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Earl Russell: I hear what the noble Baroness, Lady Turner of Camden, says about independence from the employers. It is a key point. I can remember one or two cases that we discussed in this Chamber where that independence had not in practice appeared completely obvious. I hear also what the noble Lord, Lord Dean
Lord Hoyle: I shall be brief in my support of Amendment No. 145. I believe that it would be totally wrong if the employer had any part whatever in the selection of member-nominated trustees. Certainly, I believe that they should be selected only by the members. As has been said quite rightly, if they did have any say, it would not be long before they nominated the trustees themselves. It would remove the rights of the members. Much pressure is already put on trustees at the moment. It is certainly true that sometimes they are intimidated by the presence of senior employers who also sit on the board of trustees. Therefore, I feel that it is only right that the members, and the members alone, should have the right to select member-nominated trustees.
Baroness Hollis of Heigham: This group of amendments covers some of the more detailed aspects of the new member-nominated trustee selection provisions. Amendment No. 144A would provide that all active, deferred and pensioner members are given equal rights in the nomination of member-nominated trustees and directors. That would apply equally to the trustee route and the employer route.
Perhaps I may recap briefly. Under the trustee route, all active, deferred and pensioner members will be able to stand for nomination. All active and pensioner members will be guaranteed the right to make nominations. Deferred members will be invited to make nominations if the trustees so decide.
I believe that I explained in a previous amendment why we consider that trustees are in the best position to decide the extent to which deferred members should be involved. Under the trustee route, trustees will have some flexibility to determine the selection process. This will include the possibility of using selection panels to make the final choice if there are more nominations than vacancies. This amendment will effectively outlaw the use of selection panels.
As I said before, and I think we should take it seriously, we do not want to disrupt existing arrangements unnecessarily. At the moment where there are more nominations than vacancies, many schemes use selection panels to make the final choice and it works very well. It means a group of individuals with a good understanding of the circumstances of a particular scheme can come to a view on the best person for the job. We do not see any reason to put schemes to the trouble and expense of changing their existing arrangements unnecessarily.
The second route is the employer's own scheme route. This amendment would severely limit the scope for an employer to propose the nomination and selection arrangements of his choosing. Our proposals already make the most important limitations. They insist that they must provide for at least one-third member-nominated trustees, and they require the
Further restrictions are, I believe, unnecessary. Indeed, the flexibility that is such an important feature of the "employer route"--so that, for example, a trade union might be able to nominate people, as opposed to the trustee route where it would have been appropriate--would be completely lost. This is something we do not want to do, nor should we do. We want flexible arrangements here. I know that the Committee will appreciate that.
Under the trustee route which I have already described our provisions are not very different from the amendment. However, they are more flexible and less disruptive. As I have already said, they will provide for the final selection to be made either by means of a ballot of the members or by a selection panel. We will be consulting on the details of the regulations in due course, but the intention is that if selection panels are used, they must comprise a majority of scheme members or their representatives. That seems to be the crucial safeguard. One either goes to a full ballot of all members or one goes to a selection panel in which the majority of the members on that panel are scheme members or the representatives and not the employers.
Under the employer route, employers will have the right to propose bespoke nomination and selection arrangements for their scheme. The proposal must provide for a minimum of one-third member-nominated trustees, but the provisions are more flexible and for that reason must be approved by the members. It is certainly the case that there will be more scope for the employer to determine the selection under this route. The final choice will be from individuals who have been nominated by scheme members. Most importantly, the proposal will be adopted only if the members have agreed to it.
Although the amendment would have much the same effect as our proposal, it would force many schemes to change their arrangements for no good reason. We think we achieve the flexibility without undermining the key aim of getting member trustees on to the boards.
Amendment No. 149 is about informing and consulting members. It would introduce a regulation-making power requiring trustees to inform and consult members and former members in a prescribed manner about the effect of the arrangements they are required to make under Section 16 of the Pensions Act as revised by Clause 42.
As the amendment points out, it will be relevant only if the employer is not making a proposal under Section 18A. As I have already made clear, employers will no longer be able to opt out from having member-nominated trustees. Every scheme will have member trustees. That is our main priority. We are trying to keep down complexity and cost. That is why we have provided the two routes, the trustee route and the employer route, for putting member-nominated trustees into place. Schemes using the trustee route will have to follow a statutory framework that will ensure that all are treated fairly and, as a result, the whole process will be significantly cheaper and simpler than the employer route. However, the employer route has the greater flexibility. So, as it does not give the same guarantees, it is only right that proposals should be put to the members for approval.
However, I do not want to misrepresent the amendment. I do not believe it is asking for member approval in the way I have described for the "employer route". I think the intention is simply to make sure that members are given the opportunity to have a say and to be kept properly informed. We have no argument about that. I am a little concerned about putting a requirement on the face of the Bill.
The trustee route meets two important aims. It is fair to members and it is simple to devise, and I do not want us to stray from that if I can avoid it. We intend to make regulations that will require schemes to document their member-nominated trustee procedures to make them available to members. We are also planning to require trustees to set out the procedures in the Annual Report. It will be an unnecessary burden to insist on member consultation on something that is bound by a statutory framework.
Clearly that would not work well if we left it alone. For example, how would a company that is trustee for, for example, four schemes be able to have four-thirds of its directors nominated by the members? The only practical way to deal with this in legislation is to add the memberships of the various schemes together so that they get to nominate one-third of the directors collectively.
Having said that, we also recognise that there will be situations where the company wants to keep the memberships separate. So what we have effectively done is leave the choice to the trustee company. The default is to aggregate, but the option is there not to.
Where the trustee is a professional trustee company acting for several different schemes run by different employers, I suspect that they choose to avoid the situation altogether by setting up separate companies for each scheme. That seems to me to be a very sensible approach.
My legal advisers tell me that the amendment will not have any material effect on the clause as drafted and I hope this brief explanation will reassure noble Lords that this amendment is not necessary.
Finally, Amendment No. 154 would introduce a new regulation-making power into Section 125 which would determine who is to be treated as a qualifying member. The expression "qualifying member" appears throughout the revised member-nominated trustee provisions as amended by Clauses 42 to 45 as a result of the Welfare Reform and Pensions Act 1999. We are simply carrying these changes through into the new member-nominated trustee provisions.
The reason for replacing "member" with "qualifying member" is to provide a legal mechanism whereby only active, pensioner and deferred members are involved in the member-nominated trustee process. Members whose only rights derive from a pension share on divorce will not be included. This maintains the existing policy that only members with a connection to the scheme through employment should be involved in the nomination and selection of member-nominated trustees. Therefore, we do not need separate regulations to deal with that point.
In the light of those explanations of what are really very technical amendments, although it seemed important to put those explanations into Hansard so that companies could see what we are determining or proposing, I hope that the noble Lord will feel able to withdraw his amendment this evening.
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