Pensions Bill

Our occupational pension system depends, in large, on trustees who play a vital role in the running of the schemes and looking after the interests of scheme members. The noble Lord was clear about that when he moved the amendment. However, it is not always the case that a board of trustees is equipped to deal with the challenges that it can face—collectively, it may not have the knowledge and expertise it needs, or a conflict of interest may arise that hinders the effective operation of the trustee board. The Pensions Act 1995 provides the Pensions Regulator with a power that enables it to install trustees. These trustees may be existing members of the scheme or, where appropriate, independent trustees who are professional trustees and fully independent of the employer or any other interest in the scheme. In another place, Clause 109 amended the Bill to replace the ““necessary”” test in Section 7(3) of the Pensions Act 1995 with one of reasonableness so that the Pensions Regulator could take action to appoint trustees where it is reasonable to do so. The noble Lord’s amendment, as he outlined, would reverse that amendment and retain the present ““necessary”” test. The ““necessary”” test was introduced in the context of a different regulator and a different market environment. As we have discussed a number of times, particularly this week, developments in the pensions market are fast moving and the ““necessary”” test requires a burden of proof that is inappropriately weighted against regulatory intervention, even where that intervention may be the right and the most reasonable course of action. We have seen recently how the regulator used this power to install independent trustees in a scheme whose employer had been taken over by a new organisation that sought to install its own senior staff as trustees and to manage the scheme’s assets in order to achieve returns to shareholders of the new organisation that appeared to place these new employer-appointed trustees in the position of an acute conflict of interest. This case is one example of the way that developments in the pensions market can be fast moving, and risks in the pensions environment can change quickly. It has become clear that the ““necessary”” test constrains the regulator, who may only appoint a trustee if he is satisfied that there is no other option available, and must act almost as a last resort. If regulation is to be effective, it must be sufficiently agile to enable swift intervention where there is justification. A ““reasonable”” test will deliver this. The test is well known in law and will provide the regulator with a less fettered power, while remaining transparent and proportionate. When using this power, the regulator will have to seek the approval of the determinations panel, and its decision in turn will be subject to appeal to the Pensions Regulator Tribunal, and subsequently to the Court of Appeal. The noble Lord raised the issue of trustees and the Telent case. This has now been resolved to the satisfaction of all parties, and is an example of how developments in the pensions market can be fast moving, and risks in the pension environment can change quickly. In that case, the regulator was able to use existing powers to install independent trustees. However, it has become clear that the ““necessary”” test constrains the regulator, who may only appoint a trustee if he is satisfied that there is no other option available, and must act almost as a last resort, as I said earlier. The CBI commented on these amendments when they were moved in Commons Committee on 19 February 2008: "““These additional powers were deemed necessary to ensure the regulator can effectively regulate against the new business models that have been developed in the non-insured pensions buyout market. The 2004 Pensions Act, which established the regulator, has been largely successful and any new powers must be used for the intended purpose only and not affect the majority of schemes and legitimate business activity””." We certainly agree with that comment. I hope that that explanation has satisfied the noble Lord and that he will withdraw the amendment.