My Lords, I first thank the noble Lord, Lord McAvoy, for his contribution. I will do my best to answer his points and those of my noble friend Lord German.
I welcome the opportunity to debate this amendment again, having discussed it at length in Committee. It is fair to say—as the noble Lord said in opening—that, in philosophical terms, there are differences between the Government and the Opposition on this issue. However, we certainly want the freedoms that the new system contained in the Pension Schemes Bill offers. To that extent, we are united. However, we are certainly coming at it from different angles.
The noble Lord, Lord Bradley, suggested in Committee that all workplace pension schemes should be run by trustees and have a legal duty to prioritise members’ interests. In the same debate the noble Baroness, Lady Drake, made a broader case for extending a fiduciary duty to all who have the discretion to manage other people’s money. The Government share the concerns of the noble Lord and the noble Baroness that pension schemes should be well run. As I said in Committee, the Government are committed to ensuring that all workplace pension schemes are well governed, with members’ interests at the heart of everything they do. That is why, in March last year, we set out our proposals for strengthening the governance of occupational pension schemes that are money purchase schemes, and to the money purchase benefits provided by other schemes, in the Command Paper, Better Workplace Pensions: Further Measures for Savers. I should add that the majority of stakeholders supported these proposals by saying that they represented a positive change, intended to drive the right behaviours.
As noble Lords will be aware, in that publication last October we put these proposals on a sure footing by consulting on draft regulations to place minimum governance standards on, broadly, all occupational pension schemes which are money purchase or have money purchase elements to them. That consultation has now ended; we will shortly be publishing the Government’s response and laying the final draft regulations before Parliament, to come into force this April. For workplace personal pension schemes, the FCA has also completed its consultation on draft rules for independent governance committees, which were referred to by my noble friend Lord German and which will ensure oversight of these schemes in members’ interests from April 2015, and aims to publish its policy statement by early February of this year. That probably answers my noble friend’s point: these committees are essentially supervisory rather than day-to-day, which would be the role of trustees.
In respect of the governance of collective benefits, I can reassure noble Lords that we have a number of provisions in Part 2 that enable us to make requirements in regulations about some of the key aspects of running a scheme offering collective benefits. These are specifically tailored to such schemes and reflect key differences in the rights that members have in collective benefits, compared to money purchase benefits. We may also make regulations under a power in Part 3 to require certain decisions in respect of collective benefits, and in relation to defined ambition schemes, to be made in
the best interests of members to ensure appropriate safeguarding of members’ interests. This reflects the different nature of the decisions being made on behalf of members in these types of pensions, compared to money purchase pensions.
I will refer now to another point made by the noble Lord, Lord Bradley, in Committee. He proposed that a trust-based approach is preferable to a contract-based one. I emphasise again that we must not assume that trust-based schemes are always better governed than contract-based workplace pension schemes. There is no evidence that one governance structure necessarily delivers better outcomes than the others. As I said in Committee, we consider that scale, good governance and charge levels are among the key determinants of member outcomes, not whether a scheme is contract or trust-based. But as I also emphasised, while we are interested in scale inasmuch as it may help schemes to improve quality and lower charges, it is not an aim in itself and bigger does not always mean better. The governance of contract-based schemes has grown significantly stronger in recent years, led by the FCA with the Treating Customers Fairly principles, which have formalised firms’ responsibilities to their customers.
The introduction of independent governance committees with a duty to act in members’ interests, from April 2015, will further strengthen the governance of contract-based schemes. Also from April of this year, the Government and the FCA are intending to introduce measures so that certain savers in, broadly, all occupational and contract- based schemes providing money purchase benefits which are used for automatic enrolment will not be subject to high or inappropriate charges. The positioning in the Bill of this amendment limits the powers to schemes with collective benefits. However, it is not clear whether this is the intention behind the amendment.
We would not want to single out collective schemes here and, as I have mentioned, there are powers in Part 3 covering the interests of members of collective schemes. If the noble Lord, Lord McAvoy, intended the amendment to apply to all schemes, I am not sure whether it would achieve this. As I explained in Committee, if this amendment were exercised across all schemes, it would require independent trustees to be recruited for tens of thousands of pension schemes. I believe that this answers a point raised by my noble friend Lord German. Data from the Pensions Regulator show that there are at least 47,680 private workplace schemes alone, although I accept that not all those will need to recruit independent trustees. My noble friend Lord German put a powerful case for not passing this amendment, as it is not clear whether it is intended to cover just collective benefit schemes or schemes more widely. Clearly, there will be a cost associated with it.