Clause 14 - No indemnification for civil penalties

Pensions Bill [Lords ] – in a Public Bill Committee at 6:15 pm on 12 July 2011.

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

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

I am sure the Committee is enjoying this bit. Clause 14 does not correct a technical drafting error: it closes a loophole, which is another thing we regularly do in legislation. Section 256 of the Pensions Act 2004—it must have been a real corker of an Act: I forget how many clauses the Bill runs to, but we do not have 256 clauses —prohibits a trustee or manager of an occupational or personal pension scheme from taking money from the scheme to pay for a fine as a result of a conviction or penalty, and rightly so.

Clause 14 also prevents trustees or managers from being reimbursed from the scheme for payment, and this includes indemnity insurance. Sections 40 and 41 of the Pensions Act 2008 introduced fixed and escalating penalties in preparation for auto-enrolment. Section 256 prohibition should have been extended to cover the 2008 Act penalties, but was not. Clause 14 closes that loophole and extends section 256 of the Pensions Act 2004 so that it covers fixed and escalating penalties introduced by sections 40 and 41 of the Pensions Act 2008. The effect of the new clause is to prohibit pension scheme trustees or managers from paying penalties that they are personally liable for out of scheme funds, and as a result reducing members’ benefits.

I will talk about why such prohibition is needed. For automatic enrolment to work, the Pensions Regulator must be able to take effective enforcement action against trustees and managers where necessary. As a last resort, penalty notices could be issued, and the deterrent effect of penalty notices is nullified if recipients simply take the money out of the scheme. The thinking behind that prohibition is fairly clear. I can reassure the Committee that there have not been any prosecutions under section 256, and that is how we want to keep it. However, we want to ensure that we have a deterrent effect and therefore clause 14 corrects that omission in the auto-enrolment world. I commend clause 14 to the Committee.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.