My Lords, the three amendments in this group stand in my name and in the name of my noble friend Lord McAvoy. Amendment 3 would remove the words “or managers” for collective schemes. In doing so, trustees would be required to be in place. Amendment 20 to Clause 37 would require managers to act in the best interests of members of the scheme, which seems an absolute minimum if they are to be relied on. Our proposed new clause sets out that trustees shall have a,
“fiduciary duty towards members of the scheme”.
That is an issue which will be debated here and further, and we believe it is essential for the confidence of schemes going forward.
It is my contention that the Bill does not go far enough on governance. The highest standards of governance are needed for schemes that could be even more opaque to their members than DC schemes are
now. They have to manage pooled assets and, within that, conduct smoothing arrangements for the benefit of all members. This silence in the Bill occurs despite the Government’s consultation entitled, Reshaping Workplace Pensions for Future Generations. Paragraph 22 states:
“Collective schemes are complex and can be opaque—because of the indirect relationship between contributions and benefits. This necessitates strong standards of communication and governance. We intend collective schemes to be overseen by experienced fiduciaries acting on behalf of members, taking decisions at scheme level and removing the need for individuals to make difficult choices over fund allocations and retirement income products”.
Failure to require all schemes to have high-quality trustees means that we potentially have some collective DC schemes run by trustees and others where private firms offer them. They could seek to maximise short-term returns that are not necessarily in the best interests of all members. We have consistently argued that all workplace pension schemes must be run by trustees and have a legal duty to prioritise the savers’ interests.
Our proposed new clause would require pension schemes to appoint a “board of independent trustees”. Those trustees would have a fiduciary duty to pension holders that would take preference over any duty owed to shareholders. This change in governance is designed to ensure that members of pension schemes get far better value for money. For example, in its market study, the Office of Fair Trading said that savers were not getting value for money in a contract-based market. A significant reason for that was shareholder interest in contract-based schemes predominating over the interests of savers. Not enough information is available on how schemes are operating and what is available. As has been said, it can be complex and difficult to understand, which is what stops this market functioning in order to bring down those costs.
International evidence, such as that laid out by Chris Curry, director of the Pensions Policy Institute, during the evidence sessions, suggests that a trust-based approach to schemes is preferable and leads to better governance. It would not require a large number of trustees to implement. Of the 200,000 schemes currently estimated to be in place, many are under the management of four or five insurance companies and therefore would be covered by governance boards made up of trustees attached to those boards. Of the remaining pension schemes, progress to trusteeship might be slower. Equally, it might be aided by the amendment to be discussed later when we will encourage scale in terms of pension schemes.
Through these amendments we want to ensure that there is strong and effective governance, that the trustees have a fiduciary duty to look after the interests of members as a priority, and that customers are treated fairly to ensure that their interests are prioritised over those of shareholders where there may be a conflict. The new clause that we have suggested would help to rectify the current shortcomings in governorship and, with the ability to appoint high-quality trustees in whom the members can have absolute faith, strengthen the whole process. I beg to move.