My Lords, I will speak to Amendment 35 in my name and respond to the debate on the other amendments. In doing so, I remind the Committee of an historic remunerated interest as the former senior independent director of the Financial Ombudsman Service.
At the outset, I say that we on these Benches place a high priority on ensuring that the regulator has the powers and sanctions that it needs to tackle bad behaviour in the operation of pension schemes. I agree with the noble Baroness, Lady Bowles: conduct that puts at risk the assets that people have worked for all their lives is serious behaviour indeed. It can have a dramatic effect on the lives of millions of people and push them, in the end, into a retirement based in penury rather than the security that they could have reasonably expected. Of course, allied to that is a public policy interest: it may discourage people from saving if they do not feel that the vehicles are secure and that their money will be safe. So we welcome the introduction of the new offences and the focus on preventing bad behaviour and stepping in before the consequences get too serious or, even, the situation becomes irrecoverable.
In the Committee, at Second Reading and outside, I have heard some concerns about the Bill’s drafting, especially around what reasonable behaviour is and what conduct causes material detriment. The noble
Baroness, Lady Bowles, expressed that point well. I accept that there is a balance at stake here and that the drafting must strike a balance. It is right to expect those charged with managing or overseeing pension funds to do so with appropriate skill and knowledge, and with care and integrity. However, I am also conscious that the Government would not want inadvertently to discourage good, capable people from, for example, serving as pension scheme trustees if they feared the unforeseen consequences of making reasonable judgments in good faith; nor would they want to foster unhelpful levels or types of risk aversion.
There is a need to have more clarity, for Parliament and the sector, as to how these provisions will operate in practice. Reading the impact assessment, it seems clear that the Government expect the criminal offences in particular to catch hardly anybody. It is based on one person a year being convicted, so the clear expectation in the minds of those drafting this is to have a nod that a safety net will go out—unless I have misunderstood, in which case please correct me.
Amendments 17 and 22 propose the formulation “wilfully, recklessly or unscrupulously”. I do not need to revisit this but I would be interested to know whether the Minister agrees with the noble Baroness, Lady Bowles, in her probing approach on what that phrase means. Also, why did Ministers decide not to go with “wilfully” or “recklessly”? What did they think was changing between that and the formulation that they used in the Bill in the end?
The amendments tabled by the noble Baronesses, Lady Neville-Rolfe and Lady Noakes, are interesting. I hear that the noble Baroness, Lady Neville-Rolfe, regards the current reasonable test as being too low. Many people would regard the test that no reasonable person would do something as very high indeed. I wonder whether the Minister has a sense of how easy it would be for anyone to be convicted on a test of that nature. That is the judgment.
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I am also a bit worried about the factors being taken into account, including normal market practice. I am with the noble Baroness, Lady Bowles, on this. What would happen when normal market practice was in contravention of the aims of the Bill? For example, the way that PPI was sold was normal market practice, yet we are now in a position where probably some £50 billion of compensation will be paid to consumers by banks and financial service companies. That was normal market practice; it did not make it right, and now it is having to be put right at vast expense.
My noble friend Lord Hutton made a very interesting speech. His amendments shift the test in a slightly different direction towards the impact of an act deemed to put benefits at risk rather than the material detriment test elsewhere. I would be interested if the Minister could tell us what the Government think that would mean. I have seen a copy of a letter written to the noble Baroness, Lady Stedman-Scott, by the Association of Pension Lawyers, as I am sure other noble Lords have. It thinks that the current drafting would capture an act which made a small change in the risk but suggests that the formulation written by my noble friend Lord Hutton would mean,
“in order to be guilty of a criminal offence, someone must have moved the scheme benefits from ‘not at risk’ (i.e. a broadly secure position) to ‘at risk’ (i.e. a broadly insecure position), rather than merely made a small change.”
Does that accord with the Government’s understanding of that question? I would also be interested to hear the Government’s response to my noble friend’s question on prosecuting authorities and how the offences will be prosecuted.
Amendment 35, which is in my name, tries to steer a way through this by offering an opportunity for the Government to give some clarity, without moving too far in either direction. We are trying to steer between the classical rocks and give the Government a path through the middle. I take the point made by the noble Baroness, Lady Bowles, that the wording we have might prove either too restrictive or not sufficiently restrictive, and I will be open to the Government finding their own way to do this. The aim of this amendment is that the regulator should clarify how it understands the nature of reasonable behaviour, and
“conduct that detrimentally affects in a material way the likelihood of … scheme benefits being received”.
The aim is to indicate that the bar for material detriment has been set lower than the Government clearly intended it to be set. If the Government are to go down this road, either by accepting my amendment or by telling us that the regulator intends to make a statement, they need to do that as soon as possible because they will have to consult on it. Before the Bill finishes its passage through this House, it would be helpful to have some idea of how they are going to go about that because we have heard today that clarification could take us in lots of different directions, making different people variously happy or unhappy depending on the way the Government go about it.
The Minister’s reply to this group is of particular importance. I have tried to point out the specific hurdles he will have to jump over, but it will be important for him to give us as clear an answer as he can to each point to help us—and the many people who will be listening to this debate and reading the transcript—to understand where the Government are going. We have no desire to undermine the ability of the regulator to pursue those who put at risk the hard-earned funds of pension savers; equally, we need to be sure that appropriate safeguards are there. I look forward to the Minister’s reply.