Previous Section Back to Table of Contents Lords Hansard Home Page

Baroness Dean of Thornton-le-Fylde: I understand the point made by the noble Lord, Lord Renton, in relation to Clause 14(5), but I do not accept that it covers this situation. If I were a member-nominated trustee listening to our debates or reading the report of them in Hansard, I should have reached the point at which I wondered whether the Government are committed to ensuring that members of occupational pension funds have the rights and responsibilities which extend to the equity within those funds.

We have put forward reasonable amendments providing for 50 per cent. of trustees on boards, amendments relating to member-nominated trustees being present, and then this amendment. This amendment does not provide for members who do not turn up and are being difficult. It merely provides that a member:

I cannot believe that the Minister is implying that a member may be difficult and not turn up so that business cannot be conducted.

The reality will be that member-nominated trustees will perform an extremely worthwhile and responsible job. The amendment is very reasonable, especially in view of the fact that already inbuilt into the occupational scheme is a provision for two-thirds employer-nominated membership, unless the scheme decides that there will be one-third of member-nominated trustees.

I hear what the Minister says. Clearly I shall not press the matter to a Division. But I must express my personal disappointment, because it seems to me that the Minister is indicating that member-nominated trustees are not as responsible and caring as employer-nominated trustees. I am sure that the Minister did not mean to imply that but I should like him to confirm that he did not. I must reject that view. However, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 120B and 120C not moved.]

Lord Lucas moved Amendment No. 121:

Page 14, line 30, at end insert:
("( ) If subsection (3) (b) is not complied with, sections 3 and 9 apply to any trustee who has failed to take all such steps as are reasonable to secure compliance.").

On Question, amendment agreed to.

Clause 27, as amended, agreed to.

Clause 28 [Amendments: need for member-nominated trustees]:

13 Feb 1995 : Column 524

On Question, Whether Clause 28 shall stand part of the Bill?

Lord Lucas: I wish to oppose the Question that Clause 28 stand part. This clause was intended to provide that, unless a scheme has secured approval to opt out of the member-nominated trustee proposal, scheme rules cannot be amended if there are no member-nominated trustees on the trustee board. The intention of the clause was to prevent schemes from amending their rules in the absence of a member-nominated trustee: for instance, in any interim period between the expiry of one member-nominated trustee's term of office and the appointment of another.

We believe that, as worded, this clause would give member-nominated trustees an effective veto over amendments and would act against Clause 14(5), which deals with the situation in which no nominations for member-nominated trustees are made. On a detailed scrutiny of the Bill as it now stands, we believe that other provisions in the Bill adequately cover the situation. I hope that the Question will be decided in the negative.

Baroness Hollis of Heigham: I am extremely unhappy that the Government are proposing to withdraw this clause from the Bill. We think that it is a rather useful protective device where bad employers may exploit a situation.

As it now stands, the sanctions against employers and existing boards of trustees who refuse to implement the requirements for member-nominated trustees under Clauses 14 and 15 are not very strong and could, in any case, mean considerable delay while the requirements are being implemented.

If the clause had remained in place, it would have created a blocking mechanism so that for so long as there is no member-nominated trustee, no scheme amendments may be made. That encourages an employer to get a move on. I cannot believe, as my noble friend Lady Dean said, that the Minister is serious when he seems to imply that member trustees uniquely will seek to veto, block and make impossible the workings of a pension scheme for which they have a fiduciary responsibility; for example, by refusing to let names go forward or by not attending meetings. That is a rather cynical attitude towards member trustees, who in other circumstances the Minister expects to be a major part of the whistle-blowing fabric of the whole scheme which is to deliver the pension promise. That is unfortunate and I hope that, on reflection, the Minister will not pursue what is almost bad-mouthing the integrity and motivation of would-be member trustees on schemes. That is what his response to my noble friend and his action in seeking to withdraw this clause seem to suggest. That is extremely unfortunate.

This clause is a useful, protective device to ensure that employers cannot delay unreasonably for their own ends. I hope that the Minister will decide not to withdraw the clause but will seek further guidance on it.

Lord Renton: I saw a further problem with regard to the clause when I first read it and before I knew that my noble friend was going to move that it should be left out.

13 Feb 1995 : Column 525

Under the Trustee Act and under the general law for centuries, the courts have had power to amend trusts if application is made to them by trustees, or, indeed, by beneficiaries, in case they should need amendment. The clause says that,

    "no power to amend the scheme can be exercised by any person".

If my noble friend had not been moving the Motion to leave out the clause, I was going to ask whether it was intended to exclude the jurisdiction of the High Court. If that were so, it would be a great mistake. Fortunately, however, the problem will not arise if we leave out the clause.

Lord Lucas: My noble friend and I both find the clause as it stands unsatisfactory. I propose to continue to oppose its retention in the Bill. However, I shall read carefully the remarks made by the noble Baroness, Lady Hollis. At root I am sure that we are aiming in the same direction. If there is something that the noble Baroness said which we can take account of elsewhere in the Bill, we shall certainly look into the matter.

Clause 28, negatived.

Clause 29 [Investment powers: duty of care]:

Lord Ezra moved Amendment No. 121A:

Page 14, line 35, leave out ("investment functions") and insert ("functions relating to investments (within the meaning of the Financial Services Act 1986)").

The noble Lord said: In moving the amendment, I shall speak also to Amendments Nos. 123A and 124A. Clause 29 deals with the liability for breach of an obligation relating to,

    "the performance of any investment functions".

Amendment No. 121A is a probing amendment which seeks to define more closely what is meant by "investment". In fact, that is done under the Financial Services Act 1986. That is why the amendment has been proposed. It seems that that would be a better way to define investment so as to have consistency in the duty of care and authorisation as laid down in the FSA. Otherwise, investment managers and practitioners could have two different bases upon which to work. Other types of investment that do not come within the FSA could of course be continued with—for example, real property—and would remain covered by trust law and the scheme rules as before. I have now covered the proposals under Amendments Nos. 121A and 123A which relate to Clauses 29 and 30.

Amendment No. 124A is the last amendment in the group. Again, it is a simple proposal. It seeks to bring within the scope of the provision which permits delegation regulated overseas-based investment managers. The reason behind it is that many pension funds have investments overseas; indeed, some of them have done quite well in that respect. They should not be deprived of that facility, nor of making use of properly regulated and authorised agents overseas. That is the purpose of the amendment. I beg to move.

8.45 p.m.

Lord Mackay of Ardbrecknish: I appreciate the noble Lord's wish with Amendment No. 121A to limit

13 Feb 1995 : Column 526

the risk that trustees may be influenced to move out of investments not covered by the Financial Services Act. However, I do not accept that trustees will become more reluctant to make non-Financial Services Act investments as a result of the Bill's provisions.

It is for trustees to decide the most appropriate investments for them to make in the light of their schemes' circumstances after taking and considering relevant professional advice. Where it is perfectly proper for them to make investments which are outside the scope of the Financial Services Act they will, I believe, continue to do so. They have nothing to fear from the contents of the Act provided they take such steps as are necessary to comply with the general duty of care expected from trustees under trust law when making investments.

In the light of the changes in trustees' investment power that are being introduced to the Bill, I believe that it would be wrong to set in place arrangements which would allow scheme rules to exempt trustees from their duty to take care and exercise skill. The requirements of Clause 29 are clear. We have provided for trustees to be exempted from liability under Clause 30 where they appoint an authorised fund manager, as recommended by the PLRC.

The purpose of Amendment No. 123A will be met by Amendment No. 124 which the Government have proposed and with which we shall deal later. Amendment No. 124 will make it clear that investment decisions delegated to a fund manager authorised under the Financial Services Act 1986 are in respect of decisions only about investments set out in that Act. Therefore, the noble Lord, Lord Ezra, is indeed on to a good point but one which I hope he will agree is dealt with under Amendment No. 124.

With regard to Amendment No. 124A, Government Amendments Nos. 123 and 124 which we shall be discussing shortly are intended to clarify those persons to whom trustees may delegate investment decisions and to whom they may do so without incurring liability for the acts of that fund manager under the provisions in subsection (3). It specifies that a fund manager to whom Section 191(2) (a) to (c) of the Financial Services Act applies is an authorised person for the purposes of the subsection. That may include overseas fund managers appointed in certain circumstances.

We have not, however, gone further. We believe that it could be unwise to extend trustees' ability to delegate decisions to unauthorised fund managers, either in this country, the European Community or abroad, without their retaining their vicarious liability for such actions. We do so, first, because of the regulatory structure provided under the Financial Services Act whereby the PLRC recommended the removal of trustees' liability where they appoint an FSA authorised fund manager.

Secondly, it is for trustees to decide what investments are appropriate in the light of their scheme's particular circumstances. Where it is appropriate for them to invest in overseas markets, they must decide what proportion of the fund should be so invested and in which markets and consider who are the most appropriate people to manage those investments. I do not believe that it is for

13 Feb 1995 : Column 527

the Secretary of State to deem which overseas regulatory systems are acceptable to UK pension schemes; that must be a matter for the trustees to decide.

Thirdly, as I intimated—and so that the noble Lord will not become confused—the amended definition of an authorised fund manager does provide for overseas fund managers to be appointed. As this occurs under Clause 30(2), trustees will not be held vicariously liable for their acts provided that they take certain steps.

Lastly, I do not believe that trustees would be less likely to make overseas investments which are not covered by the Financial Services Act as a direct result of the clause. Any trustee who takes proper advice on overseas investments, appoints apparently competent persons to manage those investments and takes all reasonable steps to meet his obligations to take care under trust law will have nothing to fear from the provisions in Clause 30.

Having given that fairly long response to what I know is an important matter—indeed, that is why I went into some detail—I hope that the noble Lord, Lord Ezra, will feel able to withdraw the amendment.

Next Section Back to Table of Contents Lords Hansard Home Page