Pension Schemes Bill [HL]

Debate between Lord Hutton of Furness and Baroness Bowles of Berkhamsted

Committee stage & Committee: 1st sitting & Committee: 1st sitting : House of Lords
Monday 24th February 2020 Grand Committee

[Lord Hutton of Furness]

My Lords, I shall speak to my Amendments 23, 24, 25 and 26. It was clear at Second Reading and has been again today that most Members of your Lordships’ House accept the need for this new criminal offence: I certainly do. Recent events have confirmed that there is a gap in the law and we should try to fill it—that is our responsibility. However, when it comes to the creation of new criminal offences, there are always some important questions to be clear about, from the beginning. Who are we aiming this new criminal offence at? Have we got that right, and are we clear, in the way the offence has been drafted, that we are catching or bringing within the net of this new offence those people and those people alone?

We need to be clear who can prosecute. It is interesting to look at the origins of this offence, and the way it came about in the consultations. It is clear in the Green Paper and the White Paper that the Government, rightly, had in mind that the Pensions Regulator would be the prosecuting authority. That is not the case in the Bill, where we have the rather unsatisfactory state of affairs that not just the Pensions Regulator but the Secretary of State and the Director of Public Prosecutions can prosecute. As I said at Second Reading, that does not clearly set out where the prosecuting authority lies, which is why I support Amendment 35, tabled by my noble friend Lady Sherlock.

There is a parallel here with other offences. This is a new offence, complicated in nature and unclear in its precise scope. When Parliament is creating new offences such as this, it has a responsibility to the general population—and, in this case, to those concerned with the governance of pension schemes—to help them understand what is covered by this new legislation and what actions people need to take to make sure they stay on the right side of the law. Amendment 35 would help us clarify some of those issues.

There is a general problem with the way this clause has been drafted, which has been a familiar theme of the comments of the noble Baronesses, Lady Neville-Rolfe and Lady Bowles. I support much of what they said. I am concerned that this offence, in its current form, is drafted too widely. When it was envisaged, and the Government did their consultation, it was going to be an offence to catch the behaviour of unscrupulous employers or directors of companies. That is the origin of this offence. We do not need to go into the detail of the case, but we all know what we are talking about.

It is clear, from a cursory reading of this clause, that this offence would cover more than just employers and company directors. It could cover scheme trustees, actuaries or advisers, or pretty much anyone in a position to give advice on the management of a pension scheme. I genuinely doubt that was the intention of the Government when they consulted on this clause. They have made this provision too broad in scope. They should have another look at the way that this clause has been drafted.

They should definitely have another look at who the prosecuting authority should be. Generally, in our system, it is very unusual for the Secretary of State to be able to bring a criminal prosecution against another person. There may be one or two examples I am not aware of, but I am sure the Minister is well advised about how many situations there are in which the Secretary of State has such a power. Generally, it is best to leave criminal prosecutions in the hands of criminal prosecutors. With the best will in the world, and the high regard I have for the Secretary of State, she is not a criminal prosecutor. I would not want her to be in the position of being advised to bring a prosecution. I would like the Minister to set out how that process would work within the department. It would be unusual. As a Secretary of State, I was never advised to bring a criminal prosecution. Particularly if the DPP and the Pensions Regulator both decided not to bring a charge, it would be extraordinary for the Secretary of State to be able to carry on with a criminal prosecution none the less.

The third question about criminal offences is pertinent to this offence. What is the penalty for the wrongdoing that we have in mind? To go back again to the Green and White Papers, the origin of this offence was the behaviour of unscrupulous employers, who deliberately put at risk scheme members being able to acquire their scheme benefits. By its very nature, that is a serious offence and the draft statute we are discussing has a sentence of up to seven years’ imprisonment for such an offence. Bring that on. That is an appropriate statutory offence.

What I do not understand about this offence, in what would be new Section 58B(9)(b) of the statute, is that it could be tried either way. It could be tried on indictment, where the statutory sentence of imprisonment would kick in, or it could be tried on a summary conviction. But by its very nature a summary trial implies that an offence is not as serious as a charge that can be brought before a jury in a Crown Court. For the life of me, I cannot understand why this offence has mutated into a serious and a less serious offence at the same time. That is incomprehensible to me. This is a serious offence that should be tried on indictment by an appropriate criminal prosecutor.

I am afraid that in my humble view this clause needs a complete rethink. It is too wide of the mark and obtuse in what it is covering, and the sentencing arrangements are indecipherable; they are an inherent set of contradictions. This should be an offence triable on indictment only, period, because we are talking about serious offences.

The noble Baronesses, Lady Neville-Rolfe and Lady Bowles, both referred to the wording used to describe this offence. I have simply tried to bring into the Bill the wording that the Government themselves consulted on when the offence was being talked about and conceived. It was about wilful or reckless behaviour; in fact, I think the Government used the phrase “grossly reckless behaviour” in their consultation. In the way that this offence has been drafted, I absolutely accept that the Government are trying to ensure that the offence is based on wilful or reckless behaviour, but there is almost an obligation on the Government when they have consulted on a particular offence to stick as closely as possible to how that consultation was done, developed and extended, and to bring forward legislation that as closely as possible represents that offence in any new legislation. I think there is a way that the Government could do that. My amendment is one simple way of doing it, although there may be a better way. I think it is incumbent on the Government to try as far as possible to stick to what they consulted on, but there is a very real danger that this clause will not do that. I hope the Minister will be able to offer me and other Members of the Committee some reassurance that the Government might be willing to have another think about the nature of this new offence.

[Baroness Bowles of Berkhamsted]

My Lords, I am sorry to rise again but I did warn the Committee. I agree that it is necessary to look again at the precise wording. I do not think that “recklessly” is covered, and it should be. It may well be a solution to remove trustees from the scope.

I want to address the concerns I have about defining “reasonable excuses”. Sometimes you can end up forcing unintended interpretations that can work both ways, either giving loopholes to bad behaviour or unintentionally limiting the scope of excuses. That means, if you like, it can work for the prosecution or the defence, but it means you do not get what you thought you had got. If anything is specified or picked out as an example, it needs to be clear that it may not be binding in all circumstances and that the examples are not an exhaustive list, so that if something else is brought forward as a defence it is legitimate for it to be considered.

There are certainly regulators that have fallen into the trap of too many guidelines. The FRC was criticised in the Kingman report for the detrimental effect on reporting and audit of too many guidelines, resulting in boilerplate recitations rather than thoughtfulness. In this subject, we are also interested in thoughtfulness and people thinking about what they are doing. We debated the FCA report into GRG in the Chamber on 27 June last year, and the FRC gave a line-by-line report of how its published interpretation of “fit and proper” had greatly narrowed what in my personal experience was always held out to be a wide-in-scope basic test. It was even described to me by some people as our version of “unconscionable conduct” in that bad conduct would not be fit and proper and that was the way in which we went about getting bad behaviour. However, in the GRG case and the report from the FRC we found that not to be the truth because of the guidelines and training that were put around those words. So what we do here needs to be done with care.

Concerning Amendments 19 and 20, it should not be a reasonable excuse to do something just because someone else has or might have done it. That is an excuse for a race to the bottom and to disengage from responsibility. It is reasonable to have regard to market practice but the competitive urge to do what others do or to push it a bit further has to be resisted—such behaviour was among the causes of the financial crisis.

I fully accept that there are difficult matters to balance for business; these are in part explored in later amendments relating to dividends. Perhaps the law has not been clear enough so far about what are the right priorities; in the past, pensions have been put at the bottom of the pile, with deficits paid down slowly and surpluses raided and holidays taken rather more eagerly, with a lax attitude when the company is generally well capitalised. That has been the wrong message. I believe it is now the right time to clarify that obligations rank ahead of options in the balance of legitimate interests and call on capital.