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Pensions Bill

I recognise the concern about the impact that personal liability will have on the willingness of people to be directors where defined benefit schemes are involved. We need to seek to ensure that that is not the outcome. I agree that that is not where we want to be. There are assurances in the existing legislation on the use of the powers, and I will take this opportunity to outline them. I would also like to clarify that current legislation allows for personal liability in respect of contribution notices and financial support directions. Under public law, the regulator must act proportionately and only where reasonable. That intrinsic requirement is augmented by the current legislation that provides for the safeguards. It is already possible, under Sections 38 and 43 of the 2004 Act, for the regulator to issue a contribution notice and financial support direction to individuals, but those powers are subject to the checks and balances that I will try to outline. I particularly draw noble Lords’ attention to the reasonableness tests of Sections 38(7) and 43(7), which list the reasonableness factors. The regulator is required to have regard to relevant factors to establish whether it is reasonable to act. That includes consideration of whether it is reasonable to impose liability on an individual. Among other factors, the regulator could consider the individual’s conduct, their financial circumstances and, under Section 38(7)(e), the purpose of an act or a failure to act. Further protection is afforded through the determinations panel. If, following detailed consideration of the case and reasonableness factors, the regulator wishes to proceed, a case must be made to the panel, which will hear both sides of the case. It may proceed only if the panel determines it may do so. In addition to the existing safeguards, as I mentioned earlier, the Government have consulted on additional reasonableness factors: the reasonableness of the person’s actions in the circumstances and the value of any benefits that they had received directly or indirectly from the employer or scheme. That was specifically to address concerns such as those highlighted. Part and parcel of the new factors will be due consideration of the individual’s legal duties, for example, as a director. In most, but not all, cases, it will not be reasonable for the regulator to pursue individuals, given their financial circumstances. In the majority of cases, the appropriate entity pursued will be corporate—the company or corporate shareholders. There will be rare cases where the regulator may need individuals to be the target of a contribution notice, for example where the employer is an individual or a major and influential shareholder. This exposure to personal liability is not new in respect of the regulator’s powers and is paralleled in company law. Trustees in their capacity as trustees should not be at risk from contribution notices if they perform their role properly. There are further protections for individuals in relation to the exercise of the regulator’s financial support direction power. This power only applies if the individual is the employer or is connected to that individual. The potential individual liability is important in ensuring that the powers are sufficiently flexible, while remaining subject to the reasonableness factor. The regulator has also stressed that, in accordance with its public law obligations, it will use its anti-avoidance powers only proportionately and only where reasonable. Within that consideration, the concept raised, I think, by the noble Lord, Lord Lucas, of a dividend being paid quite properly at the time through due process and consideration by the board, will be revisited several years down the track. It seems that it could not flow from the legislation, looking at the reasonableness powers and the issues of retrospection. However, again, during the course of the next couple of months, if those are real fears out there, we need to be clear and get the reassurance either specifically in the Bill, if possible, or, in regulation and guidance, so that directors can be comforted in going about their normal business, including the declaration of dividends, subject to the usual Companies Acts requirements. I hope that that has provided some reassurance, but, again, recognise that genuine concerns have been expressed and we need to be sure that we meet them fully.