Clause 107 - Sanctions for avoidance of employer debt etc

Pension Schemes Bill [Lords] – in a Public Bill Committee at 11:00 am on 3rd November 2020.

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Photo of Neil Gray Neil Gray Shadow SNP Spokesperson (Work and Pensions) 11:00 am, 3rd November 2020

I beg to move amendment 19, in clause 107, page 90, leave out lines 5 and 6 and insert—

“(c) The person neglected to act in accordance with their duties and responsibilities.”

This amendment and amendment 20 are intended to avoid the risk that routine behaviour by parties involved with pension schemes and others would be judged criminal, and thereby to protect professional advisers from criminal liability for carrying out their role.

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

With this it will be convenient to discuss the following:

Amendment 20, in clause 107, page 91, leave out lines 3 and 4 and insert—

“(c) The person neglected to act in accordance with their duties and responsibilities.”

This amendment and amendment 19 are intended to avoid the risk that routine behaviour by parties involved with pension schemes and others would be judged criminal, and thereby to protect professional advisers from criminal liability for carrying out their role.

Clause stand part.

Clauses 108 to 116 stand part.

That schedule 7 be the Seventh schedule to the Bill.

Clause 117 stand part.

That schedule 8 be the Eighth schedule to the Bill.

Photo of Neil Gray Neil Gray Shadow SNP Spokesperson (Work and Pensions)

Amendments 19 and 20 are in my name and that of my hon. Friend the Member for Gordon, and for the reasons that other members of the Committee have outlined we support part 3 of the Bill. We are also incredibly supportive of the principles of clause 107, which introduces new criminal offences aimed at deterring occupational pension schemes, sponsoring employers or scheme trustees from engaging in wrongdoing in relation to their pension scheme. We would not table the amendments if we were not concerned, and if serious concerns had not been raised about the clause.

We think the clause will act as a strong deterrent against those who would wilfully run a scheme down, as we have seen happen in the not too distant past, and as was outlined earlier by the Chair of the Work and Pensions Committee, the right hon. Member for East Ham. However, the new criminal powers are wide-ranging and have the potential—I am sure it is unintentional—to criminalise routine behaviour by parties involved with pension schemes and those who are not directly involved at all, such as lenders and those doing business with a pension scheme’s employers. That could have damaging knock-on effects for the viability of the pension scheme, if those who dealt with it, or employers, deemed that that legal risk was intolerable.

We have been working with the Institute and Faculty of Actuaries, which the Minister previously quoted in his favour in relation to part 3 of the Bill, as it has serious misgivings about the impact that the clause could have. It suggests that a wide range of conduct has the potential to have a detrimental effect on the likelihood of scheme benefits being met, in which case schemes might fall foul of the proposed current wording of clause 107.

The Institute and Faculty of Actuaries says, for example, that such conduct might include a Government entity terminating an outsourcing contract, where the contractor has a pension scheme; an employer giving employees a pay increase; a Government increasing corporation tax or business rates; a landlord increasing rents, where the tenant has a pension scheme; trustees or a scheme actuary granting an augmentation or increase to members without additional employer contributions; or a bank refusing to lend to an employer. That view is also supported by the Pensions and Lifetime Savings Association.

Our amendments would protect professional advisers from criminal liability for carrying out their role. That could be achieved in the Bill if the duties and responsibilities of an individual were considered when determining whether a person intended to commit an offence. The amendments would clarify matters in adding the question of negligence, which we feel is the intention behind the clause, but which is not explicit. They would also make it clear that a person’s role and responsibility should be considered.

The intended effect is not to change the policy aims of the legislation—far from it—but to clarify the extent of the powers and, in doing so, protect professional advisers from criminal liability for legitimately carrying out their roles. We therefore hope that the Government will accept the amendments.

Photo of Stephen Timms Stephen Timms Chair, Work and Pensions Committee, Chair, Work and Pensions Committee

I have listened with great interest to the case that the hon. Member for Airdrie and Shotts has been making. I have also been contacted by a reputable industry body, the Pensions Management Institute, as well as the Institute and Faculty of Actuaries, which has been mentioned. They expressed alarm about the consequences of clause 107, which the hon. Gentleman has raised concerns about.

I have seen, for example, letters to the Minister from the Joint Industry Forum, which is a genuinely cross-industry group. One is dated 11 December last year, and the other is dated 9 September this year. They suggest possible changes and discussions with officials about how the difficulties could be overcome. I hope the Minister will tell us what discussions there have been since those letters, to try to resolve the problem, and what his conclusion was.

It is worth quoting from the Joint Industry Forum’s second letter, which was sent in September:

“Third parties such as banks, trade counterparties and landlords could find themselves guilty of a criminal offence in relation to a pension scheme for which they previously had no responsibility. So could government bodies that deal with the private sector, pension trustees, trade unions, investment counterparties, or anyone who deals with the employer in any capacity whatever. We note that the third party need not be dealing with the pension scheme—any business dealing with the employer could be sufficient” to be brought within the scope of the clause.

The letter continues:

“We appreciate the underlying policy is to create a criminal offence for the most serious conduct that harms pension schemes. However, the legislation has set the test at a much lower level—any conduct that causes a ‘material detriment’ to the likelihood of scheme benefits being met could be a criminal offence. All sorts of routine business activities could cause such a ‘material detriment’. Many of those activities would not normally be thought wrong, let alone criminal. Any business contract that an employer signs is likely to involve liability that could compete with the pension scheme. Unless the contract is immaterial, it could be a criminal offence.”

That certainly sounds to me like a serious problem, albeit clearly an unintended one, and I am surprised, given that the first of those letters was sent almost a year ago, that it does not appear as yet to have been resolved. The amendments tabled by the hon. Member for Airdrie and Shotts would certainly deal with the problem. I hope the Minister will be able to give us a persuasive explanation for how he plans to overcome what appears to be a clear and serious problem on the face of the Bill as it stands.

Photo of Guy Opperman Guy Opperman The Parliamentary Under-Secretary of State for Work and Pensions 11:15 am, 3rd November 2020

I would like to provide some reassurance on that particular point. I am acutely aware of it and have engaged at length with many different organisations. It is certainly not the intention to frustrate legitimate business activities where they are conducted in good faith. It is important, however, that where the elements of offences are met, no matter who has committed it, the Pensions Regulator should be able to respond appropriately. Any restriction of the persons would create a loophole for these people to potentially act in such a way.

The new criminal offences proposed in the Bill make it clear that an offence is committed only if the person did not have a reasonable excuse for doing the act or engaging in the course of conduct. Crucially, what is reasonable will depend, obviously, on the particular circumstances of the act, but the burden will be on the regulator to prove that the excuse was not reasonable. The regulator will be publishing specific guidance on these powers after consulting industry, but ultimately it is for the courts to decide that an offence has taken place, and, if so, the appropriate punishment.

The amendments also seek to remove the reasonable excuse defence—as set out in sections 58A and 58B—and replace it with a narrower concept of negligence. The existing defence of reasonable excuse is wider in definition than that proposed by the amendments. Therefore, the current defence provides more protection and a greater safeguard to potential targets. What is considered negligent is, in fact, specific and relies on case law—the law of tort, as I am sure the hon. Member for Airdrie and Shotts is aware—therefore introducing the concept of negligence would not help individuals to determine if what they were doing would be deemed negligent.

Photo of Stephen Timms Stephen Timms Chair, Work and Pensions Committee, Chair, Work and Pensions Committee

I have a real worry about this. Is the Minster saying that, for example, if a trade union successfully called for a higher pay rise than was initially offered, the company subsequently failed and there was a problem with the pension scheme, that the trade union would have to say that it had a reasonable excuse for pressing its pay demand? That seems a strange arrangement for us to be entering into.

Photo of Guy Opperman Guy Opperman The Parliamentary Under-Secretary of State for Work and Pensions

It is for the regulator to show that that was not a reasonable approach. The burden is on the regulator to bring the offence and to prove it. I will choose my words carefully because this is subject to further regulation and consultation by the regulator, but it is certainly not the case that this is to catch everybody in how they conduct their normal business. However, there has to be a capability to identify and then prosecute and bring action against all persons, if they are found to have committed an offence without reasonable excuse. The ask is to narrow down the scope of the offence. We have just had a debate about circumstances where people have potentially committed things in the past.

Photo of Neil Gray Neil Gray Shadow SNP Spokesperson (Work and Pensions)

I understand the Minister’s riposte, but there are two points here. First, the amendment covers reasonable excuse by allowing consideration to be given to the person’s role in the trust. For instance, in a trade union, to take the argument of the Chair of the Select Committee, consideration would be given to the person’s role.

Secondly, the Minister is asking us to wait until the Pensions Regulator has consulted and says how it thinks it should deal with the matter, but by that point it will be too late to ensure that we have got this measure right. I hope that the Minister looks again at this point and provides better comfort to the likes of the Institute and Faculty of Actuaries, which has a very broad base of professional expertise, and which suggested the amendments. I hope for a more favourable response from the Minister.

Photo of Guy Opperman Guy Opperman The Parliamentary Under-Secretary of State for Work and Pensions

I am happy to write to the hon. Gentleman and set out the position in more detail. I come back to the simple point. If a trade union has a reasonable excuse for asking for a pay rise for its members, given their circumstances in an organisation, there is no reason why it should have any concern whatsoever. The starting point is whether someone has a reasonable excuse to progress a particular thing. If it is clearly part of normal business activities, I would not anticipate a problem.

Photo of Stephen Timms Stephen Timms Chair, Work and Pensions Committee, Chair, Work and Pensions Committee

I wonder whether the Minister would agree that it does seem very odd that a trade union making a legitimate pay claim might have to worry about whether it is committing a criminal offence because of some future damage to the pension scheme. I am very surprised that the Minister is putting in place measures that would have that effect.

Photo of Guy Opperman Guy Opperman The Parliamentary Under-Secretary of State for Work and Pensions

This is in the context of the offence of avoidance of employer debt. We start with the very eloquent exposition that the hon. Member for Airdrie and Shotts gave on where employer debt arises and contributions are not made to pension schemes. One has to then look at the individuals and their approach. I do not believe that including a reasonable excuse defence will in any way hold back normal, traditional business activity. I can give that reassurance: traditional business activity would clearly include union work. This is clearly an issue that the regulator is very conscious of. On the one hand, we want a more robust approach. On the other hand, we want to ensure that normal business activity goes ahead. I believe that this is the appropriate way forward.

Photo of Neil Gray Neil Gray Shadow SNP Spokesperson (Work and Pensions)

I cannot say that I am wholly satisfied with the Minister’s explanation. The two amendments would narrow and focus the intention of the clause and ensure that protection is given to people who are legitimately carrying out their duties to the pension scheme and who have related business or commercial interests, and, indeed, Government bodies that interact with employers or a scheme. I therefore intend to divide the Committee.

Question put, That the amendment be made.

Division number 1 Pension Schemes Bill [Lords] — Clause 107 - Sanctions for avoidance of employer debt etc

Aye: 2 MPs

No: 10 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

The Committee divided: Ayes 2, Noes 10.

Question accordingly negatived.

The Chair adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at Two o’clock.