HL Deb 27 June 2000 vol 614 cc800-6

(".—(1) The Secretary of State shall make regulations providing for the trustees or managers of an occupational pension scheme to provide a written statement about the governance of the scheme.

(2) The statement must cover, among other things—

  1. (a) the trustees' or managers' confirmation that they have undertaken a review of the governance arrangements and procedures of the scheme, and
  2. (b) their policy about keeping such arrangements and procedures under regular review.

(3) The regulations shall also prescribe the circumstances when the Occupational Pensions Regulatory Authority ("the Authority") may require such a statement, the time period for providing the statement and the sanctions if a statement is not provided to the Authority within the time limits prescribed.").

The noble Baroness said: This is another amendment about trustees and scheme governance. Well structured best practice guidelines can be helpful to all pension schemes, but in practice it is usually only in a smaller number of cases where the standards are already being met. The history of pensions shows that without at least the possibility of sanctions, standards may not improve as we all want.

Ultimately, the running of a pension scheme is the responsibility of the trustees, even if someone else carries out the task for them. After all, it is they, rather than the advisers, who would face penalties from OPRA.

In the case of corporate governance, there is a requirement for listed companies to keep under review the effectiveness of all internal controls. In 1999, these requirements were supplemented by the Turnbull report, which requires companies to identify the effectiveness of the related internal controls.

The amendment is relevant, because pension scheme trustees also have an important stewardship role. Irrespective of the type of scheme, it is essential that a comprehensive and workable scheme governance policy is in existence and working. Trustees must be directly involved in setting the objectives, which must also be fully supported by the sponsoring employer.

Modern pensions governance embraces policy, people and practice. It should ensure that the scheme has a written policy on procedures or guidelines so that trustees operate within the regulatory framework and the requirements of the trust deed and rules, and that the procedures or guidelines are understood by the trustees and have been incorporated into identifiable working practices.

A governance review, as proposed in the amendment, could be a useful reminder of the issues in which compliance must be satisfied, as well as illustrating the range of issues that are the features of good pension governance. Something of the sort is necessary to ensure that employees have confidence in their schemes. Unfortunately, the lack of confidence arising from the Maxwell affair was partly responsible for the pensions mis-selling under the previous government, when employees opted out of good occupational schemes into personal pensions much to their disadvantage.

Confidence in the good governance of schemes will ensure the maintenance and development of occupational schemes. I still believe that a good occupational scheme is the best way for employees to provide for their retirement. I hope that the Government accept that that is the aim of the amendment and will be prepared to support it. I beg to move.

Baroness Hollis of Heigham

My Lords, Amendment No. 85 would require the trustees and managers of occupational pension schemes to produce a statement at prescribed intervals saying that they had undertaken a review of the governance arrangements of the scheme and setting out their policy for keeping those arrangements under review. It would also provide for the statement to be sent to OPRA in prescribed circumstances and for OPRA to be able to impose a sanction if it was not provided.

In the context of occupational pension schemes, "governance" refers to the internal controls and procedures put in place by the trustees or managers to ensure that the scheme is run in the most cost-effective and efficient way possible, ensuring the security of the scheme assets.

Trustees are required to step back and look at how the scheme is being run. That includes ensuring that everyone involved in the administration of the scheme has clear lines of reporting and accountability and is sufficiently knowledgeable about what they are doing. It also includes checks to combat internal fraud, controls to ensure direct and prompt receipt of contributions from employers, scrutiny of claims made on the scheme to determine bona fides and effective monitoring of activities relating to the investment of the scheme's assets. In effect, it involves looking at every area of activity within the pension scheme administration and making sure that adequate controls are in place for each one.

I recognise that requiring trustees to produce a statement about governance arrangements in their schemes is a good way of focusing their attention on their roles and responsibilities in relation to the running of the scheme. I also agree that the principles of good governance are an essential ingredient for the proper running of any business or organisation, including pension schemes. However, whether we should actually make this a regulatory requirement is another matter. The Pensions Act 1995 already makes it quite clear that the trustees are responsible for the proper running of their scheme. The Act provides a wide regulatory framework to support that message. If trustees do not comply, the scheme auditor and the scheme actuary are under a duty to report any irregularities to OPRA.

It would be difficult, if not impossible, for trustees to fulfil their role under the pensions Act and trust law without some form of internal arrangements for ensuring the proper management of the scheme. As noble Lords are aware, there is a wide variation of type and size of pension scheme. Any system of internal controls must take account of the characteristics of individual schemes and allow for those differences.

Any legislative requirement in this area would need, for the sake of clarity and consistency, to spell out exactly what is meant by governance and how it would apply to particular schemes. That would give rise to further lengthy and complicated sets of regulations containing an exhaustive list of controls that trustees and managers would be required to put in place, the circumstances where they must do so and the circumstances in which statements would have to be sent to OPRA. It would impose a heavy burden on the scheme and an even heavier burden on OPRA. Any statement produced under these arrangements would also require verification by, for example, an auditor, if the requirement was to be effective.

At present, trustees are required to obtain an auditor's opinion on the financial transactions of the scheme and, if he or she detects a flaw in the scheme's control system, this would be brought to the trustees' attention. However, auditors do not, as a matter of course, carry out a detailed check of a scheme's systems of internal controls. To require such a check would involve schemes in extra costs and we have to consider whether that can be justified. We do not believe that it can. The department is currently working with the industry in a joint working group to consider ways in which we can offer practical help to schemes in areas where we are keen to provide a clear lead and guidance but where it is not appropriate to regulate. Good governance is one such area.

I recognise the intentions behind this amendment; indeed, I support them. However, I hope that what I have said about the complexity and costs associated with such a requirement has convinced my noble friend that it would be inappropriate to legislate and that, therefore, such matters are better left to guidance. In that way, trustees can determine appropriate controls according to the circumstances of their schemes. In the light of my remarks, I hope that my noble friend will feel able to withdraw her amendment.

Baroness Turner of Camden

My Lords, again, I thank my noble friend the Minister for her explanation of the Government's policy in relation to the amendment. I am also very glad that she at least supports the principles behind the amendment, as well as the principles of good governance. The gist of my noble friend's remarks is that my amendment would, as I understand it, impose too heavy a burden upon trustees and, indeed, upon OPRA. I shall have to consider most carefully what my noble friend said. I am pleased that we have note of her reactions to the amendment because good governance of schemes is of paramount importance as far as concerns confidence in scheme provision. Having gained those commitments from the Government to the whole idea of good governance, it is good to have them on the record. I am grateful to my noble friend for her comments. I accept what she said about the burdens that the actual wording of my amendment could impose on those concerned. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

5.15 p.m.

Clause 47 [Information to be given to the Authority]:

Lord Astor of Hever moved Amendment No. 86: Page 45, leave out line 19 and insert— ("(e) a provider of insurance or investment services to the scheme;").

The noble Lord said: My Lords, in moving this amendment I shall speak also to Amendment No. 94. These amendments would extend the list of persons exempted from the definition of those involved in the administration of a scheme to include providers of insurance or investment services to the scheme. As presently drafted, the exemption is confined to fund managers. In our view, it is inconsistent to exempt fund managers and not to exempt insurance companies, which provide death-in-service benefits. The amendments would, therefore, broaden the exempt categories. I beg to move.

Baroness Hollis of Heigham

My Lords, Amendment No. 86 would do two things. First, it would remove fund managers from those excluded from the requirement in Clause 47 to notify OPRA on the insolvency of the sponsoring employer where the scheme has no independent trustee (in cases where it is meant to have one), and where there is no other trustee. It would also remove fund managers from those excluded from the requirement to tell OPRA where there is no requirement for an independent trustee, the insolvent employer is the sole trustee and he has not confirmed to the authority that he is still able to act as trustee. Secondly, it would exclude those providing insurance or investment services from the same requirements. While at first glance it might appear that there is very little difference between the two, in reality the difference is significant.

Clause 47 is part of a package of measures aimed at speeding up the time taken for schemes to wind up. That time can vary enormously from a relatively short period of time to 20 years in an extreme case. Scheme rules will generally set out the circumstances that trigger the winding up of an occupational pension scheme. Under some scheme rules, the insolvency of the sponsoring employer will trigger the winding up of the pension scheme, in others it will trigger the closure of the scheme and leave the trustees to decide whether the scheme should be wound up. It is important that there is a trustee in place following the employer's insolvency so that decisions can be made about the future of the pension scheme, including whether it should be wound up and whether to make decisions, for example, about investment strategy.

Difficulties may also arise in money purchase schemes, which do not need an independent trustee, where an insolvent employer is the sole trustee. In those cases, the employer may no longer be able to act as a trustee. It is important that OPRA is notified about these cases quickly so that it can use its existing powers to appoint a trustee if necessary.

Clause 47 applies where the sponsoring employer of an occupational pension scheme becomes insolvent and will require trustees, or if there is no trustee, a person involved in the administration of the scheme, to notify OPRA that the scheme has no independent trustee, or no trustees at all (in cases where it is meant to have an independent trustee), or that the insolvent employer was the sole trustee and is no longer able to act as trustee.

There is currently no requirement for OPRA to be notified where an employer is insolvent and there is no trustee. Schemes can be left in limbo until either the insolvency practitioner or OPRA becomes aware of the situation and takes action. Therefore, this clause aims to ensure that schemes do have a trustee in place following the insolvency of the employer, so as to make sure that members' interests are protected and that prompt decisions can be made about the future of the scheme. OPRA will be able to make enquiries about the position and, if appropriate, arrange for a trustee to be put in place. Because it is important that OPRA is told quickly, we want the obligation to fall on those who are likely to become aware of the insolvency of the employer fairly soon after that event happens.

Where there is a trustee, the obligation to notify OPRA that the scheme has no independent trustee will fall on that person. But where there is no trustee, those persons involved in the administration of the scheme will have to tell OPRA. We realise that not everyone involved in the administration of the scheme will be aware of what has happened to the employer in sufficient time to allow OPRA to take prompt action. That is why it is right to limit the requirement to those persons involved in the day-to-day administration of the scheme who are best placed to notify OPRA promptly.

A number of people can be involved in what could broadly be considered as administrative functions in relation to a scheme, but on whom it may not be appropriate to impose the requirements introduced by this clause. Fund managers are just one example of those who clearly should be excluded—they are unlikely to be aware of what has happened to the employer, and that there is no trustee, in sufficient time to allow OPRA to take prompt action.

Amendment No. 94 seeks to add persons providing insurance or investment services to the list of persons not included in the definition of persons involved in the administration of the scheme. That would exclude them from OPRA's powers in Clause 50 to issue directions, not only for them to take action and provide information but also for them to be provided with information, which should not be overlooked.

Sometimes the winding-up process can stagnate. It may be because those winding up the scheme are having difficulty in obtaining information or are waiting for action to be taken before they can continue. It may also be that those carrying out the winding-up process are not taking action as quickly as they could. Clause 50 gives OPRA power to direct action during the winding up of the scheme where it feels that the process is unduly protracted. It will introduce accountability into the winding-up process and provide members with reassurance that the scheme is being properly wound up.

It is important that those winding up the scheme should get support when they are experiencing difficulties during the process. OPRA will be able to direct that action is taken or that information should be provided. That includes the provision of information by and the provision of information to the trustees or managers and those involved in the administration of the scheme.

A number of people can be involved in what could broadly be considered as administrative functions in relation to a scheme but on whom it may not be appropriate to impose the requirements introduced by these provisions. I understand the reasons for the noble Lord's amendments. However, some insurance companies can and do provide day-to-day administrative services to schemes, as well as insurance services. We need to be careful that any exemptions do not go wider than we intend.

Those which provide administrative services for the trustees of the scheme are arguably in the best position to provide OPRA with information following the employer's insolvency. Furthermore, where they are carrying out some of the work needed to wind up the scheme they may need OPRA's help in getting that work done.

These new requirements and regulations will allow us to add to those persons who should not be treated as involved in the administration of the scheme. We shall, of course, take into account any representations we receive and, if appropriate, use the regulation making powers to add further to the list of persons already set out. In that light, I hope that the noble Lord will withdraw the amendment.

Lord Astor of Hever

My Lords, I am grateful to the Minister for that full reply which we shall need to read carefully in Hansard. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 48 [Modification of scheme to secure winding-up]:

[Amendment No. 87 not moved.]

Clause 49 [Reports about winding-up]:

[Amendments Nos. 88 to 92 not moved.]

Clause 50 [Directions for facilitating winding-up]:

[Amendments Nos. 93 to 96 not moved.]

Lord Higgins moved Amendment No. 97:

After Clause 51, insert the following new clause—