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Baroness Dean of Thornton-le-Fylde moved Amendment No. 112A:


Page 7, line 33, leave out from ("appointments") to end of line 34.

The noble Baroness said: This a probing amendment because we are not absolutely clear about the wording of the provisions. We have just had a debate in which it has been said that many pension schemes do not have member trustees and that there will be many changes when the Bill comes into force in 1997. For the first time scheme members will be electing trustees, but during the consultation process they will be given the opportunity for the situation to remain as it is.

Clause 15 deals with exceptions and begins by stating:


Therefore, none of the provisions relating to trustees applies. I highlight that fact because Clause 14(8) states clearly:


    "The arrangements must not provide for the functions of member-nominated trustees to differ from those of any other trustee".

The amendment relates to subsection (3) of Clause 15, which, after giving some details, states:


    "and the terms of their appointments and any special rules for decisions to be made by particular trustees".

I suggest that if there is already bad practice in the trustee arrangements, the provisions allow that bad practice to continue. The subsection allows,


    "special rules for ... particular trustees".

We find those provisions very worrying. Do they mean that a member-nominated trustee on a trust board may be disenfranchised from having full involvement because the clause specifically states that Section 14 does not apply? Do the provisions mean that employer-nominated trustees will have special additional rights over other trustees? We need answers to those questions and I hope that the Minister will be able to cover those points when he replies. Indeed, if he accepts the amendment as it stands, his reply will be quite short. He would make my day if he did that, but we shall have to wait and see.

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I advise the Minister that we have serious concerns about this. When the Bill becomes an Act, its provisions must be absolutely clear. Both from my personal experience and as a result of having read the relevant papers, I can advise the Minister that the matter is not clear at the moment and that the Bill provides a gateway allowing bad practice to continue despite the fact that there will be a statutory consultation process. I beg to move.

Lord Mackay of Ardbrecknish: This amendment could seriously undermine the security of members in schemes which currently have an independent trustee on the trust board; and it would detract from the right of those members to choose to maintain such arrangements.

Many schemes have set up arrangements involving trustees independent of the sponsoring employer for the specific purpose of, say, avoiding a takeover bid. The aim of such bids can be to take advantage of the healthy state of the pension funds. Some of the schemes have made representations to us, arguing that member-nominated trustees would not be the best solution to their problems and have urged us to enable them to opt-out. Without commenting on the merits of the case, I know that many people would say that this type of arrangement offers comparable security to member-nominated trustees. But I can say that they expressed a very reasonable aspiration to be able to determine, with members' approval, the arrangements best suited to the circumstances of their schemes.

In these schemes different powers may be given to a professional corporate trustee who is independent of the employer and may sit alongside other trustees. This trustee may be able, for example, to appoint other trustees or wind up the scheme in certain circumstances and he may have been placed on the trust board specifically to protect scheme members.

The requirements of subsection (3) ensure that employers must be explicit about the exact nature of their arrangements and give details which members have a right to know about. It places a requirement on them to inform members during the statutory consultation procedure if, among other things, the powers of certain trustees differ from the others. It is for scheme members to decide whether or not they should approve such arrangements.

The amendment restricts members' rights to choose the arrangements best suited to their needs. It could jeopardise the many excellent arrangements which involve professional corporate trustees, many of which, I am informed, were set up to avoid hostile takeover of the sponsoring employer.

With that explanation of why the provisions are in the Bill, I hope that I have reminded the noble Baroness that, whatever the arrangement that is made, it has to go through the statutory consultation procedure and members have to agree to it, via the procedures that we talked about earlier. That provides protection against anything that might be—dare I say the words?—devious

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or underhand. As it stands, the clause provides for independent trustees and the important role that they can play in a fund.

Lord Monkswell: I understand the Minister's description of the important role of independent trustees and their ability to take decisions which are independent of either the employer or the employee. However, I find the suggestion that they should have special rules and special powers rather difficult. On the one hand, we are asked to believe that all trustees are equal and have responsibility for the fiduciary interests of the fund, but, on the other hand, we are asked to believe that it is all right for some trustees to have special powers.

I wonder whether a different way of dealing with it might resolve the problem. We could have special independent trustees without giving them any special powers in terms of their work as trustees. We could give them the same powers and responsibilities as other trustees but, by virtue of their independence—and, if I dare say so, of their financial independence—they would be enabled to take action that would be debarred other trustees. In effect, we would be ensuring that every trustee has the same powers and responsibilities, but there would be an independent trustee with a special ability to act because of his or her independence. I suspect that the Minister will not be able to respond to my comments this afternoon and I know that this is a probing amendment, but I wonder whether he could bear them in mind for consideration at a later stage. I am trying to suggest a way in which we might go forward and resolve the problem.

Lord Mackay of Ardbrecknish: Perhaps it would be helpful if I were to reply to that point. I always bear the noble Lord's comments in mind. If I understood his comments correctly, I would argue something like this: the point about having independent trustees (where they exist) is that they may need to take decisions, but may not be able to get the support of the majority of the trustees for the actions that they want to take, so they may need special powers. So the noble Lord's suggestion would remove the very protection that the independent trustees give because they would no longer be able to act independently and independent of the other trustees who may want to go down a different road which the independent trustee considers is not in the best interests of the scheme. If they all had the same power they would be able to vote down the independent trustee on those matters which the employer and the scheme members had agreed to be powers reserved for him. I hope that that answers the noble Lord, but I shall look tomorrow at his question in the Official Report and my answer to see whether I have answered his point.

6 p.m.

Baroness Dean of Thornton-le-Fylde: I thank the Minister for his detailed response, because he kindly highlighted the fact that the clause protects the position of independent trustees. I have represented many people who have been covered by pension schemes that have had independent trustees called in to protect the members of the fund. I am aware of the value of many of those independent trustees. There is provision elsewhere in the

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Bill (Clause 20, I believe) relating to independent trustees. It was not my intention to eliminate any powers that independent trustees may have conferred upon them by the receiver or the court. There is a well-known case of which I am aware.

But if that is the case, why does not the Bill say so? Why does it not say so with regard to independent trustees? That term is used in several places in the Bill and is clearly understood. The reference to special rules for particular trustees is so open-ended that I do not believe that it will protect schemes sufficiently. However, I do not intend to press this matter to a Division at this stage. I shall read what the Minister has said. I ask him to reconsider the wording and to come back with an amendment which will provide coverage for independent trustees. I can assure the Minister that if he does not, we will cover this matter on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 112B to 113A not moved.]

Clause 15 agreed to.

Clause 16 [Member-nominated trustees: supplementary]:

Baroness Hollis of Heigham moved Amendment No. 113B:


Page 8, line 2, at end insert:
("( ) Where either—
(a) the statutory consultation procedure has not commenced within the prescribed time after the coming into force of this Act, or
(b) the statutory consultation procedure having resulted in approval of the prescribed rules as the method of obtaining member-nominated trustees, the procedure for appointing such trustees has not commenced within 6 months of the conclusion of the statutory consultation procedure,
the Authority shall issue a notice to the existing scheme trustees warning them that the relevant procedure must be commenced forthwith.
( ) If, after the expiry of 28 days of the issue of such a notice, no procedure under the prescribed rules has yet commenced, the Authority shall appoint an independent trustee under section 4(4) of this Act to ensure that the relevant procedure is carried out.").

The noble Baroness said: I shall be brief. The point of the amendment is that in the event of a default, civil penalties under Clause 9 are not enough. We ask that the regulator should be able to impose statutory arrangements instead by providing that an independent trustee do the job. I beg to move.


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