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Baroness Seear: I wish strongly to support the amendment particularly because it suggests at least 50 per cent. A number of schemes are already above 50 per cent. and they have proved very satisfactory. We are very much of the view—it is a widely-held view—that pensions are deferred pay. As the noble Baroness, Lady Hollis, said, the employer has the ultimate weapon, if he needs to use it, of withdrawing the scheme. That is a powerful weapon where employee members are determined to keep the scheme going. They are extremely unlikely—it would be extremely foolish—to

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act in such a way that would lead to the employer winding up the scheme. I cannot see that the employer has anything to fear. I should like to see the figure higher than 50 per cent. The amendment would enable that to happen in those places where it was agreed that it should.

Baroness Castle of Blackburn: I wish to support Lady Hollis's amendment which, of course, subsumes mine. I tabled something on the same lines at the suggestion to me of one of Maxwell's long-suffering pensioners. That is straight from the mouth of someone who has gone through all the suffering, anxiety and miseries of the past few years following Maxwell's gigantic fraud.

The pensioner pointed out to me that there are grave risks that are taken by member trustees who are trying to deal with a fraudulent employer. There are such things as intimidation. There are also such things as bribes by saying, "You were wanting promotion, weren't you? Well you had better shut up". He has seen it in action among fraudulent employers. There is safety in numbers. The very minimum ought to be 50=50 representation. I am glad that Lady Seear has pointed out that it is at least 50 per cent.

I want to stress the point that Lady Hollis made which seems to be the very centre of our argument. The good employer does not need this legal obligation placed on him. But we are trying to protect members of a pension scheme from the fraudulent employer. In that way we have got to give the member trustees a sense of strength that they have real equal status and that they speak as people of equivalent importance to the employer at the very least. I do hope that the Committee will see the sense and logic of that and listen to my Maxwell pensioner friend who has urged that this kind of amendment should be made.

Viscount Caldecote: Is the noble Baroness, Lady Dean, correct in saying that in the case of a pensions holiday it is legal for the employer to take a pensions holiday while insisting on the employees continuing to pay? That has never been the case in my experience, but I should like to know whether that was just good practice or whether it is a statutory requirement.

Lord Dean of Harptree: I am strongly in favour of member trustees of pension schemes and, as has already been pointed out in the debate, best practice suggests very strongly that that development should be encouraged. However, I should like to express some doubts about the amendments.

We live, unfortunately, in an age where very few new occupational final salary pension schemes are being set up. That is a serious development. It may be something to do with the recession that we have gone through but it is a harsh reality. We must be very careful before we place additional obligations on employers which might discourage the setting up of new schemes, particularly final salary schemes. We have to take into account that the Bill already lays a statutory obligation for one-third of the trustees to be members. That is a new obligation

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which employers will have to meet. Some of them meet it already, but not all do. The disincentive effect is a factor which we have to take into account.

We also have to bear in mind that in most occupational pension schemes the employer contributes about twice as much as the employee. That financial fact has to be taken into account when one considers the balance on trustee boards. For those reasons I hope that my noble friend the Minister will resist the amendments.

3.30 p.m.

Lord Ezra: I have not been a trustee of a pension fund, but I have been on the employers' side as chairman of the companies concerned in both the public and private sectors. In the schemes with which I have been involved in that way there has been at least an equal part of member trustees. That has worked perfectly. The clinching argument in this debate is that put forward by the noble Baroness, Lady Hollis, when she reminded us that the fiduciary duty of trustees, whether they come from the employers' or the members' side, is to the scheme. Once appointed they should forget any "party view" if I can so describe it, and simply do what is in the best interests of the scheme. Therefore, it may be asked: why argue about it? As soon as they are appointed the best people from whatever side have to do their duty.

One then comes up against the question of perception. We are dealing with legislation which originated from the Maxwell affair. People want to be satisfied that the steps which are being taken will effectively safeguard the interests of the beneficiaries. Therefore, from the point of view of general public perception and of those in schemes, I very strongly support the proposition that although all trustees will, we hope, henceforth have only one duty towards the scheme they serve, nonetheless the Government will agree, if they are to fulfil the main objective of this legislation, that this amendment should be supported.

Lord Allen of Abbeydale: This is not a party political matter and, as has been explained, there are not any great financial implications. I believe that it is legitimate for a Cross-Bencher to express very briefly a view on the merits of what is proposed.

I recognise that my own detailed knowledge of pensions is becoming out of date, but the arguments for or against this particular proposal are fairly clear cut. The proposal by the noble Baroness, Lady Dean of Thornton-le-Fylde, goes a little too far. The swings and roundabouts arguments ends up with perhaps 50 per cent. and not more. A strong case has been made out for Amendment No. 108. It seems to be the fact that a number of very successful companies operate that arrangement with perfect success. I am glad to add my word briefly in support of that amendment.

Lord Mackay of Ardbrecknish: This is clearly one of the important parts of the defences that we are erecting on pensions in the light of the Maxwell affair which brought Professor Goode's Committee into being and led to this Bill.

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Perhaps I may go back a little and point out that the requirements in the Bill itself are that members should have a right to nominate at least one-third of their scheme's trustees. We believe that that statutory minimum will ensure that trust boards include at least some people whose perspective differs from that of the scheme sponsor who, typically, does appoint the majority, if not all, of the trustees. We fully accept the Pension Law Review Committee's view that there is an important role for member-nominated trustees in providing scheme security. I set out in my Second Reading speech the general advantages we see for schemes in having member-nominated trustees.

But I believe that this provision is quite different from requiring a majority of member-nominated trustees on a trust board or requiring that a proportion of member-nominated trustees shall be equal to that of the trustees appointed by the sponsoring employer. The scheme and its associated fund is established by an employer to achieve a business objective. My noble friend Lord Dean of Harptree mentioned the very worrying fact that employers are not creating new schemes in a way that we would like to see. We do not want to make schemes look unattractive to employers and discourage them from starting schemes or decide that they should back off from the schemes they already have. The employer retains a considerable business and financial interest in the performance of the fund and in the effectiveness of the scheme. We have to remember his interest in all this and how he could bring the scheme to a close if he felt it was perhaps in the interest of his business. We do not want that, or to add factors which may make schemes less attractive.

The fund belongs neither to the members nor to the sponsoring employer. It is held in a trust by the trustees to be distributed on the basis set out in the trust deed and the rules. That leads straight back to the argument that the balance between member and employer-nominated trustees on the board should reflect the balance of interest in the fund.

In a defined benefit scheme where the employer is bound to meet the pension promise and to make good any deficit, the fund is almost incidental as far as the members are concerned. Of course, it offers a degree of security against employers becoming insolvent and provides a vehicle for delivering their pensions. But the pension they receive is not dependent on the existence or performance of the fund. By contrast, the existence and performance of the fund is crucial to the sponsoring employer. It offers a tax-efficient way of providing an important part of the remuneration package. It smoothes out the cash flow problems which a pay-as-you-go system might incur. Its performance and any consequent need to increase pension contributions could have a dramatic effect on company cash flow. 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

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composition of the trust board. That is why the Goode Committee opted for a one-third/two-thirds split in favour of the employer as the minimum provision.

The running of the trust fund is of such significance to many employers that without the security of this level of influence, as I mentioned when answering the point made by my noble friend Lord Dean, they could well decide to move away from defined benefit pension provision which may well not be in the interests of scheme members. For those reasons, we have supported the PLRC approach.

In June of last year we ran a consultation exercise on our proposals for member-nominated trustees. Views were very widespread and there was no consensus at all on an ideal constitution. Some respondents said that the balance should tilt towards the employer; some said towards the members and others went for a 50-50 split. Sometimes the casting vote went to either the employer or the member.

Many of the replies spoke of member representatives or employer representatives. It is important to recognise that trustees are not representatives; they are individuals who are appointed under trust law to act independently and collectively, putting aside their own personal preferences in the best interests of all the beneficiaries.

It is with that in mind and the recommendation of the Pension Law Review Committee for defined benefit schemes that we have opted for the one-third minimum. Our objective is not to give scheme members a representative as such on the trustee board, but to ensure that the board as a whole has a sufficiently broad perspective on the issues for which it is responsible. Any pension legislation should provide an even-handed approach between promoting the interests of scheme members and preserving the legitimate interests of the employers. I trust that the two are not mutually exclusive.

I recognise, of course, that many excellent schemes already have an equal number of employer-appointed and member-nominated trustees. The noble Baroness, Lady Hollis, read out a list of a number of firms in this country which already go either at least as far as she wants to go or further. She also read out, as is usual in these matters, a list of countries who reputedly do better than we do in the view of the noble Baroness. It is fair to say that we have so much bigger resources in pension funds that I do not believe that we should be looking for examples—dare I describe them without being unkind?—to the minnows in this particular business. In Ireland, members have to approach their employer and ask for member-nominated trustees. I understand that in Spain only the larger, government-approved schemes have 50 per cent. such members.

For those schemes which are not currently familiar with member-nominated trustees, our requirement of one-third as the minimum gives them a chance to test the water, with the possibility of building on the statutory minimum—as other schemes have already done—once they become accustomed to the change. In some cases, employers are happy to take a minority interest on the trust board. However, I believe that we

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have to be realistic and acknowledge that employers voluntarily set up and maintain pension schemes and that they may be dissuaded from doing so if they are coerced into what may be unfamiliar territory to many of them.

I am not sure whether we should be speaking also to Amendment No. 107B, which brings us into the territory of small schemes, but, for the sake of completeness, I should like to refer to small schemes because they are part and parcel of the clause. The Pension Law Review Committee said:


    "We recognise that in the case of schemes with a very small number of members—say, those with fifty active and pensioner members or fewer—a legal obligation to have additional trustees not appointed by the employer could cause difficulties".

The difficulties that were envisaged related to cost and to the possible shortage of members willing to be nominated by their fellow members.

We have gone one further than the Pension Law Review Committee and made member-nominated trustees a requirement for all schemes which cannot be evaded unless members approve alternative proposals. However, we took account of the note of caution that was sounded by the committee and reduced the basic number of member-nominated trustees from at least two to at least one for schemes with fewer than 100 members. Schemes are free to invite members to select more than one trustee if the circumstances of that scheme permit. I see no justification for increasing the basic number of member-nominated trustees for small schemes.

My noble friend Lord Caldecote asked me about contributions holidays. I hope that I understood his question correctly. Employers can currently take a contributions holiday. The employer is standing behind the scheme. He is taking the risk. We shall come later to some of the circumstances surrounding dealing with surpluses, so perhaps we should leave this debate until then.

The clause provides that there should be a statutory minimum of one-third member-nominated trustees for all schemes. As I have said, I believe that that strikes a fair balance between the interests of all the parties to the trust deed. I fear that, by compelling employers irrevocably to relinquish the strength of their association within the trust board, the amendment could prejudice the long-term prospects of the pension schemes. Therefore, I am afraid that I cannot accept the amendment. I invite noble Lords to agree with me in this discussion and, if it comes to a vote, to vote against the amendment.


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