The Delegated Powers Committee suggested that because of the nature of the powers in clause 9, which may require the trustees or managers of a pension scheme to set targets in relation to collective benefits, the affirmative procedure on first use would be most appropriate.

This clause is particularly important, as it raises many of the key areas that we wish to discuss around CDC schemes; indeed, we have already started to discuss them. These are issues such as the balance of intergenerational risk-sharing, the communication of the “risks of risk-sharing”, the importance of good governance in these schemes so that they can command sufficient trust from their members—a subject about which we have already had some discussion—and the role that actuaries are likely to play in the process.

The Secretary of State is here given the power to require a target that meets a set probability. For instance, if the probability was set at 98%, the target would have to take that into account and be set at such a level that there was only a 2% chance that it would be missed. To reflect on the most controversial aspect of CDC schemes—as I have made clear, the Opposition support these schemes—we have to look at what happened in

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Holland, where because of the financial crisis, pension payments had to be reduced. It is therefore important for us to look at targets and ranges, so as to give assurance to the schemes.

The Minister in the other place said that the regulations produced under the powers conferred by Clause 9 were to be subject to consultation. Can the Minister provide any further detail on when the consultation is likely to begin, and say whether the Government will be expressing a preferred option and asking for comment on that—and if so, what the preferred option is likely to be?

Because of the reasons that I have set out, communication to scheme members about how the target level is set and what factors could lead to it being altered is particularly important for these schemes. Can the Minister provide us with any more details on how the Government believe this can best be expressed to give scheme members confidence in the decisions being made?

This issue also takes us into the area of governance. The kinds of decisions that have to be made about targets and probabilities, and about how all this translates into the level of pensions paid out in a CDC scheme, require a high level of trust in the process—the kind of trust that is more easily established through a scheme being overseen by trustees rather than managers. But we have already rehearsed that argument, and I shall not go over it again.

Can the Minister provide us with any more detail on the interaction between the actuaries and the trustees or scheme managers under this provision? For instance, if the actuary gives advice that the probability of meeting a target falls outside the probability level set by the regulations, what options will be available to the trustees, in terms both of the action they can take and of how they communicate this to the scheme members? I acknowledge that this is a complex area, and the challenge of adequately communicating why a certain decision has been made is often considerable.

We understand that the Government cannot pre-empt a consultation that has not begun, and also that this Bill is not unique in being a piece of pensions legislation that confers a wide degree of delegated powers. However, it is still unsatisfactory if those powers are not before the House to be debated alongside the primary legislation. The huge range of options left open by this clause means not only that it should be subject to the affirmative resolution when the Government produce regulations on the matters within it, but that it would be useful if the committee were able to piece together the picture that the Government expect and hope will be in the regulations tied to the primary legislation, and see how they would impact on the important issues identified in Clause 9. I beg to move.

Lord Bourne of Aberystwyth: My Lords, I thank the noble Lord, Lord Bradley, for his comprehensive coverage of Clause 9. I shall deal first with the recommendations of the Delegated Powers and Regulatory Reform Committee, because that is the specific issue raised by the amendment. I shall then come back to some of the issues that the noble Lord raised in relation to the consultation process.

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Clause 9 sets out a regulation-making power, which is a key aspect of our approach to collective benefits. The issue of parliamentary scrutiny was considered by the Delegated Powers and Regulatory Reform Committee, and as I said before, we accept its recommendation on this matter, and we intend to come back to it on Report and table amendments to ensure that the first time the powers are used, this will be subject to the affirmative procedure.

I confirm that the Government intend to have full open consultation on the regulations, which is expected to include discussions before the formal consultation takes place. Timelines will need to be agreed in due course. I suggest to the House that we come back to this subject in more detail on Report, so that we can consider the position in the round. Given the undertaking that we will table an amendment on Report on the specific issue addressed by Amendment 4, I invite the noble Lord to withdraw it.

Lord Bradley: Again,I am grateful to the Minister for his comments, and I welcome the fact that before Report stage we will get the detail that I sought through the amendment. It is important that we have that timeline for the consultation, so that there is clarity, both in the House and outside it, about what the process will involve. As the Minister has recognised, Clause 9 is crucial to this part of the Bill, and we need as much information as possible, and the opportunity to debate it, before the Bill passes through all its stages in this House. In the light of the Minister’s assurances, I beg leave to withdraw the amendment.

Amendment 4 withdrawn.

Clause 9 agreed.

Clause 10: Policy about factors used to determine each benefit

Amendment 5

Moved by Lord McAvoy

5: Clause 10, page 5, line 36, at end insert—

“( ) A statutory instrument containing regulations under this section which is the first exercise of such a power may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”

Lord McAvoy (Lab): My Lords, I shall speak to Amendments 5 and 6. They follow recommendations made by the Delegated Powers and Regulatory Reform Committee, which suggested that, on first use, the affirmative rather than the negative resolution process should be used. We agree. Despite the Government’s claim in the delegated powers memorandum that Clause 10 does not require affirmative resolution as the amendments would be “technical” and “procedural”, it would be good to hear further detail about the circumstances in which it could be used. Does the Minister see the power as a backstop that can be relied on in the event that a scheme manager is not considered to be acting in the best interests of the scheme members or has taken a decision that is likely to disadvantage them?

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Clauses 10 and 11 are part of a larger group of clauses introduced on Report in the other place. As a result, on that and other points it is up to this Committee to ensure adequate scrutiny and ensure that there are no flaws in the drafting. In debating the provision, the Minister in another place said:

“We cannot do an impact assessment because we have not yet written the regulations”.—[Official Report, Commons, 25/11/14; col. 805.]

That is a slightly unsatisfactory way to legislate. Likewise, in explaining why so many amendments were produced late on, the Minister relied on the need to alter the Bill dramatically following the introduction of pension freedoms in Budget 2014. The fact that that was not anticipated suggests that something was left to be desired when it came to joined-up government thinking. We want parliamentary debate and scrutiny of the regulations published under the clauses following the conclusion of the Government’s consultation. On that basis, I beg to move.

Lord Bourne of Aberystwyth: My Lords, I thank the noble Lord, Lord McAvoy, for introducing the amendment. First, I confirm that the Government agree with the recommendations of the Delegated Powers and Regulatory Reform Committee. We will be tabling amendments on Report to make the powers in Clauses 10 and 11 subject to the affirmative procedure the first time that they are used. Regulations made under Clause 10 will require trustees or managers to set out and follow their policy for how the collective pool will provide collective benefits to individual members.

There is another high-level requirement on which we may wish to regulate for that we have set out powers in Clause 10, and that is the matter of how each benefit is determined. The effect of regulations under Clause 24, which we will come to later, will be that trustees or managers must use the funds held for the provision of collective benefits—less any specified scheme expenses—to provide collective benefits. How the amount paid to a member is determined is the issue to be addressed. We expect the scheme to set out the rules as to how it will operate. The way that the scheme manages certain matters will need to be clear.

Regulations made under Clause 10 will therefore require trustees or managers to set out and follow their policy for how the collective pool will provide collective benefits to members. That is because, although with a collective benefit there is no certainty about what a member will receive, we want to ensure that decisions about how benefits are calculated are transparent. Transparency is of the essence. That is not to determine benefit design but to recognise that with a collective benefit there may be redistribution of assets between members, smoothing of returns and so on, and we want that to be an open process.

The specific clause, however, focuses on policies applied to determine each benefit. Regulations made under the clause may set out matters that the trustees or managers must take into account, or principles they must follow, in formulating the policy. We might want to use this power, for example, to require that trustees or managers have regard to the level of contributions paid to the scheme by members. Although the level of contributions towards collective benefits made by an

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individual member is not the only factor that will determine what the level or amount of that member’s benefits will be once they come into payment, it is important that there is some link between the level of contributions made by or on behalf of the member and the level or amount of benefit that the member receives from the scheme. That is how we hope to address that point.

As with the other requirements for scheme policies outlined in Part 2, the regulations made under the clause may also require the trustees or managers to consult about the policy and make provision about the content of the policy and about reviewing and revising the policy. I hope that I have explained how the powers in Clause 10 will help to ensure consistency in how the scheme will operate and give clarity to members and prospective members about how their share of the collective pool will be calculated.

6.15 pm

Meanwhile, the regulation-making power in Clause 11 provides a power to make provision about the factors to be used to determine each benefit. That will allow us to set some parameters within which a policy required under regulations under Clause 10 operates. As I have explained, the principle underpinning a collective benefit is that all members should be able to expect their benefits, which are paid from the collective pool, to be calculated in a consistent and fair way. Clause 10 provides for regulations to require trustees or managers to have a policy about the factors used when calculating the level or amount of collective benefits to be paid and makes certain provisions around that. Clause 11 is linked to that. The regulation-making power in Clause 11 provides a power to make provision about the factors to be used to determine the amount available for the provision of each benefit. That will allow us to set some parameters within which a policy required under regulations made under Clause 10 operates.

The requirements about the factors used to determine the benefit could therefore include: contributions paid by or in respect of the member, including amounts paid in by way of transfers into the scheme; the value and types of assets held by the scheme, actuarial factors, such as estimated investment returns and longevity; the potential impact of paying benefits at that level on members in different cohorts; and the target and position in relation to probability requirements. The list of factors to be prescribed in regulations will be developed following consultation with the pensions industry and members’ groups.

The Government agree with the recommendations of the Delegated Powers and Regulatory Reform Committee, as I said to the noble Lord. I hope that I have covered the points that he raised. In the light of that, I respectfully ask him to withdraw the amendment.

Lord McAvoy: My Lords, I thank the Minister for his lucid explanation of the clause and his response to my amendment. I very much welcome the pledge to move amendments at a later stage that will keep the spirit of these amendments.

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This is the first time that I have moved an amendment to legislation from the Dispatch Box, and I feel that I should now just pack up and go home—I have done enough to escape without criticism. I appreciate the Minister’s attitude and flexibility on this and beg leave to withdraw the amendment.

Amendment 5 withdrawn.

Clause 10 agreed.

Clause 11: Power to impose requirements about factors used to determine each benefit

Amendment 6 not moved.

Clause 11 agreed.

Amendment 7

Moved by Lord Bradley

7: After Clause 11, insert the following new Clause—

“Scale of pension schemes

(1) The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members.

(2) Where trustees take the view that the scheme has insufficient scale, they must consider whether merger with another scheme would be in the members’ interests.

(3) The Pensions Regulator shall have power to direct merger of pensions schemes where it would be in the interests of the members of each of the relevant schemes for merger to take place.

(4) The Pensions Regulator shall exercise this power in accordance with a methodology on which it has publicly consulted and which has been agreed with the Secretary of State.

(5) The methodology set out in subsection (4) shall be kept under regular review and revised when necessary, subject to further consultation and agreement from the Secretary of State.”

Lord Bradley: The amendment is in my name and that of my good colleague, my noble friend Lord McAvoy, who will continue to support me through the process of the Bill. This is also the first day that I have been at the Dispatch Box moving amendments, though we are a double act that flowed through the other place for many years.

The amendment is encapsulated in its first line:

“The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members”.

Our proposed new clause would give the Pensions Regulator, along with the trustees of such pension schemes, the power to consolidate pension schemes.

The Pensions Regulator has been clear that scale is to be encouraged as it enables schemes to achieve better value for money, higher quality governance and economies of scale. Scale is very important in reducing the cost of intermediation. The key report by John Kay for the Department for Business, Innovation and Skills recommended a reduction in intermediation. He made it clear that there were far too many intermediations and scale could be a trigger for in-house asset management. Evidence from abroad supports this view.

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For example, in Canada, scale means that schemes do not necessarily have to pay private equity houses and agents in order to buy private equity.

There is a general view that there are currently too many schemes—around 200,000, it is estimated—and the proposed new clause would enable this to be reduced by giving trustees the power under their fiduciary duty to recommend merger if it is in the best interest of the scheme, and enables the Pensions Regulator to take action if it believes small schemes are not obtaining value for money. Currently, the Bill contains no measures which would help promote scale, which most independent observers believe is necessary for collective DC schemes and work-based pensions in general to do the best for their employees. We have long argued that measures to promote scale are vital to ensure the best outcomes for savers, and those measures deal with the important issue of finding high-quality trustees. If there are fewer schemes, there is less need for a large number of trustees and we therefore address the quality as well as the quantity in schemes that are currently in place. The Government could, for example, require that automatic transfers default into aggregators, and the criteria necessary for qualifying as an aggregator could include scale.

The House of Commons briefing note on the Bill states:

“However, certain conditions such as large scale and strong governance appear necessary for DC schemes to operate successfully”.

Further, three-quarters of respondents to the consultation prior to the Bill thought there was a need for government intervention to create the scale necessary for schemes to offer proper guarantees.

To sum up, it is our view and the view of the Pensions Regulator—which was set out in evidence—that there has to be a scaling up of the UK pensions industry. At the moment there are far too many schemes. We want a process in place to try and reduce that and build up scale. Our proposed new clause would not by any means reduce the number to a handful but it would make a start by giving powers to trustees and the regulator to promote scale. It would be a sensible addition to the powers of trustees and the regulator. Given the widespread consensus in the pensions industry that scaling up will have to happen, and that in so doing costs would be reduced and there would be a better outcome for savers, I believe that the Government will wish to support this amendment and therefore I beg to move.

Lord German: Perhaps I might pose a number of questions about this amendment. My noble friend the Minister or the noble Lord, Lord Bradley, might like to reflect on them and give me an answer. First, the trend towards larger scale pension funds is growing. I understand that the number of smaller schemes is declining. I wonder if one or other of the noble Lords could tell me what the pace of that change has been and whether forcing mergers is necessarily the right thing if that pace of change is already accelerating. Secondly, when mergers are forced, the question is who that merger is with. Who will be found as a necessary partner to move in that direction? If that partner were a smaller scale operation as well, forcing those two to move together might not necessarily

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provide the right output. Finally, scale does have merit and is worthy, but that does not mean that small scale is always bad. I wonder whether we should always look for quality rather than scale or the force to make companies move together. Those are fundamental questions which I hope one or other of the noble Lords will be able to answer.

Lord Bradley: If I might comment briefly, as the amendment says, any merger has to be in the best interests of the members. It is not being forced if that is not in their best interests. I am not aware of the pace of change; what I am saying is that the industry is looking at those measures. The fundamental point is that it is in the interest of the members, not the scheme itself.

Baroness Drake: My Lords, I have sympathy with the thrust of my noble friend’s Amendment 7. Scale can be very important in influencing efficiency of pension provision and value for money for the pension saver. We also know that there is a significant tail of small DC and DB schemes which could actually increase if we begin to see an accelerated closure of trust-based DC schemes in response to the new freedoms. That is a problem to be monitored and addressed as part of protecting savers’ interests.

In principle, putting small inefficient schemes into large efficient schemes is a good thing but as the noble Lord, Lord German, flagged, the path to achieving that can sometimes reveal some real difficulties. As a trustee I have experienced this. The problem arises when considering what a small scheme is transferred into. In real life, some real pressures come to bear. For example, an employer may be keen to see members of a closed, small trust-based DC scheme bulk transfer into a contract-based product, but if that product is a personal pension which falls outside the scope of the new charges cap or the quality standards, the value for money and governance benefits on transfer may not be so clear-cut. Equally, the trust scheme rules of small schemes, even in DC, may have some beneficial provisions. For example, the employer may meet the administration costs, so some of the costs of that DC provision are met by the employer. What happens to that protection on transfer?

Certainly, the principle of promoting scale consequentially to promote value for money is a good one. However, if there is to be a provision to require trustees to transfer their schemes in certain circumstances, there needs to be regulatory clarity about the standards of schemes into which schemes can be transferred or directed by the regulator—whether there are nominated aggregators or whatever into which a regulator could so direct if it felt that something was quite small and unsustainable. The principle is sound but, like any principle, the path of getting there sometimes needs some additional support. I flag those up as issues that would need to be captured in making any regulatory provision about forcing the pace on scale.

I can speak only from an anecdotal basis to the point made by the noble Lord, Lord German, about evidence. I cannot provide any evidence. I can provide only experience. As employers have tackled their big

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DB benefits and addressed auto-enrolment, I think they are looking to consolidate or transfer out small schemes, so I expect this to be a growing issue—but I express that view on an anecdotal basis.

6.30 pm

Lord Bourne of Aberystwyth: My Lords, I thank noble Lords who have participated in the debate and I welcome the opening remarks of the noble Lord, Lord Bradley, who is part of a dream team with the noble Lord, Lord McAvoy—a dream team for the Opposition, if I may correct my earlier slip of the tongue. In response to the point that was dealt with by the noble Baroness, Lady Drake, and raised by my noble friend Lord German, I am told that there are no published figures on mergers but, anecdotally, it certainly seems the case that there is a trend. Whether that would continue with the new reforms is another issue but I think that there is, anecdotally, such a trend at the moment.

The amendment would impose a fiduciary duty on trustees of pension schemes to consider whether the scheme is of a scale to deliver good value to members and, if not, to consider a merger with another scheme. The Government are interested in scale, in so far as it may help schemes to improve quality and lower charges, and to be fair, I am sure that that is what inspired Amendment 7. However, we are not interested in scale as an aim in itself. The Government believe that forcing scale does not necessarily drive good governance, investment expertise or low costs. Big is not necessarily beautiful, as my noble friend Lord German correctly suggested. On occasion, many small schemes are delivering very effectively.

Our analysis of the current defined contribution landscape shows that there are already effective benefits of scale operating within the marketplace, including significant consolidation of schemes. We have no precise figures on that but we expect this to continue and probably to accelerate as smaller employers are brought into automatic enrolment. Indeed, we have already seen smaller employers moving towards larger arrangements such as group personal pensions, master trusts and the National Employment Savings Trust. They can also access the benefits of scale by purchasing investment or administration services from a large provider, falling short of a full merger.

Noble Lords may find it helpful if I try to explain to the House why we believe this amendment to be unnecessary and why the matter is not as straightforward as it may at first appear. A significant push to force consolidation would come at a financial cost which would be borne by members—at least the initial cost. Agreeing what “sufficient scale” means and policing it would be difficult. The amendment would create some inconsistency across the regulatory landscape as it would bite on trustees of trust-based defined contribution schemes but not on the managers of non-trust based schemes that are either a shared risk scheme or a defined contribution scheme. Significantly, and certainly from my point of view most importantly, it also cuts across trustees’ existing fiduciary duties to act in members’ best interests.

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Trustees are already required to pay particular attention to governance standards—for example, internal controls —investment governance and decision-making, administration practice in record-keeping, and preventing fraud and so on. As part of that, they may well consider the benefits of scale. Some employers may prefer a smaller scheme that can deliver bespoke investments and communications to their workforce which a larger scheme might not be able to do.

The Government believe that their flagship reforms of introducing, for the first time, minimum governance standards to ensure that schemes are well governed with low and fair charges for members is the correct approach to drive better member outcomes. We do not believe that it would be right to interfere with how the marketplace is evolving, bearing in mind the existing fiduciary duties that trustees are acting under. It would be strange if trustees were not already considering the viability of the trust and the benefits of scale as they assess its workability.

Finally, the amendment would give the Pensions Regulator a new power to compel a merger, if it would be in members’ interests to do so, and for the Pensions Regulator to use this power in accordance with methodology on which it has publicly consulted and which is agreed with the Secretary of State. The amendment requires this methodology to be kept under regular review. This, too, would impose new burdens and is unnecessary. Agreeing what “sufficient scale” means in members’ best interests, and measuring and policing it, would be very difficult. We believe that new governance standards from April 2015 will mean that trustees and managers will have a general legal responsibility to ensure that the schemes are well governed in members’ interests. As I say, it would be unusual if they did not consider, as part of this, the possibility of merger and the benefits of scale. In addition, the Pension Regulator’s existing regulatory strategy and activities include providing guidance and e-learning resources, and helping trustees to demonstrate that they meet the required standards of their defined contribution quality features. The regulator will also take enforcement action where necessary, under existing powers. This ranges from advice letters, warning letters, statutory compliance notices and monetary penalties to criminal prosecution.

We believe that our focus on ensuring that schemes are well governed and deliver good quality and low charges to their members, regardless of size, is the correct approach to drive better member outcomes, while recognising that on occasion scale is of importance and that trustees should be considering that, as should managers. On that basis, I urge the noble Lord to withdraw the amendment.

Lord Bradley: I thank the Minister for his response to the amendment and I welcome the comments made by the noble Lord, Lord German, and my noble friend Lady Drake on the issue of scale. There is no intention in the amendment to force anything. Subsection (2) of the proposed new clause is clear. It states:

“Where trustees take the view that the scheme has insufficient scale, they must consider whether merger with another scheme would be in the members’ interests”.

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That is the crucial point. It is not forcing it but looking at what is in the members' interests. The relationship between the trustees and members on governance is very important. This is about a mechanism to ensure that it is considered and that it is in the best interests of the members. We are not saying that big is necessarily beautiful but that, in certain circumstances, bigger might be better—better value for money for the members of the scheme.

There is clearly some difference between the Government and the Opposition on this issue. I do not want to caricature the Minister’s response but he was basically saying that the market will decide and that mergers will happen because the market will determine that they happen.

Lord Bourne of Aberystwyth: I appreciate that the noble Lord was not intending to caricature my response and that I have cut in before he finished but I said that although we believe that the market is driving things in the direction of scale, it is the case that managers and trustees should be considering this as part of their duties. We are not simply saying that it is all about the market; we believe that the framework is already there.

Lord Bradley: I am grateful to the Minister for that clarification and I certainly was not intending to misquote what he was saying. However, there seems to be a difference between the active consideration of mergers and the more passive position from the Government in that determination “may” be governed by the influence of the market rather than through what we are saying in this amendment. Again, it is absolutely crucial to us on this side of the House—whether it be on governance, transparency or the way in which duties are imposed on trustees—that while being mindful of previous situations regarding pensions and difficulties in the market, we are always looking to get best value and protect the interests of the public throughout this process. However, in the light of the comments that the Minister has made and the opportunity for further consideration at a later stage, I beg leave to withdraw the amendment.

Amendment 7 withdrawn.

Clauses 12 and 13 agreed.


Clause 14: Statement of investment strategy

Amendment 8

Moved by Lord McAvoy

8: Clause 14, page 6, line 29, leave out “may” and insert “must”

Lord McAvoy: My Lords, I shall also speak to Amendment 9. I do not have the reputation of having an unlimited supply of charm, so I shall use what I have left to try to work the oracle on these two amendments.

Clause 14 allows for regulations to be made requiring scheme trustees or managers to prepare an investment strategy. Specifically, the regulations may include

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requirements on the content of the statement and on the reviewing and revising of the statement. Clause 15 allows for regulations to be made requiring the trustees or managers of a pension scheme to prepare a report about the performance of collective benefit investments. The regulations may include how often these reports need to be obtained and who the reports should be obtained from.

The amendments to each of the clauses simply change the stipulation that the regulations “may” require this to a stipulation that the regulations “must” require this. In doing this, we inevitably return to the nature of the delegated powers in Part 2. The question is whether the Government can imagine leaving some of these powers unused when they come to issue regulations under this part of the Bill and, if so, which ones.

The investment strategy for collective benefits is obviously a crucial part of these schemes. We have already discussed the fact that collective defined contribution schemes have the potential to offer investment strategies that perform better than individual defined contribution schemes. It is also important because research on the subject by the Institute for Public Policy Research showed that the feeling that contributions might be invested badly on savers’ behalf, leaving savers with relatively smaller rewards than they were expecting, can serve to disincentivise savers. As with other aspects of governance, trust in investment strategies is essential.

Will the Minister say, first, whether the Government can imagine a circumstance under which they would not issue regulations requiring a statement of investment strategy to be prepared? Will he provide the Committee with any more detail on what the trustees or managers are likely to be required to do with the statement of investment strategy? Will it need to be made available to scheme members, for instance? The amendment to Clause 15 is in a similar vein. Can the Government imagine any reason why the regulations issued under this clause would not require an investment performance report to be produced by a trustee or scheme manager?

There is also considerable concern about the wider question of what kind of information is made available in investment reports. For instance, the Minister in the other place was usefully able to say that information was likely to be available on transaction costs, but, less usefully, was unable to give any details as to which transaction costs would be laid out in an investment report. Ideally, we would like trustees to have access to enough information to be able to judge whether the investment is being managed as efficiently as it should be. I hope the Minister is able to shed a bit more light on that aspect of the clause. I beg to move.

Baroness Drake: My Lords, I support Amendment 8, which would require trustees or managers of a collective benefits pension to prepare a statement of their investment strategy in connection with any of their investments. The issue here is not that they “may” be required but that they “must” be required—that is the straightforward proposition in the amendment.

The reason I came in when I read the amendment is that it seems to me pretty inconceivable that a collective benefits scheme would be allowed to operate without

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the preparation of such a statement, particularly given the way in which such a scheme is managing risk on a collective basis across and between different generations of savers, and where the individuals in the scheme do not have a well defined pot over which they have clear and individual ownership. I have to ask the Minister: when would one ever conceive of a situation where a statement of investment strategy was not required in a collective benefits scheme? An increased return on savings is not an automatic product of collective benefits schemes. Sound governance is the essential ingredient, which must include transparency and clarity on investment strategy.

6.45 pm

These schemes have to function very efficiently over the very long term for successive generations. Saving for retirement is typically a 30-year to 40-year project. Pension savings can become vulnerable, for example, to the irrational exuberances of a given set of trustees or managers at any one point in time as to how certain asset classes may perform. It was, after all, the exceptional equity returns of the 1980s and 1990s that led to the fool’s paradise of irrational exuberance about equity returns, which, when it came to an end because those returns were not sustainable, contributed to the closure of so many defined benefit schemes as the true cost of funding the pension promise was laid bare.

Taking that theme, I think that it would be difficult to have confidence in the targeted benefits required of a collective benefits scheme and the sufficiency of the assets to meet those targets unless there is a clear statement and transparency on the investment strategy being pursued. In a collective benefits scheme it is important to have visibility of the investment beliefs, principles and strategy underpinning the decisions of the trustees or management, of the level of risk and volatility being tolerated and of how those views relate to the characteristics of the membership of the scheme and the obligations to the different age cohorts of members.

The direction of travel of public policy on pension regulation, now that investment risk is increasingly transferred to the individual, is for greater transparency, clarity and accountability on investment decisions taken. With the sharing of risk between ordinary pension savers and across the generations in collective benefit schemes, the case for requiring trustees and managers to make clear statements on their investment strategy is even more compelling. I come back to my point that it is pretty inconceivable that a collective benefits scheme would not be required to prepare and publish such a statement. When could one ever conceive of a situation that would be different?

Lord Bourne of Aberystwyth: My Lords, I thank noble Lords who participated in the debate on this amendment. The Bill sets out a regulatory framework for collective benefits. Part 2 defines collective benefits and provides for a number of regulation-making powers. The Government’s intention is to produce a comprehensive set of regulations governing the day-to-day running and decision-making in schemes that provide collective

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benefits. This will include detailed provision around the statement of investment strategy and the investment performance reports that are the subjects of these amendments.

The powers in Part 2 generally have been developed in consultation with the industry. While the Government have laid out an overarching regulatory structure for collective benefits, the consultation process will not stop with the introduction of primary legislation. The Government will continue to listen to industry views and the views of pensioners and take into account the experience of European pension systems. We have heard mention of the Netherlands and Denmark as well as other systems—Canada, for example—where collective arrangements are already in place.

Members will be handing over control of their assets to the trustees or managers running the scheme in a way which differs from individual defined contribution schemes, where the members will usually have some direct choice and options. Also, because members collectively, rather than individually, bear the investment risk, there is a less direct relationship, compared to individual defined contribution schemes, about how the returns are attributed to individual members. It is therefore important that key requirements about investment are applied appropriately. It is important that there is clarity about what the investment strategy is, so that members can be clear about how their money will be invested collectively.

That is why Clause 14 may require the trustees or managers of a pension scheme to prepare a statement of their investment strategy. This clarity is important, as those running the scheme will need to decide on the appropriate balance to be struck between risk where the returns are uncertain and assets that deliver a reliable income. I shall clarify the point that was raised about whether the Government could foresee a situation where we did not provide for regulations in a particular area: no, we cannot.

The difference here is between “may” and “must”. We believe that driving this forward in the way that we are, in conjunction with the industry, is appropriate and that this is likely to deliver—indeed, will deliver—the best result. We are also conscious of the fact that on occasion we need to act quickly to make appropriate changes. I assure the Committee that it is our intention to ensure that there are regulations in relation to both the points raised in these amendments.

I should also say that this is related to trust schemes. Further work and conversations are required with the Financial Conduct Authority to establish how it will regulate non-trust-based schemes offering collective benefits. It may be that it is more effective and appropriate for some of the regulation-making powers under Part 2 to be used in relation to occupational schemes only, and for the FCA to make parallel provision in relation to personal pension schemes. That is one reason, because of the two schemes going forward together, why we believe that the Government’s permissive approach is right, but of course we could always revisit that if we felt it necessary to do so. On that basis, I respectfully ask the noble Lord to withdraw the amendment, while acknowledging his continuing charm, which he referred to earlier.

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Lord McAvoy: It is probably just a bit run down, but there we are. I am grateful to the Minister for that very full explanation. However, his response struck a chord in me and a note of concern when he indicated that he did not want the word “must” but rather wanted “may” after consultation with the industry. Assuming that they were asked whether the word should be “must” or “may”, they would say “may”, would they not? So there is a bit of concern that the Government have perhaps listened too much.

Lord Bourne of Aberystwyth: I am grateful to the Minister for giving way. As I indicated, the consultation is not just with the industry; it will also be with consumers, pensioner groups and so on. It is not limited to the industry.

Lord McAvoy: I am grateful for that clarification, but I still think that, although obviously I do not know how much weight was given to the industry’s point of view, the fact that the Minister kept some opinions in reserve and indicated that the Government would act at some point in future to change that suggests that there just might be something there. With that clarification, though, especially the clarification that the Government would be prepared to look at this again in the light of experience and circumstances, I beg leave to withdraw the amendment.

Amendment 8 withdrawn.

Clause 14 agreed.

Clause 15: Investment performance reports

Amendment 9 not moved.

Clause 15 agreed.

Clauses 16 to 18 agreed.

Amendment 10 not moved.

Clauses 19 and 20 agreed.

Clause 21: Policy for dealing with a deficit or surplus

Amendment 11

Moved by Lord Bradley

11: Clause 21, page 9, line 3, leave out “may” and insert “must”

Lord Bradley: My Lords, I will not labour the points that we have already made regarding affirmative resolutions of regulations, but I shall speak briefly to Clause 21 because it is another key clause in shaping the structure and policies of pension schemes that are to be developed under Part 2. This is another area that, as we know, the Delegated Power Committee picked out when it said that,

“the likely ingredients of regulations will be so significant to the working of Part 2 as a whole that the negative procedure will not afford the House an appropriate opportunity to debate the provision that will determine the shape of the arrangements”.

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I am aware that the Minister is going to bring forward an amendment on that so we will have that opportunity, but it is always worth putting on the record the views of the excellent Delegated Powers Committee on these matters, and obviously we welcome the Government’s response to it.

We have another amendment in this group, along with the delegated powers amendment, which again turns—I will not labour this point—on the issue of “may” and “must”. The first part of Clause 21, which is entitled, “Policy for dealing with a deficit or surplus”, says:

“Regulations may require the trustees or managers of a pension scheme … to have a policy for dealing with a deficit or surplus in respect of any collective benefits that may be provided by the scheme, and … to follow that policy if a valuation report shows a deficit or surplus”.

In our view, it is extremely important that they have a policy around deficit or surplus; it is inconceivable, as my noble friend Lady Drake pointed out in the previous comparable amendment, that there would not be such a policy.

I ask again, similarly to the previous set of amendments, whether the Minister sees any circumstances in which there would not be a policy for trustees in applying and dealing with deficits or surpluses. In order to ensure that the members have confidence in the policies, it is crucial that they are consulted on those policies, so there must be a policy that is available for them to have that assurance. For the members of the scheme there must be a policy, so the regulations should be saying that the trustees must produce a policy around deficit and surpluses within the scheme, which are crucial to the members within the scheme. I feel sure that the Minister will be able to give us the necessary assurances on that, which is why I shall be brief and beg to move.

Lord Bourne of Aberystwyth: My Lords, I am grateful to the noble Lord. I apologise that I keep referring to noble Lords opposite as “Ministers”; I am afraid that it is my background in the Welsh Assembly, where I am used to asking questions rather than answering them. They should not jump the gun.

I reassure the Committee about the recommendations of the Delegated Powers and Regulatory Reform Committee. I confirm again that we are content with its recommendation and will therefore bring forward amendments on Report to reflect that. As the noble Lord has said, the power in Clause 21 allows us to ensure that schemes have appropriately transparent policies for how they will handle a situation where the scheme is outside the probability range for paying the target benefits, and that it is a permissive power, not a mandatory obligation.

I shall share some of our thinking around how and why we will use the powers in Clause 21, which deals with what happens in schemes with collective benefits when the required probability range in relation to the target benefits is not being met. In our drafting approach we have used the term “deficit or surplus” to refer to the situation where the scheme is above or below the required probability range. However, I remind the Committee that there is no promise in relation to a collective benefit that an employer would need to stand behind.

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The first question to ask is why we require trustees or managers of schemes providing collective benefits to draft a policy on deficit and surplus in the first place. We believe that this is essential because schemes providing collective benefits function in an open and transparent way. It is vital to engender confidence in the way that these schemes are managed and are seen to be managed. Indeed, the lack of a policy set out in advance about how schemes would adjust members’ benefits if required has led to heated public debate in the Netherlands, where some schemes had to reduce benefits when members were not expecting that to happen. I hope that we have learnt lessons from experience elsewhere, as I indicated earlier; this is very much central to the Government’s approach.

7 pm

We would certainly not want that situation to happen here. So, to address any potential concerns or confusion about how over or underperformance against the probability range will be dealt with, we have introduced Clause 21. Using these powers we may require trustees or managers to schemes providing collective benefits to set out a policy in advance in which they explain clearly how they will deal with such situations and the different options they may take depending on the situation. Trustees or managers will be required to follow that policy where a valuation report under Clause 19 shows there is a deficit or surplus in meeting the target. The aim here is to ensure that by following this policy the scheme is able to return to a position where the probability of being able to pay target benefits falls within the required probability range. This policy will set out a clear set of options or actions that will reassure members that the scheme will be brought back on course and will inform them about how this will occur.

Trustees or managers will have flexibility to draft the policy to fit within their own scheme design. It is not our intention to place unnecessary restrictions on trustees or managers as we recognise schemes that provide collective benefits will be different from one another. However, we want to make sure that they have appropriate mechanisms in place to ensure good governance.

I am sure that we all recognise the importance of that and I do not think there is a great difference of approach between the Front Benches. Perhaps there is a difference in approach, but certainly not in terms of desired outcome. I am sure that noble Lords will understand the need for some flexibility within policy design. It is equally important to have parameters in place—I accept that entirely. We have taken power to set out matters that the trustees or managers must take into account or principles they must follow when formulating the policy. For example, it might be appropriate to put some principles in place about the extent to which any intergenerational transfers can take place. I know that that is an issue that Members are rightly concerned about. We will consult on how these powers may be used.

The core of the difference is that the powers in Part 2 are intentionally permissive, not prescriptive. We want to regulate only where necessary and appropriate.

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Turning to the noble Lords’ amendments, therefore, we believe that the right approach is the permissive one. As I mentioned, further work and conversations are required with the Financial Conduct Authority to establish how it will regulate for non-trust based schemes, because we want to go forward in a parallel way to make sure that both sets of schemes—contractual and trust—are taken forward in a similar fashion. Amendment 11, if accepted, would oblige us to make regulations for personal pension schemes where we may not actually need to do so, with the unwelcome prospect of double regulation. As for Amendment 12, this is another case of the DPRRC recommending that the power should be subject to the affirmative procedure. As I set out right at the start of my response to the amendment, we are content with accepting that recommendation.

Lord Bradley: I am slightly confused. The Minister seems to be saying that there would never be a circumstance where there would not be a policy and therefore it can be permissive because there would be no exception to it. There would always be a policy in place. Can he confirm that that is the case?

Lord Bourne of Aberystwyth: I am happy to confirm that. I believe that I indicated in response to an earlier amendment that there would not be any of these powers where we would not anticipate regulation. We do not see a vacuum in any sense in any of these matters. As I said, I think that the difference is a difference of approach rather than a difference of outcome. We believe that we will reach the goal—achieve it—on a permissive basis. We do not believe that the mandatory approach, which I believe is what the noble Lord is pursuing in relation to at least some of these amendments, is the correct one. The difference is a difference of approach rather than a difference of outcome. I hope that that deals with the point that the noble Lord was making. On that basis, I respectfully ask the noble Lord to withdraw the amendment.

Lord Bradley: Again, I am grateful to the Minister for his response and clarification. From this side of the Committee we could not envisage a situation where something as important as deficit and surplus within funds and providing policies about which the members are clear and on which they have been consulted would not be addressed and in place. The Minister assures the Committee that, through a permissive regime, there will always be such a policy in place. With that assurance, I beg leave to withdraw the amendment.

Amendment 11 withdrawn.

Amendment 12 not moved.

Clauses 21 to 24 agreed.


Clause 25: Policy for calculating cash equivalent of benefits

Amendment 13

Moved by Lord McAvoy

13: Clause 25, page 10, line 35, at end insert—

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“( ) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”

Lord McAvoy: My Lords, Clause 25 gives the Secretary of State the power to require the trustees or managers of a pension scheme to have a policy concerning the cash equivalent of a pension within a collective scheme. It also requires the trustees or managers to consult on the matters and principles they need to follow when calculating and verifying the cash equivalent of a pension in a CDC scheme. This amendment would require the regulations issued under this section to be subject to the affirmative procedure. This clause was also a part of a very large group of amendments which the Government introduced at Report in the other place.

There remains a tension at the heart of this Bill. The Government have been forced—I do not think there is anything wrong in that—into making so many amendments in large part because of the introduction of freedoms and flexibility in the Budget of 2014. We support those freedoms as long as they can be introduced without harming middle and low earners and do not end up leaving people reliant on the state. But really, more should have been done to work out the effect that these policies would have on how the others would operate. As we have already shown, a large part of the benefit from a CDC scheme can lie in the intergenerational risk sharing that it makes possible. This is how the schemes operate elsewhere. However, if a large proportion of people opt out at 55 by choosing to get a product that enables them to access their money straight away, then that risk-sharing element ceases to be there to the same degree.

This raises the possibility of having knock-on effects on the probabilities of achieving certain targets within the scheme. My concern here is that further work needs to be done on the interaction between the changes in the Taxation of Pensions Bill—which being a money Bill has passed through its remaining stages here—and the changes in this Bill to enable collective schemes and risk sharing. A good start would be to require the affirmative procedure to be used for the regulations on cash equivalents. I therefore ask the Minister to respond to that point in as much detail as possible so that we can grasp the thinking behind the Government’s proposals. I beg to move.

Lord Bourne of Aberystwyth: My Lords, I thank the noble Lord for moving this amendment. Clause 25 contains a power to require in regulations that trustees or managers of schemes providing collective benefits must have, and follow, a policy for calculating and verifying the cash equivalents of a member’s collective benefits. Cash equivalents may be needed when a member transfers to another scheme or for the purpose of sharing a pension on divorce, for example. Clause 25 allows for regulations to be made requiring the trustees or managers of a scheme offering collective benefits to set up and follow a policy for the calculation and verification of cash equivalents for collective benefits. The regulations can, among other things, require the trustees or managers to consult about the policy, require that the policy is consistent with regulations about calculating transfer values and other relevant legislation,

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make provision about the content of the policy, set out matters that have to be taken into account when putting the policy together, and make provision about reviewing and revising the policy.

Delegating to secondary legislation will allow the department to consult on the views of the pension industry, in the wider sense of involving pension groups as well, to ensure that the provisions set out in regulations will capture potential future varieties of collective benefits. The regulations will need to include a fair amount of technical detail, and some of the requirements will be largely procedural in nature. We therefore consider that the negative resolution procedure is the most appropriate form of parliamentary scrutiny here. In the process of parliamentary scrutiny there needs to be a balance between legislative scrutiny and the need to produce secondary legislation in a responsive and speedy way when needed. The requirement for the affirmative procedure in every case as required by this amendment would make it harder to deliver and maintain the regulations that the industry and members need, and would not in our view be an appropriate use of parliamentary time.

It is significant that the 12th report of the Delegated Powers and Regulatory Reform Committee, which considered the Bill, did not make recommendations as regards Clause 25. I am not convinced that the arguments made elsewhere by the Delegated Powers and Regulatory Reform Committee—which we have largely, although admittedly not totally, accepted—apply in the same way here. The committee was rightly concerned about regulations that have shaped collective benefits. Regulations about policies on calculating cash equivalents are not about shaping collective benefits but about how to put a cash equivalent value on a collective benefit when a member asks for a transfer or, as I said, on such an issue as divorce. Those are important matters, but they are largely technical and procedural, and we believe that they are more appropriate for the negative procedure. On that basis, I hope I have dealt with the issues raised by the noble Lord, and I respectfully ask him to withdraw his amendment.

Lord McAvoy: My Lords, once again I thank the Minister for a very full exposition of what was envisaged in the Government’s approach to that. We have at least raised a cautionary note, which the Minister has responded to, and there is not much point in pursuing it further. I beg leave to withdraw the amendment.

Amendment 13 withdrawn.

Clause 25 agreed.

Clause 26 agreed.

Clause 27: Requirement to wind up scheme in specified circumstances

Amendment 14

Moved by Lord Bourne of Aberystwyth

14: Clause 27, page 11, line 20, leave out first “or”

Lord Bourne of Aberystwyth: My Lords, the package of amendments in this group falls neatly—I hope—into the category of minor and technical. Inevitably we

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discover bits of drafting that can be improved or things that need to be clarified, and these amendments do just that. They cover a number of specific issues that relate to clauses in Parts 1 and 2, and with noble Lords’ permission I will explain a little more about what each of them does.

The first group of amendments is about consistent drafting. Clause 27 makes provision for regulations to require a scheme or part of a scheme providing collective benefits to wind up. Separately, Clause 37 makes provision for regulations to impose duties on managers of non-trust-based schemes to act in the best interests of the members when taking certain decisions. Both provisions make reference to different types of requirement that may apply in relation to the scheme, including scheme rules, and any relevant legislation that applies to the scheme. The amendments do nothing more than ensure that the same things are described in the same way in both clauses.

Moving on, the amendment to Clause 32 puts beyond doubt that any requirement to publish documents may also apply to policies required by regulations under Part 2 of the Bill. Regulations made under powers in Part 2 can require trustees or managers of schemes that provide collective benefits to have policies regarding a number of matters, including the factors used to calculate members’ benefits, the calculation of transfer values and the steps that may be taken to deal with a deficit or surplus.

Clause 32 makes provision for regulations in Part 2 which require trustees or managers to prepare or obtain any document, to include requirements about publication of those documents and about sending copies to a specified person. It was always the intention that any requirement imposed by regulations under Clause 32 could apply to policies about the operation of collective benefits, and these amendments put that beyond doubt.

The amendment to Clause 45 is about making the drafting clearer. The changes to Section 67A of the Pensions Act 1995 made by Clause 45 make any modification to an occupational pensions scheme that would replace a member’s accrued rights with a right to a collective benefit a protected modification, which can be made only if the member consents. This amendment makes clear that this provision applies only where the existing accrued right is not a right to a collective benefit.

7.15 pm

I turn to a few minor amendments to Schedule 2, which amends existing legislation as a result of the changes in Parts 1 and 2. Paragraph 47 makes changes to Section 30 of the Pensions Act 2008. Section 30 deals with automatic enrolment and the transitional period that employers have to meet their automatic enrolment duties for defined benefits and hybrid schemes. The changes in paragraph 47 reflect the changes to scheme categories in Part 1 and replace references to “hybrid schemes” with “shared risk schemes”.

Amendment 49 simply replaces a stray reference to hybrid schemes that was missed when the Bill was introduced. Amendments to paragraph 50 of Schedule 2

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remove an ambiguity in the drafting. Paragraph 50 makes changes to Section 99 of the Pensions Act 2008. Section 99 lists definitions used for the purposes of that Act. There are currently two separate provisions in paragraph 50 of Schedule 2 which relate to the definition of “defined benefit scheme”. One adds a new definition drawn from Part 1; the other is intended to remove the existing definition. The existing drafting is ambiguous and needs to be corrected. These amendments remove the ambiguity by replacing the two provisions with a single provision that simply substitutes the old definition with the new one. As collective benefits are now mentioned in the Pensions Act 2008, the definition needs to be added to Section 99, so Amendment 51 also adds a definition of collective benefit to that section.

I hope that noble Lords will agree that this package of amendments represents a necessary improvement to the clarity and accuracy of the Bill, and on that basis I beg to move.

Lord Bradley: I am grateful to the Minister again for his explanation of the government amendments, which I accept are minor and technical. However, they clarify the position on certain aspects of the Bill, which is welcome, and remove any ambiguity that may have transpired from the original drafting. In that light, the Opposition are happy to accept them.

Lord Bourne of Aberystwyth: I am most grateful to the noble Lord, and I commend the amendments to the House.

Amendment 14 agreed.

Amendments 15 and 16

Moved by Lord Bourne of Aberystwyth

15: Clause 27, page 11, line 20, leave out “any scheme rule” and insert “provision of a scheme”

16: Clause 27, page 11, line 23, leave out “scheme rule” and insert “provision of a scheme”

Amendments 15 and 16 agreed.

Clause 27, as amended, agreed.

Clauses 28 to 31 agreed.

Clause 32: Publication etc of documents

Amendments 17 and 18

Moved by Lord Bourne of Aberystwyth

17: Clause 32, page 12, line 35, after “document” insert “or have a policy”

18: Clause 32, page 12, line 36, after “document” insert “or policy”

Amendments 17 and 18 agreed.

Clause 32, as amended, agreed.

Clauses 33 to 35 agreed.

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Amendment 19

Moved by Lord Bradley

19: After Clause 35, insert the following new Clause—

“Collective benefits: annual review

The Secretary of State must each year produce a report on the operation of this Part and the report must include the number of collective benefit schemes that have been set up under its provisions.”

Lord Bradley: My Lords, I draw attention to the wording of this amendment because I am sure that it will be welcomed by the Government and that they will wish to produce and deliver such an annual review to Parliament.

When the press release that accompanied the Bill was issued, it gave me the impression that the Government envisaged that Part 2 would lead to a number of new combined collective defined benefit schemes coming into operation. However, as we have seen the Bill being considered in this House and in the other place, the number of schemes coming into operation has been cooling and the Government have been more reticent to be clear about how many new schemes they anticipate will be set up.

This is why, among other things, the number of schemes should be included in an annual review to see whether provisions in the Bill adequately enable collective defined contribution schemes to be set up. That cannot and should not be the only measure. We do not wish such an annual report to cover only quality, but it would be useful for Parliament and the public more broadly to be kept aware of how the policy is unfolding.

There is also the wider point that a number of issues that have been raised in Committee today have centred on the speed with which the Bill is passing through both Houses of Parliament, the number of changes to the Bill in that process and the ability to scrutinise secondary legislation alongside primary legislation. All this leads to the conclusion that an annual report to Parliament would be a very effective way of giving assurances that all is well with the implementation of the Bill and indicating specifically the consequences around CDCs.

I accept that the first annual review—if, or when, this amendment is accepted—might be rather thin because, as we heard earlier, the regulations for Part 2 will not come into force until later in the year. However, I do not think that undermines the basic point that legislation of this type should be reviewed and presented to Parliament on an annual basis. I believe that the Government will welcome the publication of such a report, principally because these new schemes are part of the overall package of changes which have been hailed by Ministers as a pensions revolution. It will enable the Government to communicate to Parliament, and more importantly to the public, how these packages of reforms are rolling out, how they are working in practice and how they are achieving the policy objectives which the Government have laid out, not only with the Pension Schemes Bill but with the Taxation of Pensions Act and the other pensions provisions that have been put through Parliament. I accept that this amendment

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only applies to collective schemes, but it establishes a principle about reporting to Parliament on the pensions changes more broadly. It is a peg on which to hang a package of reporting and a way in which we can continue to have the ability to question and scrutinise a very important area of policy for millions of people in this country. I beg to move.

Lord Bourne of Aberystwyth: My Lords, I thank the noble Lord, Lord Bradley, for moving this amendment. I will say a little about our approach. As I think noble Lords are aware, our approach is about enabling choice. While the number of schemes is important, it is not the only measure of success.

The Bill enables schemes providing collective benefits to be set up where employers and providers wish to do so. We believe that this Bill will stimulate greater innovation and choice, allowing employers to adopt the sort of arrangements available in other countries—we have spoken previously of the Netherlands, Denmark and Canada—if it is right for them and for their employees. The number of schemes is an important issue, but it is certainly not the only issue.

We believe that the development of schemes offering collective benefits could be more appropriately monitored in other ways than a bespoke annual review, which may become something of a tick-box approach. We envisage that this could be done through existing access through the Office for National Statistics, which conducts surveys and collects data, for example.

Perhaps more importantly and across the piece, the noble Lord indicated that this review is on only one small aspect of the legislation. There is much else in the legislation. The Cabinet Office Guide to Making Legislation already requires the relevant government department within three to five years after Royal Assent to submit to the relevant Commons departmental Select Committee a memorandum, to be published as a Command Paper, containing a preliminary assessment of how an Act is working in practice. No doubt, our House can pick up on that too.

I recognise that there is a genuine concern about providing information on how this aspect of the legislation is operating in practice and perhaps more widely than the noble Lord indicated in his contribution. There is a wider issue about how the rest of the legislation is operating. I will have a look at this to see what we can do. However, we believe that an annual review is somewhat bespoke and tick-box. We have a provision for a review within three to five years of the Bill passing, but if there is anything that we can do supplementary to that, and should be doing, I will come back on that on Report. I say that without any firm promise that we believe there is anything to do, but I am happy to look at it. On that basis, I hope that the noble Lord will withdraw the amendment.

Lord Bradley: I welcome the Minister’s response to the request for an annual review. It was certainly not my intention—I hope it was clear in my opening remarks—to see this as a tick-box exercise. I see it as a very effective document that would be presented to Parliament and allow us to have proper scrutiny of a very important new proposal that has been brought

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forward. The Minister is right that it was in the context of looking at the wider pension reforms that are going through.

While I do not believe that we need to wait three or five years to get such an annual report, I accept the Minister’s offer to at least consider how information can be provided to the House, specifically on collective defined contribution schemes, and then more widely in the context of pension reform. I welcome the Minister’s response to that at a later stage in our deliberations. With that assurance, I beg leave to withdraw the amendment.

Amendment 19 withdrawn.

Clause 36 agreed.

Clause 37: Duty to act in the best interests of members

Amendment 20 not moved.

Amendment 21

Moved by Lord Bourne of Aberystwyth

21: Clause 37, page 14, line 40, leave out “instrument, enactment or rule of law” and insert “legislative provision, rule of law or provision of a scheme or other instrument”

Amendment 21 agreed.

Clause 37, as amended, agreed.

Clause 38 agreed.

House resumed. Committee to begin again not before 8.29 pm.

Counter-Terrorism and Security Bill

First Reading

7.29 pm

The Bill was brought from the Commons, read a first time and ordered to be printed.

NHS: Medical Competence and Skill

Question for Short Debate

7.29 pm

Asked by Lord Parekh

To ask Her Majesty’s Government what steps they are taking to maintain and, where necessary, improve the level of medical competence and skill in the National Health Service.

Lord Parekh (Lab): My Lords, it is an honour and a privilege to introduce this debate. I thank in advance all those Peers who will speak in the debate for the significant contributions that they will make from their respective points of view.

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The NHS is one of our finest achievements. No pain goes unrelieved for lack of money. Its staff are dedicated, driven by a sense of calling, and their level of competence is second to none in the world. However, no institution is perfect and it can always do with change. Every institution builds up its own structural biases, and every profession has a tendency to build up a certain ethos, corporate mentality and collective spirit, and tends to do things in a certain way that is useful but has limitations. I suggest that this is just as true of the NHS. That is why several changes have been made over the years, particularly during the last 25 years. I do not care for the changes that are largely managerial and which are concerned to centralise the system and transfer power from doctors to managers. But I greatly welcome the changes that are of a medical nature; for example, appraisal and revalidation of GPs, and the collection and publication of surgeons’ death figures. These changes have been or will be of great benefit to the patients and to the medical profession. It is in the spirit of these changes that I wish to frame this debate and ask two questions.

My first question has to do with the general nature of medical competence in the NHS. How can we sustain the current level of medical competence and skill in the NHS? There is a general feeling that it is being threatened by recent structural and managerial changes. We need to address that concern. Secondly, there is a general impression among the public, the professional staff and the managers that errors of judgment occur in the NHS, and that there are pockets of incompetence that need to be carefully identified and addressed. We obviously need to see whether there is any truth in this impression and deal with it. Sometimes it is denied altogether: that there is absolutely nothing wrong with the level of medical competence in the NHS. That is not true. A report by the Parliamentary and Health Service Ombudsman on 26 November 2014 says that,

“poor communication, errors in diagnosis … and poor treatment”,

top the list of hospital complaints investigated by the ombudsman, Julie Mellor. She upheld just under half of those complaints. Statistical surveys in Australia, the United States, Canada and elsewhere have highlighted what is sometimes called substandard surgical performance. These things occur in those countries and I see no reason to believe that, much as we are better than many of those countries, some of these things do not occur here from time to time.

I was recently reading a wonderful article by the Honourable Geoffrey Davies of the Australasian College of Surgeons in the recent issue of the ANZ Journal of Surgery, in which he talks of an unacceptable level of errors resulting from inadequate competence. In our country, more than 12 surgical specialties collect and publish data on surgeons’ death rates. They show variations and some cause for concern. In all these cases, the concentration is unfortunately on the surgeons. Their errors are easy to identify and difficult to forgive. I suggest that we also look at non-surgical consultants, including physicians and GPs—indeed, the entire medical profession—to ensure that they are of the highest level of competence, for which we are justly famous and for which the medical profession has justly deserved a high reputation.

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Medical competence is not about negligence—we know how to take care of that—and nor is it about professional conduct or misconduct. It is about medical judgment: that is, correct diagnosis and correct treatment. It depends not just on the kind of medical degree that one has acquired, but on one’s experience and training, on keeping abreast of one’s subject, on giving enough time and attention to the patient, on a sense of accountability for the consequences of one’s diagnosis and treatment, on constant feedback from the patient and so on. Given that these are some of the preconditions of medical competence and the wider feeling that I talked about earlier, I suggest that our distinguished medical professional might like to consider five suggestions. I make them in a tentative spirit, not being a doctor myself.

First, as I said, our surgeons have introduced the practice of collecting and publishing death figures. I suggest that, with suitable modification, the same sort of practice needs to be introduced for consultant physicians. They currently have no means of knowing how the patient responded to the treatment that they prescribed. They are in no position to learn from positive and negative experiences. For example, if a patient goes to see a consultant, a particular medicine is prescribed and if it does not work, the consultant will not know this. The GP picks up the pieces. If the GP decides to refer the patient to the consultant, the consultant may not be the same one that the patient saw in the first instance. It is therefore very important that there should be a measure of continuity between the consultant and the patient. This could be ensured either by the GP informing the consultant as to what his prescribed medicine has done to the patient, or, as happens in some countries, through the patient being in contact with the consultant on a regular basis, or when the medication does not work as he was promised it would.

Secondly, consultants and GPs are subjected to sometimes unreasonable targets; hence, they are unable to spend as much time with patients as they would like, or as is necessary. This leads to errors of judgment, some of which are very serious. Steps need to be taken to avoid such situations. Targets are important, but should not be unrealistic or at the cost of the quality of care.

Thirdly, GPs are at the centre of the NHS. It is not a secret that patients sometimes avoid certain partners in a practice, even when that involves considerable waiting. There are many reasons for this. One has to do with suspicion of a lack of full clinical competence on the part of certain partners in the practice. It is in the interest of the GPs and the patients that the appraisal system that we have introduced should be made robust. Inadequate GPs should not be covered by an otherwise excellent practice.

The criteria of patient satisfaction should be more carefully defined and include not just “how much time did the doctor give you” or whatever, but such questions as how many visits she had to undertake before her complaint was diagnosed, or how often her medicine was changed before she felt better. Cases of whistleblowing among GPs and consultants should be viewed more charitably than at present. Whistleblowing is a public service and sometimes a compulsion of one’s conscience.

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Hence, its occasional excesses or misuse should be condoned or dealt with lightly. If even 1% of our more than 60,000 GPs systematically made a mistake, the extent of harm done to patients is quite considerable. That is also true of consultants. In so far as whistle- blowing diminishes this danger, there is every reason to welcome it.

Fourthly, some cases of incompetence have been identified in relation to doctors who have been engaged by medical companies, on whose resources the hospitals rely. These medical companies need to be monitored and watched more closely.

Fifthly, young doctors sometimes do not have enough clinical experience because of the EU working time directive. The directive is necessary because it protects patients against tired and overstretched doctors. It also allows doctors to learn their craft under ideal conditions. However, training is also important and we therefore need to increase the training period for GPs.

To sum up, I salute the professionalism, idealism and dedication of the medical profession in the NHS. In this debate, I have been concerned to ensure that nothing is done to tarnish the richly deserved reputation of the medical profession, whether it is done by overbearing managers, by target-obsessed civil servants, or by a complacent and sometimes defensive profession.

7.39 pm

Viscount Bridgeman (Con): My Lords, I thank the noble Lord, Lord Parekh, for securing this debate. I will venture to speak on a subject which has some relevance to its title and to the noble Lord’s speech—that is, the problem of English language testing for health professionals from the EEA working in the United Kingdom. I speak with particular reference to nurses, of which I have some familiarity, but my remarks should apply also to dentists and pharmacists. I know that other branches of healthcare are in the pipeline for similar consideration.

I am sure your Lordships’ experience of nurses in the NHS from the EEA is overwhelmingly one of courtesy, competence and compassion. Nevertheless, I am sure you will also have had instances of language difficulties over health workers’ command of English. The background to this problem is the mutual recognition of professional qualifications directive of 2005, which covers the mutual recognition of professional qualifications within the EEA. As originally promulgated, this contained the requirement that registration in the respective countries should be done before any testing for English language capability, the argument being that imposing language tests before regulation inhibited one of the EU’s basic concepts, the free movement of professionals within the Community.

This gives no problems with professions such as surveyors, architects or engineers. However, healthcare is in a category of its own because there is the additional consideration of patient safety, and this has caused considerable problems for the regulating bodies. For instance, the Nursing and Midwifery Council has been obliged first to register candidates without being able to assess their English language proficiency. Control over its members tends to be lost, or at best diminished. A fully registered nurse, probably in employment, is

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not going to take lightly to being told to go back to school to improve his or her English. Indeed, the onus for language competency currently rests with employers, a far from satisfactory position. This has been the potential scenario for disasters waiting to happen. We are fortunate that there have been no serious ones. However, as a journalist has pointed out, the difference between a milligram and a microgram can be a coffin.

Over the past few years the Department of Health and its associates in the three devolved Administrations have been involved with the Commission in addressing this problem. Fortunately, a lead was given by the GMC, which last year achieved a very satisfactory outcome in respect of doctors. If we turn to the other branches of healthcare, in November 2014 the department and its counterparts in the devolved Administrations issued a four-country-wide paper for consultation, the outcome of which has been a draft Order in Council which, I understand, will be due for debate in both Houses in the course of this Parliament. The effect of this should be that the regulating bodies will have the powers to delay registration of a candidate from the EEA if they are not satisfied with his or her language competence. This development should rectify a serious defect in the freedom of movement legislation, and I congratulate my honourable friend Dr Dan Poulter and his colleagues in his department and the other devolved Administrations on their diligence in achieving this potentially favourable outcome.

This may appear to outsiders to be a minor procedural adjustment. I suggest, however, that it is in fact of great significance. Not only should it be a step towards reducing accidents caused by poor language communication but, of no less importance, it will enhance the standing and credibility of the respective regulators—the Nursing and Midwifery Council, the General Dental Council, the General Pharmaceutical Council and the Pharmaceutical Society of Northern Ireland—in giving them greater control over their members in ensuring that those from the EEA go into the employment market with the necessary competence in English.

7.44 pm

The Countess of Mar (CB): My Lords, I, too, am grateful to the noble Lord, Lord Parekh, for introducing this Question for Short Debate this evening.

I encounter almost daily cases where people with ME/CFS and others with medically unexplained physical symptoms, known as MUPS, are treated abominably by members of supposedly caring professions. For example—and it is by no means an isolated example—a young man of 17 had problems with tolerating foods since he was a small baby. Standard tests could provide no clear reason. By the time he was 16 he was diagnosed by consultant paediatricians at both St Thomas’ and Great Ormond Street hospitals as being extremely reactive to almost all foods and was restricted to a prescribed liquid diet, as none of the consultants had any other resolution. Eventually he was admitted to an environmental medicine polyclinic, where I am also treated, where he has been treated with low-dose immunotherapy and nutritional supplementation. Over

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a period of a few months, from being able to tolerate no foods he is now eating 33 different foods with few problems.

On his 17th birthday, he went out with some friends for a meal and during that night he developed very severe abdominal pain and, after his GP had refused to visit, his mother managed to get him to the polyclinic. There acute appendicitis was diagnosed and immediate admission to his local hospital in Oxford was recommended. The paediatric consultant’s first response was to ask, “What has the mother of this boy done now?”. On arrival at the hospital the consultant informed the mother that he knew that nothing was wrong with the boy but he would keep him for observation. He scheduled a scan and then went home for the weekend. The boy was left screaming and in acute pain for a further 24 hours, without pain relief or other medication. By the time he was operated on, his appendix had perforated, making treatment much more complex than necessary.

To this day, despite all the evidence of the extremity of his reactions to foods and the failure of our two flagship hospitals to treat this young man’s condition, his Oxford consultant insists that there is nothing wrong with him, that he should stop the polyclinic treatment and that he should eat a normal diet, apparently because standard allergy tests do not provide confirmation. This results in great stress and distress to the boy and his mother.

In fact, substantive evidence in numerous publications proves that the safety and efficacy of immunological changes after treatment with oral immunotherapy for cow’s milk allergy, nut allergy, allergic rhinitis, wheat desensitisation and other specific foods and chemicals is well recognised. The treatments are validated and are neither experimental nor complementary medicine.

I have long wondered why there should be such particularly unreasonable treatment for people with MUPS and I have come to several conclusions. Medicine is supposed to be a very rewarding profession, whether the practitioner is a doctor, nurse or ancillary worker. The patient consults, the doctor diagnoses and prescribes and the patient gets better or at least no worse. On the occasions when the patient’s condition deteriorates and he or she dies, it is usually because the illness is well understood and this is part of a normal process. This is clearly not the case with MUPS. Modern doctors are highly reliant on technology. Test reports taken at face value can dominate the diagnostic process without taking into account factors such as clinical presentation and history and the possibility of false positive or negative results. Additionally, medical practice has become a cost-benefit calculation, with treatments either enforced or rejected on this basis rather than on patient need. I have the distinct impression that, because some doctors and other medical practitioners fail to understand some disease processes, they grow impatient, even intolerant, when their patient fails to respond and then they blame the patient.

The skills that medical practitioners acquire during training are essential to good practice for the rest of their working lives. Unfortunately, the natural scientific curiosity of the profession seems to be stifled in the course of their training. There are still far too many

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medical professionals who hold that MUPS are “all in the mind” and that patients simply need to pull themselves together, perhaps with the help of a little cognitive behavioural therapy. Somehow, current research findings are not filtering down to doctors who deal with patients.

Are the time constraints on appointments and the dependence on technology reducing a doctor’s ability to listen and to communicate effectively? Is it because GPs and consultants work such long hours that they have neither the time nor the energy to do their own research on problems concerning chronically ill patients? Is it because complex investigations cost money and initial investigations come back as being within normal ranges that the current view is that further tests would not be cost effective? Or is it because doctors have become so demoralised that they can see no reason to go the extra mile on behalf of their patients?

The NHS is excellent for acute management of illness because clear guidelines are usually followed assiduously by all staff. Chronic complex conditions are problematic because clinicians seem to deal with only one symptom at a time. Specialisation means that patients with ME/CFS are rarely looked at holistically. I have heard of one doctor’s surgery with a notice on the door which reads, “One complaint at a time”. The trouble is that frequently it is the combination of symptoms which will point to a clear diagnosis.

I have confined my speech to one aspect of competence and skill, one which falls far short of the excellence that should be the norm. I am interested to hear how the Minister proposes to improve the position for some 250,000 patients with ME/CFS and the many more who have other medically unexplained symptoms.

7.51 pm

Lord Selsdon (Con): My Lords, I am most grateful to the noble Lord, Lord Parekh, for giving me an opportunity to say things that I never thought I would say. In my family, we have had many doctors but we did not do being ill. We were brought up to believe that you suffered and you lived. However, one day, we had an incident at home when I learnt about NHS 111. I dialled 111 and, in no time at all, a member of the family was advised. I went off to my first experience of A&E, which lasted for only four and half hours, and I learnt quite a lot.

Another day, to my horror, I was standing here speaking when I suddenly felt rather faint. When I went out, I nearly passed out, and when I got to my office in Millbank, the word was out and a paramedic was there. He found that he was not competent to look after me properly and, before I knew it, an ambulance arrived and then another. I was tested and overwhelmed with the overcompetence of the issue.

After that I thought that perhaps I had better register with the NHS, which was rather a pleasant exercise. The local operation was rather busy, but it thought that it might be able to fit me in because my wife was there. Since then, I have been extraordinarily impressed. You ring up and ask for an appointment. Usually you can get one within a day or, if it is urgent, more quickly. You walk there and wait for 10 minutes. You are seen for 10 minutes, and a diagnosis takes

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place. The e-mails go off and you are told which clinic or wherever you should go for the next stage. Then you walk down the road down the road to the pharmacy to get your prescription, with the dog in tow.

I had not realised the significance of pharmacists who are, in a way, linked to the NHS. I interviewed a few and found to my surprise that there are 12,000 pharmacies in the United Kingdom and that a trained pharmacist spends more time in training than a doctor. Then you realise that there is a link: almost every time you consult a doctor, you end up with a prescription that you take to a pharmacist. I have spoken to several pharmacists and to their association and have realised that there could be a much closer link between them and the medical profession.

My interest in this sector is that when I was in the financial world, I dealt with some of the newer technologies, which I have mentioned on other occasions, not least the developments in the stem cell field. I did some research into the burdens of disease in Europe. To my surprise, cardio came top at 21%, followed by mental at 20%. Down the line was cancer at only 11%. Looking at the afflictions, as one would call them, you find that heart and cancer were almost equal. One of the biggest afflictions was Alzheimer’s, which I would not know how to treat.

I thought about what can be done in the high-tech or the technological field to use the latest technology. At that time, I got involved with the Germans in working with adult stem cells. We looked at the areas of operation. I did not realise that bits of out of people’s hips were taken out and were injected here and there. There were problems of morality. In Germany, I spoke to Professor Strauer who had developed some of these technologies and found that there were some religious factors against it. A meeting was held, surprisingly, with the Pope who approved that this sort of invasive surgery was reasonable.

I am talking about myself, a complete amateur. Amateur means someone who loves his subject but probably knows nothing about it. When I introduced people for stem cell treatment, I found that it was very simple: you take something out of one part of the body and inject it into another. Before you know it, you may have cured the problem of diabetic foot. I had a great friend whose wife was suffering very badly and asked him why he did not look at the application of adult stem cell treatment, which he did. I did not see him for a while, but when I did he said that his wife was much better. Then you get one of those moving moments in life: his wife lived for another four years. I was invited to the funeral at a church in France, at which my friend thanked me for giving them a further few years together.

When you look at some of the new technologies in health, you have to say that some are to help to cure people and some are to help to keep people alive. Health is part of the social scene. It is the interrelationship between the professions, the nurses and others. The Minister has spoken today about A&E centres. I am a leading expert on them as I have spent many hours in them waiting to collect people, looking at the nationalities of people and wondering why you need four ambulances stationed outside. The A&E situation has come to

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dominate the British health situation overall. Can the Minister give us an idea of how many A&E patients are now being served? What are their nationalities and what are the costs? I accept that my experience with a local health operation has been very thorough. I have a code name that I can ring. I am told that I must receive an e-mail every five minutes. I am very impressed indeed, and I thank the Minister for what he has done.

7.57 pm

Lord Turnberg (Lab): My Lords, I, too, thank the noble Lord, Lord Parekh, for introducing this debate in his usual erudite manner. Many years ago I had the privilege of being president of the Medical Protection Society, a mutual assurance society that provides indemnity for doctors accused of negligence and misbehaviour. It provides recompense for patients who were harmed by their negligent practice. It was there that I was brought face to face with the poor behaviour of too many doctors. I was surprised and discomforted by that because until then I had done my level best to instil high standards of practice in my students, when I was dean of a medical school, and in my trainees, when I was a consultant and president of the Royal College of Physicians. To say the least, I was somewhat disappointed when I came to the Medical Protection Society.

However, I soon realised that in a busy day-to-day practice, doctors are only human. They can make occasional honest mistakes or errors of judgment. I do not for a moment excuse any of that but I thanked my lucky stars that there but for the grace of God went I. Among the millions of patients seen every day, there are bound to be occasional mistakes. Those are much more likely where doctors are rushed and under the sometimes intolerable pressure that is too common now. Much more worrying were the fortunately less common doctors whose behaviour and practice were poor, who were unfeeling and lacking in empathy or who were just substandard. They clearly have to be weeded out by one means or another. They have to be retrained or prevented from practice, which is where the General Medical Council comes in.

Something I noticed when I was training young doctors was that it was hard to distinguish between those who had qualified from different medical schools around the country. Their skills and practice seemed very similar, no matter where they had graduated. That made me realise that most of their skills and attitudes were being gained after they had qualified and that it was their postgraduate training that really mattered. Here, too, there are problems that might be relevant. Training has certainly suffered as a result of the EU working time directive and the imposition of rotas of care. Both have had an impact on continuity of care and have fragmented the learning experience of many. Some training programmes have been so structured and rigid that they have seen trainees rotate at bewildering speed from one experience to another, again interfering in that continuity of the relationship between trainee and trainer that is so important. These are not easy problems. We must, however, try to correct them. I would be interested to know whether the Minister has any ideas about how we might do this.

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Finally, I shall follow the noble Viscount, Lord Bridgeman, and say a few words about the EU directive under which doctors trained in other member states can come to practice in the UK without any assessment here of their competence and skills. It is only in the past couple of years that the GMC has been allowed under EU law to test the language skills of EU doctors. I fear that we are still not in a position to assess the training of a cardiologist, for example, from Greece, Spain, Holland or France or that of a neurosurgeon from German, Luxemburg or Belgium. They may be perfectly competent and capable, but the problem is that in the UK we have no information about what their training comprised and we are not allowed to make any assessment of it. That would interfere with EU manpower laws that encourage free movement of workers around the community.

I tried to fill this gap several years ago when I was chairman of the Specialist Training Authority of the Medical Royal Colleges. Even though it would have been possible to do this then by a simple change in the directives that were available to us, as with many others of my efforts, I am afraid that I failed miserably. I would be very interested to hear from the Minister whether there is any hope that we may now be able to correct this anomaly.

8.02 pm

Lord Bhatia (Non-Afl): My Lords, I am grateful to the noble Lord, Lord Parekh, for raising this issue and giving us an opportunity to discuss it. The NHS is a burning and most important issue in the minds of citizens. It is one that will be foremost in the minds of everyone when voting in May this year. People will vote for the political party that assures them that the NHS is safe in its hands. I declare my interest in this issue as my daughter is a GP in London and her daughter is also training in the medical field.

We all come with our different experiences—mine are positive—when we meet the NHS in the front line either with our GPs or when we end up in an NHS hospital and see the devoted, skilful and competent work of the professionals who provide humane and concerned care to cure you as soon as possible. Over the past few years, I have been a patient at a hospital. I have seen how I was diagnosed, treated and brought back to good health. The same applies to the GPs who take enormous care to treat you for your minor and major health issues. There is always enough time for you at the GP, who ultimately becomes a good friend, with care and concerns for your well-being. To me, at the age of 60, the annual flu jab is a great blessing.

Very recently, I was admitted to hospital for a serious heart condition. Having been treated and discharged from the hospital, after a few days I received a letter from yet another NHS facility asking me to come to its rehab centre which would help me build up my muscles and teach me to walk, breathe and do exercises once a week. The professionalism of the staff at this rehab facility is, for want of a better word, exceptional.

I therefore fully support the question asked by the noble Lord, Lord Parekh. The Government should not only maintain but improve the level of our NHS

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manpower. New scientific discoveries are coming on stream all the time. Medical professionals must be given the opportunity, time and resources constantly to update and improve their skills.

In conclusion, I shall quote from the briefing pack from the House of Lords Library dated 7 January 2015. These are positive policy statements that should be followed. First:

“No system can be 100% failsafe and where a failure does occur there needs to be a system-wide response with three key objectives: safeguarding patients; ensuring the continued provision of services to the population; and securing rapid improvements to the quality of care at the failing provider”.

Secondly,

“Healthcare professionals and clinical teams, their ethos, values and behaviours, will remain the first line of defence in safeguarding quality; the leadership within organisations who provide care remains ultimately responsible for the quality of care being delivered by their organisation, across all service lines”.

Thirdly,

“Getting the right staff with the right skills to care for our patients all the time is not something that can be mandated or secured nationally. Providers and commissioners, working together in partnership, listening to their staff and patients, are responsible and will make these expectations a reality. As national organisations we pledge to play our part in securing the staffing capacity and capability you need to care for your patients”.

Finally,

“Our National Health Service and public health services’ first priority must be the public that we serve. It is the commitment, professionalism and dedication of the NHS and public health staff that can make the greatest difference in providing high quality services and care for patients and their families”.

8.06 pm

Lord Hunt of Kings Heath (Lab): My Lords, it is a great pleasure to speak in my noble friend’s debate, and I warmly welcome it.

We would all pay tribute to the medical profession in the UK. We clearly have much of which to be proud. Equally, I agree with my noble friend that we should guard against the risk of complacency and always aim to sustain the current level of competence and try to enhance it.

I shall put to the Minister five points about training, continuing professional development, the use of simulation techniques, the adoption of new practices and medicines and the issue concerning medical negligence raised by noble friend Lord Turnberg.

I have been reading the Shape of Training report, led by Professor David Greenaway that looks at the future training requirements of doctors. It makes very sensible reading. I wonder whether the Minister can say something about the Government’s intentions on this and especially about the role of Health Education England. I draw his attention particularly to the fact that we need more doctors who are capable of providing general care in broad specialties across a range of different settings. The report states that this is being driven by a growing number of people with multiple co-morbidities, an ageing population, health inequalities and increasing patient expectations.

The Minister will recollect the work of the Royal College of Physicians on the new hospital, where it made the point that alongside specialists we need

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generalists who can co-ordinate care. Does the Minister think that that ought to be incorporated in the future training of our doctors? By definition, or certainly by implication, that means that greater prestige needs to be given to generalist doctors alongside the highly specialised ones.

I have also had the benefit of discussions with Dr Kieran Walsh of the BMJ in relation to medical education. The key point that he has put to me is that we need to look at inter-professional education. Healthcare professionals no longer work in silos, but in teams, but healthcare professional education still occurs mainly in silos. Again, are the Government working through Health Education England to do something about that?

I have had further discussions with Professor Stuart Carney, the dean of medical education at King’s College, concerning continuing professional development. As the Minister knows, this was introduced into the National Health Service some years ago but subsequently, of course, the revalidation of doctors was also introduced. Is he able to say something about the initial outcome of revalidation? There is a worry that both continuing professional development and revalidation can become a tick-box exercise rather than a focused approach to improving and enhancing the quality of medical practice. Perhaps he could say something about that. Again, that relates back to the Shape of Training report.

The fourth point I would like to raise is about the use of e-technology and simulation and how we can harness new technologies in the development of medical competence and skills. The Minister will know that around the country there are a number of simulation centres where doctors and other clinicians can take part in sessions that are designed to simulate clinical practice. That enables trainers to put doctors and other clinicians under pressure to see how they react when faced with multiple pressures at the same time. The problem is that it is all very voluntary at the moment. Can we look forward to a time when we can expect simulation training and regular updates to be a mandatory part of the life of doctors?

My fifth point is an issue that I have raised and discussed with the Minister on many occasions. In this country we have first-rate life sciences. We have a fantastic medical health technology and devices industry, but we know that the NHS is very slow to adopt new medicines and new techniques even though they have been proven to work. Will the Minister say a little bit about how we can encourage the NHS to move to adoption much more quickly? Can we use the new PPRS agreement on drug costs, for instance, as a way of incentivising the adoption of new medicines?

Finally, my noble friend Lord Turnberg asked about medical negligence. The Minister will know that there is an alarming rise in the payout of claims, which is probably unsustainable going forward. I cannot believe that the quality of medical practice is getting worse. It is something to do with the number of claimants and the action of the courts. I know that the medical defence organisations are very concerned, as well as the NHS Litigation Authority. In the short time that is available, is he able to say that this is something that the Government are at least keeping under review?

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8.13 pm

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe) (Con): My Lords, in thanking the noble Lord, Lord Parekh, for bringing this topic to the House and for his very constructive and thoughtful speech, I would like to begin on the subject of medical education.

I am sure all noble Lords will agree that medical education in this country is of the highest quality. Indeed, our medical schools rank in the top 10 in the world. But it is not just formal education at university that contributes to maintaining and improving the skill of clinicians in the NHS, as the noble Lord, Lord Turnberg, reminded us. High-quality postgraduate education, continuing professional development, appropriate regulation, the development and dissemination of best practice, the uptake of innovation, and, as the noble Lord, Lord Parekh, emphasised, transparency in the performance of clinicians all contribute to delivering high-quality patient care.

With regard to regulation, the General Medical Council—GMC—is required to evaluate the fitness to practise of all doctors holding a licence to practise medicine in the UK. Medical revalidation, which was raised by the noble Lord, Lord Hunt, commenced on 3 December 2012 and is the process by which the GMC will make an evaluation to renew a doctor’s licence. Doctors are required to revalidate every five years by participation in local schemes of appraisals which are based on the GMC’s core guidance for the medical profession, Good Medical Practice. Areas of concern will be discussed at appraisal and plans agreed to undertake further development to tackle those concerns. These remedial activities are overseen by a senior doctor to ensure an effective outcome.

Revalidation provides the reassurance that all doctors, including locums and doctors in private practice, are engaged in a process of structured appraisal and professional development that will provide the framework for continuously improving the quality of their practice. Medical revalidation will help doctors keep up to the standard expected of them by ensuring that they stay up to date with the latest techniques, technologies and research. The regular feedback from patients and colleagues will highlight areas for improvement and help a doctor to tackle any concerns about important skills such as bedside manner and maintaining trust with patients. Where concerns about doctors are more serious or attempts to tackle them are not successful, as the noble Lord, Lord Turnberg, alluded to, a doctor may be referred to the GMC fitness-to-practise process, where a full investigation will be made that may result in sanctions or removal from the medical register.

I was very struck by the phrase used by the noble Countess, Lady Mar, about the notice that she saw: “One complaint at a time”. In this context, the noble Lord, Lord Hunt, mentioned the Shape of Training report. One of the key themes of Professor Sir David Greenaway’s report was the balance between specialists and generalists in the medical workforce. I can say at this point that the four UK Health Ministers will consider the draft policy proposals early this year.

The noble Lord, Lord Turnberg, mentioned doctors from the EEA. We welcome the agreement to modernise the professional qualifications directive. The revised

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directive will now make it easier for professionals to work anywhere in the EU but we have pushed hard for more transparency in regulated professions across member states to ease the requirements on skilled professionals finding jobs in the EU. We also have a duty to play our part as a department in the furthering of the UK’s wider aims in Europe, such as freedom of movement. To that end, we are also keen to ensure that highly skilled professionals do not face unnecessary or disproportionate barriers when moving to the UK.

My noble friend Lord Bridgeman focused on language skills, which, as he said, are also a key part of ensuring that doctors in the NHS are able to care properly for and communicate with patients. That is why we made changes to the Medical Act in 2014 which allow the GMC to refuse a licence to practise in circumstances where a medical practitioner from within the EU is unable to demonstrate the necessary knowledge of English. Furthermore, an additional fitness-to-practise category of impairment was created relating to language competence. These powers help to ensure patient safety and strengthen the GMC’s ability to take fitness-to-practise action where concerns are identified. Doctors from outside the EU are already subject to systematic language checks prior to registration with the GMC. These powers ensure that only doctors with the necessary language competence are given a licence to practise in the UK.

My noble friend referred to other healthcare professionals. As he mentioned, the department has consulted on proposals to give powers to the Nursing and Midwifery Council, the General Pharmaceutical Council, the Pharmaceutical Society of Northern Ireland and the General Dental Council to carry out proportionate language controls for EEA applicants similar to those given to the GMC. The consultation ended on 15 December 2014 and a government response will be published shortly.

The content and standard of formal medical education and training are the responsibility of the GMC, which has the general function of promoting high standards of education and ensuring that medical students and newly qualified doctors are equipped with the knowledge, skills and attitudes essential for professional practice. Medical schools also play a key role in medical education and training. They design curricula for undergraduate medical education, including the type of placements students may undertake during the course. The royal colleges also play a vital role in postgraduate specialty training. They develop postgraduate curricula, provide advice to postgraduate deaneries on the quality management of training as part of the GMC’s quality framework, and provide continuing professional development opportunities for their members.

The department set up Health Education England to deliver a better health and healthcare workforce for England. HEE does this in a number of ways: by commissioning training places to ensure delivery of the right number of medical staff for the future; working to influence the royal colleges and other professional bodies responsible for developing and approving formal training curricula to ensure they are appropriate; and ensuring professional and personal development does not end when formal training stops.

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The creation of HEE and its local education and training boards has given employers a stronger voice in workforce planning so that the education and training HEE commissions better reflect their needs and, therefore, the care they deliver to patients. The noble Countess, Lady Mar, will be interested to know that in 2014 we asked HEE, through its mandate, to work with the professional bodies and regulators to seek to include specific training in curricula where needed. Examples of this training include perinatal mental health training to support the health and well-being of women and their children during pregnancy and following the birth; compulsory work-based training modules in child health in GP training; care of young people with long-term conditions; and dementia education across a number of specialty areas.

We also asked HEE to provide leadership and to work with the local education and training boards and healthcare providers to ensure that professional and personal development continues beyond the end of formal training. For example, HEE will work with other organisations to develop a bespoke training programme to allow GPs to develop a special interest in the care of young people with long-term conditions by September 2015.

Clear outcomes and guidance also provide a focus for action and improvement for clinicians. Since 2010, the Department of Health has published outcomes frameworks for public health, adult social care and the NHS, which include the main outcomes that represent the issues across health and care that matter most. Combined with this, quality standards produced by the National Institute for Health and Care Excellence provide a clear description of what high-quality health and social care services look like, so that organisations can improve quality and achieve excellence.

As my noble friend Lord Selsdon rightly said, and as the noble Lord, Lord Hunt, also pointed out, innovation within the NHS is also an important driver of improving the skills and knowledge of staff. We are working with key stakeholders to remove barriers and put in place incentives to accelerate the adoption of innovation at all levels in this complex system. In 2013, England became the first country in the world to implement a universal system of academic health science networks which act as system integrators to link all parts of the healthcare landscape with industry and academia. Through this network, innovations and best practice can be spread and disseminated.

The noble Lord, Lord Hunt, referred to the use of technology in particular. The development of supportive tools for clinicians is an example of how innovation can be used to deliver improved patient care. The noble Lord mentioned others and I will get back to him on the specific examples that he gave if I can get further information on them. Macmillan Cancer Support, which is part-funded by the Department of Health, has developed an electronic cancer decision tool which is currently installed in over 1,000 GP practices across the UK, with plans to make it available to all GPs as part of their standard software. In answer to the noble Lord, Lord Parekh, we recognise the hard work and the vital job that GPs do, and we are doing our best to free them from excessive box-ticking so they have more time to devote to patient care.

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Finally, to address one particular point made by the noble Lord, Lord Parekh, the Government’s commitment to transparency has seen, among other things, consultant-level outcomes data published for 11 specialties on the My NHS website. It has also seen the Care Quality Commission publish the findings from its first comprehensive inspection of NHS GP out-of-hours services. More generally, transparency in public services and access to open data are key government policies, and I would be happy to expand on that in writing to the noble Lord.

The Government’s response to Robert Francis’s public inquiry into Mid Staffordshire NHS Foundation Trust also set out our commitment to creating a culture of openness, candour, learning and accountability in an NHS which puts compassion at its heart. As noble Lords can see, the Government are undertaking a great many things to ensure that the medical competence of staff in the NHS is not only maintained, but is improved where needed.

8.26 pm

Sitting suspended.

Pension Schemes Bill

Committee (1st Day) (Continued)

8.29 pm

Amendment 22

Moved by Lord German

22: After Clause 38, insert the following new Clause—

“Disclosure of information about schemes: duties on trustees and managers

(1) The Pension Schemes Act 1993 is amended as follows.

(2) In section 113 (disclosure of information about schemes to members etc), after subsection (10) insert—

“(11) The trustees or managers of an occupational pension scheme and the managers of a personal pension scheme shall be under a general requirement to account to their beneficiaries for all actions taken in the performance of their investment functions, including (without limitation) actions relating to any of the matters mentioned in subsection (15), and shall also be under a general requirement to act transparently in that regard.

(12) The trustees or managers of an occupational pension scheme and the managers of a personal pension scheme shall comply with any reasonable request for information relating to any of the matters mentioned in subsection (15) where such request is made by or on behalf of one or more of the beneficiaries, or any other persons of a prescribed description which the Secretary of State may specify in regulations under this section, or by a relevant independent governance committee.

(13) The trustees or managers of an occupational pension scheme and the managers of a personal pension scheme shall comply with any reasonable request by or on behalf of any of the persons specified in subsection (12) for information relating to the reasons for the manner in which they have exercised or are proposing to exercise a discretion in relation to any of the matters mentioned in subsection (15).

(14) The trustees or managers of an occupational pension scheme and the managers of a personal pension scheme shall take all reasonable steps to ensure that all persons to whom they have delegated any investment functions mentioned in subsection (15) comply with any reasonable requests by or on behalf of any of the persons specified in subsection (12) for information relating to the performance of such delegated functions.

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(15) The matters mentioned in this subsection that are referred to in subsections (11) to (14) are—

(a) the selection, retention and realisation of investments,

(b) the stewardship of investments, including (without limitation)—

(i) the exercise of rights, including voting rights, and

(ii) the engagement with the managers of investee companies and other investee entities in relation to (among other matters) corporate governance (including management remuneration) and corporate actions,

(c) the selection, appointment and monitoring of investment managers and other agents to whom the trustees or managers delegate any of the matters mentioned in paragraphs (a) and (b) above, and

(d) the selection and monitoring of investment funds which are operated by insurance companies or other institutions and in which the trustees or managers have invested or are considering investing.

(16) For the purposes of subsections (11) to (15), a request for information shall be presumed to be reasonable unless—

(a) the requested information has already been supplied to the person making the request within twelve months before the date of the request,

(b) the requested information is otherwise readily and freely available in easily comprehensible form to the person making the request and that person has been advised accordingly,

(c) the trustees or managers (or, where subsection (14) applies, the relevant delegate) reasonably consider that the costs of providing the information would be disproportionate, having regard to (among other matters)—and have stated that to be their view, have explained their reasons, and have given their best estimate of such costs to the person making the request.

(i) in the case of an occupational pension scheme, the best interests of the beneficiaries as a whole,

(ii) in the case of a personal pension scheme, the best interests of the beneficiaries of all personal pension schemes of the same provider as a whole, and

(iii) whether the requested information is relevant to those best interests,

and have stated that to be their view, have explained their reasons, and have given their best estimate of such costs to the person making the request.

(17) Subsection (16)(c) above shall not apply unless where a relevant independent governance committee, having considered such view and reasons—

(a) notifies the trustees or managers that it does not agree that their estimated costs would be disproportionate, or

(b) there are commercial considerations, including (without limitation) confidentiality constraints, that, for so long as such considerations subsist, would make it either unlawful or not in the best interests of the relevant beneficiaries for the requested information to be provided,

and the trustees or managers (or, where subsection (14) applies, the relevant delegate) have stated that to be their view and, so far as practicable, have indicated the nature of the relevant considerations to the person making the request.

(18) Subsection (17) shall not apply to the extent (if any) that it is reasonably practicable for any part of the requested information to be provided, whether in full or in a redacted or summary form, without prejudice to such commercial consideration.

(19) The provision of information under subsections (11) to (15) shall be made without any—

(a) cost or charge to the beneficiary or any other prescribed person making the request, or

(b) restrictions on the use or dissemination of the information by the recipient.

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(20) The Secretary of State may make regulations with a view to ensuring that the information disclosed under subsections (11) to (15) is provided in a timely and comprehensible manner.

(21) For the purposes of subsections (11) to (20)—

“beneficiaries” means the persons for whose benefit investments are being, will be or may be applied for the purposes of a pension scheme, whatever the particular form of ownership under which such investments are held for the time being,

“commercial considerations” does not include any contractual provision purporting to exclude or restrict the right of the trustees or managers of a pension scheme to disclose to their beneficiaries the terms of appointment of any person to whom they have delegated any investment functions,

“investments” means investments in relation to which any investment functions are performed,

“relevant independent governance committee” means, in relation to a personal pension scheme that is included in a workplace pensions arrangement, a committee established by the provider of the personal pension scheme to oversee the affairs of the arrangement in the interests of the beneficiaries.””

Lord German (LD): My Lords, I am pleased to move Amendment 22, standing in my name and those of the noble Lords, Lord Stoneham and Lord Paddick, and the noble Baroness, Lady Bakewell. The amendment follows the theme of this Government’s action in pensions by empowering savers and giving them choice.

I make no apology for tabling a comprehensive and detailed amendment. It is intended to demonstrate the breadth of action required in legislation to achieve a high level of transparency in the operation of pension schemes. I am indebted to ShareAction, a charity dedicated to this aim, for its help and its research.

The amendment provides a general requirement for pension schemes to account to savers for their investment and stewardship decisions; and a right for savers to access meaningful information about how their money is being invested and managed. It is an attempt to set a standard—a floor—guaranteeing savers rights to certain information about how their money is used. In doing so, it aims to rebuild the trust currently lacking between savers and those managing their money.

The pensions sector is not a perfect market: most savers do not actively choose their pension provider; it is chosen by their employer. Historically, there has been very little switching between products, and by the time poor performance is apparent, usually at the end of the saver’s working life, it is too late for the saver to act in a way to send a signal to the market. Savers feel disconnected from their money and this exacerbates these market imperfections. A disconnected saver is less likely to scrutinise the way in which his or her money is used. The buyer side of the market will continue to be weak, providing no real scrutiny of the industry. We have seen the impact that this has had on the fees and charges that people’s pensions have been subjected to.

The report of the now noble Lord, Lord Myners, in 2001 observed that good governance and accountability are mutually reinforcing. I agree. The pensions sector may never be dominated by a majority of active and engaged savers but, the more savers are active and informed, the better the market will work.

Under the current system, savers have relatively few rights to information about their money. This is partly a result of outdated legal concepts. Much of pension

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law is based on laws that governed a world of private family trusts. More rules were designed for a world dominated by final salary pension schemes, a world that is fast diminishing.

In today’s system, millions of people are automatically enrolled into defined contribution schemes, and now, potentially, into defined ambition schemes. Under these schemes, the saver takes the investment risk. It is therefore appropriate that such savers have rights to know how their money is being used—which answers the second of the two key questions which savers ask. The first is: “How much money will I get back?”. The second is: “Where does my money go?”.

Currently UK pension schemes are subject to a number of disclosure requirements. However, these do not translate in practice into disclosure of information useful to the average saver. In summary, the current rules, depending on the nature of the scheme, require disclosure of a scheme’s investment policy and annual reports on investments, including high-level information on investment performance. In practice, savers are often sent information that is technical, inaccessible and does not show how high-level policies are enacted.

The UK stewardship code is one mechanism that was designed for increasing transparency in the financial sector. The code covers issues such as how investors are engaging with companies and how they vote in investee companies. While the Financial Conduct Authority requires asset managers to disclose their commitment to the stewardship code, no equivalent requirement is placed on asset owners such as pension funds and insurance companies. Very few pension funds sign up to the code. This means that there is no real impetus for pension schemes to pass on to savers any information that may be disclosed to them by their asset managers. There is a missing link in the chain of accountability back to the ultimate saver.

The rights created by this amendment would apply to all pension schemes. It encompasses the trustees or managers of occupational pension schemes and the managers of personal pension schemes. In summary, the amendment would place the trustees or managers under a general requirement to account to their beneficiaries for all actions taken in the performance of their investment functions and to act transparently in that regard. It would require trustees or managers to comply with any reasonable request for information —by “reasonable”, I mean not just that it should not involve disproportionate cost but where information is not more readily available—made by or on behalf of a beneficiary, including by an independent governance committee, about decisions being made in key four areas: first, the selection, retention and realisation of investments; secondly, the stewardship of investments; thirdly, the selection, appointment and monitoring of investment managers and other agents to whom powers are delegated; and, fourthly, the selection and monitoring of investment funds in which the trustees or managers have invested or are considering investing.

Savers should have information to make informed decisions, and information to enable them to fully understand their own position. For example, we all know that when people have concerns about certain corporate practices, they may choose to alter the way in which they interact with those corporations.

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For example, after the Rana Plaza factory disaster in Bangladesh, many people chose to boycott companies that used the factory, and similar ones, to produce goods. Having taken this stance, many people would have been horrified to learn that the money they saved in their pension each month was actually invested in those companies. Another example is the fact that although many people are concerned about the health risks of smoking, those same people might well be surprised to find that a portion of their savings each month is being invested in tobacco companies.

This amendment would plug that information gap. It would allow a saver to request information about whether their pension was invested in a particular company or industry sector. What can the saver do with this information? Under the terms of the amendment, they can ask their pension scheme what, if anything, it is doing to influence a company on a particular issue. If a saver is worried about excessive executive pay in companies, he or she can ask the pension fund how it voted in respect of pay packages in companies. If the scheme has done nothing in respect of the issue, perhaps by abstaining from voting or not engaging with a company about it, a dialogue has been started. The pension scheme trustees or managers may not agree that action is needed, but on the other hand they may agree. If other savers have approached them on the same issue, this may prompt them to review the stance, or lack of stance, they have so far taken, and to ask questions of the company or even to consider their exposure to the company—of course, being mindful of their fiduciary duties to their members. Thus, through empowering the saver, we have developed a mechanism for companies to be held to account that works with the market.

This increased transparency would build on the work the Government have done to improve oversight of companies. The UK stewardship code has been adopted by the majority of asset managers, and it requires reporting on stewardship activities. It recognises that transparency is key to corporate accountability. But as I said earlier, the code has not been widely adopted by pension funds, and very few pension funds relay the information they receive from their managers to the ultimate saver. The amendment would allow a saver to receive this information on request. The release of such information to the saver would not mean that the saver would now move his or her money, as very few pension savers are realistically able to switch products. The effect is much subtler, but just as powerful. In a system where there is no real exit for the saver, the information has given him a voice.

Parallels can be drawn with the move towards increased transparency on fees and charges in pension schemes. No one is suggesting that savers should not be given greater information on fees and charges applied to their pension savings because they cannot act on it. Instead it is recognised that there is a more subtle, wider benefit in this information being made public: pension providers may be held to account and savers may be better engaged with their savings.

Transparency is a critical part of reconnecting savers with their savings. This amendment seeks to place in statute the actions needed to give effect to this very important principle. I beg to move.

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Baroness Drake (Lab): My Lords, I am pleased to support Amendment 22, moved by the noble Lord, Lord German, and I commend him for tabling it. The thrust of the amendment is designed to achieve two things: to provide a lever for achieving greater engagement of savers with the investment of their savings, and to help correct failings in the pensions market where the demand side is so weak. It would do this by giving pension savers the right to ask for details on how their money is invested and managed; by compelling occupational and personal pension schemes and investment intermediaries to provide information; and by leveraging transparency to increase scrutiny over those who make the investment decisions.

We know that pensions are not a normal market. Auto-enrolment is designed and built upon the principle of inertia, for a population of savers who do not engage. As the noble Lord said, savers do not choose a product; the employer does. The saver is restricted to a binary choice—to stay in, or to opt out and lose the employer contribution. Savers cannot easily move their pension savings.

These features strengthen the importance of holding agents to account, because that very inertia allows conflicts of interest to flourish. It is difficult for savers on their own to secure improvements in transparency and accountability. The Government need to provide a legislative push. Saver disengagement is a concern for two reasons. First, it helps to feed serious market failings. Secondly, it undermines effective shareholder engagement with the governance of companies in which their money is invested.

When auto-enrolment is bringing 10 million-plus new savers into the pensions system, the case for greater engagement and scrutiny becomes even more compelling. People avoid complexity but, as evidence from both the NAPF and ShareAction reveals, that does not mean they are not interested in what is happening to their money. They want their pension providers to invest in companies that behave well. Why should savers not know how their funds are engaging with companies on important issues, and how shareholder votes are cast at AGMs?

Increasingly, shareholder responsibility is exercised through pension funds and investment intermediaries. We know from what happened in 2007 and 2008, and from the findings of the Kay review, that this model of shareholder engagement can be inefficient for the economy as a whole.

Pension savers do not know how, if at all, their schemes are interacting with the companies in which they invest. As John Kay observed in his review of UK equity markets, such markets are no longer a significant source of new capital for businesses. Rather, their function is to allow savers to share in the success of business. The corporate governance function of shareholders is therefore not a sideshow but a core part of the purpose of modern equity markets. Increasing transparency, scrutiny and saver engagement is good for the saver, the pensions market and the efficiency of the economy.

As a consequence of the Kay review, when seeking to clarify the fiduciary duties of trustees, the Law Commission confirmed that trustees can take into account non-financial factors such as improving members’

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quality of life. However, they can do so only if they meet two tests, one of which is that trustees should have good reason to think that scheme members would share the concern. Arguably, that assumes that there is some form of dialogue or engagement between funds and savers. That does not exist now and, given savers’ limited rights to information and the complexity of what they receive from schemes, the amendment would help to build up such engagement. Savers could ask how their money was invested and how rights attached to those investments were being exercised. Savers questioning funds will help to hold investment intermediaries to account and give funds a better idea of the view of their members.

8.45 pm

There will be those who argue that the amendment is just more red tape and will be too expensive, but I make several observations. As the noble Lord, Lord German, confirmed, UK pension schemes are already subject to a number of disclosure requirements, but they often result in very technical communications conveying little to the saver. Some pension schemes are seeking to raise their game in accounting for their decisions and in disclosing voting information, but too many are not. Trustees and managers should have a good knowledge of how investments are selected, stewarded and managed, including the exercise of voting rights. If they already have that knowledge—which they should to do their job well—it should not be too onerous to achieve a better and more informative set of communications to members. If schemes decide that they really want to communicate meaningfully with members and start to go about it in a systematic and committed way, the results can be significant without being onerous.

The amendment, so clearly explained by the noble Lord, Lord German, puts a “reasonable” wrap around requests for information. Certain commercial considerations can be weighed in the balance when considering what is or is not reasonable—although I must say that that provision would be better placed in the general duty on trustees and managers rather than restricted to independent governance committees, but that is by the by; it is a detail. The amendment includes a proportionality provision, particularly in relation to costs of providing information in response to requests, and gives delegated powers to the Secretary of State to make regulations. Those regulations could make simple rules about the timeframe and format for disclosures, so the Secretary of State would have a great deal of discretion under the construction of the amendment as to how those regulations would be built.

Not every pension saver would exercise their new rights, but all would benefit from the increased scrutiny by those who chose to do so. It is the release of relevant information that can raise the standard of scrutiny and accountability, not necessarily the volume of individual requests for that information. The very knowledge that occupational and personal pension schemes and investment intermediaries would be compelled to provide information in response to reasonable and proportionate requests should of itself raise the standard of practice among pension schemes as to what is readily provided in easily

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comprehensible form as a matter of course to scheme members. That is good for savers, and it is good for the economy.

The amendment will not on its own secure the radical improvement in governance in the pensions industry which pension savers deserve, but it will certainly make a significant contribution.

Baroness Bakewell of Hardington Mandeville (LD): My Lords, I, too, support Amendment 22. Savers’ distrust of the pensions industry threatens the success of automatic enrolment. It would be a great disappointment if people chose to save less or to opt out of pensions saving entirely because they have no confidence in those who are managing their money. One key mechanism for improving engagement and building public trust in pensions is increasing transparency, as has already been said. That means letting people know what is happening to their money and helping them to see how their retirement savings connect with the wider economy—not least through being invested in companies that they know well in their daily lives as consumers, employees and local residents.

As well as supporting automatic enrolment, the rights proposed under this amendment would further the Government’s important work since the financial crash of 2008. The Kay review, commissioned by the Secretary of State for Business, Innovation and Skills, sets out a clear challenge to industry and to government to build a culture of trust and confidence within the investment sphere in order to counter the short-termist behaviour that contributed to the crash. Increasing the information that savers can obtain about their money will help to build this culture of trust. An important outcome of the Kay review was the Law Commission being asked to clarify the law around fiduciary duties in the investment sphere. In so doing, the Law Commission clarified that trustees can take into account non-financial factors if they have a good reason to think that the scheme members share a particular view and their decision does not,

“risk … significant financial detriment to the fund”.

Arguably, this assumes that trustees will have some sense of the views of scheme members and will engage in some sort of dialogue between savers and trustees. This cannot happen easily if savers continue to be cut off from important information about their money.

Finally, enhanced accountability to shareholders has been a key plank of this Government’s work to promote more responsible corporate behaviour. We have seen this in the introduction of shareholder votes on executive pay. However, many of the largest shareholders in UK companies are pension funds and insurance companies holding money on behalf of ordinary savers. While shareholder votes may have increased accountability between companies and these institutional shareholders, there is no equivalent mechanism in place between these institutional shareholders and the savers. The amendment is a step towards bridging the gap between these institutions and the people whose money they hold. The rights created would increase the potential for scrutiny of their decisions. This is a logical continuation of the move towards greater corporate accountability.

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As my noble friend Lord German has said, the amendment covers four specific areas where transparency can be improved. First, there is the selection, retention and realisation of investments. In practice, a saver could ask his pension scheme what investments it holds in order to understand where his money is. That is key if the saver is to understand the risks to which his investment is exposed.

Secondly, there is the stewardship of investments. Stewardship by shareholders plays an important role in ensuring the long-term success of a company. It involves responsible management of an investment in a company and taking an interest in how it performs in the long term, both financially and in areas beyond the financial. It can be contrasted with the type of short-termist trading of shares which led to the financial crisis. It is very important for pension savings that there is this type of long-term interest in companies, given the long time horizon over which pensions are saved.

For institutional investors, such as pension funds, stewardship will cover practices such as exercising their rights to vote in companies and engaging with companies over corporate governance issues such as high pay and board diversity, and other corporate actions such as the use of sweatshops in their supply chains or the risks associated with expanding into emerging markets. A saver has an interest in knowing how, if at all, his pension scheme is influencing company practices. These practices have an impact on the value of his or her savings and on the way in which major companies influence the world in which he or she lives, and into which they hope to retire.

Thirdly, there is the selection, appointment and monitoring of investment managers and other agents to whom the powers are delegated. This amendment recognises that trustees and managers often delegate their investment and stewardship power to other agents. This delegation does not absolve trustees or managers of responsibility for their agents’ activities. The ways in which agents are selected and the terms under which they are appointed and monitored are all-important. Where trustees or managers take stewardship and engagement with companies seriously, they will ensure that their agents take these issues seriously too. This will be reflected in the way that they choose and monitor managers and the mandates they give those agents.

Fourthly, there is the selection and monitoring of investment funds which are operated by insurance companies or other institutions, and in which the trustees and managers have invested or are considering investing. The amendment also recognises that for insured schemes, the main investment function of the trustees or managers is the selection and monitoring of investment funds. For savers invested in these schemes, it will be important to know how trustees and managers understand the investments that they are making and whether they seek to exercise any direction over these funds.