Pensions Bill [H.L.]

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Baroness Hollis of Heigham

We haw; no objection to the amendment on our side of the Committee. It 441 seems to us to give additional flexibility to the trustees, as described by the noble Earl. Therefore, we support the amendment.

Lord Mackay of Ardbrecknish

My noble friend has a valid point with his amendment and in his remarks when bringing it to our attention. As he said, not all deferred members may be known to the trustees; for example, trustees may not hold an up-to-date address list for all deferred members. If trustees are faced with the difficulty and expense of tracing deferred members, they may be reluctant to use their discretion to include them in the statutory consultation process. We do not want this clause to work to the detriment of deferred members.

However, I am sorry to say to my noble friend that I am not content with the drafting of the amendment. As it stands, trustees could determine that they wish to consult only particular deferred members; for example, they could decide to consult only those members who they felt might respond in a particular way and to exclude those who might have opposing views. I am sure that that is not the effect that we want to achieve.

Therefore we accept the principle of the amendment and should like to make it easier for trustees to include deferred pensioners. However, we do not want to make it possible for schemes to discriminate against certain classes of deferred members, especially in the circumstances I outlined. If my noble friend therefore will withdraw his amendment, I shall undertake to consider it further and see what we can do to answer the point.

The Earl of Buckinghamshire

I thank my noble friend for his reply. I stand chastised. However, I know that he will come back with a better amendment than mine. I beg leave to withdraw the amendment.

The Chairman of Committees (Lord Boston of Faversham)

In calling Amendment No. 107A, I must inform the Committee that if the amendment is accepted, I cannot call Amendments Nos. 107B or 108.

Baroness Hollis of Heigham

In speaking to Amendment No. 107A I should like to speak also to Amendment No. 108 standing in my name, the name of the noble Baroness, Lady Seear, and that of my noble friend Lady Castle. The amendment is grouped with Amendment No. 107A but is a more modest amendment. It calls for at least 50 per cent. of the trustees to be scheme members.

Most European countries do not have operational pension structures and schemes similar to those in the UK. However, where they do—Ireland, Australia, Switzerland and Spain—50 per cent. member trustees are the norm. More to the point, it is also the norm in some of the biggest and best of British companies at the present time. For example, Rothmans, Jaguar and Leyland Daf have 50 per cent. member trustees. Thomas Cook and, if we include the pensioner member, Shell, Allied Lyons and Boots all have 50 per cent. member trustees. Since 1926, ICI has had six employer trustees, six employee trustees and one independent. Unilever has 12 employer and 12 employee trustees and one pensioner trustee. Albright & Wilson, Courtaulds, Lucas and Sainsbury are all companies that already draw 50 per cent. of their trustees from their scheme membership. That is a roll-call of the best names in British industry, as I am sure your Lordships will agree. It is therefore already established practice in our best schemes.

The amendment would bring all schemes, unless members chose otherwise, up to the best practice of already established and well-run schemes. There is nothing provocative about it; nothing syndicalist; nothing revolutionary. It is an amendment which reflects 443 and embodies best practice. By itself it is not enough to prevent fraud or theft, but all the evidence suggests—and employers confirm—that where there are 50 per cent. member trustees, there is less fraud, there is more scrutiny, there is better information flow, there is more confidence in the pension promise and there is more employee commitment to the company.

In a previous Committee debate the noble Lord, Lord Marsh, made a powerful speech which won the support of many Members when he argued that the best protection against pension fraud cannot come from the regulator; it must come from the trustees acting where necessary as whistle blowers. I am sure that he is right. Amendment No. 108A would help to ensure that.

If it is already best practice among the roll-call of our best companies, what are the possible objections to the amendment? The first is that scheme members may elect unsuitable people; secondly, that it may tip the balance of power unfairly away from the employer in a situation where such issues could be delicate.

Let me deal first with the objection, that unsuitable people may be elected. I asked around in some of the other company schemes and there is no evidence for that at all. Too often when one hears the word "unsuitable" becomes a euphemism for the trustee asking the awkward questions, as in the Maxwell companies where such trustees found their services speedily dispensed with by Maxwell. That is one of the reasons why my noble friend Lady Turner will be moving an amendment later to give the trustees protection.

If trustees elected by the membership are corrupt, they will be discharged; if they are inexperienced, they will be trained; if they are unsuitable, they will not be elected. Do we believe that employees will not choose the most sober, cautious and careful of people to safeguard their pensions? They will be looking for Methodist chapel stewards if they can find them.

The second argument that may enter the considerations of the Committee is that such an amendment may be unfair to employers; it may reflect a sectional interest. I have two answers: first, as with all trustees, the fiduciary duty of scheme member trustees is to the scheme for which they are stewards, not to the constituency from which they come. That applies as much to the financial director nominated by the employer as it does to the scheme member elected by his colleagues. After all, benefits and so forth will remain a matter of employer/employee negotiations, not a matter for trustees who are stewards for the scheme as a whole.

Secondly, such fears perhaps under estimate the power that will remain with the employer after the Bill becomes an Act. Most of his existing powers will remain firmly in place. It will not disturb the balance. Were the Committee minded to accept the amendment to make 50 per cent. of the trustees come from the scheme membership it would still be the case that employers would have a voluntary choice on whether to set up occupational pensions; it would still be the case that employers could wind up schemes; it would still be the case that the employers would define the rules of eligibility, including new members; it would still be the case that the employer could veto any benefit improvements to the scheme; it would still be the case 444 that the employer could take a contributions holiday without even a quid pro quo in the form of improved benefits for the scheme members; it would still be the case, crucially, that any change in the scheme rules, such as altering benefits or improving accrual rates, must have his consent. The employer will still have half the trustees. Whatever percentage of trustees is drawn from scheme members, all the long stop powers that the employer will have under the Bill will remain intact. It will not affect the delicate balance between them.

Finally, Members of the Committee may have a third fear that somehow the amendment will generate additional costs for the employer. Whatever the percentage of member trustees the costs for the employer cannot be increased beyond the current benefits as promised. Whether there are fewer than one-third member trustees, 50 per cent. or 75 per cent., none of that will affect the employers' commitment to financing benefits in any way. It is true that under the Bill the employer may face additional costs to meet what is called the minimum solvency standard; and so he should if the scheme without it is not financially sound. But that will happen by virtue of the Act itself. It will have nothing to do with the percentage of trustees. In other words, the issue of potential financial liability for the employer under the Act and the issue of trustees drawn from the membership are completely unconnected. Whatever the percentage of trustees, the employers will have to meet those financial responsibilities. Whatever is the percentage of trustees that will not add to the employers' financial responsibilities.

Why then are we pressing the amendment? I have tried to suggest that the good employer has nothing to lose because good employers already do it. Who will lose? It will be those employers who sail close to the wind in their practices, whether in terms of self-investment, favourable loans or seeking delays in passing over contributions to trustees. They will be affected. However, given that the Bill is brought forward to protect the pension promise from just such practices—practices that lead to insolvency or are fraudulent—is this not exactly what we want to happen?

I hope that the Committee will support the amendment. It would produce 50 per cent. trustee members drawn from the scheme members. It is the current good practice in the best firms of this country. It will have no financial implications for the employer as such, but it will strengthen the capacity of trustees to take on the role that the Bill intends them to do: to monitor and to act as good stewards for the pension promise.

Baroness Seear

I wish strongly to support the amendment particularly because it suggests at least 50 per cent. A number of schemes are already above 50 per cent. and they have proved very satisfactory. We are very much of the view—it is a widely-held view—that pensions are deferred pay. As the noble Baroness, Lady Hollis, said, the employer has the ultimate weapon, if he needs to use it, of withdrawing the scheme. That is a powerful weapon where employee members are determined to keep the scheme going. They are extremely unlikely—it would be extremely foolish—to 445 act in such a way that would lead to the employer winding up the scheme. I cannot see that the employer has anything to fear. I should like to see the figure higher than 50 per cent. The amendment would enable that to happen in those places where it was agreed that it should.

Baroness Castle of Blackburn

I wish to support Lady Hollis's amendment which, of course, subsumes mine. I tabled something on the same lines at the suggestion to me of one of Maxwell's long-suffering pensioners. That is straight from the mouth of someone who has gone through all the suffering, anxiety and miseries of the past few years following Maxwell's gigantic fraud.

The pensioner pointed out to me that there are grave risks that are taken by member trustees who are trying to deal with a fraudulent employer. There are such things as intimidation. There are also such things as bribes by saying, "You were wanting promotion, weren't you? Well you had better shut up". He has seen it in action among fraudulent employers. There is safety in numbers. The very minimum ought to be 50=50 representation. I am glad that Lady Seear has pointed out that it is at least 50 per cent.

I want to stress the point that Lady Hollis made which seems to be the very centre of our argument. The good employer does not need this legal obligation placed on him. But we are trying to protect members of a pension scheme from the fraudulent employer. In that way we have got to give the member trustees a sense of strength that they have real equal status and that they speak as people of equivalent importance to the employer at the very least. I do hope that the Committee will see the sense and logic of that and listen to my Maxwell pensioner friend who has urged that this kind of amendment should be made.

Viscount Caldecote

Is the noble Baroness, Lady Dean, correct in saying that in the case of a pensions holiday it is legal for the employer to take a pensions holiday while insisting on the employees continuing to pay? That has never been the case in my experience, but I should like to know whether that was just good practice or whether it is a statutory requirement.

Lord Dean of Harptree

I am strongly in favour of member trustees of pension schemes and, as has already been pointed out in the debate, best practice suggests very strongly that that development should be encouraged. However, I should like to express some doubts about the amendments.

We live, unfortunately, in an age where very few new occupational final salary pension schemes are being set up. That is a serious development. It may be something to do with the recession that we have gone through but it is a harsh reality. We must be very careful before we place additional obligations on employers which might discourage the setting up of new schemes, particularly final salary schemes. We have to take into account that the Bill already lays a statutory obligation for one-third of the trustees to be members. That is a new obligation 446 which employers will have to meet. Some of them meet it already, but not all do. The disincentive effect is a factor which we have to take into account.

We also have to bear in mind that in most occupational pension schemes the employer contributes about twice as much as the employee. That financial fact has to be taken into account when one considers the balance on trustee boards. For those reasons I hope that my noble friend the Minister will resist the amendments.

Lord Ezra

I have not been a trustee of a pension fund, but I have been on the employers' side as chairman of the companies concerned in both the public and private sectors. In the schemes with which I have been involved in that way there has been at least an equal part of member trustees. That has worked perfectly. The clinching argument in this debate is that put forward by the noble Baroness, Lady Hollis, when she reminded us that the fiduciary duty of trustees, whether they come from the employers' or the members' side, is to the scheme. Once appointed they should forget any "party view" if I can so describe it, and simply do what is in the best interests of the scheme. Therefore, it may be asked: why argue about it? As soon as they are appointed the best people from whatever side have to do their duty.

One then comes up against the question of perception. We are dealing with legislation which originated from the Maxwell affair. People want to be satisfied that the steps which are being taken will effectively safeguard the interests of the beneficiaries. Therefore, from the point of view of general public perception and of those in schemes, I very strongly support the proposition that although all trustees will, we hope, henceforth have only one duty towards the scheme they serve, nonetheless the Government will agree, if they are to fulfil the main objective of this legislation, that this amendment should be supported.

Lord Allen of Abbeydale

This is not a party political matter and, as has been explained, there are not any great financial implications. I believe that it is legitimate for a Cross-Bencher to express very briefly a view on the merits of what is proposed.

I recognise that my own detailed knowledge of pensions is becoming out of date, but the arguments for or against this particular proposal are fairly clear cut. The proposal by the noble Baroness, Lady Dean of Thornton-le-Fylde, goes a little too far. The swings and roundabouts arguments ends up with perhaps 50 per cent. and not more. A strong case has been made out for Amendment No. 108. It seems to be the fact that a number of very successful companies operate that arrangement with perfect success. I am glad to add my word briefly in support of that amendment.

Lord Mackay of Ardbrecknish

This is clearly one of the important parts of the defences that we are erecting on pensions in the light of the Maxwell affair which brought Professor Goode's Committee into being and led to this Bill.

447 Perhaps I may go back a little and point out that the requirements in the Bill itself are that members should have a right to nominate at least one-third of their scheme's trustees. We believe that that statutory minimum will ensure that trust boards include at least some people whose perspective differs from that of the scheme sponsor who, typically, does appoint the majority, if not all, of the trustees. We fully accept the Pension Law Review Committee's view that there is an important role for member-nominated trustees in providing scheme security. I set out in my Second Reading speech the general advantages we see for schemes in having member-nominated trustees.

But I believe that this provision is quite different from requiring a majority of member-nominated trustees on a trust board or requiring that a proportion of member-nominated trustees shall be equal to that of the trustees appointed by the sponsoring employer. The scheme and its associated fund is established by an employer to achieve a business objective. My noble friend Lord Dean of Harptree mentioned the very worrying fact that employers are not creating new schemes in a way that we would like to see. We do riot want to make schemes look unattractive to employers and discourage them from starting schemes or decide that they should back off from the schemes they already have. The employer retains a considerable business and financial interest in the performance of the fund and in the effectiveness of the scheme. We have to remember his interest in all this and how he could bring the scheme to a close if he felt it was perhaps in the interest of his business. We do not want that, or to add factors which may make schemes less attractive.

The fund belongs neither to the members nor to the sponsoring employer. It is held in a trust by the trustees to be distributed on the basis set out in the trust deed and the rules. That leads straight back to the argument that the balance between member and employer-nominated trustees on the board should reflect the balance of interest in the fund.

In a defined benefit scheme where the employer is bound to meet the pension promise and to make good any deficit, the fund is almost incidental as far as the members are concerned. Of course, it offers a degree of security against employers becoming insolvent and provides a vehicle for delivering their pensions. But the pension they receive is not dependent on the existence or performance of the fund. By contrast, the existence and performance of the fund is crucial to the sponsoring employer. It offers a tax-efficient way of providing an important part of the remuneration package. It smoothes out the cash flow problems which a pay-as-you-go system might incur. Its performance and any consequent need to increase pension contributions could have a dramatic effect on company cash flow. The employer is the one giving the guarantee. He is the one who has to top up or make good the fund in the event of any deficiency. Therefore, the employer has a major interest in the successful operation of the fund. We believe that it is appropriate that that should be recognised in the 448 composition of the trust board. That is why the Goode Committee opted for a one-third/two-thirds split in favour of the employer as the minimum provision.

The running of the trust fund is of such significance to many employers that without the security of this level of influence, as I mentioned when answering the point made by my noble friend Lord Dean, they could well decide to move away from defined benefit pension provision which may well not be in the interests of scheme members. For those reasons, we have supported the PLRC approach.

In June of last year we ran a consultation exercise on our proposals for member-nominated trustees. Views were very widespread and there was no consensus at all on an ideal constitution. Some respondents said that the balance should tilt towards the employer; some said towards the members and others went for a 50–50 split. Sometimes the casting vote went to either the employer or the member.

Many of the replies spoke of member representatives or employer representatives. It is important to recognise that trustees are not representatives; they are individuals who are appointed under trust law to act independently and collectively, putting aside their own personal preferences in the best interests of all the beneficiaries.

It is with that in mind and the recommendation of the Pension Law Review Committee for defined benefit schemes that we have opted for the one-third minimum. Our objective is not to give scheme members a representative as such on the trustee board, but to ensure that the board as a whole has a sufficiently broad perspective on the issues for which it is responsible. Any pension legislation should provide an even-handed approach between promoting the interests of scheme members and preserving the legitimate interests of the employers. I trust that the two are not mutually exclusive.

I recognise, of course, that many excellent schemes already have an equal number of employer-appointed and member-nominated trustees. The noble Baroness, Lady Hollis, read out a list of a number of firms in this country which already go either at least as far as she wants to go or further. She also read out, as is usual in these matters, a list of countries who reputedly do better than we do in the view of the noble Baroness. It is fair to say that we have so much bigger resources in pension funds that I do not believe that we should be looking for examples—dare I describe them without being unkind?—to the minnows in this particular business. In Ireland, members have to approach their employer and ask for member-nominated trustees. I understand that in Spain only the larger, government-approved schemes have 50 per cent. such members.

For those schemes which are not currently familiar with member-nominated trustees, our requirement of one-third as the minimum gives them a chance to test the water, with the possibility of building on the statutory minimum—as other schemes have already done—once they become accustomed to the change. In some cases, employers are happy to take a minority interest on the trust board. However, I believe that we 449 have to be realistic and acknowledge that employers voluntarily set up and maintain pension schemes and that they may be dissuaded from doing so if they are coerced into what may be unfamiliar territory to many of them.

I am not sure whether we should be speaking also to Amendment No. 107B, which brings us into the territory of small schemes, but, for the sake of completeness, I should like to refer to small schemes because they are part and parcel of the clause. The Pension Law Review Committee said: We recognise that in the case of schemes with a very small number of members—say, those with fifty active and pensioner members or fewer—a legal obligation to have additional trustees not appointed by the employer could cause difficulties". The difficulties that were envisaged related to cost and to the possible shortage of members willing to be nominated by their fellow members.

We have gone one further than the Pension Law Review Committee and made member-nominated trustees a requirement for all schemes which cannot be evaded unless members approve alternative proposals. However, we took account of the note of caution that was sounded by the committee and reduced the basic number of member-nominated trustees from at least two to at least one for schemes with fewer than 100 members. Schemes are free to invite members to select more than one trustee if the circumstances of that scheme permit. I see no justification for increasing the basic number of member-nominated trustees for small schemes.

My noble friend Lord Caldecote asked me about contributions holidays. I hope that I understood his question correctly. Employers can currently take a contributions holiday. The employer is standing behind the scheme. He is taking the risk. We shall come later to some of the circumstances surrounding dealing with surpluses, so perhaps we should leave this debate until then.

The clause provides that there should be a statutory minimum of one-third member-nominated trustees for all schemes. As I have said, I believe that that strikes a fair balance between the interests of all the parties to the trust deed. I fear that, by compelling employers irrevocably to relinquish the strength of their association within the trust board, the amendment could prejudice the long-term prospects of the pension schemes. Therefore, I am afraid that I cannot accept the amendment. I invite noble Lords to agree with me in this discussion and, if it comes to a vote, to vote against the amendment.

Baroness Seear

Before the Minister sits down, I think I understood him to say something that confirms that he accepts that pensions are deferred pay. Am I right in my recollection? It would be useful to have that confirmed.

Lord Mackay of Ardbrecknish

One has to look at what one says in such cases, but my recollection is that we reached one of the issues that we now have to face by way of the European Court which considered that pensions were deferred pay. I do not 450 think that I would greatly argue with that. I am not sure what point the noble Baroness is seeking to make, but this is part and parcel—

Baroness Seear

If the Minister reads Hansard tomorrow, I think that he will find that that is what he said.

Lord Mackay of Ardbrecknish

A pension is part and parcel of the remunerative package that someone gets from a firm. The point that I was trying to make—the noble Baroness should take this a bit more on board because she seemed cavalierly to dismiss the employer's position—is that the employer is the person who decides to create a scheme. He stands behind the scheme and has a considerable interest in ensuring that it is properly run. If it is not properly run, he is the person—unless he decides to take drastic measures—who has to put cash into the scheme to make it up.

Lord Desai

Perhaps I may ask the Minister another question before he sits down. I detect a logical flaw in his argument. On the one hand, the Minister has said that trust members do not represent any interest except their fiduciary duty to the trust; but, on the other hand, he seems to be speaking in terms of "employers' interests" and "employees' interests" and saying that unless an employer has at least a majority of members on the trust board, he will not set up a scheme. Are the trustees partisan, playing for one side or the other, or are they all neutral? If it is the case that employers cannot set up schemes unless they have a majority, that changes the logic of the trust. Could the Minister please clarify that point?

Lord Mackay of Ardbrecknish

I have tried to explain where we are on this point. Of course, the trustees have a duty to the whole scheme. They are not there as representatives. That is perfectly clear. However, that does not get away from the fact that if something goes awry with the scheme, it is the employer who stands behind the guarantee. That has to be in the interests of all the members of the scheme. I should not think that anything would divide us on that aspect.

The point that I am making is an important one about how people become trustees. We have clearly gone a long way from the current position by establishing a minimum of one-third. I believe that going further would upset a balance which takes many issues into account. That question of balance includes whether one wants to encourage employers to set up occupational pension schemes and to continue with them. Those are questions of considerable importance which we have to take into account. At the risk of sounding like Members on at least one of the Benches opposite, I think that we must appreciate that there is a balance in all these things.

Viscount Caldecote

I wonder whether my noble friend could clarify his answer to my question about a pensions holiday. Was he saying that it is possible—that it is legal—for an employer to say, "I'm going 451 to cease paying contributions because of the over-funding", but to insist that the employees continue to pay their contributions? That seems to have a bearing on the merits of the amendment.

Lord Mackay of Ardbrecknish

We shall come to the problem of a contributions holiday later, but my understanding—I hope that my noble friend will forgive me if I say "my understanding" because this is all pretty complicated—is that under the Bill an employer will be able to take a contributions holiday if that is the way in which it has been agreed to deal with any surplus. I hope that that answers my noble friend's point.

Viscount Caldecote

Can the employees be forced to continue their contributions while the employer is not contributing?

Baroness Hollis of Heigham

Yes.

Lord Mackay of Ardbrecknish

I think that was implicit in what I said. Yes, of course he can. The employees will continue with their contributions at whatever rate has been agreed. The employer may take a contributions holiday in the circumstances that we shall come to if the fund is in surplus. I do not want to go into the debate about why that should be the case, but I want to make the point now that the employer is in that position because, if the opposite happens, it is the employer who has to pick up the tab for the deficit.

The Earl of Buckinghamshire

Perhaps I may answer my noble friend by saying that the question of legality will be covered in the trust deed and rules. The scheme will be run in accordance with the trust deed and rules.

Perhaps I may quickly clarify the position on the issue of deferred pay of which much was made at Second Reading and which has been raised today by the noble Baroness, Lady Dean. The case that we are referring to is the Barber case of May 1990 which reached the European Court, which held that for equal treatment purposes, pension rights were to be treated as pay. That judgment did not hold that the assets guaranteeing the pension rights were pay, except possibly in money-purchase schemes. The ownership of the assets was examined at length by Professor Goode who did not reach a definite conclusion about where the ownership of the assets lay but, on balance, in a balance of cost and defined benefits plan, he came down on the side of the employer.

That is the view of the judiciary also, as we can see in Imperial No. 1, the Hillsdown case, which is based on the view that a pension fund in a final salary scheme acts as a guarantee of the employer's promise to pay a pension on retirement. There is no such need for a guarantee of the employer's promise to pay a pension on retirement in public sector schemes because the Government stand behind them. The reason Civil Service schemes are not funded is that there is that guarantee behind them.

452 I wanted to clarify the position of whether a pension is deferred pay. The assets have nothing to do with the issue. The pension rights have. The Committee may not wish that to be so, but it is the actual position.

Baroness Hollis of Heigham

That explanation from the noble Earl is helpful, because it is our understanding of the situation. Some extraordinarily distinguished voices have taken part in the debate. They range from my noble friend Lacy Castle who, as Minister, introduced some of the most significant pensions legislation, to the noble Lord, Lord Ezra, a company chairman, and the noble Lord, Lord Allen, who founded the Occupational Pensions Board. They have all given the same message: they support the amendment.

The noble Lord, Lord Dean of Harptree, raised some entirely appropriate points. First, he accepted that 50 per cent. of trustees drawn from scheme members is already good practice in most of this country's major companies. There is no dispute between us. This is not some leap into the dark, some will of the wisp, but is standard practice in this country's best blue chip companies. The point made by the noble Lord—this was supported by the Minister in his reply—is that he fears that such a requirement may deter employers in the future who are considering setting up occupational pensions schemes.

At the moment, as I understand it, about 92 per cent. of scheme members are in final salary schemes. The noble Lord is right: employers are looking increasingly to money and money purchase schemes within the company. But, of course, in a money purchase scheme, Goode recommended that there should be two-thirds member trustees, because the financial weight carried by the scheme members vis à vis employers was that much greater. Given the argument put forward by the noble Lord—if he accepts, as I am sure he does, that companies are moving increasingly to money purchase schemes—then there is a even greater need for the amendment than he might otherwise suggest.

I think the Committee will agree that experience seems to suggest that most companies go into hybrid schemes. People in their late 30s and 40s, when they are making a lifetime commitment to the company, often move on to final salary. Amendment No. 108 meets both those needs. Otherwise, particularly with money purchase schemes—the noble Lord, Lord Dean, is probably right that employers are going that way—those people who are making substantial, significant contributions will be left relatively exposed because there the employer has no such responsibility to pick up the deficit. All that is promised is a defined contribution, not a final benefit. Following the noble Lord's argument, it is even more important that the amendment be accepted.

The Minister emphasised the point about the employer's interest, and called on us to go for an even-handed approach. That is what the amendment does. It is an even-handed approach which is reflected in Boots, ICI, Unilever, Sainsbury, Shell, Courtaulds, 453 and Allied Lyons. They think that it is in their companies' interest to have an even-handed—to use the Minister's words—approach to scheme members.

I have asked around whether any company with a 50:50 approach has found any disadvantages. I have not been told of one company. Through the organisations representing employers, not one company has said, "This is a disadvantage". On the contrary, major companies such as Sainsbury have said to the Social Security Select Committee in the other place what an asset it has been to the company to have such an arrangement. It hopes that smaller company schemes will follow suit.

Lord Mackay of Ardbrecknish

I thank the noble Baroness for allowing me to intervene. In the list of companies she has read out, I wonder whether she is distinguishing properly between member trustees and member-nominated trustees. That is my first point. The second point I should like to make, having listened to the last few sentences, is that one may perhaps be led to believe that we are going to say that there must be one-third only. In fact, it is a minimum of one-third. So all the companies to which she has pointed and which, I agree, are doing something sensible and splendid for them, can continue to do that. She should not be sounding as if somehow this provision will in any way endanger what the schemes are already doing.

Baroness Hollis of Heigham

I thank the Minister for that intervention, because if it means that he concedes that the amendment is desirable—because that is what the Bill will permit—I welcome him to our side of the Committee. As for the distinction between employee-elected and employee-nominated trustees, no, I am not making that distinction because a number of the major schemes—there may be Members of the Committee who know more about the detail of those companies than I do—draw their people from electoral colleges because their membership base is so large. That would confuse the either/or that the Minister has suggested. I believe that that is the case with ICI, Unilever and Shell.

I should like to repeat the basic point: this is an even-handed amendment which will have two advantages. First, it will not result in the employer acquiring any additional financial responsibilities so far as concerns benefits. As the noble Viscount, Lord Caldecote, asked, once a Bill becomes an Act the employer may still take contribution holidays while the employees continue to make their contributions. That remains unchanged, as does the employer's power to wind up a scheme or to refuse to make any changes that he does not think to be in the company's financial interests. The employer's powers of veto as a long-stop are unaffected by the amendment.

What the amendment will do is to bring up to the best the practices of the weaker schemes. It will provide an even-handed approach which will ensure 454 that all trustees, wearing their fiduciary duty hats, will seek to deliver the pension promise that we all want. I hope that the Committee will support the amendment.

Baroness Dean of Thornton-le-Fylde

I speak in support of the amendment. I wish to clarify a couple of points that have quite rightly been raised. The first relates to the pensions holiday. There is no law that provides that the employer who takes a contributions holiday has to allow the employee a reduction in contributions or a pensions holiday. There is nothing to stop the trust rules from saying that. There is nothing to stop the trustees agreeing to do that, but in my experience it happens in a minority of cases only.

I have been a trustee of two pension schemes. Both those schemes reduced contributions from the employees when they were in surplus. However, one must bear in mind that over the past half decade a substantial number of schemes have been working in surplus and so a substantial number of employees have been taking pension holidays.

My noble friend Lady Castle talked about her friend who was affected by the Maxwell pension fund. A number of Maxwell pension funds were in surplus. Maxwell did not pay a penny piece in employer's contributions into the very funds he was defrauding of their assets. So the balance is unfair.

The Minister said that there should be a one-third/two-thirds split because that would enable employers to stand behind their schemes. He said that it was in their interests that the schemes should be well run. What about the employees? It is in their interest that a scheme is well run. They are the people who have to pick up the pieces at the end of their working lives if the scheme is short, not the employer. Few employers are in the same scheme as their employees, as we have seen recently with some of the alleged public sector scandals.

As regards the Civil Service, when I was negotiating on behalf of people in HMSO, for instance, I was always made aware during the annual pay negotiations that I should take into account the fact that the payment to the members that I represented included an equivalent 9 per cent. contribution towards their pension. It is totally incorrect to say that a pension is not deferred pay. However, I am a realist. I am also a pragmatist. I have heard the tremendous well of support that the 50:50 rule for trustees has gathered. On that basis, I beg leave to withdraw the amendment.

Lord McIntosh of Haringey

We have no objection to the amendment which seems to improve the wording. I ask the noble Lord not to describe the amendments as "technical" all the time. He did so on the first day of our Committee stage and on a number of occasions that simply was not the case. Real changes of policy were involved even though the amendments had been described as "technical". The amendment is not objectionable but it is not a technical or drafting amendment.

Lord Desai

I support the amendment. I have been approached by the BT and Post Office Pensioners Association which is strongly in favour of the amendment. I agree with what the noble Baroness said. As a group, pensioners have an interest in how schemes are run. Although we take the point that trustees are trustees and are not representing sectional interests, I believe that it is fair and just that one pensioner should be on the board, especially when a scheme is mature and pensions are being paid through it.

458 This proposal has commanded a great deal of support in the briefings I have received. Some Members of the Committee may have seen a letter in The Times on 4th February by Mr. Don Langford who is chairman of the English China Clays Executive Retirement Benefits Scheme Pensioners' Association. He believes that the proposal is in the interests of pensioners. Therefore, I support the amendment.

Baroness Hollis of Heigham

I support the amendment for three reasons. There are three rather than two parties to the pension promise—the employer, the employees and pensioners, both active and deferred. It is right and fair that the trustees should reflect the experience of the three parties, even though they are acting in an overall fiduciary way. There are 5,000 schemes with 1.83 million members which have a pensioner trustee and that is regarded as a valuable addition. It is necessary to ensure that the trustees reflect the balance and breadth of interest we wish to see.

Secondly, to emphasise a point already made, the experience and interests of pensioners may differ from those of employees. It is important that the trustee board should hear that voice. For example, issues as regards the eligibility of new members which may dilute schemes; changes in benefits for contributions; or changes in accrual rates which may add to future liabilities, are all matters of considerable significance to pensioners. Their interests may be at odds with those of active members. That is especially important when the scheme has in it more retired than active members.

The third reason for supporting the amendment is that a pensioner—in particular a pensioner who is elected or selected by his fellows—has time to give, very often has a real expertise, and has the retirement status to make him independent of improper pressure from any quarter. In a very real sense, a pensioner is less likely to be sectional and more likely to carry a fiduciary responsibility and stewardship than the other parties to the pension promise. For those reasons, we strongly support the amendment.

Lord Ezra

It seems to me that the argument is unassailable that we need to have on the boards of trustees members who represent all interests. Of course they will serve the scheme jointly, but in performing that service they would bring to it the expertise which has come to them from being concerned mainly with management, being working members of the scheme, or being pensioners. I should have thought that the Government could agree that such an amendment would strengthen the legislation.

Lord Mackay of Ardbrecknish

As has been pointed out clearly by those who have spoken, the amendment would oblige schemes to give pensioner members the right to select trustees. Therefore, it would give pensioner members a status and privilege greater than that given to other 'members and would limit the freedom of schemes to develop the selection arrangements best suited to their circumstances. Indeed, some schemes operate along the lines suggested by the noble Baroness and a number go even further and have specifically selected or elected pensioner members. Nothing in the Bill prevents that continuing. As I shall 459 say on a number of occasions, after the Bill is enacted it will be very much a matter for the active and pensioner members as to how the member-nominated trustee section of the Bill should be dealt with when the scheme is put before them by the employer for their approval.

As I said, a wide variety of schemes operates at present. It would be wrong to impose a rigid and uniform selection process which may be quite unsuitable for some of them. Schemes should be free to develop their own arrangements for the selection of trustees, but such an arrangement must command the approval of active and pensioner members. That may be extended to deferred members if the trustees so wish.

Those arrangements will determine who is eligible to nominate trustees. Members' interests, including pensioner members' interests, will thus be protected by the regular statutory consultation procedure. The Bill gives equal opportunities and rights to both active and pensioner members. I hope that the Committee will agree that it is for scheme members to decide the best way to nominate their trustees.

The amendment would in fact introduce a mandatory pensioner trustee by the back door, although I know that some Members of the Committee would be quite open and would want to introduce such people by the front door. I fully accept that various organisations representing pensioner interests have lobbied us on the point. We have listened most carefully to their arguments; indeed, as I indicated, I share their view on the diligence and competence of the vast majority of pensioner trustees. I do not argue at all with the noble Baroness about that aspect of her speech, although she said it in a way that rather assumed that I opposed it. That is not the case.

I know that many schemes have pensioner trustees. We have received evidence from many sources of the considerable contribution that they can make to running schemes. That evidence may well encourage scheme members to nominate a pensioner member as a trustee voluntarily. We want to see the best possible trustees running schemes. We have no objection to pensioner trustees, or any other type of trustee, if that is what the members want.

The noble Baroness, Lady Hollis, gave three reasons why she thought pensioner trustees were a good idea and should be made mandatory. There is no dispute between us about them being a good idea if that is what scheme members want. However, the dispute between us concerns whether that should be made a mandatory requirement and written on the face of the legislation.

The noble Baroness mentioned the fact that pensioners would somehow be free from improper pressures, although, interestingly enough, she instanced as one of her reasons the particular interest that pensioners would have against what may be the interests of active pensioners. That is not really an argument that I should like to see developed—namely, the role of one trustee against another—as regards members' interests.

One of the noble Baroness's main arguments was about the pressures exerted on employee trustees by an employer. We have heard a good deal about that during our deliberations from the noble Baroness, Lady Dean, 460 who has the experience of the Maxwell pension business to fall back upon. Indeed, no one could argue with the horrors of that particular case.

However, similar claims could be made against pensioner trustees—for example, that they were only interested in enhancing pensions and that they see themselves as representative of pensioners. I do not believe that we should give weight to any of those suppositions. I wish to avoid anything that could lead members to regard the trustees whom they select as representative of a particular group or faction among the members of the scheme, whether they be active members, deferred members or pensioner members. If pensioner members were singled out to have the right to nominate their own trustee, there could be a danger that that trustee might not enjoy the confidence of active members. It would of course be quite a different situation if a pensioner member is selected to be a trustee under impartial rules agreed by both active and pensioner members.

As I have said, trustees are not representative of any particular party to the trust deed. They are required to act in the best interests of all parties. Their conduct will very much depend on their qualities as individuals rather than their category within the scheme. However, in the event of improper interference by an employer in areas covered by trustees' powers, there are several safeguards. Trustees will be free to approach the occupational pensions regulatory authority if they feel that the employer is obstructing them in the performance of their duty. There is the duty on scheme professionals to report any irregularities to the authority and the employer will not be able to dispose of a member trustee simply by terminating his employment. Trustees will enjoy the same protection under employment law as other employees.

Pensioner members should have the same rights as active members in approving any selection rules proposed by the trustees of their schemes. However, accepting the proposed amendment would fetter members' choice by imposing preconceived selection arrangements. It would restrict the freedom of schemes to develop their own selection rules which would be developed to meet their own particular requirements. If the matter becomes the subject of a Division, I would urge Members of the Committee to reject the amendment.

Baroness Seear

I must say that I find the Minister's response most astonishing. To have a pension trust scheme without a pensioner on it is surely "Hamlet" without the prince writ large. What is it for, except pensioners? Why on earth—

Lord Mackay of Ardbrecknish

I am sorry to interrupt the noble Baroness but I cannot allow her to get away with that remark. That is not what I said. The noble Baroness wants to make the position a mandatory one in respect of pensioners. Nothing in my speech could possibly have been interpreted as meaning that I 461 do not approve of pensioners being trustees. What I do not approve of is the fact that, under the amendment, they would have a mandatory place on trust schemes.

Baroness Seear

I understand that, but the Minister has left the matter in such a way that the producer of the play is still free to leave out Hamlet. That is my contention. It should be a mandatory requirement for a pensioner to be on the trust scheme. That is the difference between us. The Minister said that if a pensioner gets there, then that is fine and he would have no objection. However, we are saying that this is a scheme for pensions and, to say the least, it seems odd that there should not be a pensioner on the trustee board.

I hope that we do not have to say at every stage of the Bill that we accept that pensioners do not represent interests. Indeed, we have accepted that fact at least three times during our debates this afternoon. I hope that we shall not have to do so again. However, we are saying that pensioners have an approach, the knowledge and the experience of how the scheme is working that is not available to those who are still working or to someone who is an employer. Their experience is different and such experience is well worth having.

I do not accept the Minister's contention that protection against victimisation is sufficient for the people who are already there. A wink is as good as a nod to a blind man. You do not have to tell the member of the trust scheme that he is out if he does not go along with what the employer wants. It is very easy for an employee member to sense what the feeling is and to hold back from the kinds of suggestions and criticisms that he would otherwise make for fear of what the consequences might be. The pensioner is in no such position. He has a freedom to speak that the working member does not have. I believe that all the points at issue have been put most clearly. I must test the opinion of the Committee.

Lord Marsh

As the noble Baroness said, the legislation poses some onerous liabilities upon trustees. Indeed, one of the reasons why I have been somewhat less than enthusiastic for the growing attempts to represent ever more employees among the trustees is precisely because of the sheer size of those liabilities.

Perhaps I may refer briefly to the investment power. The Bill refers to, Liability for breach of an obligation under any rule of law to take care or exercise skill in the performance of any investment functions". That is a pretty heavy and onerous liability.

As one becomes more and more concerned about the situation, one turns to the amendment. My immediate reaction to the amendment was that the situation would be so outrageous that it could be dealt with under the heading of wrongful dismissal or constructive dismissal.

Lord Hailsham of Saint Marylebone

Or unfair dismissal.

Lord Marsh

As the noble and learned Lord says, or unfair dismissal. That is not my belief, on reflection. I shall say why in a moment.

In the case of directors, the Cadbury Report concentrated strongly on ensuring that directors were forced to a realisation of the liabilities which they face. The provision has worked well. It is now common for directors of companies, including people now known as shadow directors, to refuse to continue a discussion with a company in difficulties until there is legal advice available in the room. A few years ago that position would have been regarded as ludicrous.

The Cadbury Report was also anxious to ensure that some directors should not be totally reliant upon the company for their employment and living. In this case, we have trustees with liabilities every bit as serious as those for directors of public companies, many of whom will owe their entire standard of living to the employer concerned. Therefore, I believe that the provision is extremely important. We shall come to the liabilities on trustees in general later. In those circumstances, it is difficult to conceive of any situation in which the trustees could be more at risk.

Reference has been made to very large companies, the numbers of employee trustees, and even pensioners. Those large companies have literally hundreds of people as executives in every conceivable discipline. Medium-sized housebuilding companies do not. Many of those people will find themselves for the first time in a situation where they have to challenge people sitting on the other side of the room who have education, sometimes in quite technical areas. If those people seriously intend to do their job, they will sometimes make mistakes and it is possible that a bad employer 466 will seek either to threaten or actually ensure that those persons lose their jobs as a result. Therefore, why does the existing law not protect them?

The law does not do so because we all know what will happen in the real world in an unfair dismissal case. First, the employer hires counsel. Secondly, the employer spins the matter out for as long as he can in the run-up to attending court; and unless that employee is defended by a trade union or has some legal liability insurance, which is unlikely, he will have to give up because he cannot afford to go on—he will lose his job—or have second thoughts and not raise the issue anyhow.

Therefore, I believe that the amendment is important. The provision is crucial if people are not to be faced with running the risk of losing their employment when seeking to discharge their duties, or caving in and sitting quiet. If that occurs, as I believe it will in some circumstances without such a provision, it strikes at a major protection of pensioners in the Bill. I therefore support the amendment.

Lord Boyd-Carpenter

On the face of it, the amendment seems reasonable. There may well be an answer and I await the Minister's reply with interest. However, I say to the Minister that on the face of it, as matters now stand, it certainly looks a reasonable proposition. If the Minister decides to reject it, the onus is on him to demonstrate what is the matter with the provision.

Baroness Seear

The amendment stands in my name, too. However, with such powerful support from the noble Lords, Lord Marsh, and Lord Boyd-Carpenter, there is little for me to add. That support has come from quarters from which one might not expect it. I made this point on the previous amendment, but I did not notice either of those noble Lords in the Lobby supporting that amendment. However, that is water under the bridge.

This is plainly one area in which the Government can show that they have second thoughts. I beg the Minister to take on board this most important amendment if he wishes the whole scheme to be taken seriously, with member participation a real and effective part of the scheme.

Lord Finsberg

I speak as trustee of a large pension fund. I have not experienced this problem but I agree very much with my noble friend Lord Boyd-Carpenter and the noble Lord, Lord Marsh, that there is a real danger. It is an even more subtle danger. Somewhere down the line someone may quietly say, not necessarily with the authority of the directors, "Watch out for your promotion". One can never take such a subtle statement to court. The Minister is bound to say—I have said it myself when I was a Minister—that the amendment is technically deficient. However, if he says that, I hope that he will undertake to come back at the next stage with a provision which covers this important issue.

Lord McCarthy

With such degree of support throughout the Chamber, one hesitates to enter into the debate in case one queers the pitch. However, I seek to anticipate the Minister's answer because no one else seems able to do so.