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Thirdly, we have tasked PADA with doing some preparatory work on the investment strategy to assist the trustee. In carrying out this work, PADA will draw on research into the investment preferences of the target group, discussions with interested parties and also draw on the expertise of its consumer and trustee advisory committees. As part of that process, and in view of the powerful contributions that have been made today, I am happy to extend an invitation to my noble friend Lord Judd and other noble Lords who have spoken on this issue today to meet Paul Myners and Mike O’Brien for a further discussion of their views on responsible investment. I know that Paul Myners is particularly keen to engage on this issue. I hope that this has clarified for noble Lords the importance that is being placed on responsible investment.
I now turn to the specifics of the amendments. The Work and Pensions Select Committee, Paul Myners, and virtually everyone who has commented on personal accounts have emphasised that to be a success, this must be a simple, low-cost scheme. In its preparatory work on the investment strategy, as in all its work, PADA will be obliged to have regard to the principles in Clause 70, and in particular the principle in Clause 70(2)(d), that the costs of scheme membership should be minimised. Amendment No. 113H tabled by the noble Lord, Lord Skelmersdale, would effectively duplicate this provision, and so I do not believe it is necessary.
Amendment 112ZDB, tabled by my noble friends Lord Judd and Lord Joffe, and the noble Baroness, Lady Northover, would require the scheme to have a written policy on ethical investment. As I have said, it is not for the Government or indeed any other person to put any specific investment requirement on the trustee. In addition, I have already discussed in some detail the role of the statement of investment principles and the current requirements in relation to that statement. Again, I believe that these would largely be duplicated by the amendment.
Amendment No. 112ZDA seeks to give the trustee corporation the right to disinvest from investments associated with,
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In discussing this I should like to give some assurance on what I understand to be the current operation of the law. Noble Lords are correct that there is no such overriding right on the part of trustees. However, I have been assured that there is no reason in law why trustees cannot consider social and moral criteria in addition to their usual criteria of financial returns, security and diversification. I have already mentioned that the trustees of a scheme are obliged to cover in the scheme statement of investment principles the extent, if at all, to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments. Given that regulation 2 of the investment regulations refers to the retention and realisation of investments, we would say that those regulations would already oblige a trustee to state to what extent it makes such investments, and implicitly also why. This is an obligation on trustees, not simply a right to choose whether to disinvest or to sell such interests. Furthermore, the SIP must be reviewed at least every three years.
Apart from this statutory duty, case law also gives trustees guidance. There is no reason in law why trustees cannot consider social and moral criteria in addition to their usual criteria of financial return, security and diversification. Indeed, it has been observed by commentators in the eighth edition of the Pensions Law Handbookthat if trustees wish to make an ethically acceptable investment which will produce a financial return at least as good as that produced by any other investment, there is no reason why they cannot do so. While, strictly speaking, there may be no overriding right to divest shares held in such interests, by virtue of existing statute law, common law and the consequent combination of obligations and latitude for trustees, in our view trustees are able to act in a similar way without a specific legal right to do so.
This position applies to all pension scheme trustees, whereas the proposed new clause would apply only to the trustee corporation. It would not be right to impose specific abilities or requirements on that body alone, thereby making its situation unequal to that of other trustees. I therefore hope that, with the offer of further discussions to explore any need to clarify the law on this issue, the noble Lord will feel able to withdraw his amendment.
I hope that I have made our position on investment absolutely clear: we take responsible investment seriously but we also take seriously the primacy of the trustee over investment decisions in any pension scheme. It would not be appropriate for the Government or Parliament to impose any guidelines that might restrict the trustee’s independence in carrying out its overriding duty to members, although government have a role in engendering a climate which fosters ethical investment and in ensuring that legislation does not act as a barrier to those who are committed to this.
I am grateful to noble Lords for their thoughtful participation in the debate. I am sure that the authority, and the trustees in turn, will wish to consider the representations made. On that basis, I hope that my noble friend will feel able to withdraw his investment and that he will participate in the further discussions that we wish to have, particularly with Paul Myners.
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Lord Skelmersdale: Before the noble Lord, Lord Judd, withdraws his “investment”, to use the Minister’s phrase—I think he meant his amendment—I should say that I have no intention of pushing my Amendment No. 113H, especially in view of the very strong hint that the Minister has given that there will be a socially responsible investment fund. I wish to goodness that he could be more forthcoming about the various other funds that we all expect the PADA to arrange.
Lord McKenzie of Luton: As I have outlined, there will be consultation on the statement of investment principles. Until it is complete, it is impossible to be clear about the range of funds that may be on offer. It is implicit in all discussions to date that there will, in any event, be a default fund to make sure that the issue of inertia does not operate adversely and is consistent with our approach to auto-enrolment and personal accounts.
Lord Judd: I appreciate my noble friend’s considerate and full reply. It was characteristic of his whole approach to his responsibilities, and I welcome that. I hope he will forgive me for saying that the complicated situation, as he honestly described it, is a good reason why we need clarification in the law. It is important that people who carry these heavy responsibilities should be in no doubt about their rights. From that standpoint, clarification is important.
The other point I wish to make is one with which we have to grapple in life all the time. I suggest, in the best possible spirit, that he perhaps wants to have his cake and eat it. Supporting ethical investment and maximising return as a paramount consideration are not always reconcilable aims; there is sometimes a contradiction and you have to make a choice. That is a hard-headed point if ever there was one.
I thank the noble Baroness, Lady Northover, for putting her name to the amendment. She was valiantly here until a very late hour the other night but cannot be here today. I know how much she is behind the amendments. I also thank my noble friend Lord Joffe. He was my long-suffering chair when I was director of Oxfam. The fact that we remain friends says a great deal about his generosity of spirit and patience. He brings a lot of other highly relevant professional experience to these matters. I also thank all those who participated in the debate. All of them have very real experience to offer.
At this point it is always tempting to look at all the points from one’s initial remarks that have not been answered and to go over them again. That is an abuse of the Committee. I simply hope that the Minister and others will look carefully at all the arguments. I shall pick up just a couple of them.
The noble Lord, Lord Skelmersdale, made a point about putting on people new obligations which would be difficult for some of them to fulfil honourably. That was well answered by my noble friend Lord Joffe, who again emphasised that this is not obligatory; it is permissive. Therefore those who want to pursue these matters, and watch and monitor them in more detail, will feel that they have the authority of the law behind them. My noble friend Lady Whitaker supported that,
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I was delighted to know that I have at least the heart of the noble Lord, Lord Kirkwood, even if I do not have his head. I hope he will forgive my saying so, but I think he is mistaken about this being simply a hearts-and-heads argument. In the context of the situations with which we are dealing, there may be very adverse consequences for investors if they pursue exploitation. It may lead to a violent situation in the countries concerned, which will disrupt all that those investors are trying to invest in, achieve and do there. It is misguided and mistaken to say, as people too often do, that one argument is from the heart and the other is from the head. Sometimes it seems that the heart is more hard-headed than the head. That point should be taken more seriously.
The noble Lord, Lord Kirkwood, also referred to the size of the challenge. It is a huge challenge for the future: a declining productive labour force and an increasing number of people dependent in old age. If we are a civilised society, we must struggle to ensure a decent, full life for people, with greater life expectation and the rest. However, I simply cannot accept that, in answering that challenge, we should ever be seen even indirectly to condone the securing of people’s well-being through the exploitation of women, the breakdown of their health at the cost of miscarriages long hours, awful working conditions, child labour, premature death and sweated labour. How could it be acceptable in a civilised society that we achieved our well-being at that price? It has to be tackled.
The Minister refers to our current obligations under various conventions, and I am glad that he takes them seriously. We have obligations under conventions, but it is in new legislation such as this that we have a chance to put some muscle into the rhetorical commitment. If we dodge that, we will bring the whole concept of making conventions into disrepute.
My noble friend was very conciliatory in his reply. He talked about further deliberations and consultations. I think he suggested that he would welcome my coming and talking more about the issues at stake here. If there really is an opportunity to do that before Report, I shall very willingly withdraw my amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
4.15 pm
[Amendment No. 112ZDB not moved.]
Baroness Noakes moved Amendment No. 112ZE:
The noble Baroness said: I shall speak also to the other amendments in this group. They are probing amendments, based partly on a briefing from the Law
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Under Clause 69(1)(a), PADA has the functions of assisting and advising the Secretary of State in connection with setting up the personal accounts pensions scheme, which is what we would expect. However, Clause 69(3) says that the advice given to the Secretary of State can include assistance and so on to the trustees of the scheme. Amendment No. 112ZF deletes that for two reasons. First, it explores why PADA has to advise the Secretary of State in order to advise the trustees. In other words, why can it not do so directly? Secondly, it explores whether this blurs the independence of the trustee corporation whose board alone will be responsible for decisions. The Secretary of State will have no role in those decisions—or at least he should not—and to channel advice through him is to create the murkiest of water.
Amendment No. 112ZG makes it clear that PADA’s functions in relation to financial products are strictly limited to advice to the Secretary of State in connection with establishing the personal accounts scheme. We do not want to see PADA morphing into some kind of all-purpose advisory body getting involved in different kinds of savings and pensions products; it should be focused solely on personal accounts—that is what its title says it is: a personal accounts delivery authority—and nothing else.
Amendment No. 112ZH replaces “corporation’s” with “Authority’s” in Clause 69(7). As far as I can see, the Bill refers to PADA as “the Authority” throughout, while “the corporation” is used in Chapter 4 to refer to the trustee corporation. I think that subsection (7) is supposed to be about PADA rather than the trustee corporation, and that is what my amendment seeks to achieve. I beg to move.
Lord McKenzie of Luton: I thank the noble Baroness for tabling this group of amendments because they give me the opportunity to provide the Committee with some detail about the governance arrangements for delivering the reforms set out in the Bill, and to put into context the relationships between the different organisations involved and their roles.
The reform programme, known as the enabling savings retirement programme, is one of the Government’s major programmes. It covers the introduction of automatic enrolment and the mandatory employer contribution, the implementation of personal accounts and the communications to support these reforms.
There are four strands to the programme. My department is responsible for the development of policy and delivery of the necessary legislation, both primary
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Clear governance structures are essential in managing a programme of this scale. There are interdependencies, and we have established a cross-government programme board with overall responsibility for ensuring that delivery is progressed cohesively by the organisations involved. This includes individuals from the delivery organisations. As part of that governance, it is of course essential to have a senior officer responsible for the delivery of the whole programme. In view of its responsibility for these public policy reforms, this post is held by my department.
Clause 69 sets out the authority’s functions as part of this programme—to advise and assist with the establishment of personal accounts, including advising and assisting the trustees of that scheme; and, as required, to advise and assist with arrangements in connection with automatic enrolment.
I can assure Members of the Committee that the authority’s primary task is the establishment of the personal accounts scheme which it will hand over to the trustee. However, there will be a period during which the authority will need to work alongside the trustee to assist and facilitate the transfer of the infrastructure and processes developed for the scheme. Removing subsection (3), as Amendment No. 112ZF would require, would prevent the authority providing any help to the trustee. I cannot see how this could in any way be desirable. Alongside this, the authority may be required to assist the Pensions Regulator, within the context of the programme, under the overall control of the Secretary of State. That is why subsection (2)(b) is drafted as it is and why I cannot accept Amendment No. 112ZE. We should not close down opportunities for all parties in the work programme to work together, within a clear governance structure, to deliver our ambitions for these reforms.
Amendment No. 112ZG focuses on the authority’s remit. I confirm that the authority will have no legal authority to undertake any wider activity, including providing financial products, beyond the scope of the personal accounts scheme.
I hope that these explanations have been helpful in establishing why Clause 69 is as drafted. I therefore urge the noble Baroness to withdraw the amendment. I note what she said about Amendment No. 112ZH—she is absolutely right and we are happy to support it.
This is a huge project; it is important that we provide opportunities for effective communication and assistance, where it is appropriate, between the key players within a structure. That is what the clause seeks to do. It is that interrelationship which will make a success of the scheme.
The noble Baroness may want me to cover some points that she feels I have not; if so, I will try to do so.
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Baroness Noakes: I am still a little unclear about the treatment of the trustee corporation in this clause compared with that of the regulator. When will the trustee corporation be set up? I am not clear when it becomes a player in its own right as part of the process. Secondly, if the trustees of the scheme are to get advice from PADA, why cannot we draft that directly into Clause 69(2)(a) rather than via the Secretary of State in subsection (3), which was what my probing amendment was trying to ascertain?
Will the Minister also consider whether continuing to call the authority “PADA” is right? Its remit has changed since the Pensions Act 2007 to include a significant role in relation to auto-enrolment, which is nothing to do with personal accounts.
Lord McKenzie of Luton: The noble Baroness’s second point was about the role of the Secretary of State in communicating with the trustees and why PADA could not do that directly. I am sure that there will be circumstances in which PADA will do that directly, but we must bear it in mind that the Secretary of State is the settlor of the scheme and there will need to be communications in making sure that when the scheme order is brought forth, it covers everything it needs to.
When will the trustee corporation be set up? The trustee corporation will go live in running the scheme at the point when the infrastructure is in place and PADA has done its work in putting together the totality of the scheme. There will be a transfer to the trustee corporation, which, as we have discussed previously, we expect to take place during 2012. The trustee corporation will be in existence prior to that, because it will have to adopt a statement of investment principles, for example, as we have just discussed. The precise timing of its being set up and of the appointments of at least the first trustees has not yet been finally locked in place, but one can see the time frame within which that must take place. We should perhaps refer to it in future as “the authority” rather than PADA, which I hope will deal with the point that the noble Baroness raised. I hope that that is clear.
Baroness Noakes: I will read carefully what the Minister said. I am still in a little fog as to why the trustees cannot be drafted directly into Clause 69(2), notwithstanding the fact that the Secretary of State is the sponsor. I can see that the Secretary of State needs advice from PADA in relation to the scheme—I have no problem about that—but why the trustees are not advised separately, I do not really understand. However, I will read what the Minister has said and consider it between now and Report. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 112ZF and 112ZG not moved.]
Baroness Noakes moved Amendment No. 112ZH:
On Question, amendment agreed to.
Clause 69, as amended, agreed to.
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