A short while ago we debated whether there should be the possibility of employers being appointed as members of the trustee corporation. I said at that time that I supported the appointment of members as trustees. I was surprised that the Government seem rather more equivocal, because there is no requirement in this Bill for there to be member trustee corporation members. My amendments in this group seek to remedy that.
Amendment No. 112F requires there to be three member trustees within the nine to 15 member bracket in paragraph 1(2) of Schedule 1. Amendment No. 112H would alter paragraph 1(4) so that an order setting up a pension scheme under Clause 58 must apply Section 242 of the Pensions Act 2004. I hope that the amendments commend themselves to the Minister and I beg to move.
First, I make it clear that we fully intend to respect the purpose and intention of Clause 242 of the Pensions Act 2004; that is, to have one-third of the individual members of the trustee corporation nominated in some way by the scheme members. I say "in some way" not to be deliberately vague, but because the personal account scheme is unlike other occupational pension schemes. It will not have a sponsoring employer, or even a group of sponsoring employers. The personal account scheme is expected to have millions of members who work for many thousands of different employers. This puts the scheme in a unique situation with regard to contact with the scheme's membership.
Turning to Amendments Nos. 112F and 112H, tabled by the noble Baroness, PADA has been set the task of designing the process for interaction between the trustee corporation and the scheme members, and the process for trustee recruitment. Until we receive PADA's advice on these processes, we will not know if we can simply amend Clause 242—or regulations under it—to include the trustee corporation, or whether we need to design a bespoke solution, such as nomination via the members' panel, which we would set out in the scheme order. This is our reason for using the word "may" rather than "must" in both this paragraph of Schedule 1 and in Clause 60(4). We need this flexibility. When we have all the relevant advice and information, we will make the appropriate decision based on it. As I have previously said, the trustee corporation is the sole corporate trustee and it must act in the best interests of the scheme members, within the terms of the trust. They cannot have special interest groups to represent.
In relation to the specific number of prospective members, under trust law, as I am sure noble Lords are aware, a trustee's most important job is to protect the interests of beneficiaries under the trust. In this case, those interests are the pension savings of the scheme members. A trustee should not be directly required to act in anyone else's interests. Prospective members are, of course, important to the trustee corporation and the future viability of the scheme. For this reason, the trustee corporation will work with members and participating employers, through the panels, to ensure that the scheme is running smoothly and that any issues are resolved. In this way, we will make the scheme as attractive as we can both to new employers and members, within the limits set down. I hope I have indicated that, in principle, we are entirely at one with the noble Baroness, Lady Noakes, but the steps of setting up the scheme are such that the way we have put it in the Bill so far is the right way forward to achieve the principle of Clause 242.
I shall speak also to Amendment No. 112K. Paragraph 2 of Schedule 1 deals with conflicts of interest. My amendments are not addressed to the need for members to avoid conflicts of interest, but to the Secretary of State's ongoing involvement. He is not only involved in appointing someone who does not have a conflict of interest, but has to keep an eye on this "from time to time". That is, under the terms of this Bill, the Secretary of State has both an initial and an ongoing requirement to monitor the status of members of the corporation, outside the initial period, even if he has not appointed them.
I do not understand the need for this or the need to create within the Department for Work and Pensions the mechanism to monitor—on behalf of the Secretary of State—conflicts of interest within the trustee corporation. My amendments remove the Secretary of State from the process once the initial period has passed. The responsibility would then be with the trustee corporation, which is as it should be. That is what happens in organisations such as boards; they have to ensure that conflicts of interest do not get in the way of business, and that important ones do not exist. My amendments seek to take the Secretary of State out of the process because it would be impractical—or, indeed, involve too much public sector, Civil Service effort—to comply with this after the initial phase. I beg to move.
As the noble Baroness has explained, the effect of these amendments would be to limit the Secretary of State's role in considering conflicts of interest in relation only to appointments made within the initial period, and the corporation's role in conflict only to appointments made after the initial period. I would like to take this opportunity to explain our reasoning for both the Secretary of State's and the corporation's continuing role in conflicts of interest.
As has been discussed, we know that appointments to the trustee corporation in the "initial period" will be made by the Secretary of State. After this period, the trustee corporation itself will be responsible for making appointments. Clearly, it is important, bearing in mind the responsibility they will have for investing the contributions of scheme members, that there are sufficient checks on whether any conflicts of interest exist among members of the trustee corporation.
The corporation itself will have an interest in potential conflicts of interest for the individuals who are members of the corporation, whether or not the appointment is an initial or a later one. They must act together in scheme members' best interests, but a conflict of interest for an individual member could restrict their ability to carry out that legal duty.
Equally, even though the Secretary of State will not have a responsibility for appointments beyond the initial period, he will always retain a level of responsibility as "settlor" of the scheme. Following this, the trustee corporation, as a public body, will always be accountable through the Secretary of State to Parliament. Given the accountability of both the trustee corporation and the Secretary of State for the scheme, it is right that both should have power to ensure that there is nothing which could compromise the integrity or reputation of the trustee corporation.
I am bound to say to the noble Baroness that I do not see any of these involving great processes of administration, but I think that they are important safeguards, both in the public interest and for the corporation. I ask the noble Baroness to withdraw the amendment.
"The Secretary of State and the corporation must also satisfy themselves from time to time that none of the members has a conflict of interest"?
How is he going to do that? Is he going to keep tabs on all the members of the corporation or have investigations carried out on them?
It depends on the circumstances. I do not see this as being an unduly onerous or time-consuming event. It is more likely to be relevant if issues arise in the public domain because of the conduct of one individual or another. It may be that the corporation itself, undertaking its duties, will swap conflicts of interest which need to be communicated to the Secretary of State. That would be one route. The idea that there is perpetual tracking of the members is far from reality in this case. I just do not see it as a great issue.
"The Secretary of State and the corporation must also satisfy themselves".
It is one thing for the Secretary of State to be reactively waiting for somebody else to tell him that an issue has arisen—I think that is what the Minister said—or that the trustee corporation chooses to make a communication with the Secretary of State. This is quite prescriptive; it says that the Secretary of State "must" satisfy himself,
"from time to time that none of the members has a conflict of interest".
I am trying to find out whether this is a practical proposition in the Bill or just a misguided bit of writing, putting the Secretary of State into every nook and cranny of the corporation.
It certainly is not the latter. If the noble Baroness reads the totality of paragraph 2(2), it says,
"The Secretary of State and the corporation must also satisfy themselves from time to time".
That does not mean every minute of every waking hour. It says "from time to time". That seems to me to be entirely reasonable and practical. The noble Baroness is making very heavy weather of this.
It might be both. It might be that from time to time the Secretary of State just needs to touch base with the corporation to satisfy himself that everything in this regard is in order. I simply do not see this as the magnitude of issue that the noble Baroness is making out.
I did not move Amendment No. 112L. This is Amendment No. 112M.
Paragraph 2(6) of Schedule 1 deals with people who are not to be taken as having a conflict of interest for the purposes of appointment to the trustee corporation. It mentions people,
"being or having previously been engaged, on behalf of the relevant authority, in activities ... relating to ... pension schemes".
The relevant authority is the Secretary of State. I am not at all sure what "engaged on behalf of" means, or who those people are. The purpose of Amendment No. 112M is to ensure that we are not disallowing people who were or who had previously been engaged on behalf of the Personal Accounts Delivery Authority in the same way as those engaged on behalf of the Secretary of State.
I thought that, in addition, there might not be much difference between people employed by the Secretary of State or PADA and those "engaged on behalf of" them so I have proposed a new sub-paragraph (6)(c) to deal with that in Amendment No. 112N. Perhaps the Minister will shed more light on paragraph 2(6) and the people it is targeting. I beg to move.
I previously explained why it is important that potential conflicts of interest are taken into account when considering appointments to the trustee corporation. The Bill sets out two circumstances in which it is assumed that a person will not be taken to have a conflict of interest for those reasons alone—first, if a person has been working on behalf of the Government in relation to pensions and, secondly, if a person has been a trustee or manager of a pension scheme. However, this is not an exhaustive list. The amendment seeks to add to the list individuals who worked for the Personal Accounts Delivery Authority but, as I have just said, the list is not exhaustive and therefore working for or being a member of the Personal Accounts Delivery Authority would not automatically disqualify somebody from being a member of the trustee corporation on the grounds of conflict of interest.
A member or member of staff of the delivery authority could, like anyone else, apply for appointment to the trustee corporation. They would be considered, like anyone else, as part of the recruitment process and this would include considering whether there were any conflicts of interest. The delivery authority will be advising Government on the recruitment process for individual members of the trustee corporation, but decisions about who to appoint in the initial period will be for the Secretary of State. It is worth noting that the trustee corporation will be a completely different organisation from the delivery authority and that very different skills are required to design a pension scheme compared to those required for running one as a trustee. Therefore we would not want to make any assumptions and each case will have to be considered on its merits.
I hope this has reassured the noble Baroness that individuals who have worked for the Personal Accounts Delivery Authority would not on those grounds alone be excluded from being members of the trustee corporation. I can see there might be some merit in making that specific on the Bill but I believe it is unnecessary. I hope I have put this clearly for the record.
Sub-paragraph (3) says that the appointment period can be up to four years and a person may be reappointed only once, and hence the maximum period is eight years. It seems to me that this is a rather short period for something as complex as the personal accounts pension scheme. We all know that boards need to be refreshed, but the Bill proposes a shorter period than is generally used in the listed company sector, where norms do exist. In practice in the listed company sector, we are finding that the norm is lengthening.
There was considerable dissatisfaction with slavish adherence to what appeared to be the rule in the Financial Reporting Council's corporate governance statement of a maximum of three times three years, which was driven by independence. The FRC looked at that rule last year and emphasised that a person could continue beyond nine years, provided that a board was satisfied with independence. Many boards made representations that they were being deprived of some of their most useful talent—those who understood the business—because the corporate governance rulebook made it difficult for them to do anything else. That has now changed and there is an acceptance that independence is the criterion and not some silly time period that is used to define it.
Will the Minister explain how the policy of creating an effective personal accounts scheme is served by removing members of the trustee corporation in a period that is less than is emerging practice in the corporate sector, at a time when those people, given the complexity of personal accounts, may well be—not in all cases—at their most useful? I beg to move.
Schedule 1 includes provisions that deal with the period for which a person can be appointed to be a member of the corporate trustee. It sets the period of appointment of a member, or the chair, of the corporation at no more than four years and prevents someone being reappointed more than once. In other words, no one can serve for more than eight years. The amendment would entirely remove those limits.
In responding to this amendment, I should first explain that we intend appointments to the corporation, which will be a non-departmental public body, to follow the principles in the code of practice of the Office of the Commissioner for Public Appointments—the OCPA. This code suggests that it is in the public interest to limit the length of appointments made by Ministers to be no longer than a total of 10 years to encourage new blood and new ideas, and to give other people an opportunity to serve on a public body. Of course, in the case of the trustee corporation, appointments after the initial period will be made not by Ministers but by the corporation.
The good practice of limiting the term of appointment should be included in this Bill for several reasons. First, it will continue the practice begun by the Secretary of State, who will make the initial appointments to this NDPB in accordance with the principles of the OCPA. Secondly, as the scheme is being set up to fulfil a public policy objective, it will be appropriate for members of the corporation charged with running that scheme to follow the good practice of the OCPA. Thirdly, beyond the initial stage, the members of the trustee corporation collectively will be making appointments. This amendment could therefore effectively allow them to appoint themselves for unlimited periods, or might result in different members being appointed for different periods. Clearly, this could lead to unfairness and accusations of unfair treatment, and we simply cannot take that risk.
The most effective blend of members of the trustee corporation will be a mix of fresh faces, new ideas, experience, pensions expertise and corporate memory. The appointment periods set out in the Bill will ensure that such a blend can exist. Furthermore, I believe that the limits on the period of appointments that we have chosen match the responsibilities of the trustee corporation, while remaining well within the maximum proposed in the guidelines of the Office of the Commissioner for Public Appointments. Setting a reasonable limit on the periods of appointment will strike a good balance between the independence of the members of the trustee corporation and the good practice of the OCPA.
I hope that the noble Baroness is reassured about the reasons for these limits and I ask her to withdraw the amendment.
Does the Minister accept that the brief he has just read out was very much couched—and the code suggests—to mean that it is not in the public interest for people to serve longer than 10 years? That is not, in my view, a reason to have an absolute ban on anybody under any circumstances going on for more than eight years. It seems to me that the sort of background he was giving about balance of corporate memory, experience and so on—I speak from experience of many pension fund boards—is that in some circumstances it is right that people should be able to go on longer. To move from suggestions in a code to an absolute ban does not seem proportionate. I do not think an absolute ban is sensible.
The problem with anything but an absolute ban is that it is difficult to see how you would put the controls into a body that we are seeking to make as independent as possible. There might be a general guidance if this was within the discretion of the Secretary of State, and that may be one way forward. But since we are removing it from the discretion of the Secretary of State after the initial setting up, I think it is difficult to see any device which achieves the objectives I set out, other than an absolute ban.
I see the point the Minister is making; that without the Secretary of State's involvement beyond initial appointments there will be no levers if the Secretary of State thought that people were staying beyond their term. However, the point made by the noble Lord, Lord Oakeshott, is very valid. The Government have taken an advisory limit and turned it into a lower absolute maximum. That advisory limit is already higher than the figure that the Government have drafted into the Bill and our experience—especially from pension boards, of which the noble Lord, Lord Oakeshott, has much experience, and certainly from corporate life generally—is that this is likely to constrain rather than assist in operating this properly.
I would think that the Government would want to avoid having to get rid of a damn good member who really knew the personal accounts scheme backwards, knew the legislation and had all the relationships, was still young, vital and whatever because eight years had come up. That is not how good organisations operate. I had hoped that the Minister might be able to take this away and think about it. In the long-term interests of creating an effective board, the Government need to provide a little more flexibility. I take the point that the Minister made about having levers. It may be that a higher overall limit, which can then be communicated in advisory terms between the Secretary of State and the board informally, would serve the needs of the pension accounts trustee corporation better than what the Government have currently drafted.
Perhaps I could suggest to the noble Lord that if there has to be an absolute ban for the reasons so given, the tenure advisory guidance should be between eight and 12. If there has to be an absolute ban, perhaps the Minister would consider whether it could be two re-appointments rather than one—that is to say, an absolute ban on 12 years rather than eight.
I shall speak also to Amendment No. 112T. Both amendments concern an audit committee for the trustee corporation.
This ought to be uncontroversial. The Minister knows that when I say that, I am heading for a small disagreement with him. When we get to Clause 74 we will find that the Personal Accounts Delivery Authority will be setting up a non-executive committee which, inter alia, will keep an eye on PADA's internal financial controls in securing the proper conduct of its financial affairs. That is what audit committees very broadly do—throughout the corporate world, and pretty much the public sector as well. Why is there no equivalent for the trustee corporation?
Of course, the corporation will be comprised of non-executives, and so a group delineated in the way that is being set up for PADA would be inappropriate. However, it should still be necessary—indeed, it should be vital—for an organisation such as the Personal Accounts Delivery Authority to have an audit committee. Internal financial controls are obviously important in any organisation but this one will have huge sums of money related to a very large number of transactions, which in turn will relate to a very large number of individuals. The controls need to operate effectively not only at the level of the whole corporation but also at the level of the individual; clearly, they need to operate so that an individual's pension entitlement is correctly calculated.
Therefore, Amendment No. 112S alters paragraph 9 of Schedule 1 so that the power to establish committees is modified. There would have to be a committee looking at financial controls. Amendment No. 112T adds an annual reporting requirement to paragraph 17, and the work of the committee that I have just described should be included in the annual report. That is standard practice and also mirrors what PADA will be doing by virtue of Clause 74. I hope that the Minister will agree that this is a no-brainer. I beg to move.
It gives me great pleasure to respond to the noble Baroness's no-brainer. The trustee corporation will receive all members' contributions. Most will be invested on members' behalf but of course there will be a charge for running costs—direct costs such as salaries and lease of premises, and indirect costs such as external contracts. Therefore, the trustee corporation is accountable to the scheme members for how their money is invested and in relation to whether the charges are reasonable and proportionate. As with all pension schemes, this scheme will produce an annual report and accounts, which will be audited and published. We discussed this audit when debating Clause 58.
The trustee corporation is being set up as a non-departmental public body. This places an additional requirement on it, as its accounts, setting out moneys received from charges and what it has spent on running the scheme, have to be independently audited by the National Audit Office and laid before Parliament.
Although the two sets of accounts are separate, they are so closely linked that it is inconceivable that one can be looked at without examination of the other. Whether the scheme accounts will form an annex to the NDPB accounts or whether it will be the other way round is a detail yet to be decided. However, I can say that the scheme members and Members of Parliament will see both sets of accounts.
As an NDPB, the way in which the trustee corporation operates will be set out in a framework document. This will follow the guidance for all NDPBs issued by Her Majesty's Treasury and the Cabinet Office. In particular, the framework document will follow the Treasury guidance, Managing Public Money. It will specify how the NDPB must account for any money received; it will set out management and financial responsibilities; and it will clarify internal and external audit arrangements. It will also set out requirements for reporting to the department, including on financial performance. These requirements make it absolutely clear that the corporation will be obliged to make robust arrangements for internal financial control.
I now move on to the amendments. As the noble Baroness explained, Amendment No. 112S would require the trustee corporation to establish a committee to review the corporation's internal financial controls, and Amendment No. 112T would require such an internal audit committee to produce an annual report. At this stage, before the detailed workings of the trustee corporation are fully developed, it would seem premature to specify that that should be done through a committee, although it may well be the right way forward. While that is a standard responsibility of non-executive directors on a board, the role of such a board is not absolutely comparable with the role of the members of the trustee corporation. Those members may choose to create a committee but they may prefer some other way, and at this juncture I cannot see a reason to tie their hands in relation to such matters.
NDPBs are already required to produce an annual report and accounts and to lay them before Parliament. The accounts would normally include an audit report.
Given the framework in existence for NDPBs, we would prefer not to prescribe further the way in which the trustee corporation should assure itself about internal financial control. However, I acknowledge that the noble Baroness has raised important matters and the committee as outlined may well be the appropriate way to proceed in due course, but it is simply that we would not particularly want to tie the hands of the NDPB at this juncture.
I am surprised by that reply. I thought that the Minister would put on the record that they will have an audit committee, because that is the only way that I am aware of for handling such issues as oversight of internal financial controls. I am mystified that the Minister thinks that there might be another way that the trustee corporation could devise. There is no other way known in corporate life—I use "corporate" as a broad term encompassing public, private and voluntary sectors. The Minister seems to be leaving the door open for something unconventional. Will he explain that?
As I said, it is probable that we would go down the audit committee route. The members might want to do it as a committee themselves, and want the board to be involved. I accept that that would be unusual. I am trying to acknowledge the thrust of the noble Baroness's point. We would prefer to tie it down specifically at this juncture but if there is great strength of feeling around the issue I am happy to take it away and come back on Report. We are not apart on the need to make sure that there is proper scrutiny and a group of people to look at the audit arrangements and the financial controls. That is vital. We were not ready at this stage and it has to be carried out by a committee. I will take away the matter if there is great strength of feeling.
The wording is to "establish a committee" —in theory, that could be a committee of the whole board. It is not something to get too hung up on. Unless the noble Lord can give us a credible example of a workable situation where we did not form a committee, we would rather that he thought again and brought back the matter on Report.
I endorse what the noble Lord, Lord Oakeshott, said. The Minister has said that he will take away the matter: I hope that he will. The amendment was intended as a probing amendment for the Government to place on the record the arrangements that would be in place. I am surprised, as I said earlier, that he is not able to do that at this stage, but between now and Report perhaps we can make some progress. I beg leave to withdraw the amendment.
I shall move Amendment No. 112U and speak also to Amendments Nos. 112V and 113P. These amendments concern the terms on which the Secretary of State may provide finance to the trustee corporation or to PADA. I have included the latter for the convenience of the Committee as the principles of financial assistance for personal accounts run across both organisations.
Under paragraph 18 of Schedule 1 the Secretary of State may provide financial assistance to the trustee corporation in the form of grants, loans, guarantees or indemnities and the Secretary of State may set the conditions for such assistance. An identical power is provided for PADA in Clause 72. These provisions clearly allow the Secretary of State to provide money to underpin the personal accounts scheme as grants or on other non-commercial terms. That has caused considerable consternation among the pensions provider bodies, which will be competing with the personal accounts scheme, as they can see unfair competition written all over the Bill. Bodies such as the ABI want there to be no public subsidy for the trustee corporation and are concerned at the amount of grant-aided expenditure that PADA is racking up.
My amendments do not go as far as that. There may be expenses that, on public policy grounds should be met by the public purse but, if that is the case, there needs to be transparency about why those costs should be subsidised. The default position is that finance should be made available on commercial terms. That is, in most cases there will be a requirement for market interest and repayment terms. My Amendments Nos. 112U and 112V seek to achieve this for the trustee corporation, and Amendment No. 113P does so for PADA. They are not in exactly the same form, which is my fault, but could easily be harmonised for Report and the idea behind the amendments is the same. During the course of the Bill, I do not believe we can settle exactly how finance should be made available to the trustee corporation or to PADA. We believe that there should be a presumption that finance should be available only on commercial terms. As I have said, I have accepted that the reality is that some subsidy may well be necessary.
My amendments allow Parliament a modest involvement in agreeing whether finance is to be provided on a subsidised basis in future by requiring the Secretary of State to make a report to the House setting out why he needs to provide finance on a non-commercial basis. There is no other parliamentary procedure involved, but it is about transparency. As well as transparency to Parliament, it would allow other bodies, such as the National Association of Pension Funds, which has raised this issue with us, to scrutinise the reasons for subsidy and make representations if it feels that the subsidy is likely to cause an unfair advantage for the personal accounts scheme.
At present, the only information that will be available on funding from the pension corporation or PADA will come out when the annual accounts come out, which, as the Minister will be aware, could be 15 to 18 months after financial assistance has actually been given. We believe that that time period is too long in the context of the kind of transparency that should be available about such an important issue. I hope that the Minister will agree. I beg to move.
I fear that these amendments will not work. I say that from bitter experience of having studied the definition of loans on commercial terms under the Political Parties, Elections and Referendums Act. Anyone with any business experience will clearly know that totally uncommercial loans made to a bust organisation, unsecured at low rates of interest, on commercial terms proved not to have any real meaning in law. I wish the noble Baroness more luck in getting something here, but I do not think she will. Even she accepts that there is a public policy argument for a certain amount of public help. It is very difficult to draw the line.
There is an understandable interest in the way in which the personal accounts scheme will be financed and that it should not be given a competitive advantage over other qualifying schemes. Before turning to the specific points raised by these arrangements, I think it will be helpful if I explain how the scheme's funding strategy will be developed and the principles it will need to meet.
The Government are clear in their intent that the scheme should be self-financing in the long run. That means its set-up and operational costs being recouped from members' charges. However, in the scheme's early years, there will be a gap between its costs and revenues. The delivery authority is currently developing a strategy to bridge that gap. I am sure noble Lords will agree that we should not underestimate the complexity of this task.
The personal accounts scheme will be unlike any other scheme. It will be the largest occupational scheme in the UK, with possibly 4 million to 7 million active members; it will interact with nearly 1 million employers; it will be specifically targeted on a part of the market which existing providers find uneconomic to serve; and it will be required to admit anyone eligible to join, irrespective of whether the revenue they might bring will cover the cost of their account.
The scheme's funding strategy will need to reflect these unique features, as well meeting the guiding principles which the Government have set out. These principles are that the strategy should deliver low charges for members, be based on our intention that the scheme is self-financing in the long run and delivered at nil cost to taxpayers, be commercially viable, not provide the scheme with an unfair advantage, and comply with European rules on state aid. I hope this brief overview of how the scheme's funding strategy will be developed and the principles it will be based on has been useful. I will now move on to the amendments.
Given the size and complexity of the task that PADA faces, it is important that legislation should enable the authority to carry out its work and explore all options available. We must avoid ruling out options at this stage that could later prove to be in the best interests of members. These amendments would limit the options by requiring that financial assistance to both the authority and the trustee corporation should, in the first instance, be on commercial terms. I should make it clear that, in resisting this amendment, we are in no way setting our face against commercial funding of the scheme. Funding from commercial providers or from Government on commercial terms are options under consideration. Legislation should not, however, make commercial terms the overriding objective of the funding solution. As I have said, the scheme's funding strategy will need to balance a range of factors.
It should also be remembered that the authority will continue to incur costs in relation to activities, such as providing advice to the Secretary of State, that it is not appropriate to pass on to scheme members through charges or to expect to be funded commercially. Indeed, Amendments Nos. 112V and 113P appear to recognise that there are circumstances where commercial funding would not be appropriate, but require a detailed report to the other place before other funding can be put in place. Transparency is a key issue. I agree that there is a need for transparency once decisions have been taken and hope to reassure the noble Baroness that such transparency will exist.
As non-departmental public bodies, the authority and the trustee corporation will have to publish annual reports and accounts that will be placed before Parliament. The receipt of funding, from whichever sources and on whatever terms, will be made clear in these documents, subject to the need to protect any commercial negotiations occurring at the time. In addition, my department will provide information on funding within supply estimates, which are laid before Parliament each year for approval. As noble Lords will be aware, supply estimates are the means by which the Government seek authority from Parliament for their own spending each year. They reflect resource and capital spending plan provisions for the financial year to which they relate, as well as showing the total net resource figures for the two prior financial years.
Government funding will be reflected in the Department for Work and Pensions estimates; grant in aid funding is included within the sub-headline catching all DWP grant in aid payments to its non-departmental public bodies. The actual figure for grant in aid to PADA is shown separately under notes to the estimate, and if a loan is provided by the DWP it will be shown separately from grant in aid—in the same sub-headline, but as capital rather than resource. Figures presented in the main estimates at the beginning of the year are, of course, subject to changes as plans develop; those changes would be reflected in subsequent supplementary estimates.
The authority's annual accounts will provide information on each year's funding sources and the expenditure incurred against that funding. The financial statements within those accounts will comply with the accounting and disclosure requirements detailed in the Government's financial reporting manual and any accounts direction issued by the department. The trustee corporation will also have to comply with these requirements inasmuch as it comes within the classification of bodies to which the manual applies. Details on the layout of the accounts are still under discussion, but we expect that funding from grant in aid and loans from whatever source will be separately visible within the accounts. Additionally, within PADA's operating cost statement we would expect expenditure to be recovered from future scheme charges, which will be reported separately from expenditure that will not be recovered.
I hope that this explanation will reassure the noble Baroness both that the Government have no intention of unfairly advantaging the scheme through the funding approach—and of the importance of retaining flexibility at this stage—and that the basis for funding the scheme will be made clear to Parliament through existing reporting arrangements; I suggest that those would be pretty robust. The noble Baroness says that accounts sometimes take a little while to be produced and signed off but, notwithstanding that, I suggest that the detail that will be within them and in the department's estimates—showing what it is funding, and how—is a robust series of indicators on how the scheme is being funded. That should satisfy her on transparency.
I thank the Minister for the explanation of the Government's approach. I want to read that carefully in Hansard tomorrow. I entirely take what the noble Lord, Lord Oakeshott, said about loans on commercial terms. I suspect that there are definitions that I could lift from, for example, the National Loans Fund that would probably meet the point I am trying to make because I do not think the DWP would ever do anything as exotic as the kind of arrangements that are sometimes used to fund political parties—not, of course, my own.
The key issue is transparency, which is what my amendments are directed at, because they involve no other parliamentary processes, as I made clear. I understand that there will be information in the annual accounts, but I do not think that is appropriate. If a transaction takes place in April 2008, I would not find out about it until, perhaps, July 2009 if the accounts were out very quickly, and quite possibly July 2010.
This is the first time I have heard a Minister stand at the Dispatch Box and argue that useful information can be obtained from estimates. Estimates are extremely obscure documents read by a few civil servants. I am prepared to go away and look at the DWP's estimates to see the detail currently being provided.
That will not take the noble Baroness long with her financial acumen.
The Minister is not getting away with any form of flattery because I am completely impervious to it. I will look at the estimates, which it had never occurred to me were an element of transparency in government expenditure. As he is aware, I am seeking to ensure that there is a proper public spotlight on what is subsidised and what is not. That is still a bit of an open issue but, for today, I beg leave to withdraw the amendment.
We are coming to the end of Schedule 1. I shall move Amendment No. 112W and speak to Amendments Nos. 112WA, 112X and 113Q. These amendments concern charges made by the trustee corporation for the personal accounts scheme and they are designed to ensure that the costs of the trustee corporation are fully recovered in charges. They are linked to the group of amendments that we have just debated, which sought to eliminate or constrain subsidy flowing into the personal accounts scheme. This group of amendments concentrates on charges rather than financing.
Amendment No. 112W would amend paragraph 19 of Schedule 1 so that the trustee corporation must make charges in connection with the exercise of its functions. The current paragraph 19 is merely permissive and I could not see why that should remain. Amendment No. 112WA would ensure that the charges were sufficient, taking one year with another, to cover its costs. I am not seeking to get into the philosophy of charging. I am aware that PADA has issued a document on how charges should be made for the personal accounts scheme. My amendments are much more modest because they are designed to ensure that charges will be made to cover all the costs over time. I fully accept that initially it will be necessary to spread costs over a number of years—I hope not too many—but the aim has to be to cover costs with income, taking one year with another.
Amendments Nos. 112X and 113Q deal with the costs that are being incurred in the preparatory phase, which are currently being incurred by PADA. My amendments would ensure that the costs are passed on to the trustee corporation and then recovered. The Government and PADA have been vague about this. I understand that PADA expects to spend some £36 million in the current financial year, but it is hiding behind commercial confidentiality and has refused to give any estimate of the costs that it will incur on setting up the personal accounts scheme within that total amount. I accept that it will be doing things other than simply setting up the personal accounts scheme, but this is a very real problem. If we do not get further information from PADA on how those costs are made up—I am hopeful that there will be some progress on this—we may want to revisit the issue of making more information available from PADA to Parliament on the ongoing emerging costs of the personal accounts scheme. There are precedents for that for other major schemes that have been introduced in the public sector. For today, my key point is that my amendment would require PADA to account separately for the costs related to setting up and operating the personal accounts scheme and not simply to write them off.
Amendment No. 113Q states that PADA must separately identify these costs and then charge them to the personal accounts pension scheme once it has been established. Amendment No. 112X picks that up by stating:
"The trustee corporation must make arrangements to recover these costs".
As we debated on the previous group of amendments, we share the industry's concern that public money could be used to subsidise the personal accounts scheme. In the early years, when the upfront costs are being borne by PADA, it would be easy for these costs to slip from public view—government accounting rather helps that to happen—but they could be an important element of the overall costs of the scheme. Indeed, they will form the bulk of the costs that need to be recovered over a period. We must not let government accounting rules just write them off. It is important that they are kept in view and are included properly within the overall costs of the scheme to be recovered by charges. I hope that the Minister will see that these amendments are reasonable in the circumstances. I beg to move.
I thank the noble Baroness for these amendments, which give me the opportunity to explain our intentions on how costs in relation to the scheme will be charged. I hope that it is clear from our earlier debate that our intention is for the personal accounts scheme to be self-financing in the long term, such that its costs will be met from membership charges. Paragraph 19 of Schedule 1 simply enables the trustee corporation to fulfil this policy aim by allowing it to charge to the scheme any costs that it incurs in relation to the exercise of its functions. Amendment No. 112W would require, rather than allow, the corporation to charge the scheme for the costs that I have just outlined. However, given the clarity of our intention that the scheme should be self-financing, I do not see the need to go beyond the clause's current wording.
Although the scheme will be self-financing in the long run, there will inevitably be a period during its early years when its income from membership charges will be insufficient to recover its costs, as the noble Baroness acknowledged. This stems from the fact that it will have to bear set-up costs before it can open its doors to members and that it will need some time after that before its revenues grow to a sufficient scale.
It is not clear whether the purpose of Amendment No. 112WA is to ensure that the scheme would not have an operating deficit for more than two years running. If so, this could lead to unreasonably high charges for members in the early years of the scheme. It could adversely affect members' income at retirement and potentially lead to high levels of opt-out at the very time when we will most need to establish the confidence of a group of people, many of whom will be saving in a pension for the first time.
It is vital that we give the delivery authority the time and flexibility that it needs to develop a funding strategy that achieves the best balance between the scheme's initial level of charges and the time that it takes for the scheme to become wholly self-financing. I hope that it is also clear that one of our guiding principles in developing the scheme's funding strategy will be to ensure that the scheme is not unfairly advantaged. This means requiring the delivery authority to identify the costs that it incurs in relation to implementing the scheme and charging them to the trustee corporation so that they are recouped through members' charges.
I therefore find myself agreeing with the principle that appears to lie behind Amendments Nos. 112X and 113Q, which is that any costs incurred by PADA in relation to the establishment of the scheme should be recouped from the scheme through member charges. However, just as it seems fair that members should meet the costs of establishing the scheme, it would be unfair to ask them to meet those costs that do not directly relate to it, particularly those costs arising from the delivery authority's continuing role in providing advice on the commercial and operational implications of the Government's reform programme.
I do not think that it is the amendment's intention to pass such non-scheme costs on to members, but it is important to be clear about such matters. However, my response to the amendment is to make it clear that primary legislation is not required to achieve the noble Baroness's aims. Instead, we will place a requirement on the delivery authority to separately identify costs relating to the set-up of the scheme through the framework document that exists between my department and the authority. That document describes the respective duties, roles and relationships between the delivery authority and my department, and will be updated to reflect PADA's expanded role. The framework document will be in the public domain, with copies placed in the Libraries of both Houses and on the authority's website.
A lot has been said about whether the Government intend to put the scheme at a commercial advantage through a subsidy. However, less has been said about the commercial disadvantages that it will face due to the policy goals that we are asking it to meet. As well as being restricted to a particular segment of the market, it will have a public service obligation to accept into the scheme workers whom the current market finds commercially unviable. This means that the scheme will have to provide accounts to individuals where it will not recover the costs of doing so. In the long term, the scheme's scale will enable it to do this as part of its normal business while delivering low charges to members and being self-financing, but in the short term, prior to achieving this scale, the obligation could make it more challenging to bridge the mismatch between early years costs and revenues.
These obligations may ultimately mean a short-term level of charges that undermines both the scheme's policy goals and its ability to build the scale that it needs to be viable in the long term. If this is the case, it would be reasonable for the Government to consider whether it was in the public interest to compensate the scheme in some way for the burdens placed on it. This concept is recognised in European state aid rules, whose purpose is to prevent anti-competitive behaviour, while recognising that there may be cases when it is right to compensate a body for performing a public service obligation. These rules are very explicit: it is possible for the state to recognise only the cost of imposing a public service obligation; it is not possible to go any further. In other words, it is possible to ensure only that the personal accounts scheme is not disadvantaged by its public service obligation; it is not possible to tilt the playing field in its favour, nor would we want to do so. We do not yet know whether any such support will be necessary. The authority needs to complete its work on scheme design and scheme cost and engage in dialogue with potential suppliers before the parameters of scheme financing are known in detail.
I am conscious that this has been a rather lengthy explanation, but this is an important subject, around which I am sure that we will continue to have discussions. I hope that I have at least put enough on the record at this stage to help the noble Baroness.
I wanted to listen to the Minister carefully. I have been critical on one or two occasions tonight of the Ministers and the quality of their briefing. However, the noble Lord has just given a thorough and comprehensive reply, which set out the position fairly. He said that the intention is for the scheme to be wholly self-financing in the long term, which is quite clear and as far as one can go. He made the point that the scheme cannot pick and choose its clients; it is almost like being an NHS doctor in terms of having to take whomever you get, unlike commercial providers in the private sector, which can take whomever they want. That is their privilege. The Minister set matters out fairly. I would be happy to accept those assurances and I hope that the noble Baroness will withdraw her amendment.
I, too, thank the Minister for that careful and considered response to my amendments. I will want to read carefully what he said, but he covered many of the aspects that needed to be covered. I still need to be clear in my mind that the handover of costs between PADA and the trustee corporation is adequately dealt with in his response, but I will look at that in detail in Hansard.
"taking one year with another", on the basis that it meant that the corporation had to break even over two years. "Taking one year with another" is a standard phrase in dealing with corporations that need to break even over a period. I thought that I had been using it for 30-plus years, but I did not check it when I drafted it.
When I was doing public policy economics in the 1960s, "taking one year with another" was always applied to British Rail, which was meant to break even taking one year with another. The years never came. It is fairly long term.
Indeed, the aim may never have been met, but it is a standard formulation in the public sector. I was concerned to hear the Minister say that PADA would have a continuing role. I had thought that it would not continue once the personal accounts scheme was set up, but we have an opportunity to debate that later, so I shall not delay the Committee. I beg leave to withdraw the amendment.
"any other functions it is given by or under an enactment in connection with the scheme".
Will the Minister explain how other enactments give the trustee corporation functions and what they are? Paragraph (a) gives the corporation functions in connection with the pension scheme established under Clause 58, and Clause 66(2) gives a very wide incidental power. What more is needed? I beg to move.
It is a good question which I hope to be able to answer. The overriding function of the trustee corporation will be to run the personal accounts scheme in the best interests of the scheme members. The power to establish the scheme is in Clause 58, which sets out that it will be established by order.
The order will be the equivalent of a normal occupational pension scheme's trust deed and will set out most of the trustee's functions or give a power for the functions to be set out in the scheme rules.The scheme order will be in secondary legislation and subject to both public consultation and parliamentary scrutiny
However, although the order will contain most of the trustee corporation's functions, it cannot contain them all. For instance, the corporation will, in line with other occupational pension schemes, have to abide by existing pensions and tax legislation—for example, in relation to tax registration and accounting, paying scheme benefits and, importantly, to oversight by the Pensions Regulator.
Furthermore, the trustee corporation is being set up as an NDPB, so, beside the general functions given to it in Schedule 1, it also has duties in relation to a public body that are contained in other legislation. I asked what those other functions might be. Other functions not listed in the order could relate to its being an NDPB, so it will have to fulfil duties of all public bodies; for example, complying with the Freedom of Information Act and fulfilling gender equality issues.Carrying out those duties will not be at odds with its duty to run the scheme; they are simply the duties that all NDPBs have to carry out in addition to their main duties and functions.
The amendment would remove Clause 66(1)(b). However, I understand that it is a probing amendment, so I shall not comment further on it. I do not believe that the noble Baroness meant to impose those restrictions. If the amendment were to be pressed, it would also cast doubt on the extent to which the trustee's functions could arise other than from the Bill. As I have explained, it is important that its functions can include those arising from other pensions and tax legislation, although in all cases they will, and must, remain only such functions as relate to the scheme. I hope that that has put the matter in context.
In moving Amendment No. 112Z, I shall speak also to the other three amendments in the group. These probing amendments relate to the trustee corporation's financial powers.
Amendment No. 112Z deletes Clause 66(3)(b). The trustee corporation will have billions of pounds of pension contributions swelling its coffers, so why should it ever need to borrow money? Amendment No. 112ZA deletes subsection (4) of the clause and Amendment No. 112ZB deletes from that subsection the reference to investing money. That returns to our theme of the independent operation of the trustee corporation. Why do the Government think it necessary to keep control of the corporation in that way? I can just about see why consent control is required in relation to borrowing, if borrowing is required, but I cannot see why the Secretary of State should have a new role in relation to investment. That is what the trustee corporation will be doing—investing tonnes of money. Surely it is neither practical nor desirable for the Secretary of State to be involved in these decisions, especially as one of the core competences of the trustee corporation will be to steer and oversee investment policies. That is not a core competence, as far as I am aware, of the Secretary of State for Work and Pensions.
Lastly, Amendment No. 112ZC deletes subsection (5) because I did not understand what it meant. I invite the Minister to explain it. Perhaps it means that the trustee corporation can borrow and invest in its capacity as the trustee of the scheme but not otherwise without consent. If that is the case, is the Minister satisfied that it will always be clear in what capacity financial transactions are being undertaken? Money is, after all, fungible, and how can distinctions be made? I look forward to the Minister's explanations and I beg to move.
We have made clear, here and in the other place, the Government's intention that the personal accounts scheme will be self-financing in the long term, through charges on members, and delivered at nil cost to taxpayers. However, as with most new enterprises, there will be periods when the scheme has an operating deficit. One possible source of financing for these costs could be borrowing, from either the private sector or Government or a mixture of both.
The delivery authority is evaluating a range of funding options to enable it to make recommendations on the best way to establish and run the personal accounts scheme. However, no decisions, including whether any borrowing will be required, have yet been made. It is important that the delivery authority is given the time to complete this important work. We are determined that the scheme should deliver a good deal for scheme members through low charges, but this must be balanced against what is needed to ensure that the scheme is a viable proposition and our intention for the scheme to be self-financing in the long run.
It is therefore vital that we do not restrict the options for financing the scheme at this stage, as Amendment 112Z would, as doing so could compromise the trustee corporation's ability to get value for money. I reassure your Lordships that if the trustee corporation needs to borrow, it will need to comply with existing guidance and legislation and show that this provides value for money, just like any other NDPB. If a government loan is required, it will also need to be affordable, represent value for money to taxpayers and comply with European rules on state aid and competition.
Amendment No. 112ZA would allow the trustee corporation to borrow and to invest money without consent from the Secretary of State. While Amendment No. 112ZB would allow the corporation simply to invest money without the Secretary of State's consent, Amendment No. 112ZC would require the Secretary of State's consent for any borrowing and investment that the trustee corporation makes. Between them these amendments cover almost all of the permutations that you could have.
I therefore thank the noble Baroness for the opportunity to clarify the Government's intention regarding oversight of the trustee corporation's borrowing and investment activities. For an NDPB, it is normal for functions such as borrowing and investing to require the consent of the parent department's Secretary of State, in this case the Department for Work and Pensions. This is because an NDPB's expenditure is taken into account in its parent department's budgets. The requirement for consent from the Secretary of State quite rightly provides a safeguard to ensure the wider interests of the taxpayer are taken into account, as well as the trustee corporation's own objectives.
In the case of decisions relating to borrowing, the trustee corporation would be responsible for balancing low charges for members against ensuring that the scheme is commercially viable. The Secretary of State's consent is needed to ensure that their actions are also consistent with the sound management of public finances. In the case of investment, we would generally not expect the trustee corporation, as an NDPB—and therefore a not-for-profit organisation—to invest any money on its own behalf. Therefore, the purpose of Clause 66(4) is to ensure that, should the trustee corporation wish to invest any funds provided for its operation, it could do so only with the consent of the Secretary of the State.
However, I assure noble Lords that this provision is not intended to compromise the independence of the trustee corporation. Although Clause 66(4) requires consent, Clause 66(5)—which was, I think, the clause that the noble Baroness asked about—ensures that the trustee corporation may act independently of Government, when acting as sole trustee of the personal account scheme. This provision would apply, for example, when the trustee corporation uses the power in Clause 66(3) to invest members' contributions on their behalf. Investing members' funds must be the responsibility of the trustee. It is right that Ministers should not have a role in these investment decisions. This is purely a matter for the trustee, acting in members' best interests.
The noble Baroness may press me on when the NDPB would invest other than on behalf of members. I suppose there could be circumstances where there might be a short-term surplus of funding. I have not really thought it through, but one can see that there are circumstances where the NDPB might invest on its own account, rather than for scheme members. I make it absolutely clear that the investment of members' contributions is the responsibility of the trustee. It is not the responsibility of Government or the Secretary of State. I hope that has helped with these amendments.
I thank the Minister for that response and I will read carefully what he has said. It seems that the Minister is saying that there is a distinction between the trustee corporation acting as a corporation and the pension scheme, and that these activities can be separated. It seems to me that the trustee corporation will be running the pension scheme and its costs will be those of the pension scheme. It is difficult to separate the two; they are not separate in that sense. I think about my experience of seeing how pension schemes operate in the commercial world. The trustee corporation and the scheme are one. I struggle a little to understand how this works in practice. Could the Minister help me?
I will try. I struggled a little and had some discussions with officials, which are still under way. It was explained to me that the NDPB will have costs in relation to its members, which may not necessarily be scheme costs. There will be costs that the NDPB incurs which would be chargeable to the scheme, for example if asset management is outsourced. Whether those asset management charges go directly to the scheme or to the NDPB and are then recharged to the scheme is under consideration. The key point is that members' contributions are invested by the trustees, not by the Secretary of State. He does not have a role in that and nor do the Government. We need to develop some pro forma examples of what these accounts might look like. It would certainly help me and I think it would help the noble Baroness. I would be happy to share those examples with her.
Doubtless officials will rue the day that two chartered accountants ended up dealing with this Bill. We are interested in quite abstruse matters. I am interested in this because it gets to the heart of whether you can separate the two and how the powers and restrictions in this Bill work in practice. I would be interested in exploring that with the Minister if he could find a way of facilitating it before Report. These are important issues; we should make sure that we understand them. I beg leave to withdraw the amendment.