Clause 196 - Requirement for member-nominated trustees

Pensions Bill – in a Public Bill Committee at 2:00 pm on 18th March 2004.

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Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West 2:00 pm, 18th March 2004

I beg to move amendment No. 299, in

clause 196, page 122, line 30, leave out 'one-third' and insert 'one-half'.

Photo of Mr James Cran Mr James Cran Conservative, Beverley and Holderness

With this we may discuss the following amendments: No. 301, in

clause 196, page 123, line 2, leave out 'one-third' and insert 'one-half'.

No. 303, in

clause 197, page 123, line 37, leave out 'one-third' and insert 'one-half'.

No. 305, in

clause 197, page 124, line 6, leave out 'one-third' and insert 'one-half'.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

The amendments deal with involving members in their pension fund. The subject has generated much interest in recent years since it has become more accepted by trade unions, in particular, and workers that they should regard pension schemes as a form of deferred wages. In many cases, rather than paying money directly to workers, employers are making contributions to a worker's pension fund. Rather than pay wages, therefore, employers are making a promise that at some point in the future the worker will receive a pension. Later we will discuss the problems with that pension promise, which the Bill is meant to rectify.

The Bill presents an opportunity to strengthen the association between workers and their pension funds. The amendments would do that by probing the Government on the clauses about member-nominated trustees. It is well established in most pension schemes that member-nominated trustees are on the boards of trustees of pension schemes, but perhaps it is time to consider increasing the proportion of member-nominated trustees up to best-practice levels. Why have the Government picked the proportion of one-third as the number of trustees to be nominated by members?

The amendments would increase that proportion from one third to one half, which seems sensible. At the very least, employees have half an interest in what is happening to a pension fund, and it could be argued that they have more. Employers have legitimate interests, too. From the point of view of what is happening to the workers' pension scheme, it is important that at least half of the trustees are member-nominated. That would help to boost members' confidence in schemes, which is attempted

elsewhere in the Bill with the provision of both a pensions regulator and a pension protection fund.

Recent events at Allied Steel and Wire and in many other companies have shown that employers retain more than adequate powers to safeguard their interests. Generally, for example, benefits cannot be increased without the consent of the employer, but employers can force reductions in benefits and contributions through their power to discontinue schemes. The Bill also requires that employers agree on the funding strategy as adopted by the trustees, so there is no argument that having 50 per cent. of trustees nominated by members would infringe employers' interests, which are protected in any case.

This morning we debated people's past statements and their pasts coming back to haunt them. In opposition, the Labour party supported one half of trustees being member nominated, so I look forward to hearing why the Under-Secretary has fixed on the proportion of one third and whether he will consider increasing it.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I do not want to speak against the amendments. As the hon. Member for Cardiff, West (Kevin Brennan) knows, we will debate amendments tabled by the Conservatives which also hope to strengthen and bolster the position of member-nominated trustees, albeit in a different way.

I want to probe the hon. Gentleman's thinking. We all received the same briefing, I think, and it is basically the TUC's position. There is nothing wrong with that, but it is right to put its provenance on record. While I understand the logic of the arguments made by the TUC and the hon. Gentleman, has he considered whether enough people will come forward? We will discuss some of the more onerous requirements that will be placed on trustees, especially those in the smaller companies. Is he, or is the TUC, convinced that there will be sufficient candidates?

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

Some of the amendments on members' training requirements and so on are designed to make it easier for people to come forward. The greater interest in the issue means that people will be much more likely to do that than they have been.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

The hon. Gentleman might be right, and I hope that he is. We have a lot to say on the issue of training and the yardsticks. The Bill puts some broad and potentially onerous responsibilities on trustees in the future and it will need a special kind of person to fulfil that role, whether they are a member or from some other source. I hope that that is something that the TUC and others might wish to get involved in because a recognised set of qualifications or training must be developed. That would be fine if the TUC have an input. My only reservation is whether enough members would be prepared to take on that task. Let us hope that that is the case. Although I have that slight reservation, I have no problem with the amendment.

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

Before I discuss

the amendments, I shall say a few words about the purposes of clauses 196 and 197 to which they relate. Clause 196 does two things: it ensures that every occupational pension scheme has member-nominated trustees and brings much needed simplification to that area of legislation. Clause 197 has the same effect in relation to member-nominated directors, where the trustee is a company. Trustees will be required to make and implement arrangements for appointing at least one third member-nominated trustees and to do so within a reasonable time.

The Government believe that member-nominated trustees add value to any pension scheme by bringing different skills and experiences to the role. They help to give members confidence in their scheme and a sense of ownership. Many more schemes have member-nominated trustees than was the case before the Pensions Act 1995. However, there are still too many that do not. That is why we are withdrawing the employer's right to opt out of having member-nominated trustees.

We are told that current legislation is too complex and too difficult to operate. That view is reinforced by the recommendations of the Pickering report. The clauses represent simplification because they focus on the outcome—member-nominated trustees in all schemes—rather than the process by which trustees must be nominated and selected. The effect of the amendments would be to increase the minimum proportion of member-nominated trustees from one third to one half.

At the outset, I must say that we have no difficulty with the practice or the principle of one half of the trustees being member-nominated. Pension schemes can exceed the one-third minimum and we are happy for them to do so. However, we need to think carefully about the potential burden on schemes that could arise from making that a legislative requirement for every scheme. For many schemes, member-nominated trustees are still a relatively new concept. A requirement was introduced in the Pensions Act 1995 and schemes have gone to a great deal of trouble and expense to put arrangements for one third member-nominated trustees in place. We must think carefully before making any change, despite the powerful arguments of my hon. Friend the Member for Cardiff, West. However desirable a 50 per cent. requirement might seem, we need to bear it in mind that even small legislative changes, such as this one, often create widespread disruption as thousands of schemes are obliged to change accordingly.

Some schemes already have 50 per cent. member-nominated trustees, which is to be welcomed. However, what is important is not the exact proportion, but getting some members on every board. Having ordinary members on the board is not about having individuals to represent the interests of scheme members, nor is it about creating a voting block to balance the power of employers; it is about bringing a different set of skills and experiences to bear and providing board discussions with a different perspective. It therefore follows that 50 per cent.

should not be seen as a critical or pivotal figure that ensures that member-nominated trustees get their way somehow or outvote their fellow trustees on the board. It could be argued that it is wrong to set scheme governance against a conflict background of that sort.

All trustees have the same responsibilities. That is the important point. They have the responsibility to run the scheme in the interests of the beneficiaries. The overwhelming majority of trustee boards work together in that way for the interests of members as a whole. Indeed, I am told that trustee decisions are rarely made by anything other than complete consensus.

It is important to work with the pensions industry and sponsoring employers to continue to encourage good quality occupational pension schemes. I think that my hon. Friend will acknowledge that the changes we propose represent a genuine step forward, although there is some discussion among us about whether a third or a half is the appropriate proportion. They will lead to more ordinary scheme members sitting on trustee boards, while at the same time giving schemes more flexibility to devise nomination and selection arrangements that are best suited to their own circumstances.

We are removing the employer's right to opt out. That is an important step forward. We are also ensuring that we get member trustees on all trustee boards and that we simplify the prescriptive legislative requirements that schemes are currently forced to follow. Our priority is not to prescribe the proportion of member trustees or who they should be, but my hon. Friend made some important points and we are prepared to consider the matter further.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

I thank the Under-Secretary for that positive response. That he has agreed to cogitate a little further represents a step forward. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I beg to move amendment No. 295, in

clause 196, page 122, line 31, after second 'trustees', insert

'and that not less than one third of this number shall be nominated by a recognised pensioners' association and in the case of a closed fund, the majority shall be member nominated trustees'.

Photo of Mr James Cran Mr James Cran Conservative, Beverley and Holderness

With this we may discuss the following amendments: No. 267, in

clause 196, page 122, leave out lines 33 to 37 and insert—

'( ) ''Member-nominated trustees'' are trustees of a pension scheme who—

(a) are nominated as a result of a process in which at least all active and pensioner members of the scheme are eligible to participate, and

(b) are selected by a process including at least all active and pensioner members.'.

No. 296, in

clause 196, page 122, line 37, at end insert—

'(2A) a ''recognised pensioners' association'' shall be an organisation that represents at least 25 per cent. of pensioners from a particular occupational pension scheme and is duly constituted for the purpose of representing its members.'.

No. 269, in

clause 197, page 123, leave out lines 41 to 45 and insert—

'(2) ''Member-nominated directors'' are directors of a pension scheme who—

(a) are nominated as a result of a process in which at least all active and pensioners members of the scheme are eligible to participate and

(b) are selected by a process including at least all active and pensioner members.'.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

This is another group of amendments that is intended to strengthen the position of member-representing trustees. I am grateful for the help and advice I have received from various quarters. I thank the Industrial Training Boards Pensioners Association in the shape of Mr. Peter Austin and his colleagues, and the Occupational Pensioners Alliance, in particular Mr. Roger Turner. There are strong feelings about how the Bill deals with the issue.

Amendment No. 295 would add the requirement that at least a third of the member-nominated trustees should

''be nominated by a recognised pensioners' association and in the case of a closed fund, the majority shall be member nominated trustees''.

I believe that one of the industrial training board funds is a closed fund.

Amendment No. 267 is replicated in amendment No. 269 in respect of clause 197, which deals with member-nominated directors rather than member-nominated trustees. Other than that, it is almost identical. Amendment No. 267 sets out that member-nominated trustees

''are trustees of a pension scheme who are nominated as a result of a process in which at least all active and pensioner members of the scheme are eligible to participate, and are selected by a process including at least all active and pensioner members.''

Amendment No. 296 tries to define a recognised pensioners association. As I said of other amendments, it is not a bid for a drafting prize. If the principle is acceptable to the Under-Secretary, he can ask his excellent draftsmen or draftswomen to work to produce something better. Basically, it attempts to define matters by stating:

''a 'recognised pensioners' association' shall be an organisation that represents at least 25 per cent. of pensioners from a particular occupational pension scheme and is duly constituted for the purpose of representing its members.''

In the light of some recent problems, there is much to be said for recognising and underpinning the importance of pensioners associations. Some schemes are active, vocal and knowledgeable about the issues to be faced while others are less so. There must be a threshold, otherwise self-appointed spokesmen would purport to speak on behalf of pensioner members. I chose a 25 per cent. threshold, but other percentages may occur to Committee members.

As the Occupational Pensioners Alliance said in its original briefing:

''We are particularly unhappy about the proposals . . . on Member Trustees''

because

''the role of pensioners in the running of their schemes would be even more marginalised that it is now.''

It welcomes the requirement to have a minimum of one third member trustees, but goes on to say:

''the practical upshot of Sections 196 (2) 197 (2) will mean that pensioners can be ignored in the nomination and election processes. There is only a duty for 'active members' to be consulted. The OPA believes strongly that representation via the Trustees is essential for good and fair scheme management and we call, in the strongest possible terms, for the Government to re-examine its position on this issue.''

The alliance has a strong argument. I do not fully understand the logic of why pensioner members should not be given the position that our amendment suggests. I hope that the Under-Secretary will see the sense of the proposal. If he has views on the threshold, I shall be happy not to press amendment No. 296 to a Division and await the Government to come up with an alternative on Report. It is an important point. It clearly matters to some well organised and concerned pensioners organisations.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions 2:15 pm, 18th March 2004

I apologise for having missed the first few sentences of the introductory remarks. The Committee will note that amendment No. 267 is probably the first amendment in our proceedings that has been tabled in the names of Conservative Members as well as Liberal Democrat Members. We have read the same briefings, met the same people and reached the same conclusions.

Given the maturity of certain occupational pension schemes, there is a growing worry about the position of people who no longer work for the company or perhaps no longer work for anyone and who are now retired. The worry is that their interests will not be fully represented in the decisions made by the trustees.

I accept what the Under-Secretary said in response to the previous group of amendments that we must not regard trustees as a set of caucuses representing different factions. That is not their nature. However, it was rightly explained that one third of them will be nominated. Members of the scheme bring particular expertise and perspectives that others cannot do so vicariously.

Retired members will make up a large proportion of the membership of some schemes. We support the amendment because we were slightly startled by subsection (2)(a), which refers to

''at least all the active members''.

I accept that ''at least'' does not preclude the involvement of retired members, but they seem to be an afterthought and a marginalised group. Given the ageing of the population and of some of the membership, it seems odd that retired members do not have at least the same status as active members.

I recognise that active members may be the only people putting money in apart from the employer. However, the retired members also put a lot of money in and decisions might be made on the discretionary use of funds. I appreciate that the happy days of considering what to do with the surplus are not as relevant now. However, such days may return; one never knows. Retired members' interests should be fed into the process particularly, as the hon. Member for

Eastbourne (Mr. Waterson) said, when those members are organised and well informed.

We are with the spirit of the amendments, although I have some quibbles with the detail. Retired members may be very numerous, yet they do not seem to have the same status as active members. The Minister will understand that we are interested in the principle that they should be.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

Does the hon. Gentleman agree that, if anything, those arguments are more pressing when considering the members of a closed fund?

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

If no active members are putting money into a scheme, the position of retired members is obviously important.

I was not sure about amendment No. 295. I do not think that we are quibbling about the detail. There is an issue of principle to consider: should the status of retired members drawing pensions not be the same as that of active members, who are given a specific, identified role? That is what we are probing.

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

We heard persuasive arguments from the hon. Members for Eastbourne and for Northavon (Mr. Webb), representing organisations that themselves make powerful and important arguments. In responding to those arguments, I want to make two general points before coming on to the specifics.

First, we are discussing part 5. I draw that to the Committee's attention because although it is entitled ''Occupational and personal pension schemes: miscellaneous provisions'', we are dealing with important issues. Part 5 develops the Government's key pension themes of simplicity, security and choice. I make that point because all the time we are trying to find the right balance between simplicity and security. How do we ensure that people's interests are properly represented? How do we provide them with the lifeboats and the safety belts while ensuring the simplicity that is so important for a scheme's flexibility, which allows them to be so vibrant? How do we ensure that there is regeneration across the board?

Secondly, I reiterate the point repeated by the hon. Member for Northavon about the role of trustees. We all understand that trustees represent the generality of interests of the members as a whole and not any particular group. If we keep those two points at the forefront of our minds, it will be easier to understand the significance of the amendments.

The effect of amendments Nos. 267 and 269 would be to require trustees to involve all the active and pensioner members in the nomination of member-nominated trustees, or member-nominated directors in the case of closed funds. They would also require the arrangements to involve at least all the active and pensioner members in the final selection process.

Amendments Nos. 295 and 296 would require at least one of the member-nominated trustees or directors to

''be nominated by a recognised pensioners' association''.

As drafted, the clauses provide that only active members must be involved in the nomination and that the final selection would be made by some or all of the members. We stipulated that as a minimum all active members must be able to participate in the nomination to ensure that the nomination and selection procedures could not be determined and operated by a handful of people behind closed doors. No one in the Committee would want that to happen.

I stress that we are talking about a minimum requirement. We hope and expect that trustees will use the flexibility that they are given to devise nomination selection arrangements that are right for their scheme without having to worry about a plethora of Government regulations. That brings us to the issues of security on the one hand and simplicity on the other.

The requirement that the final selection be made by some or all of the members is practical recognition of the fact that requiring the involvement of all members would be a large and expensive undertaking and that it would be unreasonable to impose that on schemes—I stress the word ''impose''. If schemes wish to involve all members, that is fine, but imposing that as a requirement could be a problem. It would also disrupt existing arrangements without good reason. There is nothing wrong with a pensions consultative committee or a trade union-based selection panel making the final choice between nominees, but that would not be acceptable if we agreed to the amendment.

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

If we say that active members have to be represented as part of the process, but that retired members drawing pensions do not, it is as if there is a first-class and a second-class membership of the scheme. There is no huge, burdensome complexity in saying that retired members should have equal status. I appreciate that one could not write to everybody, but where schemes had organised groups, doing so would not be that onerous or complicated.

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

It could be quite complicated and onerous, in terms of the requirements on schemes. Some schemes will involve all members anyway, but to make doing so a requirement could be quite onerous.

Certainly, we do not intend to create first-class and second-class members of schemes, but I come back to a point that both the hon. Gentleman and I have made: what are trustees there for? Are they there to represent the generality of interests of all members, or a particular group of members? That is where we have some difficulty with the amendments.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

Surely the Under-Secretary's point is double-edged. We could be discussing an amendment that said exactly the opposite because the clause said exactly the opposite. I do not think that that is an argument. Pensioners have at least as legitimate a say as anyone else. I have a subsidiary question: given the practical difficulties that some schemes may have in attracting enough of the right kind of people to volunteer, why not cast the net as widely as possible in the clause?

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

I agree that we need to cast our net widely to ensure that we have as broad a representation as possible. We have always decided

that trustees should not have a representative role, and we have to focus on our main priority of ensuring that every scheme has members on the trustee board. The hon. Gentleman and I would agree on that. All trustees should have the same roles and responsibilities in respect of all members. There is a danger of seeming to suggest otherwise if we make a special case for pensioners, for which the hon. Members for Eastbourne and for Northavon argue.

The issues of who the member-nominated trustees should be, and whether they should be active, pensioner or deferred members, are best left to the trustees and scheme members to determine. They know the scheme, its maturity and the balance between the different categories of member better than anyone—certainly better than any of us in Committee and better than the Government.

Amendments Nos. 295 and 296, taken together, would effectively require all schemes to set up or recognise pensioners associations, regardless of the size or profile of the membership. There would be no problem at all with the pensioners associations—quite the opposite, as hon. Members might expect—but it is for trustees, employers and members to decide between them whether they have a formal role in a particular scheme. Again, that is not something that the Committee, or a Government, should impose.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions 2:30 pm, 18th March 2004

I still cannot get my head around the point on second-class membership. The Under-Secretary is saying that there is a requirement for active members to be involved because we do not want things to be done behind closed doors , but why does that not apply equally to pensioners? He says that pensioners cannot be required to be involved because every scheme is different and should make it up for itself, but the Bill includes active members. Why are they more important than pensioners?

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

We are not saying that. We are establishing a minimum requirement for the active members to have representation. It is for schemes and trustees to decide whether they wish to extend that to bring the pensioner and deferred members into that category. All we are doing in the Bill is establishing a basic minimum floor, on which individual schemes can build according to their circumstances.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I am still having trouble getting my head around this point. If the word ''active'' were removed, no one would disagree. We all agree that there should be a minimum floor and beyond that, people should be left to get on with it—but the Minister has not answered the question about why a distinction should be drawn between the active members and the pensioners. It defies understanding. There may be a good reason for it, but that has not yet been revealed to the Committee.

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

I am clearly not being very persuasive. As I said, we are establishing a minimum floor, which is the participation of the active members. I think that Committee members will agree that the active members are currently engaged in the scheme, and that those who have left the scheme and are pensioners are in a different position. We are not saying that the

pensioners are in a worse or second-rate position. In many schemes it will be felt to be right that those interests should be represented separately and that the deferred members should be represented too, which is fine. All we are doing in the Bill is establishing that base-line.

If we accepted the amendments, far from creating simpler legislation, we would make the legislation significantly more onerous than the present Act—the 1995 Act. If it were amended in that way, the Bill would require every scheme to involve every active and pensioner member, even when that meant tens of thousands of people. In every case where trustee nominations exceeded vacancies, every scheme would be required to recognise a pensioner association. As I stated earlier, the aim of the clauses is to provide flexibility by radically simplifying the legislation. We accept that simplification comes with a degree of risk attached. We are handing the responsibility to trustees to decide what is best for their scheme. That may carry risks, but it is the right thing to do.

The amendments would be an unnecessary step backwards to the sort of prescriptive or restrictive legislation that we are trying to get away from, and would impose unnecessary burdens on schemes. Clause 198 contains a power to make regulations modifying the application of clauses 196 and 197 in prescribed cases. We will consider in due course how those regulations should deal with schemes that have no active members, which is a matter for concern to members of the Committee. I hope that the hon. Gentleman will feel able to withdraw his amendment.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I do not want to bring a churlish note to these otherwise amicable proceedings, but I am wholly unconvinced. I get the impression that the hon. Member for Northavon shares my total lack of conviction. The last refuge of a Minister defending a Bill is to say that the amendments would make it more complicated. That is a bit rich, coming from the people who produced this Bill. If amendments would make it right, so what if it is slightly more complicated? Moreover, if the word ''active'' were removed, it would make the Bill less complicated, and this problem would largely be solved.

I fail to understand what the Minister has got against pensioner members. Is it because they are older? Is this a bizarre form of institutional age discrimination on the part of the Department? One could argue that pensioners have more time to spend on their ever more onerous duties, to which we will come shortly. They might have considerably more experience of the problems that we are all talking about. There is no good reason why the amendments, or at least the principle behind them, should not be accepted. On a practical level, people will have real difficulties attracting trustees in future because of what the Government are doing later in this part of the Bill. The Minister shakes his head. That is up to him. He can shake his own head, to quote Churchill: I am making my own point. The idea behind the amendments is right and proper.

I shall seek leave to withdraw the amendments—what difference would it make if I did not? None the

less, I am wholly unconvinced by what the Minister said. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

I beg to move amendment No. 300, in

clause 196, page 122, line 31, leave out ', and' and insert—

'(aa) that before those arrangements are made, reasonable steps have to be taken to consult the active members of the scheme, and'.

Photo of Mr James Cran Mr James Cran Conservative, Beverley and Holderness

With this it will be convenient to discuss amendment No. 304, in

clause 197, page 123, line 39, leave out ', and' and insert—

'(aa) that before those arrangements are made, reasonable steps have been taken to consult the active members of the scheme, and'.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

Again, my amendments are intended gently to probe my hon. Friends the Ministers. They know that I am an admirer both of them and of the entire ministerial team—and when they next see the Secretary of State, could they tell him that I think he is a great guy? [Hon. Members: ''Tell him yourself.''] Oh yes, I am sorry; I did not notice that he was here.

As the hon. Member for Eastbourne rightly recognised, the amendments draw their inspiration from the trade union movement, although not necessarily from the TUC. Some points about consultation need to be clarified, and there is a particular concern that the Bill might allow trustees to implement a system of selecting member-nominated trustees with considerable discretion. I understand that the Bill is not intended to be complicated or too prescriptive, but the trade unions believe that there should be consultation with members as to the nature of the system of selecting member-nominated trustees.

The code of practice is not binding, so dissatisfied members appear to have no resort apart from complaining to the ombudsman after the event if they have a concern about the manner of the arrangements for the selection of member-nominated trustees. For example, members may feel that they are so manifestly unrepresented that it constitutes a breach of trust.

Member-nominated trustees are intended to boost member confidence as well as to improve the running of schemes. Members should have an opportunity to comment on proposed arrangements before they are implemented rather than having to rely on a complaint to the ombudsman after something has gone wrong. Now I would like to hear the Under-Secretary's response.

Photo of Mr James Cran Mr James Cran Conservative, Beverley and Holderness

Order. I did not interrupt the hon. Gentleman at the time, but the Committee should know that it is inadmissible to refer to anybody in the Gallery, even an eminent member of the Government.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

I was not aware that there was anybody there, Mr. Cran.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I just want to say that I too think that the Secretary of State is a great guy, but he is making a terrible hash of running the Department for Work and Pensions.

Photo of Mr James Cran Mr James Cran Conservative, Beverley and Holderness

If only I had known that that was what the hon. Gentleman was going to say, I would never have allowed him to speak.

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

Amendments Nos. 300 and 304 would require trustees to consult the active members of a scheme about the arrangements for nominating and selecting member-nominated trustees and directors before those arrangements are made. We can all agree that consultation is a good thing—there are clear benefits in maintaining good communication between trustees and members and in having nomination selection arrangements that scheme members are happy with. The question is whether it is reasonable or necessary to inscribe that requirement in tablets of legislation.

Many pension schemes have long-standing trustee nomination and selection procedures that have developed over time as a result of good industrial relations. I see no value in requiring those schemes to conduct an expensive consultation exercise. I hope that trustees will maintain good dialogue with members, but there is no justification for introducing a statutory requirement.

Clauses 196 and 197 contain minimum requirements that all schemes must incorporate into their nomination and selection arrangements. For example, at least all the active members must be eligible to participate in the nomination process, and any selection arrangements must involve some or all of the scheme members. We do not want to go beyond those essential requirements. Our aim in these clauses is to remove unnecessary legislative burdens and to leave the people who know the scheme best—the trustees—to get on with the job.

I hope that my hon. Friend the Member for Cardiff, West agrees with the spirit of the following statement: consultation should be encouraged, but it is not necessarily enhanced if it is made a requirement.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

I do not want to press this to a Division, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I beg to move amendment No. 266, in

clause 196, page 122, line 31, at end insert—

'( ) that those arrangements are fair and open, and'.

Photo of Mr James Cran Mr James Cran Conservative, Beverley and Holderness

With this it will be convenient to discuss the following:

Amendment No. 280, in

clause 196, page 122, line 32, after 'are', insert

'fair and open and are'.

Amendment No. 268, in

clause 197, page 123, line 39, at end insert—

'( ) that those arrangements are fair and open, and'.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

A Liberal Democrat amendment has somehow got into this group, but I will speak only to

amendments Nos. 266 and 268, and the Liberals will have to paddle their own canoe with amendment No. 280.

On the face of things, it is difficult to see how our amendments could cause the Government any difficulties. They merely suggest that arrangements should be ''fair and open''. People might ask, what could be wrong with that? However, there is some history to this matter.

In their 2002 Green Paper, ''Simplicity, security and choice: Working and saving for retirement'', the Government reaffirmed their commitment to boards of pensions trustees containing one third member-nominated trustees. They intended to remove the employer opt-out, which was a creature of the previous legislation, but to reduce the level of prescription in the method of selection. The technical paper issued at the same time as the Green Paper proposed two options. One of them was the option put forward in the Pickering report that provides for only a minimum requirement in legislation—the one-third rule for member-nominated trustees. The second option was to qualify that minimum requirement with a further condition in the legislation—that arrangements for nominating and selecting member-nominated trustees must be fair and open.

During the consultation on those documents, concerns were expressed that more flexible legislation would give unscrupulous schemes the scope to avoid member-nominated trustees altogether, or to disfranchise certain members or groups of members, rather as the Government are seeking to disfranchise pensioners—although we have finished that debate for the moment. It was also suggested that schemes should be free to adopt arrangements to suit their own circumstances and—as the regulatory impact assessment states—focus more on outcome than process. The RIA says that there was widespread concern that

''enforcing a 'fair and open' test would be difficult, time consuming and expensive and lead to vexatious complaints to the regulator.''

As a result, the Government decided to adopt the first option.

We are not wholly convinced by that argument; hence these two amendments. Unless the legislation applies the ''fair and open'' test, there could be considerable unhappiness among members of schemes. It is looking at life through the wrong end of the telescope to say that one of the reasons for not requiring a test of fairness and openness is the fact that it could lead to vexatious complaints to the regulator; it could also lead to perfectly justifiable complaints to the regulator. Who is the author of the regulatory impact assessment—whoever he may be—to take that lordly view?

I am not prepared to go to the stake over the amendments, but I would be interested to hear how the Government concluded that they wanted to go for option one rather than option two.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions 2:45 pm, 18th March 2004

I will not add much to what the hon. Gentleman has said. Obviously, we trenchantly

disagreed with the Conservatives and took the view that the point in question would be far better made in line 32 than in line 31. That is the only real difference between amendment No. 280 and amendment No. 266. We may be wrong, because we amended what was given to us. The key point—

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

That is rich, coming from the hon. Member for Eastbourne.

The key point is that it is hard to conceive of an acceptable process for determining the membership of the trustees that was not fair and open. I am sure that the Minister will say that the Government want the process to be fair and open—I can feel it coming—so why not put it in the Bill? I accept that there is an issue of balance. However, in our judgment, the balance must be that the members should expect fairness and openness at the very least. As for vexatiousness and prejudging the issue, clearly there could be a threshold, and some cases could be dismissed out of hand. A vexatious litigant who never lets go and is like a dog with a bone could have his case thrown out.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

Would it not be nice if people felt that strongly about those issues?

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

I am sure that people do feel that strongly, judging by the representations that we receive on such matters. As I say, mechanisms are in place to deal with the vexatious, but to use vexatious litigants as a reason for not putting the words ''fair and open'' in the Bill is hard to justify. I look forward to the Under-Secretary's acceptance of our amendment No. 280—although I could live with an acceptance of amendment No. 266.

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

I shall not let the hon. Member for Eastbourne get away with his suggestion that we are seeking to disfranchise pensioners. Their interests are represented by the trustees, as are those of any other members of the scheme. It was terribly perceptive of the hon. Member for Northavon to anticipate that I would say that fairness and openness are both good things, and that on the whole, the Government believe them to be so. The amendments would introduce a requirement for trustees that the arrangements be ''fair and open'', and we all think that that is a great idea—

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

The but comes in a few lines. We put that idea forward for discussion in the technical paper that accompanied the Green Paper. We listened carefully to the arguments put forward during the consultation, including the argument that fairness and openness are essential if members are to have confidence in the process and the trustees. Now comes the but—the problem is this: what does ''fair and open'' mean in practice? I think that the hon. Member for Eastbourne will tell us in a moment. For example, what would the arrangements have to provide if a company was based on several different sites and had different numbers of staff at each? How should the arrangements deal with schemes with different maturity and numerous variations in the ratio of active, deferred and pensioner members?

If we were to leave the regulator to deal with all that in a code of practice, we would be back where we are now—with reams of detailed and prescriptive procedures. That is where it all comes down to the balance that the hon. Member for Northavon mentioned. On balance, we decided that our priority is simplification and flexibility. We tell the trustees what the required outcome is, and we let them decide how to achieve it. We all accept that the responsibilities and demands on trustees are significant and that we must, as far as possible, encourage and not deter people from taking on that valuable role. Therefore, we should also be prepared to accept that wherever possible, we allow trustees to carry out those responsibilities in a sensible and practical manner.

I understand the concerns that if we do not legislate for ''fair and open'' practice, we leave the door open for unscrupulous trustees. However, I would ask the Committee to examine the Bill as a whole. It has many built-in safeguards, such as the new regulator, which we have discussed in previous sittings and which has a wider range of powers and a more risk-based approach, and the new requirements in clause 200 relating to the knowledge and understand of individual trustees. We will have more schemes with member-nominated trustees, more knowledgeable trustees generally, and a regulator that can step in if the scheme is not being run properly.

Clause 196 taken with clauses 197 and 198 will result in more ordinary members becoming involved in the running of pensions schemes. At the same time, it will bring simplification to occupational schemes. That strikes the right balance. The amendments, however, would result in the sort of complexity and restriction that we are trying to move away from.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

The Under-Secretary is wrong on one count: I am not going to tell him what I believe ''fair and open'' means—although there are many lawyers and judges who would answer that question for any individual case.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

That is a slightly bizarre way of looking at it. If people are aggrieved, they can be genuinely aggrieved as well as being vexatious. The Minister has taken the view that all objectors are potentially vexatious, so he wants to shut off that avenue of complaint. However, if we are to reinvest the role of trustees with a new energy and appeal, why not give people a channel through which they can express their concerns about the way in which trustees are selected? I do not understand the logic of the Minister's objection, but for the sake of amity and progress, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

I beg to move amendment No. 302, in

clause 196, page 123, line 8, after 'provide', insert

'for the filling of vacancies within a reasonable period and'.

Photo of Mr James Cran Mr James Cran Conservative, Beverley and Holderness

With this it will be convenient to discuss amendment No. 306, in

clause 197, page 124, line 12, after 'provide', insert

'for the filling of vacancies within a reasonable period and'.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

These amendments address a relatively minor issue, but one about which trade unions nevertheless have concerns. They would like some reassurance. The amendments would require that vacancies, as they arise because of resignations and so on, be filled promptly. It is important to safeguard against a situation where vacancies for member-nominated trustees are left unfilled for a prolonged period, as that would leave members unrepresented. We have discussed the 1995 Act on several occasions, and I think that there was a clause to this effect in that Act. It seems reasonable to replicate it in the Bill, and I will be interested to hear my hon. Friend the Under-Secretary's comments.

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

I can reassure my hon. Friend that we understand his amendments and share his view that vacancies should be filled within a reasonable time. The difficulty is that trustees cannot force other people to become trustees. It would be unreasonable to put trustees in a position where they would be in breach of a statutory requirement through no fault of their own.

If, for example, a vacancy for a member-nominated trustee arises, clause 196(5)(a) requires the trustees to try to fill it. If no one is nominated, clause 196(5)(b) will ensure that the vacancy is readvertised at reasonable intervals until it is filled. Similar provisions apply under clause 197 for member-nominated directors of corporate trusts. That is all that we can reasonably expect trustees to do. I am sure that the Committee agrees that the last thing we want is to force trustees to press-gang people into becoming member-nominated trustees. For that practical reason, I ask my hon. Friend to withdraw his amendment, although we share his belief that we must get vacancies filled as soon as practicably or reasonably possible.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

I do not think that the amendment proposed press-ganging anyone into becoming a trustee, but I am glad of the reassurance that the Bill's intention is that vacancies be filled in a timely and expeditious manner. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 196 ordered to stand part of the Bill.

Clause 197 ordered to stand part of the Bill.