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Pensions Bill

I appreciate the concerns of the noble Baroness about the interests of employers and directors’ duties under company law. The interaction between pensions and company law is an important consideration, and I welcome the opportunity to discuss it. The regulator already has a duty under existing legislation to consider the interests of directly affected parties, and when considering whether to issue a contribution notice or a financial support direction, the regulator is required to have regard to matters when deciding if it is reasonable for employers to make payments to the scheme or to put support in place. We recognise that it is important that legitimate business is not hampered by these changes and that employers have a degree of certainty that if they properly consider and address the issues of their pension scheme, they are unlikely to be subject to these new powers. It is equally important that the regulator’s powers are sufficiently robust to respond to new risks in an evolving market. The interaction of pensions and company law is important. The Government’s intention is that the duties in these two sets of legislation should rightly sit alongside each other. The noble Baroness may be concerned that directors who otherwise act in accordance with duties under the Companies Act should not be liable to regulatory action. Directors have certain duties to current employees but under pensions legislation they also have duties to scheme members’ interests. It is of course a matter for directors to balance these duties along with their other responsibilities. These situations are not unusual. I reassure the noble Baroness that it is not the Government’s or the regulator’s intention that in the normal course of their duties directors should be subject to regulatory action where their actions have no materially detrimental effect on scheme members’ benefits. The 2004 Act already places requirements on the regulator to consider whether it would be reasonable to use its anti-avoidance powers. It must have regard, where relevant, to all the facts of the case. For example, it must have regard to the degree of involvement in the Act and the involvement that the person has had with the scheme. To directly address these concerns, our intention is to strengthen these constraints to require that the regulator must have regard, where relevant, to the reasonableness of the person’s actions—for example, a director in light of his duties in that capacity—and the value of benefits the person received from the company sponsor or the scheme. I highlight the regulator’s existing duties. Under existing legislation, the regulator must consider the interests of members and those directly affected by its interventions. To include consideration of the interests of those persons only indirectly affected could lead to delay and disproportionate expense for the regulator. That would not be appropriate. The noble Baroness touched again on removing ““good faith””. I know we are going to come on to this. It applies to only one of the tests: that of preventing debts becoming due. This means it is relevant for only certain other events directly related to the pension scheme—for example, compromising debts due to schemes. This is not typical activity regulated under the Companies Act. The ordinary director functions such as paying dividends are considered under limb one of the tests in the Act: preventing recovery of a debt. This has never been prefaced by good faith. We are not aware of any problems that that has created. On standing-behind schemes, we believe it is right in this country that employers have flexibility in supporting pension schemes. Insurance levels of insolvency would be disproportionate but this means the employer must make contributions where appropriate, with a clear impact on likely returns to shareholders.