Clause 45 - Duty to report breaches of the law

Pensions Bill – in a Public Bill Committee at 3:15 pm on 11th March 2004.

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Photo of George Osborne George Osborne Shadow Minister (Treasury) 3:15 pm, 11th March 2004

I beg to move amendment No. 194, in

clause 45, page 28, line 9, leave out paragraph (e).

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

With this it will be convenient to discuss the following:

Amendment No. 195, in

clause 45, page 28, line 16, leave out paragraph (b).

Amendment No. 196, in

clause 46, page 28, line 36, leave out paragraph (b).

Amendment No. 197, in

clause 46, page 28, line 42, leave out paragraph (d).

Photo of George Osborne George Osborne Shadow Minister (Treasury)

The clause imposes an obligation on people to report certain breaches of pensions law. This is one of the whistleblowing clauses. Such clauses were an important feature of the 1995 Act. However, as we all now accept, they led to the problem of a large number of fairly minor offences being reported to OPRA. The figures that I saw showed that 56,000 breaches were reported in the first five years. OPRA had a duty to investigate them, and that clogged it up, in a sense. It was not able to take a step back and adopt a more risk-based approach. That was certainly what the various reviews of the work of OPRA found.

It is worth reminding ourselves of what Alan Pickering told us in his report, which said:

''In fulfilling its regulatory role, the NKR''—

that is, the new kind of regulator—

''would, as Opra does at the moment, rely heavily on whistle blowing by professionals. However, the focus of both regulation and whistle blowing should be at a higher level than is currently the case. It should not be assumed that a minor error is symptomatic of a deeper malaise.''

Of course that is true, but it raises the question of how the new regulator will get the judgment right. I suppose that the issue comes under a stand part debate, if anything, and I shall shortly come back to my amendments, but I will first say that it will—or, rather, may—be difficult to determine what is, and what is not, of material significance. It may, for

example, be difficult for a voluntary—not professional—trustee to make such judgments.

Amendment No. 195 would leave out subsection (2)(b), which is probably crucial. It is a probing amendment to allow the Government to give us an understanding of how the risk-based approach will work. Will it be up to individuals to define the ''material significance'' of a breach? Will the definition be set out in regulations, or will the meaning of a ''material'' breach be made apparent to people such as trustees and advisers through education and training? How will the Minister deal with the fact that minor breaches are sometimes a symptom of a broader problem? There may be a danger of the pendulum swinging too far in the other direction. Whereas OPRA was too concerned with the large number of relatively minor breaches of the law, the regulator, because it is waiting for the big, material breaches, may miss some other symptoms of a malaise. Amendment No. 195 was my attempt to provoke a debate on that.

I turn to amendment No. 194. Why is subsection (1)(e) so broad? In subsection (1), the requirement of whistleblowing is placed on reasonable groups of people—trustees, managers, people involved in the administration of the scheme, employers, professional advisers—until the final broad category of

''a person who is otherwise involved in advising the trustees or managers of an occupational or personal pension scheme in relation to the scheme.''

That brings me to an important point that I will touch on as I address my other amendments—particularly amendment No. 197, which changes clause 46 on the provision of information to the regulator. That clause requires any person to produce a document that is relevant to the exercise of the regulator's functions. That person can be

''any other person appearing to the Regulator to be a person who holds, or is likely to hold, information relevant to the exercise of the Regulator's functions.''

That is also a very broad category and I want it to be removed.

I tabled these amendments because this part of the Bill set off an alarm bell in my head about the legal profession and legal professional privilege. The advisers to these schemes will often be lawyers, and even if they are not defined by other categories, someone who could hold

''information relevant to the exercise of the Regulator's functions''

could easily be a lawyer employed by the scheme. As I have said, clause 45(1)(e) refers to

''a person who is otherwise involved in advising the trustees or managers of an occupational or personal pension scheme''

and that person may also be a lawyer.

I am sure that the Minister is well aware of the scope of legal privilege. It is fairly extensive, and it is established in common law. Indeed, it has recently been emphasised by a series of decisions in the House of Lords. I will not go through those decisions, unless the Minister wants me to. I have with me my filibuster brief in case I need it, but I am not going to use it

because that would not go down well with the Committee, in which my party is outnumbered.

However, I will mention a point that was made by the Council of the Bars and Law Societies of the European Union. I am sure that we all read its publications assiduously. It stated:

''It is open to Parliament, if it considers it necessary, to make provision that legal professional privilege does not apply in specific instances—for instance when disclosure is required by a government department or agency. However, for any such derogation to be effective it must be enacted in clear and unambiguous terms. The only current specific statutory abrogation is in the Children Act 1989. In the Morgan Grenfell case''—

of 2001, I think—

''the House of Lords again emphasised that a statutory provision will not be construed as restricting legal professional privilege unless it does so expressly or by necessary implication.''

It goes on to state that there are also human rights implications. Under the Human Rights Act 1998,

''legal professional secrecy is a fundamental human right which can be invaded only in exceptional circumstances.''

I make those points because the scope of clauses 45 and 46 is very broad. Lawyers would be required to report breaches of the law to the regulator—which we hope they might do anyway. More seriously, under clause 46 they would be required to provide what may be confidential legal advice.

I am sure that I will be straying far beyond the bounds of the Committee if I make the following point, but I hope that you will bear with me, Mr. Griffiths. The Government are keen on the confidentiality of legal advice. Recently, we have heard much about it and about how Governments cannot disclose confidential legal advice. It seems that, if the Attorney-General advised a pension scheme, such advice would have to be published. It would be interesting to hear what the Minister has to say about that. The point of the amendments is to tease out such matters. On first reading, the Bill has some far-reaching implications that the Government may not have considered.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions 3:30 pm, 11th March 2004

The amendments are to clauses 45 and 46, which are concerned with who has a duty to report breaches of the law to the regulator. Clause 45 deals with the circumstances in which that applies and clause 46 deals with the provision of information to the regulator. Clause 45 is intended to expand the current statutory whistleblowing obligations that apply to schemes. Actuaries and auditors will place an obligation on employers, independent financial advisers, fund managers and scheme administrators to report to the regulator events that might put members' benefits at risk. Amendment No. 194 would remove from the specification of those who are required to report breaches persons involved in advising the trustees or managers of pension schemes. Such individuals may have access to information that is relevant to the work of the regulator and, as such, they should be required to report matters that are considered to be of material significance.

Photo of John Robertson John Robertson Labour, Glasgow Anniesland

If money were given to a third party, even though it was known that the money was being transferred

illegally—for example, there had been no information about the winding up—would such action apply to the Proceeds of Crime Act 2002, under which the money could be reclaimed? Will my hon. Friend clarify the position?

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

I shall write to my hon. Friend about that important, specific point. I do not have the answer at my fingertips.

The hon. Member for Tatton was worried about who would be included in the expansion. We are anxious that people such as independent financial advisers and investment advisers are also required to be whistleblowers. Perhaps I should have stopped him earlier, but legal advisers are exempt from the provisions. Although the hon. Gentleman did a good job representing the union of lawyers—the most powerful union in this country—lawyers will have read clause 234 to see that they are exempt. They are good at reading ahead on such matters but, for the rest of us, that is more difficult.

Amendment No. 195 would remove the qualifying provision that statutory reporters must consider whether a failure to comply with a duty or obligation is of material significance to the regulator. I cannot accept the amendment. The current regulator has been heavily criticised for a statutory regime of blanket whistleblowing of even the most trivial breaches. Clause 45 introduces a target link and a proportionate regime, which I think that the hon. Gentleman supports. His amendment would not bring that about, but he did say that it was a probing amendment.

We want a proportionate regime that allows professional managers and advisers to exercise their judgment about whether a report is needed. That would mean, for example, that an account that was one week late would not need to be reported by a whistleblower. Let us imagine that the accounts were two months late, and no schedule of contributions had been made. That would be materially significant. We are consulting on the precision of that, but that is a rough example.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

Does the Minister envisage producing a list of material breaches? We are talking about lay trustees who will want guidance on what is a material breach; they will not want to get into trouble by not reporting a material breach. If they do not have specific guidance, there is a risk that they will do what they do now—refer any breach just to cover their backs.

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

The regulator will publish codes, and will consult on them before they are finalised. Those will explain more fully who needs to be a whistleblower and under what circumstances, so that there is clarity for those who need or want to take action. The regulator will operate, in many respects, via codes that will be consulted on. I hope that I have said enough to persuade the hon. Gentleman not to press what were essentially probing amendments.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

On the point about legal privilege I was, of course, testing the Minister. I knew the answer but wanted to ensure that the Minister had read his own Bill. If one reads clause 234, the situation is

crystal clear. I assure him the union of barristers is well represented in the Osborne household by my wife. I am glad that the Minister passed that test.

On the broader point about material breaches, I take what the Minister says. I want to see what he does: a more risk-based approach by the new regulator, which is not bogged down by the reporting of thousands of relatively minor breaches of the law. We will obviously have to see how the regulator defines material breaches; it is important that that is clearly stated, or else I suspect that people will err on the side of caution and the regulator will find itself swamped with reports. However, the Minister recognises that that goes to the heart of making the regulator succeed, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 45 ordered to stand part of the Bill.

Clause 46 ordered to stand part of the Bill.