Clause 29 - Prohibition orders

Pensions Bill – in a Public Bill Committee at 10:30 am on 11th March 2004.

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Photo of George Osborne George Osborne Shadow Minister (Treasury) 10:30 am, 11th March 2004

I beg to move amendment No. 151, in

clause 29, page 18, line 17, at end insert 'forthwith.'.

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

With this it will be convenient to discuss the following:

Amendment No. 152, in

clause 29, page 18, line 20, at end insert—

'( ) Alternatively, any person prohibited under this section may apply to the high court for judicial review of the decision.'.

Amendment No. 150, in

clause 29, page 18, line 29, leave out subsection (5).

Photo of George Osborne George Osborne Shadow Minister (Treasury)

Let me say from the outset that I would appreciate a stand part debate on this clause.

The clause prohibits a person from being a trustee of any scheme on the grounds that they are not a fit

and proper person. It contains a significant extension of the powers in the Pensions Act 1995, which restricts prohibition to serious and persistent breaches of specific parts of pensions law. The clause contains a much broader power to prohibit people who are not, in the view of the regulator, fit and proper persons.

Amendment No. 151 is intended to add urgency to subsection (2), the effect of which is to remove a trustee from a scheme. I want to add the word ''forthwith'' to make it clear that that should happen immediately. Perhaps the Minister could clarify whether that would be the case and whether it would happen the moment the decision to issue a prohibition order was made by the regulator or when the information was passed on to the trustee. When would removal take place?

Amendment No. 152 is slightly lengthier and would insert a new sentence. If a person were prohibited from being a trustee because they were not a fit and proper person, that could have an enormous impact on their professional, and possibly their private, life. If they were, for example, a finance director, being deemed not to be a fit and proper person to be a trustee could finish their career. One hopes that a prohibition order would only be issued when it was justified. However, given that it is likely to have such a serious impact on someone's life, surely people must be given the chance to appeal.

As I understand it, under subsection (3) the appeal can only be made, in effect, to the regulator. Perhaps the Under-Secretary will tell me that the determinations panel makes the decision and that the regulator hears the appeal, or that the tribunal, which we will come to, hears the appeal. However, given the seriousness of a prohibition order's effect, a person should be given the option to get outside the system and to appeal beyond the organisation in its totality which is imposing the prohibition order.

That organisation might be prejudiced by the fact that it felt it necessary to issue the prohibition order in the first place. Amendment No. 152 would give the prohibited person the power to apply to the High Court to get a judicial review of the decision. The Under-Secretary may tell me that that can happen in any case and that a person has the right to apply to the High Court for a judicial review. However, I am not a lawyer so I thought that I would get him—or rather the lawyers who advise him—to explain that that is the case. It is important that someone in extremis should have the right to appeal against a decision to an organisation outside the structure of the regulator, its determinations panel and the tribunal.

Finally, amendment No. 150, which is a probing amendment, would remove subsection (5). It seems a strange and blanket provision that a revocation of a prohibition order

''cannot affect anything done before that time.''

What is meant by that?

Photo of Mr Chris Pond Mr Chris Pond Parliamentary Under-Secretary, Department for Work and Pensions 10:45 am, 11th March 2004

The hon. Gentleman is correct in saying that the clause extends powers in the 1995 Act. I am sure that he and other hon. Members will be pleased to

know that it imposes the same standards on trustees as exist in legislation on other groups that look after money, such as insolvency practitioners, bookmakers and auditors, as well as, I am advised, slaughtermen and taxi drivers. It is appropriate that trustees should at least match the standards required of those groups.

Photo of Mr Chris Pond Mr Chris Pond Parliamentary Under-Secretary, Department for Work and Pensions

Yes, if you like—bookies.

Clause 29 concerns the prohibition of people from being trustees of pension schemes. Amendment No. 151 suggests an additional word: that prohibition should take place ''forthwith''. The amendment would have no effect, as the intention is that such orders would take force immediately.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

When the Under-Secretary says ''immediately'', does he mean that the orders will take effect from the moment at which the regulator makes the decision, or from the moment at which the individual is informed of it?

Photo of Mr Chris Pond Mr Chris Pond Parliamentary Under-Secretary, Department for Work and Pensions

I am advised that the order will take effect from the moment at which the decision is taken.

Amendment No. 151 appears to seek an alternative route of appeal for those prohibited as trustees of pension schemes. However, that is misconceived, as the remedy of judicial review is always available if there has been procedural unfairness. That does not need to be specified in the Bill. It is also important to note that judicial review is concerned with reviewing not the merits of the decision in respect of which the application for judicial review has been made, but the decision-making process itself.

Trustees who are prohibited will be able to make a reference to the pensions regulator tribunal and seek to have the decision overturned. At a later stage, they may ask the regulator to revoke the prohibition order. They may have been deemed an unfit person to fulfil the role of trustee because they have insufficient understanding of pensions law. If they are prepared to go on a crash course in pensions law and are then deemed to understand their responsibilities properly, the regulator may decide to revoke the prohibition order. The amendment would add nothing to the rights of prohibited trustees, but might add to their and the regulator's costs if an application for a judicial review were made without merit.

Amendment No. 150 removes the subsection that provides that anything done by the trustees during the period between the making and revocation of a prohibition order is valid. That is the same provision as in section 3(4) of the 1995 Act. It protects trustees and scheme members from the consequences of any revocation. Many schemes and some legislative exemptions require trustees to make decisions unanimously. If the subsection is removed, decisions made during the revocation might be deemed to have been invalid. That would leave trustees in a difficult position. For example, allowing ill-health or early retirement pension payments would be void and subject to challenge, as would investment decisions and statutory appointments.

The hon. Member for Tatton said that it could have serious consequences for an individual's professional

advancement if they were deemed not to be a fit and proper person to act. The Bill does not refer to the details of the regulator's judgments or the basis of them, but the following issues would be considered: the trustees' probity, competence and soundness of judgment; the diligence with which they fulfil their responsibilities; whether the interests of members of the scheme or schemes in question are in the opinion of the regulator prejudiced by their acting as trustees; and whether they have contravened any provision of the pensions legislation relating to the provision or management of pensions in a country or territory outside Great Britain.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

As I said, I hope that there will be a stand part debate on the clause. However, I am satisfied with the Minister's comments on my amendments, in particular the confirmation that there will be a power to seek a judicial review of a decision, albeit in terms of whether the process was properly carried out. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

I want to make a more general point about the prohibition orders and the role of trustees. An important principle that underlies all pensions legislation is that the people who are primarily responsible for the good governance of occupational pension schemes are the trustees. As a member of the Public Accounts Committee, I read the reports of the National Audit Office very carefully, and I think that it was that organisation which stated that trustees are an initial defence in the sound operation of occupational pension schemes. It is their job to preserve trust assets and deal with them in the best interests of beneficiaries, to ensure that there are sufficient assets to cover scheme liabilities and to act if there are not, to ensure that the employer is fulfilling its obligations, to appoint the professionals, and so forth. It is an important job, and it is important that the regulator has the power to remove trustees who are not doing their job.

The Under-Secretary referred to the fact that a trustee may not be up to the job. There are two possible reasons for that. All of us readily understand the first. A trustee might be a crooked or bad person. At present, OPRA can undertake a few checks on the suitability of a trustee, but there are restrictions. It can investigate whether a trustee is disqualified from being a trustee, but he might be a disqualified director or an undischarged bankrupt, or have a criminal record for financial fraud. As I understand it, there is no power for OPRA to check such things, even though trustees have to sign the form saying that they are a fit and proper person.

The clause gives the pensions regulator the power to prohibit a person from being a trustee if he is not a fit and proper person. Will the new regulator attempt a broader investigation of newly appointed trustees? Things have changed since the 1995 Act. We now have the Criminal Records Bureau and various new tools are available to the regulator. However, the knowledge

gap, if I may call it that, on the background of newly appointed trustees exists—it was identified in the NAO report into OPRA—and I am interested to know whether the regulator will run a check on every new trustee and how that process is envisaged to take place.

I said that two types of people might not be fit and proper persons. The first is a bad or crooked person, who should not be let loose near anyone else's money. Secondly—the Minister said this in a previous debate—a person might not be fit and proper if he does not have sufficient knowledge of pensions law. That is different; that might just be ignorance. One feature of the Myners report, for example, was his finding that trustees often had very little knowledge of some of the principles of asset investment or the specifics of pension law. He said:

''there should be a legal requirement that where trustees are taking a decision, they should be able to take it with the skill and care of someone familiar with the issue concerned.''

Later, we will debate whether there should be such a requirement that trustees have a knowledge of pensions, trust law, the principles of funding occupational pensions and the principles of investment management, but does the fact that a trustee not have such knowledge or understanding mean that they can be prohibited because they are not fit or proper? That could have serious consequences.

The pensions fund trustee survey attached to the Myners report found that of the 226 trustees questioned, 62 per cent. had no professional qualifications, 26 per cent. had less than one day's training and 79 per cent. had other full-time jobs. There was also a striking lack of knowledge about, for example, the benchmarks used by the schemes of which they were supposed to be trustees.

When the Bill is enacted, because of its proper requirement that trustees have a knowledge and understanding of all those matters, those people could suddenly find themselves prohibited because of provisions in the clause. There could be a raft of prohibition orders because people do not have the requisite knowledge. I assume that the regulator will act with some flexibility and will not come down like a ton of bricks on all the worthy volunteers who do this job across the country, by issuing prohibition orders left, right and centre.

The Minister said in an earlier debate that one of the definitions of why someone is not fit and proper is if they have no knowledge of pensions law. They could be prohibited while they were sent off on a course to learn about pensions law. I am not sure that we would want a large number of people prohibited and sent off on courses because even if a prohibition order is in force for a short time, that would still have an impact on their professional standing and career prospects.

We may come on to the register of prohibited people, which will contain information on trustees. We do not want its more general impact to be that the only people who are trustees of pension funds are, in effect, professional trustees. We could lose that large number of voluntary trustees who, by and large, do a good job

and represent members' interests, even if they are not professionals in the sense of being totally conversant in trustee law and the principles of assets investment.

Photo of Mr Chris Pond Mr Chris Pond Parliamentary Under-Secretary, Department for Work and Pensions 11:00 am, 11th March 2004

The hon. Gentleman made some important points, but I feel that he spoiled some of them by over-egging the pudding and suggesting that swathes of trustees would be prohibited or sent on training courses.

We need to put the debate in context. The hon. Gentleman and other hon. Members may be reassured to learn that in 2002–03, OPRA prohibited only 11 trustees. A trustee who is prohibited will have the option of either taking the case to the tribunal or, having taken ameliorative action, asking for the prohibition to be lifted. The question is whether trustees are professional in going about their tasks. We do not in the Bill seek to ensure that all trustees are professional trustees, as the hon. Gentleman suggested, but we would wish all trustees to act in a professional manner. As he acknowledged, trustees have an important responsibility. They are the people who will in large part determine the interest of the members of a pension scheme. We would expect trustees to behave professionally and to undertake those responsibilities seriously, as would the members.

If a trustee is considered to be acting improperly or incompetently, they will face prohibition by the regulator. That must be an option. The reasons why a trustee is acting incompetently may be to do with a lack of understanding about pensions, their responsibilities or the additional skills that they require. All I would say is that we shall discuss the issue later. The hon. Gentleman mentioned the Myners report and the requirement to educate trustees. Since we shall discuss that in some depth when we come to part 5, I suggest that the Committee defer further discussion on the matter until we reach that point.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

Of course the Under-Secretary is right that the bigger discussion about the role of voluntary trustees versus professional trustees is best saved for later in the Bill. He mentioned that 12 had been prohibited.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

It may indeed. That figure is partly because the 1995 Act is tightly drawn and provides for orders against people who have been in ''serious or persistent breach'' of specific parts of pension law. The clause, however, gives a much broader definition of a person against whom such orders may be issued, which is someone who is merely

''not a fit and proper person to be a trustee''.

In his discussions with OPRA and so on, has the Minister made any estimate of whether there will be a large increase in the number prohibited as a result of the clause, or does he expect the figure to remain at less than a dozen a year?

Photo of Mr Chris Pond Mr Chris Pond Parliamentary Under-Secretary, Department for Work and Pensions

I would not like to put figures on that. We are not expecting that huge numbers of trustees will be deemed unfit to carry out that responsibility. I am sure that the Committee would want to join me in paying tribute to the great majority of trustees who do an excellent job on behalf of the members of those schemes. In our discussions, we in no way want to undermine the commitment or professionalism that most trustees bring to their work.

As the hon. Gentleman indicated, however, some individuals may well be deemed to be neither fit nor proper to have such considerable responsibility for the pension interests of members, because of their activities outside their roles as trustees. In other financial walks of life, trustees may have been considered to have acted improperly. I am sure that the Committee would agree that it is important that the regulator takes that into account.

I do not wish to detain the Committee by talking about the way in which OPRA will identify those circumstances. With your permission, Mr. Griffiths, and that of the Committee, we will write in detail to members of the Committee about the sort of checks that the regulator will carry out. That might give the hon. Gentleman a better idea of the number of people who will be affected.

Question put and agreed to.

Clause 29 ordered to stand part of the Bill.