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Lord Mackay of Ardbrecknish: I am bound to say that despite the arguments put forward by the noble Lord, I cannot agree that trustees should be permitted to delegate discretion over investment decisions to someone who is not appropriately authorised to manage those investments himself, so that that person may then subsequently pass that discretion on to someone who is properly authorised.

Decisions relating to scheme investments are a key responsibility of trustees. Where those investments require the appointment of an authorised fund manager, it is for the trustees to chose who is, in their opinion, the most appropriate person to manage those investments, to appoint that person and to ensure that he is performing his work competently. Those tasks are central to the trustees' role to act in the interests of the schemes beneficiaries. They should be undertaken by the trustees themselves and not delegated to another party to undertake on their behalf. For those reasons I am unable to commend Amendments Nos. 123B and 124B to the Committee.

I note the concern that, without a clear power to sub-delegate as proposed by Amendment No. 125A, trustees and fund managers could be hampered in conducting their day-to-day business, which would be in no-one's interest. However, the interests of security of the scheme must be paramount. I should therefore like to examine this issue in more detail. I shall in particular need to be sure that trustees maintain both control over, and security of, investments. I hope that with the promise that we shall look at the particulars

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which are drawn to our attention in Amendment No. 125A the noble Lord will feel able to withdraw the amendment.

Lord Ezra: I am obliged to the noble Lord for promising to have another look at Amendment No. 125A. I am sorry that he has spoken quite so categorically about Amendments Nos. 123B and 124B. I believe that at present a number of perfectly proper investments would fall foul of the provision for none other than a technical reason. I therefore wish to consider the matter further. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

9 p.m.

Lord Lucas moved Amendment No. 124:


Page 15, line 19, at end insert:
("(2A) This subsection applies to a fund manager who, in relation to the decisions in question, falls, or is treated as falling, within any of paragraphs (a) to (c) of section 191(2) of the Financial Services Act 1986 (occupational pension schemes: exemptions where decisions taken by authorised and other persons).").

The noble Lord said: I have spoken to this amendment. I beg to move.

On Question, amendment agreed to.

[Amendments Nos. 124A and 124B not moved.]

Baroness Dean of Thornton-le-Fylde moved Amendment No. 124C:


Page 15, line 30, after ("number") insert ("(of whom at least one shall be a member-nominated trustee)").

The noble Baroness said: As my noble friend Lord Haskel said a few moments ago, the investment of pension funds is probably the most crucial role that trustees have to carry out. It is therefore regrettable that Clause 30(4) does not provide that member-nominated trustees will have a role in decisions regarding investments. Clause 30(4) (a) provides that the trustees of a trust scheme may,


    "authorise two or more of their number to exercise on their behalf any discretion to make any decisions about investments".

My experience has been that when problems of any magnitude regarding pension funds have arisen they involve money. That is not surprising. However, the problems relate to the manner of investment and the misuse of pension funds. The clause as drafted makes no provision for member-nominated trustees to have a role in that function.

The general thrust of the Bill provides that only one-third of trustees will be member-nominated trustees unless otherwise decided by the trustees. However, decisions can be taken by the majority. If one adds those two provisions to Clause 30 as drafted one could exclude totally member-nominated trustees from the very heart of investing the funds to ensure the viability of the scheme.

The Bill when enacted will not make rogues disappear; they will still be with us. But we hope that the new Act will make it nigh impossible for rogues to take the advantage that they have chosen to take over the years. We need to learn from the experience we have

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gained thus far on pension funds. One experience has involved the exclusion of member-nominated trustees from any crucial decisions that are taken.

It is for those reasons regarding the power of investment and delegation that we put forward the amendment. I beg to move.

Lord Renton: I agree with the noble Baroness that it is important that if possible, a member-nominated trustee should be required to act in the circumstances envisaged in subsection (4). But, again, we are up against the problem that Clause 14 envisages that there may be a vacancy among the member-nominated trustees. Indeed, there may not be a member-nominated trustee when one is urgently needed. I believe that we should envisage such a contingency. Therefore, although I have a great deal of sympathy for the case put forward by the noble Baroness, her amendment would have to be somewhat differently worded in order to cover the circumstance of there not being for the moment, a member-nominated trustee.

Lord Mackay of Ardbrecknish: Like my noble friend Lord Renton, I am as anxious as the noble Baroness to ensure that member-nominated trustees play a full part in the work of the trust board.

However, I believe that the amendment is unnecessary and would unduly constrain the ability of a trust board to make sensible provision for handling investment matters. The subsection as a whole makes clear that responsibility for investment decisions should rest with the whole trust board and cannot be delegated.

In practice, many trust boards will be content to authorise an investment sub-committee to operate on behalf of the board. This enables the fund's investments to be kept under regular review, possibly by those trustees with a particular expertise in that area, and for decisions to be taken relatively quickly without needing to convene the whole board.

It could be an inappropriate and unnecessary constraint on the trust board if it were required to appoint a member-nominated trustee to the sub-committee.

I should remind the Committee that any such sub-committee will be operating within the investment principles laid down by the board as a whole under Clause 31. This, as well as the fact that the trust board as a whole cannot delegate its responsibility for investment decisions, means that there is no risk of any investment sub-committee running wild.

There is a further technical objection to the amendment. I wish to explain to the Committee that I do not take refuge in technical objections, but it is sensible to point it out. Not all schemes will have member-nominated trustees. Therefore, the amendment would not fit into the Bill. I do not particularly rest on that last point. I merely make it in passing. The main points which I hope the noble Baroness will take on board and accept are that the investment principles are

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laid down by the board as a whole and the board cannot delegate its responsibility for taking the investment decisions.

Baroness Dean of Thornton-le-Fylde: I thank the Minister for that response. It ebbed and flowed a little. For a moment I thought I was receiving support; then I was not; and then I thought perhaps there was a chance. I am not absolutely clear where the Minister stands. I shall read his remarks with a great deal of interest in Hansard tomorrow.

Before concluding, I should like to pick up a point made twice by the noble Lord, Lord Renton. I do not believe that we can operate the law by saying that something is desirable. I take the point he made in regard to Clause 14 and the vacancy, but, from my experience as a trustee, boards do not meet day in, day out, week in, week out. When vacancies occur on trust boards, they are usually filled pretty quickly without disturbing the work of the board. Within any trust board there is an investment portfolio which provides that such a percentage can go towards equities, international investments, property and so on. However, the clause provides that the trustees of a trust scheme may,


    "subject to any restriction imposed by the scheme",

do certain things. I take the point that the Minister makes about the trust board being responsible, but my understanding is that the trust board can decide by majority decision to delegate by proxy its authority. While not letting go of overall responsibility at the end of the day, it can delegate the role of investment to the small sub-committee. Therein lies the danger.

Once we start to loosen the strings attached to control on investment, breaches can and do take place. If the wording which we put forward does not meet the point and causes technical problems—and I understand that in law technical problems can become insurmountable in certain cases—we would reconsider the point in parallel with what the Minister said. For the time being, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lucas moved Amendment No. 125:


Page 15, line 32, leave out from ("manager") to ("any") in line 33 and insert ("to whom subsection (2A) does not apply").

On Question, amendment agreed to.

[Amendment No. 125A not moved.]

Clause 30, as amended, agreed to.

Clause 31 [Investment principles]:

9.15 p.m.

Lord Haskel moved Amendment No. 126:


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