Clause 82 - Membership of the board

Pensions Bill – in a Public Bill Committee at 4:15 pm on 23rd March 2004.

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Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne 4:15 pm, 23rd March 2004

I beg to move amendment No. 347, in

clause 82, page 52, line 18, at end insert—

'(4A) Any person appointed as an ordinary member shall have knowledge and understanding of—

(a) the law relating to pensions and trusts,

(b) the principles relating to—

(i) the funding of occupational pension schemes, and

(ii) investment of the assets of such schemes, and

(c) such other matters as may be prescribed'.

I confess that this amendment, which has a lot going for it, was inspired by the National Association of Pension Funds. The association's first concern, which seems sensible, is that the kind of people that will be appointed to the board should—to put it bluntly—know what they are doing. They should have the appropriate skills and expertise to discharge their duty. A different part of the Bill, which we have mercifully moved on from, places heavy and onerous duties on trustees, who are required to be conversant in various things, but there is no equivalent test for PPF board members. That strikes me as bizarre because in many ways those board members will be the ultimate trustees of all pension funds in the country.

Amendment No. 347 would ensure that anybody who is appointed has knowledge and understanding of the relevant issues including: pensions and trusts, and the law relating to them; and the principles relating to the funding of schemes, investment of the assets of such schemes and other matters that may be prescribed. We have just heard from the Minister that the board will have to make tricky decisions about investment of assets brought in from failed schemes, about revenue streams from the levy or levies, and about borrowing. Board members will therefore have to be high-powered, and we certainly do not want a board that is unable to cope with its requirements.

Amendment No. 347 strikes me as eminently sensible. If we are capable of stating the requirements on trustees' knowledge in the Bill, why not state the requirements on ordinary members of the board?

Photo of John Robertson John Robertson Labour, Glasgow Anniesland

I should be obliged if the Minister considered the phrase ''five other persons'' in clause 82(1)(c). Will that ensure a broad coverage of people? Perhaps we could include employers, employees and people with experience of the insurance business. Would the Minister consider having somebody with occupational pension and management experience? To say ''five other persons'' leaves things open to having five anybodies. We could end up with five people of the same ilk, which would not ensure diversity. I would like employees in particular to be represented, as well as employers. As an ex-manager, I know that experience of managing schemes and business is helpful. How does the Minister expect to achieve a broad coverage if all that is stated is

''five other persons ('ordinary members')''?

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

Amendment No. 347 relates to the board of the PPF, and it suggests that we include in the Bill a requirement for ordinary board members to have when they are appointed knowledge of the law relating to pensions and trusts, and of the principles relating to funding and investment of schemes and other

prescribed matters. We recognise that the amendment is an attempt to mirror the requirement that applies to trustees under clauses 200 and 202, which we discussed earlier. After all, the argument would go, if individual trustees are required to have such knowledge, why should PPF board members be exempt? That is the argument in a nutshell; in principle, it is not a bad one.

It may help if I explain the principle behind clauses 200 and 201. Clause 200 is designed to give trustees clear guidance about the knowledge that they require to carry out their role effectively. The ''lay'' trustees are at the very heart of the UK's private pension provision, particularly as many are unpaid. We value their commitment and sense of duty. There is a similar requirement for corporate trustees. As I said earlier, the clauses do not mean that we expect all trustees to be expert in every aspect of pension law and administration. Rather, we expect them to be able to demonstrate a good, solid understanding of the scheme rules and a broad knowledge of the issues.

We do not believe that the requirement set out in the amendment should be added to the Bill for PPF board members. It is unnecessary for several reasons. First, board members will not be acting in an unpaid capacity. They will be suitably experienced in order to ensure that the board as a whole is best capable of exercising its functions efficiently and effectively. Secondly, the appointment process will require that each board member has the knowledge and experience that is appropriate for his role. We would not appoint people who seem to be ignorant or who are not knowledgeable about the job for which they are applying. For example, we would expect a finance director of the PPF to have suitable financial qualifications and experience to ensure proper conduct of its financial affairs, but they need not necessarily have detailed knowledge of the law relating to pensions and trusts.

Thirdly, we envisage that the terms and conditions will set out that board members must continue to have the knowledge to carry out their role, and that they will undertake training if necessary. Non-executive members will also be appointed on merit and the chairman will be expected to implement the recommendations of the Higgs report for non-executives. [Hon. Members: ''Hear, hear.''] I know that my hon. Friend the Member for Greenock and Inverclyde (David Cairns) followed the Higgs report proceedings with some interest.

The recommendations specify that the role of each non-executive should be clear from the beginning of their appointment, that a comprehensive induction programme should be provided for them and that the chairman should address the development needs of the board as a whole with a view to enhancing its effectiveness. Furthermore, the performance of the board, its committees and its individual members should be evaluated at least once a year. The annual report should state whether such performance reviews are taking place and how they are conducted. I believe that the objective of the amendment is achieved by

those approaches, and so I hope that the hon. Member for Eastbourne will withdraw the amendment.

My hon. Friend the Member for Glasgow, Anniesland (John Robertson) raised a point that may come up again later about the people who are required for the board. It is not intended that the board will be strictly representative of certain groups. We have learned lessons from other public organisations that found that such an approach tied their hands when they were trying to appoint the right person for the job. Instead, as I said, each appointment will be based on merit to ensure that members of the board have the right skills and experience for their role and that the board as a whole provides the best range of experience and knowledge. Given the importance of that broad range of experience, skills and knowledge, we would not, by definition, expect the board to consist of exactly the same kinds of characters. That would not be in keeping with what we are trying to achieve. However, I reiterate that that does not mean that representative interests will be ignored or that individuals and groups will not be reasonably informed about board decisions. I ask the hon. Member for Eastbourne to withdraw the amendment.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I am grateful to the Minister. I was not suggesting that in the real world there would not be an attempt to get the best possible people. To take just one category as an example, I hope that we will not see any of the Prime Minister's former flatmates popping up as members of the board.

I am slightly worried by what the Minister said about training. For reasons that I have already explained and will go on to explain in more detail when appropriate, board members will have to hit the ground running. I think that the fund is going to be extremely vulnerable in its early years until the full risk-based levy kicks in. Even then, it will be difficult to run it well, and the people concerned will need all the relevant skills. The CBI made the important point in briefings to us that people with a relevant business background will be needed to run the fund.

I am happy to withdraw the amendment, but I am still not wholly convinced that there is some great point of principle that requires the Bill to insist that trustees, but not the ordinary members of the board, have certain skills. 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. 348, in

clause 82, page 52, line 30, at end insert—

'(8) The appointment of any member of the Board shall be open and transparent.'.

To coin a phrase, the Minister has already shot my fox on this amendment because he has already mentioned the magic word ''Higgs-compliant''. The amendment is inspired by the NAPF, which was keen that the appointment of all the members should be as transparent and open as possible. I cannot imagine any argument against that. The words ''open'' and ''transparent'' are code for Higgs-compliant, which is

the current best practice in such matters. I hope that the amendment will have some appeal to the Minister.

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

To some extent, as the hon. Gentleman anticipated, I dealt with these matters in my earlier remarks. I am fully in favour of the spirit of the amendment, but we believe that it is wholly unnecessary. The Bill already provides that procedure for any appointment made by the board must follow prescribed procedures and guidance. I hope that I have given the hon. Gentleman some reassurance in the remarks that I made some moments ago about our intentions. We need people with a range of experience and skills to carry out this important and complex task. I therefore hope that the hon. Gentleman will consider withdrawing his amendment, however well intentioned it may be.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

All my amendments are well intentioned, Mr. Cran, as you well know. None the less, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 82 ordered to stand part of the Bill.

Clause 83 ordered to stand part of the Bill.