Pensions Bill

My Lords, I am grateful for the noble Lord’s intervention. He is right: individuals cannot be immune from these regulations, although the circumstances in which they are likely to be the subject of the contribution notice are properly constrained by these provisions. Amendments Nos. 78Y, 78AL and 78AM relate to the possible conflicts that could be faced by trustees who are also company directors as a result of the interplay of trust law, pensions law and directors’ duties under company law. The interaction of pensions law, trust law and company law is an important issue, and the Government’s intention is that the duties in the legislation should rightly sit alongside each other. Taking the duties of directors under the Companies Act, I understand that noble Lords may be concerned that directors who otherwise act in accordance with duties under that legislation should not be liable to regulatory action. Directors have certain duties to current employees, but under pensions legislation they also have duties to scheme members’ interests. It is of course a matter for directors to balance these duties along with their other responsibilities. Such situations are not unusual. It is not the Government’s or the regulator’s intention that, in the normal course of their duties, directors should be subject to a contribution notice under the new test, where their actions have no materially detrimental effect on scheme members’ benefits. Finally, Amendment No. 78Z relates to insolvency practitioners and similar experts. Section 38(3)(c) of the Pensions Act 2004 already provides an exemption from a contribution notice for an insolvency practitioner acting in accordance with his functions. The noble Lord’s amendment would extend this exemption to recognised experts in rehabilitating underperforming organisations, such as company doctors and turnaround specialists. ““Insolvency practitioner”” is a precise term set out in law, and such individuals are licensed to act by the Secretary of State and have a statutory duty to ensure that they treat all creditors fairly and equitably. As was touched on in Committee, the amendment, which is extremely wide and capable of varying interpretation, would extend the existing exemption to practitioners who are not licensed or acting in accordance with statutory duties. There is a genuine risk that such a provision would mean that the regulator’s power could be circumvented. This could put members’ benefits and the PPF at risk. However, the Government recognise the need to protect people such as company doctors who have to make difficult decisions with wide-ranging impacts. The amendments to the reasonableness factors I referred to earlier are relevant here. In addition, a new factor would be introduced by the government amendments that would be particularly relevant to company doctors and others in similar roles; that is, the regulator should, where relevant, consider, "““the likelihood of relevant creditors being paid and the extent to which they are likely to be paid””," in Section 38(7)(eb) of the Pensions Act. This will offer some protection to company doctors as it makes clear that, while pension schemes should not be treated worse than other creditors of similar status, equally, the amendments do not somehow make the pension scheme any type of ““super-creditor””. Taken with the factor I described earlier, which requires the regulator to consider the reasonableness of a person's actions in the circumstances, I consider that this provides significant comfort to company doctors. First, where a company doctor has to make hard decisions in an attempt to save a company, these factors would protect the position of a company doctor who had to cause detriment to a pension scheme, which, in the particular circumstances, was reasonable in the context of the outcome for other creditors. Secondly, the regulator would need to take into account that, in some circumstances, decisions must necessarily be rapid, as the noble Lord has indicated, and perfect data to inform the decision may not be available. Provided that the company doctor has behaved reasonably and has not, for example, wilfully ignored available information or recklessly taken risks that a reasonable company doctor would not have taken, I believe that members of organisations such as R3 and the Institute for Turnaround should take significant comfort from these provisions. It may be helpful if I give an example of how a contribution notice might operate in practice, especially in relation to individuals. There are concerns about the amount of a contribution notice and how the material detriment test would be judged. If a person has assets of £5 million but profited £50,000 from a detrimental transaction, the amount of a contribution notice has an upper limit under Section 39. This is the amount of the debt either due or estimated from the employer to the scheme under Section 75 of the Pensions Act 1995, or a higher amount if the act itself reduced the debt. This amount is calculated at the time of the act or failure to act. Therefore, the amount of a contribution notice is, broadly, limited to the employer’s obligations to the scheme and the amount required to ensure that members receive their benefits in full. If a person with assets of £5 million profited £50,000 from a transaction that was materially detrimental, the regulator would be required to look in the first instance at the amount of the Section 75 debt. If this was, for example, £1 million, that would be the upper limit of the contribution notice. But the regulator would then be bound to act reasonably in its assessment of how much of this sum should be payable by the party to the transaction. The transaction itself and any benefit from it may not be the only factor here, and may not be the most important factor. Some factors may increase the amount that should be payable towards the upper limit; for example, the history of that person’s involvement with the scheme or the employer. However, other factors might decrease the amount. For example, that person’s degree of involvement in the transaction may have been limited, and there may have been other parties to the act. That person may be an individual who acted merely as an agent for a corporate entity that was party to the act, or other purposes of the act may have meant that the person’s actions were reasonable in the circumstances. Another factor that is likely to be relevant is the position of the scheme following the transaction. Of course, considering what amount would be reasonable is entirely a matter for the regulator, who must examine each case on its own merits and is required to consider anything that is relevant, disregarding anything irrelevant. I hope that it is a comfort to know that simply having deep pockets should not make a person the target of a contribution notice. It is more constrained than that. I am afraid that I have gone on for a while, but I hope that I have given a degree of assurance on some very important points.