With this it will be convenient to discuss new clause 3—Review of standards of administration—
‘(1) Within six months of the day on which this Act is passed, the Treasury shall commission an independent review into the standards of administration in public service pension schemes and how those standards could be improved.
(2) The Treasury shall lay before Parliament the report produced by the review as soon as reasonably practical after the report has been published.’.
Further to that point of order, Mrs Brooke. This might be useful to the Committee. The stand part debate and new clause 3 have been grouped together, but I have not yet talked about the virtues of the new clause, so for the purposes of this debate, perhaps—at your discretion—the Minister might outline the general purpose of clause 15 and we could then get into the debate proper.
Thank you, Mrs Brooke.
The clause introduces schedule 4, which significantly extends the Pensions Regulator’s role in relation to public service pensions schemes. We will discuss schedule 4 in more detail later. The provision reflects Lord Hutton’s recommendation that the scrutiny of public service schemes should be independent of interested parties.
For public service pension schemes in Great Britain, the clause will provide a power to enable the Secretary of State for Work and Pensions to make changes that are consequential on schedule 4 by order. That is a standard power that allows for the rectification of unforeseen problems that could otherwise hinder the legislation or prevent it from operating as intended. The clause will also provide a power to make further or connected provisions for the regulation of public service pension schemes in case unforeseen interactions are identified during the detailed design work.
If an order under the clause is to amend primary legislation, it will be subject to the automatic scrutiny of the House through the affirmative resolution procedure. In all other cases, orders will be subject to the negative procedure. That strikes the correct balance between the need for Parliament to consider and scrutinise such orders, and the demands on its resources. The clause will provide corresponding powers in respect of Northern Ireland.
The Pensions Regulator will be responsible for setting standards of administration and governance in public service pensions schemes, and will have powers to enforce those standards, as required. A key part of that new role is for it to issue codes of practice to enable schemes to know what is expected of them and how to meet the standards. Codes of practice will set out in more detail the legal requirements on schemes and how schemes can fulfil them. Therefore, once the Bill is passed, an independent body will set standards and consider how schemes can best meet them. The Bill also makes it clear that the Pensions Regulator will have to include, in its annual report to Parliament, specific mention of how it has exercised its functions in respect of public service schemes.
Thank you for your helpful clarification, Mrs Brooke. I hope Committee members are looking forward to a fun day of debate on the Bill. I can barely wait for the moment when we have to decide whether to press new clause 3 to a Division, but sadly, given the archaic nature of the procedure, that will not be until the end of the process. For the time being, it is sensible to debate new clause 3 now, grouped as it is with clause 15 on the regulatory oversight of new schemes.
New clause 3 was prompted by Lord Hutton, specifically recommendation 22 on page 17 of the independent public service pensions commission’s final report:
“Government should set what good standards of administration should consist of in the public service pension schemes based on independent expert advice. The Pensions Regulator might have a role, building on its objective to promote good administration. A benchmarking exercise should then be conducted across all the schemes to assist in the raising of standards where appropriate.”
We are taken with that recommendation, which seems sensible. New clause 3, therefore, seeks to implement that concept by ensuring that the Government receive independent advice on improving standards of administration in public service schemes. New clause 3 would also ensure that the independent review is publicly accessible so that its implementation can be scrutinised and its recommendations can be accessed and implemented by schemes that wish to do so.
Clause 15 triggers schedule 4, which we will debate at another point. Paragraph 14 of schedule 4 makes provision for the regulator to issue codes of practice, but clause 15 does not require the regulator or another independent expert to carry out a review first and then to set out clear principles for good administration in public service pension schemes, which could inform the codes.
From our point of view, there are a number of factors in favour of an independent review. First, an independent review would identify areas of improvement in the national drive for better administration, as well as identifying best practice that can be emulated by other schemes. Given the number of schemes we are talking about and given the need to improve trust and confidence in those schemes, it is important that we take this moment, which is perhaps one of the few moments in a generation when we legislate to make such improvements, to consider how best to set that standard for scheme administration.
Enshrining an independent review in legislation may also inform future codes of practice by considering the possibility of streamlining and combining scheme administrative functions. Lord Hutton’s report states:
“The Commission has received suggestions and evidence from a number of commentators that public service pension schemes offer scope for streamlining and combining of their administration functions.”
That is important because, obviously, if we are talking about ensuring that schemes have efficient administration and are run cost-effectively, good advice needs to be available to ensure that some of those administrative approaches can be pooled where necessary, but not to the extent that they jeopardise good practice in the operation of those schemes.
An independent review is also worth while because, given the vast number of smaller schemes, it could examine ways in which the local government pension scheme in particular might benefit from economies of scale. The findings of an independent review could make sharing administrative services or contracts more possible. That is the logic behind new clause 3, which springs from the recommendations and conclusions of the Hutton report. It would help to strengthen the Bill and clause 15 by moving in harmony with the provisions that the Minister has already set out.
We do not massively disagree with clause 15, but given the importance of the schemes’ regulation, the regulator should be required to play a more active role than clause 15 and schedule 4 currently require. I think we will debate some of those matters later with regard to schedule 4.
The new clause appears to be concerned with Lord Hutton’s recommendation that the Government should set good standards of administration in all public service schemes. He recommended that once those standards are set, benchmarking should be undertaken to improve performance where needed. While we agree with both parts of that recommendation, the new clause is unnecessary, even though the hon. Gentleman made some forceful points. Allow me to explain why.
Through the Bill we are extending the administration and governance requirements placed on pension schemes by the Pensions Act 2004. We are setting the administration standards required of public service schemes, which has not been done before. Up until now they have been exempt from most of the provisions that apply to the governance and administration of schemes. We have carefully examined those exemptions and we could see no basis for those standards to continue not to apply. Schedule 4 therefore sets out the governance and administration requirements on public service pension schemes.
We worked closely with the Pensions Regulator in preparing the Bill. Lord Hutton’s recommendation suggested that it could have a role to play in advising the Government. We agreed, because the Pensions Regulator is an independent, risk-based regulator with considerable expertise in the area. Schedule 4 extends its role in regulating the administration and governance of public service schemes, bringing it into line with its role in all other occupational pension schemes.
For completeness, I should mention that in parallel to the changes in the Bill, we also intend to do more to strengthen transparency of scheme governance and administration.
Clause 13, which we have already discussed, allows for information on those matters to be published by schemes or collated centrally by Government. We intend to use that to monitor and drive improvement in scheme administration. The new clause does not appear to offer anything on that aspect of Lord Hutton’s recommendation, but it is helpful for the Committee to understand the various components of our response.
I suppose that I do not need to decide at this moment whether to press new clause 3 to a Division. I will listen to the Minister’s further comments on schedule 4, but I am not yet satisfied that we have dealt properly with the issues behind my arguments on new clause 3. If it is okay with you, Mrs Brooke, I will hold my fire for the time being.