Pension Schemes Bill [HL]

Baroness Garden of Frognal Excerpts

Report stage & Report stage (Hansard) & Report stage (Hansard): House of Lords
Tuesday 30th June 2020 Lords Chamber

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords—[Inaudible.]

[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

We will move on because we cannot hear the noble Baroness, Lady Bennett. We will perhaps try to get her back later. I call the noble Baroness, Lady Janke.

[Baroness Janke (LD) [V]]

I took my name off the list.

[The Deputy Speaker]

I did not have a note of that. I call the noble Lord, Lord Balfe.

[Lord Balfe (Con)]

My Lords, this is the first time for two months that I have been in this Chamber. It is a bit emptier than normal but it is good to be back.

I hoped to speak after the noble Baroness, Lady Bennett, because I want to say a few words about her Amendment 33, which is about trustees. It seeks to require trustees to take age, gender and ethnicity into account. I will certainly not support or oppose this amendment but I want to make a few points on trustees and where I think she is trying to get us to. The fact of the matter is that the whole area around the appointment of trustees could do with a close look.

There are a number of problems. The first problem for any pension scheme, particularly a small one, is getting trustees from among the membership. You can always get a professional trustee because they are normally paid £1,000 or more a day for coming to the meeting, so it is not too difficult. The difficulty is getting representatives of the pensioners. The second and even greater difficulty is getting representatives of the pensioners who actually know what they are talking about, because many people are completely bewildered by pensions.

When I read through both this amendment and the amendments about ESG and environmental safeguards, I was reminded very much of pensioners who come to me and say, “All I want, Richard, is for you to pay my pension. I couldn’t care less where it comes from.” I say, “Presumably you wouldn’t like us to invest in gas ovens,” and they say, “Well, no, but you’ve got enough common sense not to do that. You don’t need me to tell you.”

So I come to the point that, when we are looking at the age, gender and ethnicity of trustees, we also need to look at their qualifications and the way in which they are allowed to come forward, because some trustee boards are effectively self-perpetuating because they govern who is allowed to stand. You are invited to apply to become a trustee, and then you are assessed as to whether you are able to become a trustee. Often, people who come forward are not highly professionally qualified, but they are qualified in one thing, which is common sense. My experience of pensions, which goes back quite a long way, is that certainly some members on a board—not a majority—who can demonstrate common sense are extremely good.

I would also like to say that dealing particularly with gender and ethnicity can lead you into many problems. My wife gets a pension from the Workers’ Educational Association pension fund. It got itself tied into complete knots trying to deal with ethnicity and gender. It ended up asking people to vote for trustees who were anonymised. They were anonymised by taking out not only their name, age, gender and ethnicity but also most of the other things about them. So the great game in this case was to look back at previous reports and try to work out which trustee was the anonymised one. Of course, that gets you nowhere and in fact is a bit of an insult to the members who have applied.

So I say to the noble Baroness, Lady Bennett, and to the Minister that this is a subject that is much wider than this amendment, but it is certainly one that needs looking at. The way in which pensioners are represented on the governing boards of pension funds is haphazard, to put it mildly. It varies enormously between funds. Although there is a great cry from professional trustees that you clearly need professionals in the room, I counsel the Minister and everybody else to beware of the cry for the professional. It is very easy to get a professional to sit there and give you advice as an employee or if they are hired for the purpose. You do not necessarily need more than the odd one of them actually on the board. They have nothing great to add than cannot be added by a professional adviser. They do not need a place on the board, although sometimes—note the word “sometimes”—having a professional trustee as a chair can add a certain amount of discipline, knowledge and structure to the way that debates go. But it can be overestimated and, particularly since the pensions industry is dominated by the professionals, there is a great danger that it gets overemphasised because it is precisely the people who write in the pensions papers who are the experts and who then promote themselves for the jobs.

So I welcome the amendment in the name of the noble Baroness, Lady Bennett; I see it just as a probing amendment, laying down a few guidelines that we could look at. I say to the Minister that when there is an opportunity, it would be well worth while to set up some sort of study or working group to look at the way in which trustees are chosen or appointed, how they work and how they are remunerated.

--- Later in debate ---

[Baroness Neville-Rolfe (Con) [V]]

My Lords, I support my noble friends Lady Noakes and Lady Altmann and the strong case they have made for these amendments. Noble Lords may recall that at Second Reading on 28 January I expressed some doubts about the scale and nature of the penalties in this Bill, which include a civil penalty of up to £1 million. I am still concerned that increasing them, especially the new criminal element, will deter the respectable people we need from becoming pension scheme trustees.

The world has been changed by the challenges of the coronavirus, as we have just heard. According to Patrick Hosking in the Times yesterday, using figures from pension experts Barnett Waddingham, FTSE pension deficits have soared by £45 billion to £210 billion since the start of the year, so that companies that have a deficit are now a good deal further away from closing it. This is an enormous strain on mostly well-run companies and schemes and reflects years of low interest rates caused by QE and turbulent equity markets. Who would want to get involved in pension administration? Yet its success is at the heart of the British savings system and vital to the future livelihoods of millions of hard-working people, often of modest means, up and down the country.

The Bill rightly reflects the need to plug a hole revealed by the Philip Green case and the furious debate in Parliament before Sir Philip was persuaded to pay up. However, as is often the case with legislation that responds to scandals, it is wide-ranging and takes enormous powers. It goes too far in my view towards burdening business at the expense of other stakeholders. The result will be less willingness to become a trustee and more administrative and other costs for pension schemes paid for, in the end, by the unfortunate pensioners, and the risk of more businesses being pushed into the Pension Protection Fund. This is the background to my unease with Clause 107 and why I moved an amendment in Committee with the help of my noble friend Lady Noakes, and why I now support her and my noble friend Lady Altmann with these amendments.

The criminal offences in Clause 107 are widely drawn. They try to catch bad behaviour by anyone who might be involved. But I maintain that this may have appalling perverse effects, injecting great uncertainty into what is permitted behaviour by those involved in pensions administration. My principal concern is with trustees, having been one and knowing what fine judgments one is called to make, but also with financial advisers, actuaries, accountants, insurers, property consultants and even secretarial support, all acting in good faith. It is one thing to provide for criminal sanctions against an employer, but wrong to extend this in such a vague and general way. A number of suggestions were made in Committee as to how one might tackle this, but disappointingly the Government have not listened—or not so far.

These new criminal offences will have a chilling effect on trustees and others involved, as my noble friend Lady Noakes explained, and I ask my noble friend the Minister to agree to think again and to narrow the very wide offences in this Bill to provide some comfort, either in this House or when it proceeds to the other place.

[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

Lord Naseby has withdrawn, so I call Lord Blencathra. No? I gather that there have been some problems, so I call the noble Viscount, Lord Trenchard.

[Viscount Trenchard (Con)]

My Lords, while the Bill has generally been welcomed by the pensions industry and members of pension schemes, I worry that it may give the Pensions Regulator too much power. The new criminal offences contained in Clause 107 affect not only employers and senior associates of pension schemes. They could apply to anyone involved in such schemes: for example, trustees, banks and insurers. I therefore support Amendments 46 to 49, proposed by my noble friend Lady Noakes so eloquently and so well supported by my noble friends Lady Altmann and Lady Neville-Rolfe, which confine the new criminal offences to the employer and persons connected with the employer. It is absolutely right that the Government have acted to ensure that failures such as that of Carillion and BHS will no longer have a negative effect on members of pension schemes.

The offences created in Clause 107 are serious. They carry a potential seven years’ imprisonment and a civil penalty up to a maximum of £1 million. It is therefore right that these offences should apply as broadly as they do, but they should be limited in effect to the employer and the trustees of the pension scheme concerned. These penalties seem proportionate to the gravity of the crimes in certain cases, but both offences apply very broadly to “persons”, with no requirement for association with the pension scheme. The Government’s intention may be that the measures are there to catch wilful and reckless behaviour, but the problem is that their potential ambit is wider—much wider—than just the reckless.

As currently drafted, the criminal offences could impact ordinary pensions and business activity, and, in distressed situations, they might act as a disincentive to corporate or business rescue—for example, by encouraging directors to file for insolvency to avoid the risk of criminal liability that might arise through seeking a turnaround plan or a pension scheme compromise. So far, attempts at making the measures clearer and more targeted have not succeeded. Regulator guidance on how the new powers will be used has been promised, but this has no special status in law.

The Pensions Regulator is not the only possible prosecutor in Clause 107 offences, as the noble Lord, Lord Hutton, eloquently pointed out in Committee. My noble friend Lord Howe explained that the Secretary of State would prosecute only as a last resort, such as if the regulator ceased to exist or changed. I find it hard to envisage that in such circumstances the whole of the current pensions legislation would not be changed.

I think that it is necessary to confine those who might commit these two new offences to connected parties; otherwise, many other persons might unwittingly, or unintentionally, become exposed to prosecution. For example, the fund manager of a pension scheme, in handling investments entrusted to him by the trustees of the scheme, might make investments or realise sales that negatively affect the value of a pension fund’s assets.

I think that these amendments are very sensible and I look forward to hearing the Minister’s reply.

[The Deputy Speaker]

The noble Baroness, Lady Sherlock, has withdrawn. Have we had any success in finding the noble Lord, Lord Blencathra? Alas, no, in which case I call the Minister, the noble Earl, Lord Howe.

--- Later in debate ---

[The Deputy Speaker]

We now come to the group beginning with Amendment 50. I remind noble Lords that Members other than the mover and the Minister may speak only once and that short questions of elucidation are discouraged. Anyone wishing to press this or the other amendment in this group to a Division should make that clear in the debate.

Clause 109: Duty to give notices and statements to the Regulator in respect of certain events

Amendment 50

Moved by