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Lord Haskel moved Amendment No. 116C:

After Clause 16, insert the following new clause:

("Power to alter benefits

.—(1) This section applies where, at any time, a member is appointed to be a trustee of a trust scheme, pursuant to section 14, section 15 or otherwise.
(2) In any case where this section applies, the trustees of the scheme shall have power to make or to approve, as the case may be, benefit improvements affecting all of the members of the scheme or some class of members, or to make or to approve, as the case may be, a reduction in benefits affecting all members of the scheme or some class of members notwithstanding that one or more trustees is a member of the scheme or of the class of members affected by the improvement or reduction.").

The noble Lord said: This is a lawyer's amendment and draws attention to the fact that in a recent case, Manning v. Drexel Burnham Lambert, the judge raised an important point. It is one of the principles of trusteeship that trustees must not allow their duty to the beneficiaries of the scheme and their self-interest to conflict or be seen to conflict. In the Manning case this principle appeared to be insuperable because all the trustees were members of the scheme and the benefit improvements which were proposed when the scheme was wound up, and to which the trustees had to consent, would have improved their own prospective pension rights. They could not therefore exercise their discretion to use the surplus in the pension scheme to improve such benefits, and the only course of action available to them was to apply to the court.

The court held that it could approve the proposed distribution but upheld the general rule that trustees cannot benefit from the exercise of their discretion even when they only receive the same level of benefit as any other scheme member. The court went on to say that this principle appeared to be in conflict with the recommendations of the Goode Report, and confirmed in the White Paper. The judge called for a reform in the law to avoid the need to apply to the court in such cases. The court's urging for this reform does not seem to have been picked up in the Bill and this amendment is intended to deal with it. I beg to move.

Lord Mackay of Ardbrecknish: I hope that I shall be able to reassure the noble Lord that his amendment is unnecessary.

The Government have, of course, carefully considered the issues in the light of Mr. Justice Lindsay's comments. If there were any grounds for thinking that recent judgments—in the Drexel or in the earlier Makin case—cast serious doubt on the validity of decisions reached by trust boards containing individuals who also happen to be members of the scheme, we would ourselves have introduced an amendment on similar lines.

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However, we believe that the present legal situation, as reflected in developing case law, is satisfactory. In particular, it poses no threat to the arrangements for member-nominated trustees. This conclusion is perhaps not surprising given the very large numbers of schemes which have operated, and continue to operate, with trustees who happen to be beneficiaries or potential beneficiaries of the scheme. There is a general acceptance that decisions in which such individuals participate need not be called into question simply because they, among others of a class, could benefit.

Of course, there must be some limits on this. To be acceptable such decisions must be taken in good faith. Trustees must live up to their fiduciary responsibility to act in the interests of all the beneficiaries. But I am assured that trust law is adequate to take account of this and to deal with the situations in which a decision may have been improperly influenced.

One further argument against this amendment is that it could unduly constrain the sensible operation of existing trust law.

The Drexel and Makin cases had particular, unique features which made it difficult to avoid the need for a reference to the court. Most of the schemes would probably have avoided any such need. Many schemes have so-called "protective clauses" in their trust deed which prevent any suggestion that the mere fact of a trustee being a potential or actual beneficiary should invalidate decisions in which he or she had participated.

It is also relevant that the Drexel and Makin cases arose before the commencement of the provisions in the Social Security Act 1992 which require the appointment of an independent trustee on the insolvency of the sponsoring employer. As any difficulties are most likely to arise—as they did in the Drexel and Makin cases—in the event of a need to determine the distribution of surplus on scheme wind-up, we can expect the appointment of independent trustees in such cases to minimise the risk of difficulty in future.

In so far as it may be necessary, the passage of this Bill, with its provisions for member-nominated trustees, will send a very strong message to the judiciary that Parliament is quite content for pension fund trust boards to include beneficiaries and potential beneficiaries of the scheme.

I hope that with that explanation the noble Lord will see that his concerns are not justified. I hope that I have reassured him.

Lord Haskel: I thank the Minister for those assurances. It is a complicated legal matter. Rather than waste the time of the Committee, we shall read Hansard for the detail of what the Minister said and refer to our legal advisers. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 17 [Circumstances in which following provisions apply]:

Lord Haskel moved Amendment No. 116D:

Page 8, line 24, at end insert ("or a scheme created by board resolution").

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The noble Lord said: The amendment deals with schemes without trust deeds. Powers to appoint an independent trustee—they come from Section 57D of the Social Security Pensions Act 1975, and provisions introduced by the Social Security Act 1990—apply only to schemes where there is a fully fledged trust deed. That has been much criticised by insolvency practitioners in particular, and lawyers in general, because they cannot appoint an independent trustee where the scheme has been set up by a board resolution but has no trust deed. The amendment is intended to rectify that. Perhaps the Minister will confirm that the Bill indeed covers schemes which are set up by board resolution.

The real remedy is that there should be a model set of basic rules, as there is under the Companies Act, and people can then elaborate as they wish. I beg to move.

Lord Mackay of Ardbrecknish: This amendment would extend the definition of schemes to which the independent trustee provisions apply by including schemes created by resolution of the board of directors. However, as the definition of trust schemes in Clause 112 already includes schemes created by board resolution I hope that I can again persuade the noble Lord that his amendment is unnecessary.

Clauses 17 to 21 broadly replace Sections 119 to 121 of the Pension Schemes Act 1993. In the original wording of Section 119, the independent trustee provisions applied to schemes "constitued by trust deed". It was considered that this did not take account of those schemes which had been created by resolution of the board of directors and the wording was amended in the present Bill expressly to reflect that fact.

This amendment has been effectively incorporated in the present wording of Clause 17. I hope that with my assurance and explanation the noble Lord will be content that his amendment is therefore unnecessary.

Lord Haskel: I seek to find the reference. Clause 112 (Page 63, line 34) refers only to "trust" and not "trust deed". Does that mean that board resolutions are covered?

Lord Mackay of Ardbrecknish: Perhaps I may assist the noble Lord. As he rightly said when introducing the amendment, it is a complex legal point. I have explained to him that it is possible to set up trusts by resolution. Although, like myself, he is having some difficulty in getting around two pages of fairly closely argued text, perhaps it might be helpful if he were to take the amendment away, read what I hope are wise remarks, and consult those people who understand these matters. If he requires to do so, he can come back at Report stage and take me to task again.

Lord Haskel: Rather than waste the time of the Committee, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 17 agreed to.

Clause 18 [Requirement for independent trustee]:

Baroness Turner moved Amendment No. 116E:

Page 9, line 9, leave out ("practitioner or official receiver") and insert ("Authority").

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The noble Baroness said: This is a simple amendment to Clause 18. As the clause stands, it refers to the requirement for an independent trustee. It states:

    "While section 17 applies in relation to a scheme, the practitioner or official receiver must satisfy himself that at all times at least one of the trustees of the scheme is an independent person",

and so on. The intention of the amendment is to remove the words "practitioner or official receiver" and replace them with "authority". The other amendments in that grouping are consequential upon that amendment. Indeed, it is grouped with other amendments which have a similar effect: to introduce the authority into the scene instead of the practitioner or official receiver.

The reasons for that are that it is felt that the authority must have the status to undertake a whole series of important functions. We think that one of them relates to independent trustees. We do not see that the practitioner or the official receiver may be the appropriate person in those circumstances. It seems to us that the authority is the right body to carry out those duties, to satisfy itself that at all times at least one of the trustees of the scheme is an independent person and, if not so satisfied, to secure the appointment of an independent person as a trustee of the scheme. I beg to move.

7 p.m.

Lord Mackay of Ardbrecknish: Although this is a complex group, it is nothing like as complex as the legal points we have just been discussing and I turn to it with some relief.

The group of amendments deals with the appointment of an independent trustee on the employer's insolvency. One suggestion is to place the obligation to appoint with the regulatory authority. An alternative is to leave it with the insolvency practitioner but to give the authority the power to apply to the court for an order requiring the insolvency practitioner to discharge his duties. There is a further suggestion that the authority should have the power to determine the reasonableness of an independent trustee's fees.

These amendments seek to place the obligation for appointing independent trustees on the regulatory authority instead of on the insolvency practitioner. This would represent a significant move away from the independent trustee provisions which have received widespread support since they were first introduced in 1990.

The authority is there to ensure that those involved with the running of schemes comply with the regulatory provisions. Once in place the independent trustee will be subject to the same statutory obligations as any other scheme trustee. If there were suspicions that an independent trustee was not complying with the regulatory provisions, the authority would be able to investigate and impose penalties to secure compliance.

There is no evidence of major breaches by independent trustees appointed by insolvency practitioners. The provisions are generally working well for the benefit of schemes and their members, and we see no reason to change something that is operating satisfactorily.

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The task of appointing an independent trustee on the insolvency of an employer is not a regulatory function. I would not wish to accept amendments to give the authority new responsibilities which are not in keeping with its regulatory role. These can only detract from its effectiveness and create unnecessary costs, which would be passed on to employers through the levy. I hope that the noble Baroness will withdraw her amendments after she has considered what I have said.

Insolvency practitioners appoint the independent trustee because, on the insolvency of the employer, these professionals are already dealing with the employer's financial liabilities, including the pension scheme. They will have knowledge of the particular circumstances and their effect on the pension scheme. They are best placed to ensure that the trustee appointed is truly independent and has a suitable background to deal with any particular problems with the scheme. The authority, on the other hand, would not be able to act as quickly nor as effectively as practitioners and would have to intervene in every case even where there was no problem with the scheme.

Amendment No. 118C would give the authority the power to apply to the appropriate court for an order requiring an insolvency practitioner or official receiver to discharge his duty. We consider that it is an unnecessary amendment as Clause 18 already empowers scheme members to take any necessary enforcement action through the courts.

The Department of Trade and Industry already regulates insolvency practitioners and official receivers. As a way of ensuring that an independent trustee is appointed as quickly as possible, we are in discussion with the insolvency service about drawing up guidance notes for insolvency practitioners. These will include a recommended time limit for the appointment of an independent trustee.

Amendment No. 118D provides that an independent trustee appointed under Clause 18(1) (b) is entitled to be paid out of the pension scheme's resources only if his fees for acting in such a capacity are certified by the authority as being reasonable. That would involve the authority in checking the fees of any independent trustee. We consider that unnecessarily bureaucratic; it would require the authority to spend time carrying out routine checks. We do not wish the authority to be bogged down with routine checks, taking it away from its major task of regulating and of giving its attention to those schemes with problems.

With those explanations of what we envisage the situation to be and with my explanation of the current practice which seems to be working reasonably, I hope that the noble Baroness will withdraw her amendment.

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