment. If the wording of the amendment is not correct, I should be delighted if the Government would introduce their own amendment at the next stage. Indeed, the Minister's penultimate remarks suggested the possible wording of such an amendment. As I have said, if the term "general supervision" is shown to go too far, I am sure that it would be possible to think of other wording.
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This is an issue of principle. When statutory authorities are established in major legislation, I believe that the parliamentary draftsmen should introduce, and the Government should support, a general statement of their duties, however worded. It is quite wrong to leave people to trawl through the whole Bill to discover what the general thrust of those duties should be. Furthermore, I believe that people could be misled by the broad wording of the second paragraph of Schedule 1. In those circumstances, I commend the amendment to the House.
3.28 p.m.
On Question, Whether the said amendment (No. 1) shall be agreed to?
Their Lordships divided: Contents, 93; Not-Contents, 120.

Division No. 1

CONTENTS

Acton, L

Jenkins of Hillhead, L

Addington, L

Jenkins of Putney, L

Allen of Abbeydale, L.

Judd, L.

Allenby of Megiddo, V.

Kilbracken, L

Archer of Sandwell, L

Kinloss, Ly.

Ashley of Stoke, L

Kirkhill, L.

Bancroft, L

Lovell-Davis, L

Barnett, L

Mason of Barnsley, L

Blackstone, B.

Mayhew, L

Bruce of Donington, L

McIntosh of Haringey, L.

Carmichael of Kelvingrove, L

McNair, L

Cledwyn of Penrhos, L

Merlyn-Rees, L

Clinton-Davis, L

Monkswell, L

Cocks of Hartcliffe, L

Monson, L.

Craigavon, V.

Moms of Castle Moms, L

David B.

Nelson, E.

Dean of Berwick, L

Nicol, B.

Dean of Thornton-le-Fylde, B.

Ogmore, L

Desai, L

Phillips of Ellesmere, L.

Donaldson of Kingsbridge, L

Rea, L

Donoughue, L

Redesdale, L

Dormand of Easington, L

Russell, E.

Eatwell, L

Sainsbury, L

Elis-Thomas, L

Saltoun of Abernethy, Ly.

Ennals, L

Seear, B.

Ezra, L.

Sefton of Gaston, L

Falkender, B.

Serota, B.

Falkland, V.

Shannon, E.

Freyberg, L

Shaughnessy, L

Gallacher, L

Shepherd, L.

Gladwin of Clee, L (Teller.]

Simon of Glaisdale, L.

Gould of Potternewton, B.

Simon, V.

Graham of Edmonton, L

Stallard, L

Grey, E.

Stedman, B.

Halsbury, E.

Harris of Greenwich, L [Teller.]

Stoddart of Swindon, L.

Haskel, L

Strabolgi, L

Hayter, L

Taylor of Gryfe, L.

Headfort, M.

Tenby, V.

Henniker, L

Thomas of Walliswood, B.

Hilton of Eggardon, B.

Tope, L

Hollis of Heigham, B.

Tordoff, L

Howie of Troon, L

Turner of Camden, B.

Irvine of Lairg, L

Wallace of Coslany, L

Jay of Paddington, B.

Wharton, B.

Jeger, B.

White, B.

Wigoder, L

Williams of Elvel, L.

NOT-CONTENTS

Aberdare, L

Astor of Hever, L

Addison, V.

Astor, V.

Ailsa, M.

Belhaven and Stenton, L

Aldington, L

Belstead, L

Alexander of Tunis, E

Birdwood, L

567

Blaker, L

Johnston of Rockport, L

Blotch, B.

Knollys, V.

Blyth, L.

Lauderdale, E.

Boardman, L.

Lindsay, E.

Borthwick, L

Long, V.

Boyd-Carpenter, L

Lucas, L

Brabazon of Tara, L.

Mackay of Ardbrecknish, L

Braine of Wheatley, L

Mackay of Clashfern, L. [Lord Chancellor.]

Brougham and Vaux, L

Buckinghamshire, E.

Manton, L

Butterworth, L

Merrivale, L

Cadman, L

Mersey, V.

Campbell of Croy, L.

Miller of Hendon, B.

Carnegy of Lour, B.

Milverton, L

Carnock, L

Monteagle of Brandon, L

Cawley, L

Mowbray and Stanton, L

Chesham, L

Moyne, L

Clanwilliam, E.

Munster, E.

Clark of Kempston, L.

Murton of Lindisfarne, L

Colnbrook, L

Newall, L

Constantine of Stanmore, L

Norfolk, D.

Cox, B.

Norrie, L

Cranborne, V. (Lord Privy Seal]

Northesk, E

Cumberlege, B.

O'Cathain, B.

Davidson, V.

Orkney, E

De Freyne, L

Orr-Ewing, L.

Dean of Harptree, L

Park of Monmouth, B.

Denham, L

Peel, E.

Dixon-Smith, L

Pender, L

Elles, B.

Peyton of Yeovil, L

Elliott of Morpeth, L.

Platt of Writtle, B.

Elton, L.

Rankeillour, L.

Faithfull, B.

Rawlings, B.

Ferrers, E.

Renwick, L

Fraser of Kilmorack, L

Rodger of Earlsferry, L

Gainford, L

Roskill, L

Gardner of Parkes, B.

Geddes, L

Seccombe, B.

Goschen, V.

Selborne, E.

Gowrie, E.

Shaw of Northstead, L

Gridley, L

Skelmersdale, L

Hailsham of Saint Marylebone, L

Slim, V.

Harding of Petherton, L

St. Davids, V.

Hayhoe, L.

Strange, B.

Henley, L

Strathcarron, L

Hertford, M.

Strathclyde, L [Teller]

Hives, L

Sudeley, L.

Hogg, B.

Teviot, L.

Holderness, L.

Teynham, L

Hood, V.

Thomas of Gwydir, L

Hothfield, L

Trumpington, B.

Howe, E.

Vaux of Harrowden, L

Inglewood, L (Teller.)

Wedgwood, L

Ironside, L.

Wise, L.

Jellicoe, E

Wynford, L

Jenkin of Roding, L.

Young, B.

Resolved in the negative and amendment disagreed to accordingly.
3.36 p.m.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 2:
Page 1, line 9, at end insert:
("() The Secretary of State shall, in consultation with the Authority, approve an annual budget for the work of the Authority, decide on reasonable levels of funding for the responsibilities of the Authority, arrange for such funds to be made available to the Authority and report annually thereon to Parliament.").
The noble Baroness said: My Lords, I shall speak also to Amendment No. 223. The amendment relates to the funding of the regulatory authority. We are seeking to persuade your Lordships that if the regulatory body is to be statutory, it must be independent, and if it is to be
568
seen as independent, it must be funded not by the industry but by the public purse. Why? We are not talking about a large sum, we are talking about f 1 0 million to regulate a £500 billion industry. The sum is not especially onerous for the industry itself, nor for us, the taxpayer.
However, given that pensions, as the noble Lord, Lord Marsh, argued in Committee, are a voluntary and non-profit making activity by employers—something which I am sure which we all want to see continued—we do not want to add to the burden of employers' costs if that can be avoided. Some additional costs, such as the compensation levy or the solvency standard, may be essential, and, in that case, must be borne by the industry. This cost does not have to be, and in our view it ought not to be; which would help secure more willing compliance by the industry.
There are other reasons why we should like to see state-funding of OPRA. A publicly funded OPRA would also inspire greater public confidence in its independence. The Government will say, I am sure, that it is independent already; that government will appoint the chairman and the members, determine the budgets, determine the staff and, by regulation—having refused the last amendment—will determine its powers, duties, and competence. In that case, why is the state not willing to finance what it is so closely prescribing?
If the authority is to be independent in the sense that the state is regulating its activities, why not ensure that it is seen to be independent by funding it? After all, the regulator's job is often to impose on trustees behaviour which is extremely delicate: holding the balance between investment policy, solvency surpluses, and the like. In such difficult and delicate issues of trusteeship, integrity of decision making is ensured by impartiality—not beholden to either party. That is the meaning of "independence". Independent funding would help underpin that.
No one denies that self-regulation, or this, its step-sibling—that is, statutory self-funded regulation—has a bad name. Yet in contributing to pensions, employers and employees are showing huge confidence: confidence by the employer that he can deliver the pension promise; confidence by the employees that the right to invest considerable savings for 25 years or 40 years is building up their single most valuable financial asset.
The size of that asset, the long timescale over which it is built up and the need for its guardianship suggests that the state can provide the most effective guarantee. Companies may come and go, be sold, merged, taken over and go into insolvency. Does anyone doubt that the state, funding the regulator, acts as a stronger trustee of the pension promise than any self-financed body?
In Committee, the Minister advanced two arguments against such a similar amendment. His first argument was that other bodies levy the industry. He gave as an example insurance companies which pay for regulation by the DTI. But insurance companies are commercial, profit-seeking and profit-taking bodies. At this stage, I have no problem with them funding their own

569
regulation. However, pension funds are not commercial, profit-seeking, profit-taking bodies: they are non-profit making trusts.
The second argument that the Minister advanced was that occupational pensions benefit only a proportion of the population—about half—and that therefore the rest should not be expected to contribute. That is a new rule in public finance: unless benefit is enjoyed by everyone there is no public policy interest in funding its policemen. Are we now saying, for example, that only car drivers should pay for traffic wardens; that only restaurant owners and users should pay for the inspection of restaurants and their kitchens; that only the noisy tenants and their neighbours seeking peace from the hi-fi should pay for noise pollution officers; or that only people with children should pay the 50 per cent. of the local authority council tax bill that is spent on schools? No, we never use that argument in public policy. We make a distinction, and rightly so, between the activities of a local authority or any other body which give private gain and private enrichment—for instance, planning fees for enlarging one's house or car parking charges for parking one's car—and the regulatory and policing functions—for instance, drawing up local plans and employing traffic wardens—which indirectly or directly benefit us all. Those are publicly funded.
We all need to have those policing powers and regulatory controls in place, even if at any snapshot in time only a minority are users of the service. In other words, no one is saying that the state should pay for occupational pensions; that is a private matter for personal savings and enrichment. However, we are saying that the state should pay for the regulation of the system because it is in the public interest and we all stand to benefit from it. Why is that? As taxpayers, we are either helping to finance SERPS if individuals do not opt out into occupational pensions or, if they do, we are helping to finance the tax privileges from the Inland Revenue which make pensions such a special form of savings. It is a special form of savings precisely because we as taxpayers recognise that we all have a public policy interest in encouraging as far as possible the policy of provision for oneself in old age.
We believe that the state—that is, we, the taxpayers—should fund OPRA in order to ensure, first, that it not only is but is perceived to be truly independent and, secondly, because the regulating and policing of pensions is of such vital interest to us all directly as pension holders or indirectly as taxpayers and therefore it is a matter of public policy. I beg to move.
3.45 p.m.
Baroness Seear: My Lords, I support the amendment that was so fully and adequately moved by the noble Baroness, Lady Hollis. It is in the interests of us all that there should be good occupational pension schemes. If that had been the case 50 years ago the burden on social security would be much less. It is an insurance by the taxpayers that in the years to come we will not have to bail out people who in old age have inadequate incomes
570
because they did not have proper occupational pensions. That is what we are now suffering from and we wish to avoid that for the future.
The Minister has always said—and I know that he will repeat it many times today, tomorrow and on Third Reading—that we must not discourage employers from setting up occupational pension schemes. If he wants to encourage them to do so, surely he is interested in reducing the charges that are laid on employers. One such charge that he can most easily remove is the cost of running the authority. It is obvious that an authority financed by the state will be seen to be more independent. Whether in fact that is the case is another matter but such a perception is of great importance. The authority will be seen to be independent, which is a strong reason for supporting the suggestion that the payments should come from the taxpayers and not from the industry.
Lord Dean of Harptree: My Lords, the noble Baroness, Lady Hollis, mentioned car drivers. All noble Lords know that in recent years car insurance has risen by leaps and bounds. That has been due partly to the fact that there are more cars on the road and that car thieves have greater opportunities to steal cars. Furthermore, many of us are careless about car security. However, I do not believe that as a consequence anyone has suggested that the taxpayers, some of whom are unable to own cars, should assist with the payment of car insurance.
The analogy relating to the provision is precisely the same. Those of us who are lucky enough to be members of an occupational pension scheme and who are drawing occupational pensions should help to pay the costs of effective regulation. Why should the taxpayers, some of whom have had no opportunity to join occupational pension schemes, bear the costs in this regard?
I do not believe that the analogy drawn with the Occupational Pensions Board holds water. It was the job of that board to administer as an agency of the Government the question of whether schemes fell within the rules laid down by statute. In this case, the regulator has an entirely different job. It is his job to seek out fraud where it exists. No one has a stronger vested interest in avoiding fraud than members of occupational pension schemes. Therefore, it is right that the costs of the authority should be met by those of us who are fortunate enough to belong to occupational pension schemes and not by the general body of taxpayers.
Lord Clark of Kempston: My Lords, I hope that my noble friend resists the amendment because it will provide a precedent. The Securities and Investments Board is funded by the industry. The cost of the Personal Investment Authority is borne by the people who are regulated. It has always been the principle that the industry or the service must pay for self-regulation. If the Government told the taxpayers that they must take on the funding of this new organisation that would be a retrograde step. It should be funded by those who participate and not by the general taxpayers.
Lord Mackay of Ardbrecknish: My Lords, as has been made clear in this short debate, the purpose of the amendment is to prevent the cost of a new regulatory

571
authority being met by and levied on pension schemes and instead to require the Secretary of State to make available appropriate funds from the taxpayer.
I recall from our debates in Committee that both the noble Baroness, Lady Hollis, and the noble Lord, Lord Ezra, acknowledged that even without the amendments which we are now discussing the Secretary of State would determine the authority's budget. We believe—and I do not think there is any quarrel between us—that that is quite right. Indeed, paragraph 8 of Schedule 1 already provides for that.
But the point at issue is whether the authority is paid for by a levy on pension schemes or by taxation. The fact that the Secretary of State has budgetary control has been put forward as an argument for state funding. I do not accept that there is any logical connection between ensuring financial accountability and the source of the funding.
We are committed to keeping the costs of the authority to a minimum compatible with effective regulation. We shall be able to apply checks and balances on its expenditure. The authority's financial affairs will be monitored and scrutinised closely. It will be required to draw up annual statements of accounts which will be examined and certified by the Comptroller and Auditor General. Copies of all statements of accounts and reports by the Comptroller and Auditor General will be laid before both Houses of Parliament and published. They will be available for purchase by the general public.
Most occupational pension schemes are tax exempt approved and members of those schemes enjoy the benefits resulting from a number of special tax reliefs. Members' and employers' contributions are tax deductible. Income and gains from investments are exempt from income and capital gains tax and lump sum retirement benefits are free of tax. Other taxpayers who are not able to join such schemes are not so privileged. As both my noble friends have said, it would be wrong to expect the general taxpayer to foot the bill for the regulation of pension schemes. In effect, they would be paying twice: once for the tax reliefs enjoyed by pension schemes and again for the privilege of having those schemes policed.
We consider that it is right that the costs of the authority should fall on those who establish and run pension schemes because they are responsible for ensuring that their schemes are run properly. It is in their interests to promote members' confidence in them. Employers are able to set up pension schemes within a beneficial tax regime. Each year employers pay well over £18 billion of tax deductible contributions to occupational pension schemes. The current estimated total running cost of the authority is about £10 million per year. We do not consider that to be too great a burden.
While pension schemes are not established to make profits for their sponsoring employers (as the noble Baroness, Lady Hollis, pointed out) that is not to say that employers do not benefit from setting them up. Employers principally establish pension schemes as a means to recruit and retain staff. They are a vital element in the remuneration package, enabling
572
employers to maintain a competitive edge in recruiting the most able candidates. Clearly a company has a direct interest in the calibre of its staff and the contribution that they make to its profitability. Therefore, employers have a direct interest in any measure which increases the confidence of their employees in occupational pensions. Recovering the costs of the authority through the levy would merely be an extension of the existing principles of the pension ombudsman, the Pension Registry and the grant to the Occupational Pensions Advisory Service.
The levy will cover the full running costs and the start-up costs of the new authority. I wholly reject the argument that it will compromise the authority's independence. The authority's board will be appointed by the Secretary of State and, through him, will be fully accountable to Parliament. Its functions and its obligations are set out in the legislation before us today. As now, the rate of levy will be set by the Secretary of State and will be prescribed in regulations. That will allow the levy structure to be amended in the light of experience and to allow rates to take account of changes in costs over time.
The principle that the cost of the authority should be met by those who establish and run pension schemes is important. I very much hope that after listening to the arguments, the noble Baroness will withdraw the amendment. But if she feels that she cannot do that and wishes to continue to impose another £10 million of expenditure on the ordinary taxpayer, I hope that my noble friends will join with me in rejecting the amendment.
Baroness Hollis of Heigham: My Lords, I was disappointed by the Minister's reply because we have not progressed since Committee stage. Two basic arguments have been put forward. The noble Lords, Lord Dean and Lord Clark, have said that other analogous industries pay for their own regulation. I had hoped that I had addressed that point by indicating that, for example, the PIA regulates a profit-making industry. I have no problem with those bodies that are seeking to make a profit having to pay for their own regulation. It is precisely because the provision of pensions is not a profit-making activity but a non-profit making trust that it seems unreasonable, first, to burden the industry with additional costs and, secondly, to treat it in the same way as though it is seeking to make a profit.
The substantive issue that has emerged from all the remarks made is whether there is a wider interest in the regulation of pensions sufficient that the cost of it should be borne not only by those who hold the pensions but by all of us. That is the issue.
That depends on what one believes that job of regulation to be. The Minister said in a very revealing comment that he did not think that it was reasonable to ask the general taxpayer "to pay twice over"; namely, once for the tax privileges afforded by the Inland Revenue and secondly for the policing function. The reason that we are moving the amendment is precisely so that the general taxpayers' investment in the first of those—that is, the Inland Revenue privileges—is protected and policed properly, which requires the second expenditure. In other words, if I, as a taxpayer,

573
invest and if I, as a taxpayer, wish to ensure that my investment is safeguarded properly, I expect to pay for that policing as a taxpayer, not as a private investor.
Therefore, in my judgment the very argument which the Minister used—that because the taxpayer is paying for the Inland Revenue privileges he should not therefore pay for the policing—should be turned on its head. If one invests as a taxpayer, one has a need, a right, a duty and a responsibility to ensure that that investment is protected. That means that one must pay also for the policing.
One either accepts the argument or one does not but I believe that it applies to every other area of public life of which I am aware. For example, both central government and local authorities make grants for repairs and maintenance of listed buildings from taxpayers' money. Inspectors from both English Heritage, on the one hand, and from the local authority's conservation department, on the other, then check that the money has been spent properly. That checking is not done and paid for by the recipient of the grant. It is paid for by the taxpayer. Why is that? It is because, in the first place, taxpayers' money has been used to maintain historic buildings as it is public policy that that should be done. We then pay to ensure that our money has been well spent. That applies in this case, but even more so to the field of pensions. If we have a public policy interest in the security and independence of our pensions, we must all expect to pay for that. I wish to seek the opinion of the House.
3.59 p.m.
On Question, Whether the said amendment (No. 2) shall be agreed to?
Their Lordships divided: Contents, 95; Not-Contents, 135.

Division No. 2

CONTENTS

Acton, L.

Falkland, V.

Addington, L

Freyberg, L

Allen of Abbeydale, L

Gallacher, L

Allenby of Megiddo, V.

Gladwin of Clee, L

Archer of Sandwell, L

Gladwyn, L

Ashley of Stoke, L.

Gould of Potternewton, B.[Teller]

Avebury, L

Bancroft, L

Graham of Edmonton, L[Teller]

Barnett, L

Beaumont of Whitley, L

Gregson, L

Birk, B.

Grey, E.

Blackstone, B.

Halsbury, E.

Bruce of Donington, L

Hamwee, B.

Carmichael of Kelvingrove, L

Harris of Greenwich, L

Cledwyn of Penrhos, L

Haskel, L

Clinton-Davis, L

Henniker, L.

Cocks of Hartcliffe, L.

Hilton of Eggardon, B.

David, B.

Hollis of Heigham, B.

Dean of Beswick, L

Hooson, L.

Dean of Thornton-le-Fylde, B.

Irvine of Lairg, L

Desai, L

Jay of Paddington, B.

Donaldson of Kingsbridge, L.

Jeger, B.

Dormand of Essington, L.

Jenkins of Hillhead, L.

Eatwell, L

Jenkins of Putney, L.

Elis-Thomas, L

Judd, L.

Ennals, L.

Kilbracken, L.

Ezra, L

Kirkhill, L.

Falkender, B.

Lovell-Davis, L.

574

Mason of Barnsley, L

Seear, B.

Mayhew, L

Sefton of Garston, L.

McGregor of Durris, L.

Serota, B.

McIntosh of Haringey, L.

Shaughnessy, L

McNair, L.

Shepherd, L

Merlyn-Rees, L.

Simon, V.

Meston, L.

Stallard, L

Molloy, L

Stedman, B.

Monkswell, L

Stoddart of Swindon, L.

Morris of Castle Morris, L

Strabolgi, L

Mulley, L.

Nelson, E.

Taylor of Gryfe, L

Nicol, B.

Tenby, V.

Ogmore, L.

Thomas of Walliswood, B.

Peston, L.

Tope, L

Phillips of Ellesmere, L.

Tordoff, L

Porter of Luddenham, L.

Turner of Camden, B.

Rodgers of Quarry Bank, L.

Wallace of Coslany, L

Russell, E.

White, B.

Sainsbury, L

Wigoder, L

Williams of Elvel, L

Williams of Mostyn, L.

NON-CONTENTS

Aberdare, L.

Hailsham of Saint Marylebone, L.

Addison, V.

Harding of Petherton, L.

Ailsa, M.

Harmar-Nicholls, L

Aldington, L.

Hayhoe, L.

Alexander of Tunis, E.

Hemphill, L

Ashbourne, L.

Henley, L.

Astor of Hever, L

Hertford, M.

Astor, V.

Hives, L.

Belstead, L.

Hogg, B.

Birdwood, L.

Holderness, L.

Blake, L.

Hood, V.

Blatch, B.

Hothfield, L.

Blyth, L.

Howe, E.

Boardman, L.

Inglewood, L [Teller.]

Borthwick, L.

Jenkin of Boding, L

Boyd-Carpenter, L

Johnston of Rockport, L.

Brabazon of Tara, L.

Kimball, L

Braine of Wheatley, L.

Knollys, V.

Brougham and Vaux, L.

Lauderdale, E.

Buckinghamshire, E.

Lindsay, E

Butterworth, L.

Lindsey and Abingdon, E

Cadman, L.

Long, V.

Caithness, E.

Lucas, L.

Campbell of Croy, L

Lyell, L.

Carnegy of Lour, B.

McConnell, L

Cawley, L.

Mackay of Ardbrecknish, L.

Carnock, L

Mackay of Clashfern, [Lord Chancellor.]

Chesham, L.

Clanwilliam,

Manton, L.

Clark of Kempston, L.

Merrivale, L.

Colnbrook, L.

Mersey, V.

Constantine of Stanmore, L.

Miller of Hendon, B.

Cox, B.

Milne, L.

Craigavon, V.

Milverton, L

Cranborne, V. [Lord Privy Seal.]

Monson, L

Crathorne, L.

Monteagle of Brandon, L.

Mountevans, L.

Cumberlege, B.

Mowbray and Stourton, L.

Davidson, V.

Moyne, L

De Freyne, L

Munster, E.

Dean of Harptree, L

Munster, E.

Denham, L.

Murton of Lindisfarne, L.

Dixon-Smith, L.

Newall, L.

Elles, B.

Norfolk, D.

Elton, L.

Northesk, E.

Faithfull, B.

O'Cathain, B.

Ferrers, E.

Oppenheim-Barnes, B.

Fraser of Kilmorack, L.

Orr-Ewing, L.

Gainford, L.

Park of Monmouth, B.

Gardner of Parkes, B.

Pender, L.

Geddes, L.

Peyton of Yeovil, L.

Goschen, V.

Gowrie, E.

Pike, B.

Gray of Contin, L.

Plan of Writtle, B.

Gridley, L.

Prior, L.

Rankeillour, L.

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Rawlings, B.

Strathcona and Mount Royal, L.

Renwick, L.

Sudeley, L.

Rodger of Earlsferry, L.

Swansea, L.

Saltoun of Abernethy, Ly.

Swinfen, L.

Seccombe, B.

Teviot, L.

Selborne, E.

Teynham, L.

Shaw of Northstead, L

Thomas of Gwydir, L.

Simon of Glaisdale, L.

Trumpington, B.

Skelmersdale, L.

Vaux of Harrowden, L.

Slim, V.

Wade of Chorlton, L.

St. Davids, V.

Whitelaw, V.

Strange, B.

Wise, L.

Strathcarron, L.

Wynford, L.

Strathclyde, L. [Teller.]

Young, B.

Resolved in the negative and amendment disagreed to accordingly.
4.6 p.m.
Clause 3 [Removal or suspension of trustees]:
Lord Lucas Lord Lucas moved Amendment No. 3:
Page 2, line 18, leave out from ("order") to ("in") in line 19 and insert ("prohibit a person from being a trustee of a particular trust scheme in any of the following circumstances.
(2) The circumstances are—
(a) that the Authority are satisfied that while being a trustee of the scheme the person has been").
The noble Lord said: My Lords, in moving the amendment I shall speak also to Amendments Nos. 4, 6 to 14, 24, 25, 50, 51, 53, 60, 62, 76, 78, 82, 85, 92, 95, 100, 115, 125, 128, 134, 164, 166, 168, 172 and 173.
Lord Hailsham of Saint Marylebone: Well done!
Baroness Hollis of Heigham: Speech!
Lord Lucas: My Lords, we are dealing with a highly technical and, in its consequences, potentially wide-ranging Bill. We have maintained, and continue to maintain, an open mind on many of its aspects. Since its publication, we have continued to consult with interested organisations. We have listened carefully to what has been said in this House, and we have continued to conduct our own reviews of its provisions. The amendments are the first fruits of those reviews—a few additional improvements to the Bill.
The amendments relate to the authority's power to take action against trustees of occupational pension schemes. The integrity and diligence of the trustee is crucial to the security of pension rights. If it is established that, while acting as a trustee of a scheme, such a person puts that security at risk by failing to comply with his statutory duties, then the authority must have the power to prevent him from acting as a trustee of that scheme either now or in the future.
Amendment No. 3 replaces the authority's power to remove trustees with a power to prohibit them, thus enabling it to take action against those who are no longer serving as a trustee as well as those who are. That removes the loophole in the clause as currently drafted which would have allowed trustees to circumvent action being taken against them by the authority by removing themselves first. As a consequence of the amendment, it is necessary to delete references to the authority's power to remove trustees and replace them with references to the authority's power to prohibit trustees. Amendments Nos. 7, 8, 9,
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11, 12, 13, 14, 24, 25, 50, 51, 53, 60, 62, 76, 78, 82, 85, 92, 95, 100, 115, 125, 128, 134, 164, 166, 168, 172 and 173 do just that.
Lord Hailsham of Saint Marylebone: Well said!
Baroness Hollis of Heigham: My Lords, it is getting better.
Lord Lucas: Yes, my Lords.
Amendment No. 4 adds to the list of circumstances in which the authority may prohibit a person from being a trustee of a particular occupational pension scheme. It allows the authority to prohibit a company or Scottish partnership from being a trustee of a particular scheme where any director of the company, or partner of the partnership, is himself prohibited from being a trustee of the scheme. This is necessary to prevent an individual's prohibition being circumvented by his establishing a company or Scottish partnership.
It also allows the authority to prohibit a person from being a trustee of a particular scheme where that person is a director of a company which is itself prohibited from acting as a trustee by the authority. The authority may only do this where it is satisfied that the company was prohibited because of the consent, connivance or neglect of the particular director. This ensures that a director whose actions contributed to his company being prohibited can himself be prohibited from acting as a trustee. Without this provision, such directors could continue to hide behind the corporate veil and could simply set up a new trustee company and continue to act as before.
The amendment allows a list of circumstances in which the authority may prohibit a trustee to be extended through regulations. Rather than give the authority a wide power to prohibit individuals from being scheme trustees, on the face of the Bill we have sought to specify all the situations where we believe this power should be exercised. The flexibility to add to the list through regulation is needed in case, in the light of experience, other situations arise where it would be desirable for the authority to be able to prohibit an individual from being a scheme trustee.s
The remainder of Amendment No. 4 is concerned with the authority's power to suspend trustees, clarifying and adding to the provisions that are already contained in the Bill in Clause 3. It extends the suspension provisions to allow the authority to suspend trustees who are facing legal action that could lead to them being automatically disqualified in Clause 24. It also allows such a suspension to remain in effect until the proceedings in question are concluded. This is necessary because court action—for example, in respect of a criminal breach—may take longer than the two year limit on the length of suspension that would otherwise apply.
The new subsection (3B) sets down the effects that a suspension order may have, and new subsection (3C) provides that a suspension order may be made in respect of proceedings, petitions or applications made before or after the coming into force of subsection (3). Subsection (4) provides that the authority may, on the application of a person who has been suspended, revoke the suspension order either generally or in relation to a

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particular scheme or class of schemes. This addresses anxieties raised at the Committee stage by the noble Baroness, Lady Hollis, the noble Lord, Lord Monkswell, and my noble friend Lord Buckinghamshire, about the need to enable a person who has been suspended by the authority to apply for his suspension to be annulled and for him to be exonerated. It brings the process in line with that for trustees who have been prohibited or disqualified.
Amendment No. 6 is consequential on Amendments Nos. 3 and 4. It splits the amended Clause 3 into two, creating a first clause dealing with prohibition orders and a second dealing with suspension orders. The final amendment in this group, Amendment No. 10, further clarifies the procedure the authority must follow when suspending a trustee. It requires the authority to give immediate notice to the person it is suspending. It also requires the authority to give notice of the fact to the other trustees of any scheme affected by the suspension, except where a trustee cannot be found or has no known address in the United Kingdom. The authority's powers to suspend and prohibit trustees are essential elements of the new regulatory framework. They will allow the authority to protect the interests of scheme members by ensuring that trustees who fail in their statutory responsibilities are prevented from acting as scheme trustees. I beg to move.
4.15 p.m.
Baroness Hollis of Heigham: My Lords, this array of amendments—Amendment No. 3 and all the others, whichever they are—invents two new animals: a prohibition order and a suspension order, in place of the original powers to remove or suspend. I do not think we have any particular objection to that at all. However, if I may trouble your Lordships, I wish to raise a general point. We are now at Report stage. We have 171 amendments down for discussion today, 80 of which—almost half—have come from the Government at Report stage.
Noble Lords: Oh!
Baroness Hollis of Heigham: My Lords, I defer to the noble Lord if he thinks the figure is 79. I shall not press the point. But, more substantially, what is actually going on? What is not in this Bill covered by regulation, which is a power unspecified in the future, is being covered by redrafting as we go on. It looks as if this Bill is being redrafted on the hoof as it goes through. Every time it is circulated to a department, new comments appear to emerge and the Bill is amended.
Why was not all of this done before this Bill was brought to your Lordships' House? Why are we having Bills that are so sloppily drafted that whatever is not covered by regulation has to be amended in the course of the passage of the Bill? I believe that is unbelievably sloppy; I think it is improper; and I think it takes up the time of your Lordships which should be more properly spent on the Bill. In the Government's haste to get the Bill on the Floor of the House they have brought to us something which is so poorly drafted that we shall have to spend half of the hours of this evening trying to take
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through technical amendments which we should not need to be discussing because they should have been cleared before they arrived in the House. I have to say I think this is not an appropriate way for the department to behave.
Lord Monkswell: My Lords, when I first looked through the amendments that we have for discussion today, I must admit that I had to pause at this amendment and the subsequent amendments that seem to be allied to it. I say "seem to be allied" because it was not too difficult to determine that some amendments were allied to this one but until we had the Marshalled List which is only printed on the day of the deliberations ordinary Members of the House had no mechanism to determine which amendments were related to each other.
I am not sure whether it is the way in which the Bill was drafted in the first place, or whether it is the way the Government are bringing forward amendments, but the net result is that we are running into the dangerous procedural situation where the House is being asked to reach decisions on rather complicated matters which—dare I say it?—are almost inevitably not completely explained by Ministers at the point of deliberation.
We have apparently within our procedures and rules no mechanism currently of forewarning Members of the implications of the decisions that they are expected to take. It would seem to me there are two ways in which we can deal with this. One is for us to say to the Government, "Do not bring Bills to the House in this state. Make sure they are properly drafted to enable the House to consider those Bills in a sensible way". One can hope the Bills would be well thought out before they were presented to the House.
The second option is to ask the Procedure Committee to have another look at our procedures and try to work out some scheme whereby when there is significant amendment to Bills —as in this situation where we are faced with a whole raft of amendments—it will come forward with recommendations which will enable all Members of your Lordships' House to arrive at a situation where the decisions they have to take can be made in the light of reasonable information. I leave that matter in the Government's hands to think about. Our own Front Bench may have to think about it and discussions would have to go forward through the usual channels. That is, as it were, the procedural point. I thank the Minister for trying to explain, as best he could, the implications of these amendments. In practice, I suspect the Government will push these amendments and effectively write them on the face of the Bill. I do not think the Opposition will be in a position to be able to say that that is not necessarily a good thing to do.
We have to reserve our position with regard to the implications of the amendments for Third Reading. One aspect of the amendments that the Minister mentioned related to a concern that I raised in Committee. I shall obviously have to consider the implications in terms of what the amended Bill will contain.
Finally, the Minister made great play of the powers to suspend or prohibit an individual trustee or a trustee who was a director of a company which was itself a trustee. He referred to the ability to identify an individual who had transgressed and to ensure that that

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individual was prohibited from serving as a trustee in the future. Will that apply on an individual basis to a government Minister acting in the capacity of a trustee or the equivalent of a trustee? I raise that question in the light of an amendment which the Government have put down and which we shall discuss later. It will be interesting to know whether the amendments will ensure that an individual government Minister would be subject to exactly the same criteria as an individual trustee.
That is as much as I can say given the very complicated way in which the amendments have been tabled.
Lord Boyd-Carpenter: My Lords, I hope that my noble friend the Minister will have an adequate answer to the, on the face of it, not unreasonable criticism offered by the noble Baroness on the Front Bench opposite. As she reminded us, we are now at the Report stage of a Bill which has already taken a good deal of time in this House. It is a little unfortunate that it is necessary at this late stage to introduce such an enormous number of amendments. I express no opinion on their merits: I am sure that on the whole they are sensible improvements to the Bill, But procedurally it is unfortunate that it should be necessary to make these amendments at this comparatively late stage of the progress of a major Bill which has been before Parliament for a considerable time.
I am not without sympathy for the Minister. At one time I had responsibility for introducing several measures on this subject. I can tell your Lordships that whatever else those measures may have been they were a great deal shorter than this Bill and it was not necessary to amend them to anything like the same extent.
Although I have an open mind on the merits of the matter, I believe that the House is entitled to some explanation from the Government as to why it was necessary to introduce this enormous number of amendments at this very late stage.
Lord Lucas: My Lords, to deal with the questions raised in reverse order, my noble friend Lord Boyd-Carpenter asked why there were so many amendments. This Bill has not been in the public domain for very long. It started in this House. We have received a very large number of submissions and suggestions since the Bill was published. As I said in my opening remarks, we retain an open mind and we have looked again at many provisions of the Bill in the light of what has been said. Much of it is technical rather than controversial. Therefore, it has not been a matter of principle with us to hold to the original decisions. Rather, we have looked again at what we originally decided to see whether what was suggested was a better way of doing things.
As regards the last question of the noble Lord, Lord Monkswell, yes, if a Minister is acting in a personal capacity as a trustee he will be subject to the same arrangements as any other trustee. If that does not answer the noble Lord's question in full perhaps he will write to me, as we shall consider his earlier remarks and take into account the many interesting things that he said. I do not believe that it would be appropriate for me to reply to them now.
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So far as concerns the remarks of the noble Baroness, Lady Hollis, if we give way on amendments we are said to be sloppy and if we do not we are said to be intransigent. We are being extremely accommodating on many parts of this Bill. As I said in the course of my remarks, this group of amendments results from something that the noble Baroness herself said in Committee. We believe that it is important to get this Bill in as good a state as possible. One of the principle functions of this House is as a revising chamber. We believe that the progress of this Bill is a very good example of how well it works as it is presently constituted.
On Question, amendment agreed to.
Lord Lucas Lord Lucas moved Amendment No. 4:
Page 2, leave out lines 26 to 33 and insert:
("(b) that the Authority are satisfied that, while being a trustee of the scheme, this section has applied to the person by virtue of any other provision of this Part,
(c) that the person is a company and any director of the company is prohibited under this section from being a trustee of the scheme,
(d) that the person is a Scottish partnership and any of the partners is prohibited under this section from being a trustee of the scheme, or
(e) that the person is a director of a company which, by reason of circumstances falling with paragraph (a) or (b), is prohibited under this section from being a trustee of the scheme and the Authority are satisfied that the acts or defaults giving rise to those circumstances were committed with the consent or connivance of, or attributable to any neglect on the part of, the director;
or any other prescribed circumstances.
(2A) The making of an order under subsection (1) against a person who is a trustee of the scheme in question has the effect of removing him.
(2B) The Authority may, on the application of any person against whom an order under subsection (1) is in force, revoke the order, but a revocation made at any time cannot affect anything done before that time.
(3) The Authority may by order suspend a trustee of a trust scheme—

(a) pending consideration being given to the making of an order against him under subsection (1),

(b) where proceedings have been instituted against him for an offence involving dishonesty or deception and have not been concluded,

(c) where a petition has been presented to the court for an order adjudging him bankrupt, or for the sequestration of his estate, and proceedings on the petition have not been concluded,

(d) where the trustee is a company, if a petition for the winding up of the company has been presented to the court and proceedings on the petition have not been concluded, or

(e) where an application has been made to the court for a disqualification order against him under the Company Directors Disqualification Act 1986 and proceedings on the application have not been concluded.

(3A) An order under subsection (3)—

(a) if made by virtue of paragraph (a), has effect for an initial period not exceeding twelve months, and

(b) in any other case, has effect until the proceedings in question are concluded;

but the Authority may by order extend the initial period referred to in paragraph (a) for a further period of twelve months, and any order suspending a person under subsection (3) ceases to have effect if an order is made against that person under subsection (1).
(3B) An order under subsection (3) has the effect of prohibiting the person suspended, during the period of his suspension, from exercising any functions as trustee of any trust scheme to which the order applies; and the order may apply to a particular trust scheme, a particular class of trust schemes or trust schemes in general.
(3C) An order under subsection (3) may be made on one of the grounds in paragraphs (b) to (e) whether or not the proceedings were instituted, petition presented or application made (as the case may be) before or after the coming into force of that subsection.
(4) The Authority may, on the application of any person suspended under subsection (3), revoke the order, either generally or in relation to a particular scheme or a particular class of schemes; but a revocation made at any time cannot affect anything done before that time.").
On Question, amendment agreed to.
The Deputy Speaker (Lord Murton of Lindisfarne): My Lords, as Amendment No. 4 has been agreed to I am unable to call Amendment No. 5 in the name of the noble Baroness, Lady Hollis of Heigham, because of pre-emption.
[Amendment No. 5 not moved.]
Lord Lucas Lord Lucas moved Amendment No. 6:
Divide Clause 3 into two clauses, the first (Prohibition orders) to consist of subsections (1) to (2B) and the second (Suspension orders) to consist of subsections (3) to (5).
On Question, amendment agreed to.
Clause 4 [Removal of trustees: notices]:
Lord Lucas Lord Lucas moved Amendments Nos. 7 to 10:
Page 2, line 39, leave out from ("section") to ("without") in line 40 and insert ("(Prohibition orders)against a person").
Page 3, line 4, leave out from ("section") to ("the") in line 5 and insert ("(Prohibition orders) against a person").
Page 3, line 6, leave out from first ("the") to ("cannot") and insert ("trustees of the scheme, except that person (if he is a trustee) and any trustee who").
Page 3, line 7, at end insert:
("() Where the Authority make an order under section (Suspension orders) against a person, they must—

(a) immediately give notice of that fact to that person, and

(b) as soon as reasonably practicable, give notice of that fact to the other trustees of any trust scheme to which the order applies, except any trustee who cannot be found or has no known address in the United Kingdom.").

On Question, amendments agreed to.
Clause 5 [Removal or suspension of trustees: consequences]:
Lord Lucas Lord Lucas moved Amendments Nos. 11 to 13:
Page 3, line 12, leave out ("removed or suspended under section 3") and insert ("prohibited from being a trustee of the scheme under section (Prohibition orders) or suspended in relation to the scheme under section (Suspension orders)").
Page 3, line 20, leave out from ("person") to ("or") in line 22 and insert ("purporting to act as trustee of a trust scheme while prohibited from being a trustee of the scheme under section (Prohibition orders) or suspended in relation to the scheme under section (Suspension orders) are not invalid merely because of that prohibition").
Page 3, line 23, leave out ("section 3") and insert ("sections (Prohibition orders), (Suspension orders)").
On Question, amendments agreed to.
Clause 6 [Appointment of trustees]:
Lord Lucas Lord Lucas moved Amendment No. 14:
Page 3, line 26, leave out from ("Where") to ("or") in line 27 and insert ("a trustee of a trust scheme is removed by an order under section (Prohibition orders)").
On Question, amendment agreed to.
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 15:
Page 4, line 1, after ("paid") insert ("reasonable").
The noble Earl said: My Lords, I remind your Lordships that I moved this amendment in Committee. I believe that it is necessary to insert the word "reasonable" in order to have some control over the fees that can be charged by a trustee imposed by OPRA. During the Committee stage my noble friend the Minister said that he would look at the way in which charges for trustees imposed by OPRA were made. I shall be interested to hear his comments having had an opportunity to think about the issue. I beg to move.
Lord Mackay of Ardbrecknish: My Lords, I have considered carefully the representations made by my noble friend and by the noble Lords, Lord Haskel and Lord Monkswell, following the earlier debate on a similar amendment in Committee. However, I still believe that the amendment is unnecessary. Perhaps I may explain to your Lordships why that is the case.
During the earlier debate on the Bill, and in another context, my noble friend Lord Renton highlighted very clearly the difficulty with the word "reasonable". He said that although the word "reasonable" was attractive it gives rise to a great deal of argument in the courts. Where the authority appoints a trustee to a scheme we do not wish to provide a means by which someone can stall the appointment by engaging in time-wasting court action over whether the fees to be charged are reasonable.
It is important that the authority's power to appoint trustees is sufficiently flexible to enable it to set out the terms under which the appointment is made. We accept that, where possible, the appointee should not be a professional trustee. But there will be situations where, in order to secure the interests of scheme members, it will be necessary to appoint professional trustees. This will involve a cost which it is appropriate for the scheme to have to bear. But at the outset, the authority will agree the terms of the appointment including the level of fees to be charged. Scheme members, employers or other trustees will be free to bring to the authority's attention any concerns they have that the terms of the appointment are not being adhered to. If the appointee has abused his position, for example by charging excessive fees, the authority has more than adequate powers to remove the professional trustee; and it would be unlikely to use the services of such a person in the future.
I appreciate the problem to which my noble friend draws our attention. However, I hope that he will agree with me that there is already provision in the Bill to prevent the problem about which he is concerned from arising; and that elsewhere in the Bill the authority has

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appropriate powers to deal with the issue that he raised. After hearing my explanation, I hope that my noble friend will be able to withdraw the amendment.
4.30 p.m.
The Earl of Buckinghamshire: My Lords, I am extremely grateful to the Minister for his full reply. It is extremely important that fees in this area are controlled. Much that he said has gone a long way to reassure me on the issue. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 9 [Civil penalties]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 16:
Page 4, line 27, leave out ("a prescribed amount") and insert ("0,000").
The noble Baroness said: My Lords, in moving Amendment No. 16, I speak also to Amendments Nos. 18 and 230. I had thought that I would speak also to Amendments Nos. 177 and 229 but there appears some confusion about the grouping. That is a pity because the amendments would have grouped well together.
I use Amendment No. 16 to raise yet again—although I promise your Lordships probably not again at Third Reading —the problem of regulations in the Bill. While the Minister's amendment would have been appropriate since he goes some way to meet some of the concerns as reflected in the scrutiny committee's report, one of the real worries that the Bill raises for industry is the degree to which vital matters are not set out on the face of Bill but are left to regulation—some 200 regulations. No one doubts that much of the detail or insertion of financial figures—they are essential to a Pensions Bill which might need up-rating or adjustment in the future—is best left to regulation. It is essential that the House is not troubled by a continuous repeat of primary legislation to deal with such technical and not significant issues.
But that is not what we are talking about. At numerous points in the Bill, unnecessarily wide—and in our view often dangerously wide—powers are given to the Secretary of State. What powers are we talking about? Clause 6, for example, allows OPRA to appoint a trustee in prescribed circumstances which could have considerable implications for the balance of the trustee board. Clause 9, to which Amendment No. 16 relates, allows authority to impose a penalty whose limit will be determined by regulation. Is that wise, my Lords? Hence we have an amendment which inserts the figure of £5,000.
I did not propose to trouble your Lordships with each and every point relating to clauses. That was the appropriate task at Committee stage. However, Clause 16 enables the Secretary of State to alter at his discretion any or all of the trustee member relationships and arrangements which have been designated by the Bill. Clause 65 allows the Government to modify significantly a public pensions scheme. That is undertaken by the Minister for Social Security by the negative procedure. If it is achieved by anyone else, it is provided for by the affirmative procedure. As the
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scrutiny committee reminded us, whether your Lordships enjoy a procedure by affirmative rather than negative resolution should not depend which Minister handles the issue.
Clauses 106 and 134 allow regulations by the Secretary of State to create a criminal offence by negative procedure. As I understand it, the amendments that we shall deal with tomorrow at least allow that issue to be brought within the framework of an affirmative procedure. That is why those amendments should have been grouped with the amendments that we now consider. Such a procedure helps a little. However, as your Lordships cannot amend or reject the matter, noble Lords have no power effectively to scrutinise the creation of criminal procedure by regulation. The House of Commons can do that, and we have been marginalised. I believe that will matter to your Lordships.
Why are we worried? There are two points. The first may be better made for me by the noble and learned Lord, Lord Simon: that so many and such extensive powers by regulation are given to the Secretary of State without the direct and active scrutiny of both Houses of Parliament. We do not suggest that there is not a proper role for regulation. There clearly is in such a technical Bill. But we believe that such power goes too far in field after field and vests too much in Secretaries of State who may not always be as well intentioned, and I have no doubt as well informed, as is the present Minister.
The second consideration is practical rather than constitutional. The practitioners in the industry—the pension fund managers, the advisers, scheme members, employers, trustees and the like—do not know what wide swathes of the Bill may mean or may come to mean. There is the Bill that we debate and there is a second Bill in the shadows, or in the back pocket of the Secretary of State, which will interpret, cut out, add to or modify the Bill as he sees fit in ways in which the industry cannot forecast, or with consequences that it cannot anticipate. When that will occur, industry does not know. When so much is left to regulation, no one will know what the Secretary of State can do, will do, ought to do, or is likely to do, as the case may be. Those practitioners will not know therefore how those at the sharp end of the business will manage it.
The scrutiny committee shared our constitutional concerns; and to some extent (but only to some extent) those may be met by the amendments which will be moved tomorrow. However, a second set of concerns is practical: the industry will not know where it stands if so much is left to the discretionary power of the Secretary of State and is not available for our scrutiny today. Amendment No. 16 is the only amendment that I ask your Lordships to consider today. But I believe that the Bill leaves far too wide powers to the Secretary of State and, together with some rather unfortunate sloppy drafting, produces for all of us an unfortunate situation. I beg to move.
Baroness Seear: My Lords, I support the amendment on the general principle about which we have complained again and again in your Lordships House: that the Government legislate more and more by

585
regulation, and that that is constitutionally unacceptable. Of course a number of details which change as time goes on have to be provided for by regulation. We do not cavil about that. But the fact that the Government can insert a regulation into the Bill creating a possible criminal offence is totally unacceptable constitutionally.
Lord Boyd-Carpenter: My Lords, to substitute for a prescribed amount in two of the amendments the specific sum of £5,000 introduces an unnecessary rigidity into the Bill. It also does not take account of the fact that the value of money may change. Indeed, if we have a Labour Government the value of money will deteriorate very substantially indeed.
Baroness Hollis of Heigham: My Lords, there may be fewer offences.
Lord Boyd-Carpenter: My Lords, the value will go down enormously with the inflation which a Labour Government always produce. Therefore I believe it wiser to leave the amounts of the penalties to be prescribed in the circumstances of the time, taking into account the then value of money. I hope therefore that my noble friend will resist the amendment.
Lord Simon of Glaisdale: My Lords, I presume to agree with what the noble Baroness said on the general constitutional position. I am sure that the noble Lord the Minister cannot avoid knowing that we regard his department with the utmost suspicion when it comes to constitutional matters. That is, I am afraid, inevitable after the Child Support Act. Nor has it been mitigated by the modifications of that Act, including those that are now proposed in the Bill that is before the other place.
This amendment gives the Minister an opportunity to put things generally right. The Scrutiny Committee has been extremely indulgent and discriminating in its comments on the Bill. It has passed a great many matters as being of the nature of Henry VIII clauses but nevertheless being suitably dealt with by negative resolution. There are, however, one or two issues on which the Scrutiny Committee has drawn your Lordships' attention specifically to matters. I hope that when the noble Lord replies, he will say without any question that where the Scrutiny Committee has so signified a view, it will be unquestionably accepted by the Government.
Lord Mackay of Ardbrecknish: My Lords, I do not think that I will even be tempted to follow the noble and learned Lord down the trail of the Child Support Agency. That is—
Baroness Hollis of Heigham: You will, you will!
Lord Mackay of Ardbrecknish: That is coming to us, if the noble Baroness opposite will be patient. I think the principle of,
"Sufficient unto the day is the evil thereof',
ought to be my maxim in this regard. Coming to the particular—
Baroness Seear: Is the noble Lord then, admitting that it is evil?
Lord Mackay of Ardbrecknish: My Lords, I was using a phrase. Of course it is not evil. I do not want to go down that path. It is perfectly proper that men should pay for their children; they ought not to burden other taxpayers. But that is another issue.
In Committee, we discussed the Scrutiny Committee's comments about Clauses 9, 105 and 64. Noble Lords will recall that I agreed to take away the points raised and consider them. Noble Lords will see, further down the Marshalled List, that we have indeed tabled Amendments Nos. 218 and 229. These will ensure that regulations containing criminal penalties made under the powers contained in Clause 105 of this Bill and Section 168(2) of the Pension Schemes Act 1993 will be subject to the affirmative resolution procedure as the Scrutiny Committee suggested. I am sure that noble Lords will welcome these amendments when we reach them.
Noble Lords: Hear, hear.
Lord Mackay of Ardbrecknish: We have not been able to bring forward amendments on the other two areas of concern at this stage. But I should like to reassure noble Lords that work is under way to bring forward suitable amendments at the earliest possible stage.
I am afraid that I cannot accept the amendments proposed here which seek to make changes to the powers to prescribe the level of civil penalty fines that can be imposed under Clause 9. Amendments Nos. 16 and 18 set down that the maximum civil penalty fine for a breach must not exceed £5,000. While we agree that there should be a ceiling placed upon the amount that can be imposed by way of a civil penalty fine for a breach of a particular duty, I do not believe that these amendments offer the best way to achieve that.
First, civil penalties under this clause will not only be imposed on individuals. Some of the obligations in the Bill will be placed on companies, and a maximum penalty of £5,000 might be considered too low to act as an effective deterrent to wrongdoing. The Financial Services Act regulators, for example, have imposed fines on companies in excess of £100,000.
Secondly, placing an amount on the face of the Bill means that it can be up-rated only by further primary legislation, as my noble friend Lord Boyd-Carpenter mentioned in his intervention. We consider that that would not provide the necessary flexibility for any amount to be changed—for example, to allow for periodic up-rating.
We are continuing to explore the options open to us for addressing the understandable concerns raised to ensure that we find the most appropriate solution which overcomes these difficulties. Amendment No. 230 contains one option, but we would prefer to give it a little more thought and come back with a fully developed solution.
Turning now to the final part of Amendment No. 230 concerning the powers to modify public service schemes, the noble Baroness, Lady Seear, moved an amendment in

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Committee which sought to ensure that orders made under Clause 64 would be regulations subject to the negative procedure. I promised to consider that. I am consulting the departments responsible for public service schemes, as I promised I would. Although we have not yet had time to prepare a suitable amendment, I want to reassure the House that it is our intention to make all the orders made under Clause 64 subject to scrutiny by the House by the negative resolution procedure.
Amendment No. 230 goes somewhat further than that. It seeks to make such regulations subject to the affirmative procedure. The Scrutiny Committee did not suggest that this was appropriate, and I do not believe it to be justified. Regulations made under this clause would not come into a category that the Brooke Committee suggested was appropriate for affirmative regulations, and I would not want to set such a precedent.
In view of what I have said about what is to come (I suspect later tomorrow) and my commitment to return either in this House or in the other place with amendments to deal with the other problems that I have outlined, I hope that the noble Baroness will withdraw her amendment.
4.45 p.m.
Baroness Hollis of Heigham: My Lords, I thank the Minister for his reply. It is a pity in a way that we could not have grouped all these amendments together. The Minister has indeed shown that he took the opinion of the House in Committee in respecting the problems that were identified by the Scrutiny Committee and is at least switching those powers by regulation which have a significant effect on the working of the schemes from a negative to an affirmative procedure. That is indeed to be welcomed.
This was a probing amendment. I take the Minister's arguments about company schemes. But I would point out that this was, again, one of those regulatory powers that the Scrutiny Committee suggested should not be handled by the negative, but by the affirmative, procedure. I think I am right in saying that the Minister did not accept the Scrutiny Committee's recommendation to that effect. If I am wrong, I should be grateful if he would correct me. He seems to be going down quite a lot of the paths outlined by the Scrutiny Committee—which is to be welcomed—but in respect of this particular one, which was also part of the Scrutiny Committee's recommendation for affirmative procedure, he appears not to be doing so. Is that a correct reading?
Lord Mackay of Ardbrecknish: My Lords, perhaps I can help the noble Baroness. We are currently looking to see what possible options are open to us to address the concerns of the House. That may be along the lines of the Scrutiny Committee, but it may be that other options are open to us. I should not like to go further than that.
Baroness Hollis of Heigham: My Lords, that is probably so far as we can go today. With the permission of the House, I should like to withdraw the amendment.
Amendment, by leave, withdrawn.
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 17:
Page 4, line 27, at end insert:
("() No penalty may be imposed on a trustee under this section except in respect of the trustee's own personal act or default and then only if the Authority is of the opinion that—

(a) the trustee deliberately disregarded his duties or was reckless as to whether or not he was properly discharging his duties, or

(b) the trustee knew that he had contravened, or failed to comply with, relevant provisions of this Act or regulations and then deliberately, recklessly or negligently failed within a reasonable time either to remedy his act or default in an appropriate manner or to take other appropriate action.").

The noble Earl said: My Lords, at Second Reading I made a comment about the civil and criminal penalties that were being imposed on member trustees under this Bill. I believe that the noble Baroness, Lady Turner, made the same comments.
The Bill seeks to encourage, among other things, the appointment of member trustees. Yet at the same time, Clause 9 enables a regulatory authority to impose new penalties on trustees who contravene regulations. There are at least 17 references in the Bill to the application of Clause 9 to trustees who fail to observe the new requirements and subsection (2) enables any number of additional contraventions where Clause 9 applies to be created.
The problem with Clause 9, as drafted, is that it gives too much discretion and direction to the authority regarding the precise circumstances in which a penalty can be levied. It is likely that new trustees will be put off from coming forward to be trustees of pension schemes; and indeed existing trustees may well wish to resign when they understand the full import of what this Bill is doing to them.
The amendment that I put forward this afternoon seeks to do two things. First, it restricts the imposition of a penalty on a trustee to cases where he has acted or defaulted. In other words, no penalty can be levied against the trustee for acts or defaults on others. For example, if he voted against a particular incorrect course of action but was overruled by his fellow trustees, he would not be able to be penalised.
Secondly, the amendment would authorise the authority to impose a penalty only if they believe that the trustee was deliberately negligent, reckless, or knew that he had done wrong and then failed to put it right within a reasonable time. That will mean that an honest and conscientious trustee does not need to be concerned about being penalised the next morning for some inadvertent offence, committed by him or the scheme administrator, about which he knew nothing the night before.
The Minister may argue that, under the Bill as drafted, it is likely that the authority will act reasonably and not impose unfair penalties. Even if that turns out to be true, it will be some years before a pattern of changing penalties has been established. In the meantime, I have concerns about people coming forward to be trustees; or they may well hesitate about becoming or remaining a trustee.
I commend the amendment to the House as a way of removing uncertainty on what I regard as a very important matter and as facilitating the appointment of more member trustees. I beg to move.
Lord Mackay of Ardbrecknish: My Lords, if the new regulatory regime is to be effective, the authority must be able to impose sanctions upon people found in breach of their statutory obligations introduced by the Bill. My noble friend's amendment seeks to limit the circumstances under which the authority may impose civil penalty fines on trustees of pension schemes.
While I have some sympathy with the intention behind the amendment, I consider that it would be wrong to restrict the ability of the authority to impose civil penalties on trustees in the rigid way that his amendment does. The authority must be able to impose a penalty on a trustee responsible for a breach, even though the trustee may not have committed that breach deliberately, recklessly or negligently. It must be clear that any breach of duty can attract a penalty, so that there is an effective deterrent to wrongdoing. No doubt higher fines will be imposed on a person who has committed a breach deliberately or recklessly; but that does not mean that breaches resulting from other causes—for example, sloppy administration or something of that nature—should not attract a penalty, albeit perhaps at a lower level.
We acknowledge that most trustees do a good job. We do not want to discourage people from taking up trustee posts. Nevertheless, the fact that a penalty can be imposed for any breach of a duty makes it clear to them that they must comply with the responsibility. The authority will have the discretion to decide in every case whether a civil penalty should be imposed, at what level, subject to the maximum, and upon whom. In many cases the authority may decide that a civil penalty is not needed. However, in other cases, circumstances may warrant the imposition of a civil penalty, even though action has been taken to put things right—for example, where the breach was found to be especially severe, was one of a number of similar breaches or it was found to have taken place after there had been a warning by the authority to the trustees.
In fact, we have just discussed a number of amendments introduced by my noble friend Lord Lucas, designed to enable the authority to target its civil penalties appropriately. I hope that my noble friend will agree that they go a long way towards meeting his concerns. For example, they take account of the fact that a trustee board may be a corporate body or a Scottish partnership. In those cases it may be more appropriate for the authority to impose a fine on those individuals whose actions, omissions or neglect resulted in the body or partnership breaching an obligation, rather than on the whole body or partnership.
The amendments will also ensure that those who had no part to play in the wrongdoing and who may indeed have alerted the authority to the breach can be excluded from the punishment where appropriate. For example, in
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the case of a trust board set up as a company, it will not be necessary for every trustee to be held responsible for a breach.
I hope that my noble friend, especially when he looks at the amendments to which we agreed earlier, can see that there are checks and balances to ensure that the authority makes fair and reasonable decisions on the imposition of civil penalties. In the light of my explanation and the amendments moved earlier today by my noble friend Lord Lucas, I hope that my noble friend Lord Buckinghamshire will be able to withdraw his amendment.
The Earl of Buckinghamshire: My Lords, I thank my noble friend the Minister for his full reply. I have to admit that in regard to the points made by the noble Lord, Lord Lucas, I got somewhat lost in the numbers, probably along with other noble Lords. I shall read what he and the Minister said. What he has indicated goes a long way to meeting the concerns raised in my amendment. On that basis I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 18 not moved.]
Lord Lucas Lord Lucas moved Amendment No. 19:
Page 4, line 30, at end insert:
("(2A) Where

(a) apart from this subsection, a penalty under this section is recoverable from a body corporate or Scottish partnership by reason of any act or omission of the body or partnership as a trustee of a trust scheme, and

(b) the act or omission was done with the consent or connivance of, or is attributable to any neglect on the part of, any persons mentioned in subsection (2B),

this section applies to each of those persons who consented to or connived in the act or omission or to whose neglect the act or omission was attributable.
(2B) The persons referred to in subsection (2A) (b)—
(a) in relation to a body corporate, are—

(i) any director, manager, secretary, or other similar officer of the body, or a person purporting to act in any such capacity, and

(ii) where the affairs of a body corporate are managed by its members, any member in connection with his functions of management, and

(b) in relation to a Scottish partnership, are the partners.
(2C) Where the Authority requires any person to pay a penalty by virtue of subsection (2A), they may not also require the body corporate, or Scottish partnership, in question to pay a penalty in respect of the same act or omission.").
The noble Lord said: My Lords, in moving this amendment I shall speak at the same time to Amendments Nos. 215 and 217.
Amendments Nos. 19 and 215 insert additional subsections in Clauses 9 and 135 respectively. They provide for the authority to target the appropriate individual in any civil penalty fines that it may impose. That is similar to the way in which it may target criminal proceedings under Clause 104.
The amendments take account of the fact that a trustee board may be a corporate body or a Scottish partnership. In these cases it may be more appropriate for the authority to impose a fine not on the body or partnership but on those individuals whose actions,

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omission or neglect resulted in a body or partnership breaching an obligation. The individuals who may be so fined are limited. In the case of a corporate body, it would be its directors, manager, secretary, or other similar officer. In the case of a corporate body managed by its members, it would be any member with management functions. In the case of a Scottish partnership, it would be its partners.
The amendments provide that where the authority imposes a fine on an individual it may not impose a fine on the body or partnership in respect of the same breach. The amendments will ensure that those who had no part to play in the wrongdoing, and who may have alerted the authority to the breach, are excluded from punishment. For example, in the case of a trust board set up as a company, it will not be necessary for every trustee to be held responsible for a breach and tarred with the same brush as the wrongdoers.
In view of the references to a Scottish partnership, introduced into Clause 135 by Amendment No. 215, Amendment No. 217 adds a definition of the term to that clause. I beg to move.
On Question, amendment agreed to.
Clause 10 [Powers to wind up schemes]:
Lord Lucas Lord Lucas moved Amendment No. 20:
Page 4, line 34, at beginning insert ("Subject to subsection (6)").
The noble Lord said: My Lords, in moving this amendment I shall speak at the same time to Amendments Nos. 22, 23 and 150.
These amendments all relate to public service schemes. The first three relate to powers to wind up such schemes; the fourth concerns powers to modify them. In general, public service schemes will be subject to the same regulatory framework as private sector ones. They will also be subject to similar provisions on winding-up.
While it must be regarded as an action of last resort, it is important that the authority should be able to wind up a public service scheme in a situation where it is not in the interests of the generality of the scheme members that it should continue. In this way, the protection for members of public service pension schemes will be no different than for those of private pension schemes.
Similarly, the new clause after Clause 10 re-enacts Section 143 of the Pension Schemes Act 1993, which provides that the "appropriate authority" can wind up a scheme that is being replaced or is no longer needed where the scheme itself does not have an adequate wind-up power. That may occur, for example, where a new scheme needs to be set up to reflect a restructuring of working practices. Without such a provision, schemes without an adequate wind-up power may have to be maintained where there are no active members or even no members at all. In such situations, where alternative provision can be made for any remaining deferred or pensioner members, it makes administrative sense to allow the "appropriate authority" to wind up the scheme.
Turning to Amendment No. 150, Clause 150 already provides that orders under the Bill can contain such transitional, incidental and supplementary provisions as
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appear necessary to the authority making the order. Amendment No. 150 removes an unnecessary duplication of this provision in Clause 64.
These provisions do not mean that orders amending public service schemes will not be scrutinised. I should like to take this opportunity to reassure the House that it is our intention to make all orders made under this Bill for modification and wind up of public service pension schemes subject to scrutiny by the House by the negative resolution procedure rather than only some of them. This issue was raised by the noble Baroness, Lady Seear, at Committee stage and we agreed to take it away for consideration. I repeat that work is currently underway on suitable amendments to make this clear in the Bill. I beg to move.
5 p.m.
Lord McIntosh of Haringey: My Lords, we have a lot of sympathy with the objectives of this series of amendments. It is certainly right that public sector schemes should be treated appropriately and that there should not be any way of them continuing when they are no longer in anybody's interests.
To some extent the amendments improve the wording introduced at Committee stage. However, to my mind a major problem exists—and I am sorry to see that the noble and learned Lord, Lord Simon of Glaisdale, is not in his place. My noble friend Lady Hollis referred on a previous occasion to the views of the Delegated Powers Scrutiny Committee. That committee did not consider the Henry VIII provisions in relation to these amendments—in particular Amendments Nos. 22 and 23—nor indeed in relation to Clause 10 as presently drafted. In fact, the Henry VIII provisions were not there and the committee therefore could not see them.
When Amendment No. 44 was moved in Committee by the noble Lord, Lord Lucas, he made only the briefest reference to Amendment No. 50, which introduced the bulk of the text of the present Clause 10. Clause 10 reads,
"An order under this section may be made and complied with … in spite of any enactment or rule of law … or without regard to any such enactment, rule of law".
Those are Henry VIII procedures; they enable not only the Secretary of State, but also the occupational pensions authority to change the statute law.
In introducing the amendment, which was grouped with the principal Amendment No. 44, the noble Lord simply said that it mirrored the provisions of the Pension Schemes Act 1993. He did not refer to the fact that it allowed the authority to make changes to the statute law and, to my shame, I did not notice that. I was concentrating on the defects of Amendment No. 44 rather than the defects of Amendment No. 50.
We go further in Amendments Nos. 22 and 23. I did not hear any reference in the Minister's speech to what is now provided in Amendment No. 22, under subsection (6) (b), that,
"such an order may, as the Authority think appropriate, adapt, amend or repeal any enactment in which the scheme is contained or under which it is made".
Similarly, in Amendment No. 23 subsection (4) states:
"Such an order may, as that authority think appropriate"—s

593
interestingly, the wording is slightly different—
"adapt, amend or repeal any enactment in which the scheme is contained or under which it is made".
I should have thought that the least the Government could do in introducing the power for an authority to change legislation is to give an explanation as to why it is necessary and to recognise that it does not seem to be desirable for these amendments to be introduced in such a way and in such a time that the Delegated Powers Scrutiny Committee could not see them or have an opportunity to comment on them.
Lord Monkswell: My Lords, I too am concerned about these amendments. I shall not repeat the arguments made by my noble friend Lord McIntosh—he expounded them very well. But I must declare an interest. I am married to a teacher who is a member of the teachers' superannuation fund. One of my concerns is the implication for members of public service pension schemes and what the Government can do if the amendment before us is agreed.
I am concerned about a situation where a public service pension scheme, for various reasons, develops a surplus of assets over liabilities. Once the benefits of the scheme have been approved up to the Inland Revenue limits and the surplus still exists, the Government would have a vested interest in winding up the scheme and effectively saying, "Let us have a different scheme or a different set of schemes for these people". They may encourage the members to believe that the new schemes are better than the old ones. The scheme is then wound up and effectively the Government pocket the surplus.
The private sector have engaged in such a practice for the past 10 or 15 years. It is well established and is effectively part of company takeover ploy. I am not sure that it is right for Government Ministers to make decisions in relation to the winding up of schemes. The whole record of this Government is that they are not concerned with individual employees and public service workers. They are not concerned with the public good and seem to be concerned only with the financial elements involved. In those circumstances, we must have grave reservations in relation to the way in which the Government utilise the powers that they are conferring on themselves by the amendment.
What are we to do? It is interesting that not only do the Government take powers to themselves to change statutes, as my noble friend Lord McIntosh pointed out, but they say also that there will be adequate scrutiny by Parliament by the utilisation of the negative procedure. It is perhaps not well known that one of the difficulties of dealing with the negative procedure is that one must obtain agreement through the usual channels—by and large that means the Government Benches—to debate the subject, whereas if the affirmative procedure applies, then the Government must table an order of some kind. That must then be debated or taken on the nod.
To introduce powers that can change statutes and that have the ability to change public service pension schemes without the express approval of Parliament is
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extremely dangerous. I hope therefore that the Government will think again on a number of these issues.
Lord Lucas: My Lords, I propose to end my remarks by giving some comfort to the noble Lord, Lord McIntosh. We believe that the procedures we have set in place are the right ones, given the specific nature of the public service pension schemes. Some of the schemes are set up by statute and therefore can only be amended by statute; in other words, we need a statutory means of dealing with them. Others—for instance, the teachers' pension schemes—are not funded schemes at all and therefore do not come within the scope of the problems mentioned by the noble Lord, Lord Monkswell.
We believe that the negative resolution procedure will properly cover all the circumstances in which the powers may be used. However, we shall be drawing the attention of the Select Committee to this clause and to these powers and we shall consider extremely carefully anything which it may have to say to us.
On Question, amendment agreed to.
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 21:
Page 5, line 5, at end insert:
("; and, unless the Authority consider that at the time when the order is made the scheme does not meet the minimum solvency requirement, an order may only be made under this section after consultation with each of the persons mentioned in paragraphs (a) to (c) (other than any on whose application the order is made).").
The noble Earl said: My Lords, Clause 10 deals with the wind up of schemes. If a scheme is no longer required or is to be replaced by a different scheme, an application for wind up can be made by the trustees, a manager, a person who has the power to alter the scheme, or the employer. I moved this amendment in Committee. I am bringing it back to the House because it is important that other interested parties should also be consulted. In Committee my noble friend the Minister gave assurances that OPRA would wind up a scheme only if it was deemed to be the most appropriate course of action. However, my noble friend took on board the argument that sometimes in the case of a surplus in a scheme wind-up may be in the short-term interests of those current members but not necessarily in the interests of the long-term members of the scheme. On that basis, my noble friend agreed that he would look at the issue again. I shall be very interested to know how his thoughts have progressed. I beg to move.
Lord Mackay of Ardbrecknish: My Lords, this amendment attempts to introduce a requirement for consultation between the authority and those involved in the administration and management of the scheme before an order for wind up is made by the authority. This requirement would relate only to wind ups precipitated by application made to the authority by the employer, trustees, or any other person authorised by the scheme's own rules to amend the scheme. I appreciate that my noble friend's amendment is designed to apply checks and balances for applications for wind up orders, but I do not believe that the

595
introduction of this extra bureaucracy would be helpful to the authority, to managers of the schemes, or to scheme members.
The purpose of this part of Clause 10 is to provide that orders can be made to wind up a scheme that is being replaced or is no longer needed and where the scheme itself does not have an adequate wind up power. This might occur where working practices are being restructured and where the pension scheme needs to be altered to reflect that process. I am sure that your Lordships will agree with me that this provision is essential for the efficient management of occupational pension schemes.
These powers are intended to be the same as those currently available to the Occupational Pensions Board under Section 142 of the Pension Schemes Act 1993. The power in that section is limited by Section 138 of that Act, Section 138 requires that an application cannot be entertained if wind up can be achieved in a different way or if it could be achieved only by an unduly complex or protracted process. But the introduction of a formal consultation process between managers of a scheme would be bureaucratic and unnecessary, especially since such consultation is likely to have taken place informally anyway.
I believe that the best way to address my noble friend's concerns may be to make an amendment which restores provisions similar to those in Section 138 of the Pension Schemes Act 1993. I shall therefore look carefully to see whether such an amendment is necessary. If it is, we shall bring it forward in another place. With that assurance I hope that my noble friend will withdraw his amendment.
The Earl of Buckinghamshire: My Lords, I am extremely grateful to my noble friend. It serves the purpose of moving amendments at this stage if we get the answers that we like to hear. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
5.15 p.m.
Lord Lucas Lord Lucas moved Amendment No. 22:
Page 5, line 20, at end insert:
("(6) In the case of a public service pension scheme—

(a) an order under subsection (1) directing or authorising the scheme to be wound up may only be made on the grounds referred to in paragraph (c), and

(b) such an order may, as the Authority think appropriate, adapt, amend or repeal any enactment in which the scheme is contained or under which it is made.").

The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 20. I beg to move.
Lord Boyd-Carpenter: My Lords, although this amendment was spoken to with Amendment No. 20 that does not exclude discussion now that the amendment itself has been put. On that basis I should like to say that the powers conferred, particularly in the final paragraph of the amendment, are very wide indeed. It is a question of whether the powers taken are confined entirely to the pension scheme concerned or whether, as think it could be read, they go wider and involve the
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whole structure of the particular organisation of which the pension scheme was a part. Paragraph (b) of the amendment states that such an order may,
"adapt, amend or repeal any enactment in which the scheme is contained or under which it is made".
It looks to me that that goes beyond the actual existence of the scheme and relates, or could relate, or could be construed as relating, to the whole apparatus of the organisation as part of which the scheme was made. The powers seem very wide. I do not want to detain your Lordships any longer than necessary but I would welcome some reassurance that the width of these powers, which I understand are to be exercised subject only to the negative procedure, is being reconsidered.
Lord McIntosh of Haringey: My Lords, I support what the noble Lord has just said. He is, I think he will recognise, expanding the argument which I made in speaking to Amendment No. 20. I was pleased to have, although I was too slow on my feet to say so, the assurance of the noble Lord, Lord Lucas, that these amendments will also go before the Delegated Powers Scrutiny Committee. That may go some way towards reassuring the noble Lord. But he is quite right that the power to repeal, in the extreme case,
"any enactment in which the scheme is contained",
sounds very broad indeed. It may be that the enactment is extremely limited and needs to be repealed as a whole. But it may be that the enactment is a very much larger enactment; for example, one of the privatisation Acts. The idea that the Occupational Pensions Regulatory Authority should have the power to repeal one of those Acts might be pleasing to some of us, but I do not think it can be what the amendment actually intends.
Lord Lucas: My Lords, my understanding is that the ability to adapt legislation is confined to the power to wind up schemes and that no other changes could be made under it. But it is a point which the Delegated Powers Scrutiny Committee will wish to confirm.
On Question, amendment agreed to.
Lord Lucas Lord Lucas moved Amendment No. 23:
After Clause 10, insert the following new clause:
Powers to wind up public service schemes
(".—(I) The appropriate authority may by order direct a public service pension scheme to be wound up if they are satisfied that—

(a) the scheme, or any part of it, ought to be replaced by a different scheme, or

(b) the scheme is no longer required.

(2) In this section "the appropriate authority", in relation to a scheme, means such Minister of the Crown or government department as may be designated by the Treasury as having responsibility for the particular scheme.
(3) An order under this section must include such directions with respect to the manner and timing of the winding up as that authority think appropriate.
(4) Such an order may, as that authority think appropriate, adapt, amend or repeal any enactment in which the scheme is contained or under which it is made.").
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 20. I beg to move.
On Question, amendment agreed to.
Clause 13 [Directions]:
Lord Lucas Lord Lucas moved Amendment No. 24:
Page 6, line 12, leave out (" 3") and insert ("(Prohibition
orders)").
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 3. I beg to move.
On Question, amendment agreed to.
Clause 85 [Review of decisions]:
Lord Lucas Lord Lucas moved Amendment No. 25:
Page 51, line 28, leave out paragraph (a) and insert:
("() to make an order against the applicant under section (Prohibition orders)").
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 3. I beg to move.
On Question, amendment agreed to.
Lord Lucas Lord Lucas moved Amendment No. 26:
Page 51, line 30, after (" 9") insert ("of this Act or section 168(4) of the Pension Schemes Act 1993").
The noble Lord said: My Lords, this amendment extends the requirement for the Occupational Pensions Regulatory Authority to review upon application decisions to impose penalties made under this Bill to cover decisions to impose penalties arising from the provisions of the Pension Schemes Act 1993, as amended by this Bill. I am sure noble Lords will agree that that is desirable. I beg to move.
On Question, amendment agreed to.
Clause 86 [References and appeals from the Authority]:
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 27:
Page 52, line 31, leave out from beginning to ("may") in line 32.
The noble Earl said: My Lords, in moving this amendment perhaps I may give some of the background to it. I believe that there should be stronger rights of appeal to the court on the exercise of OPRA's powers; for instance, where it is going beyond points of law. I suspect that my noble friend the Minister will say that there are already provisions in the Bill for OPRA to review its decisions and its further regulation-making powers in this area. However, I wish to re-emphasise that OPRA will be a body with very strong powers. While it is supported by everyone in your Lordships' House and in the industry, there are points where OPRA will be both the investigator and the enforcer. In that situation I believe that there should be stronger rights of appeal in primary legislation. That would bring OPRA into line with analogous regulatory bodies. For instance, under the Charities Act individuals may appeal to the High Court against decisions of the Charity Commissioners. I am sure that noble Lords are aware that under the Financial Services Act bodies such as IMRO operate procedures for appeals to separate appeals tribunals. On that basis there is a strong reason
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for introducing this amendment which gives stronger rights of appeal to the court where OPRA's powers have been used. I beg to move.
Baroness Seear: My Lords, in view of the anxieties which we have expressed as regards this Bill and many others about the way in which the Government are taking powers which should be under control elsewhere, we are very glad to support any amendment which requires reference to the courts rather than leaving the matter in the hands of the authorities.
Lord Mackay of Ardbrecknish: My Lords, as I said in Committee when we discussed an identical amendment from the noble Baroness, Lady Hollis, our concern is that OPRA should be an effective regulator. I am sure that the noble Baroness, Lady Seear, agrees with me, despite her last comment, that we want OPRA to be a body with considerable authority and teeth to act when it believes that something is going wrong with a pension scheme. To do that OPRA will sometimes have to take difficult decisions, but such decisions will be made by the board of the authority whose members will be drawn from a wide field of expertise. They will be taken only after careful and lengthy consideration of the issues involved.
We expect the authority to have close involvement with schemes which appear to be experiencing difficulties. OPRA will resort to significant sanctions or major steps, such as directing the wind-up of a scheme, only when it is the sole means of securing members' rights without a further deterioration in the position of the scheme. Once made, such decisions will need to be implemented swiftly to ensure that we stop the rot.
I made clear that we recognise the case for providing that decisions of the authority can be re-examined. To that end the Bill provides a mechanism for the authority to review its own decisions. Anyone with an interest in the decision has the right to ask the authority to review significant sanctions such as the removal or disqualification of trustees and the imposition of fines. We intend to establish a clear framework in regulations for this review process which will ensure that the decision is re-examined in an impartial manner. We intend to consult the Council on Tribunals on these regulations.
However, I still believe that extending the right of appeal—
Baroness Seear: My Lords, how can the Minister say that the body will be impartial? Or have I misunderstood him? In effect, is not the review being undertaken by the same body which made the initial decision? There are occasions when one wants a completely outside, independent and different body to examine the decision. That is the whole point of going to court.
Lord Mackay of Ardbrecknish: My Lords, I understand the point the noble Baroness makes. Perhaps that does not show a great deal of confidence in the ability of OPRA to undertake its proper functions. Under the regulations, and with the help of the Council on Tribunals, we can have a procedure which means that

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if someone complains about a decision by OPRA they can feel that OPRA's own appeal procedure ensures that the case is again carefully examined and reconsidered.
We believe that if one extends the right of appeal—this is an important point which I hope the noble Baroness will take on board—to a court on any grounds, that will undermine OPRA's ability to act decisively and endanger its regulatory role. I believe that we are all agreed that we want this enforcement authority to be able to act swiftly and effectively. I believe that the amendment and the possibility of the case being taken to court, with all the costs and time that that can sometimes entail, would compromise the authority's ability to do that.
As I said, court action can also be very time consuming and there are already concerns about the load on the courts. As I pointed out earlier, the time taken for a case to come to court, let alone to resolve an appeal, could mean that the position of a pension scheme deteriorated further with members' legitimate pension rights being eaten away. I do not believe any of us want to lay out a scheme in this Bill which would bring about that sort of situation. One of the reasons for having a powerful regulator, able to take decisive and effective action, is precisely to avoid the delays and costs of court action. That is what, in the past, has made it so difficult for scheme members or trustees to take action. I do not believe that, with the rigorous review procedures that we will put in place, there is any need to hamstring the authority's effectiveness with an unnecessary mechanism of appeal to the courts.
I hope that having listened to what I have said and on reflection, my noble friend will be able to withdraw his amendment.
The Earl of Buckinghamshire: My Lords, I thank very much the noble Baroness, Lady Seear, for her support for the amendment. For much of this Bill we have had discussions on the balances and counter-balances required. We should be well aware of the very strong powers that OPRA has been given through this Bill. I listened to what my noble friend said; I am disappointed with his reply. I understand the points about bureaucracy and going through the law courts. But there is no method, unless we adopt this amendment or something close to it, of having some checks on OPRA's powers.
The noble Lord puts forward the opposite argument, saying that OPRA needs to be very effective in what it is doing. I do not believe that the amendment removes that effectiveness. It brings some fairness into the situation. I listened to my noble friend's words and I am disappointed, but at this stage I do not wish to take the matter forward. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 28 not moved.]
Clause 88 [Inspection of premises]:
Lord Lucas Lord Lucas moved Amendment No. 29:
Page 53, line 32, after ("means") insert ("provisions made by or under").
The noble Lord said: My Lords, it has been argued that, as drafted, the inspector's powers to inspect premises under the Bill could be interpreted as being restricted to checking compliance with provisions in the primary legislation alone. That is clearly not desirable. The amendment puts beyond doubt that the inspector will be able to work under the regulations as well as the primary legislation. I beg to move.
On Question, amendment agreed to.
Clause 89 [Warrants]:
Lord Lucas Lord Lucas moved Amendment No. 30:
Page 54, line 22, leave out ("or").
The noble Lord said: My Lords, in moving this amendment I shall speak at the same time to Amendments Nos. 31 and 32. The amendments concern Clause 89, under which the authority may apply to a justice of the peace for a warrant to enter and search premises. Amendments Nos. 30 and 32 add to the circumstances in which the authority may apply to the court for such a warrant. They provide that justices of the peace may issue a warrant if they are satisfied that there are reasonable grounds for believing that a person is liable to be prohibited from being a trustee of a scheme.
Amendment No. 31 is a minor drafting amendment which clarifies the meaning of "penalty" in Clause 89(1) (c) (iii). The meaning of "penalty" may be unclear and open to different interpretations. The amendment substitutes a reference to the authority's power to impose civil penalties under Clause 9 and Section 168(4) of the Pension Schemes Act and is intended to avoid doubt. I beg to move.
On Question, amendment agreed to.
5.30 p.m.
Lord Lucas moved Lord Lucas moved Amendments Nos. 31 and 32:
Page 54, line 23, leave out ("this Act or") and insert ("section 9 of this Act or section 168(4) of").
Page 54, line 25, at end insert ("or
() a person is liable to be prohibited from being a trustee of a trust scheme under section (Prohibition orders),").
On Question, amendments agreed to.
Lord Lucas Lord Lucas moved Amendment No. 33:
Page 54, line 46, leave out ("three") and insert ("six").
The noble Lord said: My Lords, this amendment extends from three to six months the period for which the authority may retain documents obtained by exercise of a warrant under Clause 89. The only exception to this limit is where proceedings are commenced within the six-month period, in which case any relevant documents may be retained by the authority until those proceedings are concluded.
Extending the time limit to six months will allow the authority a reasonable length of time in which to decide whether any proceedings are appropriate. The authority will not hold documents for any longer than is absolutely necessary and will be well aware of the need to keep disruption of the scheme to a minimum. Nevertheless, it is important that investigations are not hampered by an unduly restrictive deadline.
The power to obtain warrants will be used only where there are reasonable grounds for believing that a serious breach of a statutory obligation has occurred. Given the potential complexity of an investigation into the management of a large pension scheme, it is vital that the authority's inspectors have the time they need to conduct a thorough and proper investigation. A six-month time limit will bring the period for which documents may be held in line with the time limit for laying information in a magistrates' court.
When investigating offences or executing warrants issued under this provision, the authority's officers will have due regard to the appropriate code of practice issued under the Police and Criminal Evidence Act 1984. There is a code which specifically covers the exercise of powers to search premises and to seize and retain documents or records relating to the administration of a scheme. Among other things, the code provides that property shall not be retained for the purposes of an investigation, or for use as evidence, if a copy would suffice. It also provides for the person who had custody or control of any such property to have access to it, or to be provided with a copy of it, unless that would prejudice the investigation or proceedings.
It would be contrary to the authority's interests, having been set up specifically to ensure that those running schemes comply with their statutory obligations, if it were to allow its investigations to obstruct the day-to-day running of a scheme in a way which made it difficult for those running it to comply with the law.
We have selected a period for the retention of documents which we believe to be reasonable and which fits in with other provisions. We recognise that the removal of scheme documents may cause some inconvenience to schemes, but believe that it is a price worth paying to ensure that schemes are properly run. I beg to move.
On Question, amendment agreed to.
Clause 93 [Restricted information]:
Lord Lucas Lord Lucas moved Amendment No. 34:
Page 56, line 23, leave out from ("Authority") to (which") in line 25 and insert ("in the exercise of their functions").
The noble Lord said: My Lords, this amendment is a drafting refinement. It is unnecessary to repeat the reference to the Bill and corresponding enactments for Northern Ireland. Moreover, as drafted, Clause 93(2) only protects information in the authority's possession gathered for the purposes of the authority's functions under the Bill. This is not our intention.
Where the authority investigates a particular scheme, it is likely to have access to a considerable amount of sensitive information relating to the affairs of the scheme and the parties to it. Not all of this information will necessarily be relevant to the exercise of the authority's functions, but could nevertheless be of a sensitive nature. It is therefore important that all information gathered by the authority while investigating possible infringements of duties and obligations should be protected by the safeguards in Clause 93. I beg to move.
On Question, amendment agreed to.
Clause 94 [Information supplied to the Authority by corresponding overseas authorities]:
Lord Lucas Lord Lucas moved Amendment No. 35:
Page 56, line 39, leave out from ("functions") to ("by") in line 40.
The noble Lord said: My Lords, in moving Amendment No. 35, I should like to speak also to Amendments Nos. 36, 37, 38 and 42.
These amendments all reflect legal advice to the effect that, as all the authority's functions are under the Bill, the Pension Schemes Act 1993 or corresponding provisions in Northern Ireland, it is not necessary to refer to those enactments in order to refer to the authority's functions. These amendments delete the unnecessary references. I beg to move.
On Question, amendment agreed to.
Lord Lucas Lord Lucas moved Amendment No. 36:
Page 57, line 4, leave out from ("functions") to ("or") in line 5.
On Question, amendment agreed to.
Clause 95 [Disclosure for facilitating discharge of functions by the Authority]:
Lord Lucas Lord Lucas moved Amendments Nos. 37 and 38:
Page 57, line 10, leave out from ("functions") to end of line 12.
Page 57, line 14, leave out from (functions") to ("the") in line 15.
On Question, amendments agreed to.
Clause 96 [Disclosure for facilitating discharge of functions by other supervisory authorities]:
Lord Lucas Lord Lucas moved Amendment No. 39:
Page 58, column 2, leave out lines 9 to 14 and insert ("Functions under the enactments relating to insolvency").
The noble Lord said: My Lords, in moving Amendment No. 39, I should like to speak also to Amendments Nos. 40 and 41. These amendments are all concerned with the disclosure of restricted information by the authority.
Amendment No. 39 enables the authority to provide restricted information to the Official Receiver, or in Northern Ireland to the Official Receiver for Northern Ireland, to enable or assist him to discharge his functions under the enactment relating to insolvency. It widens the "information gateway" to the Official Receiver so that it is not unnecessarily restrictive and brings it into line with similar provisions in other enactments providing for information to be passed to the Official Receiver.
Amendment No. 40 provides for the authority to disclose restricted information with a view to instituting proceedings under Sections 7 or 8 of the Company Directors Disqualification Act 1986 or Articles 10 or 11 of the Companies (Northern Ireland) Order 1989. It removes the inappropriate restriction that limited it to disclosing information in respect of a director or former director of a company which is or was a trustee of a trust scheme, because the authority may come into possession of relevant information concerning a person who does not fall into the category.
Amendment No. 41 provides for the authority to disclose restricted information in connection with any proceedings under the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989 which the

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authority instituted or in which it has a right to be heard. The amendment removes the restrictions that limited disclosure to functions under certain parts of the Insolvency Act 1986. I beg to move.
Lord McIntosh of Haringey: My Lords, the intention of the amendment is acceptable, but we wonder whether the Insolvency Service was consulted before the Bill was drafted.
Lord Lucas: My Lords, I can confirm that it was consulted. I commend the amendment to the House. On Question, amendment agreed to.
Clause 97 [Other permitted disclosures]:
Lord Lucas Lord Lucas moved Amendments Nos. 40 and 41:
Page 59, line 25, leave out from ("1989") to end of line 26.
Page 59, line 27, leave out from ("proceedings") to second ("the") in line 29 and insert ("under the Insolvency Act 1986 or"). On Question, amendments agreed to.
Clause 98 [Disclosure of information by the Inland Revenue]:
Lord Lucas Lord Lucas moved Amendment No. 42:
Page 60, line 9, leave out from ("functions") to end of line 11.
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 35. I beg to move.
On Question, amendment agreed to.
Clause 14 [Requirement for member-nominated trustees]:
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 43:
Page 6, line 32, leave out ("deferred members of the scheme") and insert ("those deferred members of the scheme from whom it is reasonably practicable to obtain approval").
The noble Earl said: My Lords, in moving Amendment No. 43, I should like to speak also to Amendment No. 48. I moved a similar amendment in Committee and should like to remind your Lordships that this amendment deals with the practical problems of consulting deferred members. When trustees consult members about changes to the rules of a scheme, they have to consult current pensioners and active members, but have discretion about whether to consult deferred members.
The current drafting of the Bill suggests that if the trustees decide to consult deferred members they must consult all or none. Practically, that would mean that none of the deferred members would be consulted, because in many schemes current addresses are not available for all deferred members.
In Committee my noble friend the Minister accepted the principle behind the amendment, but felt that the amendment as drafted would enable the trustees to be discriminatory. The amendments have therefore been redrafted to achieve the same purpose, but will no longer allow discrimination. On that basis, I beg to move.
Lord Mackay of Ardbrecknish: My Lords, the substance of these amendments was raised in Committee. At that time, I recognised that an important issue had been identified and I undertook to consider the matter very carefully.
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I acknowledge that not all deferred members may be known to the trustees. For example, they may not hold up-to-date addresses for all deferred members. If trustees are faced with the difficulty and expense of tracing all deferred members they may be reluctant to use their discretion to include them in the statutory consultation procedure. I do not want this clause to work to the detriment of deferred members.
I am happy to accept the principle of this amendment. However, I do need to consider in more detail the specific wording needed and I hope my noble friend will allow the Government more time to consider what the appropriate criterion should be. We will thus be able to bring forward any necessary amendments in another place. With that answer, I hope that my noble friend will feel able to withdraw his amendment.
The Earl of Buckinghamshire: My Lords, I am grateful to my noble friend for his reply. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn,
Clause 14 [Requirement for member-nominated trustees]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 44:
Page 7, line 6, at end insert ("or, in the case of a money purchase scheme, at least two-thirds of the total number of trustees").
The noble Baroness said: My Lords, the amendment relates to trustee membership. In Committee we pressed an amendment that 50 per cent. of trustees of a defined benefit or final salary scheme should be scheme members. We argued that on the ground that it was standard practice among the country's blue-chip firms—Shell, Unilever, ICI, Boots, Sainsbury, Courtaulds, Albright and Wilson, Allied Lyons and many more —and that such companies valued such arrangements as they offer better scrutiny, a better information flow, and more confidence in the pension scheme and the company.
It seemed right that trustees should reflect the balance of interest involved to bring the poorer schemes up to the practice of the best. We emphasised, too, that it in no way reduced the employers' existing freedoms, in the sense that the pension remained voluntary: employers would still define rules of eligibility; they could still veto any improvement in benefit; they could still take contribution holidays; and they could still wind up the scheme. In other words, all the long-stop powers remained with the employer—a recognition of the fact that he stood guarantee for any deficit on the scheme.
When we argued in Committee that 50 per cent. of the trustee members for defined benefit schemes and final salary schemes should be scheme members, we were defeated. The Government made three points in reply. Two of them were contradictory. The third, I hope, makes my case tonight.
The Government argued, first, that trustees held a fiduciary duty on behalf of the scheme: they were not delegates and therefore it did not matter from which side of the management divide they came. Whether one-third

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or 50 per cent. of the trustees were scheme members should not alter their behaviour, according to the Government. The proportions were irrelevant.
The Government's second argument was precisely the opposite. So far as concerned the employer, the proportion suddenly became relevant. The Minister said:
"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".— [Official Report, 13/2/95; col. 448.1
In other words, on the second argument the Minister was saying that trustees drawn from scheme members had a fiduciary duty to all interests and so it did not matter whether they formed one-third or one-half, but that the trustees nominated by the employer clearly had a primary duty to protect the employer's interests because of his responsibility for funding the deficit. Therefore the employer was entitled to claim, said the Minister, a majority two-thirds of the trustees. Scheme member trustees, on the Government's arguments, were stewards for all; employer trustees, however, were stewards for the employer.
Finally, the Government emphasised that because defined benefit and final salary schemes were voluntary, and they lay off the risk on the employer, who is obliged to meet the deficit, any tilt of power away from the employer on the trustee board would encourage employers to wind up defined benefit schemes and go instead for defined contribution or money purchase schemes, where the investment risk was laid off not on the employer but on the employee. And that, said the Government, was why Goode recommended that only one-third of trustees in defined benefit schemes should be drawn from the members whereas two-thirds of the trustees should be scheme members where money purchase schemes were being handled. That is the point of the amendment. We seek to follow word for word the logic of the Government's argument in Committee.
We are arguing tonight that if scheme members should represent only one-third of the trustees in defined benefit schemes, while the employer should have two-thirds because he takes the risk, then for those same reasons, in money purchase schemes, where the risk is taken by the employees, they too should have two-thirds of trustee members.
If the Government wish to argue the fiduciary point then each, in both sets of schemes, should have 50 per cent. of the trustees. If the Government wish to argue the opposite —that the majority interest of trustees should lie with where the financial risk is laid off—then if it is appropriate for the employer to have two-thirds on final salary schemes, it is appropriate for the scheme members to have two-thirds of the trustees on money purchase schemes. I do not mind which way the argument goes, but the Government cannot argue both, because they are contradictory.
As the Government said, either all trustees have a fiduciary duty, in which case we have 50 per cent. on both, or the majority reflects where the financial deficit
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funding lies, in which case, on money purchase schemes, the majority of trustees should remain with the employees.
Every argument the Government adduced for the two-thirds of trustees representing employers on defined benefit schemes applies word for word for two-thirds of scheme members on defined contribution schemes—no more, no less. That is why Goode recommended it, and stated:
"For money purchase schemes … where the employer has no liability beyond the employers' contribution, scheme members should be entitled (but not obliged) to appoint at least two-thirds of the trustees, with the employer being able to reserve the right to employ the remainder".
The Government Actuary's recent report makes it clear that whereas in final salary schemes employers may often be contributing between 10 per cent. and 15 per cent. while employees contribute about 5 per cent. to 7 per cent. only of salary where the scheme is not in surplus—in other words, employers contribute about 2:1 on final salary schemes—when it comes to money purchase schemes, the employees' contribution is usually larger than that of employers: employees contribute 6 per cent. to 7 per cent. while the employer usually contributes under 4 per cent. In other words, whereas in final salary schemes the employer pays more, takes the risk, and, therefore, according to the Government, has two-thirds of the trustees, in money purchase schemes, the employee pays more—a higher proportion—takes the risk, and should therefore also have two-thirds of the trustees.
We now wish to hold the mirror up to every argument put forward by the Government in Committee to make the same arguments on behalf of scheme members where they are dealing with their money, their savings, their financial contributions, their risk, and their right. I beg to move.
Baroness Seear: My Lords, the arguments were clearly put forward by the noble Baroness, Lady Hollis. I reiterate merely that the employers are not taking the risk in the case of money purchase schemes and they do not need to have a majority control; that is, if one accepts the argument, which I do not, that they need it for the other schemes. They can agree to a majority of two-thirds and they stand to lose nothing by so doing. I hope that the Government will accept the amendment.
Lord Mackay of Ardbrecknish: My Lords, in Committee I wondered why the Opposition did not argue the case for a majority of two-thirds in money purchase schemes. They concentrated on defined benefit schemes and divided the Committee on the issue of 50 per cent. I strongly suspect that however powerful I and my noble friends consider my argument the Opposition are intent on dividing the House on this matter. However, I shall try.
It is interesting and a little flattering to have my words in Committee quoted back to me. I have often wondered whether anyone bothers to read Hansard but I am glad to know that the noble Baroness finds it such good reading material. I did not say "such good bedtime" reading but in a sedentary intervention the noble Baroness indicated that that is what it is. I am sure that it is so riveting it does not help to put her to sleep.

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The amendment is based on the recommendation of the PLRC that the balance of interest in a money purchase scheme is such that it is appropriate to provide that members, rather than employers, should have a majority on the trust board.
I certainly accept—with the noble Baroness scrutinising my words, of course I do—that in a money purchase scheme the employer's interest is less direct than it is in relation to a defined benefit scheme. The employer does not take on such substantial financial exposure. However, the employer retains a significant interest in the proper running of the scheme. First, it is normally a major part of the remuneration package and the employer has a significant business interest in the successful operation of the scheme and in the performance of its fund, Secondly, employers sponsoring defined contribution schemes, while formally insulated from the investment risk, may well, if the scheme runs into serious difficulty, feel under a moral obligation to ensure that former employees receive a reasonable pension.
Finally, and most importantly, under the proposed compensation arrangements we expect employers sponsoring defined contribution schemes to make good any deficiencies caused by the misappropriation of assets. Compensation will be payable only once the sponsoring employer is insolvent, having done his utmost to restore the fund. Those factors suggest that employers sponsoring defined benefit schemes can justifiably claim a significant interest in the fund, although perhaps not as intense as the interest of an employer sponsoring a defined benefit scheme—
Baroness Hollis of Heigham: My Lords, I accept the Minister's phrase "a significant interest". Does he believe that it is a majority interest?
Lord Mackay of Ardbrecknish: My Lords, if the noble Baroness will contain herself I shall address the question of why I believe that the PLRC was wrong in its suggestion that defined benefit schemes should have a majority of two-thirds whereas salary-related schemes should have only one-third.
I have mentioned the employer's interest, and the noble Baroness indicated that she does not disagree with that. However, pointing to the PLRC report, she justifiably indicates that the employer's interest is less in the kind of schemes which we are discussing than in defined benefit schemes.
I believe that the practicalities are important. How does one define a money purchase scheme? What arrangements should apply to the many different types of hybrid schemes? It seems easier to minimise the scope for argument and adopt a similar approach for all schemes, which at least delivers the basic policy intention of broadening the perspective of the trust boards.
The requirement is that at least one-third should be member nominated. As I said in Committee, there is nothing to prevent a trust fund being set up and employers agreeing the composition of a board on which more than one-third are member-nominated. There could be half or more and there is nothing to stop that happening. The requirement is for at least one-third, so that money purchase schemes could have two-thirds of member-nominated trustees if they wished.
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Perhaps I may explain the problem of complexity. We have tried to make our provisions as straightforward as possible and to give the schemes the maximum freedom to make the rules which suit their particular circumstances. We had in mind the wide variety of schemes and arrangements currently operating. For example, hybrid schemes are a combination of salary related benefits with a money purchase top-up, or vice versa. In some arrangements, the same individual trustees may act for both a money purchase scheme and a salary related scheme. An additional point is that since 6th April 1988 all schemes approved by the Inland Revenue are required to allow their members to make additional voluntary contributions. Those contributions are passed to the scheme trustees, who invest them with the other scheme resources or with an outside agent. They can be used to purchase additional years and final salary schemes or, more frequently, to provide a range of benefits on a money purchase basis. Therefore, a salary related scheme can have funds to provide both salary related and money purchase benefits. I understand that approximately 1 million people have elected to pay voluntary contributions.
Obviously, that kind of hybridity could cause a great deal of argument about which way it falls. It may mean that people will try to separate schemes and that may not be to the benefit of the members of the scheme. There are practical reasons why we have decided that the statutory minimum should apply to both kinds of scheme and that it should apply at least at the one-third member nominated level. As I said, schemes are free to add more member-nominated members than the one-third, which is the minimum.
Those are the practical points which arise from the fact that some companies sponsoring different types of scheme have single trust boards. We believe that unnecessary difficulty would be caused to such trust boards if they had to split themselves up to meet the differing requirements in respect of different parts of their current responsibility.
Therefore, largely for practical reasons and based on the real world in which pension schemes operate we have concluded that it would be best if both types of pension schemes had to meet the same requirement. I hope that having listened to my compelling argument the noble Baroness, Lady Hollis, will withdraw her amendment. In the unlikely and surprising event of her putting the amendment to the test of a Division, I hope that my noble friends will support me.
Baroness Hollis of Heigham: My Lords, I can well understand the Minister hoping that his noble friends will support him. He can rely on nothing other than hope; certainly not his arguments. We are invariably delighted to hear well-argued or reasonably argued presentations from the Minister. However, tonight even he must accept that he was scratching around for an argument with which to support a proposal that so offends natural justice.
The Minister made two points, both of which were dealt with by the Goode Committee, as he knows perfectly well but chose not to remind the House. First, the Goode Committee specifically dealt with hybrid schemes. They are nothing new. The Government have

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not suddenly thought about the issue; it is not some sudden complexity with which they do not know how to deal and must therefore throw it away and keep to the basic lowest common denominator of one-third. Goode suggested the regulator rule as regards the side of the divide on which a particular scheme should fall and therefore which trustee board membership rules apply. It is very simple. That is what the regulator is there for. He is there to provide codes, guidance, regulations and rulings. Goode anticipated, addressed, answered and demolished in advance every argument the Minister has made this evening. That was the first of them.
The second argument, which Goode recognised the Minister might wish to employ and which was answered and demolished in advance, is that regarding where financial interests and responsibility lie. If the primary responsibility of a trustee was fiduciary, employers and employees should have an equal 50 per cent. on both sets of schemes. But in Committee the Minister persuaded your Lordships that if the employer had an overriding, rather than significant, financial interest in final salary schemes because he contributed more and picked up the deficit—it is correct that they contribute more and pick up the deficit—those interests should be protected by two-thirds trustee membership.
What happens now? We are now discussing money purchase schemes, not hybrid schemes. What do the Government now say, in precisely the same circumstances, where scheme members pay more than the employer, and scheme members rather than the employer accept the financial risk? They are not consistent. The Minister has made a 180 degree turn. Is that because we are dealing with scheme members rather than employers? Is that what is going on?
This deeply offends natural justice. There is no practical or administrative problem but there is a problem in relation to fairness and justice if the Minister will not allow scheme members to protect their savings, investment and risk in their pension schemes. By definition, money purchase schemes, unlike final salary schemes, are the members' schemes. They are not a joint arrangement and a joint sharing of risk with the employer. The Minister's answer was deeply unfair and I think he knows it. Therefore, I propose to test the opinion of the House.
6.1 p.m.
On Question, Whether the said amendment (No. 44) shall be agreed to?
Their Lordships divided: Contents, 74; Not-Contents, 129.

Division No. 3

CONTENTS

Acton, L.

Bruce of Donington, L.

Airedale, L.

Carmichael of Kelvingrove, L.

Ashley of Stoke, L.

Clinton-Davis, L.

Barnett, L.

Craigavon, V.

Beaumont of Whitley, L.

David, B.

Birk, B.

Dean of Beswick, L.

Blackstone, B.

Dean of Thomson-le-Fylde, B.

Bledisloe, V.

Desai, L.

Brookes, L.

Donaldson of Kingsbridge, L.

610

Dormand of Easington, L.

McIntosh of Haringey L.

Eatwell, L.

McNair,L.

Elis-Thomas, L.

Merlyn-Rees L.

Ennals, L.

Milne L.

Ezra, L. [Teller.)

Molloy

Falkland, V.

Monkswell, L.

Farrington of Ribbleton, B.

Monson, L.

Freyberg, L.

Moms of Castle Morris, L.

Gallacher, L.

Nelson, E.

Geraint, L.

Nicol, B.

Gould of Potternewton, B. (Teller.)

Perry of Walton, L.

Peston, L.

Graham of Edmonton, L.

Prys-Davies, L.

Hamwee, B.

Rea, L.

Harris of Greenwich, L.

Redesdale, L.

Haskel, L.

Richard, L.

Russell, E.

Healey, L.

Seear, B.

Hollis of Heigham, B.

Sefton of Garston, L.

Hughes, L.

Serota, B.

Jay of Paddington, B.

Stedman, B.

Jeger, B.

Stoddart of Swindon, L.

Jenkins of Hillhead, L.

Taylor of Gryfe, L.

Jenkins of Putney, L.

Thomas of Walliswood, B.

Kennet, L.

Turner of Camden, B.

Kilbracken, L.

Varley, L.

Kirkhill L.

Westmorland, E.

Lovell-Davis, L.

Williams of Mostyn, L.

Mason of Barnsley, L.

Winchilsea and Nottingham, E.

NOT-CONTENTS

Addison, V.

Gage, V.

Ailsa, M.

Gardner of Parks, B.

Aldington, L.

Glenarthur, L.

Alexander of Tunis, E.

Goschen, V.

Allenby of Megiddo, V.

Gray of Contin, L.

Astor of Hever, L.

Greenway, L.

Astor, V.

Gridley, L.

Barber of Tewkesbury, L.

Harding of Petherton, L.

Belhaven and Stenton, L.

Harmar-Nicholls, L.

Blaker, L.

Harrowby, E.

Blatch, B.

Hayhoe, L.

Borthwick, L.

Hemphill, L.

Boyd.Carpenter, L.

Henley, L.

Brabazon of Tara, L.

Hertford, M.

Brains of Wheatley, L.

Hives, L.

Brougham and Va., L.

Holderness, L.

Buckinghamshire, E

Holderness, L.

Burnham, L.

Holmpatrick, L.

Butterworth, L.

Howe, E.

Cadman, L.

Hylton-Foster, B.

Caithness, E.

Inglewood, L. [Teller.]

Campbell of Croy, L.

Jenkin of Roding, L.

Carnegy of Lour, B.

Killearn, L.

Carnock, L.

Kimball, L.

Cawley, L.

Kingsland, L.

Chalker of Wallasey, B.

Lauderdale, E.

Charteris of Amisfield, L.

Lindsey and Abingdon, E.

Chelmsford, V.

Long, V.

Chesham, L.

Lucas, L.

Clanwilliam, E.

Lyell, L.

Clark of Kempston, L.

Mackay of Ardbrecknish, L.

Colnbrook, L.

Mackay of Clashfern, L.[Lord Chancellor.]

Colwyn, L.

Cork and Orrery, E.

Marlesford, L.

Courttown, E.

McColl of Dulwich, L.

Cox, B.

Melville, V.

Cranborne, V. (Lard Privy Sea]

Mersey, V.

Cumberlege, B.

Miller of Hendon, B.

Davidson, V.

Milverton, L.

Dean of Harptree, L.

Monteagle of Brandon, L.

Dixon-Smith, L.

Montgomery of Alamein, V.

Elles, B.

Mottistone, L.

Elton, L.

Mountevans, L.

Faithfull, B.

Munster, E.

Fanshawe of Richmond, L.

Murton of Lindisfarne, L.

Fraser of Carmyllie, L.

Napier and Ettrick, L.

611

Newall, L.

Saltoun of Abernethy, Ly.

Norfolk, D.

Seccombe, B.

Norrie, L.

Shaw of Northstead, L.

Northesk, E

Skelmersdale, L.

O'Cathain, B.

Stewartby, L.

Orkney, E.

Strange, B.

Oxfuird, V.

Strathclyde, L. [Teller.]

Park of Monmouth, B.

Strathcona and Mount Royal, L.

Pearson of Rannoch, L.

Sudeley, L.

Peel, E.

Swansea, L.

Pender, L.

Tebbit, L.

Peyton of Yeovil, L.

Thomas of Gwydir, L.

Platt of Writtle, B.

Trumpington, B.

Rankeillour, L.

Ullswater, V.

Rawlings, B.

Vivian, L.

Rees, L.

Wade of Charlton, L.

Renton, L.

Whitelaw, V.

Renwick, L.

Wise, L.

Rodger of Earlsferry, L.

Wynford, L.

Resolved in the negative, and amendment disagreed to accordingly.
6.10 p.m.
Baroness Seear Baroness Seear moved Amendment No. 45:
Page 7, line 9, at end insert:
("() Once a scheme provides for a majority of pensioner members, the arrangements must provide for at least one trustee to be nominated by pensioner members of the scheme.").
The noble Baroness said: My Lords, I am hoping that the Minister will see the light even at this late hour. Indeed, perhaps I may anticipate what I know he will say—namely, that everyone who is a member of a trustee board is there as an independent person and is thinking about the interests of the scheme and not about the interests of any special group. We all know that is the case, and therefore we need not waste any time in your Lordships' House by having it repeated yet again. It is not as a representative of special interests that I am moving the proposal that there should be at least one pensioner on a trustee board where such a board represents a substantial number of pensioners.
The person who is a pensioner has a different experience and knowledge about how the scheme is working from someone who is either an employer or a working member who is anticipating a pension later on but who is not currently a pensioner. Surely it stands to reason that someone who is already a pensioner has something to contribute, not an interest to defend. He or she has knowledge, experience and a point of view to contribute to the running of the scheme. It seems to me to be quite extraordinary that schemes which are there for the benefit of pensioners should exclude from their managing body the very people for whom the whole exercise is being undertaken. Therefore, briefly, but very determinedly, I wish to move the amendment. Pensioners should be allowed a place on the trustee boards of schemes. I beg to move.
Baroness Turner of Camden Baroness Turner of Camden: My Lords, I rise to express my support for the amendment moved by the noble Baroness. It will be recalled that we attempted to persuade the Government in Committee that it was necessary for pensioners to be represented among trustees. Unfortunately, we did not succeed. However, there are mature schemes where there is a very high proportion of scheme members who are actually
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pensioners. In such circumstances, it would seem quite undesirable that there should not be pensioner representation on the board of trustees.
The amendment before the House is a modest one. It simply provides that, once the scheme has a majority of pensioner members, the arrangements must provide for at least one trustee to be nominated by pensioner members of the scheme. I should have thought that was very fair and reasonable. I cannot see how the Minister can argue against it. I am sure that he will, but I do not know upon what basis. The proposal seems to me to be so fair, right and proper that I shall be amazed if the Government persist with their opposition to the notion. As I said, I support the amendment.
Lord Pearson of Rannoch: My Lords, in supporting the amendment, I should declare a slight interest in this part of the Bill in that I am a trustee of my own company's pension scheme. The company is a young one, only 30 years old. Most of the members still have a long way to go until they reach pension age. So I can look forward to the day when the majority of members will have retired. I cannot help feeling that the deliberations of the trustees at the time would be very much helped by those who, after all, will by then be the main beneficiaries of the scheme.
I was inspired into joining support for the amendment by the National Federation of Post Office and BT Pensioners whose members are in a different category altogether so far as concerns size. I would be most interested to hear any comments that my noble friend the Minister may have as to why the amendment should not be accepted.
Lord Dean of Harptree: My Lords, I believe that the arguments are very finely balanced on the issue. However, I am inclined to favour the amendment proposed. When my noble friend the Minister resisted similar amendments in Committee, I remember that he said that it was important to retain flexibility in the selection of trustees. I believe that noble Lords would agree with that view. My noble friend also said that it was important that trustees should recognise that they represent all members and not a particular group in a scheme.
However, I suggest to your Lordships that we must bear in mind the fact that the Bill has, to some extent, moved away from that position. It provides that members should have the right to select one-third of trustees. Therefore, we can say that there has been some move away from that rigid principle.
From my experience when I was a trustee, I found that pensioners, for the most part, made good trustees. Indeed, they have the time, the experience and by definition, because they are pensioners, they have a good knowledge of the company concerned. It may be a little out of date; but, nevertheless, they have a good knowledge in that respect. Further, they are not subjected to the pressures which sometimes apply to employee members. Their pensions cannot be withdrawn from them, whereas in the case of employees there is always the risk that some subtle pressure could be exerted upon them.

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One could ask why we do not leave all such matters to the good practice of occupational pensions schemes. Indeed, many such schemes already have pensioner trustees. I take the point made by my noble friend; namely, that made by the National Federation of Post Office and BT Pensioners. In their closed schemes, there are a great many more pensioner members than there are employee members. However, I am told by the federation that it has repeatedly requested that there should be at least one pensioner trustee on the board, but that that request has been turned down. I am informed that the reason for refusal of the request in that case—and, I gather, in others—is that the employee trustees are nominated by trade unions which are not prepared to have a pensioner trustee. If that is the case, I suggest to your Lordships that it is really not reasonable for trade unions to have a veto on the nomination of pensioner trustees.
It seems to me that the latter information spreads a somewhat different light on the discussions which took place in Committee. Moreover, I wonder whether there is a precedent under the Railways Act. When that legislation was being discussed during the Session before last, the point was made that there should be the possibility for BR pensioners to be represented on the board. However, I gather that that provision was not written into the legislation. But if my information is correct, the BR pension schemes do now have trustees on the board. I do not know whether that arises as a result of government pressure. Nevertheless, if that is so, I suggest to my noble friend the Minister that there is perhaps a precedent in that respect. There is at least something to be looked at if in fact it is true that trade unions do exercise a veto in some cases as regards pensioner trustees.
Lord Boyd-Carpenter: My Lords, I hope that the Government will think again about this amendment. I recall—as I am sure does my noble friend the Minister—the discussion in Committee which I found a rather unhappy one. There is no doubt at all that there is a considerable demand for something of this sort, including—this has relevance to what my noble friend behind me has just been saying—among some very responsible trade unions. Therefore it seems to me that to have at least one pensioner trustee where the majority of people in the scheme are already pensioners is a reasonable reassurance to them, and, so far from introducing any unnecessary rigidity into the scheme, would give a certain element of support to it which I think might well be found helpful by those responsible for running it. In other words, I hope that my noble friend will not persist in the line that he took in Committee. I think he will find that on the whole Members of your Lordships' House are in favour of this, or something of this sort. I beg of him to think hard about it.
Lord Ezra: My Lords, like the noble Lord, Lord Pearson, as chairman of a medium-sized company I have experience of a scheme which has a pensioner trustee. In the light of the Maxwell affair —like many other companies, I have no doubt—we reviewed the
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constitution of our pension scheme and its operations. We decided that we would immediately bring on member trustees, and we also decided—this was a specific recommendation which I made—that we would have a pensioner trustee. The reasoning behind that was simple, and indeed the noble Lord, Lord Boyd-Carpenter, has referred to it: it gives a good cross-section of interests in the matter. The parties most involved in pension schemes are the employers, the members—in other words those still in the employment of the company—and those who are past employees who are drawing their pensions. It seems totally logical and rational that those three parties should be able to have representatives on the schemes and to express opinions from their particular point of view.
Lord Desai: My Lords, I, too, wish to add my support to the amendment. Noble Lords will recall that in Committee I moved an amendment to this effect. While we did not like the Minister's answer, this is a good matter to which to return. It is said that trustees should do their job, as it were, freely and fairly and should not represent particular partisan interests. That is quite right. That is the duty of trustees. But at the same time we have to recognise that interests have to be represented broadly on the trust. We have recognised the employers' interest throughout this Bill. We have also recognised the employees' interest. There is a third interest; namely, that of pensioners. I am sure that trustees who represent these different interests will also do their job properly as trustees without any conflict between their role as trustees and their representation of separate interests.
Lord Mackay of Ardbrecknish: My Lords, although this issue was raised in a different form during the Committee stage of this Bill, I regret to have to tell your Lordships, despite the blandishments of the past few minutes, that my argument against it remains the same. The effects of this amendment are no different. It would oblige schemes to allow pensioner members to select trustees and would therefore give them a status and privilege greater than that given to other members. We believe that schemes should be free to determine their own arrangements and we will therefore oppose any amendment which seeks to elevate one section of scheme membership above another.
It seems to us that there is no justification for moving towards a rigid and uniform selection process which would not do justice to the wide variety of schemes which currently operate. It is, as I have said, our intention that schemes should be free to develop their own arrangements for the selection of trustees, subject to the approval of active and pensioner members. It is these arrangements which will determine who is eligible to nominate trustees. Members' interests will be protected by a rigorous statutory consultation procedure.
I would say to my noble friend Lord Dean and to my noble friend Lord Pearson of Rannoch who referred to BT that the matter they raised in your Lordships' House concerns the current position of the BT pension scheme. But under the statutory consultation procedures all active and pensioner members will have the chance to approve the nomination and selection procedure. If

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members want a pensioner trustee or pensioner trustees, they will be able to take steps to do something about that. If they want open nomination and not trade union nomination, as my noble friend drew to our attention, they will be in a position to take steps to bring that about because pensioner members—like active members —will have a right to approve selection rules.
Common sense dictates that if a majority of scheme members are pensioners, they are likely to communicate to their existing trustees that they wish to take part in the selection procedure. However, we do not intend to fetter this freedom by insisting that a certain section of the membership must nominate a trustee. As the Bill stands, it gives equality of opportunity both to active and pensioner members and it is for scheme members to decide together the best way to nominate trustees, hearing in mind the needs of their particular scheme. If it goes to election, it is up to the members to decide who they want to elect. If they want to elect more active members than pensioner members, that surely is up to them. If they want to elect more pensioner members, that is equally up to them. To start dividing up the democratic process and saying, "This little group and that little group will be able to elect somebody", is not the proper way to proceed.
However, the prime argument against requiring any particular interest group—after all, there are not just pensioner members; there are deferred members and there are active members, all of whom have an interest in how the pension scheme is run—to select a trustee representative of that interest is that it would undermine one of the fundamental strengths of trust law which is that each trustee must act impartially in the interests of all the beneficiaries.
I am sorry if the noble Baroness, Lady Seear, does not wish to hear this argument again, but she will hear it again because it happens to be a relevant and good one. While we are talking about Goode, that was the reason why the PLRC opposed the idea of compulsory pensioner trustees. Perhaps we all do a little picking and mixing as regards what we like and what we do not like and as regards what we accept or what we do not accept. However, it is not more than an amendment ago that I was being lambasted because I was not taking the Goode proposals hook, line and sinker, so to speak.
Baroness Hollis of Heigham: My Lords, I was asking for consistency!
Lord Mackay of Ardbrecknish: My Lords, I am not sure whether the noble Baroness is saying that she is being consistent, because if she is being consistent she will agree with me about this particular amendment because the PLRC opposed the idea. I believe its argument continues to be persuasive. I am not arguing that pensioner trustees would be partial but if they had to be appointed—that is the point—there would be a serious risk that members and others would begin to classify all trustees as representative of one interest or another. That would not enhance confidence in trust boards.
We defeated a similar amendment in Committee. I trust that if it comes to it this amendment will also be voted down. As the Bill stands, pensioner members have
616
the same rights with regard to member-nominated trustees as active members; that is, to approve any selection rules proposed by their schemes' trustees. If it is the wish of the members, I have no doubt they will indeed elect pensioners as trustees. The chances of that happening will obviously be greater in schemes where pensioner members are in a majority. I would say to my noble friend Lord Pearson that nothing in the Bill prevents pensioner members being elected as trustees. If a scheme consists of a considerable number of pensioner members—a majority of pensioner members for example—and those pensioner members want to elect someone onto the board who is a pensioner, it seems to me that the numbers will stack up and they will find themselves with a pensioner on the board. Equally, there is a good argument for saying that active members may think it sensible to have a pensioner on the board.
I believe that when one begins to compartmentalise democracy those people who are outside the group which has been singled out will stop even considering voting for people in the group singled out because they will feel that they have already been catered for. I do not believe that that would be in the interests of pensioner members or of the members as a whole. After all, all the members of the scheme have an interest. Pensioner members may have a more immediate interest, but active members have a long-term interest which they will wish to feel all the trustees are considering.
I believe that to accept the amendment would fetter the choice of both pensioners and active members by imposing preconceived selection arrangements. It would restrict the freedom of schemes to develop their own selection rules and would increase the risk of trustees being perceived as representatives of whichever group or interest selected them. I hope that the noble Baroness will withdraw her amendment. If she does not, I hope that my noble friends will support me in the Division Lobby.
6.30 p.m.
Baroness Seear: My Lords, I am disappointed but not in the least surprised, because the Minister's mind is not open to new ideas. He indulged in a wide variety of conflicting arguments. We have been told that having one pensioner trustee would create rigidity. We have already created the great rigidity that the majority of trustees have to be employer members, What greater rigidity could there be? Compared with that rigidity one miserable pensioner representative would not make the scheme positively arthritic, as the Minister seems to think. He appears to believe that to introduce such a requirement would introduce rigidity to an intolerable extent.
In view of the votes that we have just had and of the support all round the House, and in view of the fact that a great many people who would vote if we called a Division now would not have heard not only the eloquent arguments from this side of the House but also the very convincing arguments from the other side of the House, I propose not to press the amendment tonight. However, I give the Minister fair warning that I shall reintroduce it at Third Reading. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 46:
Page 7, leave out lines 22 to 25 and insert:
("(b) a simple majority of members eligible and voting has supported such a proposal;").
The noble Baroness said: My Lords, with this amendment I should like to return to an issue that we discussed at Committee; namely, the balloting arrangements. Most pension schemes at present do not have a minimum of one third of trustees drawn from scheme members. Two-thirds of schemes have no scheme members at all. That will need to change once the Bill becomes law. There will be a presumption in favour of one third of trustees being drawn from scheme members unless there is general agreement that the present arrangements work well and should remain unchanged.
We do not object to that. Our problem is how that general agreement to leave matters unchanged is to be determined. The Minister insists that 10 per cent. of employees must signal that they wish to make a change. Why should they have to take the initiative to secure the rights bestowed on them in the Bill? We believe that the presumption should be on the employer who is seeking no change to ensure that he has support for his proposal. In other words, the employer who seeks to withhold rights should seek consent by ballot; those who wish to exercise their democratic rights should not first have to ballot in order to do so.
Why do we believe that it should be that way round? In Committee, in a remarkable reply which becomes even more remarkable when one re-reads it, the Minister said that the employer should be required to circulate information about the scheme and trustees and should attach a tear-off slip which scheme members could return if they wanted to trigger a ballot. If 10 per cent. did so there would be a ballot, the outcome of which would determine whether there were scheme members as trustees. The Minister said that that would reduce costs and friction. The exact opposite is true. As a species of sophistry that was a quite effective argument.
I have two points. First, employers have to circulate proper information together with a tear-off slip—a ballot paper on whether scheme members want a ballot. If 10 per cent. want a ballot there is a second ballot. Since when have two ballots cost less than one? If one makes that original tear-off slip the ballot costs are reduced and justice served. Having a ballot on whether to have a ballot is absurd, costly and time-consuming, unless the Minister's intention is to place hurdles in the way of those wishing to exercise their rights under this Bill.
On reflection, there is a difference between the one-ballot procedure which we seek and the two-ballot procedure which the Minister favours. The one-ballot procedure would presumably be a secret ballot in which scheme members would express their views free of pressure from the employer or their trade union. It would represent their true opinion. However, under the two-ballot procedure proposed by the Minister, scheme members who call for a ballot in order to have a ballot will presumably be identified by name, so it will not be
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a secret ballot. It becomes a "stand up and be counted" ballot in which scheme members face the potential annoyance of their employer or pressure from trade unions.
Why should those who wish to exercise their democratic rights be asked to put themselves into a confrontational position? It is simply not fair. I honestly do not see why the Government are doing this. The one ballot procedure which the amendment would restore is cheaper, because one ballot is always cheaper than two; confidential because one does not have to sign up in order to obtain one's rights; fairer; quicker and sensible. The Government's proposals are costly, confrontational and against natural justice. I beg to move.
Baroness Seear: My Lords, I support the amendment. This is a right which the members ought to have, whatever the size of the organisation. The intention in the Bill is that that right goes by default unless specific steps are taken in order for people to assert that right. We say that the right is there and that people should be able to operate it. The size of the scheme or the enterprise makes no difference whatever.
Lord Mackay of Ardbrecknish: My Lords, this amendment resurrects an issue which was defeated during the Committee stage of the Bill. In effect, it requires employers to hold a ballot of scheme members if they wish to opt out of the requirement to appoint member-nominated trustees, even where members may be perfectly content with their existing arrangements.
In our view it is not the means of consulting members that is important but how effective that consultation is; in other words, the statutory consultation procedure. I can assure your Lordships that the statutory consultation procedure we propose will leave members in no doubt as to their rights and options. We intend that it will require employers to hold a ballot if their proposals are rejected by a given percentage of members (possibly 10 per cent). Our proposals will not deprive members of the right to a ballot and if employers want to opt for a ballot at the outset as a way of avoiding the possibility of extra costs they will be free to do so. We see no justification for imposing the requirement of a ballot at the outset in all cases. However, we see considerable advantages, both to scheme members and to the employer, in the more flexible statutory consultation procedure that we are proposing.
We arrived at these proposals following a consultation exercise in June last year, when we received a great many comments from pensions professionals, schemes and employers asking us not to make a ballot an automatic requirement. Those respondents were concerned about the inflexibility of such a requirement. They were also concerned that an automatic ballot could enable a vociferous or disaffected minority to overturn otherwise satisfactory arrangements.
We have listened carefully to those views and, on balance, we agree with them. A ballot is inflexible. Members can either approve or disapprove. On the other hand, under our proposals, the employer would be able to test the water and find out members' views before committing himself to a full ballot. He could then, if

619
appropriate, rethink and perhaps modify his proposal to meet members' concerns before putting his revised proposal to a full ballot. I would also argue that a "10 per cent. objection process" could prove to be a more favourable arrangement from a member perspective. It is I think inevitable that some scheme members will be apathetic whatever consultation procedure is used. However, it would clearly be easier to achieve a 10 per cent. objection against an employer's proposal than to obtain majority disapproval at a ballot. If a ballot then followed as a direct result of a 10 per cent. objection, members who were originally apathetic might actually take more notice.
To some extent, the noble Baroness rather assumed that every scheme would go to a ballot. I do not think that that would be the case. Therefore the suggestion that our proposals will place extra cost on schemes by requiring an objection exercise and then a ballot does not hold water. It would be the case only where members object to the proposals. If the employer wishes to rethink and submit other proposals, then a ballot would still not be necessary. If members do not object, there will be no need for a ballot and such schemes will have been spared the extra expense that a formal ballot would involve.
I believe that a rigorous statutory consultation procedure which directs that all pertinent information must be given to members and leaves the choices to them is the best way to protect members' interests.
At first sight, an automatic ballot may appear attractive. However, it does mean that a disaffected minority could be the only ones who bothered to vote, thus producing an unbalanced or unrepresentative result. We believe that a full disclosure of proposals and sound directions by way of the statutory consultation procedures are the best way to protect members' interests. While there is nothing in our proposals to prevent a ballot at the outset, our arrangements will allow employers an opportunity to gauge members' views, and, if necessary, to make the kind of alterations to the scheme which their members require. If the required proportion of members object to the employer's proposals, then those proposals must be put to a full ballot.
I believe that the position that we take up is a more flexible situation which leaves it in the hands of the members to decide whether they wish to go so far as to have a ballot. It allows the employers to modify their schemes in the light of the representations that they receive. Many schemes, as my noble friend Lord Pearson of Rannoch mentioned earlier, are quite small and are perfectly satisfactory. Their members will be perfectly satisfied with them. They will not need to ballot. Our procedures allow for that situation as well as for the other situation in which members are very unhappy and at the 10 per cent. level can trigger the kind of ballot which the noble Baroness would like to apply to every scheme.
Baroness Hollis of Heigham: My Lords, again I find the Minister's reply quite baffling. I should be surprised if he believes most of it himself.
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Does the Minister believe that when the employers send out the first information as part of the statutory consultation procedure it will be full, complete and in such a form that members can make up their minds? I assume that the answer is yes, otherwise the employers would be failing in their duties. Does he believe that when the employers send out that information they will have to include a piece of paper asking whether the members seek a ballot? In the light of what the Minister said at Committee stage, I assume that the answer is also yes. Therefore what will have happened? The employer will have sent out all the information required on which to make a decision. He will have sent out, secondly, a piece of paper on which a disagreement would have to be registered. The only two differences between that and a full-scale ballot is, first, that returning the paper would not be confidential. The Minister did not address that point. Secondly, there would be the minor cost of counting the responses. That is all. To avoid the minor cost of counting the response on that first consultation exercise, the Minister proposes to go to the cost of a second ballot. That is absolutely absurd. Does the Minister really seek to persuade the House that two ballots are cheaper than one? Does he really seek to persuade the House that the Minister's scheme will require such modifications that he needs time in which to consider, consult and modify before he goes back to the members a second time? Should he not have done that before he first sent out the ballot paper?
I invite the Minister to respond to some of these points. I must say that of thin answers tonight, this is one of the thinnest. Does the Minister believe that two ballots are cheaper than one? Does he believe that members will not have the full information at the first ballot? Does he think that more confrontation or less will arise as a result of people having to put their names to the ballot, it therefore being no longer secret? I invite the Minister to reply.
Lord Mackay of Ardbrecknish: My Lords, with the leave of the House, perhaps I may respond, although, frankly, I have nothing to add to the points that I made. One's impression of thin ice depends upon whether or not one is on it. I think that I am on pretty reasonable ice on this issue. The noble Baroness obviously disagrees.
The position is quite clear. First, I suspect that for most schemes the proposals will be perfectly satisfactory and there will be no need for postal returns, with the costs involved or of ballots, and so on. Secondly, if there are some problems, they may be minor and can be addressed. I should have thought that that was a much more reasonable way to proceed. The idea that we have people in embattled positions is perhaps dear to the mind of the noble Baroness who likes to paint everything fairly black or white. However, that idea seems pretty alien to what will occur when the consultation procedures take place. Perhaps minor or not significant amendments will make the scheme proposed by the employer satisfactory to his members. If it is not satisfactory, then it seems to me that the members have the right, if they wish, to call a ballot. If the employer is not prepared to move, then that ballot will go ahead and the members will be in a position to make whatever decision they will.

621
I believe that we should stick to the position that I have outlined, which has support in the industry, and so on. The consultation procedures that I have mentioned and the statutory procedures that we have laid down, will I believe lead to a proper consultation with the members, and a proper conclusion. It will mean that those many schemes which are perfectly satisfactory to the members will not need to go to the expense of a ballot.
Baroness Hollis of Heigham: My Lords, I am sorry to turn the discussion into a Committee-style debate. However, I am even more baffled now by what the Minister says. If the employer produces a first scheme, the responses might in the normal process have triggered a ballot. However, the Minister says that such responses would be used by the employer to modify or tweak the scheme, in the light of the representations made. What happens then? Does the employer reissue the scheme before he goes to a ballot? Will it be an everlasting series of proposals by the employer? Will the employees vote on the modified scheme? It will be different from the scheme on which they called for a ballot in the first place.
The Minister needs to clarify the position. It seems as though people are being invited to ballot on proposals on which they were not balloted. Perhaps the Minister will enlarge further. The more he continues, the more he walks on quicksands. What will happen between the first and second ballot? The proposals put forward can be modified. What then will people believe that they are voting on? What chance will they have to consider the further modifications if the employer produces a second ballot paper on a quite different set of proposals from the first? I apologise, but the Minister really must clarify further.
Lord Mackay of Ardbrecknish: My Lords, if I have the leave of the House—it is beginning to look more like a Committee stage; we ought to have dealt with those issues then if that is what the noble Baroness wished—perhaps I may simply say this to her. It is difficult to envisage what the objection might be. It might not be a serious objection. It might be one on which the scheme can easily be amended. The employer will then have met the objections and the scheme will be satisfactory. That is perfectly sensible.
My recollection of the Bill—if I am wrong, I shall write to the noble Baroness—is that there are some time limits. As I think the noble Baroness suggests, if I understand her correctly, the employer could not string the process along for ever and a day so that he never got round either to having member-nominated trustees or to having his own proposal accepted. Although I cannot find the provision as quickly as I need, I am pretty certain that there are time limits. If there are not, I shall certainly write to the noble Baroness.
The safeguards are there; I do not think that we need to go to a ballot. I have made my point. The noble Baroness clearly wants ballots at every possible turn.
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She wants a ballot right at the beginning. I do not believe that that is necessary. I am afraid that there is just a bit of a division between us.
Baroness Hollis of Heigham: My Lords, the reason that we are treating this matter rather as we would in Committee—for which I beg the indulgence of the House—is that the Minister is producing arguments on Report that were never even mentioned in Committee. We have heard for the first time tonight that employers will have the right to modify what they propose to members between the first circulation of the information and the right to a ballot. It is the first time that we have heard of it. This is a significant change, so far as I am aware. I defer to the Minister.
Lord Mackay of Ardbrecknish: My Lords, I intervene for the last time. If the employers were not in a position to modify what they had proposed, there would be no point in their proposing it. The whole proposition is to ensure that the members are satisfied with what is being proposed.
Baroness Hollis of Heigham: My Lords, when the Minister reflects on the debate tonight, as I am sure he will, I hope that he will see that the further he goes, the more entangled—I really mean this—his argument has become. It was a pretty sorry argument. It is for that reason that I shall not press my amendment tonight: I hope that the Minister will come back to the House on this matter. He is in an impossible position. He faces a set of receding issues. However, with the leave of the House I should now like to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 47 and 48 not moved.]
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 49:
After Clause 15, insert the following new clause:
Protection against victimization
(". In relation to a member-nominated trustee appointed under section 14, the Employment Protection (Consolidation) Act 1978 and the Trade Union and Labour Relations (Consolidation) Act 1992 (referred to in this section as "the 1992 Act") shall each have effect as if—

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

(b) the reasons specified in section 152 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: My Lords, we are revisiting issues that we debated in Committee, when I am sure many noble Lords on all sides of the House were sympathetically inclined to the amendment that I moved. The Bill rightly gives a key role to trustees and in that regard it follows the recommendations of the Goode Report. It also envisages election or selection of employee trustees, as we know.
The duties and responsibilities of trustees are quite onerous, and we have to get the balance right to ensure that suitable employees are not frightened off. We have already discussed this point in connection with penalties

623
and other matters. But if, added to that, trustees are to be concerned for their jobs if they attempt to do what they believe to be a proper task on behalf of the employees as a whole, it will be even more difficult to persuade the right type of people to come forward.
As I said in Committee, the late Robert Maxwell had employee trustees. But one cannot imagine that they would have felt able to stand up to the force of his dominant personality. Trustees are likely to be the first people to know if something has gone wrong or may be going wrong. A good trustee could well make himself or herself unpopular with the employer simply by asking too many questions deemed to be awkward. Trustees may make mistakes in good faith or out of naivety. But they must feel free to express a view without being fearful of the consequences. It is possible for employers to be quite vindictive, particularly if they have something to hide.
My amendment seeks to give extra protection against victimisation in such circumstances. It would mean that an employee trustee, if dismissed as he or she believes through endeavouring to exercise the trustee function effectively, would have the immediate protection of the 1978 Act without any qualifying service, the present period of two years being non-applicable in such circumstances. This could be quite important, since it is by no means certain that all trustees would have had two years' continuous service.
Secondly, such an individual would be entitled, if a claim to an industrial tribunal succeeded, to the maximum amount of compensation available. In Committee, the noble and learned Lord, Lord Hailsham, asked 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".—[Official Report, 13/2/95; col. 471.]
However, that is what my amendment does. It reverses the burden of proof.
In Committee, the Minister said that he thought I had intended my amendment to refer to Section 152 of the 1992 Act, and I agree. I therefore amended the wording appropriately. There was support in Committee from all sides of the Chamber; and the Minister himself seemed sympathetic, and promised to look at what had been said. I had hoped therefore that there would be a government amendment. But as there is not, I wonder whether I can, this time round, persuade the Minister to accept this amendment. I beg to move.
Lord Mackay of Ardbrecknish: My Lords, as the noble Baroness, Lady Turner, indicated, I was struck by the force of the arguments put to me at Committee stage from all sides of the House about extending protection for employee trustees against victimisation by their employers. In this Bill, we are emphasising the responsibilities that trustees have for ensuring that a pension scheme is properly run and for looking after the interests of scheme members. We are aware that member-nominated trustees will often be in a minority on trustee boards, and that sufficient protection should be provided to an employee trustee in the same way as
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we are seeking in the Bill to provide protection, in a number of important areas, for trustees in their role as trustees.
In the Committee debate, I gave an undertaking that, if I could see a gap in the legislation, we would give serious consideration as to how we could close it. Having considered the position carefully, I can reassure noble Lords that, after consulting colleagues responsible for the relevant legislation, we do not believe that such a gap exists.
Individuals who have two years' service fall under the generalised protection against unfair dismissal. In such a case any dismissal is potentially unfair and the onus is on the employer to show that it was not. Employees would, of course, have to show that they have been dismissed and have not, for example, simply resigned, before they can establish their case. The Government do not believe that all employees, regardless of their length of service, should have such a general protection. The two-year qualifying period is necessary to ensure that the legislation does not create too heavy a burden on employers making them reluctant to recruit.
The Government have recognised that there should be specific protection in certain kinds of areas where fundamental rights are at stake, even where individuals do not have two years' employment—for example, for trade union and health and safety activities. In these cases it is up to those seeking to rely on this special protection to show that their complaint falls within its scope. That is in line with the time-honoured principle of UK law that it should be for those whose case depends on establishing certain facts to prove those facts.
The qualifying period is a major component of government policy, to ensure that employment protection legislation does not weigh unjustifiably on employers. The likelihood —I also mentioned this point in Committee—of pension scheme trustees having fewer than two years' service is perhaps minimal. We do not therefore see their position as justifying extending the list of exclusions. To do so might well bring pressure to extend the list still further.
In Committee, the noble Baroness, Lady Turner, expressed concern about the effect that mergers and takeovers might have on an employee's length of service, and how that came into the two-year rule. Indeed, I took her point, and that was one of the matters that we looked into.
I say to the noble Baroness that this is unlikely to be a problem, either generally or in relation to pension scheme trustees. The reason is that events such as mergers and takeovers would not normally break an employee-trustee's continuity of employment. I should like to make three main points about that, because it was one of the valid points that the noble Baroness brought to my attention.
First, employment protection legislation provides for continuity of employment to be preserved in most cases where a firm is taken over by another, either by the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) or under paragraph 17 or 18 of Schedule 13 to the Employment Protection

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(Consolidation) Act 1978. Secondly, TUPE provides broadly for the continuity of employment where a business or part of a business is transferred to a new employer. Thirdly, Schedule 13 to the 1978 Act provides for continuity when a wider category of business is transferred or if the employee moves to an associated employer.
I hope that I have managed to persuade the noble Baroness that the particular problem that she envisages of somebody having to go back to the beginning in the light of a merger, a takeover or something of that nature and start the two-year clock running again, is very, very unlikely. Indeed, I submit that under the three points that I have made it will not happen at all.
I turn to the related matter of victimisation and bullying by an employer which falls short of actual dismissal, a point that was also raised in Committee. In the Government's view, employees are already protected against significant victimisation or bullying by employers for whatever reason. If they suffer financial loss, they may be able to complain to an industrial tribunal or to the civil courts. If the employer's actions amount to a fundamental breach of contract, the employee will be entitled to resign and, if he qualifies, complain of unfair dismissal to an industrial tribunal. In any event, we do not believe that acting as a pension scheme trustee will put individuals in any more vulnerable a position with regard to victimisation by an employer. After all, employers set up pension schemes voluntarily; so any real employer-trustee conflict should be something of a rarity.
As I indicated, I have great sympathy with the concerns expressed during our debate in Committee. I undertook to look seriously into the position, which I have done. I appreciate the concern of noble Lords in Committee and that of the noble Baroness this afternoon. However, I am satisfied that the present unfair dismissal provisions already provide the legislative protection that we all believe the trustees need.
In the light of that explanation of to where trustees can look for protection in existing law, I hope that the noble Baroness will be reasonably satisfied and feel able to withdraw her amendment.
7 p.m.
Baroness Turner of Camden: My Lords, I thank the Minister for that detailed response to the amendment, but I am not entirely satisfied.
In the first place, the Minister produced the argument that an employee, if he were a trustee, would normally have had at least two years' service. That is not entirely true. There could be a fairly new firm in operation which decided to introduce a pension scheme. The individuals concerned would not have had the opportunity of working for two years with the same employer.
Secondly, he advanced the arguments in relation to TUPE and the Acquired Rights Directive in regard to mergers and takeovers. I understand that continuity of employment is guaranteed to a certain extent by the TUPE regulations. However, one of the reasons for
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attempting to write into the Bill some protection to trustees was, as it were, to flag up to employers who might feel inclined to exercise some intimidation or intimidatory tactics that there was special protection available to a trustee in such circumstances.
There was one aspect of my amendment to which the Minister did not address himself. It was my intention that if an individual succeeded in demonstrating to an industrial tribunal that he had been victimised, he would then be entitled to the maximum damages available to somebody dismissed under that particular section of the legislation. In other words, the employer would know that should an individual succeed before an industrial tribunal in demonstrating victimisation, then by decision of that tribunal the maximum amount of compensation could be claimed and made payable.
I am not entirely satisfied with everything that has been said. On the other hand, in view of previous votes that have taken place this evening and considering the hour, I do not feel inclined to press this matter to a Division. I shall consider very seriously what the Minister said. It may be possible to come back at Third Reading with a different form of words. The Minister's explanation does not entirely satisfy all the arguments that we advanced. I do not feel that trustees are adequately protected against victimisation or intimidation. However, in the circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas: My Lords, I beg to move that further consideration on Report be now adjourned. In moving the Motion, I suggest that the Report stage begin again not before 7.50 p.m.
Moved accordingly, and, on Question, Motion agreed to.

Battersea Power Station
7.5 p.m.
Lord Dubs Lord Dubs rose to ask Her Majesty's Government whether they will investigate the circumstances surrounding the disposal of Battersea Power Station by the Central Electricity Generating Board, and the reasons for its present dereliction.
The noble Lord said: My Lords, I welcome this opportunity to ask a complicated and important question of the Government about Battersea Power Station. The history of the power station over the past 11 or 12 years has been a sorry one. It is a history of neglect, incompetence, muddle and lack of will. I shall develop that history in a few moments.
First, let us look at the way in which our capital city is developing. Every now and again, there is an opportunity—it may come only once every 100 years—when a major site of importance to London and Londoners is ready for redevelopment. We have seen that happen in Canary Wharf where, I contend, we made a mess of it. We have seen it in the case of County Hall where I believe that we are also in danger of making a mess of it. We have seen it in the case of Battersea

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Power Station where I fear that we are missing opportunities that may not come again perhaps for 100 years or longer.
I want briefly to trace the history of the power station in relation to its original owners, the Central Electricity Generating Board; to record the fact that it is now a semi-derelict building that has no roof and that if the building becomes a dangerous structure it may have to be pulled down; and to point out that what we need, even at this point in time, is an exercise in imagination and co-operation between different sectors to do something sensible with an important and valuable site.
Let me turn to the history. About 1983 the CEGB decided that it no longer needed Battersea Power Station to provide electricity. A plan was prepared to dispose of the building by means of a competition. The winning consortium would have a golden opportunity to develop the site in line with the competition's winning entry. The consortium that won the competition did so on the basis of developing a theme park on somewhat similar lines to Alton Towers.
At that time I happened to be the Member of Parliament representing the Battersea constituency. I wrote to the Central Electricity Generating Board asking what safeguards there would be should the consortium which had won the competition be unable to proceed with the entry that had given it victory. The answer was that, apart from Wandsworth Council's own planning controls, no safeguards were necessary or would be sought.
As I understand the matter, the original consortium acquired the power station for £1.5 million. It is a Grade II listed building. Although the members of the consortium have changed several times, the original idea for development was proceeded with for some years. The Prime Minister in office at that time hailed the head of the consortium and said that she would be there at the power station on the day that it opened in 1990. I am bound to say that on the day I was there but she did not appear. That was hardly surprising, as the building was empty. It had no roof; work on it had stopped; and it was as derelict then as it is today. At some point in that period, Wandsworth Council found itself owed around £150,000 in planning fees. It was perfectly clear that the consortium had run out of money.
But perhaps I may go back a stage or two. The consortium had promised that it would involve the local community in further developments on the site. I do not believe that that happened. So far as I am aware, there was no sign of it. The building was then sold to a Hong Kong consortium, which I believe is called Parkview. It is not clear whether that consortium has any clear proposals for developing the site.
However, there is another and more serious issue. I understand that, if the building were to be pulled down, the value of the site would increase to between £100 million and £150 million. That is an enormous incentive for any developer to do nothing; to wait until the building becomes too dangerous to be allowed to stand. The local authority will then issue a dangerous structure notice. The developer will be able to pull down the listed building and make a large profit.
I do not know for what sum of money the original consortium sold the site to the present owners. The present owners, Parkview Estates, bought the original consortium's debts rather like the Dutch bank bought the debts of Barings. It is not clear therefore who would benefit if the building were to be pulled down and there were to be a green field site. Whoever benefits, the public will have lost because the Central Electricity Generating Board disposed of the building without even the minimum safeguards one would have thought a public body at the time would insist upon; which means that someone can make a large killing for negative effort, given that nothing is happening.
That is a sorry saga. I regret that the Public Accounts Committee in the other place did not bother to look into the issue. It may have unearthed rather more than I am able to reveal today. It is a miserable and murky story. We now have a situation where English Heritage has a responsibility for the building because it is listed. Wandsworth Council appears to find the issue too big for it to cope with. Its involvement has been a story of neglect and of doing very little other than trying to recoup the money in planning fees. If ever there was a need for a Greater London Council, it is here. It would be a body that could take a strategic view of that part of London and ensure that the site is developed in a way that meets the needs of London as a whole as well as the local community in Battersea.
Over the years the issue has been kept alive by a local group—the Battersea Power Station community group—and by the South London Press, which battled valiantly to try to draw the attention of people to what has been happening on the site. I believe that there are ways ahead in which, despite the history, we can look forward in a positive sense. Other cities in the world have shown that there are imaginative ways in which key sites can be developed and used for the good of the local community as well as of the wider community. Developments in parts of Hamburg indicate an exciting approach to urban regeneration. Developments in San Francisco arose from the city council setting up a task force in order to see what could be done to develop key areas of that city. I am sure that examples exist in other cities which indicate that there are possible and imaginative ways ahead.
We need a sense of excitement in relation to the opportunities. We need to create a way forward which will seek to bring in new and exciting ideas; a way that will recognise that we need a mixed development on the site rather than only one. After all, the site consists of 35 acres, a large building and an adjacent site which could complete the opportunities and possibilities. We need a mixed private and public development. We need to make sure that commercial benefits can accrue from the site; that social, community and leisure benefits can accrue.
I suggest that the Government should bring together the private sector—after all, Parkview owns the site—English Heritage and, despite what I have said about it, Wandsworth Council. Architects from around the world could be invited to find exciting ways of developing the potential of the site. In Hamburg teams of architects worked openly so that members of the public could see

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what was going on and could engage in a dialogue with them. In that way ideas were developed and local people had an input.
The Hamburg opportunity seems an exciting one. One of the architects involved, Mr. Alsop, made me feel extremely enthusiastic about the opportunities that exist for that type of approach. I do not know what is the right answer for the Battersea site, but I know that opportunities exist. I ask that the Government take that on board. I accept that the history has been miserable and unfortunate. But let us use our imagination, grasp the exciting opportunities that exist, and make something of an important part of London. At the moment it is neglected and signifies failure. Let us be positive. Let us feel the excitement and move forward on that basis.
7.16 p.m.
Lord Ponsonby of Shulbrede: My Lords, Battersea Power Station has evoked strong feelings from the generations of people who have known it. For two generations it was the wonder of the industrial age—from 1933 when the London Power Company first commissioned it, through to its peak of activity in the 1950s when it burnt 1 million tonnes of coal a year and sucked up 340 million gallons of water a day from the Thames. I am an engineer and I make no apology for saying that the colossal structure, with its four chimneys, each 337 feet high, captures my imagination. To me it evokes heavy engineering at its unfashionable best; it evokes battleships, ocean liners, steam trains and oil rigs.
I spend much of my working life travelling through Moscow. In Moscow working power stations still exist in the city centre. I have no doubt that those power stations are unloved brutes, barely functional and very dirty. For the Muscovites, heavy engineering evokes today's difficulties, not yesterday's successes. But Battersea Power Station is not unloved; it is a brute, but a brute with style. That has been acknowledged by all parties involved with it over the years.
Today Battersea Power Station has been standing idle for 13 years. It is now a desolate empty hulk with the west wall down and the roof removed. We heard something of the failure of private enterprise, of Wandsworth Council and of the Government to develop the site and preserve the structure. It is too easy to catalogue the broken promises, the back scratching, the waste of public money and bankruptcies that have characterised the site's history for the past 13 years.
Noble Lords may remember that in June 1988 the then prime Minister, Mrs. Thatcher, attended a ceremony at Battersea Power Station in which she referred to it as,
"the wonderful example of private enterprise and local government working hand in hand for the benefit of Britain".
She went on to congratulate the developer, Mr. John Broome —who was subsequently honoured—on,
"seizing the opportunity not only to save this magnificent building, but to put it to work again for the nation … This colossal undertaking has that touch of pure genius that has always made Britain great".
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I take no pleasure in reminding the Government of those words. They illustrate their misplaced faith in the private sector. But, much worse, they have given Wandsworth Borough Council an excuse for doing nothing over the past 13 years. No initiatives have been taken; no leadership shown. The planning brief is over 11 years old. Wandsworth itself could update it; for example, there is no need for there to be a single developer, as we heard earlier. As a statutory authority Wandsworth Borough Council should be leading both public and private investment in the site's development. That is how it would happen in many European cities—I think of Hamburg, Marseilles, Barcelona and Paris.
I hope that the aspirations for Battersea Power Station which Mrs. Thatcher set out in her speech in 1988 may yet be fulfilled. But it will take leadership and imagination. I urge the Government to consider their role so that future generations of Londoners may enjoy the sight of heavy engineering with style.
7.19 p.m.
Lord Desai: My Lords, we are grateful to my noble friend Lord Dubs for introducing this important Question. Although not much interest has been shown on the other side of the House about it, I do not think it is a partisan issue.
Battersea Power Station is part of London's and the nation's heritage. It is a magnificent building if in a somewhat brutal style, as my noble friend said. Not all schemes where private enterprise has bid for a public place have been failures. In Islington, the Royal Agricultural Hall was converted very successfully into the thriving Islington Business Centre. On the other hand, County Hall—perhaps I should declare some kind of interest because the London School of Economics where I work bid for County Hall and lost—was left to lie unoccupied for many years. Something is being done to it—we do not know what—and we hear constant rumours that the hotel plan may be abandoned and that we may be in another Battersea Power Station situation. Battersea Power Station is an example of a private enterprise scheme being aborted, thwarted or neglected.
What I want to do is not so much to apportion blame to Wandsworth Council, the private sector or the Government, but to ask whether it is not time for someone somewhere—be it English Heritage, the Millennium Commission, or whoever—to have a thought about public buildings which are in danger of being vandalised, if not totally destroyed. Either they will be put to a use which is not suitable—County Hall is an example—or they will be prematurely destroyed and the space will be put to another use.
Partly it is a matter of profitability; and why not? But I think there should be some way of conveying to people who own the building that rather than let it go to waste and become dangerous, and then destroy it and redevelop the site over a period of 10 or 15 years, it may be more profitable even from their point of view to adopt an alternative strategy—a co-operative strategy. With a little imagination from English Heritage, or whoever, we could both preserve the building and use it to generate profits for the private company and benefit the public interest.

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I really wish that the Government would think along those lines. They could thereby save the building and make it profitable and useful rather than let it go to waste, become dangerous and then have to have it destroyed.
7.23 p.m.
Lord Ezra: My Lords, I should like to declare right at the start of my remarks that I have been involved in this project in the sense that in 1983 the CEGB invited me to chair the body that was to select the scheme to be pursued.
The CEGB' s original proposition was to tear down the station and redevelop the site. But when the building was listed the CEGB was unable to do that, and it therefore decided to appoint a body, which ran a competition in order to come up with various proposals. It was a pretty eminent body, apart from its chairman, who was not eminent at all. It included Sir Hugh Casson, President of the Royal Academy; Sir Robert Lawrence of the British Railways Board; the Editor of the Standard; the chairman of Wandsworth technical services committee; the chief executive of the London Docklands; and a leading member of the CEGB. So quite an eminent body of people examined the matter, as the noble Lord, Lord Dubs, will no doubt recall.
My full recollection is that this was done extremely fairly. The competition was advertised. Six competitors were selected. We were not told the names of the competitors. Their projects were closely examined; the financial, environmental and transport implications were all looked at, and finally the syndicate in which the Alton Towers group was involved was selected. The proposition was that the Battersea Power Station should be converted into a replica Alton Towers, having regard to the fact that the structure had to be preserved. All seemed to be going well until financial difficulties arose. As a result of those financial difficulties, which meant that work on the project stopped in 1989, it was then sold—or the debts were sold, as the noble Lord rightly said. Since then, regrettably, the whole thing has been in abeyance.
I share the views expressed by other noble Lords who have spoken: the noble Lord, Lord Dubs, to whom we are grateful for introducing this Question; the noble Lord, Lord Ponsonby, who told us in glowing terms how much attachment he has as an engineer to this building; and the noble Lord, Lord Desai, who addressed the Question in his usual practical way.
When it was first built a lot of Londoners were shocked at the appearance of this upturned table in their midst. But since then they have grown to love it and do not want it to disappear. The conclusion I would reach, having been involved at the start and having had high hopes that the project would go ahead and provide some leisure for Londoners and for tourists visiting our shores, is that I very much hope that some way will be found of finding a solution at long last.
There are difficulties in the way. As the noble Baroness will probably remind us, the matter is still going through the courts. The question of ownership is not entirely resolved. But we shall have to see whether
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the Government can try to expedite these matters in some way. We can then perhaps pursue the proposal put forward by the noble Lord, Lord Dubs, that we should have another look at the matter and make use of the site which is becoming so derelict that this revered building could one of these days collapse from lack of attention. I look forward with great interest to hearing what the noble Baroness has to say to us.
7.27 p.m.
Lord Graham of Edmonton: My Lords, I rise not to apologise for the fact that the noble Lord, Lord Donoughue, is unable to be here because he is here. However, the circumstances were such that he needed to be out of the House for a very important reason and as he was so uncertain as to whether he could get back in time, I drew the short straw. The noble Lord, Lord Donoughue, who is sitting next to me, takes a keen interest in this matter, as indeed do all other noble Lords. I am delighted that the noble Baroness, Lady Trumpington, is to make a contribution and, I hope, to give us some words of comfort.
The noble Baroness should recognise that the terms of the Question are reasonable and gentle. It is couched in low key terms. There has been a remarkable lack of rancour from those two Members of the House who can speak most knowledgeably about Battersea. One of them represented Battersea in another place and another represents it on Wandsworth Council. We begin, therefore, in a positive and constructive way. However, sadness pervades the air because anyone who is a Londoner—I am a Londoner merely by emigration and by accident—must accept that the skyline, the riverscape and the unity of London are unique in many ways but not least because of the buildings and the functions that have been carried on in them. One can create rhapsodies about the importance of the River Thames. We are talking about a priceless asset which we believe is in danger of—I shall not say "being sold down the river"—coming to a very sad end.
I certainly have a great deal of sympathy with a number of groups; first, with the people of Battersea and Wandsworth. I am grateful to the noble Lord, Lord Ezra, for the brief history. He told us that when the structure was first created—now almost 60 years ago—it must have caused a hiatus among the populace. If one were to ask people throughout the world what they associate with Battersea they would mention the dogs home, the power station and the Festival of Britain. No doubt those who know more about Battersea can give many more examples. One of the few things that people think about when asked about Battersea is the power station.
I have a great deal of sympathy with Wandsworth Borough Council, which is the unit of government that has been landed with having to take some initiatives and exercise some power and authority in the absence of the GLC. That was an ideal unit of local government both to accept responsibility and to find the moneys necessary. The sad fact is that the GLC is not with us.
I certainly have sympathy with the Department of National Heritage because in a very busy life, with a great deal to do and not always with sufficient funds, we are asking it to take on board the responsibility for

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trying to sort out the mess. Anyone who looks at the matter cannot but agree that it is a mess and that someone has to take the initiative to sort it out. We are saying that here is an opportunity for the Department of National Heritage and the Department of the Environment to come to the rescue of Londoners in that way.
I certainly agree with Mr. Victor Hwang, head of the current consortium, when he says,
"Battersea Power Station is a symbol of London and we would like to use that to recreate the spirit of the art deco era".
Whether that is the function for which the consortium finally gets planning permission is another matter. But the building is quite unique.
I also endorse completely Mr. Brian Barnes of the Battersea Power Station Community Group when he asks Wandsworth Borough Council to publish a new development brief for the site. Mr. Barnes is quoted in the local press as saying,
"Wandsworth should take a more active role in the planning process and work with Parkview to speed up the redevelopment of the power station".
We are asking the Minister to be sympathetic and helpful.
The noble Lord, Lord Desai, and others have drawn our attention to the fiasco of the manner in which County Hall was taken out of public use by the residual body. It was bought and tinkered with. The project has lapsed, and the building has a history. I am not making a point about the way in which private developers can buy something for what I might call "nefarious purposes".
I served as chairman of a planning committee in Enfield some years ago and as leader of the council. A suspicion was introduced by one of the speakers that a possibility may exist that if this site finally became derelict and an eyesore the clearing of the site itself would bring in millions and millions of pounds. I am not in the business of causing anyone to talk about bogeymen and produce scare stories, but those factors exist.
My noble friend Lord Dubs said that we are looking for a sense of excitement in the future. That is what we need. He also said that there is a lack of will. I can see quite clearly that the noble Baroness, Lady Trumpington, and her colleagues in the Ministry are listening very carefully to the strength of feeling in the debate. A noble Lord said that there is no party animus in this, and that is absolutely right. There is nothing to be gained.
A great many headaches will come to whoever takes up this problem. The building was described by the noble Lord, Lord Ponsonby, as a "brute with style". It should still have a part to play in the overall planning of the river. I remember that it was Frank Sinatra who sang, "London by night is a wonderful sight". It is. Among the sights which Londoners see beside the other great buildings like this House and County Hall is Battersea Power Station. There are opportunities here. I very much hope that the Minister can be positive and give the people of Battersea—but more importantly the
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people of London and millions outside it—a sense that the Ministry has grasped this opportunity, which may never come again.
7.35 p.m.
Baroness Trumpington: My Lords, I am very grateful to the noble Lord, Lord Graham, for having stepped into the shoes of the noble Lord, Lord Donoughue, much as I regret being able only to admire him but not to hear him this evening.
We are all grateful to the noble Lord, Lord Dubs, for providing us with an opportunity to discuss this important London building. Since I live within a stone's throw of Battersea Power Station, I am at a loss as to whether or not I should declare an interest. My feelings are every bit as passionate as those of the noble Lords who have spoken.
The power station is listed as a building of special architectural or historic interest. Its listing status is Grade II. It was constructed from the 1930s onwards to the designs of Theo Halliday and Sir Giles Gilbert Scott, and is an important example of industrial architecture of that period. The power station is in fact the largest brick building in Europe. To illustrate its size, one could drop the whole of St. Paul's Cathedral into it and still have room to spare.
The noble Lord, Lord Ponsonby, will be interested to know that it is perhaps ironic that when construction was first mooted in the 1920s, fears were expressed that smoke emitted would ruin the paintings in the Tate Gallery across the river. Time moves on and, as we all know, Scott's other Thameside power station, at Bankside, is now itself to become part of that gallery.
The noble Lord, Lord Dubs, is right, the building remained in use as a power station until 1983. In 1984 the then owners—the Central Electricity Generating Board—launched a competition for its disposal. The bids were assessed not by the CEGB but, as he said, by a panel of independent assessors under the distinguished chairmanship of the noble Lord, Lord Ezra. I believe that he has given sufficient details about what went on at that time.
Listed building consent was given by Wandsworth Borough Council for the removal of part of the building, and work commenced accordingly. We understand that Mr. Broome spent a considerable sum of money on consolidating the building's foundations, but his plans subsequently fell through and circumstances forced him to sell the building. Parkview International, as agent for the Hwang brothers from Hong Kong, has now acquired the debt on the site, and is proceeding to full ownership.
The argument has been heard that, given the continuing uncertainty over the power station's future and the current state of the building, the right course now is to de-list it. The Government do not agree with that, for two reasons. Here I agree with the gist of the remarks of the noble Lord, Lord Desai.
First, although the power station at present stands empty with no roof and no west wall, it still retains the special qualities that were held to justify its listing in the

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first place. The most significant features of the interior, including the directors' staircase, bronze doors and Art Deco control room, are unaltered and protected.
Secondly, to de-list the building would send out entirely the wrong signals to other owners of historic buildings who would like to redevelop. The listing system does not in itself rule out any particular option for the building or its site. Its purpose is to flag up the special character of a building, and to ensure that decisions determining a building's future take that special character into account. The owner of a listed building may apply to the local planning authority for consent for its demolition. However, we are not aware that any application for consent to demolish Battersea Power Station has been made.
The Government's general policy on the conservation of historic buildings was set out last year in Planning Policy Guidance Note No. 15, Planning and the Historic Environment. This guidance, which local planning authorities must take into account in carrying out their statutory functions, restated the long-standing presumption in favour of the preservation of listed buildings.
I must emphasise that it is important that the Government do not comment on the merits of any particular option so as not to prejudice any decision which the Secretary of State for the Environment might eventually have to make on a planning or listed building consent application.
The guidance note also emphasised that viable new uses are often the key to the long-term survival of historic buildings. As your Lordships may be aware, many other major industrial buildings, which at one time might have seemed total white elephants, have subsequently been found very successful new uses. The Albert Dock in Liverpool and Dean Clough Mill in Halifax are good examples. I must tell the noble Lord, Lord Dubs, that the current position regarding Battersea Power Station is that Parkview International is in discussion with Wandsworth Council and English Heritage on a master plan for the complete site. I understand that mixed use of the site is among the options being considered. The Government are not a party to the discussions and it is not for me to speculate on the outcome. So far as we are aware, no new formal planning applications have been made. I have to say that both English Heritage and the Government accept that a viable new use for the site may in due course require substantial adaptation of the existing building, or some additional building, or a combination of both.
However, at this stage English Heritage's aim is to ensure that, until the long-term future of the building can be clarified, the condition of the fabric does not further deteriorate, and in particular that the directors' staircase and the control room are kept weathertight.
English Heritage inspects Battersea Power Station regularly. The last inspection took place on 6th December, and another will be carried out this week. The need for a number of minor repairs (such as patching minor leaks) was identified in the course of December's inspection, and these have now been completed by the owners. English Heritage has also requested Parkview to arrange for a structural engineer
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to look at the steelwork supporting the north-west chimney. A report on that should be available by the end of this month.
Both English Heritage and Wandsworth Council are well aware that they both have powers to serve a repairs or urgent works notice against an owner who neglects a listed building. However, English Heritage does not consider that Battersea Power Station has deteriorated to an extent that would warrant action of that kind at present. As I have said, English Heritage continues to monitor the condition of the building, and considers that for the moment there is no cause for alarm.
The Government fully acknowledge that the recent history of Battersea Power Station has not been as one might wish. However, I hope that your Lordships will draw some comfort, first, from the fact that discussions on the future of the site are proceeding; and, secondly, from the assurances that I have given that the building is subject to regular inspection by English Heritage, which is satisfied that the current condition of the building gives no immediate cause for concern. I hope that I have allayed the fears of the noble Lord, Lord Dubs, and of those of us who are interested in the future of Battersea Power Station.
Lord Graham of Edmonton: My Lords, before the noble Lord sits down—
Baroness Trumpington: Noble Lady!
Lord Graham of Edmonton: My Lords, I am sorry. Given that everyone is waiting for the current discussions to produce something positive, can the noble Baroness say whether it is in the minds of her ministerial colleagues to say that, if required, they would welcome becoming involved in helping to produce a good solution? We are not talking about merely finance. I am concerned about the impact on the river and on similar great buildings.
Baroness Trumpington: My Lords, I understand what the noble Lord says. At the moment, the Government are not a party to the discussions, so it is not for me to comment. However, as I said earlier, I understand that joint planning for the future is being discussed.
Lord Dubs: My Lords, before the noble Baroness sits down, may I ask whether she will agree to think again about the points that have been made? If reports from English Heritage say that because the building has not yet fallen down, all is not disaster, perhaps I may advise her that that is a low level of achievement. Will the noble Baroness take away with her the thought that the Government could be the catalyst and could generate some excitement by getting architects involved and seeing the scheme as one of the most wonderful opportunities for the future of London? Does the noble Baroness agree that if we leave things as they are now, this situation might drag on for years?
Baroness Trumpington: My Lords, as Battersea Power Station is a listed building, it is the duty of English Heritage to make sure that it is protected. I hope

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that I have made it quite clear this evening that it will continue to be a listed building. I do not think that I can go any further than that at the moment.
Viscount Long: My Lords, I beg to move that the House do now adjourn during pleasure until 7.50 p.m.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 7.46 to 7.50 p.m.]

Pensions Bill [H.L.]
Consideration of amendments on Report resumed.
Clause 16 [Member-nominated trustees: supplementary]:
Lord Lucas Lord Lucas moved Amendment No. 50:
Page 8, line 9, leave out (" 3") and insert ("(Prohibition orders)").
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 3. I beg to move.
On Question, amendment agreed to.
Clause 23 [Section 22: Consequences]:
Lord Lucas Lord Lucas moved Amendment No. 51:
Page 12, line 18, leave out (" 3") and insert ("(Prohibition orders)").
On Question, amendment agreed to.
Clause 24 [Persons disqualified for being trustees]:
Lord Lucas Lord Lucas moved Amendment No. 52:
Page 12, line 26, at end insert:
("(bb) where the person is a company, if any director of the company is disqualified under this section,
(bc) where the person is a Scottish partnership, if any partner is disqualified under this section").
The noble Lord said: My Lords, I shall speak also to Amendments Nos. 54, 55, 56, 57, 58 and 59. These amendments introduce changes to disqualification provisions in Clauses 24 and 25. Amendment No. 52 provides that a company is automatically disqualified from being a trustee of an occupational pension scheme if any of its directors are disqualified from acting as a trustee of a pension scheme under the provisions of Clause 24. Similarly, a Scottish partnership is automatically disqualified from being a trustee of an occupational pension scheme if any partner is disqualified. That automatically prevents individuals who are disqualified from acting as a trustee from being able to circumvent their disqualification by hiding behind the legal identity afforded to a company or Scottish partnership.
Amendment No. 57 is consequential on Amendment No. 52. It removes subsection (6) which is made redundant by the new wider automatic disqualification provision introduced by Amendment No. 52. That provides greater protection to schemes than that provided by Clause 24. As it currently stands, Clause 24 provides for the authority to remove or prohibit the company or partnership only in respect of a particular scheme. Companies and Scottish partnerships can
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ensure that they are not disqualified under the new provisions simply by ensuring that none of their directors or partners is a disqualified person.
The authority will be able to use this power only if the individual in question has breached an obligation placed upon him by Part I of the Bill and is to be prohibited in respect of it. That individual will be able to ask for prohibition to be reviewed in the usual way. If the decision to prohibit were to be overturned, the authority would not be able to disqualify him.
Amendment No. 54 provides for the authority to disqualify any person it has prohibited from acting as a trustee for a breach of the provisions of Part I of the Bill, if it considers it desirable to do so. It enables the authority, when considering whether to disqualify a person who has been prohibited, to take into account all relevant factors—to consider disqualification "in the round" and not just in the more restricted context of the particular actions which led to the prohibition.
Amendment No. 55 provides for the authority to disqualify a person from being a trustee of an occupational pension scheme if he is incapable of acting as such because of a mental disorder or where he is a company which has gone into liquidation. I am delighted to see that the usual third of that triumvirate—the mad and and the bankrupt—in other words, the Peerage, is not included in that provision. That provides the authority with the power to disqualify such people form being trustees and increases the protection that can be afforded to occupational pension schemes.
Amendment No. 56 is consequential upon Amendment No. 55. It adds a reference to new subsection (3A) so that the authority can consider revoking or waiving its disqualification on the application of the person who is disqualified.
Amendments Nos. 58 and 59 address the concerns expressed by the noble Lord, Lord Haskel, in Committee, when he moved Amendment No. 118L, that everyone who needed information on whether a person was disqualified should be able to get it.
I explained then the intention of Clause 25(7) to allow for any person who has concerns about either a particular person acting as a trustee of a scheme or a person under consideration for appointment as a trustee to be able to check whether the person in question is shown in the authority's register as being disqualified. These amendments enable a person who has an interest in a scheme to obtain the information from the authority.
The subsection will ensure that the authority is required to state only whether a person named by an inquirer is disqualified in respect of a particular scheme named by the inquirer. The reason is that some people may be disqualified in respect of a particular class or group for schemes only. There is also a need to protect those listed in the register from having the information held on them being used for purposes which have nothing to do with whether or not they should act as the trustee of a particular scheme. That is why the register will not be available for public inspection. I commend the amendment to the House.
On Question, amendment agreed to.
Lord Lucas Lord Lucas moved Amendments Nos. 53 to 57:
Page 13, line 3, leave out from ("person") to ("(whether") in line 6 and insert:
("() is prohibited from being a trustee of a trust scheme by an order under section (Prohibition orders), or
() has been removed as a trustee of a trust scheme by an order made").
Page 13, line 11, leave out from ("if") to ("by") in line 12 and insert ("in their opinion it is not desirable for him to be a trustee of any trust scheme").
Page 13, line 13, at end insert:
("(3A) The Authority may by order disqualify a person for being a trustee of any trust scheme where—

(a) in their opinion he is incapable of acting as such a trustee by reason of mental disorder (within the meaning of the Mental Health Act 1983 or, as respects Scotland, the Mental Health (Scotland) Act 1984), or

(b) the person is a company which has gone into liquidation (within the meaning of section 247(2) of the Insolvency Act 1986).").

Page 13, line 17, after ("(3)") insert ("or (3A)").
Page 13, line 23, leave out subsection (6).
The noble Lord said: My Lords, I spoke to these amendments with Amendments Nos. 3 and 52. I beg to move.
On Question, amendments agreed to.
Clause 25 [Persons disqualified: consequences]:
Lord Lucas Lord Lucas moved Amendments Nos. 58 and 59:
Page 14, line 9, leave out from ("so") to ("disclose") in line 10.
Page 14, line 11, at end insert ("in respect of a scheme so specified").
The noble Lord said: My Lords, I spoke to these amendments with Amendment No. 52. I beg to move.
On Question, amendments agreed to.
Clause 26 [Trustees not to be indemnified for fines or civil penalties]:
Lord Lucas Lord Lucas moved Amendment No. 60:
Page 14, line 24, leave out (" 3") and insert ("(Prohibition orders)").
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 3. I beg to move.
On Question, amendment agreed to.
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 61:
Before Clause 27, insert the following new clause:
("Trustees may keep benefits
A trustee of a trust scheme shall not be required to forego or account to the trustees or any beneficiary of the scheme for any benefit that may be payable to him or any other person—

(a) by virtue of his membership of the scheme, and

(b) by reason of any decision regarding the exercise of a power or discretion conferred on the trustees (including a decision to exercise or refrain from exercising a power to reduce benefits),

if the trustee did not take part in making that decision or the actuary certifies in writing that in his opinion it is fair and reasonable for the benefit to be paid.").
The noble Earl said: My Lords, the amendment is designed to remove a legal difficulty to which attention was drawn last year in the so-called Drexel case. The judge in that case pointed out that it is a long-established principle of trust law that trustees cannot derive personal
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benefit from their decisions as trustees. He thought that there was therefore a danger that those trustees of a pension scheme who were also members and beneficiaries may not be able to have the same benefits as other members; for example, if trustees awarded additional benefits out of surplus, something which concerned the Drexel case.
In Committee, the noble Lord, Lord Haskel, moved an amendment which was later withdrawn, which made it clear that trustees had the power to make amendments to the scheme even though one or more members were trustees. My amendment is slightly different. It assumes that the trustees may or may not already have sufficient power to amend the scheme, and deals directly with the question of whether, when such an amendment is made, the trustees who are members of the scheme can benefit from it.
As noble Lords are well aware, some trust documents allow for trustees to benefit from benefit improvements in schemes of which they are members, but others are silent or ambiguous. My amendment would make it clear that such a trustee could benefit provided that he took no part in the decision, or, if he did take part in the decision, the actuary certified that in his opinion any benefit improvements were reasonable and fair to be paid.
In his reply in Committee, my noble friend the Minister indicated that he believed that the present legal situation, as developed in case law, was satisfactory. I believe that that statement may have been made a little too easily. I should like him to reconsider the views that he expressed in Committee.
I conclude by reminding your Lordships of what was said by the judge in the Drexel case. He stated:
"When the legislature considers how far and in what terms to embody the report of Professor Goode and his colleagues into law or otherwise to reform the law in this area, I commend to it consideration of the creation of a clear exception to the so-called 'general rule of equity' so that in appropriate cases the administration of pension trusts by trustee-beneficiaries might safely proceed without expense and delay of proceedings".
My amendment makes clear that the member trustees would be able to proceed safely. It is an important amendment. I believe that the arguments made in Committee were too lightly dismissed. I look forward to hearing my noble friend's views. I beg to move.
8 p.m.
Lord Ezra: My Lords, I support the amendment. The issue needs to be clarified. Throughout the Bill we have talked repeatedly about the need for balance, and a subject of anxiety is the position of trustees. Of course, trustees must properly perform their duties but in this case they could be vulnerable if the law were not clarified. Naturally, member trustees are potential beneficiaries of any improvements that are introduced in the schemes of which they form members. Therefore, I hope that the Government will accept the arguments so effectively put forward by the noble Earl.
Lord Haskel: My Lords, I too support the amendment, which is similar to an amendment I tabled in Committee. The noble Earl has improved upon it and

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his amendment deals with some of the comments that were made in Committee by the Minister. I am sure that it will be easier for the Minister to accept.
Lord Mackay of Ardbrecknish: My Lords, the amendment seeks to address the issues brought up by the recent case of Manning v. Drexel Burnham Lambert Holdings Limited. The issue concerns a matter of trust law, commonly referred to as the "general rule of equity" whereby a person in a fiduciary position should not put himself in a position where his interest and his duty conflict. Very briefly, the question is whether it is necessary to legislate in the Pensions Bill in order to make clear that trustees who are also scheme members are not prevented from taking decisions simply because they, among others, may benefit from decisions in which they take part.
This matter has been brought into focus by our proposed legislation on member-nominated trustees. But it is not applicable only to them. It is relevant for all member trustees regardless of who nominates them. We have heard today from the noble Baroness, Lady Hollis, that there are already many pension schemes which have member trustees. These schemes operate very successfully and make decisions without recourse to the courts, despite the fact that their trustees are potential beneficiaries. I said in Committee that if there were any grounds for thinking that recent judgments in the Drexel case and the earlier Makin case cast serious doubt on the validity of trust boards containing trustees who are also scheme members, we would ourselves have introduced an appropriate amendment. I reiterate that.
Both the Drexel and Makin cases had particular features which rarely arise in schemes. In both cases, the sponsoring employer was insolvent and the scheme was winding up with a large surplus. The trustees in both the Makin and Drexel cases had discretion to distribute surplus funds. These cases are atypical. First, it is unusual for trustees to have such a discretion in a modem trust deed, and, secondly, both arose before the Social Security Act 1992, which requires an independent trustee to be appointed if the sponsoring employer becomes insolvent. The difficulties may not have arisen if there had been an independent trustee.
This amendment would give trustees two options when taking decisions on matters in which they might be faced with a conflict of interests. The first is for the trustee to decline to take part in the decision. This is already a route which trustees can take if they believe that they have an irreconcilable conflict of interest. I must say, however, that in many schemes this option would not be practical because all, or most of, the trustees would also be scheme members and if they all withdrew there would be no one left to take the decision.
Secondly, the amendment suggests that, as an alternative, the actuary could certify that it is fair and reasonable for the benefit to be paid. I do not consider that this is part of an actuary's role. To my mind, it puts him in a position where he has to make a qualitative judgment about a decision made by a trustee, in effect, to act as a kind of independent trustee but without the fiduciary responsibilities. As I see it, the actuary's role
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is to advise trustees on decisions of fact on scheme funding matters. With all respect to actuaries, that is not a decision for them.
My noble friend has clearly tabled his amendment with very good intentions in order to ensure that member trustees are free to participate fully in decisions of the trust board. We are confident that in fact they can and that there is no threat to the position of member trustees, providing that they act in good faith and consider the interests of all scheme members. There is a general acceptance that decisions in which member trustees participate should not be invalidated simply because they, among others of their class, could benefit.
We have considered all the issues very carefully. However, we believe that it is unnecessary and possibly unwise to legislate in this Bill. Our concern is that, by specifying the position for member trustees, not just member-nominated trustees, we might prejudice the interests of scheme members generally. And, after all, that is the purpose of the general rule of equity, which this amendment is seeking to override. The courts can enforce and develop that rule in a way that legislation cannot and we believe it would be unwise to do anything that might endanger this. I have explained the matter at length but I believe that it is important. I hope that I have reassured my noble friend that his fears are unjustified. I hope that he is now able to withdraw his amendment.
The Earl of Buckinghamshire: My Lords, I thank the noble Lords, Lord Ezra and Lord Haskel, for their support. I listened with great interest to what my noble friend the Minister said. I am aware of the unique features of the Drexel case. I am sure that in summing up the learned judge was aware of the uniqueness of the case but felt obliged to widen the scope of his comments.
I commented on the actuary certifying that it was fair and reasonable and I believe that my noble friend the Minister said that it was a qualitative judgment. In fact, it is a quantitative judgment introduced to make sure that trustees, on the direction of the company, do not unfairly award themselves improvements in benefits to the detriment of other beneficiaries. Therefore, the actuary has a role to play in this matter.
It is interesting to believe that every single trust deed and rule of the 150,000 schemes that now exist states that the trustees can make benefit improvements of which they will be the beneficiaries. I suspect that many trust deeds and rules do not have that power. The amendment, even though it may be deficient in some areas, would provide that those trust deeds and rules are dealt with in this legislation. One cannot amend trust deeds and rules in isolation because one cannot alter the balance of powers in such a way within the trust document.
I am not a lawyer—and perhaps a lawyer will correct me—but it is my understanding that the balance of powers issue must be treated with great care. The amendment would have gone some way towards dealing with that. I am disappointed by my noble friend's reply and I do not agree with all that he has said. But on that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 27 [Decisions by majority]:
Lord Lucas Lord Lucas moved Amendment No. 62:
Page 15, line 18, leave out (" 3") and insert ("(Prohibition orders)").
The noble Lord said: My Lords, I spoke to this amendment when moving Amendment No. 3. I beg to move.
On Question, amendment agreed to.
Clause 28 [Investment powers: duty of care]:
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 63:
Page 15, line 22, leave out ("investment functions,") and insert ("functions relating to investment (within the meaning of the Financial Services Act 1986),").
The noble Earl said: My Lords, I hope to inject some excitement into your Lordships' House this evening because we are now dealing with vicarious liabilities. I set the Minister a test and look forward to hearing what that actually means!
We are now dealing with amendments to Clauses 28 and 29, and I shall speak to all the amendments in the group. The combined effect of Clauses 28 and 29 is to curtail severely the delegation of discretions relating to investment decisions and in particular to prevent the trustees from passing responsibility for decisions to fund managers except where the investment is an investment within the meaning of the Financial Services Act.
For example, under the current arrangements, it will not be possible to delegate to an overseas investment house in the United States without landing the trustees in quite a considerable difficulty as regards liability. The same arguments would apply to property.
In short, this group of amendments seeks to enable sensible arrangements for delegating trustee investment functions and to allow them to continue as they do at present. I have mentioned already the difficulties with regard to property managers and overseas investment managers. If the amendments are not accepted, serious difficulties will arise.
The amendments seek to allow the trustees the power to delegate decisions as regards investments to such managers and the trustees will not be responsible for the acts and defaults of such managers if the trustees have taken reasonable steps to satisfy themselves that the managers have the necessary knowledge and experience and that they are acting competently.
The clause does not allow sub-delegation by managers, whereas my amendment seeks to allow that. Among other things, it would permit schemes to continue to use common investment funds where they are appropriate. This amendment needs to be included in the Bill and I commend it to the House. I beg to move.
Lord Ezra: My Lords, I support this amendment which is similar to an amendment which I tabled in Committee. The position is that unless the amendments moved by the noble Earl are accepted, present Investment practices by pension funds will be curtailed
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and no additional safeguards will thereby be achieved. I can see very little point in doing that and I hope that the amendments will be accepted.
8.15 p.m.
Lord Mackay of Ardbrecknish: My Lords, 1 thank my noble friend for explaining his detailed amendments to the House and I thank him also for setting me a test about vicarious liability. I thought that perhaps it had something to do with the behaviour of vicars and in the absence of any bishops on their Benches I thought that I should let it pass at that. But of course, vicarious liability is to do with liability for the actions of a deputy, which is perhaps more boring than my first suggestion but, nevertheless, that is the position.
In considering the issues which my noble friend raised—and as the noble Lord, Lord Ezra, pointed out, he raised the same points in Committee—I agreed to consider further the question of trustees powers to permit sub-delegation among fund managers.
We have also looked further at the issues of whether or not trustees should continue to benefit from any exclusions from liability contained in trust deeds where they delegate discretion to fund managers who do not need to be authorised under the Financial Services Act. That point is also covered in the amendments before us.
As a result of our review of Clause 29 we have concluded that, in respect of sub-delegation, the clause as drafted is too restrictive and we are considering an appropriate amendment. This would make it clear that sub-delegation should indeed be possible. We are also looking carefully at the issue of whether delegation should be possible to persons who are not fund managers in the context of common investment funds—a point raised by the noble Lord, Lord Ezra.
On the second point, the clause as drafted follows the PLRC recommendation in providing a statutory exemption from trustees' vicarious liability in respect of FSA investments managed by persons authorised under the Financial Services Act. The PLRC report did not specifically address the issue of whether trustees should continue to benefit from exclusions to their liability contained in trust deeds when other fund managers, who do not need to be authorised, are appointed to manage non-FSA investments.
The clause as drafted prevents the operation of such exclusions. We have taken careful note of the arguments which have been put to us, both in this debate, in Committee and elsewhere, suggesting that the clause as drafted may go beyond the intention of the PLRC and may have a significant adverse effect on trustees' willingness to make investments outside the scope of the Financial Services Act, even though such investments would be perfectly proper, given a scheme's circumstances. On the other hand, we obviously need to ensure that we do not place scheme members at risk through inappropriate or unregulated investments.
We have come to the view that the clause probably does go too far in limiting trustees' readiness to invest in non-FSA investments and unnecessarily interferes with scheme rules. Therefore, we are looking closely at all of the issues which my noble friend's amendments cover.

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We will then, if necessary, introduce suitable amendments in another place to permit appropriate sub-delegation to occur. We will also give serious consideration to introducing further amendments in respect of non-FSA investments. I trust that this response will enable my noble friend to withdraw these amendments.
The Earl of Buckinghamshire: My Lords, I am extremely grateful to the noble Lord, Lord Ezra, for his support. I thank my noble friend for his constructive reply and I look forward to seeing the amendments when they appear in the other place. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 29 [Power of investment and delegation]:
[Amendments Nos. 64 to 73 not moved.]
Clause 30 [Investment principles]:
Lord Haskel Lord Haskel moved Amendment No. 74:
Page 16, line 45, at end insert:
("() the exercise of voting rights and other powers conferred by virtue of their investments;").
The noble Lord said: My Lords, in moving this amendment I shall speak also to Amendment Nos. 77 and 78. I am delighted that the Minister seems to be in such an accommodating mood this evening.
Baroness Hollis of Heigham: Long may it last¡
Lord Haskel: My Lords, similar amendments were moved in the Committee but the amendments now before your Lordships are altered in order to satisfy the Minister; when he responded to my amendments in Committee we shared a surprising amount of common ground. We agreed that institutional investors have a responsibility for good corporate governance and that that responsibility is crucial to our economic prosperity.
We agreed also that that responsibility is consistent with the trustees' duties to act in the interests of the beneficiaries. We agreed further that active ownership of shares was consistent with best practice. As an example, the Minister gave us the lead taken by the National Association of Pension Funds which recommends that trustees should decide on their voting policy and that that voting policy should be made public. That is the purpose of these amendments.
Indeed, the National Association of Pension Funds recognises the scale of the problem with regard to proxy voting by pension funds. At its conference in February, its vice-chairman, Graham Allen, commented:
"The statistics on the voting pattern of pension funds are still disappointing and significant further progress needs to be made".
The question, then, is: how can the "significant further progress" of which Mr. Allen speaks be achieved? It seems to me that it could be done by finding clauses in the Bill where the duties in my amendments can simply be incorporated with the duties already in the legislation. Let us take, for example, Clause 31 which deals with choosing investments. The Bill says,
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"The trustees or fund manager must have regard—

(a) to the need for diversification of investments, so far as appropriate to the circumstances of the scheme, and

(b) to the suitability to the scheme of investments".

That means that trustees and fund managers must "have regard to" the need for diversification and the suitability of investments.
My first amendment neatly adds a third element to the duties of the trustees and fund managers; namely, to "have regard to"—exactly the same words—good, corporate governance. We agree that this is vital for the nation's economy and for the beneficiaries. With the wording, "have regard to", the amendment gives trustees and pension fund managers the flexibility of applying those principles as they arise. For example, when shareholders indicated that bonuses and share options should depend on company performance and that wish was obviously ignored, trustees and fund managers—having regard to the wishes of the beneficiaries—would obviously be required to act. That would have saved the Prime Minister the embarrassment of a U-turn. In future, trustees and managers can adapt to the recommendations of the Greenbury Committee as and when they become known. They will also be able to adapt to the proposals of the Cadbury 2 Committee and introduce them as and when they become known.
By allowing the trustees the option of having regard to their duty, it enables them to ignore shareholdings which are too small, too far away, or matters which are not contentious. They do that by choosing to abstain. Here we have a way in which our purpose can be achieved without what the Minister called in Committee, specific or detailed obligations on pension funds which risk being regulatory and burdensome.
I now turn to the need for trustees and pension fund managers to report their voting intentions and record them. Again, there is another section of the Bill into which that requirement neatly fits. Clause 30 requires trustees of a pension scheme to prepare and maintain from time to time a written statement,
"of the principles governing decisions about investments for the purposes of the scheme".
Subsection (2) says that the statement must cover, among other things,
"the trustees' policy for securing compliance … and … their policy about the kinds of investments to be held, the balance between different kinds of investments, risk, the expected return … the realisation of investments, and such other matters as may be prescribed".
The Government have recognised the need to set out those duties and responsibilities of the trustees and fund managers. While carrying out those duties, surely it is neither burdensome nor bureaucratic to add the requirement to state the principles of voting and to keep a record. Let us bear in mind that abstaining is also an option which can be chosen and, indeed, may be the choice on many occasions.
It is important to find common ground in order to incorporate the amendments in the Bill. We all want shareholders to vote. The survey of the National Association of Pension Funds shows that there has been no significant increase in voting at company meetings over the past few years. Speaking at its conference in

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February, the vice-chairman, Mr. Graham Allen, quoted from the annual survey for 1994 of the members of the National Association of Pension Funds, as follows:
"There is still a very long way to travel before the majority of large UK funds regularly exercise their votes".
The purpose of the amendment is not simply to increase the quantity of voting; the quality is in fact more important. When pension funds vote, all too often they are simply rubber stamping the proposals of company management. For example, M&G announced that it will vote with company management as a matter of policy.
In Committee, the Minister questioned the logic of a duty being imposed on the pension funds only and asked why such a duty should not be placed on individuals and other collective investment vehicles. My response is that individuals act in their own right and can do what they want. Trustees and fund managers hold proxies from individuals, and they have a fiduciary duty to act.
The Minister also asked in Committee why that should apply to pension funds only and why should not other collective investment vehicles have a duty to vote. I believe that the same principle should apply. Indeed, putting such amendments in the Pensions Bill would have a powerful effect on fund managers. If they supply that service to pension fund trustees, they would probably do so for other clients as it enhances the quality of their service. In fact, insurance companies have a reasonably good record. However, we are now dealing with a pensions Bill and pensions represent one-third of all the shares on the London Stock Exchange. It is a good start and we have to start somewhere.
The Minister will remember, while reading the thoughts of Chairman Mao a few years ago, that Chairman Mao said that the journey of 6,000 kilometres started with one step. My proposed amendments take that first step. If we bring the voting process within the framework of the legislation, we recognise, in the words of the Cadbury Committee, that voting rights are an asset which must, like any other asset, be managed with care in the sole interests of the beneficiaries.
With the amendments as now worded, we would not be introducing compulsory voting; we would be advocating compulsory, corporate responsibility. I beg to move.
Lord Ezra: My Lords, we had some debate on the issue in Committee. Those who contributed to the discussions at the time, like the noble Lord, Lord Haskel, myself, and others, made the point that here we have a unique opportunity to support the cause of corporate governance without departing too much from the Bill. As the noble Lord, Lord Haskel, pointed out, the amendments could very easily be dovetailed into the existing provisions. As the noble Lord rightly said, pension funds now represent a massive part of investment on the Stock Exchange. Indeed, it amounts to no less than one-third.
Many of us have been worried over the years about the role of institutional investors. Those of us who are concerned with such matters have felt that they should be taking a more positive role. As legislative opportunities present themselves, surely they should be
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seized. The same attitude has been adopted in environmental matters: when appropriate legislation is there, why not seize it? Therefore, I very strongly support what has been so ably proposed by the noble Lord, Lord Haskel. I believe that it would be a big step forward. I do not think that it is a small step; I believe that it would be a big, notable step forward in emphasising the responsibility of institutional investors—in this case, in the form of pension funds—for taking a more positive role in the use made of their investments.
Lord Mackay of Ardbrecknish: My Lords, the noble Lord, Lord Haskel, set out the reasoning and logic behind the amendments this evening as, indeed, he did when we debated similar amendments in Committee. Among the arguments he put forward was that I should take the advice of Chairman Mao as regards every journey beginning with a step. As the bamboo curtain is being raised, I am not entirely sure that I like all the places where Chairman Mao ended up on some of his journeys, or indeed where his country ended up. Therefore I do not consider that argument terribly good.
I agree with the noble Lord, Lord Haskel, and the noble Lord, Lord Ezra, that shareholders of all kinds have a crucial say in influencing and ensuring the competitiveness of British industry and that they should take those responsibilities seriously. I confirm that in Committee I said that what he envisaged in those amendments reflected good practice. I still hold to that view. However, I believe that good practice is not necessarily appropriate for legislation. I believe that good practice has to have an air of flexibility and that it must be geared to individual trustees and individual schemes and the various circumstances which arise. We are talking about a guide to trustees who must be careful under trust law not to fetter their own discretion by laying down, or having laid down for them, very strict rules which they have to follow regardless of what may be the situation facing them on a particular issue.
I spoke at some length about these amendments in Committee. As I said then, this is something which goes well beyond pension funds and their strategies. Both noble Lords who spoke agreed but thought the Bill was a good place to start taking action along those lines, arguing that pension funds were big holders of UK equities and for them to play a full part in decisions made at shareholders' meetings would be a considerable step forward from where we are today. I am sure the House will be aware that my right honourable friend the Prime Minister said in another place that the Government would wish to consider any recommendations from the Greenbury Committee and whether there was a need for any further legislative action to support any recommendations the committee might make. I therefore think that that is the appropriate way to proceed.
I hope that having brought this issue to our attention for a second time the noble Lord will agree that we should, as my right honourable friend the Prime Minister suggested, await the views of Sir Richard Greenbury and his colleagues before we decide what, if any, action we require to take. If we require to take any action, clearly that would be taken on a wider basis than

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just the pensions industry. I hope that having ably paraded his argument once again, and having heard my remarks, the noble Lord will feel able to withdraw his amendment. I am sorry that he thought I was only starting off in a good frame of mind. I hope that I am still in a good frame of mind. I wonder whether he should talk to his noble friend Lady Hollis about whether I have been in a good frame of mind all day.
8.30 p.m.
Lord Haskel: My Lords, I thank the Minister for that considered reply which I found disappointing. He put forward no new arguments as to why these amendments should not be incorporated in the Bill. The amendments are tailored so that they dovetail exactly into the Bill. It seems to me extraordinary that there are some duties which the Government think should be imposed on trustees and pension fund managers but not others. It seems to me that the duties I am asking them to undertake are entirely consistent with the things the Government are asking them to undertake.
As regards waiting for the conclusions of the Greenbury Committee, that committee is looking into the matter of remuneration. Shareholders are interested in a whole range of matters. I can well imagine that shareholders, as well as being interested in employment policies, are interested in environmental matters, moral matters and all sorts of things in a company. One cannot have a committee look into each of these aspects as soon as they arise. It would seem sensible for shareholders to be encouraged to take their proper interest in all matters relating to the company; if that were done the Prime Minister and other Ministers in the Government would not have to deal with these things as they crop up. Shareholders would deal with those matters as a matter of routine.
I did not wish to remind your Lordships that this provision is now obligatory on American pension fund managers and will apply to their shares held in British companies in London. I can well imagine that American pension fund managers will start to take a lot more interest in the activities of British companies. It seems a pity that we have to wait for them to become more active and then follow on, as inevitably we shall have to. For obvious reasons I shall not divide the House on this matter. I find the Minister's response disappointing. I shall try to find a more suitable quotation from the thoughts of Chairman Mao which may convince him on a later occasion as it is obviously some time since he read them. In the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 75:
Page 17, leave out line 10 and insert:
(" () take into account the interests of beneficiaries and contingent beneficiaries (including employers).").
The noble Earl said: My Lords, Clause 30 provides for trustees to have the same power to make an investment of any kind as if they were absolutely entitled to the assets of the scheme. It also entitles the trustees to delegate discretion over day to day
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investment decisions. Clause 31, however, requires trustees to prepare, maintain and periodically review a written statement of the principles governing the trustees' investment decisions. The trustees are required to consult the employer and obtain and consider the advice of a qualified and experienced financial person before preparing or revisiting this statement.
The point I made on Second Reading and in Committee, when it was raised obliquely, is that there is no obligation on trustees to take account of the views of the employer in drawing up their policy. They are only required to consult. It seems to me reasonable that the trustees should take account not only of the interests of the beneficiaries but also of the likely financial impact of any investment decision on the employer as the contributor to the scheme. If the Bill is introduced unamended there will be no explicit obligation on the trustee body to take account of any views expressed by the employer. I believe there is a difficulty as regards the use of the word "consult" rather than "consultation". That will leave employers exposed potentially to additional costs over which they have no control.
The argument may be made that the employers accept that the trustees will not wish to prejudice the continuing sponsorship of the employers, but I believe that unless specific duties are placed on the trustees to take account of the employers' views in the new law, trustees may well think that they have a duty and are best advised to take the most conservative view on funding and investment decisions. This is an important amendment. I look forward to hearing my noble friend the Minister's reply. I beg to move.
Baroness Hollis of Heigham: My Lords, we are uneasy about the amendment for several reasons. It appears to move the trustees away from having a fiduciary responsibility to consider all the interests of all the associated parties and ask them to give particular regard to one party; that is, the employer. We have already accepted, apparently, that two-thirds of the trustees will be nominated by the employer himself. Nobody can believe for a moment that as a result the employer's view on investment policy will not be well argued and well reflected within the trustee body. That is accepted. However, we also argue that within that body a trustee should operate within a framework of fiduciary duty. If the Bill is to allow employers to nominate two thirds of the trustee membership one needs to make sure that the framework within which the trustees operate is a fiduciary one.
If the noble Earl's amendment were accepted in addition to the fact that employers already nominate two-thirds of trustees, that would seem to us to tilt the balance away from the notion of stewardship too much towards consideration of employers' interests, which is something which trustees are required to consider but not necessarily to regard as of overriding importance. I hope that on this occasion the Minister feels that he has the balance about right in the Bill as it stands.
Lord Mackay of Ardbrecknish: My Lords, I noted the points that my noble friend made on this important issue and the points made by the noble Baroness, Lady Hollis.

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I fully understand the anxieties which have been raised on this issue since the publication of the White Paper in June last year. It is, of course, vital for the future well-being of occupational pension schemes that they continue to be supported by sponsoring employers. The question to be addressed is whether it is either necessary or appropriate for trustees to be required in statute to take into account the interest of the employer when deciding their investment strategy. The conclusion we have reached is that it is not, and for the following reasons.
First, trust law requires trustees to act only in the interests of the beneficiaries to the trust. This cannot be clouded by statutory requirements to take into account the interests of any other parties to the trust. Trustees can, however, take account of the interests of the employer when this affects the interests of the beneficiaries.
In preparing their written statement of investment principles, trustees will need to consider all of the factors which affect the interests of the members. That will obviously include the employer's views. Trustees who propose undertaking an investment strategy which does not have the employer's support will be failing in their duty to act in the interests of the beneficiaries if that results in the employer's continuing support for the scheme being prejudiced.
Secondly, the amendment develops the view of the employer as a contingent beneficiary to the scheme, requiring the trustees to take account of his interests, not as the employer, but as a beneficiary. Employers may or may not, be contingent beneficiaries to a trust. Whether they are will depend on the terms of the trust deed or particular circumstances which may arise, such as where a fund is in surplus. But it is by no means certain that an employer will automatically be considered a contingent beneficiary of the scheme.
Even if employers were considered to be contingent beneficiaries, my legal advice is that it is inappropriate for the Bill to refer specifically to any one party to the trust. Trustees must act in the interests of all the beneficiaries to the trust. Any attempt to single out one particular party to a scheme will beg the question as to how much weight trustees should give to the interests of that party compared with others. This would require some form of statement setting out the relative weighting trustees should give to the interests of each of the parties to the trust, including scheme members, pensioners and the employer. That would be impossible.
I am glad that the noble Baroness, Lady Hollis, is a recruit to my use of the word "balance". I have to say to my noble friend in this case that we have to get the balance right. I know that he is concerned about the issue, but he has not yet convinced me of his case. However, I shall read carefully what he had to say and I have no doubt that he will read carefully what I said, and we shall see where he goes from there.
The Earl of Buckinghamshire: My Lords, I thank my noble friend the Minister for his reply and the noble Baroness for her intervention. Both answers demonstrate the great difficulties in this area. The Minister mentioned in his reply that, in part, what I wanted to
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happen would happen. My problem is with the word "consult", because one can consult someone and take no notice of their advice or requirements.
I accept that this is an extremely difficult area within which to legislate. I would have preferred to have seen something more positive, but on the basis that there is an on-going dialogue, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
8.45 p.m.
Lord Lucas Lord Lucas moved Amendment No. 76:
Page 17, line 16, leave out (" 3") and insert ("(Prohibition orders)").
The noble Lord said: My Lords, I spoke to this amendment, with Amendment No. 3. I beg to move.
On Question, amendment agreed to.
Clause 31 [Choosing investments]:
[Amendment No. 77 not moved.]
Lord Lucas Lord Lucas moved Amendment No. 78:
Page 18, line 12, leave out (" 3") and insert ("(Prohibition orders)").
The noble Lord said: My Lords, I spoke to Amendment No. 78 with Amendment No. 3. I beg to move.
On Question, amendment agreed to.
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 79:
After Clause 31, insert the following new clause:
("Custodianship of investments
.—(1) The trustees or managers of an occupational pension scheme or a personal pension scheme must secure that investments held for the purposes of the scheme are held in accordance with an agreement made between the trustees or managers and an appropriate authorised person ("the custodian") which contains the provisions mentioned in subsection (2).
(2) Those provisions are—
(a) that the investments are vested in the custodian's name and he maintains adequate records for identifying them as belonging to the scheme and not to himself or any other person,
(b) that the custodian is required to safeguard the investments,
(c) that all documents of title relating to the investments are kept in the custodian's possession and may not be delivered to any other person except—

(i) to another appropriate authorised person with whom the trustees or managers have made an agreement within this section or in accordance with instructions from the scheme's fund manager, and

(ii) upon a request which is signified in the manner specified in the agreement,

(d) that all transactions relating to the investments are conducted and recorded in the manner and within the period so specified, and, in particular, that any transactions which do not occur in the normal course of the holding of investments generally or of investments of the description in question are immediately reported to the Authority and the trustees or managers by the custodian,
(e) that adequate arrangements are made for the deposit or investment of money received by the custodian in pursuance of the agreement and for the payment by him of money required for the purposes of the scheme,
(f) that the custodian is responsible for securing that the trustees and managers are fully informed of all matters relating to the investments within a period which is reasonable having regard to the importance of the information,
(g) that, in any case where the custodian is also a person to whom any discretion to make any decision about investments has been delegated under section 29, the functions exercisable by him as custodian are adequately differentiated from those exercisable by him by virtue of that delegation,
(h) that the custodian must establish and maintain adequate arrangements for the purpose of securing so far as practicable that none of his employees or officers has the opportunity to perform any action which would or might result in a breach of the agreement,
(i) that the custodian is liable for any reduction in value in the assets of the scheme arising from any breach of his obligations under the agreement, and
(j) such other provisions as the trustees or managers consider appropriate for securing the safeguarding of the investments of the scheme.
(3) Where an agreement in relation to the investments held for the purposes of a scheme has been made with a custodian in accordance with this section—
(a) except in prescribed circumstances, the custodian shall not be regarded as a trustee or manager of the scheme by virtue only of complying with such provisions of the agreement as are mentioned in subsection (2), and
(b) the trustees or managers of the scheme are not responsible for any act or default of the custodian in the course of exercising his functions as such if they have taken all reasonable steps to satisfy themselves—

that he is an appropriate person to appoint as custodian, and

(ii) that he performs his functions under the agreement competently.

(4) Subject to any restriction imposed by the scheme, an agreement under this section may include provision enabling the custodian to make arrangements with another person for him to exercise any of the custodian's functions under the agreement; and where the custodian makes such arrangements this section shall, except in prescribed circumstances, apply in relation to the other person as it applies to the custodian.
(5) Regulations may—

(a) provide that this section does not apply, or

(b) modify it in its application,

to schemes or investments falling within a prescribed class or description.").
The noble Earl said: My Lords, in moving Amendment No. 79 I shall speak also to Amendment No. 80. The amendments concern custody. The issue of custody was discussed fully at Second Reading and an amendment was moved in Committee by the noble Baroness, Lady Dean, with greater eloquence than I can achieve this evening.
I believe that there is agreement on all sides of the House that custody is desirable. The difficulty facing my noble friend the Minister is how that can be implemented. We had a full discussion of the issue in Committee and I do not want to repeat the arguments in detail.
It is true to say that most schemes in this country already have custody, but some do not. The purpose of the amendment is to make sure that those schemes which do not at present employ custody do so in the future. I am concerned that without the amendment it would be easier to commit fraud. One could go to the
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safe in one's back office and pick up share certificates. It is much easier to exchange these if one does not haw to go through a third party, with the controls that that implies.
Questions have been raised as to how this proposal would be regulated. The most appropriate authority for regulating custodians would be IMRO. IMRO may have thoughts on that proposal. I do not believe that the regulatory situation should be a bar on your Lordships' House accepting the amendment. I beg to move.
Baroness Dean of Thornton-le-Fylde: My Lords, I support the amendment moved by the noble Earl, Lord Buckinghamshire. When we discussed this subject in Committee stage a few weeks ago the Minister said that custodianship is not a simple matter. I accept that it is not simple, but it is essential. There is no doubt about that. That is why we are pursuing the matter yet again at this stage of the Bill.
As has been made clear as we have discussed the Bill, pension law is not a simple matter. However, that has not held us back from trying to legislate in this Bill, which will eventually become the Pensions Act (although it is weaker than we originally wanted) in areas where that has proved necessary. I believe that it is necessary to legislate on this particular issue.
At Committee stage the Minister rightly asked who the authorised person will be. Amendment No. 80 deals with that problem and sets out supplementary provisions.
Large numbers of pension funds already have independent custodianship. That is not an argument for saying that most people are doing this and therefore it is not necessary to force everyone to have it. Those funds which do not have independent custodianship are more likely to be subject to potential fraud than those which are currently covered, legitimately and voluntarily, by independent custodianship.
When we discussed the issue a few weeks ago in Committee, whoever would have thought that the Barings scandal would be before us now? Who would have thought that Barings investment managers, using Barings Bank as the custodian of those investments, would have the problems that they now have? But they do. Although the situation has been retrieved, and there is general support that the Governor of the Bank of England was right in not stepping in to save Barings, what would have happened if ING had not bought the bank? The millions lost on pension fund investments would have made the Maxwell missing millions look small fry. I suggest that because Barings was bought by ING, it obviated what would have been an enormous scandal, and I suggest an enormous well of pressure. The Government could not then have failed to agree to introduce the amendment.
I gather that the SIB is currently carrying out a review of custodian arrangements under the Financial Services Act. However, there is no indication when it will report. With the emergence of the Barings scandal, and other situations, it is a fact that while trustee boards at present consider carefully the investment policies of their portfolio managers, they rarely consider who will be the independent custodians of their investment certificates.

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In future the boards will have to consider that. Without such provisions in the Bill, against what criteria will they consider the issue?
It is essential that such a provision is in the Bill. I hope that the Minister will agree to it.
Lord Ezra: My Lords, the amendments raise a central issue in the Bill. The whole purpose of the Bill is to safeguard schemes. The custodial aspect is crucial to it.
The amendments modify what was proposed at Committee stage, taking full account of what the Minister then said. He expressed concern about how one defines the custodian. As the noble Baroness, Lady Dean, points out, it is important that if schemes wish to employ custodians, it should be laid down somewhere what criteria should be used. The Bill provides another unique opportunity to help pension funds to regulate their affairs better. I hope that in the light of the modified presentation the noble Lord will find it possible at this late hour, and in his more helpful mood, to agree to the proposal.
Lord Mackay of Ardbrecknish: My Lords, clearly it has been decided to deploy flattery as the weapon against the Government this evening. I begin by acknowledging that the case for independent custody has some top quality support on both sides of the House. The provision was originally moved by the noble Baroness, Lady Dean. It has now been taken forward in an amended form by my noble friend. It continues to draw support from other noble Lords.
I remind noble Lords, as I did in Committee, that the Government, too, believe that independent custody is a good thing. We believe it is right that schemes should regularly review their custody arrangements. Indeed, I accept the case which has been put to me that even those schemes which have independent custodians should pay a little more attention to this important area and consider whether their custody arrangements really are secure and appropriate. No doubt, as the noble Baroness, Lady Dean, has pointed out, custody will be rather more of an issue in the minds of institutional investors in the immediate aftermath of the Barings affair; but it is of course something which pension funds in particular should review on a regular basis.
When we discussed this issue in Committee, I left a challenge with the noble Baroness, Lady Dean, which my noble friend Lord Buckinghamshire has gallantly picked up in his amendments. I invited her to consider how custodianship should be regulated and how agreement should be reached on who should be authorised to offer custody services. It is now proposed that custody should be regulated by IMRO under the general umbrella of the Financial Services Act.
Before I turn to that, I wish to pose a few questions. How real, for example, is the mischief which these amendments seek to remedy? What grounds are there for believing that the wide range of other measures in this Bill will not adequately address whatever concerns there may be about asset custody in some schemes? How convincingly have proponents of independent custody dealt with the reservations expressed, for
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example, by the PLRC? Is the proposal to establish a whole new regulatory regime for custodianship really a proportionate response to the threat?
I believe that it is widely accepted that the vast majority of pension schemes already have independent custody arrangements. The assets of insured schemes are of course secured through the arrangements made by the insurance companies and the overwhelming majority of self-administered schemes already use independent custodians, partly for security but also, I imagine, for the facility it offers for trading their portfolios. So at best this measure is aimed at a small number of relatively small self-administered schemes.
In so far as there may be a risk associated with the fact that such schemes may not have independent custody arrangements, there are some grounds for believing that the measures being put in place by this Bill will reduce it. As I pointed out in Committee, the Bill emphasises and reinforces the rights and duties of members, trustees and scheme professionals in relation to many different aspects of pension scheme security and that should focus attention on asset security among other issues.
I believe that there are still unanswered questions about the extent to which a requirement to appoint an independent custodian would reinforce this new level of scheme security. The key factor is that custodians, by their very nature, exercise administrative rather than managerial functions and have no duty to investigate the propriety of apparently valid instructions they may receive. Accordingly, as the PLRC pointed out,
"if fraud is committed by the ultimate source of authority, the trustee board, or by one of their number or by a third party acting within the scope of his or her apparent authority from the board, the fact that the assets are held by a custodian will not by itself be a sufficient safeguard. In other words,"
the PLRC continued,
"custodianship should be seen as an additional barrier to wrongdoing which may or may not prevent it".
It concluded, as the Government are inclined to do, that,
"the most effective controls are the monitoring of pension fund administration and the authorisation and supervision of investment managers".
However, despite what I have said, noble Lords might say that there would be no harm—it is always a dangerous argument—in accepting custodians as another requirement. My concern on that score would be that the price, in terms of new regulatory burdens, might be too high. First, there would be the requirement on pension schemes to use independent custodians. That would fetter their freedom to determine their own policy—perhaps only at the margin, but it all adds up. There might be some additional costs to some schemes—again small, as I acknowledged in Committee —but again it all adds up. That provision might itself trigger a little flurry of detailed secondary legislation. There are half a dozen references to "prescribed circumstances" in the amendment before us. All that would need to be supervised and, if necessary, enforced by OPRA.
Then there would be the regulatory burden of setting up and policing the overall regulatory regime for custodianship. That would presumably apply to the custody of assets generally, not just to those owned by

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pension schemes. There would need to be an additional rule book for IMRO. Any company wishing to offer custodian services would need to seek authorisation for that purpose, perhaps incurring compliance costs. IMRO's compliance checks and enforcement procedures would need to be extended. One needs to ask whether it would constitute a proportionate response to the perceived threat. Government are committed to deregulation. That does not mean we are not prepared to regulate where that is necessary, and this Bill demonstrates that; but we are wary of regulation where the case is not fully made out.
As has been mentioned, the Securities and Investments Board has been preparing a report on the regulation of custodianship. If that were to recommend that custody should be a regulated investment service under the FSA then, clearly, a part of the argument that I have just advanced would be undermined. and there would be a case for going back to see whether pension schemes should be required to use such services, but I do not believe it would be right for the pension tail to wag the dog.
I have gone into some detail because I want to show that we have thought seriously about this issue since the interesting debate that we had in Committee, and because I do not lightly resist the well-meant and sensible sounding advice from the wide range of supporters of this amendment, and indeed this cause.
However, I am bound to conclude that I do not believe that the case for mandatory independent custody arrangements for pension scheme assets has been made out. Nevertheless, I accept that this is an important issue and I am keen that the "best practice" recommended by the PLRC should be encouraged. It recommended that trustees should periodically review their custody arrangements and satisfy themselves that these are satisfactory. If your Lordships accept my advice and these amendments are withdrawn, I am certainly prepared to consider using the regulation making powers under the various disclosure provisions of the Bill and the Pension Schemes Act 1993 to require trustees to make regular statements in scheme annual reports about their policy on asset custody. That will reinforce the "good practice" requirement recommended by the PLRC and publicise the results. I believe that would be a positive and appropriate response to the concerns expressed by noble Lords,
I hope, having heard my remarks, and perhaps on reading them in Hansard tomorrow, noble Lords will see that I have listened to the argument and have tried to go along with it a little, though not quite as far as setting up a new regulatory body and bringing in new regulations for schemes to use custodians under the law so to speak, and ensuring that they consider this aspect of their duties and place that in front of their scheme members in the reports.
9 p.m.
The Earl of Buckinghamshire: My Lords, I should like to thank the noble Baroness, Lady Dean, for her support and the noble Lord, Lord Ezra. I also thank my
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noble friend the Minister for his very full reply. I shall certainly look at Hansard tomorrow to see the full impact of that.
The whole thrust of the Bill is about preventing mischief. Certain sections of it deal with other matters, but it mainly deals with mischief-making and preventing fraud. It has been said that this Bill will not prevent fraudulent acts within pension schemes. Every amendment that we make that puts another ratchet in place to prevent fraudulent acts is to be encouraged rather than to be rejected.
I am interested in what my noble friend the Minister had to say on the disclosure to members; it was most useful. On that basis, I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
[Amendment No. 80 not moved.]
Lord Monkswell Lord Monkswell l moved Amendment No. 81:
Before Clause 32, insert the following new clause:
("Payments to members of scheme
. At the end of paragraph 3(3) of Schedule 22 to the Income and Corporation Taxes Act 1988 there shall be inserted
"() Making payments to members of the scheme.").
The noble Lord said: My Lords, in moving this amendment, I should also like to speak to Amendment No. 165 on the Marshalled List. Perhaps I may read that into the record. It would amend Clause 69. It reads as follows:
"Page 42, line 46, at end insert ('and/or to the members of the scheme.')".
This is our second time around this course. We cantered round it at Committee stage. I read very closely the remarks that the Minister made during that debate. I also thank him for the letter that he sent to me, and to a number of other noble Lords, in which he referred to the situation. I quote:
"Another issue raised in this context was that of protecting scheme members' interests when there is a surplus in a scheme that is being wound up. The treatment of that surplus, including provisions for the protection of scheme members' interests, is dealt with under clauses 68 or 69".
I have to say that I am not happy with the response, having read in Hansard the Minister's remarks in Committee and the comments that he makes in his letter. Perhaps I may try to explain why I am not happy. Before I do so, I should probably apologise to the House for not explaining adequately my reasons for tabling this amendment at the Committee stage. I can quite understand why the Minister and other Members may not have felt that it was all that important.
In Committee, I referred to the unfairness of the situation whereby employers reacted to circumstances that resulted in a surplus in the pension fund assets, generally speaking from a rise in the Stock Market and the investments that the pension fund had made. However, it is rather worse than that. It is not just a situation where an accidental surplus is created and therefore a decision arrives on the desk of the powers-that-be to ask what is to be done with the surplus. I am thinking of a situation in which the employers, through acts that they commit, generate a

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surplus, effectively by reducing the advantages of employees. There may be other ways, but in general there are two particular ways in which they may do that.
First, they may do it by winding up established pension schemes and effectively constituting a new pension scheme. Usually that will come about when two companies merge. The argument will be: "We are all in the same company now and we should all be in the same pension scheme. So let us wind up the two old ones and have a new one". Because of the circumstances, that may provide a surplus. The other way is where, by a deliberate act, the employer creates redundancies and makes employees redundant.
One effect of creating redundancies is that it reduces the liabilities of the scheme, but does not necessarily affect the assets of the scheme. There could be a combination of both those acts—the winding up and the redundancies—which would be deleterious to the employees. They are either out of a job or end up in a pension scheme which is probably not quite so good as the one that they were in before.
As the law currently stands, the employer can effectively get his hands on the surplus assets that he has generated by making things worse for the employees. There could be an argument that that is totally unfair and that any surplus assets generated in that way should automatically go to the disadvantaged employee. But, obviously, it would be very difficult to determine whether it was the hand of the employer making things worse for the employee which generated the surplus.
I suggest that there is a way around the problem. There is capacity for fund surpluses to be disbursed to employees in the same way that at the moment there is capacity for surpluses to be disbursed to the employer. The result would be that, if there were a final surplus available after the benefits had been raised, and probably after pension fund contribution holidays had been determined for employers and employees, it would be for negotiation between the employer and employees as to how it should be disbursed. It would then not be seen as only available to the employer. There would be a negotiating situation.
The reason for trying to create that situation is that it would be a signal to what I would describe as, generally speaking, anti-social employers—though they might not be breaking the law, they sail very close to it—that they should not engage in action which is deleterious to the employees and from which they sought to gain some advantages. On that basis, I beg to move.
Lord Mackay of Ardbrecknish: My Lords, when the noble Lord, Lord Monkswell, spoke to a similar amendment in Committee, he expressed disappointment that I used financial arguments in response. I am sorry to tell him that I intend to use those arguments again tonight because, as I am again sorry to tell him, they remain equally as valid tonight as they were the first time that I used them.
The Income and Corporation Taxes Act 1988 provides trustees with a range of options to use a surplus to improve members' existing benefits or to provide new ones; so members can benefit when an employer is eligible to seek a payment from surplus assets.
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I recognise that the noble Lord, Lord Monkswell, wants members to receive payments on the same basis as employers when a scheme winds up in surplus. However, I believe that his amendment is misconceived. Clause 69 already provides that a payment can be released to the employer only after members have had their pensions increased to the maximum permitted under Inland Revenue limits. Those Inland Revenue limits are as follows, for example, in the case of retirement: the maximum benefit that an approved scheme may pay is a pension of one-thirtieth of final salary for each year of service up to 20 years, which—if my arithmetic is right—means two-thirds; and a lump sum of 2.25 times that amount. Those limits are there to protect the Exchequer costs of tax relief which are given to approved pension schemes.
In the circumstances envisaged by Clause 69, the members' benefits have therefore been fully secured, indexed and enhanced to Inland Revenue limits. Members would get more than their legitimate pension expectations. The employer, who has borne the investment and other risks of the scheme, is entitled to benefit as well. The only way that he can do so is by having access to any residual assets. I can see no justification for suggesting that members should be able to share in that particular benefit, given the other gains that they would already have had.
The noble Lord suggested that employers could create a surplus by winding up an old scheme or creating redundancies. I must point out that in neither case can the employer reduce the accrued rights of any scheme member. That, I think, is what the noble Lord suggested might happen but I do not believe that he is right. I do not think he is right in that regard.
As I said, the legislation as framed, in case of wind-up, already gives considerable benefits to the employee, pension scheme member or whoever it may be. It gives them considerable benefits as the first bite of the cherry. The employer can only receive surplus benefit after those obligations to the employee have been met. To go further, as the noble Lord suggests, would be going beyond the existing tax-approved arrangements, which are substantial—they cost the taxpayer around £7 billion a year—and employers may consider that it is perhaps tilting the balance a little unfairly in the direction of the employee. After all, during all the years of the scheme the employer has paid his share of the contributions—of course the employee has paid also—and has had to stand behind the scheme. It is a bit of a quid pro quo. The employer must give a guarantee all the time the scheme is running and, if there is a surplus and after the interests of the employees have been properly dealt with, it seems right that an employer should gain some advantage to offset the risks he has taken during the years of the scheme.
9.15 p.m.
Lord Monkswell: My Lords, I thank the Minister for that response. I am intrigued by one of his arguments, and I shall come back to that in a moment. The scenario I envisaged was one in which there would be a good pension scheme that was already paying the maximum benefits allowed under the Inland Revenue rules. I

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accept the Minister's point that there is a need to protect the Exchequer and to place limits on the tax reliefs available for pension schemes. But perhaps I can try to explain to the Minister the mechanisms that I believe work to generate the surplus.
One may have a situation where an employee is made redundant. He worked for 20 or 30 years for a company and has another five, 10 or 15 to go before he receives his pension. Effectively, therefore, he is a deferred pensioner. I accept that the situation is rather different now, following the 1990 Act; nevertheless the mechanism still works. The current rules require that, as inflation progresses, the benefits accruing to the deferred member increase accordingly up to a limit of 5 per cent. Obviously, if the fund is well invested, an increase at least in line with inflation and probably a bit more can be expected. But what is the situation if inflation rises above 5 per cent.? Effectively the benefits for the deferred member are capped at 5 per cent.; but the scheme assets would be expected to generate income in excess of that 5 per cent. if inflation was running at 7 or 10 per cent. That is where the scheme surpluses build up.
Effectively one makes an employee redundant and reduces his situation; his money is frozen in a pension scheme and at the end of the day the employer receives the benefit. That is the crucial problem. I am concerned with the Minister's argument that the company, having invested in the pension scheme, should, if there is a surplus, retain that surplus as a reward for its investment in the scheme. That is a dangerous argument. I hope that the Minister did not intend the meaning he seemed to convey—that it is OK for companies to invest in pension schemes, which have tax beneficial regimes, with a view to recouping some reward for that investment at a later time. I am sure that that was not the Minister's intention but it appeared to be the meaning of what he said. Given that interpretation, perhaps the Minister would care to address the situation.
Lord Mackay of Ardbrecknish: My Lords, I am sorry that the noble Lord interprets my remarks in that way. I did not intend them to convey that meaning and I do not believe that they did. All I was saying was that for an employer who sets up a pension scheme and runs it for many years there is always the threat hanging over his head that he may have to underwrite it; he has committed himself to obligations. On the other hand, if the circumstances we are envisaging come about and the scheme has been wound up, and all the benefits that the employees can look for if the scheme has been wound up in surplus are already being honoured, it does not seem unreasonable in those circumstances that the employer should then be able to get, so to speak, his share of the surplus back if the employees have by that time had the first bite at their share.
I do not think that it is a quid pro quo and I do not think that any employer would put a lot of money into a pension scheme against the day when it might wind up and it might have a surplus at that date which might be more than is needed to honour all the obligations to the employees and then might give him some money after that. I am not sure that it would be a wise employer who came to that conclusion.
Lord Monkswell: My Lords, I thank the Minister for that explanation. However, he misses the point. It is not the prudent, wise, careful and considerate employer that we are talking about. We are talking about, generally speaking, a corporate raider whose one eye is on the assets that he can get his hands on and his perspective is very definitely not in terms of the long-term beneficial interests of his employees.
We have had an interesting to and fro. Some different points have emerged in this debate from those which came out at the Committee stage. I do not intend to press the matter to a Division. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 32 [Payment of surplus to employer]:
Lord Lucas Lord Lucas moved Amendment No. 82:
Page 19, line 12, leave out (" 3") and insert ("(Prohibition orders)").
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 3. I beg to move.
On Question, amendment agreed to.
Baroness Dean of Thornton-le-Fylde Baroness Dean of Thornton-le-Fylde moved Amendment No. 83:
After Clause 32, insert the following new clause:
Protective costs orders
(" .—(1) Where, on the application of a member (in this section referred to as "the representative member") representing the views of not less than 10 per cent. of the members of a scheme or of a member-nominated trustee appointed under section 14, a court is satisfied that serious or persistent breaches of trust may have been committed which do not fall within section 3, the court may grant an order in such form as it considers appropriate compelling the trustees of the scheme to pay to the representative member or to the member-nominated trustee the reasonable costs of obtaining legal and other advice in order to pursue claims on behalf of the scheme.
(2) Any costs ordered to be paid in accordance with subsection (1) shall only be payable upon the presentation of a certificate by the solicitors acting for the representative member or the member-nominated trustee, as the case may be.
(3) A court may only grant an order under subsection (1) of this section if it is satisfied that—

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

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

(4) Where a court grants an order under subsection (1) of this section it may from time to time renew or amend such order.
(5) Where a court grants an order under subsection (1) of this section it may make provision for the payment of past, as well as future, costs.
(6) On an application under subsection (1) of this section, a court may grant an order notwithstanding the fact that the breaches of trust which are or which form part of the grounds for the application fall within section 3, if it is satisfied that it is in the best interests of the members so to do.").
The noble Baroness said: My Lords, this matter came before your Lordships during the Committee stage of the Bill. At that stage the Minister said that he had no objection in principle to the amendment but felt that it was not necessary. During the discussion he mentioned a procedure known as the Beddoe's summons procedure, which provides that those who wish to engage in proceedings involving a trust can apply to the court for an order that the costs should be met by the

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trust. The Minister then put forward the view that what is already in the Bill is a belt and braces protection for individuals and trustees of pension schemes. The noble Lord said that the new authority can receive and deal with complaints from anyone in a pension fund and that therefore the intentions of the amendment would be met, either by existing law—trust law—or the new regulatory authority.
I do not wish to repeat the details I gave of why I put forward this protective costs order at the Committee stage except to say that it was the Minister's response which led me to put down this amendment again today. I must challenge the Minister's reliance on what is known as the Beddoe's procedure to cover those situations when the regulatory authority, OPRA, does not cover them. The Beddoe's procedure, I am given to understand, having checked after the Committee stage, is only for trustees. It is a kind of fail-safe for trustees who might decide that they need to embark on litigation but go to the court to get sanction in case of a future challenge by a beneficiary. It is a decision which gives them protection if at some point in the future a beneficiary takes action. It does not cover individuals. An individual with a complaint could not invoke the I3eddoe's summons procedures.
I turn to the other arm of protection, which the Minister put forward; namely, that individuals could go to OPRA. They could of course, but I have some concerns about that because the regulatory authority has a quite specific remit under this Bill which does not cover all situations. On 7th February, at Committee stage, the Minister said in response to an amendment moved by my noble friend Baroness Hollis that OPRA,
"will have the powers necessary to enforce compliance with the law".
Later during the same day of the Committee stage, in answer to another amendment moved by my noble friend Lord Haskel, the Minister said, referring to OPRA:
"We should not widen its powers in such a way that it becomes involved in trust law—and other matters which are best left to the courts".
There we have it. I suggest that the individual within a scheme, or groups of individual members who are not trustees and who cannot have a case decided by the regulatory authority because it is outside the powers of the regulatory authority, do not even have the procedure which is there under the Beddoe's summons procedure.
I suggest that this exposes a major gap in this Bill as regards the rights of individuals in pension schemes. Where do they go if they cannot invoke the Beddoe's procedure and the regulatory authority cannot help them?
At this stage I should like to quote from the judgment of Lord Justice Hoffman when he was giving his decision in the Melton Medes case. That is a case where a group of individuals, with the support of their union, went to court to get their costs covered. It was only when they had reached something like half a million pounds that the case was heard. As I said, the funding came from the union.
Lord Justice Hoffman said,
"What distinguishes the shareholder and pension fund member on the one hand from the ordinary trust beneficiary on the other is that the former have both given consideration for their interests. They
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are not just recipients of the settlor's bounty which he, for better or worse, has entrusted to the control of trustees of his choice. The relationship between the parties is a commercial one and the pension fund members are entitled to be satisfied that the fund is being properly administered. Even in a non-contributory scheme, the employer's payments are not bounty. They are part of the consideration from the services of the employee".
Expert pensions lawyer, John Mesher, in Occupational Pensions Law Reports, went on to say about that judgment that,
"there is little guidance on which to predict how the discretion will or will not be exercised in the future"—
that is a discretion which Lord Justice Hoffman gave—
"since the factors identified in it will be common to most cases where pension scheme members bring claims against the trustees or the employers".
At the moment I suggest that what we have in this Bill is a gap which leaves individual members exposed without any kind of back-up support unless their individual complaint is covered specifically within the regulatory authority remit in this Bill. It does not cover any problems which may arise in trust law. As the Minister said in the debate on 7th February, the intention is not to give the regulatory authority the right to interpret or indeed to intervene in trust law. I beg to move.
9:30 p.m.
Lord Mackay of Ardbrecknishds, I understand why the noble Baroness wishes to ensure that scheme members are not prevented by lack of funds from challenging the trustees of a scheme in court where they believe there is a breach of trust. I am sure that we all share her concern that the interests of scheme members should be protected and that where members have cause to challenge the actions of trustees, effective and straightforward methods of redress are available.
I believe at Committee stage I answered questions about the Beddoe's principle. The noble Baroness has pointed out that that covers trustees acting in good faith and that the trustees may apply for a Beddoe's order to indemnify them for the cost of litigation. I do not believe that anyone has gone on to speak about scheme members. The cost of litigation can indeed be very high. The noble Baroness mentioned the Melton Medes case. That certainly illustrates the level of costs. However, that case stems from events which began in 1986. In the intervening period there have been a number of developments which have an important bearing on this issue. I believe that those developments, taken together with various provisions in this Bill, make the amendment unnecessary.
First, the services of both the Occupational Pensions Advisory Service and the pensions ombudsman are free of charge and readily available to scheme members. OPAS offers independent advice to anyone who has a problem with their pension scheme. Since 1991, it has been receiving grant-in-aid from the Occupational Pensions Board. The Pension Law Review Committee recognised the worthwhile work carried out by OPAS in its report and the Government remain committed to providing financial support for this valuable service. If OPAS is unable to resolve the dispute, the scheme member may take his case to the pensions ombudsman.

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The office of the pensions ombudsman was set up in 1991. It was established specifically to provide scheme members with an inexpensive and readily accessible means of resolving disputes as an alternative to the courts. The ombudsman is an independent commissioner who may investigate complaints of maladministration and disputes of fact or law referred to him by individuals. He has the same powers as the courts in requiring information and examining witnesses. His determinations are final and binding upon the parties and may be enforced in the courts.
When this issue was discussed in Committee, I spoke about the role of the new regulatory authority which we are introducing. Scheme members will be able to report their anxieties to the authority, which will have the power to investigate allegations and to take action to ensure that schemes comply with their statutory obligations.
There are also provisions in the Bill which will require the trustees or managers of occupational pension schemes to establish and operate procedures to resolve disagreements. We believe that it is in the interests of schemes and of members that, where possible, disputes should be resolved by the schemes themselves. The trustees will be required to give a written response explaining the position, and it is intended that they should refer to the appropriate part of the scheme rules. If the member is dissatisfied with the response he receives, he will be able to take his case to OPAS and, if necessary, to the pensions ombudsman.
In addition, as noble Lords will be aware, the noble and learned Lord, Lord Woolf, is undertaking a review of rules and procedures of the civil courts with the aim of reducing the costs of civil litigation. I submit, however, that the developments of the past few years, when added to the new provisions in the Bill, mean that taking the matter to litigation should not be necessary.
Taken together, the arrangements and developments I have described will ensure that scheme members can obtain redress for their grievances without the need for lengthy and costly litigation. It is surely in everyone's interests that court action should be avoided. The measures we have already put in place, together with those we are introducing in the Bill, will ensure that scheme members will not be prevented by lack of funds from pursuing their proper concerns—whether that be through OPAS, the ombudsman or the new authority. I hope that I have reassured the noble Baroness sufficiently for her to feel able to withdraw her amendment.
Baroness Dean of Thornton-le-Fylde: My Lords, I thank the Minister for that detailed and helpful reply which does not, however, reassure me as much as he had hoped that it would. Perhaps I may give the House an example. I refer to the well-known Imperial case. A company was sold and the members of the pension fund were guaranteed that their benefits under the scheme would be protected. They were told that their benefits would not be eroded in any way. Well, they were eroded. The scheme members would not have been covered by the regulatory authority proposed in the Bill.
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It would not have been able to intervene on their behalf. So, who would be able to protect them? They would have to find some other means of redress. My information is that neither OPAS nor the pensions ombudsman could intervene in that situation. Such a case would come under trust law and would be a matter for the courts.
I agree entirely with the Minister that disputes in regard to pension funds should be settled within the fund. We welcome the disputes procedure that is established under the Bill. No one wants costly litigation where that can be avoided.
The amendment has been tabled at this stage because it is felt strongly that there is an omission in that the individual is given no assurance that either the provisions in the Bill, OPAS or the pensions ombudsman could deal with those situations which, fortunately, occur only from time to time. They are not regular events but when they occur they have such an effect upon the individuals within the pension fund that one feels strongly, as one did in the Melton Medes case, that that must never be allowed to happen again.
It is clear that the Minister will not be persuaded this evening to accept the amendment. So, taking everything into consideration, I beg leave to withdraw it.
Amendment, by leave, withdrawn.
Clause 33 [Restriction on employer-related investments]:
Lord Ezra Lord Ezra moved Amendment No. 84:
Page 19, line 23, leave out from ("that") to ("invested") in line 24, and insert ("no more than 5 per cent of its resources is").
The noble Lord said: My Lords, I shall speak also to Amendment No. 105. The amendment deals with the issue of self-investment. A simple matter is raised by the amendment. The Bill provides that the scheme must comply,
"with any prescribed restrictions with respect to the proportion of its resources that may at any time be invested in … any employer-related investments".
Those are quite properly described in the following paragraph.
The issue is that from 1992, in the wake of the Maxwell affair, it has been laid down that self-investment should not exceed 5 per cent. That was referred to in the Goode Report and in the Government's White Paper. I feel that the reference to prescribed limits introduces an area of uncertainty where there was certainty.
It is important that fund managers know where they stand in this matter. The principle has now been well established. I have no doubt that the prescribed limit probably would be 5 per cent. That is all the more reason why it should be on the face of the Bill. There should be no doubt.
Some feel that there should be a total prohibition on self-investment but, as the Goode Report pointed out, that would create serious difficulties, particularly in the case of larger schemes of companies with many associates. Some of those companies track the market, and their own shares obviously play a part in that process. It would be virtually impossible to eliminate their own share of that market-tracking operation.
Therefore a certain limit has to be allowed. That has been established as 5 per cent. I believe there is a strong case for that to be endorsed in the Bill. I beg to move.
Lord Haskel: My Lords, I support the amendment. As the noble Lord, Lord Ezra, said, the 5 per cent. limit on self-investment appeared in the White Paper. For some reason it does not appear in the Bill. The Bill has prescribed limits. I feel strongly that the 5 per cent. should be on the face of the Bill to prevent any misunderstandings. There are many examples of things going wrong in this regard. There are the Bellings, the Burlington International, and the Lewis's and Lep cases. They are just but four examples.
The Goode Report gave reasons for allowing some level of self-investment, but, as the noble Lord, Lord Ezra, said, 5 per cent. seems a reasonable compromise to avoid difficulties which arise from time to time and to help promote the principle of prudent diversification of investments.
The object of Amendment No. 105 is to prevent the value of employer-related investments being included in the total value of assets. The reason is clear. The amendment is essential if the MSR is to be at all effective. If employer-related assets are to be permitted for the purpose of calculating the MSR, that is even less of a solvency safeguard than we originally believed. I support the amendment.
Lord Mackay of Ardbrecknish: My Lords, Amendment No. 84 would place on the face of the Bill a limit on the amount which schemes may invest in the sponsoring employer and associated companies. The proposed limit at 5 per cent., mirrors that currently required by regulations which took effect in March 1992. These regulations are made under existing legislation. The PLRC considered the limit and considered that there had been insufficient time since its introduction to judge whether or not it was an appropriate one. It recommended that the 5 per cent. limit should stand.
That recommendation, together with the other PLRC recommendations on self-investment, have been accepted by the Government. We propose to bring forward regulations which put these recommendations into effect. We are all agreed, therefore, that a 5 per cent. limit on the level of self-investment is currently considered appropriate and one which, I submit, has been properly introduced into legislation by regulations. I find it difficult to see the need for this limit to be placed on the face of the Bill if it can be, and indeed already has been, satisfactorily introduced by secondary legislation.
I have noted the points made by the noble Lord. However, the danger in this amendment is that while it will have no immediate effect on the level of permitted self-investment it will make it much more difficult for any changes to be made to that limit if, in the course of time, 5 per cent. is felt no longer to be an appropriate level. The inflexibility inherent in introducing a particular figure onto the face of the Bill, combined with the fact that it is simply not necessary to do so, leads
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me to conclude that any advantages are clearly outweighed by the disadvantages. I therefore hope that the noble Lord will not press the amendment.
Perhaps I may now turn to Amendment No. 105. It would exclude any employer-related investment from the calculation of the minimum solvency requirement. In Committee, I explained that investment managers may invest in a range of unitised securities which ensure the performance will reflect the market. These unit trusts may themselves be invested in the sponsoring employer or those associated with it. The complex world of mergers and acquisitions make it difficult to keep track of who owns which particular companies. To require the investment manager to be continuously monitoring the holdings of the parent company would be something of an administrative nightmare.
It is, of course, the trustees of the scheme who will decide whether employer-related investments are appropriate. This duty has been further strengthened by the provisions of this Bill. When making such a decision, as in all their duties, trustees must act in the best interests of scheme members. They are therefore expected to consider risk as well as return when deciding on investment policy.
If the likely rate of return from an employer-related investment is not as good as could be achieved elsewhere, the trustees should consider whether to retain the investment. Similarly, if they are of the opinion that there is a real risk of employer insolvency, they would be acting in breach of trust if they were to agree to any employer-related investment. On the other hand, there may be situations where employer-related investment is acceptable and judged to represent prudent investment.
Given that a blanket exclusion on all employer-related investment is not practical, which noble Lords accept, it would be illogical to exclude up to 5 per cent., which is legally permitted, from the minimum funding calculation. Apart from any other reasons, we would be placing an exclusion on trustees that could be breached without their intent or knowledge. It would have the effect of raising the minimum funding requirement threshold for any scheme that had up to 5 per cent. self-investment.
Finally, I would remind noble Lords that the Government have accepted the PLRC's recommendation that all loans or other financial assistance to an employer or associated companies should be prohibited. We believe that this will significantly limit the potential risk involved in financial dealings between a pension scheme and its sponsoring employer. I must therefore agree with the PLRC's conclusion that a 5 per cent limit on employer-related investment will ensure an adequate diversification of risk.
I hope that with that explanation of the way in which we have reached our conclusion, the noble Lord will withdraw his amendment.
Lord Ezra: My Lords, I thank the Minister for his comments. I am a little disappointed, in particular that Amendment No. 84 has not been accepted. That has been recognised as the limit, and the reference in the legislation to "prescribed" limits introduces a degree of

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uncertainty which could have been avoided. Of course, those limits cannot be fixed for all time. But on the other hand, it is not a matter which should be changed too rapidly or too easily. Fund managers need to know the rules under which they are to operate. The 5 per cent. limit has been accepted. We have had what is tantamount to an assurance from the noble Lord that that will be the prescribed limit. Therefore, it would have been extremely easy to put that on the face of the Bill.
However, I shall study carefully what the Minister said about both Amendments Nos. 84 and 105. If we need to return to those issues at the next stage, we shall certainly do so. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas Lord Lucas moved Amendment No. 85:
Page 19, line 45, leave out (" 3") and insert ("(Prohibition orders)").
The noble Lord said: My Lords, I spoke to this amendment when I moved Amendment No. 3. I beg to move.
On Question, amendment agreed to.
Clause 34 [Provision of documents for members]:
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 86:
Page 20, line 16, at end insert:
("() if the scheme is subject to the minimum solvency requirement and the actuary has prepared a certificate under section 48 or 50, a statement by the actuary concerning such aspects of the certificate as may be prescribed and containing such other information as the actuary considers to be relevant and appropriate in the circumstances,").
The noble Earl said: My Lords, in moving this amendment, I shall speak also to Amendment No. 87 which stands in the name of the Minister. I believe that Amendment No. 87 may well meet the prime objective of Amendment No. 86. In those circumstances, I should prefer to hear what the Minister has to say about Amendment No. 87. I beg to move.
Lord Mackay of Ardbrecknish: My Lords, it may be for the convenience of the House if I intervene at this point to explain the intention behind the government amendment. If other noble Lords wish to intervene afterwards, I shall try to answer any questions raised.
I am grateful to my noble friend for his brief introduction. I agree with him that trustees should obtain comprehensive information from the scheme actuary concerning the financial position of the scheme. It is also important that members have access to information about the funding position, especially in relation to the minimum solvency requirement.
Powers are already contained in Clause 49(5) to prescribe what information and statements should be produced about the scheme's ability to meet the minimum solvency requirement. I agree that this is not wide enough and propose in my alternative amendment a wider power. This effectively preserves the existing powers in the Pension Schemes Act.
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Subject to the amendment which I propose, the powers in this clause enable the introduction of comprehensive requirements along the lines that I have mentioned. I am glad to have my noble friend's support in relation to this amendment which largely achieves what his amendment seeks to secure. I congratulate my noble friend on raising the matter for which, on second thoughts, we clearly saw the argument. I am sure that my noble friend will withdraw his amendment and will allow my amendment to proceed.
The Earl of Buckinghamshire: My Lords, I thank my noble friend for his kind words. Having listened to what he said, I am very pleased to allow his amendment to proceed. On that basis, I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 87:
Page 20, line 17, leave out from beginning to ("a") in line 18.
On Question, amendment agreed to.
[Amendment No. 88 not moved.]
Baroness Dean of Thornton-le-Fylde Baroness Dean of Thornton-le-Fylde moved Amendment No. 89:
Before Clause 35, insert the following new clause:
Training for trustees
(".—(1) Every person appointed as a trustee shall undertake a short course of training approved by the Authority (unless he has already undergone such a course or holds a relevant professional qualification).
(2) The appointment as trustee of any person who fails to undertake such an approved course within six months of his appointment shall lapse and may not be renewed without the approval of the Authority.").
The noble Baroness said: My Lords, when I was discussing this Bill—and indeed the whole area of trustees—with colleagues of mine, one of them said to me that it beggared belief that someone having the responsibilities conferred by this Bill, who will be managing trust funds for beneficiaries which equate, as has been said earlier this evening, with something like one third of the value of all the shares on the London Stock Exchange, cannot be compelled to have some kind of training. It is really quite incredible if one considers the matter in depth. Indeed, I tried to think of any job that does not have some kind of training. It was difficult. The position involves the management of large amounts of money and carries considerable responsibilities and penalties for the individual. Not to require compulsory training is quite amazing and needs rectifying.
Nevertheless, the world is full of courageous people and perhaps they would be courageous enough to take on board the responsibilities of being a trustee. That is what we all want to see. However, I looked again at the Bill. Under the penalties to which the individual trustee can be subjected—mere suspension, or removal from office—there are 12 offences, all of which can be imposed upon the individual trustee.
If we take the next ratchet up penalty, we see that the penalty of a fine could be imposed on individuals responsible for pension funds. That makes a total of 17

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offences. Fourteen of those offences with a penalty of a fine relate to individual trustees. If we take the ultimate sanction under the Bill—the criminal penalty—which attracts a fine or imprisonment, that amounts to five offences, three of which relate to trustees. In fairness and equity, how can we subject individuals to that kind of potential penalty and then tell them that they are not required to have some kind of compulsory training? How can they be guilty of a misdemeanour if they have had no training?
In Committee the Minister said that he felt that it was up to schemes to decide the training needs of their trustees. That is not the view of many; indeed, that is not the view of many people who have lobbied very hard on the matter, despite the fact that the Goode Committee stated that it would not put forward the requirement for compulsory training. We feel that it is right to seek training from a body outside the scheme administrators and consultants. They are far too inclined—and I have personal experience of this—to give their impression as professionals within the scheme on how things should be done and on the correct way that the scheme should operate. Let us bear in mind the fact that exposure to the individual perceptions of those professionals could result, if the legislation is breached, in suspension, removal, a fine or, at its worst, imprisonment.
There has to be some kind of quality control on courses. There are many quite reputable bodies which currently provide courses of three days or one week. They do not last long. Indeed, the TUC put about 1,000 trade union trustees through training courses, and I gather that the National Association of Pension Funds has a range of courses that cost between £100 and £900. They are not expensive in the way of things as regards pension schemes that are handling so much money. If you give people responsibilities, I believe that you must also give them rights. By imposing a compulsory requirement to train, we would in fact be giving individual trustees a right. I beg to move.
Baroness Seear: My Lords, I should like briefly to support the amendment. However, unlike the noble Baroness, Lady Dean, I can think of far too many jobs for which no training is required, starting with membership of both Houses of Parliament. But that is not an argument against having training; indeed, I should have thought it is very much an argument in favour of it. Given the risks that trustees are undertaking, it is only fair to them that they should have training, if only to expose to them the nature of the risks involved.
I can well envisage a number of well-meaning people who, for a variety of reasons, might agree to be trustees while having very little idea about what it is that they are required to do or what the penalties may be if they slip up. I hope very much that the Government will not resist this sensible requirement. It would be very much better if it applied in a great many other areas too.
Lord Mackay of Ardbrecknish: My Lords, as the noble Baroness, Lady Dean, explained, this amendment would require a trustee to undertake a short course of approved training within six months of his appointment.
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In effect, the amendment requires compulsory training for all trustees. The Government do not dispute for a moment that trustees should be properly trained but we believe there are very sound reasons why such training should not be made compulsory.
Compulsory training does not by its very nature take account of the different training needs of individual trustees. It is not simply a matter of exempting those who have undertaken such a course or who hold relevant professional qualifications, as described in the amendment. Some trustees would have been doing the job for years and have a wide background in pension matters. Others would be new to the job. Yet others would fall somewhere in between. Compulsory training would not, and could not, take account of their different needs, learning abilities, personal preferences or even their domestic arrangements. For example, a training course away from the workplace—
Baroness Seear: My Lords, does not the Minister agree that some of the people who have been doing jobs for years are very much the ones who most obviously need training?
Lord Mackay of Ardbrecknish: My Lords, there may be some to whom that applies, but there may be others to whom it does not apply. It seems a little unfair to those who are doing the job perfectly well—I am sorry that the noble Baroness intervened and spoke in a disparaging way about people who are doing the job at the moment, most of whom are doing it very well—to suggest that they should go off and attend some form of compulsory training. As I was saying, the amendment would also mean that the authority had to determine what could be regarded as an approved training course. We do not see a role for either the Government or for the authority in attempting to approve, regulate and set standards for the various training media that are available. More will no doubt become available as a result of the Bill and the publicity arising from it. We consider that the interventionist role envisaged in the amendment would be impracticable, costly and, we believe, unnecessary.
The amendment refers to "professional qualification". It is important to appreciate that trusteeship is not a job just for experts or professionals with particular qualifications. It is a job where lay volunteers have an important contribution to make. Anyone undertaking trustee duties must, of course, be well informed about his role and responsibilities. But personal qualities and an aptitude for the task are equally important.
The important point is not to make training compulsory but to ensure that trustees and potential trustees are fully aware of the role expected of them and the nature of their responsibilities. They must have access to information and guidance on how to carry out that role, including the various training options that are available to them. Training for trustees is essential. It is vitally important that trustee boards should contain properly trained and informed trustees who are fully aware of their role. However, rather than impose a regime of compulsory training which may or may not be appropriate for each individual, it is better for trustee

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boards, individual trustees and the sponsoring employer to decide the most appropriate form and method of training which will meet their particular needs.
The Government want to encourage trustee training and to this end we have made it a requirement that employers give paid time off for that purpose. We are also supporting the initiatives being taken by the pensions industry in the preparation of industry sponsored codes of practice and we know that those developing the codes are planning to cover training.
We do not believe that the amendment is the right way to proceed. I imagine it would be but a short step to compulsory examinations and the like. As a former schoolteacher dare I suggest that one can put people through courses but it does not necessarily mean that at the end of the day they learn much? It would be no time at all before we established an examinations board and the whole business would become over-regulated. I believe that the task we are discussing is a responsible and important one; it is not one for which we need the kind of professional qualifications that I envisage would follow, if we were not careful, the training proposed by the amendment, which, if it was to be properly understood, would mean establishing an examinations board and the like.
Baroness Dean of Thornton-le-Fylde: My Lords, the Minister has been less than generous in interpreting the amendment which is before the House this evening. He said that we do not want professionally qualified people but lay people. The Bill provides for special trustees to be put in place in particular circumstances who will have professional qualifications. We wanted to make sure that we were not attacked for having no regard for trustees who have professional qualifications.
The noble Baroness, Lady Seear, quite rightly chided me. She said that she could think of many jobs where people did not receive any training. I could probably match that, but I could not provide examples of many jobs which carry the penalties that this Bill imposes. That is the problem.
The Minister's arguments in response to the amendment this evening were shallow. They did not address the reasons for the amendment. The responsibilities of individual trustees under the Bill are such that they are entitled at least to some form of compulsory training. The amendment does not specify in detail what that would be. I am most disappointed that the Minister has not seen the sense of that. It is not a question of bureaucracy or the thin end of the wedge before we require academic qualifications. The intention is to make the Bill work and to put people in place who have the courage and the necessary knowledge to carry out their responsibilities.
Having said that, it is clear that the Minister has not been moved by an argument which stands on its own merits. It is with regret that I ask the leave of the House to withdraw the amendment.
Amendment, by leave, withdrawn.
10 p.m.
Clause 39 [Professional advisers]:
[Amendment No. 90 not moved.]
Lord Lucas Lord Lucas moved Amendment No. 91:
Page 22, line 28, at end insert:
("() For every trust scheme the assets of which consist of or include investments (within the meaning of the Financial Services Act 1986) there shall be an individual or a firm appointed by the trustees as fund manager.").
The noble Lord said: My Lords, in moving Amendment No. 91 I shall speak at the same time to Amendments Nos. 93, 94 and 96. Before doing so I should draw the attention of the House to an error in Amendment No. 93 as printed on the Marshalled List. It should read:
"leave out ("and (2)") and insert ("to (3)")".
It is incorrectly printed as "("to (2)")".
Amendment No. 91 provides that trustees who intend to invest directly in investments which fall within the scope of the Financial Services Act must appoint an authorised fund manager. As drafted the Bill provides trustees with the power to delegate investment decisions to authorised fund managers but does not require them to appoint one. In view of the importance attached to scheme investments we consider it appropriate that the Bill should require trustees to appoint an appropriate person to manage those assets. That person may be an external fund manager or an appropriately authorised in-house fund manager. Amendments Nos. 93, 94 and 96 make changes consequential upon Amendment No. 91. I beg to move.
On Question, amendment agreed to.
Lord Lucas Lord Lucas moved Amendments Nos.
92 to 96:
Page 22, line 33, leave out (" 3") and insert ("(Prohibition orders)").
Page 22, line 40, leave out ("and (2)") and insert ("to (3)").
Page 23, line 9, leave out from ("scheme") to ("sections") in line 10 and insert ("an auditor, actuary or fund manager is required under this section to be appointed but the appointment has not been made, or not been made in accordance with any requirements imposed under this section,").
Page 23, line 10, leave out (" 3") and insert ("(Prohibition orders)").
Page 23, line 12, leave out ("such an appointment") and insert ("compliance").
The noble Lord said: My Lords, I spoke to Amendment No. 92 with Amendment No. 3. I have also spoken to Amendments Nos. 93 to 96 with Amendment No. 91. I beg to move.
On Question, amendments agreed to.
Clause 40 ["Blowing the whistle"]:
[Amendment No. 97 not moved.]
Lord Lucas Lord Lucas moved Amendment No. 98:
Page 23, line 36, at end insert:
("(5) If it appears to the Authority that an auditor or actuary has failed to comply with subsection (1) or (2), the Authority may by order disqualify him for being the auditor or, as the case may be, actuary of any trust scheme specified in the order.
(6) An order under subsection (5) may specify the scheme to which the failure relates, all schemes falling with any class or description of trust scheme or all trust schemes.
(7) The Authority may, on the application of any person disqualified under this section who satisfies the Authority that he will in future comply with those subsections, revoke the order disqualifying him; but a revocation made at any time cannot affect anything done before that time.
(8) An auditor or actuary of a trust scheme who becomes disqualified under this section shall, while he is so disqualified, cease to be auditor or, as the case may be, actuary of any scheme specified in the order disqualifying him.
(9) A person who, while he is disqualified under this section, purports to act as auditor or actuary of a trust scheme specified in the order disqualifying him is guilty of an offence and liable—

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

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

(10) An offence under subsection (9) may be charged by reference to any day or longer period of time; and a person may be convicted of a second or subsequent offence under that subsection by reference to any period of time following the preceding conviction of the offence.").
The noble Lord said: My Lords, the purpose of Amendment No. 98 is to provide within Clause 40 the powers to enable the authority to sanction auditors and actuaries who fail to comply with their duty to "blow the whistle".
The amendment introduces further powers for the authority, but our intention is that for the time being the new subsections will remain uncommenced. It is the same as we proposed for subsection (4) which allows the authority to fine auditors and actuaries. The reason is that we believe that the auditors' and actuaries' professional bodies are the ones best placed to discipline members who fail to comply with their statutory duty. Those bodies will take on this role as part of their already well-established professional disciplinary procedures which have an appropriate range of penalties—for example, the removal of a professional's practising certificate. We intend to introduce those additional powers only in the unlikely event that the respective professional bodies are unable or unwilling satisfactorily to discipline their members who breach the whistle-blowing duty.
The amendment allows the authority to disqualify a person from being an auditor or actuary of a trust scheme—if that person fails to comply with the duty to "blow the whistle". It also allows the authority to revoke a disqualification if, at a later date, it becomes satisfied that an auditor or actuary will in future comply with that duty. Those powers broadly reflect those contained in the Financial Services Act 1986 and the Insurance Companies Act 1982. Furthermore, it makes it a criminal offence for a person who is disqualified under this section to act as auditor or actuary of a trust scheme.
These sanctions are necessary, first, because the Pension Law Review Committee recommended that every breach of a duty should carry a sanction; secondly, because the authority needs to be able to enforce the whistle-blowing duty should the relevant professional bodies fail to do that; and, finally, because we wish to adopt an approach that is not out of step with that taken in other areas of regulation. I beg to move.
On Question, amendment agreed to.
Clause 41 [Other responsibilities of trustees, employers, etc.]:
[Amendment No. 99 not moved.]
Lord Lucas Lord Lucas moved Amendment No. 100:
Page 24, line 13, leave out (" 3") and insert ("(Prohibition orders)").
The noble Lord said: My Lords, I have already spoken to this with Amendment No. 3. I beg to move.
On Question, amendment agreed to.
Clause 43 [Annual increase in rate of pension]:
[Amendment No. 101 not moved.]
The Chairman of Committees (Lord Boston of Faversham): My Lords, in calling Amendment No. 102, I should point out to your Lordships that if Amendment No. 102 is agreed to, I cannot call Amendment No. 103.
Clause 48 [Minimum solvency requirement]:
Lord Eatwell Lord Eatwell moved Amendment No. 102:
Page 28, line 9, leave out subsection (1) and insert:
("() Every occupational pension scheme to which this section applies is subject to a requirement (referred to in this Part as "the minimum contribution requirement ") that the contributions paid to the scheme by the employer, after taking account of any members' contributions required by the rules, shall not be less than those which will be sufficient to meet the cost of providing benefits under the rules of the scheme for its members.").
The noble Lord said: My Lords, in moving Amendment No. 102, I speak also to Amendments Nos. 104, 106 to 109, 111, 113, 119, 121, 123 and 126.
The ordering of amendments at this stage is a little unfortunate. It would have been better if we could have taken Amendment No. 103 in the name of the noble Earl, Lord Buckinghamshire, first, because the noble Lord, Lord Mackay of Ardbrecknish, has put his name to that amendment. Before I proceed, I wonder whether I may assume that the Government intend to accept the noble Earl's amendment. Would that be correct?
Lord Mackay of Ardbrecknish: My Lords, I should have thought that that was fairly self-evident from reading the Marshalled List.
Lord Eatwell: My Lords, with that simple statement by the noble Lord, Lord Mackay, the Government's case for the minimum solvency requirement has been destroyed. I am grateful to him. He has acknowledged that the minimum solvency requirement is not a solvency requirement. He will acknowledge that by changing its name, it no longer has the characteristics which the Government have pretended that it had. We now have a funding requirement in which the scale of funding is to be determined by an arbitrary procedure related once upon a time to solvency but so related no more.
However, the minimum solvency requirement, or the minimum funding requirement as we shall certainly soon learn to call it, still bears the disfigurement of its misconception. The funding requirement is still defined as though it were a solvency requirement, albeit very much watered down. The watering down has steadily proceeded. Times of periods for compliance have been

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lengthened; asset valuation has been more flexible. The funding requirements on large schemes have been relaxed.
In Committee the Government moved amendments which transformed the solvency requirement in Clause 49 of the Bill from a requirement that a pension fund should be solvent into a requirement that a pension fund's investment policy should be adequate for the purpose of securing that the requirement of solvency will be met.
At the time I characterised that amendment as being similar to the role of the England cricket team believing that their abilities were adequate for the purpose of securing the Ashes. So we could call the Government's then position "the Atherton position". But now, with the abandonment of any pretence that there is a minimum solvency requirement in the Bill, the Government's position has become that they continue to support a requirement while they acknowledge in advance that it will not be fulfilled. Their position has switched from the Atherton position to the "Eddie the Eagle position". Eddie the Eagle knew that he could not ski-jump, but he tried all the same. The Government know that their solvency requirement will not guarantee solvency, but they continue to use it all the same.
Now that the intellectual case of the Government's position has collapsed, surely it is time for the Government to acknowledge that the minimum solvency requirement, though advanced with the best of intentions, was a thoroughly misconceived proposal in the first place.
Over the past couple of days I obtained the evidence of the Government Actuary as submitted to the Goode Committee on this proposal. The Government Actuary recommended against the minimum solvency requirement. The Government Actuary argued, in a report dated 14th December 1992:
"It can happen … that a scheme is insolvent on such a discontinuance basis, whilst comfortably in surplus on an on-going funding basis.
Since in the majority of cases a scheme is not discontinuing, this [the discontinuance basis] seems a rather artificial process. It is also unrealistic to think that medium to large pension funds could be readily bought out with an insurance company".
Why did the Government ignore their own Actuary's advice?
The noble Lord, Lord Mackay, committed the basic error of which the Government Actuary warned. He fell into exactly the error of accepting the artificial process. The noble Lord told us in Committee that he was,
"convinced that a measure of solvency that does not address the position of the scheme on discontinuance in some way will not be providing members with adequate security in the event of the scheme being wound up".
He went on:
"The overwhelming argument in favour of a minimum solvency requirement is that if an employer undertakes to provide a pension promise the scheme should be able to secure that promise at all times, especially in the event of the scheme winding up".—[Official Report, 16/2/95; col. 822.]
What the Government will admit by accepting the amendment of the noble Earl, Lord Buckinghamshire, is that the propositions that the noble and learned Lord,
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Lord Mackay, made in Committee are not going to be fulfilled. It is simply not true that under the Government's proposals the scheme will be able to secure the promise at all times. That is not true. So why do the Government not realise that they have now created the worst of both worlds: a minimum solvency requirement that is not about solvency, and now a minimum funding requirement that is not about funding?
I am quite willing to accept that the amendments that are tabled in my name are imperfectly drafted. These amendments remain in the nature of probing amendments. But their objective is clear; namely, to establish a minimum contributions requirement which is defined by best actuarial practice and which seeks to maximise the returns to the contributions of employers and employees within the context of an ongoing fund, as the Government Actuary recommended. There is no hybrid standard, as the Minister claimed in Committee. Instead, there is the standard for evaluating an ongoing fund that was proposed not by me but by the Government's own Actuary.
I am advised by the National Association of Pension Funds and by other actuaries whom I have consulted that a "best practice" requirement would provide extremely good protection against the possibility of employer insolvency. It would certainly provide far better protection than the Government's now discredited minimum solvency requirement or minimum funding requirement. That is all that these amendments seek to achieve: a basis for the evaluation of funds on an ongoing basis. However, in doing so, they would establish criteria for the operation of pension funds which would provide real protection to employees, provide an efficient funding base for employers and allow the regulator to identify with ease the rogue employer; for instead of requiring a complex, separate actuarial assessment dealing with the increasingly vague and irrelevant solvency conditions, the regulator could easily refer to the actuarial standards adopted to run the fund on an ongoing basis.
I do not mind if the Minister wants to call my minimum contribution requirement a minimum funding requirement. I do mind that whatever minimum is set should protect the interests of members. The Government's hybrid jumble of criteria does not meet that simple goal. Instead, it creates an artificial standard which, regrettably, for many pension funds will become the norm and which by its very nature will be seriously inferior to the position that will be established by best actuarial practice. Instead of protecting the pensioner from rogues, the Government are creating an environment which will discourage employers from adequately funding their pension funds, for the solvency requirements are now so far removed from the real requirements of adequate funding that they will be at the same time expensive and inadequate.
Surely, now that the Government are about to acknowledge that the case for a minimum solvency requirement is lost in its own contradictions, they should withdraw the entire sorry mess and begin to work on the framework of proposals that I have put forward. Incidentally, by so doing, it would make unnecessary

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the complex exceptions which are to be moved later by the noble Lord, Lord Clark of Kempston, exceptions which would be completely unnecessary if the Government were to accept that a minimum contributions requirement should be based on best actuarial funding practice.
The Government should now obey the wise advice of my noble friend Lord Healey: "When you are in a hole, stop digging". The minimum solvency requirement is not just a hole but a hole rapidly filling with water. The Government acknowledges the intellectual failure of their proposals by accepting the amendment of the noble Earl, Lord Buckinghamshire. They should accept the logic of their own position and transform the new minimum funding requirement into a minimum contributions requirement. I beg to move.
10.15 p.m.
Lord Stewartby: My Lords, I hope that the House will not accept Amendment No. 102. The noble Lord, Lord Eatwell, explained it in the context of the contribution proposals that he deployed to your Lordships at an earlier stage in the proceedings on this Bill; but he has not explained why a concept of matching contributions to benefits is sounder than a concept of solvency or funding. That is not just a technical aspect of the wording of his amendment; it is fundamental to it. The noble Lord, together with his noble friend, argues that the concept of a contribution requirement should be that the contributions match the benefits.
Any system in which contributions are related directly to the benefits becomes a pay-as-you-go scheme. I do not see how we could possibly graft that onto the existing structure of our pension funds. Unless the rentability of the assets of the scheme are taken into account, the contributions which are paid—whether paid by the employer or taking account of the members' contributions—will never be related to the benefits in the direct way that he suggests.
This may indeed be a matter of terminology. But before the noble Lord rubbishes the idea of solvency or funding, he ought at least to make a case for his own terminology on contributions. That he has not done.
Lord Mackay of Ardbrecknish: My Lords, I am surprised that this was not a longer debate.
We first heard during Committee how the noble Lord, Lord Eatwell, opposes the minimum solvency requirement and favours a "minimum contributions requirement". His proposal is based on the enforcement of,
"best practice funding standards on an ongoing basis".
He suggested that that would provide "a truly viable" alternative to the minimum solvency requirement. Therefore, in view of that rather ambitious claim, it was something of a let-down to realise that this seems to be no more than maintaining the status quo. In fact, it would seem that the noble Lord, Lord Eatwell, is urging the Government to turn their back on their duty to improve member security and, instead, to take the easy way out—the "do nothing" option.
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I hope to be able to explain to noble Lords why our proposal is superior to that of the noble Lord, Lord Eatwell. I shall attempt to do that with as few clever remarks as I can. My disadvantage is that I have been at the Dispatch Box since 3 o'clock this afternoon, whereas the noble Lord, Lord Eatwell, has clearly been on the substitute bench for a few hours now preparing his clever remarks.
The simple fact is that an employer who undertakes to provide a defined benefit scheme takes on responsibility for the balance of cost. He is responsible for paying the extra needed to provide benefits over employee contributions and investment return. The minimum funding requirement reinforces that responsibility up to a certain level. We know from the results of the consultation exercise we carried out last year to test the impact of the minimum solvency proposals that the vast majority of schemes were normally funding at a level comfortably above the minimum. The new requirement will not affect those schemes and will not, as the noble Baroness, Lady Seear, asserted in Committee, mean more money would have to be put into schemes than is necessary. But our survey also identified a minority of schemes that were very weakly funded. For such schemes, the minimum requirement is crucially important for improving security for members.
During Committee, I said that the central weakness of an ongoing funding requirement is that it does not aim to provide any level of protection in the event of a scheme winding-up. I know that some noble Lords may want to argue that the bulk of employers do not become insolvent and that it is therefore unreasonable to require schemes, at all times, to have sufficient assets to meet their accrued liabilities. I do not accept that argument. On the contrary, I believe that scheme members have the right to a clearly defined measure of protection. I should like to remind noble Lords of what the PLRC had to say on this issue:
"Where there is a risk, however small, of the employer's insolvency, funding will meet the requirements of benefit security only if at all times the assets of the scheme are sufficient to cover its liabilities".
Several commentators have said that it would be damaging for employers to require them to pay contributions at a time when equity markets are depressed. Nevertheless, there is a definite relationship between a decline in the market value of equities and employer insolvency. Thus, it is at the very point that accrued benefits are at their most vulnerable that an employer is most likely to become insolvent. Members who have had their benefits reduced on a wind-up are unlikely to take much comfort from the fact that they would have been secure had their employer remained in business. To put it another way, it is quite unacceptable that employers should be able to continue trading at the risk of leaving their employees' legitimate pension expectations unfulfilled.
The central weakness of the ongoing valuation basis proposed by the noble Lord, Lord Eatwell, is that it does not ensure that assets accumulate quickly enough to enable a scheme to meet its accrued benefits. Study of the experience of the Pension Benefit Guaranty Corporation in the United States is most illuminating in

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this respect. Its minimum funding rules were originally based on an ongoing valuation basis, possibly along the general lines of the proposed minimum contributions requirement of the noble Lord, Lord Eatwell. This allowed insolvent pension funds to pass millions of dollars of unfunded liabilities on to the Pension Benefit Guaranty Corporation, leading to its near bankruptcy. We shall come to that when we come to debate the question of a central discontinuance fund. It was therefore necessary to change the basis of the minimum funding rules in the US. Pension plans are now also required to consider whether they could meet their liabilities if the pension plan were to terminate, which looks suspiciously like our own proposals under another name.
I think I should repeat the merits of the minimum funding approach and what it is intended to deliver. It will require schemes to hold sufficient assets to be able to secure pensions already in payment, either by buying annuities or paying benefits as they fall due, and provide younger members with a sum of money to be invested further. The pensions they eventually draw will obviously depend on how the money is invested and the rates of return on the investment, but there is every chance of it producing a pension at least as good as, and probably better than, that which would be paid from a deferred annuity. The minimum funding proposals offer a far better measure of security for all members of defined benefit schemes than any alternative affordable proposals.
Ever since a minimum funding requirement was first proposed as the minimum solvency requirement by the PLRC there have been rather wild allegations about it leading to a massive shift out of equities which could, in turn, depress the UK equity market. While we accept that some of the more mature schemes may want to change their investment strategy in order to reduce the risk of falling below the 90 per cent. limit, we think that the position has been highly overstated and we totally reject the doomsday scenarios that have been drawn by certain commentators. Indeed, last December my right honourable friend Peter Lilley announced a number of changes, but I think we shall come to them in a debate on a later group of amendments.
The noble Lord, Lord Eatwell, made much of our responding to the pressures and suggestions that have been made that we should change the name of the scheme. It was a clever debating point. But, frankly, we do not believe that it has quite the significance the noble Lord wishes to pray in aid. The requirements which are set out in Clause 48 may not guarantee that a scheme will be able to meet its liabilities in full on a buy-out basis but they should ensure that schemes always have enough money to meet the value of their members' accrued rights calculated on a realistic actuarial basis. That is something which the proposals of the noble Lord, Lord Eatwell, could not hope to deliver on a reliable and consistent basis.
The noble Lord, Lord Eatwell, made much of the Government Actuary's alleged opposition to minimum solvency. The references he made were, I suggest, misleading. The Government Actuary was concerned
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about a requirement that would have required schemes to fund at a level of buying out all pensions with annuities. The Government and the PLRC have always accepted that that would be impractical and unduly costly. That is why we have gone for the minimum requirement proposed in the Bill. It is not the Government's intellectual case that has collapsed. It is close to a contradiction in terms for the noble Lord to speak of defining best practice. If we were to try to define an ongoing valuation basis in place of the minimum funding requirement it would produce a funding target higher than the MFR for the great majority of schemes and that would not endear the party opposite, or indeed your Lordships' House if it were to agree with the noble Lord, to British industry.
We have in this country thus far managed without a minimum funding requirement. For most scheme members this has produced the benefits which they have expected and were promised. Schemes were thus funded, and still are, on the basis of actuarial advice. But we need to respond for scheme members who are unfortunate enough to work for employers who go out of business and are thus unable to stand behind their pension fund. These members could well find that, as the law stands at present, they would receive less than they have a right to expect.
We live in the real world where employers do go out of business. We believe that schemes must be funded at a proper level to secure benefit rights if that should happen. I do not see how the noble Lord, Lord Eatwell, can say that there is no intellectual case. The PLRC recognised it and in years to come scheme members will, should their employers go out of business, have a great deal for which to thank the PLRC, to thank this Bill and to thank your Lordships' House this evening if it rejects the noble Lord's amendment and sticks with the minimum funding requirement as proposed in the Bill.
10.30 p.m.
Lord Eatwell: My Lords, I can understand that the noble Lord would lose his sense of humour when he has to defend the indefensible. I am not at all surprised that he has found it so difficult to do so.
The noble Lord, Lord Stewartby, asked me to explain more generally the implications of the minimum contribution requirement versus the minimum funding requirement. The key point is comparing the viability of pension schemes on an ongoing basis which the minimum contribution requirement seeks to do, with those on a discontinuance basis.
The central problem involved in comparing the scheme on a discontinuance basis is that if a pension fund is at every moment of time to be able to guarantee the pensions of its members, then it will have to move out of an equity basis for funding and strongly towards a gilts basis of funding.
The Government have recognised that problem and to try to deal with it they have steadily watered down the minimum solvency requirement as it used to be called, and in doing so they no longer provide the protection of pensions which was initially claimed. The noble Lord,

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Lord Mackay, has admitted that that is so. He has admitted it again this evening when he said that the purchase of guaranteed annuities would be too expensive.
We now have something called a clearly defined level of protection. I suggest to your Lordships that the noble Lord, Lord Mackay, gave the game away when he stated that the minimum contribution requirement would tend to be,
"higher than the minimum funding requirement".
Quite so, because the minimum funding requirement, as now watered down, is inadequate to support and protect the pensions of members.
The minimum contribution requirement would, as the noble Lord also admitted, embody what in his survey was identified as best practice. He explained to us that the pension funds survey revealed that the vast majority were adequately funded; that they were conducting themselves on the basis of a standard balance of equities and gilts in a manner which would secure the pensions of their members. It is exactly that best practice which his survey has identified that my amendments are attempting to incorporate into a minimum contribution requirement.
The noble Lord referred to the problems which have been encountered in the United States with the PBGC. Those problems were created primarily because the regulations which established that central discontinuance fund did not take adequate account of future inflation in benefit levels. It was simply a general mistake and something which could be dealt with in a proper minimum contribution requirement.
We are really seeing here two different approaches to the protection of members; namely, the protection of members' positions either by attempting to establish best practice in an ongoing environment or the protection of members' rights by a discontinuance standard. Either of those approaches is intellectually defensible. The Government have started from the position of a discontinuance standard and then steadily watered it down as the costs and difficulties associated with it have emerged. That is why in the next amendment of the noble Earl, Lord Buckinghamshire, we are going to see the name of the minimum solvency requirement changed.
But there still remains the problem that the noble Lord himself identified. The now minimum funding requirement will tend to become the norm and that norm does not, as he himself has admitted, actually protect the members' pensions. That is the great danger with the minimum funding requirement, and that is why it is desirable that a minimum contributions requirement, based on best practice, should be incorporated into the Bill. As we shall clearly have to return to this matter on a day when the Minister's temper is better, I now beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 103:
Page 28, line 10, leave out ("solvency") and insert ("funding").
The noble Earl said: My Lords, we have probably already had the debate on this amendment; but as my noble friend the Minister has added his name to mine on it, I shall be pleased to hear whether he wishes to add anything to what he has already said.
Lord Mackay of Ardbrecknish: My Lords, I am grateful to my noble friend Lord Buckinghamshire for tabling this amendment. As he knows, we have received many representations on this matter, including in particular from the Institute of Actuaries and the Faculty of Actuaries. At the risk of being chided again for having lost my sense of humour - of course, I have not done so in the least - perhaps I may advise the noble Lord, Lord Eatwell, that I acknowledged on Second Reading that we may not have got the name of the minimum solvency requirement quite right. It should not, therefore, have come as a great surprise to the noble Lord that I was prepared to have an open mind on the subject, just as I have had on a number of issues.
In accepting the proposal which has been suggested from a number of sources, perhaps I should explain that by changing the name to a "minimum funding requirement", there is not the slightest deviation from what the requirement will do. It will mean that members can be confident that the value of their accrued rights is secure, especially in the event of the scheme or the employer company winding up.
The noble Lord, Lord Eatwell, took pains to explain to the Committee that true solvency could only mean the ability to buy out all benefits with guaranteed insurance annuities. The PLRC recognised that such a measure of solvency would not be practical and would be unduly costly. The Government fully accepted this. We also listened carefully—as I have said many times, we are always open to a good argument —to concerns about the original valuation method and the White Paper proposals. Changes were agreed to the valuation method to address those concerns. They will reduce the risk of any unnecessary costs on employers, yet maintain an acceptable level of protection for members.
It is only right that the members' investment, and their accrued pension rights, should be properly protected. Our proposals are designed to provide that protection. As suggested by the PLRC Report, we had called the vehicle for providing that protection a "minimum solvency requirement". The change of name in no way reduces what the requirement is intended to achieve. Therefore, I commend the amendments in this group, and the change of name, to the House.
Lord Eatwell: My Lords, I support the amendment which stands in the name of the noble Earl, Lord Buckinghamshire, since it provides at least a more honest name for the proposal which has never been a minimum "solvency" requirement, as the Government well know.
On Question, amendment agreed to.
[Amendments No. 104 to 109 not moved.]
Lord Eatwell Lord Eatwell moved Amendment No. 110:
Page 28, line 32, at end insert:
("() The Secretary of State shall by order establish a central discontinuance fund.").
The noble Lord said: My Lords, we return to some of the issues that we discussed in Committee - in this case, to the proposal for a central discontinuance fund. The amendment is offered in a friendly spirit - indeed, in a comradely spirit - to try to get the Government out of the hole into which they have dug themselves with regard to the minimum funding requirement.
The Government have already acknowledged that in most cases it would be severely detrimental to members' interests to wind up a fund simply because the employer has become insolvent. They have done that by arguing that large pension funds should be run on as closed funds. The whole point of a central discontinuance fund would be to provide the same facility for smaller funds which could not be maintained as closed funds and for larger funds which, for a variety of reasons, the trustees were unable or unwilling to maintain as closed funds.
One of the peculiar aspects to the Government's opposition to the creation of a central discontinuance fund is that the creation of such a fund was recommended to the Goode Committee by, once again, the Government Actuary.
I have here a document dated 21st January 1993 prepared by the Government Actuary entitled A Central Fund for Private Sector Occupational Pension Schemes: Supplementary Memorandum by the Government Actuary. In that document the Government Actuary argues what he calls "the need for a central fund". His case is:
"Because many schemes would find it difficult to secure their liabilities on discontinuance, a mechanism is needed for handing over the liabilities to another vehicle, similar to an on-going pension fund … The answer would appear to be to have a Central Fund (or Discontinuance Fund) … The Fund would simply act as an administrative arrangement and investment vehicle for running off the liabilities of discontinued pension funds".
The Government Actuary then examines in detail the operating basis of such a fund, dealing with a wide range of legal and practical problems. Since the Minister must have had access to the Government Actuary's memorandum, I am sure that he will not raise a whole series of bogus objections to the central discontinuance fund which the Government Actuary disposes of so effectively in his memorandum. I am sure that the Minister also knows that the Government Actuary cites the successful operation of similar funds in Finland and Japan, while emphasising that a British central discontinuance fund should be attuned to British circumstances.
The Government Actuary notes, for example:
"In practice immediate funding of a deficit (or a reduction of liabilities) might not be necessary, any more than it is for an ordinary occupational pension scheme"—
the essential scheme of an on-going fund. But if deficits should arise because of inappropriate transfer terms or inappropriate investment strategies, then legislation could provide for either a levy on other pension funds, or for the Government to act as reinsurer of last resort. That is what the Government Actuary recommends. I am advised by actuaries that if such a levy were chosen, it would be small. Indeed, the word used to describe it to me was "trivial".
The Government Actuary then goes on to examine in his document a wide range of additional advantages which would stem from the existence of a central discontinuance fund. In particular it could act as:
"a central clearing house for financial adjustments between schemes, so as to permit the whole of an individual's pension to be paid by a single scheme."
That is apparently what the Finnish version of a central discontinuance fund does. If that were done, it would overcome the major weakness of occupational pension schemes: that they discourage mobility between jobs and thus reduce the flexibility of the labour market.
I do not wish to press the Government Actuary's proposals for extension of the central discontinuance fund concept this evening, but I wish to impress upon the House that the establishment of a central discontinuance fund was the Government Actuary's preferred option for dealing with the problems created by employer insolvency. Why did the Government ignore his advice? Why are the Government prepared to leave employees at the mercy of a MSR which is not a solvency requirement, in circumstances in which, because there is no central discontinuance fund, the funds will have to be wound up to the considerable detriment of members and pensioners?
The Government have recognised that winding up is detrimental in their proposal that large funds should not be wound up. Why should pensioners in small funds have to suffer that danger?
This proposal is separate from my earlier proposal for a minimum contributions requirement, but reinforces the case for a minimum contributions requirement defined as efficient in on-going terms. It is a device to underwrite a pension funding system which is efficient for employers and employees, and which provides pensioners with the maximum level of protection which is possible within the structure of occupational pension funds. I beg to move.
10.45 p.m.
Lord Ezra: My Lords, I support the concept of the central discontinuance fund. In the light of the Government's recent amendment—that is, to change the name and to some degree the concept of the minimum solvency fund—this amendment would properly complement that. The noble Lord, Lord Eatwell, made the clear point that whereas on discontinuance larger schemes can continue to operate as closed schemes, many smaller schemes could be in difficulty on the terms now laid down for minimum funding. Therefore, the concept of a central discontinuance fund would be most appropriate.
There appears to be a wide practice abroad, from which we can derive much benefit, not only in the United States but also in Finland and elsewhere. I believe that, in the light of the Government's modified approach to minimum solvency, the concept merits serious consideration.
The Earl of Buckinghamshire: My Lords, at the risk of extending our debate deep into the night, I declare an interest and say to my noble friend the Minister that if the Government Actuary is to be thrown at him my new

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employer, Watson, will throw something at me. It proposed the setting up of a central discontinuance fund. Fortunately, an article stated, "Bail out fund the bankrupt idea". I believe that the issue is extremely complex, whether it is minimum funding, minimum contribution or minimum solvency. I suggest that your Lordships enter upon it with trepidation because overnight one is supposed to become expert in a most technical area.
As regards the concept of the central discontinuance fund, it is said that successful funds have been set up elsewhere. I am not sure what the size of the pensions market is in Finland; I suspect that it is not very large. Nor am I sure how large the Japanese market is. The experience that may be of greater relevance is that of the United States. However, even there there have been unhappy experiences with the fund.
It would require pre-funding and the good schemes to bail out in part the poor schemes. It is true to say that the American central fund is now experience rated; nonetheless, the costs of the fund have increased. I believe that the present winding-up clauses within pension schemes were devised at a time when we did not have personal pensions and Section 23 buy-out contracts and when there were no alternatives to the deferred annuities, which winding-up schemes are forced to buy in many cases.
It is the winding-up area that is causing so many difficulties. In the situation described in the previous amendment, moved by the noble Lord, Lord Eatwell, the minimum contribution required on discontinuance would be greater than on an ongoing basis. I hope, therefore, that my noble friend will treat this amendment with great care. I look forward to hearing his response.
Lord Mackay of Ardbrecknish: My Lords, in Committee a few references were made to the possibility of establishing a central discontinuance fund. We are now coming to a full-fledged debate on the fund, with the Government Actuary prayed in aid as someone whose views I ought to take, standing to attention and saluting.
One aspect of government, which is always difficult, is that governments have to take all the views that are submitted and then try to work out the sensible course of action in the light of them. In that regard, that includes the Government Actuary's report. I do not deny the points that have been made praying him in aid.
It has been claimed that a central fund would be cheaper than requiring each scheme on an individual basis to comply with the minimum funding requirement. I do not accept that argument. Our analysis indicated that it is only where a scheme is weakly funded on an ongoing basis that the minimum funding requirement will require more funds to be paid into the scheme than might otherwise be thought necessary.
It is incorrect to view a central discontinuance fund as a cheap alternative to the minimum funding requirement. We envisage that the terms on which such a fund would accept the transfer of liabilities could in effect impose a de facto requirement on all schemes. My noble friend Lord Buckinghamshire, who has professional experience in this area, suggested that we
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should all tread with some trepidation. I confirm to him that I certainly tread with some trepidation into these matters because they are not only complicated but they are extremely important for the people who have put their money into pension schemes.
In order to avoid any great risk of insolvency, I suggest that a central discontinuance fund would set transfer terms on a fairly conservative basis. Perhaps it is envisaged that a central discontinuance fund would just take what was thrown at it and would just be the recipient of any scheme which collapsed and would not try to control the world outside in order to ensure that what falls into its lap is not absolutely horrendous.
I noticed with some interest that the noble Lord, Lord Eatwell, mentioned Finland and Japan but did not mention the United States, although the noble Lord, Lord Ezra, did. On the last occasion on which we debated this matter, my noble friend Lord Buckinghamshire gave us an indication of why the United States was not a very good example to pray in aid. At the risk of detaining the House, I should say a few words about the experience of the Pension Benefit Guaranty Corporation in the United States. We understand that between 1974 and 1993 annual levy payments increased from 1 dollar per member to 72 dollars. Despite that level of increase, the agency still remains concerned that its reserves may not be adequate.
That position of near-bankruptcy is thought to have been caused by the fact that the PBGC was supported by a funding requirement that was based on an ongoing valuation basis. It failed to ensure that pension plans were properly funded, with the result that certain plans were able to pass on large unfunded liabilities to the PBGC. The US has now been forced to change its funding rules to something more akin to our proposed minimum funding requirement. The American experience of running a central fund clearly underlines my earlier point that a viable central discontinuance fund would need to be supported by a discontinuance-based test, and therefore cannot be viewed as an alternative to the minimum funding requirement.
There does however, remain the question of whether the central discontinuance fund has merit, not as an alternative to the minimum funding requirement, but as a bolt-on to it. It may be true that it could provide a cheaper alternative to buying insurance company deferred annuities. That is an attractive idea, but would it really be workable in practice? Pension schemes provide different pensions and benefits. Such a fund would be highly complex and expensive to administer unless some attempt were made to standardise benefits, which could in itself disadvantage some members and unfairly reward others.
Similarly, there is the issue of who would underwrite such a fund in the event of any deficit. No matter how conservative the terms on which the central discontinuance fund would accept liabilities, there would be some risk of a shortfall arising. I suggest that it would be inappropriate to use taxpayers' money to underwrite a fund that would benefit only those people who are in defined benefit schemes. Likewise, I am sure that solvent employers would object to paying a levy to secure benefits for members of insolvent schemes.

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We have given serious consideration to the idea of a central discontinuance fund and of course we have taken account of the memorandum which the Government Actuary submitted to the PLRC. I know that the PLRC considered it carefully before it concluded that it could not make that recommendation. As my noble friend Lord Buckinghamshire indicated, it is clear that not everyone agrees with the Government Actuary. We believe that a central fund would do nothing to ensure that schemes are adequately funded, which is the prerequisite of scheme security.
We have had a good debate on the idea of a central discontinuance fund, even though it is late at night. I hope that in the light of what I have said, the noble Lord, Lord Eatwell, will withdraw the amendment; but if he does not, I hope that my noble friends will join with me in resisting that idea.
Lord Eatwell: My Lords, I am afraid that the noble Lord has not seriously addressed the question of the proposed central discontinuance fund. Instead, he presented a caricature. The noble Lord suggested that it has been proposed as an alternative to either a minimum funding requirement or a minimum contributions requirement; it is not. Moreover, the noble Lord suggested that it was designed to absorb insolvent schemes. It is not. The whole point is that the fund should take over schemes of insolvent employers, not necessarily schemes which are insolvent. Indeed, the schemes might be in perfectly good shape; it is simply the employer who has gone broke.
As I said, the Minister has presented a caricature of the schemes. The whole point of a central discontinuance fund is to do what the noble Lord is proposing for large funds. If the noble Lord is so sure that the notion of a central discontinuance fund is undesirable, why is he proposing that large funds be not wound up but maintained as closed funds? The noble Lord is absolutely contradicting himself in the very proposals that he is advancing.
I should like to make some comments on the PBGC in the United States. The key problem that was faced by the PBGC was that it had insolvent schemes dumped on it by employers who were still solvent. The proposals that I have put forward would simply involve a central discontinuance fund, absorbing schemes from insolvent employers. Therefore, it would not have the moral hazard problem of employers deliberately under-funding schemes and then dumping them while they are still in business. That problem would not have to be faced.
All that we are proposing is a very simple idea of the establishment of what is, effectively, a public trustee to absorb relatively small funds or those larger funds which the trustees, for one reason or another, cannot keep in operation in terms of a closed fund and maintain them on an ongoing basis to protect the members' benefits. It would always be in addition to some form of funding or contributions requirement; it could not stand on its own, although, as the Government Actuary points out in his memorandum its terms and conditions could provide a
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floor under which the practices of pension funds would not fall. In other words, it would provide standards which could be maintained.
The Minister should consider what he said in response this evening. He should withdraw from his speech the elements of caricature upon which he decided to rely in rejecting the proposal, look seriously at the memorandum advanced by the Government Actuary and consider the ways in which a central discontinuance fund could provide an important level of security in addition to those levels which we have already discussed this evening. In the meantime, although we may return to the proposal at a later stage, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 49 [Valuation and certification of assets and liabilities]:
[Amendment No. 111 not moved.]
Lord Lucas Lord Lucas moved Amendment No. 112:
Page 28, line 41, leave out ("solvency") and insert ("funding").
The noble Lord said: My Lords, the above amendment was spoken to with Amendment No. 103. I beg to move.
On Question, amendment agreed to.
[Amendment No. 113 not moved.]
Lord Lucas Lord Lucas moved Amendment No. 114:
Page 29, line 4, leave out ("solvency") and insert ("funding").
On Question, amendment agreed to.
11 p.m.
Lord Lucas Lord Lucas moved Amendment No. 115:
Page 29, line 31, leave out (" 3") and insert ("(Prohibition orders)").
The noble Lord said: My Lords, this amendment was spoken to with Amendment No. 3. I beg to move.
On Question, amendment agreed to.
Clause 50 [Schedules of contributions]:
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 116:
Page 30, leave out lines 10 to 12.
The noble Earl said: My Lords, in moving Amendment No. 116 I wish to speak also to Amendment No. 118. I mentioned at Second Reading that I thought that my noble friend the Minister had made an omission in drafting this particular clause. I shall give the House some background on this matter. This subsection would leave trustees with the ultimate power to decide on their own the overall rate of the employer contribution to the scheme. I believe that the purpose of a schedule of contributions in this clause is to provide part of a framework to ensure prompt payment of contributions in order to meet the minimum solvency requirement, not to give trustees the ultimate power to decide the overall rate of employer contributions.
If this amendment is not accepted, tremendous power is granted to the trustees to control the overall pace of funding which currently lies with the employers. These amendments aim further to ensure that contributions must at least be equal to those certified by the actuary

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as necessary to meet the minimum solvency requirement, but with an agreement on any further contributions subject to the provisions in the individual trust document, which will lay down how the employer's contribution and the pace of funding is agreed. I beg to move.
Baroness Hollis of Heigham: My Lords, I am afraid this is another amendment about which we are uneasy. As I understand it in the light of the noble Earl's explanation, the Bill currently says that the contribution level is set by the trustees, if possible with the agreement of the employer, but nonetheless the responsibility rests with the trustees. Under the noble Earl's amendments, as I understand them, instead the responsibility for deciding contribution levels would be taken not by the trustees but by the actuary and would require them to be agreed by the employer. That would mean a very decisive shift of responsibility for contribution levels and the associated issues away from the trustees to the employer, yet the whole thrust of this Bill, which we support in its broad outlines, is to make such central decisions the responsibility of the trustees. We feel again that the balance goes too far away from the trustees in the noble Earl's amendment and we would therefore oppose it.
Lord Mackay of Ardbrecknish: My Lords, I have listened with care to what my noble friend has had to say and to what the noble Baroness, Lady Hollis, has had to say. I have some sympathy with the concerns expressed by my noble friend and we need to look at the wording of this clause. But I have anxieties that the amendment tabled by the noble Earl might not work. The amendments would remove the fallback altogether so we would have to rely always on the employer and trustees agreeing the appropriate level of contributions to be entered in the schedule. My worry—which I think the noble Baroness shares—is that agreement may not always be possible.
If the trustees and employers do not agree, Clause 50 puts an obligation on the trustees to prepare and revise the schedule of contributions. They must do this within a specified time limit. If they fail to do this, the trustees can be removed or they can be fined. But failure to reach agreement might not be the trustees' fault. It might be the employer who was reluctant to sign up. Therefore I still think that we need to have a fallback arrangement, but one that will work properly and fairly.
I propose that we should take this away and come back with an amendment, possibly in another place, which would retain the fallback but limit the power of trustees. The trustees would be able to set a contribution rate only at the minimum that the actuary could certify as necessary to ensure that the scheme was funded to the minimum level.
It is entirely appropriate that the trustees should be responsible at the end of the day for setting the contributions if agreement is impossible. This is consistent with the many other new provisions in this Bill which strengthen and clarify the position of trustees. I trust that your Lordships will accept this as a fair arrangement and I hope that with that commitment my noble friend will withdraw his amendment.
The Earl of Buckinghamshire: My Lords, I listened with great interest to what the noble Baroness, Lady Hollis, said about the amendment and also to the Minister's response. The problem with this clause of the Bill is that too much responsibility for the funding of schemes has been moved away from employers. I am very pleased with the Minister's response. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 117 to 121 not moved.]
Lord Lucas Lord Lucas moved Amendment No. 122:
Page 30, line 22, leave out ("solvency") and insert ("funding").
The noble Lord said: My Lords, the amendment was spoken to with Amendment No. 103. I beg to move.
On Question, amendment agreed to.
[Amendments Nos. 123 and 124 not moved.]
Lord Lucas Lord Lucas moved Amendment No. 125:
Page 30, line 33, leave out (" 3") and insert ("(Prohibition orders)").
The noble Lord said: My Lords, Amendment No. 125 was spoken to with Amendment No. 3. I beg to move.
On Question, amendment agreed to.
Clause 51 [Determination of contributions: supplementary]:
[Amendment No. 126 not moved.]
Lord Lucas Lord Lucas moved Amendment No. 127:
Page 31, line 3, leave out ("solvency") and insert ("funding").
The noble Lord said: My Lords, the amendment was spoken to with Amendment No. 103. I beg to move.
On Question, amendment agreed to.
Lord Lucas Lord Lucas moved Amendment No. 128:
Page 31, line 8, leave out (" 3") and insert ("(Prohibition orders)").
The noble Lord said: My Lords, Amendment No. 128 was spoken to with Amendment No. 3. I beg to move.
On Question, amendment agreed to.
Clause 52 [Serious underprovision]:
Lord Clark of Kempston Lord Clark of Kempston moved Amendment No. 129:
Page 31, line 12, after ("(2)") insert ("or (2A), as the case may be,").
The noble Lord said: My Lords, in moving Amendment No. 129 I should like to speak also to Amendments Nos. 130, 131, 132, 133 and 135. The amendments were explained fully in Committee by the noble Lord, Lord Marsh. Consequently, at this late hour I do not intend to delay your Lordships. The amendments concern the minimum solvency requirement, now the minimum funding requirement.
The Bill is overshadowed by the tragedy of the Maxwell case. When a government is faced with a situation of that kind they may be guilty of over-reacting. If I may digress, I remind my noble friend that when the Financial Services Bill went through another place many of us said that the regulation of the City of London might prove onerous. That has been the case. The compliance costs of the Financial Services Act are crippling some financial advisers.
I agree entirely with the Government that there should be control of pension funds. The amendments deal with deficits in pension funds. I appreciate that since the publication of the White Paper the Government have moved some way to alleviate the provisions relating to the handling of a deficit within a fund. If the value of the fund is less than 90 per cent. of the liabilities the employer has one year to put another tranche of money into the fund. Five years is allowed to increase the value from 90 per cent. to 100 per cent. Those are welcome concessions.
One of the difficulties is that the Government have overlooked the fact that any company, whether large or small, has to operate at a profit and must have a positive cash flow. If it did not have a positive cash flow a company would be in trouble. I remind my noble friend that in many profitable small businesses the cash flow position is such that they may go out of business. I should have thought that where there is a deficit that deficit need not necessarily be made up by cash alone. In some cases a deficit can be made up by increased contributions. But an employer could easily have a subordinated loan. He could have a bank guarantee. We have to make certain in the Bill that the regulations should not mean that the normal investment policy of a company should be impaired. Consequently the nub of the amendments provides that there should be complete flexibility regarding making good the deficit. I do not suggest that the fund should be in any way weakened. However, if the Government believe that a deficit has to be made good—I agree with that—the question is how one makes good that deficit.
The deficit may become a surplus. Your Lordships will appreciate that the stock market goes up as well as down. If one has a bear market, the value of the fund goes down. The noble Lord, Lord Eatwell, has rightly pointed out that if there is a swap from equities to gilts, in many cases that decreases the paper value of the fund. I hope that my noble friend will not say that under the Income and Corporation Taxes Act 1988 one can get the money back. That is too slow a process. Business moves faster than that. We cannot wait for the Inland Revenue to make up its mind as to whether or not there is a repayment. Any employer should have the duty to make good a deficit, but he should have the right to take out the surplus, the extra money that he has put in.
Occupational pensions are an important part of our economy. The funding of occupational pensions is absolutely essential. I remind my noble friend that if one considers the shift in ages over the years, in 2030 we shall probably have 15 million retired persons. The Government should not do anything to discourage employers from setting up pension funds. If employers have a pension fund, they obviously have employees who belong to the pension fund. However, I am worried about the position for new employees if the conditions for running a pension fund are too onerous for the company.
The Government must be flexible. As my noble friend knows, I have discussed the matter with my right honourable friend the Secretary of State for Social Security. I hope that we shall hear some sympathetic noises regarding payments into and repayments out of a
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fund. The key player in all occupational funds is the actuary. The actuary will say whether there is a deficit or a surplus. Where there is a deficit I hope that the employer will have the flexibility to make up that deficit in any way he thinks fit which satisfies the actuary and trustees; and, conversely, I hope that he can get his money back with the consent of, and on the valuation of, the actuary.
I do not believe that payments into and out of a fund should be left to regulation. I should like to see some provision in the Bill. I hope that my noble friend will give some consideration to these points. I hope that he will indicate that the Government will think again. I know that the period has been too brief for the Government to have put forward any amendments. However, there will be a Committee stage in another place and I hope that my noble friend will make certain that when the Bill is considered in another place the points that I seek to make will be implemented. I beg to move.
11.15 p.m.
Baroness O'Cathain: My Lords, I should like to say a few words in support of Amendments Nos. 129, 130, 131 and 133 in the name of my noble friend Lord Clark and his new clause in Amendment No. 135. Before doing so, I declare an interest. I am currently a non-executive director of three major plcs, including British Airways, and I have been a non-executive director on several other boards in the past. I therefore have both a likely interest and an understanding of some of the issues behind these amendments. Many companies, large and small alike, are increasingly concerned about the implications of what we now call the MFR.
As my noble friend Lord Clark said, the aim of this group of amendments is to extend the circumstances in which it would be possible for employers to secure an increase in scheme assets by means other than cash contributions. My noble friend the Minister is, of course, aware of the profound impact on any company's bottom line of a significant increase in cash outflow. The amendments, if they are agreed, would allow the prescribed alternatives to increased contributions—a bank guarantee, subordinated loan or other alternatives which provide exactly the same level of protection for scheme members and pensioners—currently applicable only when a scheme is less than 90 per cent. funded, to apply where the shortfall is less than 10 per cent.
Many employers with mature pension schemes, and a large number of pensioners compared with active members, will find the provisions of the MFR quite burdensome. These are generally companies that have fully funded schemes on the conventional actuarial basis of valuation—a basis which has successfully dealt with high inflation and stock market volatility. The amendments aim to provide flexibility to the employers, as my noble friend Lord Clark said, in managing their finances and seeking to hold a competitive position in world markets.
I do of course appreciate that the Government have to steer a difficult path, striking a balance between providing help for employers on the one hand and security for pension scheme members on the other. I also recognise that the Government have already modified their original proposals to accommodate

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employers' concerns. However, these amendments in no way undermine the security of pension funds. That needs to be stressed. Nor do they attack the protection of pensioners.
I turn briefly to the new clause in Amendment No. 135. It seems fair to me that employers should have the right to the repayment of moneys paid into a pension scheme to meet the MFR and shown at subsequent assessments as no longer being required for MFR purposes. As my noble friend said, that is particularly true in the case of mature schemes which have limited opportunity to recover MFR shortfall payments through lower contributions later on.
It cannot be right that, following a temporary drop in the stock market, an employer may have to pay quite possibly a large sum of money into his pension scheme to meet the MFR with no prospect of recovering that money over a reasonable timescale when the stock market recovers. This new clause seeks to correct that unfairness.
Without it, the Bill would undoubtedly accelerate moves by employers to close defined benefit schemes to new members and move towards defined contribution and money purchase schemes. Therefore, the employee of the future will pay a very high price.
Lord Eatwell: My Lords, if I were being charitable I would begin my remarks by saying, "I told you so". The difficulties which have been accurately identified by the noble Lord, Lord Clark, and the noble Baroness, Lady O'Cathain, are difficulties that arise precisely from the structure of the minimum funding requirement and which would not arise in the case of a minimum contributions requirement or the evaluation of funds on an ongoing basis. It seems to me that the difficulties that they have identified are real difficulties to which the Government should attend in a serious manner.
I am not entirely happy, however, with Amendment No. 132, which states that there could be a,
"bank guarantee or by an unsecured loan or by any other"
method of guaranteeing the maintenance of the funding of a scheme. The phrases "or by any other", and "by an unsecured loan", seem to me to be rather too broad. Perhaps I have misunderstood that and the noble Lord, Lord Clark, can enlighten me when he replies to the debate.
But it seems to me that in particular cases, especially in the case of closed funds which are not associated with the insolvency of a company but with the change of status of a company, or which have been closed for other reasons while the company is ongoing, the minimum funding requirement will create a bizarre situation in which companies have to put money in to sustain the requirement, then have to take it out again, then put it in again and then take it out again. If we had a proper assessment of funds on an ongoing basis, the problem would not arise. It is a difficulty which the Government have created for themselves; but more, especially it is a difficulty which they have created for British industry.
Lord Mackay of Ardbrecknish: My Lords, we debated identical amendments to those that we are
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looking at this evening when the noble Lord, Lord Marsh, put forward his amendments in Committee—the noble Lord apologised to me for being unable to be present this evening —and there was some misunderstanding over what particular amendments we were discussing. Subsequently, I wrote to the noble Lord, Lord Marsh, to explain why there was no need to introduce amendments intended to allow an employer the choice of making good a deficit by paying a lump sum into the scheme. Perhaps I can share that point with the House, in case anyone reading over the debate that we had in Committee becomes confused. A cash payment will count as a payment due under the schedule of contributions. So, if an employer paid a lump sum, there would be no requirement to pay contributions on top. I hope that that explanation will clear up any difficulties over that particular question.
My noble friend, Lord Clark, aided by my noble friend Lady O'Cathain, set out most cogently their concerns about the minimum funding requirement and what it might mean if employers have to put money into pension schemes which turn out not to be needed to provide benefits. I hope that I can reassure them—and even help the noble Lord, Lord Eatwell —by explaining that those considerations have been very much in the Government's mind throughout the process of preparing this Bill.
I shall turn shortly to the question of alternatives to cash payment and payments to the employer out of the scheme. But perhaps I may first say that when we published our initial proposals in the White Paper, they were tested very carefully through a consultation exercise. In fact, I have already mentioned the results, which show that 86 per cent. of schemes would at that time have fully satisfied the requirements, and the vast majority of schemes had a comfortable margin between their ongoing funding level and the proposed minimum requirement.
Despite those encouraging results, there continued to be widespread concern, as I said earlier this evening. The fear was that the combination of calculating market values on a particular day, with the proposed time limits for restoring funding levels, would have a destabilising effect. In particular, the three-month limit for getting back to the 90 per cent. minimum level aroused considerable concern.
We listened carefully and we are determined that our proposals should provide scheme members with the security that they have a right to expect. But we also recognise that any requirement should not impose undue burdens on employers or schemes.
As a result, my right honourable friend Mr Peter Lilley announced last December that the calculation would take account of market values over a number of months—earlier in the Committee stage, I suggested that we were thinking about six months—rather than focusing on one particular day. That smoothing effect was designed to avoid the risk of schemes being categorised as being below the minimum level simply because the valuation took place on, for example, Black Friday. Also, the time limits for restoring the scheme to 90 per cent. and 100 per cent. were extended to one year and five years. That will apply to all schemes and will,

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we believe, have a significant effect. It will mean less volatility in contribution rates. Moreover, if there were a fall in the market and if market values were to rise again—despite the six months point that I made—within a year or less, an employer's contributions could then be safely scaled back. We believe that those changes will add stability for employers and schemes without endangering the security of scheme members.
Those important changes will together reduce significantly the potential volatility in the minimum funding requirement. They will minimise the risk of employers having to respond suddenly to short-term movements in the markets. The calculations will be smoothed and the time limits we now propose will allow funding levels to recover in step with normal stock market recovery.
Our analysis indicates that the main risk of serious underfunding is now likely to be caused by something going wrong with the scheme itself rather than because of external changes or fluctuations. However, we accept that in exceptional cases schemes may find themselves falling below 90 per cent. We are content that, in those cases, alternatives to cash such as bank guarantees or ring-fenced securities should be available as an option if the trustees are willing to accept it.
I believe that our proposals are sound and that it is far more appropriate that these alternatives are defined fully in regulations. It is surely better to do that than to introduce terms into the Bill which do not have clear-cut meanings or application.
The most important feature of the alternatives we propose to immediate cash injections is that they will provide security until such time as the scheme is funded to 90 per cent. of the minimum requirement. They therefore cover a temporary situation during the early years of a five-year plan to restore 100 per cent. funding. They are certainly not suitable and were never intended to be used as a permanent alternative to a cash injection. To move to a situation where any deficit below 100 per cent. could be covered by a bank guarantee or unencumbered loan would effectively remove any requirement for employers to make cash contributions to their pension schemes. They would be able to fund them entirely by loans or ring-fenced securities. That does not seem sensible.
The importance of trust funds as a basis for pension schemes is that the trust should be separate and distinct from the employer. Long-term reliance on a bank guarantee or some form of loan would blur that crucial distinction. The same considerations apply on the question of repayments. It would be damaging to the whole concept of trust-based schemes to enable funds to pass freely from the scheme to the employer. As I am sure my noble friend agrees, one of the most important reasons for setting up a trust fund is that the assets of the trust are separate from the employer's property.
I recognise the strength of the anxieties raised in this debate. As my noble friend Lord Clark mentioned, I am aware that he discussed these matters with my right honourable friend the Secretary of State. But we believe that we have demonstrated our concern to avoid any unnecessary burden on employers, and I hope that I
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covered those points this evening. The Bill is rooted in the need to encourage funded pension provision by providing scheme members with the security and confidence they must have if they are to invest for their retirement. I believe that we have met those two objectives.
I hate to return once again to the word "balance", but I seem to be moving inevitably towards it, and I apologise. I am receiving dissenting voices from the other side of the House—one nodding and one dissenting. But balance is an important aspect of this whole business between employers' rights and the rights of employees.
I hope that my explanation will enable my noble friends to see that we have struck that balance. I hope that my noble friend Lord Clark will take note of what I said and no doubt read Hansard in the morning. As he said, there are other opportunities between now and the end of the passage of the Bill in the other place for those who continue to have anxieties on this matter to take them up. Of course, as we do on all the matters discussed on the Bill, we shall continue to listen, discuss with, and consider the concerns of the industry on this and every other important part of the Bill. While, at the end of the day, the Government must make decisions, we want to ensure that we make the correct decisions and that they are decisions with which the majority of people involved in this industry are comfortable so that pension schemes can have a reliable and secure future.
I invite my noble friend to read what I have said. I hope that he feels able to withdraw the amendment even if, knowing him of old, he intends to return to it or find somebody else to return to it in another place.
Lord Clark of Kempston: My Lords, I thank my noble friend for his reply. It would have been much nicer if a message could be sent from this House to the other place saying that the anxieties I have tried to express would be considered carefully in another place and by the Government. That would encourage my colleagues in another place to press the matter harder than they might otherwise do. My noble friend is absolutely right. I shall see that the argument continues. That may be on Third Reading; if not then I know a lot of people in another place. I might be able to persuade one or two of them to press the Government there.
I should like to thank my noble friend Lady O'Cathain for her support. The noble Lord, Lord Eatwell, referred to bank guarantees and subordinated loans. One can also, as an employer, deposit securities with the pension fund, so there are many ways in which employers can do it. My concern is with the cash flow problem of industry. I accept the concessions—if they are concessions—that have been made. I refer to the valuation over six months rather than on a one day basis. I also accept the fact that the one-year period and the five-year period are a concession. Nevertheless, it does not in my view tackle the liquidity position of a company. However, in view of the lateness of the hour and of the fact that my noble friend has invited me to get my colleagues in another place to take up the matter, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 130 to 133 not moved.]
11.30 p.m
Lord Lucas Lord Lucas moved Amendment No. 134:
Page 32, line 2, leave out (" 3") and insert ("(Prohibition orders)").
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 3. I beg to move.
On Question, amendment agreed to.
[Amendment No. 135 not moved.]
Clause 53 [Sections 48 to 52: supplementary]:
[Amendment No. 136 not moved.]
Clause 55 [Equal treatment rule: supplementary]:
Lord Lucas Lord Lucas moved Amendment No. 137:
Page 33, line 8, after ("other,)") insert:
("() for section 2(4) there were substituted—
"(4) No claim in respect of the operation of an equal treatment rule in respect of an occupational pension scheme shall be referred to an industrial tribunal otherwise than by virtue of subsection (3) above unless the woman concerned has been employed in a description or category of employment to which the scheme relates within the six months preceding the date of the reference.",").
The noble Lord said: My Lords, in moving this amendment I wish to speak at the same time to Amendments Nos. 140 and 141. Amendment No. 137 will replace Section 2(4) of the Equal Pay Act 1970 for the purposes of Clause 54 of the Bill. We are concerned that without this amendment there may be confusion about the operation of Section 2(4) of the Equal Pay Act in the context of pensions. We wish to clarify the position. The substitution of this amendment will have the same effect as Section 2(4) of the Equal Pay Act and will impose the same time limit. The effect of Amendments Nos. 140 and 141 is to bring the terminology used into line with that in the Equal Pay Act, on which much of the equal treatment provisions of the Bill are based. I beg to move.
Baroness Hollis of Heigham: My Lords, I am sorry that we are dealing with some of these issues at such a late hour. However, when we agreed two Report days we had not realised that there would be quite so many government amendments and other amendments which perhaps we might more usefully have dealt with at the Committee stage. We now come to issues which are properly Report stage issues; that is, further clarification, refinement and discussion of issues first raised in Committee.
With Amendment No. 137, our understanding is that it appears to impose a time limit on claims for lack of an equal treatment rule of six months from the end of the description or category of employment. I am thinking, for example, of a woman who had been a part-timer for, say, 10 years while her children grew up and then went back into full-time work for another 15 years up to retirement and discovered only then that she had been differently treated as a part-timer when reviewing her pension benefits on coming up to retirement. There must be a danger that this would bar the majority of affected people from claiming and that as a consequence the Government face being taken
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straight back to the European Court of Justice on adequacy of remedies. Can the Government reassure the House that that is not the case?
Lord Lucas: My Lords, I do not believe that anything in this amendment changes the position which we believed applied at Committee stage—that is to say, that the relevant section of the Equal Pay Act applied. It has merely been pointed out to us subsequently that there is a possibility of some confusion because the Equal Pay Act was not, at the time it was written, designed to deal with pensions. The purpose of this amendment is to re-write that particular section of the Equal Pay Act to deal with the problems of interpretation which have been suggested to us. I am told that the answer to the question of the noble Baroness about the six-months' time limit is yes.
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 138:
Page 33, line 10, at end insert:
("() references to the period of two years before the date on which proceedings are instituted, for the purposes of subsection 2(5) of the Equal Pay Act 1970 shall be interpreted as references to payments of benefits during such period and not to service giving rise to benefits during such period.").
The noble Baroness said: My Lords, in moving this amendment, I shall speak to Amendment No. 139. This follows up some of the issues of the previous amendment. At Committee stage we raised a number of issues presented to women by the series of European Court judgments last September, plus Barber and Coloroll.
At Committee stage we were particularly concerned about the issue of direct as opposed to indirect discrimination. We were also concerned about the time limit for damages and how far back those damages may be claimed. The Minister subsequently wrote to me very helpfully. I am hoping that he will be able to put some of those assurances on the record tonight.
As regards indirect discrimination, the Minister explained in his letter that as pensions were deferred pay they were indeed covered by the Equal Pay Act 1970 where the law Lords ruled that that also refers to indirect discrimination and therefore it was not necessary to invoke the Sex Discrimination Act 1975. I believe that the Minister referred to the 1987 case of Rainer v. Greater Glasgow Health Board. It would be helpful to have that confirmed.
I propose the amendment which applies to the issue of time limits. The amendment seeks to ensure that the limit on retrospective claims for equal treatment will not apply in respect of the period of service which is taken into account in the calculation of members' benefits, but, as with equal pay, only to the back payment of benefits, otherwise we fear that the current ambiguities will remain.
Our understanding is that only two years of back pension payments can be claimed but that service back to April 1976 must be taken into account in the discrimination conditions of entry and back to May 1990 in the case of discriminatory benefits. We believe that

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is what the European Court of Justice had in mind in the cases of Fisscher, Vroege and Barber. This amendment would clarify and confirm that reading. We hope that the Minister will agree. I beg to move.
Lord Mackay of Arbrecknish: My Lords, I am grateful to the noble Baroness for setting out what is intended by Amendments Nos. 138 and 139. Amendment No. 138 is designed to allow people who have been excluded from a scheme to be awarded up to two years retrospective benefits of that scheme. However, the objective of Section 2(5) of the Equal Pay Act, when modified by powers under the Bill, will not be to provide for the award of any benefits. Our intention is to provide a period of equal access to the scheme which, together with any continuing membership of the scheme in the future, will provide an improved prospective entitlement to pension benefits on retirement.
The whole purpose of the equal treatment clauses is to ensure that men and women in employment have equality of access to pension schemes and to equal pensions from those schemes when they retire. In order to have the benefits one must clearly first be a member of the scheme. The benefits then flow from that membership of the scheme. We propose a two year limitation on such awards of retrospective membership. That is entirely consistent with the regulations which have applied since 1978 to other types of equal access case.
Turning to Amendment No. 139 the European Court of Justice, in the Barber and subsequent clarification cases, established the principle that equal treatment is to be provided for service from 17th May 1990. Thus all occupational pension schemes must now provide equal treatment from that date. This is what the provisions of Clauses 54 and 55 require.
The court also ruled in the Dutch cases of Vroege and Fisscher that the cut off date of 17th May 1990 did not apply to the right to join a scheme and that, in appropriate cases, access could be granted as far back as 1976. However, it went on to make clear that national time limits may be applied to such cases.
As I said in Committee, the Bill provides for the time limits which apply under the Equal Pay Act to be applied in the event of disputes and enforcement concerning the equal treatment rule. They will place a limitation on retrospective membership of schemes of two years before the date of claim. The application of the time limits is entirely logical given that the European Court has ruled, as the noble Baroness rightly said, that occupational pensions are pay, and is consistent with the approach which has been taken since 1978 under the existing, more limited equal access regulations made when the noble Baroness, Lady Castle, was Secretary of State for Social Services.
Those regulations—known as the Occupational Pension Schemes (Equal Access to Membership) Regulations 1976—enable those who have been unlawfully excluded from membership of their employer's pension scheme to claim access to membership on an on-going basis and for two years
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prior to the date of their claim. Even at this late hour and in the absence of the noble Baroness, Lady Castle, I am delighted to be able to agree with something that she did. We usually joust about other matters on which we disagree.
I was asked about indirect discrimination and whether that was covered by the Equal Pay Act. I confirm that, as I said in my letter to the noble Baroness, the case of Rainer v. Greater Glasgow Health Board confirmed that indirect discrimination is covered by the Equal Pay Act 1970. With those explanations of these difficult matters in which different time scales and different issues come together, I hope that the noble Baroness will withdraw her amendment.
Baroness Hollis of Heigham: My Lords, I thank the Minister for that reply which we shall obviously need to study. I am sure that we shall be happy with what he said. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 139 not moved.]
Clause 56 [Equal treatment rule: exceptions]:
Lord Lucas Lord Lucas moved Amendments Nos. 140 and 141:
Page 33, line 19, leave out ("women and men") and insert ("a woman and a man").
Page 33, line 22, leave out ("men and women") and insert ("a man and a woman").
The noble Lord said: My Lords, I spoke to these amendments with Amendment No. 137. I beg to move.
On Question, amendments agreed to.
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No.142:
Page 33, line 28, at end insert:
("() A variation is permitted by this subsection if it results from compliance with the requirements of sections 13 to 17 of the Pension Schemes Act 1993 (requirements for certification of occupational pension schemes providing guaranteed minimum pensions), sections 87 to 92 of that Act (protection of increases in guaranteed minimum pensions ("anti-franking")) or sections 108 and 110 of that Act (guaranteed minimum pensions) in circumstances where, if those requirements had not applied, the variation would not have occurred.").
The noble Earl said: My Lords, much to my surprise I find myself moving an amendment on guaranteed minimum pensions—one of the matters with which I promised myself that I would have absolutely nothing to do because this is an area of great complexity.
However, to move on, my amendment deals with a point that has been causing a considerable amount of uncertainty and practical difficulty in the administration of pension schemes. There is a need to make it clear that guaranteed minimum pensions for the members of contracted-out schemes do not have to be equalised for periods of pensionable service after 17th May 1990. Such equalisation is required for most scheme benefits following the European Court judgment in the case of Barber v. GRE, and some commentators have suggested that that applies also to guaranteed minimum pensions.
My amendment makes it clear that that process of equalisation is not required. The amendment is consistent with the principle established by the European Court decision on bridging pensions in the case of Roberts v. Birds Eye Walls, where it was ruled

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that bridging pensions were acceptable in occupational pension schemes, even though given to men and not women, because they resulted directly from a difference between the two sexes in the provisions of the state scheme; that is, in respect of the state retirement age.
Similarly, the different provisions between men and women in the calculation of guaranteed minimum pensions result from the differences in the state retirement age. If differing bridging pensions are acceptable under European law, as they are, then so are differing guaranteed minimum pensions.
I understand that the executive office of the Occupational Pensions Board has also written to practitioners with its view that unequal guaranteed minimum pensions are permissible under European law, though making it clear that schemes may wish to obtain their own legal advice on the point. Given that, why is the issue so unclear in the minds of trustees and scheme administrators? The reason appears to be because some legal advisers have not been willing to commit themselves to giving firm advice that the bridging pension principle is necessarily extensible to fields other than bridging pensions.
There are many schemes where the implementation of the decision in Barber v. GRE is being held up pending clarification of this issue. There are many schemes which are still refusing to accept transfers from other schemes until this question is resolved beyond doubt. Action by your Lordships' House, and by my noble friend the Minister, to clarify that issue would be welcome. I beg to move.
11.45 p.m.
Lord Mackay of Ardbrecknish: My Lords, the effect of the amendment would be to permit salary-related occupational pension schemes, which are contracted-out of SERPS, to pay pensions which are unequal between men and women. It would permit them to do so where the difference is the result of compliance with the legislation relating to the payment of guaranteed minimum pensions. It would permit them to do so only where, but for compliance with that legislation, the pension would otherwise be equal between men and women.
We are very well aware of the difficulties which face contracted-out salary-related schemes which are doing their best to comply with the requirements of equal treatment under European law, and at the same time comply with the contracting-out rules which are based on the current difference in the state pension age between men and women. We know that compliance with those rules makes it difficult for schemes to achieve equality. That is one of the reasons why we are taking the step of so-called breaking the links in 1997.
However, we cannot solve that problem by, in effect, saying in the Bill that, where inequality is the result of compliance with those rules, such inequality may be permitted. That would run counter to European law, and the Government could not possibly countenance such a step. The European Court of Justice has made absolutely clear, in rulings over recent years, that equality is required for periods of pensionable service from 17th
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May 1990—the date of its ruling in the Barber case. It has ruled that there may be certain exceptions to equal treatment where differences result from the use of sex-related actuarial factors, or where bridging pensions are payable, and we are providing for those exceptions in Clause 56. But it has not ruled that differences may be permitted where they result from GMPs.
GMPs do, in certain circumstances, create inequalities. But European law is clear that pensions must be equal for service from 17th May 1990. We do not believe that an exception along the lines envisaged by my noble friend would comply with European law.
As I said, one of the main reasons why the Government have decided to break the links with SERPS for future service, and to move to a contracting-out test of overall scheme quality, has been in recognition of the difficulties which the present unequal GMP arrangements create for schemes in equalising their overall benefits. We propose that the new arrangements should come into force, as I said, in 1997. We realise that that still leaves a problem for schemes with regard to GMPs accrued in the period between the Barber ruling in 1990 and the new arrangements in 1997. Of course there is no problem with regard to GMPs accrued between 1978 and 1990, since the law is clear that pensions may remain unequal in respect of pre-May 1990 service.
There can be no doubt that equality must be provided in the overall rate of pensions accrued since 1990, but we have concluded that contracted-out salary-related schemes should have the freedom and flexibility to make their own arrangements as to how that should be achieved, rather than having arrangements imposed on them by government. Unfortunately we do not believe that my noble friend's amendment would comply with European law. With that explanation of what I freely accept is a difficult and, I can understand for some people, unsatisfactory position, I trust that he will be able to withdraw the amendment.
The Earl of Buckinghamshire: My Lords, having listened to my noble friend's reply, I am even more convinced that I should have had nothing to do with moving an amendment on guaranteed minimum pensions. It is an important issue that needed to be raised. The position is still unsatisfactory. I shall read with great care my noble friend's words in Hansard, and feel free to return at a later stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 57 [Equal treatment rule: consequential alteration of schemes]:
The Earl of Buckinghamshire The Earl of Buckinghamshire moved Amendment No. 143:
Page 34, line 1, at beginning insert ("Subject to subsection (1A)").
The noble Earl said: My Lords, this amendment relates to equalisation. In Committee I moved amendments which dealt with the matter. The amendments relate to the equalisation of pension rights and ensure that the employer's consent is sought before trustees or managers alter scheme rules to implement equalisation. Where the employer refuses consent, the

705
trustees or managers of the scheme, or the employer, may apply to OPRA for an order to modify the scheme to secure conformity with the equalisation rule.
The amendment is being moved again because it is important to understand that the employer must pick up the balance of costs in pension schemes' defined benefit plans. Therefore, wherever possible, consent to the way in which the trustees equalise what is in effect a benefit improvement should also rest with the employer.
There are several ways of equalising pension ages. Some are more costly than others. It is only right that the employer should be involved in the decision. In Committee the Minister said that the Government believed that the trustees would consult the employer in those instances but that they appreciated the possible areas of conflict. He also said that they understood the anxieties that I had raised and would consider the amendment further. I beg to move.
Lord Mackay of Ardbrecknish: My Lords, the European Court of Justice has ruled that employers and trustees of a scheme are bound by Article 119 of the Treaty of Rome. They must ensure that pension schemes treat men and women equally within the limits of their respective powers. Clause 57 will give trustees the power to make alterations to a scheme to comply with the equal treatment rule where they do not otherwise have these powers, a duty which will be incumbent upon employers by virtue of Section 1 of the Equal Pay Act 1970 as modified by Clause 55 of the Bill.
As I said in Committee, I can certainly understand that employers might be wary of giving trustees the power to make changes to schemes, seemingly without any prior reference to them, and I have given careful consideration to the arguments then put forward by my noble friend. However, I have concluded that the situation which I think he envisages, in which trustees proceed to make changes to the scheme without the employer's consent, would be very unlikely to occur in practice.
Employers, like trustees, are already directly bound by Article 119 to provide equal treatment in schemes. Clause 54 of the Bill will provide for schemes without an equal treatment rule to be treated as including one and for the more favourable treatment to apply. The effect of Clause 54 therefore is that if a scheme's rules have not been amended they are deemed to have been amended at the more favourable level. Clause 57 would permit further changes for the future; for example, to equalise at a higher age, or simply to amend the rules so that they are in line with the changes deemed to have been made by Clause 54. Scheme rules themselves normally require trustees to seek the employer's consent to changes to schemes. Under Clause 57 it is not intended that trustees should go any further than is necessary to comply with the equal treatment requirement. Nor should it interfere with any of the existing arrangements for making changes to scheme rules. Given all the legal requirements on employers to provide for equal treatment in schemes, we envisage that Clause 57 would probably come into play only rarely.
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I can appreciate that employers would feel more at ease if there were a requirement in the Bill that any changes to scheme rules should be expressly consented to by them. However, I do not believe that they need worry that the powers in Clause 57 will be abused for the reasons I have explained. In view of the explanations, I hope that my noble friend will be able to withdraw his amendment.
The Earl of Buckinghamshire: My Lords, I thank my noble friend for his full reply. I shall read Hansard tomorrow and digest what he said. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 144 to 149 not moved.]
Clause 64 [Modification of public service pension schemes]:
Lord Lucas Lord Lucas moved Amendment No. 150:
Page 38, line 23, leave out from ("may") to end of line 26 and insert ("adapt, amend or repeal any such enactment as is referred to in paragraph (a) or (b) of subsection (3) as that authority thinks appropriate").
The noble Lord said: My Lords, I spoke to this amendment when I moved Amendment No. 20. I beg to move.
On Question, amendment agreed to.
Clause 65 [Preferential liabilities on winding up]:
The Chairman of Committees: My Lords, I should point out that if Amendment No. 151 is agreed to, I cannot call Amendment No. 152.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 151:
Page 38, line 31, leave out from ("liabilities") to end of line 42 and insert ("in respect of pensions and other benefits (including increases in pensions).
(2) The assets of the scheme must be applied first towards satisfying the amounts of the liabilities mentioned in subsection (3) and, if the assets are insufficient to satisfy those amounts in full, then—

(a)the assets must be applied first towards satisfying the amounts of the liabilities mentioned in earlier paragraphs of subsection (3) before the amounts of the liabilities mentioned in later paragraphs, and

(b) where the amounts of the liabilities mentioned in one of those paragraphs cannot be satisfied in full, those amounts must be satisfied in the same proportions.").

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 152 to 159 and Amendment No. 178.
Amendments Nos. 151 and 156 appear substantial but a careful reading will show very few changes of real substance. The main effect of the redrafting is to make the clause easier to understand. I am sure that that is something which we can all welcome. The main substantive change is in subsection (4) which has been rewritten to make clear that any assets left after satisfying the statutory priorities set out earlier in the clause should be distributed according to scheme rules.
Subsections (4A) and (4B) provide a mechanism for enforcing the important requirement set out in Clause 65. The reference to prohibition orders is consequential on Amendment No. 6 to which I spoke earlier.
Subsection (4C) merely imports from Clause 107 the power to amend the statutory priority arrangements set out in Clause 65. Amendment No. 178, as a consequence, deletes that power from Clause 107.
Perhaps I should defer my comments on my noble friend's amendments until he has had the opportunity to introduce them, otherwise I shall be looking into my crystal ball. I shall intervene again, if necessary, after my noble friend and other noble Lords have spoken. I beg to move.
The Earl of Buckinghamshire: My Lords, I should like to speak to Amendments Nos. 152, 153, 155 and 158 which stand in my name. I shall deal first with Amendments Nos. 152, 155 and 158 and deal lastly with Amendment No. 153. If the Minister receives favourably those amendments, the good news is that I shall not move Amendments Nos. 154, 157 and 159—and that is good news for everyone.
Amendments Nos. 152 and 155 address the problem of pension increases under the priority clauses. All my amendments deal with priority clauses on wind-up. Currently, existing pensioners usually have priority not only for their own pension at the level currently in payment but also for any future increases which are guaranteed under the scheme and for the contingent pension which may become payable to their spouse if they predecease the spouse, and that includes also any future guaranteed increases on that pension.
Those future increases are not intended to improve the position of the member and his spouse but merely to maintain as far as possible the purchasing power of the pensions at the current level. If a recently retired pensioner were to lose the benefit of his future increases, the purchasing power of his pension might easily halve by the time he is 85.
Under the Bill, future pension increases for existing pensioners come at the bottom of the queue, along with other benefits. That must be wrong. It is not clear where the Government intend the priority for a member's spouse to come. It would appear that a contingent spouse's pension is not a benefit, entitlement to payment of which has already arisen, since it might never become payable if the spouse predeceases the member. Therefore, presumably under the Bill, it ranks at the bottom of the queue along with other benefits. Both future pension increases and spouses' pensions for existing pensioners would, under the Bill as drafted, have a lower priority than the return of contributions to a member who has less than two years' pensionable service. I must ask your Lordships whether that is fair.
I turn now to Amendment No. 158 which really takes a look at the situation for those people who are close to retirement. One of the reasons for moving the amendment on the priority clause that I have just discussed is that a pensioner has absolutely no chance of making good any loss which may arise on a wind up in an insolvent position. Amendment No. 158 takes into account those people who are within five years of retirement. One may ask: why five years? Well, we have to pick a point at which to decide such matters. Anyone within five years of retirement has very little chance of making up any losses that may occur when a scheme is
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wound up. I believe that Amendment No. 158 would give some additional protection which the members would welcome in such difficult situations.
I move on now to Amendment No. 153 which deals with additional voluntary contributions and a slightly different issue. I want to make it clear in primary legislation that, on wind up, all additional voluntary contributions have the highest priority—which I believe is quite right—provided that they are segregated as a separate category under the rules and that separate investment or management is not required to achieve segregation.
12 midnight
Lord Mackay of Ardbrecknish: My Lords, with the leave of the House, perhaps I may respond by saying at the outset that I have some sympathy with Amendment No. 153. It seems right in principle that rights resulting from AVCs should be a first priority of a scheme wind up. However, there is a wide variety of AVC arrangements and we need to ensure that any amendment would cater equally for all variations. We are looking carefully at the matter and will bring forward a suitable amendment at a later stage.
As regards Amendment No. 157, I share my noble friend's view that any benefit payable following a member's death should also attract the same priority as a member's entitlement. I believe that it is clear from the wording of subsection (3), especially the reference to "pensions or other benefits", that contingent benefits such as widows' or widowers' benefits or dependant's benefits should receive the same priority as the member's basic pension entitlement. If necessary, that can be made clear in the valuation basis which will be prescribed in regulations for calculating and verifying those liabilities.
I turn now to Amendment No. 159. I accept the force of my noble friend's concern about schemes which have started to wind up before the commencement of the Act, but have not completed that process. My noble friend will be pleased to hear that it is our intention that the clause should be applicable only to those pension schemes which start to wind up after the Bill comes into force. We intend to frame secondary legislation to achieve that aim. Where a scheme commences to wind up prior to 1997, the priority order set out in the scheme rules will operate even if the eventual wind up is not concluded until 1997 or beyond.
However, I am unable to accept my noble friend's other amendments which would completely overturn the proposal reflected in the Bill to produce a more equitable allocation of assets on scheme wind up as between the different classes of members. The particular theme of my noble friend's amendments is that they would seek to protect the position of some of those pensioners whose pension was in payment before the Bill takes effect. The protection, which would extend to indexation, would be given at the expense of scheme members, including those who become pensioners after the Bill takes effect.
Indexation can be costly. To give it the same priority as pensions in payment when a scheme winds up in deficit would leave fewer assets available to secure the

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accrued rights of other scheme members. We believe that it is more equitable to protect the basic pension entitlement of all scheme members and share out whatever residual assets may then be available to provide pension increases. That does not represent any retrospective worsening of anyone's accrued rights. No one's pension expectations will be reduced by the clause.
I accept that if a scheme winds up underfunded then pensioners may have to share some of the consequences from which they would previously have been insulated. However, I have already explained why I believe that that is more equitable than the present situation. It is also consistent with the principle underlying the minimum funding requirement which is based on an assessment of the assets needed to meet all liabilities under the scheme, whether in payment or not and regardless of when any particular entitlement came into payment. I listened carefully to what my noble friend said. I shall read in Hansard what he said and also the points he has made to me in correspondence. This is a delicate set of issues. We believe we have got it right but, as I have indicated in other parts of the Bill, we are always ready to give due weight to well founded comments and to make any changes which we believe are justified.
On Question, amendment agreed to.
[Amendments Nos. 152 to 155 not moved.]
The Chairman of Committees: My Lords, I should point out that if Amendment No. 156 is agreed to, I cannot call Amendments Nos. 157 or 158. I now call Amendment No. 156.
Lord Lucas Lord Lucas moved Amendment No. 156:
Page 39, leave out lines 3 to 17 and insert:
("(b) any liability for pensions, or other benefits, entitlement to payment of which has arisen,
(c) any liability for—

(i) pensions or other benefits which have accrued, or

(ii) (in respect of members with less than two years pensionable service) the return of contributions,

(d) any liability for increases to pensions referred to in paragraphs (b) and (c);
and, for the purposes of subsection (2), the amounts of the liabilities mentioned in paragraphs (b) to (d) are to be taken to be the amounts calculated and verified in the prescribed manner.
(4) To the extent that any liabilities, as calculated in accordance with the rules of the scheme, have not been satisfied under subsection (2), any remaining assets of the scheme must then be applied towards satisfying those liabilities (as so calculated) in the order provided for in the rules of the scheme.
(4A) If the scheme confers power on any person other than the trustees or managers to apply the assets of the scheme in respect of pensions or other benefits (including increases in pensions), it cannot be exercised by that person but may be exercised instead by the trustees or managers.
(4B) If this section is not complied with—

(a) section (prohibition orders) applies to any trustee who has failed to take all such steps as are reasonable to secure compliance, and

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(b) section 9 applies to any trustee or manager who has failed to take all such steps.

(4C) Regulations may modify subsection (3).").
On Question, amendment agreed to.
[Amendments Nos. 157 to 159 not moved.]
Baroness Dean of Thornton-le-Fylde Baroness Dean of Thornton-le-Fylde moved Amendment No. 160:
After Clause 65, insert the following new clause:
Dependants' pension for unmarried partner
(".—(1) Regulations shall provide that occupational pension schemes, whether constituted under statute or under trust, shall be required to introduce rules stating that, where no widow's or widower's pension is payable but the member has a partner for whom a valid nomination has been received, an equivalent pension shall be paid.
(2) Regulations shall further provide that every scheme shall notify members of this in the first annual report after the amendment has been made, and shall circulate a notice to all members and a nomination form.").
The noble Baroness said: My Lords, the main issues here were discussed in Committee. At that time the Minister said that the amendment as it was then worded took away the discretion of trustees to reach decisions in situations where a scheme member died or was killed. I challenge that point but we have tried to accept some of the reasoning by making clear in the amendment now before the House that we are referring to situations where no widow's or widower's pension is paid. The amendment now covers that situation.
Another point the Minister made in Committee was that if one has nominations they soon become out of date, people forget about them, and they are not relevant at the time the matter is considered by trustees. I do not accept that either. It is a major issue for a member of a pension fund to register with trustees a nominee to whom his benefit should be paid if he passes on or is killed.
On the previous occasion we discussed this matter the Minister expressed considerable concern that what we were dealing with was a public policy area that he wished to discuss with the Treasury. Of course the Pensions Bill does not give exclusions to public sector pension schemes as opposed to private sector pension schemes. It is correct to say that whereas in the private sector a member of a scheme who passes on will find his benefits—either reduced, or at the same level—are paid to the widow or widower, or to the nominated beneficiary, that is not the case in the public sector. We do not seek to hide the fact that this amendment will in future make the anomaly I have discussed not allowable under pension schemes.
At the moment members of the police force pay a not inconsiderable amount of money in the form of contributions into a scheme. In the Civil Service it is assumed that there is a contribution level of some 9 per cent. into a pension fund. This is not a benefit that the Government give to public sector workers: I suggest it is deferred pay. Therefore it is right that the individual beneficiary of a scheme should have the right to nominate rather than see his benefit go by default or, as is the case in some public sector schemes, go to an

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individual's brother, sister, or indeed his mother or father, but not to his or her permanent partner to whom he would want the benefit to be paid.
Nor indeed is it original to suggest that as regards the public policy area—I recollect the Minister implied this in Committee—a partner is not defined. Indeed the Administration of Justice Act 1982 made amendments to the Fatal Accidents Act 1976 under which, I gather, most claims for death in work are brought. That Act states:
"In this Act 'dependant' means [any person who] was living with the deceased in the same household immediately before the date of the death; … had been living in the same household … was living during … that period as the husband or wife of the deceased".
I believe that the amendment provides a fairer treatment of pension benefits, to which people have either paid or been assessed as having paid in their overall employment package. I beg to move.
Lord Mackay of Ardbrecknish: My Lords, the effect of this amendment would be to remove from individual pension schemes the freedom to decide their own rules regarding the payment of survivors' pensions.
We agree with the conclusion of the PLRC that there is no need for a general change in the law regarding the payment of benefits on death, and I cannot support this amendment.
As noble Lords are aware, employers set up occupational pension schemes voluntarily, usually under trust law. Widows and widowers of members of contracted-out pension schemes have a statutory entitlement to an occupational pension based on a proportion of the deceased member's guaranteed minimum pension or protected rights. In both the private and public sector any pension above this level or to other dependants will depend on the provisions made by the rules of a particular pension scheme. Some schemes already provide for other dependants of the deceased member to receive a pension. It should remain up to individual schemes, both in the private and public sector, to determine whether and in what circumstances a survivor's pension should be paid.
While we do not accept the amendment we are keen to encourage greater transparency and remove obstacles to the payment of survivors' benefits in particular types of case. We believe as a first step that scheme members should be fully aware of conditions relating to the payment of survivors' pensions. We intend to introduce a new requirement in regulations made under Clause 34 and Section 113 of the Pension Schemes Act which will require trustees to include these details in scheme booklets.
We have also accepted that in some cases the wording of trust deeds, particularly older deeds, can be unnecessarily restrictive when it comes to nominations for lump sum death benefits. We agree with the PLRC that schemes should consider amending their deeds where trustees' discretion on the payment of death benefits are restricted. The provisions of Clause 60(2) (a) will enable trustees to modify a scheme by resolution in order to extend the class of persons who may receive death benefits. This avoids the need for the intervention of a third party such as the courts or the authority.
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These changes go some way towards tackling the concerns which underlie this amendment, but they do so without restricting the freedom of schemes and sponsoring employers to decide their own rules in this area.
I do not know whether I have conceded enough to satisfy the noble Baroness, Lady Dean, but I hope that with that explanation she will agree that it would be wrong to press her amendment and force schemes to make the changes she wishes.
Baroness Dean of Thornton-le-Fylde: My Lords, I do not accept the Minister's point that trustees are in a better position to decide to whom the benefits of a deceased member of a fund will be paid. I should have thought that the individual member of a fund has every right to say whom they want to receive their benefit.
The Minister said that the rules of a particular scheme would determine who receives the benefit. I wonder to what extent that is a legitimate argument and to what extent it is concern about the possible impact on the public purse should the proposal I put forward be extended to public sector pension funds.
The Minister suggested that there will be greater explanation in regulations. While that will in no measure provide the coverage proposed in the amendment, it will be interesting to see how those regulations are worded and when the Government will make them. We must be up to 232 regulations under this Bill. I beg leave to withdraw the amendment.
Clause 66 [Discharge of liabilities by insurance, etc.]:
Lord Lucas Lord Lucas moved Amendment No. 161:
Page 39, line 26, after ("scheme") insert ("in respect of pensions or other benefits (including increases in pensions)").
The noble Lord said: My Lords, in moving Amendment No. 161 I shall speak also to Amendments Nos. 162 and 163.
Amendment No. 161 will make it clear that the discharge of liability provided for by Clause 66 applies only to liabilities in respect of pensions and other benefits.
Amendment No. 162 will make it possible for trustees to complete the wind up of a scheme without necessarily securing the positive consent of every member for the way in which the scheme discharges its liabilities. Many trust bodies seeking to wind up a scheme find it very difficult indeed to track down and consult all members, particularly deferred members. We therefore believe that it is right to give trustees the option of buying annuities for scheme members without having to secure their consent. The trustees' discretion will be restricted. We intend to prescribe in regulations that they should notify all members of the way in which it is proposed that liabilities should be discharged and give them a few months to respond. If a member accepts or chooses an alternative to an annuity, or asks for a different annuity provider to be used, all well and good. But if, having been given sufficient notice, a member fails to respond or cannot be contacted, the effect of Amendment No. 162 will be to enable trustees to buy an appropriate annuity for the member, thus discharging their liability and facilitating the wind up of the scheme.
Amendment No. 163 removes any possible ambiguity about the amount which the trustees would need to use to discharge their liabilities when winding up a scheme. It makes clear that if they cannot meet the scheme liabilities in full, they must apply the assets of the scheme on the basis set out in Clause 65. I beg to move.
On Question, amendment agreed to.
12.15 am.
Lord Lucas Lord Lucas moved Amendments Nos. 162 and 163:
Page 39, line 43, leave out ("chosen by the member and").
Page 39, line 46, at end insert:
("() If the assets of the scheme are insufficient to satisfy in full the liabilities, as calculated in accordance with the rules of the scheme, in respect of pensions and other benefits (including increases in pensions), the reference in subsection (2) to providing for the discharge of any liability in one or more of the ways mentioned in subsection (3) is to applying any amount available, in accordance with section 65, in one or more of those ways.").
On Question, amendments agreed to.
Clause 68 [Surplus on winding up]:
Lord Lucas Lord Lucas moved Amendment No. 164:
Page 42, line 6, leave out (" 3") and insert ("(Prohibition orders)").
On Question, amendment agreed to.
Clause 69 [Assets remaining after winding up: power to distribute]:
[Amendment No. 165 not moved.]
Lord Lucas Lord Lucas moved Amendment No. 166:
Page 43, line 2, leave out (" 3") and insert ("(Prohibition orders)").
On Question, amendment agreed to.
Clause 73 [Cases where compensation provisions apply]:
Lord Lucas Lord Lucas moved Amendment No. 167:
Page 44, line 44, leave out from second ("the") to ("and") in line 46 and insert ("value of the assets of the scheme is less than 90 per cent. of the amount of the liabilities of the scheme").
The noble Lord said: My Lords, this amendment corrects a mathematical inconsistency in the Bill.
Baroness Hollis of Heigham: You made a mistake¡
Lord Lucas: My Lords, I accept that it is a mathematical mistake in the Bill. It ensures that the eligibility criteria for compensation in Clause 73 are in line with the provisions for the calculation of compensation in Clause 75. The need for the amendment has been drawn to our attention by the National Association of Pension Funds, the Association of British Insurers and the Association of Pension Lawyers, and I am grateful to all three organisations for their assistance, as indeed I am to the noble Baroness.
On Question, amendment agreed to.
Lord Lucas Lord Lucas moved Amendment No. 168:
Page 45, lute 41, leave out (" 3") and insert ("(Prohibition orders)").
On Question, amendment agreed to.
Clause 75 [Amount of compensation]:
Lord Lucas Lord Lucas moved Amendment No. 169:
Page 46, leave out lines 38 to 42 and insert:
("amount ("the deficit in the assets") by which, immediately before the application date—

(i) 90 per cent. of the amount of the liabilities of the scheme,

exceeds

(ii) the value of the assets of the scheme.

so much of that maximum amount as does not exceed the deficit in the assets").
The noble Lord said: My Lords, this amendment sets right another possible mathematical confusion. I beg to move.
On Question, amendment agreed to.
Clause 76 [Payments made in anticipation]:
Baroness Seear Baroness Seear moved Amendment No. 170:
Page 47, line 14, leave out ("the payment") and insert ("so much of the payment as they consider appropriate").
The noble Baroness said: My Lords, in moving this amendment, I speak also to Amendment No. 171. The purpose of the two amendments is simply to give the freedom when assessing the repayments to be made to use discretion and not to demand the full amount which could be charged. I beg to move.
Baroness Hollis of Heigham: My Lords, give in¡
Lord Mackay of Ardbrecknish: My Lords, I wish I could be as brief as the noble Baroness. However, she raises a serious point even at this late hour of the night, and I shall resist the temptation to give in, as has been pressed upon me by those who seem to want to call it a day—or a morning.
The ability of the board to make payments in anticipation of compensation being payable is an essential feature of the compensation provision. It will ensure that, where a scheme is unable to pay pensions in full, scheme members, particularly pensioners, do not suffer undue financial hardship.
As noble Lords will appreciate, it may take some time to determine where a prescribed offence has occurred, but where the payment of the pensions is threatened the board needs to act quickly. The downside is that the board may later determine that compensation is not after all appropriate. Any payment made by the board is, of course, funded by other schemes paying the levy. We believe that it is right that where compensation is not appropriate, the board should be able to recover any payments made.
I can, however, appreciate the noble Baroness's concern, which she also raised in Committee. She does not want to see the compensation board act in a draconian manner. I can assure the noble Baroness that the Bill as drafted means that the compensation board will have discretion over the recoveries it makes, and this includes the discretion to make partial recoveries. Where a scheme has no assets, recoveries cannot be made, and we would not expect the compensation board to pursue the recovery in such cases. Further, it has

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never been the intention that trustees should be personally liable for payments due to the compensation board.
I gave a commitment in Committee that we would give further consideration to a number of issues surrounding recovery. The issues are wide and varied, covering important areas such as the potential impact on scheme members and the impact on other schemes paying the levy. If any changes are made, they need to strike a balance and ensure that no one has been unduly penalised. We also need to ensure that the board has sufficient flexibility to deal with the situations which may arise.
In these circumstances, we believe that it would be unwise to make hasty changes, particularly if it becomes clear that changes are not, after all, required. I can, however, assure the noble Baroness that we are giving serious and very careful consideration to these issues. If any changes are necessary, we will bring forward an amendment at a later stage in another place. Whatever the outcome, I will certainly write to the noble Baroness once we have completed the work in hand. I suppose that on that basis—which is quite close to giving in, or at least close enough for this time of night—the noble Baroness will withdraw her amendment.
Baroness Seear: My Lords, since the noble Lord has gone as far as he has done, surely it would not be unreasonable to get that degree of flexibility written onto the face of the Bill. We want to encourage trustees, not to discourage them. We want to give the impression that their treatment in cases of this kind will be reasonable and flexible. The Minister has very nearly agreed to it. With just one little push, perhaps he could go the whole way. I ask him to think again and come back at Third Reading with a more generous response to this amendment. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 171 not moved.]
Lord Lucas: My Lords, I beg to move that further consideration on Report be now adjourned.
Moved accordingly, and, on Question, Motion agreed to.

South Africa Bill [H.L.]
Returned from the Commons agreed to.
House adjourned at twenty-three minutes past midnight.