Pensions Bill

moved Amendment No. 21: 21: After Clause 124, insert the following new Clause— ““Review of the initial operation of sections 38A and 38B of the Pensions Act 2004 (1) The Secretary of State must carry out a review of the operation of sections 38A and 38B of the Pensions Act 2004 (c. 35) (which were inserted into that Act by paragraph 2 of Schedule 9 to this Act) during the period of 4 years beginning with the day on which that paragraph fully comes into force (““the commencement date””). (2) The Secretary of State must set out the conclusions of the review in a report and lay the report before Parliament. (3) The report must be laid before the end of the period of 5 years beginning with the commencement date.”” The noble Baroness said: My Lords, this amendment would introduce a new clause after Clause 124. I should state at the outset that I am quietly confident that the Minister will look kindly on it, not least because I accepted all the Government’s helpful drafting amendments. Clause 124 and the associated Schedule 9 introduce amendments to the Pensions Act 2004, the most significant of which is the new material detriment test for contribution notices in Section 38A and its associated due diligence defence in Section 38B. I will not go over the history of this; suffice it to say that we welcomed on Report that the Government had rethought this approach, and in broad terms we supported what is now in Schedule 9. On Report, however, my noble friend Lord Lucas and I raised a number of specific concerns with the Minister, based largely on concerns raised with us by organisations such as the Confederation of British Industry, the British Venture Capital Association and several professional advisers. The Minister gave a number of helpful replies, which was appreciated by both the House and those outside who follow our proceedings. There remain some concerns in the business community, though, about how these new provisions will work in practice. I shall list a few. The provisions can apply to individuals. Will they be used in that way in practice? Will directors and others start to behave in a risk-averse way against that possibility? We are promised that there will be guidance to cover the concepts of likelihood and materiality, which are an integral part of the material detriment test. Will that guidance in practice prove satisfactory and easy to apply? The statutory code of practice contains a list of circumstances in which contribution notices might be issued but does not preclude the regulator from issuing contribution notices in other circumstances. Will that happen in practice, thus undermining the usefulness of a code? The defence in Section 38B is not framed as an objective test but rests on the regulator’s judgment. Will it in fact protect those whom it is intended to protect? There is also an overarching issue in that several of the concerns we aired were met by a ministerial response that the regulator had to act reasonably. We need to see what that means in practice because one man’s reasonableness can be another’s irrationality. We also had a debate about what ““reasonably”” actually means in practice. Is it reasonableness in the context of the regulator’s own duties or is it set in a broader context? Our advisers say that there is no settled case law on this, so we need to see how the regulator will in fact behave. In the light of all this and some other detailed points, I felt that a review of the workings of the new sections was not an unreasonable thing to put in the Bill. A review would need to establish whether the new sections did in fact help to protect pension funds and the PPF from the unreasonable acts of employers in the areas set out in the code, but there is the other side of the coin in the impact that the new sections will have on commercial life. Will, as some suggest, the new provisions stop beneficial corporate transactions from happening where a defined benefit scheme is involved? Are there any unintended consequences such as exponential growth in indemnities and warranties with associated complexity and cost? Will the volume of clearance applications be high or low? Will they be handled expeditiously, and will they cost a lot or very little? The amendment does not require it, but I hope that the DWP would consult broadly in carrying out the review required by this amendment. It may be that the fears expressed to us will prove completely unfounded, but it is no bad thing to search for that answer. On timing, the new clause asks for the review to be carried out after four years, with a report available within 12 months from that. I confess that I would have liked a review to start sooner, but I have accepted the Government’s opinion that a meaningful review would need the time-frame set out in this amendment. I look forward to the Minister’s response and I beg to move.