Clause 14 - Improvement notices

Pensions Bill – in a Public Bill Committee at 4:30 pm on 9th March 2004.

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Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions 4:30 pm, 9th March 2004

I beg to move amendment No. 12, in

clause 14, page 8, line 23, leave out 'in respect of ' and insert 'to'.

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

With this it will be convenient to discuss Government amendments Nos. 13 to 17.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

I should say by way of introduction that we are moving on in our debates to the new regulatory powers of the regulator, which include improvement notices, third party notices, injunctions, interdicts, restitution and the power of the regulator to recover unpaid contributions. In introducing the Government amendments, I should say that the clause introduces a new power for the regulator.

My hon. Friends will be aware that one of the criticisms levelled at OPRA is that although it has the power to punish breaches of the Pensions Act 1995, it is unable to make trustees or others put things right. We seek to remedy this mischief with the clause. In future, when there is a breach of pension legislation, we propose that the regulator should be able to issue an improvement notice to the person responsible instructing him or her to remedy the situation. That provision, which is contained in subsection (1), will be a powerful tool in the regulator's kit.

Amendments Nos. 12, 13 and 14 and the others are technical amendments. I am anxious to get on and consider the Opposition amendments, so I shall not speak to them any further.

Amendment agreed to.

Amendments made: No. 13, in

clause 14, page 8, line 24, leave out 'given' and insert 'issued'.

No. 14, in

clause 14, page 8, line 29, leave out 'in respect of' and insert 'to'.

No. 15, in

clause 14, page 8, line 40, after 'Part 1' insert 'or section 33'.—[Malcolm Wicks.]

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I beg to move amendment No. 131, in

clause 14, page 8, line 42, leave out subsection (8).

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

With this it will be convenient to discuss the following amendments:

No. 132, in

clause 15, page 9, line 29, leave out subsection (3).

No. 133, in

clause 15, page 9, line 38, leave out subsection (6).

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne 4:45 pm, 9th March 2004

Let me say by way of background that we endorse the idea of improvement notices and close relation third party notices as a more benign step along the way of regulation before pressing a nuclear button. There was an element of black and white about the 1995 Act, and I can see the point of trying to soften the regulatory framework, certainly in cases where there is an expectation that those notices will be complied with. I take that view because—I hope that one can make this assumption—such notices are more likely to be directed at the more responsible companies where there has been an infringement that is easily remediable and may not be dreadfully serious, but needs to be dealt with. I would assume that in the

egregious cases involving badly run schemes, one would go straight to the tougher options. However, that is a matter for the regulator in the future.

We broadly support amendments Nos. 131 and 133, which seek to remove similar wording from clauses 14 and 15 that stitches in the provisions in section 10 of the Pensions Act 1995 concerning the penalties that apply for people who fail to comply with the improvement notice or the third party notice. Our logic was that in the same way in which those remedies can be graded in terms of seriousness, such serious penalties should not apply to a failure to comply with those particular notices. As I understand them, they are designed to chide people into doing the right thing, rather than to produce a nuclear result.

Therefore, we would suggest removing those provisions. If the Government are prepared to do so, we would ask them to consider a lesser set of penalties or to take the view that such penalties are advisory, on the basis that there are tougher penalties in the armoury if the notices are not met in a very short space of time.

Amendment No. 132 aims to remove clause 15(3). It is an attempt to work out what the subsection means. The subsection states that where directions are given they can

''be framed so as to afford the third party a choice between different ways of remedying or preventing the recurrence of his failure.''

I badly need from the Minister some sort of example of what on earth the Government are talking about. I would have thought that offering a choice of ways of dealing with a particular breach made for regulatory confusion. I have thought about the matter quite a lot and I am hard pressed to think of a concrete example. Given the firepower of the officials who are advising Ministers on these issues, I am sure that they must have such examples at their fingertips. That is what I am craving from this probing amendment.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

I want to ask a couple of brief questions. Amendments Nos. 131 and 133 would remove those civil penalties when an improvement notice or a third party notice is issued. That takes me back to the question whether the notice is issued by the regulator or by the determinations panel. If I read the provision correctly, it is issued by the regulator, because the Bill refers to

''New regulatory powers of the Regulator''

near the top of page 8. I am prepared to stop if I have got that wrong. The consequence of failing to observe an improvement notice is a civil penalty. I do not know what the powers under section 10 of the 1995 Act are, but they sound quite nasty.

The Minister said that an independent determinations panel is needed because when things get a bit nasty one wants someone who is independent from the investigator to bring in tough measures, such as suspending trustees or whatever else. However in those provisions, the regulator—the other side of the Chinese wall—issues one of the notices, and the penalty for failing to comply with it is a civil penalty. I can therefore understand why the amendments aim to remove those provisions from clauses 14 and 15.

Why is it okay for the regulator to issue notices with penalties attached for non-compliance, while the other things that the determinations panel, which is the other side of the wall, might do must be independent because they involve different sorts of penalties? Is there another artificial distinction in that approach? Why is that the situation for that side of the wall and not for the other side of the wall, given that penalties are attached for non-compliance? I hope that the Minister will clarify that point.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

Amendment No. 131 would remove the regulator's ability to apply a financial penalty for failure to comply with an improvement notice. That would seriously undermine an essential part of the regulator's approach.

Improvement notices will enable the regulator to deal with minor breaches of legislation, leaving punitive sanctions as a last resort. Improvement notices give the scheme the chance to put right problems while under the supervision of the regulator. While that is a lighter-touch approach to regulation—we have stronger approaches in the Bill—removing the power to sanction for failure to comply with the improvement notice will nevertheless mean that the regulator has no means to enforce compliance with the legislation and protect members' benefits. In simple terms, what is the point of asking for action if there is no sanction and no action is forthcoming? That is an essential part of regulation.

Amendment No. 132 would deny third parties a choice between different ways of remedying or preventing the recurrence of their failure, which has meant that those with responsibilities under pensions legislation have been unable to comply. I hope that the hon. Member for Eastbourne, who asked for examples, will be content if I provide him and other Committee members—I want to do this properly—with such examples in writing. I hope that that will be acceptable.

The regulator's power to frame directions to third parties to allow different ways of achieving compliance is designed to allow flexibility both for the regulator and the third parties. For example, if trustees were unable to prepare audited accounts because the provider had not supplied the necessary information, clause 15(3) would allow the regulator to direct the third party to take the necessary steps to provide the information by a certain date. It would not be appropriate to direct exactly in what form and manner that information should be produced, since that will depend on the circumstances of the case. The regulator is interested in a successful outcome.

Amendment No. 133 would remove the regulator's ability to enforce the terms of a third party notice. Third party notices are an important new regulatory tool that enable the regulator to issue directions to rectify actions that have led to a scheme breaching legislation. They can be issued to scheme administrators, insurers and providers. Many breaches of legislation caused by third parties cannot currently be corrected. Removing the power to sanction for failure to comply with a third party notice would mean that the regulator has no means to enforce compliance with the legislation and to protect.

I therefore ask the hon. Member for Eastbourne to withdraw the amendment.

My understanding is that the determinations panel would play a large part in that process. This issue is not just technical, and it is important. I understand the growing obsession of the hon. Member for Northavon with the determinations panel, and I hope that I can write to him on that point and any others that I have not picked up in the debate.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I agree with the Minister that there is a real danger that the faceless men of the determinations panel will become a subplot of the Committee stage, although they fascinate me, I must confess. Assuming that their deliberations are open to the public—I very much doubt that they are—it would be good to go and watch them in action in due course.

I am content to seek leave to withdraw the amendment. As I made clear, we are happy with the improvement notices and third party notices. They are practical methods for achieving a result without getting into a fraught situation, and they widen the armoury of the new regulator, which is good. Subject to the points that we made in our amendments, they are not likely to be overly burdensome for the people who will receive them. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 14, as amended, ordered to stand part of the Bill.