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Baroness Hollis of Heigham: My Lords, these amendments cover our proposals for the governance of stakeholder pension schemes. Amendment No. 3, which was moved by the noble Lord, Lord Higgins, seeks to remove the requirement for stakeholder pension schemes to be established under a trust. I am slightly surprised that he said it is a probing amendment. I do not know why this matter was not regarded as having been appropriately dealt with in Committee or why we should have probing amendments on Report. Perhaps we have different understandings of the conventions of the House.

Amendment No. 4 was spoken to by my noble friend Lady Turner of Camden with her impeccable courtesy. The amendment seeks to ensure that schemes can be set up only with a trust; that is, that there should be no alternative forms of governance. I wish to explain why we think that both forms of governance are likely to be necessary and appropriate.

An identical amendment to Amendment No. 3 was tabled at Committee stage. We explained then that we believe trusts are an integral part of our proposals for stakeholder pension schemes. The noble Lord in his aside to my noble friend Lady Turner accepted that this was the desirable form of governance and had no objections to it. We have always made it clear that we want stakeholder pension schemes to have a structure which ensures that they are run in their members' best interests. Trust law is a proven and effective means of ensuring that schemes look after their members' interests--rather than those of the pension provider--and of providing valuable security and protection.

We accept that supporting a trustee structure will have costs for schemes, particularly smaller schemes where these costs are borne by relatively few members. We do not expect that for the majority of schemes these costs will be excessive. Over time, trustees should be able to deliver reductions in overall scheme costs by negotiating on behalf of scheme members, which should offset the direct costs of trustees. We remain convinced of the value of trustees in ensuring that contributions are used to secure value for money from scheme providers and that schemes comply with the minimum standards we will set for them. They should help to obtain good quality of information and high standards of service for their members. We are therefore legislating for stakeholder pension schemes to be set up under trust law. Our consultation paper on governance set out our specific proposals for the operation of trust-based schemes.

The noble Lord, Lord Higgins, pressed me on what was the implication of, I believe, paragraph 27 of what I call the yellow document on governance. The noble Lord thought it was perhaps unreasonable to expect

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trustees to bear the additional costs of charges. However, someone must be liable for ensuring that schemes meet the charging limit and for covering any overrun in costs. The precise issue of who will be liable will be a matter for schemes. The noble Lord will know that the consultation paper continues in the following paragraph that trustees could, for example, reach a contractual arrangement with the source provider of the scheme under which the provider would take on this liability or arrange suitable insurance. But the buck has to stop somewhere, and that is one of the proposals.

Lord Higgins: My Lords, will the noble Baroness allow me to intervene? Yes, of course, it is possible for the trustees to get an indemnity in the way the noble Baroness has suggested. However, I do not think it will be possible to secure insurance against the kind of risk stated here, as against a breach of trust.

Baroness Hollis of Heigham: My Lords, our response to the consultation document should certainly not raise the fears suggested by the noble Lord. However, I will be happy to take away the points that he has made and look further into them. The last thing that we want to do is to put such a responsibility on trustees that we deter appropriate people from coming forward to take on the posts and responsibilities of trustees. In so far as there may be difficulties, I am happy to look at it again.

The noble Lord asked from where trustees might be drawn and who would want to be a trustee. I thought that that point had been well answered by my noble friend Lady Turner. We expect trustees to be drawn from a number of sources including representatives of organisations setting up the schemes, trades unions, employers' associations, employers, scheme members and independent individuals who have worked in the pensions industry. Trustees may also be individuals who have a particular interest in the industry on which the scheme is based, or they may simply want to be of service to the community.

The noble Lord, Lord Higgins, also raised the broader issue of the question of trustee liability in more general terms. We have received a number of consultation responses, including those from OPRA concerning trustee liability generally. We are considering carefully what has been said on this subject. The secure stakeholder management model provides an alternative governance structure which may be suitable in situations where for a number of reasons a trustee model may not be appropriate. However, if the noble Lord has any further worries about the appropriateness of this structure or alternatively the degree of risk that he feels trustees may be exposed to, then I repeat that I shall be happy to exchange correspondence or have further discussions on this before Third Reading. I am sure we have the same objectives here; namely, that of ensuring that we have a good range of trustees from which we can draw.

We have always accepted that in some types of stakeholder pension scheme it might be difficult to put in place the trust-based model, for example where

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schemes are set up directly by financial service companies. In this type of scheme, where there is no affinity group link--perhaps they are all hairdressers--it may be harder to establish a properly representative board of trustees. As I have said before in our discussions, we are prepared to consider alternatives to the trust-based model, where they produce a comparable degree of protection for members.

In the pensions Green Paper we sought views from the industry on suitable alternative structures and a similar invitation was included in the consultation paper issued jointly by the Treasury and DSS on new flexibility in pension investment. We have now considered carefully what the industry has had to say on alternative governance structures.

Since our debate in Committee, we have taken account of those views in a more detailed consultation paper on stakeholder pension governance. This included proposals for “secure stakeholder management" as an alternative to trust-based schemes. Under the suggested model, schemes would be run by a stakeholder manager authorised by the Financial Services Authority. We envisage that the manager would have a number of functions similar to those of trustees, including ensuring that schemes met the minimum standards. Members' rights in schemes would be set out in a contract and the manager would be required to report to members on the value of their fund and on how schemes have performed in comparison with a number of appropriate benchmarks.

We have sought views on this proposal and will be developing it further in the light of the responses received. If it, or any other alternative, does provide appropriate security and protection for members, the Bill provides the flexibility to incorporate it in the framework for stakeholder schemes.

As I have said, we want to ensure that stakeholder pension schemes can cater for all those on modest earnings who do not have the chance to join an occupational scheme. We expect that schemes will be established both by affinity groups and, on a more general basis, by individual providers or groups of providers. Allowing schemes to be set up under either a trust or a suitable alternative which meets those same quality conditions will offer schemes the flexibility to choose the most suitable governance structure.

Our primary concern has always been the protection of members' interests. I believe that the Government's proposals will offer that protection and I therefore urge your Lordships to withdraw the amendments.

Baroness Turner of Camden: My Lords, before the noble Baroness sits down, I wonder whether she could answer a question? I believe that the DSS has established a working group on this issue. Does that

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working group include members who have had experience of being trustees or who are at present trustees of pension schemes?

Baroness Hollis of Heigham: My Lords, if my noble friend is referring to the group under the chairmanship of Tom Ross, then certainly that group does have considerable experience. However, I cannot tell her whether the individual members of that group have had personal experience of serving as trustees. However, what they do have--including Tom Ross himself, as my noble friend will know--is very extensive experience of the pensions industry.

Baroness Turner of Camden: My Lords, may I make a recommendation on that point?

Baroness Hollis of Heigham: My Lords, I shall write to my noble friend about the qualifications of those members, if that is the group to which she is referring.

Lord Higgins: My Lords, this has been a helpful discussion. As I understand it, a probing amendment has no official recognition in this House. I am not aware that there is any reason why such an amendment should not be tabled at Report stage as well as in Committee. Be that as it may, it has been very helpful indeed to have had some clarification of the issues which have been raised, and I welcome the kind offer of the noble Baroness to exchange correspondence before Third Reading on the technical points that I have raised. Subject to that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 4 not moved.]

5.45 p.m.

Baroness Castle of Blackburn moved Amendment No. 5:


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