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Lord Mackay of Ardbrecknish: My Lords, I am sorry that the noble Lord interprets my remarks in that way. I did not intend them to convey that meaning and I do not believe that they did. All I was saying was that for an employer who sets up a pension scheme and runs it for many years there is always the threat hanging over his head that he may have to underwrite it; he has committed himself to obligations. On the other hand, if the circumstances we are envisaging come about and the scheme has been wound up, and all the benefits that the employees can look for if the scheme has been wound up in surplus are already being honoured, it does not seem unreasonable in those circumstances that the employer should then be able to get, so to speak, his share of the surplus back if the employees have by that time had the first bite at their share.

I do not think that it is a quid pro quo and I do not think that any employer would put a lot of money into a pension scheme against the day when it might wind up and it might have a surplus at that date which might be more than is needed to honour all the obligations to the employees and then might give him some money after that. I am not sure that it would be a wise employer who came to that conclusion.

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Lord Monkswell: My Lords, I thank the Minister for that explanation. However, he misses the point. It is not the prudent, wise, careful and considerate employer that we are talking about. We are talking about, generally speaking, a corporate raider whose one eye is on the assets that he can get his hands on and his perspective is very definitely not in terms of the long-term beneficial interests of his employees.

We have had an interesting to and fro. Some different points have emerged in this debate from those which came out at the Committee stage. I do not intend to press the matter to a Division. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 32 [Payment of surplus to employer]:

Lord Lucas moved Amendment No. 82:


Page 19, line 12, leave out (" 3") and insert ("(Prohibition orders)").

The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 3. I beg to move.

On Question, amendment agreed to.

Baroness Dean of Thornton-le-Fylde moved Amendment No. 83:


After Clause 32, insert the following new clause:

Protective costs orders

(" .—(1) Where, on the application of a member (in this section referred to as "the representative member") representing the views of not less than 10 per cent. of the members of a scheme or of a member-nominated trustee appointed under section 14, a court is satisfied that serious or persistent breaches of trust may have been committed which do not fall within section 3, the court may grant an order in such form as it considers appropriate compelling the trustees of the scheme to pay to the representative member or to the member-nominated trustee the reasonable costs of obtaining legal and other advice in order to pursue claims on behalf of the scheme.
(2) Any costs ordered to be paid in accordance with subsection (1) shall only be payable upon the presentation of a certificate by the solicitors acting for the representative member or the member-nominated trustee, as the case may be.
(3) A court may only grant an order under subsection (1) of this section if it is satisfied that—
(a) an independent trustee properly advised would have applied to the court for directions to commence or continue proceedings;
(b) on such application the court considers that it would have given leave to such independent trustee to proceed.
(4) Where a court grants an order under subsection (1) of this section it may from time to time renew or amend such order.
(5) Where a court grants an order under subsection (1) of this section it may make provision for the payment of past, as well as future, costs.
(6) On an application under subsection (1) of this section, a court may grant an order notwithstanding the fact that the breaches of trust which are or which form part of the grounds for the application fall within section 3, if it is satisfied that it is in the best interests of the members so to do.").

The noble Baroness said: My Lords, this matter came before your Lordships during the Committee stage of the Bill. At that stage the Minister said that he had no objection in principle to the amendment but felt that it was not necessary. During the discussion he mentioned a procedure known as the Beddoe's summons procedure, which provides that those who wish to engage in proceedings involving a trust can apply to the court for an order that the costs should be met by the

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trust. The Minister then put forward the view that what is already in the Bill is a belt and braces protection for individuals and trustees of pension schemes. The noble Lord said that the new authority can receive and deal with complaints from anyone in a pension fund and that therefore the intentions of the amendment would be met, either by existing law—trust law—or the new regulatory authority.

I do not wish to repeat the details I gave of why I put forward this protective costs order at the Committee stage except to say that it was the Minister's response which led me to put down this amendment again today. I must challenge the Minister's reliance on what is known as the Beddoe's procedure to cover those situations when the regulatory authority, OPRA, does not cover them. The Beddoe's procedure, I am given to understand, having checked after the Committee stage, is only for trustees. It is a kind of fail-safe for trustees who might decide that they need to embark on litigation but go to the court to get sanction in case of a future challenge by a beneficiary. It is a decision which gives them protection if at some point in the future a beneficiary takes action. It does not cover individuals. An individual with a complaint could not invoke the Beddoe's summons procedures.

I turn to the other arm of protection, which the Minister put forward; namely, that individuals could go to OPRA. They could of course, but I have some concerns about that because the regulatory authority has a quite specific remit under this Bill which does not cover all situations. On 7th February, at Committee stage, the Minister said in response to an amendment moved by my noble friend Baroness Hollis that OPRA,


    "will have the powers necessary to enforce compliance with the law".

Later during the same day of the Committee stage, in answer to another amendment moved by my noble friend Lord Haskel, the Minister said, referring to OPRA:


    "We should not widen its powers in such a way that it becomes involved in trust law—and other matters which are best left to the courts".

There we have it. I suggest that the individual within a scheme, or groups of individual members who are not trustees and who cannot have a case decided by the regulatory authority because it is outside the powers of the regulatory authority, do not even have the procedure which is there under the Beddoe's summons procedure.

I suggest that this exposes a major gap in this Bill as regards the rights of individuals in pension schemes. Where do they go if they cannot invoke the Beddoe's procedure and the regulatory authority cannot help them?

At this stage I should like to quote from the judgment of Lord Justice Hoffman when he was giving his decision in the Melton Medes case. That is a case where a group of individuals, with the support of their union, went to court to get their costs covered. It was only when they had reached something like half a million pounds that the case was heard. As I said, the funding came from the union.

Lord Justice Hoffman said,


    "What distinguishes the shareholder and pension fund member on the one hand from the ordinary trust beneficiary on the other is that the former have both given consideration for their interests. They

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    are not just recipients of the settlor's bounty which he, for better or worse, has entrusted to the control of trustees of his choice. The relationship between the parties is a commercial one and the pension fund members are entitled to be satisfied that the fund is being properly administered. Even in a non-contributory scheme, the employer's payments are not bounty. They are part of the consideration from the services of the employee".

Expert pensions lawyer, John Mesher, in Occupational Pensions Law Reports, went on to say about that judgment that,


    "there is little guidance on which to predict how the discretion will or will not be exercised in the future"—

that is a discretion which Lord Justice Hoffman gave—


    "since the factors identified in it will be common to most cases where pension scheme members bring claims against the trustees or the employers".

At the moment I suggest that what we have in this Bill is a gap which leaves individual members exposed without any kind of back-up support unless their individual complaint is covered specifically within the regulatory authority remit in this Bill. It does not cover any problems which may arise in trust law. As the Minister said in the debate on 7th February, the intention is not to give the regulatory authority the right to interpret or indeed to intervene in trust law. I beg to move.

9.30 p.m.

Lord Mackay of Ardbrecknish: My Lords, I understand why the noble Baroness wishes to ensure that scheme members are not prevented by lack of funds from challenging the trustees of a scheme in court where they believe there is a breach of trust. I am sure that we all share her concern that the interests of scheme members should be protected and that where members have cause to challenge the actions of trustees, effective and straightforward methods of redress are available.

I believe at Committee stage I answered questions about the Beddoe's principle. The noble Baroness has pointed out that that covers trustees acting in good faith and that the trustees may apply for a Beddoe's order to indemnify them for the cost of litigation. I do not believe that anyone has gone on to speak about scheme members. The cost of litigation can indeed be very high. The noble Baroness mentioned the Melton Medes case. That certainly illustrates the level of costs. However, that case stems from events which began in 1986. In the intervening period there have been a number of developments which have an important bearing on this issue. I believe that those developments, taken together with various provisions in this Bill, make the amendment unnecessary.

First, the services of both the Occupational Pensions Advisory Service and the pensions ombudsman are free of charge and readily available to scheme members. OPAS offers independent advice to anyone who has a problem with their pension scheme. Since 1991, it has been receiving grant-in-aid from the Occupational Pensions Board. The Pension Law Review Committee recognised the worthwhile work carried out by OPAS in its report and the Government remain committed to providing financial support for this valuable service. If OPAS is unable to resolve the dispute, the scheme member may take his case to the pensions ombudsman.

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The office of the pensions ombudsman was set up in 1991. It was established specifically to provide scheme members with an inexpensive and readily accessible means of resolving disputes as an alternative to the courts. The ombudsman is an independent commissioner who may investigate complaints of maladministration and disputes of fact or law referred to him by individuals. He has the same powers as the courts in requiring information and examining witnesses. His determinations are final and binding upon the parties and may be enforced in the courts.

When this issue was discussed in Committee, I spoke about the role of the new regulatory authority which we are introducing. Scheme members will be able to report their anxieties to the authority, which will have the power to investigate allegations and to take action to ensure that schemes comply with their statutory obligations.

There are also provisions in the Bill which will require the trustees or managers of occupational pension schemes to establish and operate procedures to resolve disagreements. We believe that it is in the interests of schemes and of members that, where possible, disputes should be resolved by the schemes themselves. The trustees will be required to give a written response explaining the position, and it is intended that they should refer to the appropriate part of the scheme rules. If the member is dissatisfied with the response he receives, he will be able to take his case to OPAS and, if necessary, to the pensions ombudsman.

In addition, as noble Lords will be aware, the noble and learned Lord, Lord Woolf, is undertaking a review of rules and procedures of the civil courts with the aim of reducing the costs of civil litigation. I submit, however, that the developments of the past few years, when added to the new provisions in the Bill, mean that taking the matter to litigation should not be necessary.

Taken together, the arrangements and developments I have described will ensure that scheme members can obtain redress for their grievances without the need for lengthy and costly litigation. It is surely in everyone's interests that court action should be avoided. The measures we have already put in place, together with those we are introducing in the Bill, will ensure that scheme members will not be prevented by lack of funds from pursuing their proper concerns—whether that be through OPAS, the ombudsman or the new authority. I hope that I have reassured the noble Baroness sufficiently for her to feel able to withdraw her amendment.


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