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Baroness Turner of Camden moved Amendment No. 85:


STATEMENT OF GOVERNANCE OF OCCUPATIONAL PENSION SCHEMES

(".--(1) The Secretary of State shall make regulations providing for the trustees or managers of an occupational pension scheme to provide a written statement about the governance of the scheme.

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(2) The statement must cover, among other things--
(a) the trustees' or managers' confirmation that they have undertaken a review of the governance arrangements and procedures of the scheme, and
(b) their policy about keeping such arrangements and procedures under regular review.
(3) The regulations shall also prescribe the circumstances when the Occupational Pensions Regulatory Authority ("the Authority") may require such a statement, the time period for providing the statement and the sanctions if a statement is not provided to the Authority within the time limits prescribed.").

The noble Baroness said: This is another amendment about trustees and scheme governance. Well structured best practice guidelines can be helpful to all pension schemes, but in practice it is usually only in a smaller number of cases where the standards are already being met. The history of pensions shows that without at least the possibility of sanctions, standards may not improve as we all want.

Ultimately, the running of a pension scheme is the responsibility of the trustees, even if someone else carries out the task for them. After all, it is they, rather than the advisers, who would face penalties from OPRA.

In the case of corporate governance, there is a requirement for listed companies to keep under review the effectiveness of all internal controls. In 1999, these requirements were supplemented by the Turnbull report, which requires companies to identify the effectiveness of the related internal controls.

The amendment is relevant, because pension scheme trustees also have an important stewardship role. Irrespective of the type of scheme, it is essential that a comprehensive and workable scheme governance policy is in existence and working. Trustees must be directly involved in setting the objectives, which must also be fully supported by the sponsoring employer.

Modern pensions governance embraces policy, people and practice. It should ensure that the scheme has a written policy on procedures or guidelines so that trustees operate within the regulatory framework and the requirements of the trust deed and rules, and that the procedures or guidelines are understood by the trustees and have been incorporated into identifiable working practices.

A governance review, as proposed in the amendment, could be a useful reminder of the issues in which compliance must be satisfied, as well as illustrating the range of issues that are the features of good pension governance. Something of the sort is necessary to ensure that employees have confidence in their schemes. Unfortunately, the lack of confidence arising from the Maxwell affair was partly responsible for the pensions mis-selling under the previous government, when employees opted out of good occupational schemes into personal pensions much to their disadvantage.

Confidence in the good governance of schemes will ensure the maintenance and development of occupational schemes. I still believe that a good occupational scheme is the best way for employees to provide for their retirement. I hope that the

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Government accept that that is the aim of the amendment and will be prepared to support it. I beg to move.

Baroness Hollis of Heigham: My Lords, Amendment No. 85 would require the trustees and managers of occupational pension schemes to produce a statement at prescribed intervals saying that they had undertaken a review of the governance arrangements of the scheme and setting out their policy for keeping those arrangements under review. It would also provide for the statement to be sent to OPRA in prescribed circumstances and for OPRA to be able to impose a sanction if it was not provided.

In the context of occupational pension schemes, "governance" refers to the internal controls and procedures put in place by the trustees or managers to ensure that the scheme is run in the most cost-effective and efficient way possible, ensuring the security of the scheme assets.

Trustees are required to step back and look at how the scheme is being run. That includes ensuring that everyone involved in the administration of the scheme has clear lines of reporting and accountability and is sufficiently knowledgeable about what they are doing. It also includes checks to combat internal fraud, controls to ensure direct and prompt receipt of contributions from employers, scrutiny of claims made on the scheme to determine bona fides and effective monitoring of activities relating to the investment of the scheme's assets. In effect, it involves looking at every area of activity within the pension scheme administration and making sure that adequate controls are in place for each one.

I recognise that requiring trustees to produce a statement about governance arrangements in their schemes is a good way of focusing their attention on their roles and responsibilities in relation to the running of the scheme. I also agree that the principles of good governance are an essential ingredient for the proper running of any business or organisation, including pension schemes. However, whether we should actually make this a regulatory requirement is another matter. The Pensions Act 1995 already makes it quite clear that the trustees are responsible for the proper running of their scheme. The Act provides a wide regulatory framework to support that message. If trustees do not comply, the scheme auditor and the scheme actuary are under a duty to report any irregularities to OPRA.

It would be difficult, if not impossible, for trustees to fulfil their role under the pensions Act and trust law without some form of internal arrangements for ensuring the proper management of the scheme. As noble Lords are aware, there is a wide variation of type and size of pension scheme. Any system of internal controls must take account of the characteristics of individual schemes and allow for those differences.

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Any legislative requirement in this area would need, for the sake of clarity and consistency, to spell out exactly what is meant by governance and how it would apply to particular schemes. That would give rise to further lengthy and complicated sets of regulations containing an exhaustive list of controls that trustees and managers would be required to put in place, the circumstances where they must do so and the circumstances in which statements would have to be sent to OPRA. It would impose a heavy burden on the scheme and an even heavier burden on OPRA. Any statement produced under these arrangements would also require verification by, for example, an auditor, if the requirement was to be effective.

At present, trustees are required to obtain an auditor's opinion on the financial transactions of the scheme and, if he or she detects a flaw in the scheme's control system, this would be brought to the trustees' attention. However, auditors do not, as a matter of course, carry out a detailed check of a scheme's systems of internal controls. To require such a check would involve schemes in extra costs and we have to consider whether that can be justified. We do not believe that it can. The department is currently working with the industry in a joint working group to consider ways in which we can offer practical help to schemes in areas where we are keen to provide a clear lead and guidance but where it is not appropriate to regulate. Good governance is one such area.

I recognise the intentions behind this amendment; indeed, I support them. However, I hope that what I have said about the complexity and costs associated with such a requirement has convinced my noble friend that it would be inappropriate to legislate and that, therefore, such matters are better left to guidance. In that way, trustees can determine appropriate controls according to the circumstances of their schemes. In the light of my remarks, I hope that my noble friend will feel able to withdraw her amendment.

Baroness Turner of Camden: My Lords, again, I thank my noble friend the Minister for her explanation of the Government's policy in relation to the amendment. I am also very glad that she at least supports the principles behind the amendment, as well as the principles of good governance. The gist of my noble friend's remarks is that my amendment would, as I understand it, impose too heavy a burden upon trustees and, indeed, upon OPRA. I shall have to consider most carefully what my noble friend said. I am pleased that we have note of her reactions to the amendment because good governance of schemes is of paramount importance as far as concerns confidence in scheme provision. Having gained those commitments from the Government to the whole idea of good governance, it is good to have them on the record. I am grateful to my noble friend for her comments. I accept what she said about the burdens that the actual wording of my amendment could impose on those concerned. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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5.15 p.m.

Clause 47 [Information to be given to the Authority]:

Lord Astor of Hever moved Amendment No. 86:


    Page 45, leave out line 19 and insert--


("(e) a provider of insurance or investment services to the scheme;").

The noble Lord said: My Lords, in moving this amendment I shall speak also to Amendment No. 94. These amendments would extend the list of persons exempted from the definition of those involved in the administration of a scheme to include providers of insurance or investment services to the scheme. As presently drafted, the exemption is confined to fund managers. In our view, it is inconsistent to exempt fund managers and not to exempt insurance companies, which provide death-in-service benefits. The amendments would, therefore, broaden the exempt categories. I beg to move.


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