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The Earl of Buckinghamshire: I thank my noble friend for his reply. I stand chastised. However, I know that he will come back with a better amendment than mine. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 106 not moved.]

[Amendment No. 107 had been withdrawn from the Marshalled List.]

The Chairman of Committees (Lord Boston of Faversham): In calling Amendment No. 107A, I must inform the Committee that if the amendment is accepted, I cannot call Amendments Nos. 107B or 108.

Baroness Dean of Thornton-le-Fylde moved Amendment No. 107A:

Page 6, line 42, leave out from beginning to first ("of") in line 44 and insert ("a majority").

The noble Baroness said: The effect of Amendment No. 107A would mean that the majority of trustees on an occupational fund trust board would be member-nominated instead of, as currently provided in the Bill, only one-third. I have heard the arguments that one-third should be satisfactory because the employer has an enormous cost to meet on the balance should there be a shortfall. But most employees pay around 5 per cent. of their gross income into their pension fund, which is an enormous investment. It may not be the largest investment of their lives, but it may be more of

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an investment than the cost of their home through a mortgage. There is therefore a lot riding on this matter for each individual employee.

People say that it is not fair because the employer, in a shortfall, will be required to pay the balance. But what about the employers who over the past few years have consistently taken pension contribution holidays while employees have had to continue to pay at the normal level of pension fund contribution? It is swings and roundabouts based on an actuarial assessment.

My argument is that the contributions to a pension fund scheme are deferred wages. I know that some people do not accept that, but a number of court rulings confirm that interpretation. Indeed, Barber v. Royal Exchange is a case where the court found that pension contributions were deferred wages for the employees.

Amendment No. 107A brings equity into a scheme. It means that the individuals whose lives may be substantially affected will be given a greater say than is currently provided for. Come what may, at the moment they have only a minority say in whether there is a pension surplus or a deficit; and the Bill continues to provide for only a minority say. I hope the amendment gains the Committee's support. It is necessary bearing in mind that only 35 per cent. of all occupational schemes have nominated member trustees on their boards. I beg to move.

3.15 p.m.

Baroness Hollis of Heigham: In speaking to Amendment No. 107A I should like to speak also to Amendment No. 108 standing in my name, the name of the noble Baroness, Lady Seear, and that of my noble friend Lady Castle. The amendment is grouped with Amendment No. 107A but is a more modest amendment. It calls for at least 50 per cent. of the trustees to be scheme members.

Most European countries do not have operational pension structures and schemes similar to those in the UK. However, where they do—Ireland, Australia, Switzerland and Spain—50 per cent. member trustees are the norm. More to the point, it is also the norm in some of the biggest and best of British companies at the present time. For example, Rothmans, Jaguar and Leyland Daf have 50 per cent. member trustees. Thomas Cook and, if we include the pensioner member, Shell, Allied Lyons and Boots all have 50 per cent. member trustees. Since 1926, ICI has had six employer trustees, six employee trustees and one independent. Unilever has 12 employer and 12 employee trustees and one pensioner trustee. Albright & Wilson, Courtaulds, Lucas and Sainsbury are all companies that already draw 50 per cent. of their trustees from their scheme membership. That is a roll-call of the best names in British industry, as I am sure your Lordships will agree. It is therefore already established practice in our best schemes.

The amendment would bring all schemes, unless members chose otherwise, up to the best practice of already established and well-run schemes. There is nothing provocative about it; nothing syndicalist; nothing revolutionary. It is an amendment which reflects

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and embodies best practice. By itself it is not enough to prevent fraud or theft, but all the evidence suggests—and employers confirm—that where there are 50 per cent. member trustees, there is less fraud, there is more scrutiny, there is better information flow, there is more confidence in the pension promise and there is more employee commitment to the company.

In a previous Committee debate the noble Lord, Lord Marsh, made a powerful speech which won the support of many Members when he argued that the best protection against pension fraud cannot come from the regulator; it must come from the trustees acting where necessary as whistle blowers. I am sure that he is right. Amendment No. 108A would help to ensure that.

If it is already best practice among the roll-call of our best companies, what are the possible objections to the amendment? The first is that scheme members may elect unsuitable people; secondly, that it may tip the balance of power unfairly away from the employer in a situation where such issues could be delicate.

Let me deal first with the objection, that unsuitable people may be elected. I asked around in some of the other company schemes and there is no evidence for that at all. Too often when one hears the word "unsuitable" it becomes a euphemism for the trustee asking the awkward questions, as in the Maxwell companies where such trustees found their services speedily dispensed with by Maxwell. That is one of the reasons why my noble friend Lady Turner will be moving an amendment later to give the trustees protection.

If trustees elected by the membership are corrupt, they will be discharged; if they are inexperienced, they will be trained; if they are unsuitable, they will not be elected. Do we believe that employees will not choose the most sober, cautious and careful of people to safeguard their pensions? They will be looking for Methodist chapel stewards if they can find them.

The second argument that may enter the considerations of the Committee is that such an amendment may be unfair to employers; it may reflect a sectional interest. I have two answers: first, as with all trustees, the fiduciary duty of scheme member trustees is to the scheme for which they are stewards, not to the constituency from which they come. That applies as much to the financial director nominated by the employer as it does to the scheme member elected by his colleagues. After all, benefits and so forth will remain a matter of employer/employee negotiations, not a matter for trustees who are stewards for the scheme as a whole.

Secondly, such fears perhaps under estimate the power that will remain with the employer after the Bill becomes an Act. Most of his existing powers will remain firmly in place. It will not disturb the balance. Were the Committee minded to accept the amendment to make 50 per cent. of the trustees come from the scheme membership it would still be the case that employers would have a voluntary choice on whether to set up occupational pensions; it would still be the case that employers could wind up schemes; it would still be the case that the employers would define the rules of eligibility, including new members; it would still be the case that the employer could veto any benefit improvements to the scheme; it would still be the case

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that the employer could take a contributions holiday without even a quid pro quo in the form of improved benefits for the scheme members; it would still be the case, crucially, that any change in the scheme rules, such as altering benefits or improving accrual rates, must have his consent. The employer will still have half the trustees. Whatever percentage of trustees is drawn from scheme members, all the long stop powers that the employer will have under the Bill will remain intact. It will not affect the delicate balance between them.

Finally, Members of the Committee may have a third fear that somehow the amendment will generate additional costs for the employer. Whatever the percentage of member trustees the costs for the employer cannot be increased beyond the current benefits as promised. Whether there are fewer than one-third member trustees, 50 per cent. or 75 per cent., none of that will affect the employers' commitment to financing benefits in any way. It is true that under the Bill the employer may face additional costs to meet what is called the minimum solvency standard; and so he should if the scheme without it is not financially sound. But that will happen by virtue of the Act itself. It will have nothing to do with the percentage of trustees. In other words, the issue of potential financial liability for the employer under the Act and the issue of trustees drawn from the membership are completely unconnected. Whatever the percentage of trustees, the employers will have to meet those financial responsibilities. Whatever is the percentage of trustees that will not add to the employers' financial responsibilities.

Why then are we pressing the amendment? I have tried to suggest that the good employer has nothing to lose because good employers already do it. Who will lose? It will be those employers who sail close to the wind in their practices, whether in terms of self-investment, favourable loans or seeking delays in passing over contributions to trustees. They will be affected. However, given that the Bill is brought forward to protect the pension promise from just such practices—practices that lead to insolvency or are fraudulent—is this not exactly what we want to happen?

I hope that the Committee will support the amendment. It would produce 50 per cent. trustee members drawn from the scheme members. It is the current good practice in the best firms of this country. It will have no financial implications for the employer as such, but it will strengthen the capacity of trustees to take on the role that the Bill intends them to do: to monitor and to act as good stewards for the pension promise.

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