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Lord Goodhart: I cannot support the amendment. In my experience of dealing with pension funds in practice, occupational pension funds were to a large extent written under trust law. Some of the smaller ones were dealt with by direct contract between the employer and an insurance company, but certainly the great majority of the larger ones and many of the smaller ones were written under trust law. That was accepted as being entirely appropriate by the Goode committee in its report, and trust law has proved itself to be a very flexible instrument which, having come from completely different sources, has adapted itself to the pensions system very effectively and successfully.

I recognise, of course, that personal pensions are not generally written under trust law, but arise by virtue of a direct contract between the employee and the pension company. But, for the reasons that the noble Baroness, Lady Turner of Camden, has just given, there may very well be pressure for stakeholder pensions to be written under trust law. I hope that there will be, because it seems to me to be another element of protection for the employees, for the pensioners. I can see that there may be cases in which it would not be the only appropriate system, but I certainly hope that it will be encouraged, and I should like to see this subsection stay in the Bill.

Lord Higgins: Perhaps before the Minister speaks, or other interventions are made, I should make it clear that the amendment's purpose is to clarify the Government's position. I am in no way against arrangements which involve trustees. As I mentioned, I am myself a trustee of a pension fund, and I think that the system has considerable advantages. But what has seemed a little unclear is exactly whether the Government are going to say that every scheme should have trustees, or not, and precisely what type of scheme they see: the trade union one, which the noble Baroness, Lady Turner of Camden, mentioned, or something more general. I am simply seeking to clarify the Government's position, not to take a position for or against trustees.

Baroness Hollis of Heigham: I certainly accept that the amendment, like so many others, is a probing amendment to clarify the Government's position rather than to challenge the views that the Opposition understand the Government to hold.

The amendment would remove the requirement for stakeholder pension schemes to be established under a trust. In response to the noble Lord, Lord Higgins, I should like to explain why we consider it to be an integral part of stakeholder pension proposals. As was

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said by the noble Lord, Lord Goodhart, and by my noble friend Lady Turner, who served for many years on OPRA, which is the major regulatory body, trust law is already extensively used in the pensions sector and it has been widely tested in the past. It provides valuable security and protection to scheme members.

As the noble Lord, Lord Higgins, recognised, following the Goode report trust law was heavily strengthened in the Pensions Act 1995 which was led for the Government by the noble Lord, Lord Mackay. I remember the efforts by myself and my noble friends Lady Turner and Lord McIntosh to strengthen even the trustee provisions to ensure, for example, representation of pensioners and issues about the balloting mechanisms and the like.

Trust-based schemes are an effective way of ensuring that schemes have a governance structure which ensures that they look after the interests of their members rather than those of the pension provider. Supporting a trustee structure will have some costs for schemes but these are unlikely to be excessive. If trustees are able to deliver even a small reduction in overall scheme costs by negotiating on behalf of scheme members, as we expect them to do, this is likely to outweigh the direct costs of trustees.

Stakeholder schemes need to have a governance structure which ensures that members' interests are looked after. Trust-based schemes run by a board of trustees provide an effective way of achieving this. Trustees will ensure that contributions are used to secure value for money from providers and that schemes comply with the minimum standards. They should help to ensure that members receive good quality information and high standards of service.

That is why we say that the legislation for stakeholder pension schemes should be set up under trust law. However--in response to the question pressed on me by the noble Lord, Lord Higgins--we want to retain some flexibility and that is why we are considering alternative governance arrangements, provided that they are capable of delivering the same degree of protection and a comparable outcome for members. Indeed, we have said in the pensions Green Paper that we welcome views from the industry on alternative structures which could provide those comparable benefits for members. That invitation for views was echoed in the consultation paper by the Treasury and the DSS on new flexibility in pension investment. We shall shortly issue a further consultation paper on the detail of trustees and alternative governance arrangements for stakeholder pension schemes.

The noble Lord, Lord Higgins, asked two questions. First, were trustees involved in the state second pension? It is an unfunded scheme so the question does not arise. Secondly, he asked who were the trustees. We envisage that they could be drawn from members, employers and affinity groups such as trades unions--providers where the independence of the overall board of trustees can be protected; or indeed independent of professional trustees according to the type of scheme.

We think that a trustee scheme is at present our best established method of protecting the interests of members, but we are happy to consider alternative forms

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of governance where these offer a comparable degree of protection for members. I hope that noble Lords will be reassured by that explanation and that, in the light of it, the noble Lord will be able to withdraw his amendment.

Lord Higgins: I am grateful to the Minister for going some way to clarify the situation. I shall need to consider carefully what she said.

Am I right in thinking that the Government do not intend that a scheme which does not involve trustees would not meet the requirements of the legislation? Are the Government now clearly of the view that some of the schemes will have trustees and some will not?

Baroness Hollis of Heigham: We are saying at present that stakeholder schemes have to come within trustee law as regards their form of governance as well as meet the bench-mark standards which we shall lay out. But we are willing to consider that some stakeholder schemes should not come within trust law provided that they can--and only if they can--offer an alternative form of governance which offers at least equivalent protection for members. As I said, the Government are about to issue a consultation document to that effect.

Lord Higgins: On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 4:


Page 1, line 14, leave out subsection (3)

The noble Lord said: This is a probing amendment. I do not understand what the subsection is intended to cover. It seems to cover almost everything. Subsection (3) states:


    "The second condition is that the provisions made by the instruments establishing the scheme comply with such requirements as may be prescribed". That seems to be totally devoid of content; or it contains everything that one can think of. Perhaps the Minister would like to explain why the Government wish to take such wide powers. I beg to move.

Baroness Hollis of Heigham As the noble Lord would expect, it is somewhere in between the two. It is neither devoid of content, nor absolutely encompassing.

The amendment would remove the power to set out the requirements as to the content of the instruments that set up a stakeholder pension scheme. Perhaps I may explain why we think it is necessary to include such a power in the Bill.

We have just discussed the proposed governance structure for stakeholder pension schemes. We have taken these amendments together; I do not know why they are ungrouped. I have emphasised the importance we attach to having a governance arrangement that ensures members' interests are looked after. Clause 1(2) and (3) provide the basis for defining the structure of stakeholder pension schemes.

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The governance arrangements for stakeholder pension schemes will need to be set up in such a way that value for money can be secured from providers and that schemes meet the minimum standards. We intend to use the power in subsection (3) to ensure that this is possible. For example, in the case of a scheme set up under trust, the trust deed should give trustees control of the scheme so that they are free to appoint and dismiss the organisations or individuals that provide services to the scheme. And the regulations can be used to prescribe the composition of the trustee board--it is part of the previous amendment--so that, for example, it requires a specific proportion of trustees to be nominated by members of the scheme.

The effect of Amendment No. 4 would be that any type of trust arrangement (or alternative governance arrangement) would meet the stakeholder pension condition in Clause 1(2). It would not allow for the features of a strong governance arrangement to be specified.

I hope that the noble Lords will accept the necessity of this piece. I am repeating myself. But we originally expected to group the amendments. I do not know why they were ungrouped. We are in discussion with the industry on how best to develop workable schemes. We are still consulting on the details. I repeat: we shall shortly be issuing a further consultation paper on trustees and governance arrangements. So, in the light of the explanation I have given, I hope that the noble Lord will withdraw the amendment.


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