Pension Schemes Bill
Monday 7th July 2025
(5 months, 2 weeks ago)
Commons ChamberPension Schemes Bill 2024-26 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State for Work and Pensions (Torsten Bell)
I beg to move, That the Bill be now read a Second time.
This Bill aims to deliver fundamental reforms to our pensions landscape, and it is good to see that the prospect of discussing a long, slightly technical pensions Bill has seen so many Members flooding into the Chamber. These are reforms on which there is a broad consensus across the pensions industry. They also build on at least something of a consensus across the House. In its principal focus on higher returns for pension savers, the Bill also responds to specific responsibilities that we hold in the House.
It is because of decisions of Parliament that something significant has happened over the past decade: British workers have got back into the habit of saving for a pension. Today, more than 22 million workers are building up a pension pot. That represents a 10 million increase since 2012, when Parliament introduced the policy of automatically enrolling workers. The rise is largest for women and lower earners. So there is lots to celebrate as more save, but there are no grounds at all for complacency about what they are getting in return.
The private sector final salary pensions that many of today’s pensioners rely on guarantee a particular income in retirement. If those pension schemes do not deliver good investment returns, that is a problem for the employer and not directly for the saver. But most of tomorrow’s retirees with a defined-contribution pension bear all the risk; there is nothing guaranteed. How well the pension scheme that they save into performs matters hugely, and because pensions are a very long game, even small differences in how fast a pension pot grows can make a massive difference over time.
That is the system that the House has chosen, so the onus is on us to ensure that it delivers. But the pension system that we have today is too fragmented, too rarely does it ensure that people’s savings are working hard enough to support them in retirement, and it is too disconnected from the UK economy. That is the case for change and the context for the Bill.
The UK has the second-largest pension system in the world, worth £2 trillion. It is our largest source of domestic capital, underpinning not just the retirement we all look forward—or at least most of us look forward to—but the investment on which our future prosperity depends. But our big pension system has far too few big pension schemes. There are approaching 1,000 defined-contribution schemes and less than 10 providers who currently have £25 billion or more in assets.
A consolidation process is already under way, with the number of DC schemes reducing by about 10% a year. What the Bill does is add wind to the sails of that consolidation. It implements the conclusions of the pensions investment review, creating so-called megafunds. For the DC market, we intend to use the powers provided for in clause 38 to require multi-employer schemes to have at least £25 billion in assets by 2030, or a credible pathway to be there by 2035. Bigger and better pension funds can deliver lower costs, diversified investments and better returns for savers. That supports the work that the industry is already doing to better deliver for savers.
As the House has discussed before, in May, 17 major pension providers managing about 90% of active defined-contribution pensions signed the Mansion House accord. This industry-led initiative saw signatories pledge to invest 10% of their main default funds in private assets such as infrastructure by 2030, with at least 5% in UK assets. That investment could support a better outcome for pension savers and back clean energy developments or fast-growing businesses. To support this industry-led change, the Bill includes a reserve power that would allow the Government to require larger auto-enrolment schemes to invest a set percentage into those wider asset classes. That reflects the reality that the industry has been calling for the shift for some time, but words have been slow to translate into actions.
Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
I draw the House’s attention to the fact that I am a trustee of the parliamentary contributory pension fund. Consolidation is absolutely the right direction of travel so that pension funds have better experts who are better able to advise. I still have a slight concern, though, about mandation. There will have to be schemes to invest in, and they will need to ensure that they are getting returns. How will the Minister ensure that the Bill actively delivers on both sides of the equation?
Torsten Bell
I thank my hon. Friend for her question and for her oversight of all our pensions, which I think is reassuring. [Laughter.] Sorry; it is reassuring! I will come directly to her point, because I know that is one question that hon. Members on both sides of the House will want to raise. Let me just say that the Bill explicitly recognises the fiduciary duty of trustees towards their members.
Mr Alistair Carmichael (Orkney and Shetland) (LD)
In the last Parliament, a number of us raised concerns about the administration of defined-benefit schemes by, among others, BP, Shell and Hewlett-Packard. It was obvious at that stage—I think this view was held by his right hon. Friend the Minister for Social Security and Disability, who was then the Chair of the Work and Pensions Committee—that one of the root causes of the problem was insufficient independence and oversight by defined-benefit pension trustees. What is there in this Bill that will protect the position of pensioners in their retirement under those schemes?
Torsten Bell
The right hon. Member invites me to skip quite a long way forward in my speech, and it is a long speech.
Torsten Bell
That was not the support I was hoping for from the Chair—understandable, but harsh. I will come to some of the points that the right hon. Member raises. I think he is referring particularly to pre-1997 indexation, which I shall come to.
As I said, the Bill includes a reserved power that will allow the Government to require larger auto-enrolment schemes to invest a set percentage into wider assets. That reflects the wider calls that have been made for this change but have not led to its taking place. What pension providers are saying is that they face a collective action problem, where employers focus too narrowly on the lowest charges, not what matters most to savers: the highest returns. I do not currently intend to use the power in the Bill, but its existence gives clarity to the industry that, this time, change will actually come.
Some argue—I will come to some of the points made by my hon. Friend the Member for Hackney South and Shoreditch (Dame Meg Hillier)—that this somehow undermines the duty that pension providers have to savers. That is simply wrong. First, the Bill includes clear safeguards to prioritise savers’ interests and is entirely consistent with the core principle of trustees’ fiduciary duties. Clause 38 includes an explicit mechanism, which I have discussed with Members from the main three parties in this House, to allow providers to opt out if complying risks material detriment to savers. Secondly—this is the key point that motivates a lot of the Bill—savers are being let down by the status quo. There is a reason major pension schemes across the rest of the world are already investing in this more diverse range of assets.
Fragmentation within the pensions industry happens within providers, not just between them. Some insurers have thousands of legacy funds, so clause 41 extends to contract schemes the ability that trust-based schemes already have to address that. Providers will be able to transfer savers to another arrangement without proactive individual consent if, and only if, it is independently certified as being in the member’s best interest.
Another point that I hope is of common ground across the House is that we need to do more to realise the untapped potential of the local government pension scheme in England and Wales. We need scale to get the most out of the LGPS’s £400 billion-worth of assets. Again, the Bill will turn that consensus into concrete action. It provides for LGPS assets spread across 86 administering authorities to be fully consolidated into six pools. That will ensure that the assets used to provide pensions to its more than 6 million members—predominantly low-paid women—are managed effectively and at scale. Each authority will continue to set its investment strategy, including how much local investment it expects to see. In fact, these reforms will build on the LGPS’s strong track record of investing in local economic growth, requiring pension pools to work with the likes of mayoral combined authorities. In time, bigger and more visible LGPS pools will help to crowd private pension funds and other institutional investors into growth assets across the country.
Our measures will build scale, support investment and deliver for savers, but the Bill does more to ensure that working people get the maximum bang for every buck saved. To reinforce the shift away from an excessively narrow focus on costs, clause 5 provides for a new value-for-money framework. For the first time, we will require pension schemes to prove that they provide value for money, with standardised metrics. That will help savers to compare schemes more easily, and drive schemes themselves to focus on the value that they deliver. For persistently poor performers, regulators will have the power to enforce consolidation. That will protect savers from getting stuck in poorly performing schemes—something that can knock thousands of pounds off their pension pots.
We are also at last addressing the small pension pots issue. I was out door-knocking in Swansea earlier this spring, and a woman in her mid-30s told me that something was really winding her up—and it was not me knocking on the door. [Laughter.] This is a very unsupportive audience. It was trying to keep track of small amounts of pension savings that she had from old jobs; the only thing that was worse was that her husband kept going on about it. There are now 13 million small pension pots that hold £1,000 or less floating around. Another million are being added each year. That increases hassle, which is what she was complaining about, with over £31 billion-worth of pension pots estimated to currently be lost. It costs the pensions industry around £240 million each year to administer. Clause 20 provides powers for those pots to be automatically brought together into one pension scheme that has been certified as delivering good value. Anyone who wants to can of course opt out, but this change alone could boost the pension pot of an average earner by around £1,000.
Of course, once you have a pension pot, the question is: what do you do with it? We often talk about pension freedoms, but there is nothing liberating about the complexity currently involved in turning a pension pot into a retirement income. You have to consolidate those pots, choose between annuities, lump sums, drawdowns or cashing out. You have to analyse different providers and countless products. Choice can be a good thing, but this overwhelming complexity is not—77% of DC savers yet to access their pension have no clear plan about how to do so.
John Glen (Salisbury) (Con)
I agree with a lot of what the Minister is saying. Given what was said last week by the Financial Conduct Authority on targeted support, would he look again at what is being resisted by the Money and Pensions Service? It is not prepared to work with the pension schemes to allow automatic appointments so that pension savers can be guided to better outcomes. I realise that MaPS will say that it is too busy, but this is a key moment. If we could get people to engage at age 50, say, we would see vastly different outcomes for them if they invested properly, and in better ways, with their pensions.
Torsten Bell
I thank the right hon. Member for his question, and for the discussions that we have had on this important topic. He spent years working on this. The priority for MaPS right now is to ensure that we have the system set up to deal with the additional calls that are likely to come when pension dashboards are rolled out, but I will keep in mind the point that he raises. I think he and a number of hon. Members wrote to me about exactly that point. As I promised in my letter, I will keep it under review, but we must not overburden the system, because we need it to be able to deliver when pension dashboards come onstream.
Nick Smith (Blaenau Gwent and Rhymney) (Lab)
Will the Minister update us on when consumers will see the introduction of the pensions dashboard? [Laughter.]
Torsten Bell
I think recent progress on the pensions dashboard means that that deserves a little less laughter. What we are seeing at the moment is success, driving the first connections to the dashboards. Obviously, all schemes and providers are due to be connected by the autumn of 2026, but I will provide good notice of when we can give a firm date for that. My hon. Friend and near neighbour has secured himself early warning of exactly that happening.
We need to make the choices clearer for people as they move from building retirement savings to using them. The Bill gives pension schemes a duty to provide default solutions for savers’ retirement income—yes, with clear opt-outs. As well as reducing complexity and risk for savers, that will support higher returns because providers will be able to invest in assets for longer if they do not need to secure the possibility of having to provide full drawdown at retirement.
Each of these measures to drive up returns will have an impact on their own, but it is their cumulative impact that matters most, especially when it is compounded over the decades that we save for a pension. To give the House a sense of scale, someone on average earnings saving over their career could see their retirement pot boosted by £29,000 thanks to the higher returns that the Bill supports. That is a significant increase for something that should matter to us all.
The reforms that I have set out will transform the DC pensions landscape, but with £1.2 trillion-worth of assets supporting around 9 million people, defined-benefit schemes remain vital—they have already been raised by the right hon. Member for Orkney and Shetland (Mr Carmichael). Their improved funding position is hugely welcome. Around 75% are now in surplus, which has enabled far more schemes to reach buy-out with an insurer. Many more intend to do so, welcoming the security that buy-out can offer. Others may not be able to reach buy-out or may value running on their scheme for at least a time. The Bill provides those trustees with a wider range of options. Clauses 8 and 9 give more trustees the option to safely share surplus funds, which is something that many can already do.
Alan Gemmell (Central Ayrshire) (Lab)
I thank the Minister for giving way and the right hon. Member for Orkney and Shetland (Mr Carmichael) for raising this issue. What will the Bill do for my constituent Patricia Kennedy and the members of the Hewlett Packard Pension Association who are asking for more action on their pre-1997 non-index-linked contributions.
Torsten Bell
My hon. Friend has raised this issue with me on a number of occasions, and he is a powerful advocate for his constituents who have lost out through the discretionary increases that they were hoping to see on their pensions not being delivered. This is the same issue that the right hon. Member for Orkney and Shetland raised. One of the things that surplus release will allow is that trustees may at that point consider how members can benefit from any release that takes place. One thing I would encourage them to prioritise if they are considering a surplus release is the indexation of those that have not received it on their pre-1997 accrual. I hope that provides some clarity to the right hon. Gentleman and my hon. Friend.
Sir Julian Lewis (New Forest East) (Con)
I am extremely grateful to the Minister for taking my intervention and for the very helpful letter he sent me on 30 June about schemes of this sort, and in particular the ExxonMobil pension scheme. His letter encouragingly states:
“Following our reforms, trustees will continue to consider the correct balance of interest between members and the sponsoring employer when making decisions about the release of surplus funds. Trustees will be responsible for determining how members may benefit from any release of surplus…and have a suite of options to choose from—for example, through discretionary benefit increases.”
The trouble is that these pensioners have received a letter from the trustees of the ExxonMobil pension fund stating:
“The power to award discretionary increases is held by Esso Petroleum Company Limited (the “Company”). Whether or not any discretionary increase is provided is for the Company to determine: the Trustee has no power to award discretionary increases itself.”
This may be a loophole that the Minister needs to address. If the trustees cannot award the surplus as benefits and the company says no, that is not going to benefit my constituents.
Torsten Bell
I thank the right hon. Member for raising that specific case. I will look at it in more detail for him as he has kindly raised it here, but he has raised a point that will have more general application, which is that lots of different schemes, particularly DB schemes, will have a wide range of scheme rules. He has raised one of those, which is about discretionary increases. One thing that is consistent across all the schemes, with the legislation we are bringing in today, is that trustees must agree for any surplus to be released. It may be the case that the employer, in the details of those scheme rules, is required to agree to a discretionary increase, but the trustees are perfectly within their rights to request that that is part of an agreement that leads to a surplus release.
Torsten Bell
In any circumstances, the trustees would need to agree to a surplus release, so they are welcome to say to their employer: we are only going to agree to it on the basis of a change to something that the employer holds the cards over. I am happy to discuss that with the right hon. Member further, and there may be other schemes that are in a similar situation.
Lincoln Jopp (Spelthorne) (Con)
The way in which the Minister is talking about insurance buy-out suggests that, in the Government’s mind, insurance buy-out is still in some way a gold standard. Can he reassure the House that he is seeking to flatten the playing field, such that the increased choice available to defined-benefit pension schemes will mean that for perpetuals who run on—such as OMERS, which started off as the Ontario municipal employees retirement system and is now worth 140 billion Canadian dollars—there is as much safety in superfunds as there is in insurance buy-out?
Torsten Bell
I shall come on directly to the question of superfunds, which I know the hon. Member has a long-standing interest in. There is obviously a distinction between closed and open defined-benefit schemes, which I think is relevant to the point he is raising. It is also important for trustees to have a range of options.
Kirsty Blackman (Aberdeen North) (SNP)
Obviously that can happen only where there are surplus funds, and there may not be surplus funds in all circumstances. I just want to give the Minister a heads-up in relation to the questions about employee benefits. It would be useful in Committee to have more information about the Government’s analysis of how many of these surplus releases will directly benefit the employees rather than the employers. I understand that the Government, with their mission for growth, want investment in growing the company as well, but what kind of split does he expect to see? I do not expect an answer to that today.
Torsten Bell
It is nice to sometimes be able to surprise on the upside. I would expect employees to benefit in most cases, because trustees are in the driving seat and I am sure they will want to consider how employers and employees will benefit from any surplus release. Obviously, the exact split between the two will be a matter for the individual cases, but I am sure we will discuss that further in Committee.
I want to reassure the House that this is not about a return to the 1990s free-for-all. DB regulation has been transformed since then, and schemes will have to remain well funded and trustees will remain in the driving seat. They will agree to a release only where it is in members’ interests and, as I said, not all schemes are able to afford to buy out members’ pensions with insurers.
The Bill also introduces the long-awaited permanent legislative regime for DB superfunds, which is an alternative means to consolidate legacy DB liabilities. This supports employers who want to focus on their core business, and, as the superfunds grow, they will have the potential to use their scale to invest in more productive ways. Crucially, trustees will be able to agree to a transfer into a superfund only where buy-out is not available and where it increases savers’ security.
The Pension Protection Fund is, of course, the security backstop for DB members. It celebrates its 20th anniversary this year, and it now secures the pensions of over 290,000 people. The Bill updates its work in three important ways: first, by lifting restrictions on the PPF board so that it can reduce its levy where appropriate, freeing schemes and employers to invest; secondly, by ensuring that PPF and financial assistance scheme information will be displayed on the pensions dashboard as it comes onstream, which my hon. Friend the Member for Blaenau Gwent and Rhymney (Nick Smith), who is now not in his place, is keen to see; and thirdly and most importantly, by making a change to support people going through the toughest of times. As several hon. Members have called for, we are extending the definition of terminal illness from a 6-month to a 12-month prognosis, providing earlier access to compensation for those who need it most.
Pensions are complex beasts, and so are the laws that surround them. That complexity is inevitable, but not to the extent that some recent court cases risk creating. The Bill also legislates to provide clarity that decisions of the Pensions Ombudsman in overpayment cases may be enforced without going to a further court. I have been clear that the Government will also look to introduce legislation to give affected pension schemes the ability to retrospectively obtain written actuarial confirmation that historical benefit changes met the necessary standards at the time.
Governments are like people in one important respect: they can easily put off thinking about pensions until it is too late. I am determined not to do that. We are ramping up the pace of pension reform. The past two decades have delivered a big win, with more people saving for their retirement, but that was only ever half the job. Today, too many are on course for an income in retirement that is less than they deserve and less than they expect. The Bill focuses on securing higher returns for savers and supporting higher income in retirement without asking any more than is necessary of workers’ living standards in the here and now.
The Bill sits within wider pension reforms as we seek to build not just savings pots but a pensions system that delivers comfortable retirements and underpins the country’s future prosperity. Legislation for multi-employer collective defined-contribution schemes will be introduced as soon as possible after the summer recess, and we will shortly launch the next phase of our pensions review to complete the job of building a pensions system that is strong, fair and sustainable. It is time to make sure that pension savings work as hard for all our constituents as our constituents worked to earn them. I commend the Bill to the House.
Mark Garnier (Wyre Forest) (Con)
It is a great pleasure to be here with you, Madam Deputy Speaker, and I welcome the Minister to his place. He has been here a couple of days over a year and is already taking an important Bill through Parliament. It is good to see him, and I very much look forward to working constructively with him as the Bill progresses through the House.
While the Bill is not perfect, the Minister will be pleased to hear that there is cross-party consensus on many of the planned changes. That is because we all want our pension system to be working better. If we rewind back to 2010, we inherited from Labour—dare I say it—a private pension system that was not quite ideal. The move from a defined-benefit pension-dominated market to a defined-contribution system had left millions of people behind. Back in 2011, only 42% of people were saving for a workplace pension. The cornerstone of change was auto-enrolment, which has been an overwhelming success, as I am sure the Minister will agree. Now around 88% of eligible employees are saving into a pension, and the remaining 10% who opt out tend to do so because of sound investment advice.
The Conservatives are proud of our rock-solid support in government for our pensioners. The triple lock ensured that we lifted 200,000 pensioners out of absolute poverty over the course of the last Government. Workers deserve dignity in retirement, not just a safety net in old age. They deserve to look forward to their later years with hope, not anxiety, and with choice, not constraint. That is why before the last election, the previous Government had turned their attention to two central issues: first, getting the best value for money out of our pension schemes and, secondly, pensions adequacy. I will come to pensions adequacy later, but let me start by recognising some of the positive measures contained in the Bill to make our pension funds work better for savers.
When Labour gets pensions policy right, it is often by building on the Conservative legacy, recognising what works and seeking to extend it. That is why we broadly support the measures in the Bill that seek to consolidate and strengthen the gains of auto-enrolment. We also welcome the continued progress towards the pensions dashboard, which will revolutionise the way people access their pension information and plan for their financial future.
For too long, the complexity and fragmentation of pension pots has left savers confused and disengaged, as we have heard. If you are anything like me, Madam Deputy Speaker, and are thinking more actively, dare I say it, about your retirement income—actually not like me; you are a lot younger. [Interruption.] Mr Speaker is like me; he is thinking about his pension. He will have spent countless hours trying to track down old pensions. The dashboard, however, will put power back into the hands of savers, and we will support measures in the Bill to improve its implementation and delivery.
I want to highlight the creation of larger megafunds in both the public and private sectors, as well as the consolidation of the local government pension scheme, as sensible and pragmatic steps. The LGPS is one of the largest pension schemes in the UK, as we have heard. It has 6.7 million members with a capital of £391 billion, yet it is highly fragmented into 86 locally administering authorities. There is a great deal of divergence in the funding positions of those councils, even among geographic neighbours. They range from Kensington and Chelsea, which has a scheme funding level of 207%, to neighbouring local authorities like Waltham Forest, Brent, and Havering, which were underfunded in the 2022 triennial review. While we support the concept of these megafunds, there are legitimate questions that I hope the Minister will address in Committee. We do not want to see constituents from one council area unwittingly funding shortfalls from neighbouring areas.
Like many people in this House, I first cut my teeth in politics as a councillor. Soon after being elected, I was appointed chairman of the finance committee on Forest of Dean district council. One of our tasks was to oversee the performance of our local pension fund. Let me assure the House: the Forest of Dean is a truly wonderful place, but it is not the City of London. Our finance committee was made up of dedicated local councillors, but when it came to scrutinising the pension fund, we were—to put it kindly—out of our depth. Meanwhile, the pension fund managers, with their packed diaries and weary expressions, seemed to treat a trip to rural Gloucestershire as a rare expedition to the outer reaches of the Earth.
One thing struck me about small local government pension funds: they simply did not work. But it is not just in local government, small funds are—albeit with some notable exceptions for bespoke funds—not fit for purpose in a global investment environment, as we heard from the Minister. The creation of larger funds will enable greater scale, better investment efficiency and, ultimately, better value for money for members. It will allow our pension funds to compete on the world stage, to invest more in UK infrastructure and to deliver higher returns for British savers.
There are other areas of the Bill that we support and welcome. The consolidation of small, fragmented pension pots is a long-overdue reform. Bringing those together will reduce administrative costs and prevent the erosion of savings through unnecessary fees. The introduction of a value-for-money framework is essential to ensure that savers are getting the best possible deal, not just on charges, but on investment performance and retirement outcomes. We also welcome the development of guided retirement products. We cannot simply leave savers on their own to navigate complex choices at retirement. Changes to provide greater support for those facing terminal illness will provide comfort to those in extremely challenging circumstances. These are all positive steps, and we will work constructively with the Government to ensure they are delivered effectively.
While there is much to welcome, there are also significant areas where the Bill falls short and areas that require attention if we are to deliver a pensions system that is truly fit for the future. Most fundamentally, the Bill does not address pensions adequacy. The uncomfortable truth is that millions of people in this country are simply not saving enough for their retirement. The amounts people are saving, even with auto-enrolment, are too low to deliver a decent standard of living in old age. Research by Pensions UK shows that more than 50% of savers will fail to meet the retirement income targets set by the 2005 pensions commission. Closing the gap between what people are saving and what they will need must be the pressing concern of this Government. We urgently need the second part of the pensions review to be fast-tracked, with a laser-like focus on pensions adequacy. We need a bold, ambitious plan to ensure that every worker in this country can look forward to a retirement free from poverty and insecurity.
Dame Meg Hillier
The hon. Gentleman is not wrong on this point. In fact, the Public Accounts Committee looked a number of years ago at enrolment in pension schemes and found that a lot of young people were not enrolling because of the cost of living, which his Government have to take responsibility for. There is no easy answer to this, but I would be interested to know if the Conservative party now have policies to resolve this problem.
Mark Garnier
It is an important question, and one that I will come to in due course. Watch this space for a fascinating manifesto in the run-up to the next general election—I am sure everybody looks forward to it.
John Glen
Further to the point made by the hon. Member for Hackney South and Shoreditch (Dame Meg Hillier), in every election we all say that we cherish the triple lock, and we seek to gain electoral advantage from it, but do we not need to come to a settled collective view in society about the combination of the triple lock and the inadequacy of auto-enrolment? The 8% contribution is not enough, as the hon. Gentleman said; we need to get to Australian levels. One speaks to the other. Unless we can take a holistic view of those two elements and the third pillar, we are not being truly honest about some of the trade-offs, given that we are dealing with £70 billion of tax relief at the moment.
Mark Garnier
The former City Minister raises a good and important point. He tries to bring together a number of related but quite disparate issues that we need to think carefully about. I would not want to make Conservative party policy on the hoof at the Dispatch Box, though the Minister urges me to do so. These are important points, and I think my right hon. Friend would understand that I would not want to rush into anything without careful, considered thought. These are issues on which he and I—and the Minister, of course—might get together.
As I said, we need a bold, ambitious plan to ensure that every worker in this country can look forward to a retirement free from poverty and insecurity. That means looking again at contribution rates, the role of employers and how we support those who are excluded from the system.
Another omission in the Bill is the failure to extend the benefits of auto-enrolment to the self-employed. There are over 4 million self-employed people in the UK—people who are driving our economy, creating jobs and taking risks. Too many of them face the prospect of old age in poverty, with little or no private pension provision. Research by the Institute for Fiscal Studies found that only 20% of self-employed workers earning over £10,000 a year save into a private pension. With the self-employed sector continuing to grow, the Bill misses an opportunity to come up with innovative solutions for this underserved group in the workplace.
Kirsty Blackman
On auto-enrolment, the other missing group is those aged under 22. Auto-enrolment seemed to be set up with the view that people would go to university before entering the jobs market, but that is not the case for many people. It is possible that starting auto-enrolment earlier would mean much more adequate pension pots for people, because the earlier they save, the bigger their pot grows by the time they reach retirement.
Mark Garnier
The hon. Member makes an important point. The earlier people start putting money in, the better. As a result of compound interest, over many years they will end up with a bigger pension pot, even if at the beginning the contribution is quite small; the amount aggregates over a long period. We will discuss that in Committee.
We are concerned about the lack of detail in the Bill. Too much is left to the discretion of regulators and to secondary legislation. Parliament deserves to have proper oversight of these reforms. From my discussions with the industry, it seems there is tentative support for many of the reforms in the Bill. However, the message that keeps coming back is that the devil will be in the detail, so I hope that as this Bill makes progress through the House, the Minister will be able to fill in more of the blanks—and I am sure he will; he is a diligent individual.
I move on to the most important thing that this Bill hopes to achieve: growth. We want to support Labour Members on the growth agenda, but too often they go about it in slightly the wrong way. Surpluses in defined-benefit pension schemes are a great example. Interest rates have risen post-covid, and that has pushed many schemes into surplus. In principle, we support greater flexibility when it comes to the extraction of these surpluses, but there need to be robust safeguards; that is certainly the message coming back from the industry.
Under the legislation, there is nothing to stop these surpluses being used for share buy-backs or dividend payments from the host employer, for instance. Neither of these outcomes necessarily help the Government’s growth agenda. We would welcome a strengthening of the Bill to prevent trustees from facing undue pressure from host employers to release funds for non-growth purposes. In addition, to provide stability, the Government should carefully consider whether low dependency, rather than buy-out levels, will future-proof the funds, so that they do not fall back into deficit.
Although the Government are keen to extract surpluses from the private sector, there is not the same gusto shown in the Bill when it comes to local government pensions. The House has discussed in detail the Chancellor’s fiscal rules, not least earlier today. Under the revised rules introduced by the Chancellor, the measure of public debt has shifted from public sector net debt to public sector net financial liabilities. As a consequence, the local government pension scheme’s record £45 billion surplus is now counted as an asset that offsets Government debt. This gives the Chancellor greater headroom to meet her fiscal targets—headroom that, dare I say it, is shrinking week by week. I do not wish to sound cynical, but perhaps that is the reason why the Bill is largely silent on better using these surpluses. This may be a convenient accounting trick for the Chancellor, but the surpluses could have been used, for instance, to give councils pension scheme payment holidays. The Government could make it easier to follow the example set by Kensington and Chelsea, which has suspended employer pension contributions for a year to fund support to victims and survivors of the 2017 Grenfell Tower tragedy. These revenue windfalls could be redirected towards a range of initiatives, from local growth opportunities such as business incubators to improving our high streets. We could even leave more money in council tax payers’ pockets.
I turn to the part of the Bill on which we have our most fundamental disagreement: the provisions on mandation. The Bill reserves the power to mandate pension funds to invest in Government priorities. That not only goes against trustees’ fiduciary duties—although I appreciate and recognise the point the Minister made earlier—but means potentially worse outcomes for savers. Pensions are not just numbers on a spreadsheet; they represent a lifetime of work, sacrifice, and hope for a secure future. The people who manage these funds and their trustees are under a legal duty to prioritise the financial wellbeing of savers. Their job is not to obey political whims, but to invest prudently, grow pension pots and uphold the trust placed in them by millions of ordinary people.
That fiduciary duty is not a technicality; it is the bedrock of confidence that the entire pension system rests on. These pension fund managers find the safest and best investments for our pensions, no matter where in the world they might be. If things go wrong, we can hold them to account. But if this reserve power becomes law, we have to ask the question: if investments go wrong, who carries the can? Will it be the pension fund manager and the trustees, or the Government, who did the mandation?
Likewise, while the reserve power in the Bill focuses on the defined-contribution market, the shift in emphasis has potentially profound impacts across the sector. UK pension funds, along with insurance companies, hold approximately 30% of the UK Government’s debt or gilt market. If mature defined-benefit schemes move from the gilt market to equities, that potentially has a profound impact on the Government’s debt management, or ability to manage debt, and therefore interest rates and mortgage rates. For that reason, we would welcome the Minister confirming whether any concerns have been raised by the Debt Management Office, and possibly the Bank of England. There is widespread opposition from across the industry to this power—I am approaching the end of my speech, you will be pleased to hear, Madam Deputy Speaker. There are better ways for the Government to deliver growth, such as changing obsolete rules and removing restrictions.
In the annuity market, solvency rules prevent insurers from owning equity in productive UK assets. Wind farms, for example, deliver stable returns through contracts for difference and contribute to the Government’s green agenda. They could be an ideal match for long-term annuity investments, while also delivering clean energy. Releasing the limits on the ability of insurers to fully deploy annuity capital has the potential to unlock as much as £700 billion by 2035, according to research by Aviva. Rather than imposing top-down mandates, we want the Government to maximise growth opportunities from our pension industry by turning over every stone and seeking out the unintended consequences of old regulations, not imposing new ones.
I will conclude, Madam Deputy Speaker, as you will be delighted to hear. [Interruption.] Yes, I have taken a lot of interventions. We reaffirm our commitment to working constructively with the Government. Stability in the markets is of paramount importance, and we recognise the need for a collaborative approach as the Bill progresses through the House. We will bring forward amendments where we believe improvements can be made, and we will engage in good faith with Ministers and officials to get the detail right.
We want to go with, not against, the grain of what the Government are seeking to achieve through this Bill, and I look forward to working with the Minister in the weeks and months ahead.
Madam Deputy Speaker (Ms Nusrat Ghani)
I call Chair of the Select Committee, Debbie Abrahams, after whom I will call Steve Darling.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
I want to make three points. First, we recognise that defined-contribution pension schemes have around £500 billion in assets under management. Around 20% of these assets are invested in the UK. That is down from 50% some 10 years ago. It is very welcome that the Government are focusing on this, so that we can ensure that these assets contribute to our growth.
The Committee received evidence in May from the Finance Innovation Lab, which told us that the UK has had the lowest level of business investment in the G7 for 24 of the last 30 years. The fundamental driver behind that is the fact that the financial system, including pension funds, does not support business investment as much as it should. That again emphasises the point that the Bill is very welcome. It should help us deal with that, particularly as it requires multi-employer DC schemes to have £25 billion in assets under management by 2030. That will give more schemes the advantage of economies of scale.
In a very welcome step, in the May 2025 Mansion House accord—I pay tribute to the Chancellor and her team for achieving this—there was a pledge from the 17 schemes that were part of that accord to invest 10% of their portfolios in assets that will boost the economy by 2030, with at least 5% of these portfolios being ring-fenced for the UK. This is expected to release £25 billion to the UK economy by 2030. None the less, the Bill includes a reserve power that the Government could use to mandate DC schemes to invest more in the UK economy. In evidence on 14 July, the Committee heard concerns that that would interfere with the fiduciary duty of trustees to prioritise investments that they judge will bring the best returns for scheme members.
In May, Yvonne Braun of the ABI told the Committee that it does not think the mandation is “desirable”. Instead, she said that the aim should be for it to be
“a rational choice—that the UK is an attractive environment for investing”.
The pensions industry wants the Government to concentrate on enabling the development of suitable assets for schemes to invest in, for example by improving the planning process and making the regulatory environment more predictable.
Rachel Croft, of the Association of Professional Pension Trustees, said:
“Forcing us to invest solely in the UK may run counter to that primary duty and focus, unless there is a pipeline of suitable investments in a format suitable for pension schemes to invest in. If that is the case, we will invest in them; if not, our primary duty will make us look elsewhere.”
Chris Curry, of the Pensions Policy Institute, thought that it was possible to create more UK investment opportunities and benefit members. He said:
“It still has to work in the interest of members—that is important—but if we are removing the barriers and making it easier to invest, and at the same time, providing more of a pipeline for investment and trying to package it so that it works well with how the pension system can operate, you are creating opportunity.”
He described mandation as “blunt” and “inflexible”, and said that it would be difficult to design a scheme that worked effectively in practice and did not give rise to unintended consequences. For example, he said that there would be a challenge in defining what counts as a UK investment. If the Government decided to mandate that schemes invested a particular percentage in the UK, how would the system respond to market movements that might temporarily reduce the percentage below that level? He wanted the Government to consider the unintended consequences of that. The liability-driven episode in September 2022 showed the potential risk of a lot of pension schemes effectively being asked to do the same thing at the same time.
The Bill includes a sunset clause preventing the use of the mandation power beyond 2035. Pensions UK wants to see that timeframe reduce, saying it should be just for the lifetime of the Parliament. It also wants to see the scope limited, so the investment mandation cannot be prescribed beyond the allocations voluntarily committed to in the Mansion House accord, in other words the 10% of default funds into private markets, of which 5% are in UK-based assets.
On fiduciary duties, Jesse Griffiths of the Finance Innovation Lab said that
“while the fiduciary duty should be paramount for the schemes, the Government has a different and broader mandate, and it needs to look at the collective interests of all pension savers as a whole…In particular, when you think about the deep inequality that is embedded in the system, the ONS estimates that the bottom half of the population holds just 1% of all pension assets and the top 10% holds almost two thirds. If you just focus on growing the financial returns, most people will not benefit from that. I would argue that a system that also supports a stronger economy and the green transition would benefit most people more than a system that is focused on higher returns.”
Will the Minister help us to understand the context for the criteria in which mandation powers might be used? What will be the success criteria, other than the 5% investment from this approach? Should the sunset clause, to prevent the use of this mandation power beyond 2035, be brought forward to the end of this Parliament, as I mentioned? Do the Government guarantee that mandations should go no further than the aims of the Mansion House accord?
Dame Meg Hillier
I share some of my hon. Friend’s concerns about mandation. I am happy that the Minister seems to be listening, and I hope that we will get some answers. I am interested in my hon. Friend’s thoughts about pulling forward the sunset clause. If these changes take place, they will have to happen over a long period of time, as trustees cannot just flip in and out of investments. She has set out the views of her witnesses, but does she have any views on pulling that date forward from 2035? I can see there are arguments both ways, but I am concerned that that might push trustees to make bad decisions.
Debbie Abrahams
I understand what my hon. Friend says. There is always a balance to be found with long-term financial decisions, but this is partly a political decision, so I point to the Pensions Minister to come up with a response.
Do the Government propose to consult on the design of the mandation power and how to mitigate against unintended consequences? Do the Government think that there is a case for changing the law on fiduciary duty to make clear that trustees can take account of wider issues, such as the impact of pension scheme investments on the economy and the environment? What would be the pros and cons of doing that?
Briefly, I would like to touch on the LGPS. I slightly disagree with some of the shadow Pensions Minister’s points. Since 2015, the 86 funds have been formed into eight groups. If the Pensions Minister is proposing to reduce that still further, will he set out the reasons behind that? What is the problem that merging them even further is trying to fix? Will he let me know about that in his closing remarks?
Finally, I would like to touch on the pre-1997 indexation, as the Pensions Minister knew that I would. At the end of March 2024, the Pension Protection Fund had a surplus of £13.2 billion. The PPF has taken steps to reduce the levy from £620 million in 2020 to £100 million in 2025. However, under current rules, if it made the decision to reduce the levy to zero, it would then be unable to increase it again. The 2022 departmental review by the Department for Work and Pensions recommended that the PPF and the DWP work together to introduce changes to the levy, so that the PPF would have more flexibility in reducing and increasing the levy level.
There is another issue, which the Pensions Minister will know about. PPF and financial assistance scheme members, particularly those in their later years, are really struggling. I came across a piece—I think it was in The Daily Telegraph—that said that one of the key supporters of the Pension Action Group and a FAS member, Jacquie Humphrey died a few days ago, just 11 weeks after the death of her husband. They were both employed by Dexion, which folded, and, like hundreds of others, refused to leave it there. Is there any comfort that we can provide? I understand and recognise what the Minister says about the PPF surplus being on the public sector’s balance sheet, but given that these people, who are in their 70s and 80s, are unable to live in dignity, what can we do to provide that for them in their later years?
Madam Deputy Speaker (Ms Nusrat Ghani)
Jennie seems to have captured the mood of the House, but I call the spokesperson for the Liberal Democrat party.
Steve Darling (Torbay) (LD)
As the Liberal Democrat spokesperson, I will not disappoint the Minister: I assure him that broadly agree with an awful lot in the Bill. However, as we touched on in our meeting earlier today, there are some areas where we have concerns that are similar to those expressed by the shadow Minister, the hon. Member for Wyre Forest (Mark Garnier), in more ways than one.
As Liberal Democrats, we want individuals to have confidence and be given the ability to invest in pension schemes that they know all about. We also want businesses to be supported to get their pensions out, supporting their employees. Elements of the Bill are about re-engineering to drive better outcomes for those who have pensions, which is to be very much welcomed, and about investment. We want to ensure that the individuals are front and centre of that support.
As others have said, we know that there are 12 million people who are not saving enough. In my own constituency of Torbay, some people have challenges just to get enough money to put bread on the table and cover their bills, and to save for a pension is beyond their wildest dreams. Reflecting on how we can drive that agenda of supporting people to make those changes around how they can save is absolutely essential.
My father was a haulage contractor—more commonly, a lorry driver—and self-employed. He saw the poverty that his father lived in, and in the 1980s he chose to save for a private pension, as Mrs Thatcher suggested. He put probably more than half of his income at times into savings, but because he was poorly advised, the stock market crashed and he was left with less money than he put in. That was horrific for him. Fortunately, the systems are now more protective of people who put into pensions, but that is a cautionary tale of what can go wrong. Ensuring that we support those individuals is absolutely essential.
As Liberal Democrats, we really welcome the development of larger pots, which will hopefully drive better outcomes for individuals. We know that in our more complex world of employment, many people will have small pots. While we welcome the idea of drawing these together in certain pots, we are not convinced that the pots should follow the pensioner rather than having certain pots that the Government would manage, but that is to be discussed elsewhere as part of the proposals before us.
The final area I will explore is investing in our economy, because growth is clearly absolutely essential. If our pension industry can be part of what oils the wheels of growth, that is to be welcomed. As Liberal Democrats, ensuring that we drive the social rented housing that is desperately needed and our high streets and see if those can be areas that benefit from investment is absolutely essential. However, we have concerns around mandation—colleagues have already raised this point, and I agree with them. The Minister has said positive things around mandation, and we look forward to unpicking that in Committee with him, but we believe that part of that is about ensuring transparency. As Liberal Democrats, we would like to ensure that there is clear evidence of how pensions are helping us to prepare for and tackle climate change in a positive way.
As Liberal Democrats, we want to ensure that the pensioner themselves is front and centre. We welcome the reorganisation, but driving that positive growth in our economy is absolutely essential as part of these proposals. We look forward to working with the Minister and his colleagues in getting this positive legislation through.
Sarah Edwards (Tamworth) (Lab)
I am delighted to speak in this debate. In a former life, I was a trustee of a pension scheme and sat on its investment sub-committee. In my new incarnation, I am the chair of the all-party parliamentary group on pensions and growth.
Pensions sound boring to many, and they sound far away to the young. It might be easier to engage people if we talk about income in retirement. People are not saving enough; it is typically hard to think about, and it is a scenario that could be 30 years away for some. Albert Einstein said:
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”
Paying into a pension pot from an early age exponentially increases the pension pot. That is one of the reasons why I am passionate about people understanding pensions—or, rather, their retirement income—and what we can do as a Government to boost them. The sooner we start, the wealthier we can all be in retirement.
The Pension Schemes Bill aims to strengthen pension investment by supporting around 20 million people who could benefit from the reforms through better outcomes and greater value in private sector pension schemes, increasing the amount available to them. I support the aim of the Bill to enable the reforms of investment management in the local government pension scheme in England and Wales. The aim of these reforms is to ensure that the management of LGPS investments delivers the full benefits of scale, including greater expertise, better value for money and improved resilience.
One of the key engines of growth will be unlocking the potential in our local authority pension funds to direct investment towards the UK and, in particular, local regional development. It is vital that investment reaches beyond those areas that fall under mayoral control. I therefore encourage the Minister, in taking the Bill forward, to foster emerging ideas on how local authority pension pools can help to review potential local investment opportunities to achieve the best outcomes.
Matt Rodda (Reading Central) (Lab)
My hon. Friend is making an excellent speech. She has convened a very powerful group—indeed, the former City Minister played an active part in its most recent meeting. Does she agree that this Bill is particularly important for our high streets and many other entrepreneurs in our local communities, to try to find new forms of investment to help them boost business?
Sarah Edwards
I thank my hon. Friend for that contribution. It is absolutely essential that we ensure that investment is getting to our high streets and towns, not just our cities, and that people see that change when they walk around.
I urge the Minister to take a supportive approach towards pools that are currently in transition, since they cannot necessarily reallocate assets while they are not members of the new pool that they are going to join. Their investment strategies are therefore effectively on hold until they join the new pool. I also ask him to liaise closely with colleagues in the Ministry of Housing, Communities and Local Government during the process of local government reorganisation. Whatever the new framework is for local government in Staffordshire, the pension fund will still be there. Local authority workers in my Tamworth constituency are part of the Staffordshire LGPS. It is one of eight authorities that are jointly own LGPS Central, which last year reported £29.9 billion in assets under management. The sheer scale of such funds is what underlines the link between pensions and growth.
The British growth partnership, announced in October 2024 by the Chancellor of the Exchequer and the Secretary of State for Business and Trade, sits alongside the British Business Bank, and its primary goal is to stimulate investment from UK pension funds into high-growth, innovative companies, thereby supporting the UK economy and creating new jobs. The partnership aims to raise hundreds of millions of pounds from institutional investors, including pension funds, to invest in UK venture capital. That will be supported by a cornerstone investment from the Government. Investments will be made on a long-term, fully commercial basis, independent of Government influence, leveraging the expertise and market access of the British Business Bank to identify potential companies. That will offer pension funds fruitful investment opportunities that deliver for their members as well as for the British economy.
By unlocking domestic investment, the partnership seeks to enhance the UK’s competitiveness in future industries, particularly in the technology and innovation sectors. I am fortunate that in my constituency I have an innovative technology company called PI-KEM, which has grown its business and workforce over the past 34 years. By linking pension funds to growth, it will be possible to have more such companies creating opportunities for skilled employment that sees Britain at the forefront of markets.
However, there is one area of caution: a trend towards Government finances being pooled into funds of which there is limited parliamentary oversight. While I understand and recognise the power of the larger funding pools, I must raise my concerns over how the funds will be reported on and how we will ensure that both taxpayer and pension member money is stewarded appropriately through the British growth partnership.
As the chair of the all-party parliamentary group on pensions and growth, it has been a great pleasure to meet with colleagues and hear from a variety of industry sectors about where they see the strengths and challenges in these proposals. I take this opportunity to thank the Minister for agreeing to attend a meeting of the APPG to assist us in gaining a greater understanding of the approach that he is taking in the next stages of the discussion of the Bill. I also take this opportunity to invite colleagues to come along and join us on Wednesday.
Chapter 2 in part 1 of the Bill reforms the regime governing trustee payments of surplus to employers and enables surplus to be paid out of more defined-benefit schemes. It is stated that trustee oversight and the regulatory framework will ensure the responsible and secure sharing of surplus funds.
The triennial revaluation of a scheme may determine that there is a deficit or a surplus, but despite being calculated by highly skilled actuaries, both are only a snapshot in time. For example, a scheme being evaluated this spring would have reflected the moment at which the US President’s decision to introduce tariffs hit asset prices. An alternative set of circumstances could have created an apparent surplus. I have been through this process as a trustee, and I have put on record—and must put on record again—my scepticism about whether the potential figure is the true one when it comes to the surplus. I ask the Minister to reassure my constituents, and pension scheme members in general, that he recognises that the interests of scheme members must always be the priority. It would also be welcome to understand how “surplus” is to be defined and calculated, as I have received at least four different versions by canvassing the pensions industry.
In chapter 4 of part 2, provision is made for providers of automatic enrolment and pension schemes regulated by the Financial Conduct Authority to change the way in which a pension pot is invested, to transfer a pot to a different pension scheme with the same provider, or to transfer a pot to another provider without individual member consent where it would be in the best interests of members, taken as a whole. I welcome the fact that the Bill states that a range of safeguards and procedures must be followed before an override or transfer can occur, as sadly, it is often difficult to engage members in the details of their pension. That is particularly true where a number of small pots are accrued early in a working life, which has become the norm in many communities with the rise of insecure work.
As such, I also welcome the efforts that this Government are making to create fair and secure work, because when that is coupled with a well-funded pension, working people are protected not just at work but when they sit on their retirement beach, thinking about how their working career contributed to that welcome rest. Will the Minister ensure that the safeguards are clear and given real prominence in discussion? There is a real need for such fallback powers, but there also needs to be a positive narrative about encouraging engagement.
Chapter 1 of part 2 confers powers on the Secretary of State to make regulations to evaluate and promote the provision of value for money by pension schemes. It will enable defined-contribution occupational schemes to be compared based on the value they provide, rather than just their cost. There is an argument that too high a focus on cost—management fees, for example—has had a detrimental effect on investment by pension funds. This stems from an approach that says that if the employer chooses a fund simply based on cost, the fund may look to minimise that cost, and may achieve that through the tracker funds that have come to characterise much of the market. That is potentially why little investment has occurred in the UK so far. Therefore, by pushing forward on the value for money agenda, the Minister can encourage more investment in the UK, strengthen competition in the sector, and ultimately offer better returns to members.
Chapter 3 of part 2 will require multi-employer DC pension schemes to participate in a default fund of at least £25 billion if they are to be used for automatic enrolment purposes. The aim is to encourage smaller funds to merge into larger ones that are more likely to invest in the productive finances of the UK. I suggest to the Minister that there are two issues here, the first of which relates to the market for assets. In any market, the price of a good rises if there is a shortage of that good. In this instance, the Government are being innovative and asking the pensions industry to invest in productive assets, which can include infrastructure and regeneration schemes that are vital to the places where people live. It is therefore vital that we balance the pace and scale of the development of new profitable investment opportunities with the use of any regulations to push investors in a particular direction.
To use an analogy, the Tamworth is a rare breed of pig. Unless an appropriate opportunity were available to expand supply first, any ministerial direction to buy stock of the Tamworth pig would just result in a spike in its price and poor returns for investors.
Matt Rodda
My hon. Friend is making a wonderful speech. May I also say that there is a wonderful pig from Berkshire as well, which has distinctive markings? However, moving away from animals, perhaps my hon. Friend wishes to say a little more about the success of the type of legislation she describes in Canada and Australia. It has delivered real value in those countries’ economies and real value for pension savers.
Sarah Edwards
Absolutely. There have been some really interesting changes arising from those countries’ reviews of their pensions markets, and I will be very interested to hear what the Minister has to say about what he has learned from those changes. Certainly, in the meetings that we have attended, we have learned a lot about some of the various initiatives that are driving real growth and real change in those countries.
I urge the Minister to focus on the process of expanding the pipeline of suitable projects, while building on the Chancellor’s success—and, I am sure, his own—in creating a voluntary framework for industry and Government through the Mansion House accord.
Dame Meg Hillier
My hon. Friend has referred to good opportunities. I think it was Islington council’s pension scheme that invested in social housing in its area. That gives a good return because, by and large, people pay their rent—it is a steady return over a long period of time. Given the desperate need for housing in this country, does my hon. Friend agree that that would be a real opportunity for these funds as they get bigger?
Sarah Edwards
I absolutely agree. It is incredibly important that we make sure those investments are being driven towards the things that are going to change lives, and building houses will change lives. The other thing that my hon. Friend will be very aware of is the fact that the state pension is calculated on the basis that people are going to own a house in retirement. As we know, we are heading to a point at which many people will not own a home and their income in retirement may therefore not be enough, so we need to be alive to that situation.
In conclusion, this Bill offers a great deal to my constituents, with the prospect of better pensions through investing for the future so that living standards are higher. For younger generations, there is a real need for investment now in the long-term future of the British economy, so that they can eventually retire with an appropriate income to sustain them. There is also a need to channel that investment beyond our major cities and mayoral authorities to our shire districts, in order to deliver the change that lies at the heart of this Government’s mandate, and the Bill offers an opportunity to do that. I believe that it offers lots of positive opportunities, but as always there will be challenges. Like a good pension fund trustee, I ask the Minister to take the Bill forward with a listening ear as he seeks to link pensions and growth for the long-term benefit of us all.
Kit Malthouse (North West Hampshire) (Con)
I congratulate the hon. Member for Tamworth (Sarah Edwards) on her speech. I am afraid, however, that you, Madam Deputy Speaker, will have to forgive me for puncturing the air of bonhomie and positivity about the Bill, because I am really not content with it.
Frankly, I feel it is my duty as an Opposition Back Bencher to be suspicious of consensus, particularly when the City of London is conspiring with a Labour Government to muck about with our pensions. We have seen that before. I am old enough to remember Gordon Brown’s so-called reforms in 1997, which struck a hammer blow to the British people’s pension funds. You will remember, Madam Deputy Speaker, that the late, great Frank Field—who was then the Pensions Minister—later called those changes a spectacular mistake that struck a hammer blow to the solvency of British pension funds and drove a dagger deep into the heart of the defined-benefit landscape, resulting in its extinction.
As such, I am afraid that must rise to raise some very significant reservations about this bit of legislation—and not just its technical execution, but the political instinct that it betrays. While the Bill is wrapped in the warm words of reform and modernisation, what it actually does is centralise control, unsettle previously settled rights, and risk disenfranchising precisely those people whom it purports to help.
To begin with the Bill’s technical aspects, I reiterate my point of order. I am a member of the local government pension scheme through my membership of the London Pension Funds Authority, and I am uniquely affected by this legislation, as are 6.5 million other former and current public sector workers. My view is that, under this Bill, those people’s rights are being denied, and that through the hybrid legislation process, they or their representatives should have the right to petition the Bill Committee and explain why they feel they are affected by investment pooling, the changes to fiduciary delegation and the asset consolidation. They are uniquely affected by this Bill, which strikes profoundly at the governance of the pension funds they have paid into in a way that it does not for other pension funds in this country. That is the definition of hybridity—if that is a word—so if we are going to stick to the rules in this House, we really should stick to them. I look forward to getting the letter that you promised me, Madam Deputy Speaker, and I know that you have asked me not to refer to procedure in the other place, but this is not the only Chamber that will be looking at this legislation.
The hon. Member for Oldham East and Saddleworth (Debbie Abrahams), who is just about to leave—I am sorry to detain her but will be brief—asked the Minister what the problem is. I repeat her question, but in relation to the local government pension scheme, I also ask what it has to do with him. It is my money, not his, and it is for scheme members to make decisions about how they wish their money to be used. It is not taxpayers’ money; it is my money. It is a defined-contribution and benefit scheme, and we have all paid into it. He is the second Minister in the space of 18 months to try to interfere with the local government pension scheme, and I stood in this Chamber and opposed Michael Gove, now Lord Gove in the other place, when he attempted to manipulate the local government pension scheme for political reasons. I urge the Minister to think twice before he does so.
Secondly, I believe that this Bill is conceptually flawed. If we are being generous—[Interruption.] By all means, the hon. Member for Oldham East and Saddleworth is free to go—I will not be mentioning her again. She was hesitantly rising to leave. If I am being generous, the ambition behind this Bill is to unlock capital that can be invested for the purposes of growth, but the methods it proposes are chillingly dirigiste and make the dangerous assumption that Whitehall knows best and that central direction by the Government can outperform the dispersed judgment of hundreds of experienced trustees managing diverse funds in varied contexts. Essentially, with this Bill the Minister is turning the pension fund industry into an element of Government procurement by the back door.
There are three further points that I want to put on the radar on Second Reading. I understand that the Bill will go through, but I hope the Minister will take them into account. First, it is simply not true that megafunds perform better. There is plenty of academic and empirical evidence that the picture is much more mixed. Often, smaller funds with better governance and a more focused investment strategy can perform better. These supertanker monopoly funds lose agility, lack accountability and become distant from pensioners and members of the fund. Their investment discretion and their ability to move quickly on investment decisions becomes sclerotic and bureaucratic. In particular, it is true that these megafunds specifically underperform when they invest in exactly the kind of illiquid assets that the Government are hoping to push them into: infrastructure and private equity. I urge the Government and the Minister please to examine carefully the evidence from the United States and elsewhere that shows that these very large funds do not necessarily produce better returns for investors. They may well be able to reduce costs because of scale, but I am afraid that the evidence is just not there on fundamental investment returns.
My second point is on the danger of politicisation. We have seen elsewhere in the world where pension funds have been pushed into the Government’s priorities to their own detriment. In Canada, large pension funds have come under significant Government pressure to invest in state infrastructure. In France, pension fund surpluses have been directed into Government bond-buying programmes effectively against their will. Once those assets become controlled and directed into state-favoured investment vehicles, which is what the Government are proposing through this Bill, the temptation for Ministers—not necessarily this Minister, but future Ministers—is to go further and push funds into politically convenient infrastructure projects that may prove to be financially disastrous. If that power had been available to the political team that decided to instigate the frankly financially disastrous HS2, and my pension fund had been put in it, where would I be now? I urge the Minister to think carefully about the responsibility for my retirement and my future. By me, I am referring to myself as a member of the local government pension fund. I am everyman for these purposes.
I am afraid that essentially what has happened in France and in Canada, and what may happen under this legislation in the UK, is that the pension fund system effectively becomes a tool of Government fiscal policy. Effectively, absent capital spending available directly from the taxpayer, the Government direct capital spending from pension funds—from private money—and plug holes that they create by writing cheques that they cannot fulfil. I would be interested in the Minister’s response to that.
Lincoln Jopp
I was just googling “dirigiste” and my right hon. Friend’s everyman quote. Will he comment on the fact that OMERS, which he would probably agree is one of these megafunds that he thinks are slow and unwieldy and invest in infrastructure and illiquids, returned a 7.1% net return over the last 10 years and the London Pensions Fund Authority returned a 7% return over the last 10 years?
Kit Malthouse
As I said, the evidence about performance across the population of funds is mixed. Some smaller funds do extremely well, because they have strong governance and a focused and nimble investment strategy. Some megafunds do reasonably well, because they can spread their risk across a variety of asset classes, but it is not a given that a big fund will perform better than a smaller fund. In fact, in certain circumstances smaller funds, because they have better accountability and can have a more focused investment strategy, may well perform better.
Frankly, and this speaks to my hon. Friend’s point, it is for me as a member of the pension fund to decide what I want to do, performance or otherwise, because it is my money. Given that I have contracted with this pension fund under circumstances made clear to me when I contracted with it as part of my employment or otherwise, it is not necessarily for the Government to steam in and tell me what I should or should not do with my own money. That means I carry a certain element of risk—absolutely—but unless we are going full-throated for the total financial infantilisation of the British people, I cannot see that we have any other way to preserve our financial freedom and autonomy.
Debbie Abrahams
Does the right hon. Member accept that he might be atypical among scheme members?
Kit Malthouse
That may well be true, but that is a different question. There is a question about financial education and the ability of large numbers of our fellow citizens to understand these financial complexities. We have a large and professional independent financial adviser community, and all pension funds are required to have pension advisers who can speak to members, tell them what is going on and explain the decisions before them. I do think that over the years, such steps have disenfranchised the British people from their financial decisions, yet we hold them responsible for their debts, their mortgages and their future. There is a larger question for us in this House about how much we have subtracted from the autonomy of the British people, and therefore how much blame attaches to us as politicians when their financial circumstances are not what they expect.
Torsten Bell
The right hon. Member is giving a lucid speech, as he always does—he speaks very well—but I am failing to understand exactly the point he is making. He is talking about a local government pension scheme, which is guaranteeing him an income in retirement, as if it is a defined-contribution scheme where he is the one at risk from changes in the investment performance. It is local taxpayers with their employer contribution who ultimately bear the risk in the scheme he is talking about. It is our job to make sure that those taxpayers have the best possible chance of not having bad returns, leading to bad outcomes for them. He is not at risk in the way he is talking about.
Kit Malthouse
Yes, I have. I paid contributions through my employment at City Hall, as did my employer. Admittedly, it was a scheme based on a defined benefit, rather than a defined contribution, but that was the deal done with me on a settled contract, saying that this was what I would be provided for from my contribution. Every year, I review my pension benefit forecast. I am consulted by the fund about how it should conduct its affairs. I am asked to turn up to my pensioners’ conference to discuss with trustees how they are looking after my future. The point is that the Government are steaming in with absolutely no consultation with me as a pensioner and I have no right to be represented, although I am uniquely affected, beyond other pension schemes. I consider that to be high-handed and, as the hon. Member for Oldham East and Saddleworth said, to be solving a problem that does not exist.
My third point was also raised by my hon. Friend the Member for Wyre Forest (Mark Garnier): who carries the can? What happens when the Minister tells my private pension scheme or the parliamentary pension scheme that it must invest in, for instance, HS2 and it turns out to be a disaster? What happens when whichever ministerial pet project rises to the top of the priority list for pension allocation—what rough beast, its hour come round at last, slouches towards Whitehall to get its finance—and it all goes horribly wrong? I am sorry to quote Yeats to the Minister, but who will pay when that happens? When there is a deficit in defined-contribution pension funds that have been so directed by the Minister, who will pay for that deficit?
Kit Malthouse
I have already given way to the Minister. He said that the Bill contained an opt-out for pension funds, but that is not strictly accurate. It does not create an opt-out for trustees; it creates an opportunity for them to request the ability to opt out from the regulator, with whom the discretion to opt out lies. It also reverses the burden of proof. Even if it is on their own judgment, the trustees must prove, empirically, that investing as the Minister so directs will be to the detriment of their fund. That is not a true opt-out. It is not at the discretion of the trustees. All they can do is request, and all they can do is try to offer whatever evidence they may have. We must reflect on the fact that an awful lot of investment decisions are made by trustees on their judgment—yes, on advice, but on their judgment—and that is a very hard thing to disprove.
I am afraid I feel that the Bill is bulldozing into an area of highly sensitive financial structure, and is not taking care of the interests of those whom it purports to protect. It is reclassifying risk, it is recentralising power, and it is rewriting contracts that have hitherto been extant for many years. It is too important to my future, and the future of millions of pensioners, for us to rush into this consensus-driven Bill without proper examination in Committee, with pensioners and pension funds themselves able to petition, as they should be, under a hybrid Bill structure.
Callum Anderson (Buckingham and Bletchley) (Lab)
I am probably a parliamentary oddity, given that I have been looking forward hugely to rising to support the Bill—and what luck to follow such a colourful and interesting speech from the right hon. Member for North West Hampshire (Kit Malthouse).
I believe that this landmark piece of legislation, which builds on the progress made by the last Administration, has the potential to fundamentally reshape the trajectory of British capitalism by addressing one of the most important long-term challenges facing our country, namely how we can unlock and unleash the full potential of British savings to support growth and prosperity here at home. It is a challenge that we must overcome if we are to tackle a number of deep-rooted structural weaknesses in our economy: low productivity, low business investment and regional inequalities, as well as the financial insecurity that pervades the lives of too many of our older citizens, especially those who do not own their homes.
Before I go any further, I must pay tribute to my hon. Friend the Minister—the Bill bears the hallmarks of his serious and determined leadership—and also commend my hon. Friend the Member for Tamworth (Sarah Edwards) for her very interesting speech.
The Bill seeks to address the lack of alignment between our nation’s vast pool of domestic savings and the long-term investment needs of our economy. Over recent decades, that growing misalignment has become all too evident in communities across the United Kingdom. During that time, our domestic pension funds, which now amount to about £.3 trillion, have steadily retreated from investment in the UK, although the trend has not been replicated in other comparable developed economies. Despite taxpayer support amounting to more than £60 billion a year—or £70 billion, according to the right hon. Member for Salisbury (John Glen)—too little capital is finding its way into British companies, infrastructure and innovation.
Data from the Capital Markets Industry Taskforce—I must disclose the fact that I once worked for one of its member firms before entering this place—lays bare the scale of the problem. The data focuses primarily on public equity markets, but when we look at the largest pension schemes and funds in other countries and compare the size of their total equity allocations relative to their domestic equity markets, we see that Canada’s pensions are 2.5 times overweighting their home market, while France’s are nine times overweight, Italy’s 10 times overweight, Australia’s 27 times overweight, and South Korea’s are 30 times overweight. The UK is, massively, an international anomaly. Our domestic pension funds are underweighting our equity market by about 40%. That, I think, represents a structural weakness, with direct consequences for the global competitiveness of our economy, the vitality of our industries and, ultimately, our national economic resilience. If we are unwilling to invest in ourselves, we hold back our growth prospects.
The UK has long needed catalysts for a modern economic renaissance. The Government have taken important first steps through their industrial and infrastructure strategies, the artificial intelligence opportunities action plan and the reforms of our planning system, but the common ingredient that is required to ensure their success is a reliable source of long-term capital. Even a modest rebalancing of that £3 trillion could unlock billions in investment for domestic growth. In real currency that our constituents can understand, that means investment in digital, physical and social infrastructure, and it means greater opportunities for entrepreneurs to not only start up businesses but scale them into something globally consequential, providing better jobs and higher incomes for families throughout the country.
These investments are not just good for local economies. If we get the broader fundamentals right, they can also deliver stronger returns for tomorrow’s growing cohort of retirees, so the Government are right to propose tackling fragmentation across the UK pensions system. In particular, the private defined-contribution market and the local government pension scheme remain too fragmented. I must gently disagree with the right hon. Member for North West Hampshire: I think that there are too many small, sub-scale schemes that have not only driven up costs and created market inefficiencies, but resulted overall in suboptimal investment outcomes. I think that larger funds can manage risk better, and can invest in opportunities that can deliver higher returns for savers.
Kit Malthouse
I do not dispute the fact that there are too many small funds that are suboptimal; my question is whether it should be the Government who correct that. If, for example, I am a member of a small suboptimal pension fund and the Government, through the Bill, consolidate it with another pension fund, and it turns out that this reduces my return, who carries the can?
Callum Anderson
As I have said, I think that larger funds can manage risk better and deliver better outcomes for savers, which means that they can take greater ownership of how they spend their retirement years. I also think that the £25 billion threshold for megafunds in the defined-contribution market is the right level to deliver the objective. Other jurisdictions, especially Australia, Canada, and the Netherlands, have demonstrated that scale drives better governance, lower fees and stronger returns.
I welcome consolidation and the path towards the professionalisation of the local government pension scheme. I disclose that before I entered this place, I chaired a local authority pension fund, so I know at first hand the potential of pooling, and share many experiences of pension fund meetings with the shadow Minister. I fully acknowledge that there will be resistance to pooling in some quarters.
Matt Rodda
My hon. Friend is making an excellent speech. Does he agree that there is a growing consensus in the pensions industry? Indeed, some of the trade bodies have been heavily involved in promoting the idea of consolidation for some time, and perhaps what he is describing is a growing body of opinion in the pensions industry.
Callum Anderson
My hon. Friend is absolutely right. Stakeholders and firms that I have spoken to—in the local government pension sector, the private sector and the City of London—are unanimous that scale is very much an economic imperative. Have the Government considered what role fiscal incentives can play in helping to accelerate the consolidation of private DC funds, and whether there is scope to reduce the number of LGPS pools in the year ahead?
I particularly welcome the Bill’s proposal for a comprehensive value-for-money framework to guide DC consolidation, which my hon. Friend the Member for Tamworth (Sarah Edwards) mentioned. This correctly tackles head-on the trustee cost mindset, which too often prioritises the cheapest over the most appropriate asset allocation. That approach has frequently been tried and tested, and it delivers poorer returns for savers and missed opportunities for the wider economy, so I very much hope that DC consolidation can be implemented as soon as possible.
Finally, I want to address the issue of mandation, which, to be honest, probably warrants a debate all by itself. I appreciate the concerns that have been raised by Members from across the House, and by people in the investment industry. My hon. Friend the Member for Hackney South and Shoreditch (Dame Meg Hillier) referred to the parliamentary fund, and I note non-facetiously that the parliamentary fund, of which we are all ultimately beneficiaries, allocates barely 1% of its assets to UK companies.
Alex Brewer (North East Hampshire) (LD)
In Hampshire, we have a super-ageing population, so pension and post-retirement financial concerns are frequently raised in my North East Hampshire constituency casework. One of my constituents wrote to me to say:
“I want my pension to be put to work delivering sustainable, long-term growth and prosperity that allows every community in the UK to thrive.”
This Bill should require full transparency from pension schemes to empower people to support sustainable, long-term growth in their communities. Does the hon. Member agree that requiring transparency would be the most effective way of incentivising investment?
Callum Anderson
In all aspects of our financial system and our financial markets, and when it comes to either public activities or private markets, transparency is very much the best way to derive the most effective outcomes for those who benefit from pension schemes.
Initiatives such as the Mansion House accord, which has been referred to a number of times in this debate, have been welcome steps. When it comes to asset allocation, private sector leadership should always be preferable where possible, but we need to be candid about the fact that the challenge we face in the UK is stark and immediate. I now consider it necessary for the Government to signal to the markets that they will not ignore the reality that allocations by UK institutions to UK assets have fallen sharply over my lifetime, and certainly over the last 40 or 50 years, and that they are prepared to exercise a degree of agency, if required.
Ideally, any reserve power will not be required. If the Government succeed with their broader economic strategy, there will be a wealth of investable opportunities that will attract capital without the need for compulsion. Although the Government will need to exercise any reserve power in the most judicious and careful way, and in close consultation with the industry, we simply cannot stand by and allow our domestic markets to be hollowed out. I understand that not everyone is in favour of the state intervening in markets, and I am sure that the Minister, who worked at the Treasury, will remember that not everyone in the City wanted the Government to step in and rescue Lloyds Banking Group or the Royal Bank of Scotland, but sometimes the Government have to act decisively in the country’s long-term economic interests.
The Bill is a welcome and necessary step towards answering the question of how we inject greater confidence into our companies, our markets and our economy, while also providing people with a safe and secure retirement. That is why I am pleased to support it tonight.
Kirsty Blackman (Aberdeen North) (SNP)
I start with an apology to the Minister, because I had a bit of a giggle when the timeline for pensions dashboards was mentioned. I have been here quite a long time, and I feel like we have been talking about pensions dashboards for that entire time. It has been suggested that they are just around the corner for most of the last 10 years. It feels like this is something that we rehash on a regular basis. It would be great if they really were just around the corner; I look forward to seeing them.
The right hon. Member for North West Hampshire (Kit Malthouse) will not be surprised to hear that our political ideologies are slightly different when it comes to interventionism and what the Government should or should not do. It is completely acceptable for the Government to give some direction on the largest assets, but I am specifically not talking about the LGPS, because it does not exist in Scotland. That part of the Bill does not apply to my constituents, so I will not touch too much on that.
Kit Malthouse
I understand where the hon. Lady is coming from. She is keen on Government intervention in our pensions, but does she recognise that that represents a fairly significant transfer of investment risk, and that the Government should underwrite that risk in all fairness to pensioners, who may lose money as a result?
Kirsty Blackman
Auto-enrolment was a fairly substantial intervention by the Government in pensions. Since 1997, pensions have had to increase in line with inflation, and that was an intervention by the Government. There has been a long trail of interventions by the Government in how assets are managed and where they are held, but pension trustees are still required to get a return. I agree with the right hon. Gentleman about specific projects, and I would be particularly concerned if we were looking at specific projects, but the mandation relates to UK assets, and the funds in which they could be invested.
I would love to see much more investment of pension funds in social housing, for example, where the trustees can get a pretty great return, but they will still have a fiduciary duty and responsibility. For defined-benefit schemes, the member will always get what they have been promised they will get. No matter how the fund is managed, they have a defined benefit from the scheme, unlike in a defined-contribution scheme, where it depends on the size of the pot as it grows—but I am going to carry on, because I have a lot to cover that is not to do with mandation, and as I say, the LGPS does not apply in Scotland.
On value for money, I think the Bill is good, because comparing pension schemes is difficult. Comparing any financial schemes is difficult because they are all laid out in different ways and the fees are calculated in different ways, so it does not make sense to most people. Some of stuff on requiring the publication of information on value for money in certain ways is important, and the surveys are also important. I have slight concerns about the chapter on value for money because, in comparison with the small pots consolidation section, there is no requirement to publish the regulations in draft before they actually become regulations. There is a requirement for consultation, as there is in both those chapters, but not a requirement for publication in draft. I think it is important for those to be published, so the widest possible range of views can come forward, because value for money is so important for such a wide range of people, whereas some of the other stuff in the Bill is much more technical and will have an impact on far fewer people. The point about publishing the regulations in draft is important.
I am disappointed that the Government have not made more moves on adequacy, but given where we are in the cost of living crisis, I can understand why it may be difficult to get cross-party political consensus on the creation of adequacy provisions. This Bill could have taken more of a look at pensions in general, rather than being about pensions specifically, because in a lot of ways the Bill is seeking to do is improve every individual’s pension pot’s potential for growth. That is an admirable aim, but some of the larger picture could have been included—for example, in relation to auto-enrolment, the under-22s and people earning small amounts of money who do not qualify.
The right hon. Member for Salisbury (John Glen) alluded to the mid-life MOT, which I have previously shouted about. I agree that people should be sent an appointment for a mid-life MOT, in the same way as they are asked to get their bowel cancer screening sent through the post. It should be exactly the same with a mid-life MOT, which is so important, but so many people duck and dive about it. Millennials are coming up to reaching this point, but millennials are a generation particularly averse to thinking about retirement, because we do not think it will happen to us. We think we will die before we get there, because there is an incredible amount of cynicism among millennials. We tend to avoid thinking about it because we are not going to reach that point, so forcing millennials—in the nicest possible way—by giving them such an appointment and making it for them means they are much more likely to undertake it.
On guided retirement, again I think the Bill tackles the issue pretty well by ensuring that people have more information. I am particularly concerned about the people who draw down the 25% tax-free sum of money, and then do not have a plan for the rest of it. How many of them have just thought about the 25%, and have not thought about the rest of it, or about how complicated and unpredictable annuities can be depending on the year? I am thinking about somebody I know who does not smoke or drink and runs 10 km a couple of times a week, but they will get a smaller annuity than somebody who does the opposite. Do people know how unpredictable it is—how much they will get and the fact that they cannot tell from what the pot looks like the actual outcome to cover their living expenses? Any kind of understanding people can be given about that is really important. I do still have concerns about some of the issues with freedoms and how financially disadvantageous it can be for a significant number of people.
I agree with some of the stuff on the consolidation of small pots. I have a concern about the fact that the Secretary of State or the Minister can make changes to the definition of small pots by looking at some consultation and then bringing a statutory instrument to the House. I would appreciate some clarification, and agreement that the Minister will consult pretty widely before taking a decision about changing the definition of small pots in secondary legislation.
On surplus release, I would disagree with a chunk of the Conservative Members who would use it for slightly different things. I press the Minister on the balance between the economic growth mission and what employees will get as a result of surplus release. I am pleased to hear that trustees will have some flexibility, but I am concerned that that creates a system with a number of tiers, because it depends on how passionate the trustees are about helping the employees or helping the Government’s growth mission. I would ask for some guidance from the Government about what they expect. When they are making that deal with employers, they have to agree with the employer where that money will go—how much of the money will go to increasing the pension pots and how much into people’s salaries. There will need to be a significant amount of guidance for trustees on where the Government expect money to go. It would be appreciated if we could be involved in the creation of that guidance, or at least be consulted on what it is supposed to look like.
On megafunds, there is a bit of a “wait and see” on what megafunds, both master trusts and the superfunds, will look like and how they will pan out. I can understand looking at other places the Government consider to be successful in how pension funds are managed and the very large investments that could be created as a result of huge funds. I appreciate that overheads can be reduced and that funds can be run more efficiently as a result, and that investments can be made into very large, long-term patient capital projects if the fund is significant.
My specific question on superfunds is about new entrants to the market. The Bill states that there is an ability for transitions. Organisations likely to meet superfund status at some point, given a certain amount of time, will be given slack until they can reach that status, which is utterly sensible. But then it talks about new entrants coming in to become a superfund. There is a pathway and the ability to get approval to do that, but only if they are innovative. I am slightly concerned about what innovative means, because it is not defined—I think it will be defined in secondary legislation. Why should they be innovative? Surely, if a new entrant is excellent, that should be enough? Innovative concerns me. I do not really understand what it means, or why it is in the rules for new entrants. Anything the Government can say to explain what they think that is supposed to mean, and what they intend it to mean in the secondary legislation, would be helpful.
On the whole, the SNP is cautiously optimistic about the Bill. We believe there need to be some changes and we have specific questions in various areas, such as: on the rationale in relation to mandating; on the rules on value for money and how they will impact individuals; and on the consolidation of small pots and how they will ensure individuals have better outcomes. It is not in the Bill, but ensuring the pension dashboard happens so that people can see the consolidation of small pots happening in real time would be incredibly helpful. The best outcome we can get is for everybody to have an adequate pension when they reach retirement. We will not get that if people cannot see and cannot understand what they have in their pensions and if those small pots are not consolidated.
Several hon. Members rose—
Madam Deputy Speaker (Caroline Nokes)
Order. Before I call the next speaker, I just want to be clear that it will be about an hour before the wind-ups. Nine Members are bobbing, so perhaps you can all reflect on that in your contributions so that I do not have to put on a time limit.
John Grady (Glasgow East) (Lab)
I rise to speak in favour of the Bill. On a policy basis, the Bill addresses a number of very important challenges.
The first is ensuring that the pension system delivers good outcomes for the millions of pension savers in Britain. That is absolutely critical. In my lifetime, the risk of pension savings has shifted from the employer to the employee—in other words, to our constituents. At the heart of the reforms is one essential fact: investment in a diverse set of assets leads to better returns and better outcomes than investment in a narrow set of assets. We need to move away from a focus on cost in the industry and on to a focus on overall value and the outcomes that savers get, so they have comfortable retirements. I am determined that the working people in Glasgow East have comfortable retirements and are properly rewarded for their hard work. Therefore, the Bill’s objective of ensuring that savers in Glasgow East and across the United Kingdom ultimately have access to a wider pool of investments, which have historically been restricted, is a good outcome and a good policy.
The second challenge the Bill seeks to address is growth. People in Glasgow East are very ambitious, as I know they are in Aberdeen North and in Hampshire. As I knocked on doors ahead of last year’s election, people would say to me, “Britain has lost its way.” And many people said that they felt their children would be better off working abroad, or that there were more opportunities for their children abroad. That is the challenge the Bill plays a part in addressing. We do not invest enough in our productive capacity so we have lower, sclerotic economic growth.
Pension savings are an essential source of finance for British industry and infrastructure. In that regard, the Bill includes, in chapter 3 of part 2, something that seems to be causing anxiety: the backstop mandation of investment by defined-contribution pension funds into private asset classes linked to the United Kingdom. Private non-listed shares and debt are now central to investment in a way that they were not when I started off as a junior lawyer many years ago. Growth companies in areas such as medicine, AI, technology and, of course, space remain in private hands for much longer, and list on public markets much later, if at all. The mandation power must be viewed in that context. If UK pension funds do not invest in those classes of domestic assets, working people may miss out on significant returns, and we risk losing the opportunity of growth and of developing the great innovations from our fantastic universities, including the University of Strathclyde.
Kit Malthouse
The hon. Gentleman is making a good point, but does he accept that illiquid investments, by their very nature, tend to be more volatile, and that from a risk-adjusted point of view they therefore represent much higher risk for investors? He mentioned investment in life sciences companies; he will be aware of the collapse a couple of years ago of the fund led by Neil Woodford, which was a significant investor in illiquid private sector life sciences companies and, because of that illiquidity, collapsed. The point is that if we are mandated to do that stuff—I ask the same question as I asked the Minister—who will pay? Who carries the can?
John Grady
I hope the right hon. Gentleman would accept that diversification is critical here. Of course, illiquid private assets are not something that one holds for a couple of years and then sells, but the funds are designed to be large enough to bear the risk from diversification. That is the critical point.
Pension funds are a statutory arrangement, with significant taxation and other legal benefits. That creates a business opportunity for pension providers—and quite right, too. Against that background, it is right that the Government review whether, under the existing arrangements, savers are getting a fair return from that special statutory and legal arrangement. Given the tax breaks, it is not unreasonable to address the question of whether there is sufficient investment in the United Kingdom.
Let me turn to our attitude to risk in the UK, on which the success of pension arrangements turns, as does our desire for more economic growth. We will not get more economic growth unless we take more reasonable risks, as the Chancellor of the Exchequer and others have made clear. It is essential for banks and fund managers to consider whether they take enough risk.
The chief executive of the National Wealth Fund, John Flint, made the point last Tuesday at the Treasury Committee, when he said,
“I would encourage the stewards of private capital to go back and challenge themselves on their risk appetite…the country’s growth outcomes are, for me, largely consistent with the country’s risk appetite generally.”
I venture to say that our great fund managers and banks need to turn their minds to whether they are taking enough risk, because that drives economic growth and drives successful outcomes for savers.
Another aspect of pensions reform and risk taking is the individual savers, as was brought home to me in a quite different context, when I was on a football history tour organised by Football’s Square Mile, which promotes the history of football in Glasgow East. As we stood mainly in Glasgow East—I must admit that some of it was in Glasgow South—the guides explained to us that when Queen’s Park decided to organise the first international football match between Scotland and England in 1872, the club had just over £7. It had a choice: the low risk was to hold the match at a rugby club, free of charge; the higher risk was to hold the match at the West of Scotland cricket club at Partick, an old, closed ground where tickets could be sold and there was potential revenue. The problem was that the West of Scotland cricket club wanted more by way of rent than the Queen’s Park had—much more than £7. The guides put the choice to us all as we stood just in Glasgow South constituency, and just outside my constituency. The vast majority of people on the tour picked the low-risk option: an indication, at the end of the week, of how risk-averse we have become in Britain.
Encouraging sensible risk taking is critical to pension saving and if we want more economic growth. In fact, Queen’s Park took the higher-risk option: it rented the cricket ground and made a huge profit. The game transformed the profile of football and was the foundation for Queen’s Park’s building the first international football stadium in the world, which opened a year later in 1873 in my constituency. Queen’s Park took a risk that was pivotal to the development of modern football, and modern football contributes billions to the Exchequer. My point is that risk is essential to economic activity, as Mr Flint explained and as was illustrated later in the week.
The Bill is critical for economic growth. It takes active steps to ensure that money flows to the entrepreneurs and risk takers who will create wealth across Britain. It ensures that working people have access to better pensions. On that basis, I support the Bill.
Lincoln Jopp (Spelthorne) (Con)
I regret that the Pensions Minister, the hon. Member for Swansea West (Torsten Bell), is no longer in his place; I wanted to pay him something of a compliment for getting the Bill here today with typical ambition and enthusiasm. I should, however, remind him of my grandmother’s favourite saying: an ounce of experience is worth a ton of enthusiasm.
I stand here to talk about part 3 of the Bill on the basis of about four years’ experience as a director of the first pensions superfund, having attempted to get it through the Pensions Regulator and the interim regime put up under the last Government. That was ultimately unsuccessful; part of the reason why we are going to need the Pensions Minister’s enthusiasm and ambition is that he will come up against a series of vested interests. When we attempted—[Interruption.] I welcome the Pensions Minister back to his place and am grateful that he is here to listen to this.
When we attempted to launch the pensions superfund, we were bombarded by people who wanted to strangle the superfund industry at birth: the Association of British Insurers; an extraordinary intervention by the Governor of the Bank of England—I am not sure whether the Minister has had a chance to reprogramme the Governor of the Bank of England recently, but I hope he is more enthusiastic about the Minister’s proposal than he was about the last Government’s—and lastly, the Pensions Regulator itself.
I think the Minister wants to create a thriving market in superfunds. However, under the current interim guidance, capital requirements for superfunds are about twice those for insurers providing buy-outs, so it is hardly surprising that we have seen a number of recent new entrants to the insurance market but no new superfunds. The Solvency II regime—apologies for the slightly technical language, but the Minister will appreciate it—that applies to insurers works off a one-year 99.5% confidence level, but over time the industry has been allowed to apply a number of important adjustments, including diversification, matching adjustments and deferred tax credits. All have had the effect of effectively reducing the capital requirement for insurers. In combination, that means that the capital buffer for a buy-out provider is approximately half that of a superfund under the current interim regime, even taking into account the fact that superfunds are proposed to have a one-year 99% confidence level.
The Bill must address that inherent unfairness if, as the Minister wants, the superfund market is to grow. At the moment, it is the proverbial baby who refuses to put on weight. Can the Minister assure me that the Bill will address the problem and create a more level playing field that will allow superfunds to offer the 10% to 15% pricing discount to insurers that his Department has said it is seeking? As the Minister knows, there are a number of techniques for achieving that. He might consider: specifying that superfunds should apply a 98% one-year confidence threshold; the creation of a rule similar to the matching adjustment that applies to insurers; extending a VAT exemption to superfunds for essential pension services, such as admin, actuarial and investment, including scheme origination and transfers of the scheme to superfunds; or—I suppose this is an “and/or”—allowing superfunds to use structured capital instruments such as subordinated debt and preferred shares to lower the cost of capital and enhance investment flexibility, without compromising quality.
Lastly, I turn to the Pensions Regulator’s process of assessing superfunds and giving them a licence to operate—this is the bit where I have the scars on my back. Will the Minister take a close personal interest in this and change the way that the Pensions Regulator works, so that there are stricter and shorter time limits for assessing suitability—shorter than the limits currently in the Bill, which are six months as a default and nine months as a stretch? In the case of the pensions superfund, we had three applications and a similar timescale was used. One can just imagine why the investors’ patience finally ran out and the whole thing was wound up.
I do not want the Minister to be in the position of his predecessor, Guy Opperman, who stood in this place and said that greenlighting superfunds was his greatest achievement during lockdown, yet as a result of a combination of the regulatory environment that was put in place and the vested interests of those who argued against the birth of superfunds, the whole concept was strangled at birth. I want the Minister to avoid that, so I encourage him to look back at the first efforts to produce superfunds and tell the Pensions Regulator a great deal more about how it should do its business.
The reason why the Pensions Regulator became risk averse was because the last Government refused to cover superfunds in their Pension Schemes Bill, now the Pension Schemes Act 2021. The Pensions Regulator did not see why it should take any additional risk if politicians were not going to. I encourage the Minister to have the strength of his convictions to use primarily legislation to tell the Pensions Regulator the market that he wants it to regulate. Then he will give pension superfunds a fighting chance of coming into existence and consolidating. Notwithstanding some of the concerns that others have had, 5,100 of anything is not a working marketplace; it is ripe for consolidation—it was then and it is now.
Rachel Hopkins (Luton South and South Bedfordshire) (Lab)
First, I want to declare an interest. I subscribe to my current parliamentary pension, have preserved benefits in previous occupational pensions and, like the right hon. Member for North West Hampshire (Kit Malthouse), I too have preserved benefits in the local government pension scheme, though I do not propose to say much about that element of the Bill. I suppose that as a worker with a variety of pensions, I am going to benefit from the Bill.
I welcome the Government’s proposals under the Bill, as too many people have their hard-earned cash scattered across pension pots that deliver poor returns on their savings and leave them confused about their future and worse off in retirement. The Bill will deliver more money for savers by making pensions simpler to understand and easier to manage, and they will return better value over the long term. The new rules will bring together defined-contribution small pension pots, to cut costs for savers and industry and help people to view their full pension picture easily. That will protect them from getting stuck in underperforming schemes for years.
The Bill has been welcomed by the pensions industry, as it sets out a long-term plan to create bigger and better pension funds that will boost returns for savers and drive long-term investment across the country. As we have heard, in the UK pensions system there are more small pension pots than there are pensioners. Currently there are 13 million small pots holding £1,000 or less, with the number increasing by around 1 million every year. Small pots are costly for savers and industry, who can lose money through flat-rate charges or administrative costs, and they deliver poor returns because they are not big enough to invest in high-yielding productive assets.
The Bill will introduce a new value-for-money system to improve outcomes for savers. It will assess the DC schemes and the arrangements that they operate, based on cost, investment performance and service quality. This will identify and address poor-performing schemes or arrangements, encourage consolidation and improve member outcomes while promoting investment in a wider range of productive assets. It will also protect savers from getting stuck in underperforming schemes for years.
The Bill’s proposals will also help to unlock about £50 billion for investment in the UK economy. Easing the rules around surplus funds could help unlock billions for employers to invest in their businesses and deliver for scheme members. For many businesses, that may be the financial lifeline they need to free up capital for investment or debt reduction, although it is important to flag that pension scheme trustees working with employers will decide whether to release surpluses and act in the interest of scheme beneficiaries, and trustees will be required to maintain a strong funding position so that they can pay members’ future pensions when they fall due. Will Ministers ensure that member or worker representation on trustee boards is part of the plans?
Like many people, I bring lived experience to this space; I am speaking as someone who worked in human resources. I was often asked questions by employees about their pensions, and I always had to say, “I am not providing advice; this is solely information,” as I dished out their annual pension benefit statements. So I am very aware that most employees just want to understand more about their pensions: what their contributions are and how those will benefit them in the future. I therefore very much welcome the introduction of the long-awaited pensions dashboard, which will provide savers with their whole pensions picture—workplace and state pensions —securely and all in one place online. We hope that it will finally be with us next year. I commend the Bill to the House.
Manuela Perteghella (Stratford-on-Avon) (LD)
Although this Bill aims to strengthen pension investment, improve resilience and boost pension pots, many of my constituents are among the large number of individuals who face serious pension injustices right now. I welcome some of the reforms that the Government are introducing through the Bill, including the terminal illness and life expectancy measure. However, I am concerned that it does not go far enough to protect vulnerable pensioners in the UK now and tomorrow, or to ensure that we will not have future pension scandals.
I recently raised in the House the immoral Midland bank—now HSBC—pension scheme clawback, whereby long-serving employees are unfairly deprived of large portions of their DB pensions through a misleadingly labelled “state deduction”. The Government’s response was that the clawback is a legal process and they are powerless to assist former HSBC employees who have been financially impacted by those deductions. A disproportionate number of them are women.
Experts from Exeter University have put together a number of recommendations for the Government that would ensure that pension injustices such as the HSBC clawback scheme would no longer be able to operate. If the Government do not legislate against such injustices now, they are wilfully keeping pensioners—my constituents —in poverty.
The same can be said for the widows and widowers and partners of former policemen and women upon their remarriage or cohabitation, despite the fact that in Northern Ireland and Scotland, and for widows and widowers of armed forces personnel, survivors’ pensions are upheld regardless of remarriage or cohabitation. A court ruling in 2023 decided that was not to be the case for widows or widowers of policemen and women. Police force pensioners deserve consistency throughout the UK.
The most high-profile pension injustice is the one affecting the WASPI women—Women Against State Pension Equality Campaign—who saw rapid and steep increases to their state pension age without adequate notice, and for whom the Government have failed to provide adequate compensation despite the instruction of the ombudsman to do so. What is the point of re-establishing the ombudsman’s legal powers and restoring them as a pension court if the Government refuse to listen to such judgments? That is by no means an exhaustive list; many other pension scandals need addressing.
It is worrying that we do not see an explicit commitment in the Bill to support the divestment of pension funds from planet-wrecking industries. For example, local authorities invest about £10 billion in direct or indirect fossil fuel industries through their local government pension scheme funds. We must act now to protect pensioners and deliver prosperity for our future generations while protecting our planet.
Neil Duncan-Jordan (Poole) (Lab)
The Bill represents a timely attempt to create a system whereby fewer and bigger pension funds can provide better value for members and do more to support the UK economy. Key to this, though, will be ensuring that pensioners get a decent income in retirement, alongside creating the conditions that allow pension funds to invest in ways that benefit the UK, support good jobs and finance a just transition to a low-carbon economy.
The Bill needs to acknowledge, in the direction it takes, the scale of the task that we face. One in six pensioners today lives in poverty. Only 62% of pensioners receive an occupational pension of any kind, and those who do get an average of just £210 a week. Half of defined-contribution savers—around 14 million people—are not on track for the income they expect, and the 2017 auto-enrolment review recommendations have still not been implemented. Those challenges need to be addressed, along with the unfairness of the current rules around tax relief, which benefit higher earners and need reform.
As has been mentioned this evening, the Bill does not consider the specific issue of adequacy, and how the state pension interacts with defined-benefit and defined-contribution schemes. Given that the aim of a pension is to provide an income in retirement, it is vital that we look at pensions in the round, not just those associated with occupational or private schemes. A statutory review into retirement incomes every five years would give this and future Governments the oversight needed to regularly assess the adequacy of our pension system, including the opportunity to look at contribution rates for employers and employees. I am aware that the second stage of the pensions review will consider those points, but I would be grateful if the Minister gave a little more clarity on when that is likely to begin.
The Bill needs to be strengthened on the issue of climate change and the destruction of nature. UK pension schemes continue to hold around £88 billion in fossil fuel companies, including those involved in new coal, oil and gas exploration, and have investments in companies linked to deforestation around the globe. Over 85% of leading schemes lack a credible climate action plan. Consolidating smaller pension pots into larger megafunds provides the ability to invest in long-term infrastructure projects, but that must not be at the expense of the environment.
Caroline Voaden (South Devon) (LD)
Does the hon. Member agree that there is an opportunity here to do something transformational for our local communities by enabling funds, particularly local government pension funds, to invest in much-needed infrastructure like care homes, special schools or even our high streets, which would provide a secure long-term return and could be transformational for local communities that need investment?
Neil Duncan-Jordan
I think that what the hon. Member raises is the creativity that we need on this issue, so that we look beyond the obvious investments towards some that perhaps have more social worth. I hope that the Bill will allow for that.
For pension savers to have a secure future, we will need to phase out investments in fossil fuels. As the Chancellor has recognised, all financial sector regulation and legislation should integrate climate and nature. I would be grateful if the Minister could therefore address whether there will be legislative action, not just voluntary commitments, to phase out the destructive environmental investments that pension funds currently make, and to introduce an element of the Bill that acknowledges the connection between green investments, environmental protection and decent pensions.
Turning to the local government pension scheme, governance structures vary widely across the existing pools, and reporting has been inconsistent. Pooling arrangements have not always provided the power to influence investments, which is why the TUC, for example, is calling for a thorough review of the performance of existing pools to identify best practice in the relationship between funds and pools, as well as in governance arrangements, and for the introduction of clear and consistent reporting requirements before any acceleration and further consolidation takes place.
It is also important to point to the democratic deficit that exists within the scheme as a whole. While the role of member representatives within the LGPS is a great strength, they are largely absent from pool governance structures at present, and this legislation does not specify a role for those people. Given that pension funds are the deferred wages of the workforce, we must ensure that there is greater member engagement and democratic oversight by those involved in the scheme. Not only should this stretch to having guaranteed places on boards with full voting rights, but it must ensure that scheme members can have their say as to where their money is invested. There will undoubtedly be occasions when members are concerned about investments in particular industries, or, I would add, in particular countries, and they should have a mechanism by which those views can be expressed.
Jayne Kirkham (Truro and Falmouth) (Lab/Co-op)
Does my hon. Friend agree that it is good that, in the local government pension scheme, representatives of both employers and employees can sit on the pension committees, and that we often have trade union representatives on the committees as well?
Neil Duncan-Jordan
My hon. Friend is quite right. Trade unions do sit on many of the LGPS committees. I was making the point that it is on the pools where there is less representation for those member voices to be heard, and that is extremely important.
Finally, I want to talk about the pre-1997 pensioners. We know that those who have seen the biggest drop in income are those who built up pensions before 1997. They have not received an annual inflation-linked increase to their pension and, over time, particularly when inflation is high, the value of their pension is eroded. Some 80,000 Pension Protection Fund members, mostly older people and disproportionately women, including some of my constituents, find themselves in this position. I hope the Government will therefore consider legislating to provide inflation protection on pre-1997 benefits, and to give the PPF greater flexibility to use its surplus to give discretionary improvements to members.
In conclusion, the idea that workers’ pension funds can be used to build much-needed social housing and invest in green technology and jobs is something that a progressive Labour Government should be proud of, and I hope we can ensure that the Bill delivers a win for pensioners, a win for our environment and a win for society as a whole.
Mr Peter Bedford (Mid Leicestershire) (Con)
Cross-party working is essential to ensuring that there is public confidence in a system we will all need to use in our twilight years. That is why Conservative Members are ready to work constructively to improve this legislation and, where necessary, to provide a “critical friend” approach and challenge the Government’s thinking. When it comes to pensions and the long-term financial security of our constituents, we should not play party politics. It is in this spirit that I raise my own concerns with the Bill.
The Bill does not focus enough on increasing the amount of money flowing into people’s pension pots—something we literally cannot afford to ignore. I am proud that it was the last Conservative Government that led the introduction of auto-enrolment—a significant pensions reform that dramatically improved individuals’ financial wellbeing in later life. The 8% contribution was a game changer. Yes, the system relies on inertia, but for the first time, millions of workers began saving for their retirement. We must now confront an uncomfortable truth: the contribution rate looks less adequate by the day. Too many of our constituents are heading towards retirement without the income they will need. For example, the Pensions Policy Institute has highlighted that 9 million UK adults are currently under-pensioned.
Inaction is not an option. We are allowing people to sleepwalk into a retirement crisis. The level of auto-enrolment contribution was never intended to be a silver bullet. Instead, it was conceived as a foundation or starting point for pension savings. Importantly, that foundation was once supported by two key pillars: defined-benefit schemes, which offered guaranteed incomes to many, and higher levels of home ownership, which provided an asset to fall back on in later life. Both have eroded significantly over the last two decades. The 8% auto-enrolment rate on its own is woefully inadequate, and many workers will not realise that in respect of their own financial circumstances until it is too late.
It would be all too easy to simply raise the auto-enrolment rate to some arbitrary level, but we would find ourselves back here in 15 years’ time having the same conversation about a system where inertia and disengagement continue. If we truly want lasting change, we cannot focus solely on the percentage; we need to dramatically improve how people engage with their savings. That starts with improving financial education. As the sponsor of a private Member’s Bill on this precise topic and as a chartered accountant by background, this is a cause on which I place great importance. Shockingly, though perhaps unsurprisingly, Standard Life has highlighted that three in four people do not know how much they have in pension savings. That needs to change through increased engagement, but also by allowing savers increased control over their own savings. People should be able to easily view all their pots in one place, which is why it is frustrating to have seen delays to the roll-out of the pensions dashboard, which many hon. Members have mentioned.
The pensions dashboard will encourage individuals to make active choices, to understand their options and to assess whether their current savings are enough for their desired lifestyle in retirement.
Kirsty Blackman
On that note, does the hon. Member agree that we should also make it easier for people to understand what a defined-contribution scheme pot actually means for them in retirement—that is, how much income it will get them on a monthly or annual basis, rather than just, “This is the value of the pot”?
Mr Bedford
The hon. Member makes an important point. That goes back to financial education and ensuring that people truly understand their pensions and savings.
Increasing savings is important, but we need to ensure that it is driven by individuals who understand and can shape their own financial futures. Other countries have looked at increasing incentives for saving. South Africa and the US have schemes that enable people to draw from their pension pots in tightly defined circumstances, such as for emergencies or investment opportunities. Such flexibility would increase confidence in pension savings and help address the other concerning fact that 21% of UK adults have less than £1,000 set aside for emergencies, leaving them susceptible to economic shocks outside of their control and, in turn, less likely to prioritise savings in their pensions.
Poor pensions adequacy does not just harm retirees; it has serious implications for the state. As our life expectancy continues to rise, the state’s pension bill will continue to increase. Benefits like pension credit will increase exponentially as the lack of adequate private provision leaves more and more relying on the state. As we saw just last week, it is often incredibly hard to reform welfare. As a Conservative, I believe that the answer lies in personal responsibility and in encouraging and helping people to build up their own private pension provision for the benefit of themselves, their family and, ultimately, the rest of society.
Kit Malthouse
My hon. Friend is making a strong speech and some strong points. Does he agree that the alarm bells he is ringing about financial education, the under-provision of pensions and longevity are even more stark and alarming next to the demographic change that means that over the next 30 years, we will see the number of workers per pensioner plummet? We will go from about 3.6 workers per pensioner at the moment to well under three by 2070, which means that even if pensions are not enough, the country will not be able to afford to plug the gap as it does at the moment?
Mr Bedford
My right hon. Friend makes a compelling case. As I said in my speech, this goes back to financial education and ensuring that we all understand the implications of pensions adequacy.
My concern about adequacy does not mean that the Bill does not have its merits. The continuation of Conservative policy, the small pots consolidation and the creation of megafunds are sensible reforms that will increase individuals’ pension pots by reducing dormant pots and increasing economies of scale. However, this is a missed opportunity for a Government with a large majority. They could have acted more boldly, moved faster and improved pension adequacy throughout the United Kingdom.
I would like a clear commitment from the Government that they are actively looking at improving pensions adequacy. The Labour party has long professed to be the party of workers, yet some who look at the Bill will sense that it does not go far enough in preventing the UK from declining into being a society funded by welfare in retirement. Let us encourage people to strive, work hard and save more for a better future. I very much hope that the Government will work collegiately and cross party with His Majesty’s Opposition in Committee to ensure that our constituents do not sleepwalk into a retirement crisis.
Jayne Kirkham (Truro and Falmouth) (Lab/Co-op)
Having been lucky enough to chair a local government pension scheme committee and sit on a pool oversight board—purely because I was the only person left on the committee after the election, I think—I would like to talk about the Bill’s impact on local government pension schemes.
The Bill would consolidate LGPS funds into six pools, on the basis that that would be effective in achieving scale, diversification of assets and cost savings. LGPSs were recently merged into eight pools by the last Government, of course. Cornwall’s pool contained nine LGPSs from the south-west and the Environment Agency. It took a number of years to set up and transfer the funds over to the pool. Setting-up costs meant that the consolidation savings from acting at scale are starting to show only now, a few years later. Hiring an extra tier of staff on top of the LGPS staff, who were still needed to administer the fund, correspond with members and employers, and manage the investments, was expensive. Closing down our current pool and joining another is likely to be the same. There are also concerns, which I would like the Minister to address, that going to a larger pool may affect that local link. We have a strong south-west pool at present, and removing that link and scattering us across the country could impact the effectiveness of our pool at making local investments. That is what I want to talk about next.
Bringing schemes together enables them to invest in bigger local projects, from infrastructure to clean energy. That boosts returns for savers and helps communities. Cornwall was very good at that. We used our £2.3 billion, which is not a huge fund when we think about the size of the pools that we are talking about now, to do precisely that kind of thing.
Other Members have talked about responsible investment. We had a very strong responsible investment policy, and our carbon-neutral target date was earlier than that of the rest of the pool. We were able to maintain those policies and our environment, social and governance focus by having a strong presence on the oversight board. That enabled us to influence the pool. I hope that this influence will continue, so that pools are not dragged down to the lowest common denominator when it comes to ESG matters and responsible investment, but will instead be raised up.
Our local social impact fund was, in the end, 7.5% of our investments. We were able to channel our LGPS investment into affordable private rental housing and local renewables in Cornwall, as well as renewables more widely around the UK. Will local government pension schemes still be able to set their own targets in the pool in this way and do their own thing? Although we worked closely with the pool to ensure that pooling delivered scale advantages, we wanted to make sure that our local impact portfolio, as part of our social impact allocation, enabled us to combine our fiduciary responsibilities to our members with delivering that social and environmental positive change in Cornwall, where we were, and where our members worked and lived. That had a massive impact on how the funds were viewed locally. We hoped that it would provide a framework for others to follow, but within our pool of 10, we were the only ones who did it. Will the Minister confirm that local LGPSs will be able to set their own targets in a bigger pool, even if the area is geographically disparate?
I want to mention the measures that require regulations for the LGPS to include a duty for administering authorities to work with strategic authorities in their area to identify opportunities for investment. When we ran our social impact fund, it was difficult to organise that at arm’s length. Members who were part of the local authority wanted to direct where all investments went, but that had to be done at arm’s length through investment fund managers, who have little connection to the area. It was hard to stand back and watch them do that. How will the fiduciary duty allow local government pension scheme administration authorities to work with the strategic authorities in their area, particularly if, as in Cornwall, they are one and the same? Cornwall unitary authority was exactly the same size and had the same authority as the administrating authority of the LGPS.
To conclude, the scheme worked well in Cornwall and provided good results. I still drive past the houses in Camborne that were built by our local government pension scheme; local people live in them, doing local jobs. The good results were mainly down to good officers, to be honest, and a flexible pool that allowed us to do our own thing and take our own route. I hope that that freedom will remain under the Bill.
Blake Stephenson (Mid Bedfordshire) (Con)
We all share in the ambition to ensure the sustainability of pensions, and to provide the best possible income for all our constituents in retirement. Given the time, I will keep my comments reasonably short, but having come to this place from the City—though I did not work in the pensions industry—and as an officer of the all-party parliamentary group for pensions and growth, I look forward to providing more detailed scrutiny of the Bill as it progresses through the House.
I rise to share concerns about the Bill, some of which have been shared with me by City institutions. First, I am concerned that this Bill demonstrates a broader problem with this Government’s approach to the economy. Rather than seeking to support free enterprise and entrepreneurship in order to grow our economy, the Government seek state-led interventions, and want to direct funding to Government-approved investments. That is the wrong approach, as many hon. Members have said this evening.
On scale and asset allocation reforms, I am concerned that the Government seem to believe that they, and regulators, should direct how pension funds invest, rather than schemes acting in the best interests of their members—a matter raised by my right hon. Friend the Member for North West Hampshire (Kit Malthouse). Trustees who are directed to invest in assets by the Government or regulators may need to be protected by safe harbour provisions in the event that their investments perform less well than alternatives that they may have chosen. Has any consideration been given to such safe harbours in the Bill? It is not clear why these reforms are necessary. In his closing remarks, will the Minister say why, given that policies such as the value-for-money tests and small pots consolidation are already in progress, he feels that these additional requirements are needed?
I am also concerned to find that Ministers propose making it a statutory requirement for schemes to follow a specific route when considering transferring into a superfund. Trustees have a fiduciary duty to their members—we have heard a lot about that in the debate—and this direction from Ministers runs counter to that duty. Will the Minister provide assurance to the House on those points?
Turning to the sustainability of UK pensions, I would welcome further clarity from Ministers on their proposals for powers to pay a surplus to an employer. How confident is the Minister that the thresholds set for the release of surplus are sufficient to protect member benefits? That is particularly important, given that scheme surpluses have emerged only recently. Does the Minister plan to specify the authorised uses for surplus return? For example, will surplus be protected from being paid to overseas parent companies?
I welcome the Government’s desire to ensure that our pensions system is sustainable and contributes to UK economic growth. I am just not as enthusiastic about some of the Government’s instincts to deliver Government-led investment, at the expense of market-led growth. I look forward to scrutinising the Bill further as it progresses.
Jim Shannon (Strangford) (DUP)
It is a real pleasure to speak on this Bill. Pensions and the regulation of private pensions are increasingly of national interest. I believe that regulation is needed, so I welcome the Bill. Obviously the small print will become more apparent during its passage, but it is good that we are introducing the Bill.
The Government’s intention of ensuring that people have a private pension to supplement their income when they eventually reach retirement is increasingly being realised. By and large, most young people—22 million, I understand—have a pension. The Minister will remember the story I told him about when I was 18. I think I am right in saying that I am the oldest person in this Chamber, so that was not yesterday. The fact is that pension advisers were almost unheard of then. I will tell hon. Members who the best pension adviser I ever had was: my mum. When I was 18, she took me down to the pension man in Ballywalter. She said, “You need a pension.” I said, “Mum, I’m only 18. What do I need a pension for?” She said, “You’re getting a pension.” We know how it is: our mum tells to do something, and we just do it, so I got a pension on her advice.
I ended up with four pensions over my working life, which were all beneficial. I did not understand the value of them until I came to the stage at which I was going to cash some of them in—I realised the value of them then. Today, we have an opportunity to advise young people of the need for a pension. When it comes to pensions, not everybody has my mum, but everybody has somebody, or an equivalent through Government.
Let me give a quick story about my office staff. I employ six ladies and one young fella. They are in their 20s, 30s, 40s, 50s and 60s. I will not get into trouble by naming the staff in each bracket, but their approach to their pension varies by age bracket, and that is a fact; they see it differently. Listening to their discussion highlighted to me the need to educate people on the importance of paying into their pension, because it is so important that we get this right. That is why the Bill is important: it is an opportunity to advise people.
One member of my staff has two children at primary school. She highlighted that she was paying an additional 5% into her pension on the advice of her older colleague, only to find that the tax on her savings this year meant that she actually had less money in her account each month compared with last year. The first thing to go was not the kids’ piano lessons or hockey camp—she said that those experiences shaped her children’s memories. The first reduction was scaling back on her pension additions. People might say, “My goodness me! That was not necessary,” but actually it was, if she wanted to preserve that lifestyle for her children. It seems that the tax on savings means that one mum has made the choice to stop supplementing her pension, and to instead sow the money into her children’s lives just now. That is not the aim of the Government or the Minister, but there is only so much that we can tax the middle class before they make cuts that are not in their best interests.
Apart from a number of clauses, this legislation does not directly affect Northern Ireland, but it should be noted that accompanying legislation and a number of legislative consent motions—statutory instruments—will come to this Chamber that will change the pension schemes in Northern Ireland. Ultimately, what we discuss here and what happens through this Bill will come to us in Northern Ireland, and the Northern Ireland Assembly will bring provisions in Northern Ireland in line with those here. I have therefore considered carefully the aims of this legislation, and whether I believe it will be effective in achieving those aims. The Minister has said that this Bill will fundamentally
“prioritise higher rates of return for pension savers, putting more money into people’s pockets in a host of different ways. For the first time we will require pension schemes to prove they are value for money, focusing their mindset on returns over costs and protecting savers from getting stuck in underperforming schemes for years on end.”
When we look at the issues, we understand the necessity for the Bill.
In his introduction, the Minister referred to 13 million small pension pots floating about in the UK pension system, with £1,000 in each. It seems logical to have a better pension system for people—I think it does, anyway, and maybe we all do. It is essential that the opt-out is iron-clad, and I will give a reason why. One of my office staff members would not be comfortable with her pension paying into any companies that test on animals, for example. Another has said that she wants the highest return, full stop, so we must ensure that the Bill enables people to follow their moral obligations as well as get a return on their work. I am concerned that consumers will be tied down and face difficulty in leaving pots, which is something that must be addressed. With that in mind, I welcome this Bill to regulate the pension market, but we must ensure that it does not become a mechanism for Government to control the private pension industry and direct pension pots into Government investment. We must ensure that this Bill simply protects pensioners, and I very much look forward to watching its progress.
Rebecca Smith (South West Devon) (Con)
It has been a privilege to hear so many well-informed and considered speeches this evening. I am sure we would all agree that there is clearly significant expertise in the Chamber.
The heart of this Bill is people doing the right thing by preparing for their future and saving into their pension pots. With auto-enrolment having been introduced by the Conservatives in 2012, there are now over 20 million employees saving into a workplace pension. That is 88% of eligible employees saving into a pension and preparing for later in life, which is a great achievement that I hope everyone in this House can celebrate. However, while the number of people who are saving has increased significantly, engagement has remained low, as we have heard this evening. Less than half of savers have reviewed how much their pension is worth in the past 12 months, while over 94% of pension savers are invested in a pension scheme’s default investment strategy. With people taking the right steps and starting to save for their retirement early thanks to our action, we must now ensure that the pensions market is working for them, so that they get the best returns on their savings and ultimately have the comfortable and secure retirement for which they were planning.
We have heard many contributions this evening. I will briefly mention the hon. Member for Tamworth (Sarah Edwards) and my right hon. Friend the Member for North West Hampshire (Kit Malthouse), both of whom gave us lengthy and very detailed speeches presenting both sides of the argument. [Interruption.] They were very enjoyable speeches—that was not a criticism, just an observation of the way things have gone this evening. Both the hon. Member and my right hon. Friend clearly showed the expertise that they garnered earlier on in their careers and expressed some legitimate concerns, particularly about the consensus that there has perhaps been in the Chamber this evening. Some points have been made showing that that consensus is not entirely guaranteed, certainly among Conservative Members. We support the principles behind the Bill—indeed, much of what we have heard builds on the work that the Conservatives were doing while we were in government. We want to ensure that poorly performing pension schemes are challenged, excessive administration costs are removed, and savers receive the best returns on their investments. Ultimately, that is how we will ensure more people have a comfortable retirement.
However, we have concerns about some specific measures in the Bill, which we will scrutinise further as it progresses. In particular, we have significant concerns about the reserve powers that allow the Government to set percentage targets for asset allocation in core defaults offered by defined-contribution providers. In other words, a future Government could tell pension schemes where they must invest their funds, regardless of whether it delivers good returns for savers. This potentially conflicts with their fiduciary duty to act in the best interests of their members. While I know the Minister will stress that the Government do not intend to use those reserve powers, that neither addresses concerns about what a different future Government could do nor explains why those powers are being brought in. It could be asked why the reserve powers are being created at all.
We want to see more investment in the UK market. While this country is one of the largest pension markets in the world, only around 20% of DC assets are invested in the UK. However, the solution should be to make domestic investment more attractive—to create opportunities that deliver better returns for savers—not simply to mandate investment in assets that deliver lower returns. During our last term in office, we worked with the industry to introduce the Mansion House reforms as a voluntary agreement to boost investment in the UK, but this Bill goes further—it could mandate such investment against the wishes of the industry. Similarly, the local government pension scheme will have a new duty to invest in the local economy. While that is understandable at face value, it raises concerns about returns on investments if there are not suitable local opportunities.
We also have questions about some of the Government’s assumptions, and would like to understand more about how they were reached and the evidence used. For example, why is the minimum value for megafunds just £25 billion? Why is having fewer and larger pension providers better? We recognise the benefits of economies of scale, but what about competition and innovation? It has also been raised by the industry that a significant number of details are unknown, as they will come later in the form of regulations. Can the Minister set out some more details on when the various sets of regulations will be published, and whether that will be before the Bill has passed through Parliament?
Finally, the Bill fails to cover a number of areas, and we would like to understand why. Concerns about pension adequacy have been touched on this evening and whether people are saving enough to have the security and dignity in retirement they deserve. Auto-enrolment was a good start, but it will not be the only solution. Indeed, lots of people are still not eligible. When we passed the Pensions (Extension of Automatic Enrolment) Act 2023, the then Conservative Government confirmed their intention to reduce the lower age limit to 18, as has been mentioned this evening. As yet, the current Labour Government have not done so. Auto-enrolment does not apply to self-employed people, despite just 16% of self-employed people actively saving into a workplace or personal pension. The Bill does not look at whether people are saving enough and early enough, and I would be grateful if the Minister could set out whether that is deliberate and whether further action will be taken.
I briefly draw the House’s attention to my declaration in the Register of Members’ Financial Interests as a serving councillor, but I hasten to add that unfortunately I am not a member of the local government pension scheme. Sadly, I was elected after that provision was scrapped, but an entire chapter is given over to the local government pension scheme in this Bill. Indeed, it is a key element, enabling local authorities to use pension schemes to invest in their local economy. However, as with much of the legislation being taken through Parliament at the moment, the who, what and when remain unanswered. Without the English devolution Bill before us, for example, we are not entirely clear on what form local government will take, nor entirely clear on how compatible this Bill is with that forthcoming local government legislation.
We are in effect being asked to legislate on a moveable feast. Indeed, there is likely to be a considerable transition timetable for local government changes, which all raises questions about how the local government reorganisation transition fits in with the plans in the Bill. Following on from the comments of the hon. Member for Truro and Falmouth (Jayne Kirkham), how will asset pools work under local government reorganisation? Who gets the potential investment benefits or spending power, and where does all that investment take place?
The Bill also fails to mention any reforms to the local government pension scheme, which reached a record surplus of £45 billion in June 2024. One reason for that might be that it is being used to offset Government debt under the Chancellor’s current fiscal rule, which uses public sector net financial liabilities to measure that debt. That is a huge amount of money in local government terms, and it is not going towards local services, business support or regional projects. Can the Minister confirm whether the Government intend to reform the local government pension scheme beyond the measures outlined in the Bill? Finally on the local government pension scheme, I look forward to seeing more detail as to how newly created asset pools will work in practice with the local government pension scheme.
Local government treasury management over recent years has seen local authorities taking advantage of the investment opportunities available to them to acquire properties and the like, but often some distance from their local authority. That is something to tease out in Committee, but when the Government state that they wish local authorities to have finance available to invest locally to bring economic growth, what does “local” look like?
Finally, can the Minister confirm that fiduciary rules regarding investments and how they are assessed will prevail going forward? Overall, we will support a Bill that reduces administration costs, removes complexity for savers and maximises value for members, ultimately helping people who took the right action to save for their retirement to live in comfort and dignity. While this Bill makes the start, there is more to do to get it right, and we look forward to working with the Government to achieve that. There is plenty of food for thought for amendments to take us forward.
The Parliamentary Under-Secretary of State for Work and Pensions (Andrew Western)
At the outset, I take the opportunity to declare my own interest. Unlike the hon. Member for South West Devon (Rebecca Smith), I was elected prior to Lord Cameron ejecting councillors from the local government pension scheme. As a former member of Trafford metropolitan borough council, I also have savings in the local government pension scheme. I am therefore set to benefit from the improved governance of the LGPS initiated by the Bill.
These measures are testament to our dedication to building a resilient, efficient and fair pension system, galvanising and creating the potential to boost our economy at every opportunity. It is our aim to build a future in which every saver can look forward to a secure and prosperous retirement.
I welcome the broad, if not entirely universal, support for the Bill. The open discussion in which we have engaged today is important because, as a responsible Government, we want the House to be assured that the new powers in the Bill come with appropriate mitigations. We understand that Members will have questions, and I have listened carefully to those that have been raised. I remind everyone that the highly fragmented pensions framework has not served savers well, and there is a need for improvement as both the industry and savers demand a better service. The Bill goes to the core of what is needed, providing big solutions to the big problems that are undermining so much potential for savers and the economy.
Let me now turn to some of the comments and queries that have arisen throughout the debate. I thank my hon. Friends the Members for Tamworth (Sarah Edwards), for Luton South and South Bedfordshire (Rachel Hopkins), for Buckingham and Bletchley (Callum Anderson), for Poole (Neil Duncan-Jordan), for Truro and Falmouth (Jayne Kirkham) and for Glasgow East (John Grady) for speaking in favour of some elements in the Bill, and for their recognition of the investment and growth opportunities that it can unleash.
I am grateful for the constructive support and consensus that we heard from both the hon. Member for Wyre Forest (Mark Garnier), who opened the debate for the Opposition, and the hon. Member for South West Devon, who closed it. They were right to mention the specular success of automatic enrolment, but that was half the job, as pointed out by the Pensions Minister, and I think the hon. Member for South West Devon acknowledged that we now need to move on to the pressing task of dealing with pension adequacy, which will be taken forward by the pensions review. They were also right to refer to the complexity and fragmentation of pension pots.
I welcomed the support from the hon. Member for Wyre Forest for the long-awaited pensions dashboard, and was particularly pleased to hear of his support for changes in the local government pension scheme, although he expressed concern about certain parts of the Bill and the potential for propping up a failing scheme that arises from those changes. Let me reassure him that no cross-subsidising between administering authorities would be caused by any changes made by the Bill. As for the question of safeguards in respect of surplus release, we cannot stop share buy-backs and the like, but we have confidence in the ability of trustees to adhere to their fiduciary duties.
I understand that mandation has given rise to the fundamental objection of not just the hon. Gentleman but a number of other speakers, but I do not believe that it undermines fiduciary duties, and I do not agree with that analysis. The Bill contains clear safeguards that are consistent with those duties, not least in clause 38, which refers to an opt-out in the event of material detriment to members of a fund. The hon. Gentleman also raised questions relating to gilts; we believe that nothing in the Bill would undermine a well-functioning gilt market. However, as I have said, I welcome the broad support for the Bill, particularly with regard to value for money, small pots, guided retirement products and terminal illness changes.
Kit Malthouse
I want to be clear—so that the House is clear—about the opt-out to which both Ministers have referred. Is it a correct interpretation to say that it is not an opt-out at the discretion of the trustees of the fund, and that the Bill requires them to apply to the regulator with evidence for the regulator to make a decision to grant them the ability to opt out? The idea that trustees are somehow free to make a decision in the interests of the fund is not actually correct, is it?
Andrew Western
The right hon. Gentleman is correct in his interpretation, although I do not entirely agree with his characterisation. It is, I think, perfectly reasonable that we would ask trustees to explain how they feel that what is proposed would be to the detriment of their scheme members.
I welcomed the support of the Liberal Democrat spokesperson, the hon. Member for Torbay (Steve Darling), for many of the general proposals in the Bill. I entirely agreed with his comments about the need to give savers the best possible advice and protections. I also agreed with what he said about the opportunities to deliver further investment in our economy. As for social housing, which others also raised, he will know that many pension schemes already make such investments, and I certainly support their continuing to do so.
We then heard an excellent speech from my hon. Friend the Member for Tamworth. I particularly welcome her comments on the value-for-money changes, and she is absolutely correct to highlight the importance of looking at schemes in the round, not just on cost. On the pipeline of investments that she set out, I hope she is reassured by some of the steps that the Government are taking—for instance, through the Planning and Infrastructure Bill—to ensure that there are a range of exciting major projects, such a reservoirs and houses, that people will be able to invest in.
The right hon. Member for North West Hampshire (Kit Malthouse) is certainly correct to say that he punctured the air of consensus in outlining his reservations. I know that my hon. Friend the Pensions Minister has agreed to have a conversation with the right hon. Member next week, and I hope that he will find that incredibly helpful. Clearly, it is not for me to comment on whether this should be a hybrid Bill. On the question of megafunds, he is right that not all large schemes provide a better return, but the evidence shows that while that is not always the case, they do see better returns on average. That is an important point.
The hon. Member for Aberdeen North (Kirsty Blackman) was correct to raise how long we have been waiting for the pensions dashboard, and I am similarly excited and anticipate its arrival. I promise that it will be worth the wait when it finally arrives. On her point about the scope of the Bill, the pensions review will take forward a number of the issues on which she and other Members said the Bill could have gone further. The pensions review is under way, and we will say more about that incredibly soon.
Kirsty Blackman
On the pensions review, there is a massive cross-party consensus that there is an issue with its adequacy, and we want to see it tackled. Will Ministers agree to take this forward in as cross-party a way as possible? We all care strongly about it.
Andrew Western
This matter is important to everybody in this House, because it is important to the constituents of everybody in this House. I would be very open to ensuring that Members of this House are able to feed as much as possible into the pensions review. It is an incredibly important piece of work.
I return to the question of my age. As a millennial, I am terrified of admitting that I have now reached an age when I should be thinking about my pension, having just turned 40. In any event, some of the work around the consolidation of small pots and so forth will help people.
A number of Members have asked about the balance of the distribution of any surplus release, and it is ultimately for trustees to decide on that balance. On the point made by the hon. Member for Aberdeen North about potential guidance coming forward—the hon. Member for Mid Bedfordshire (Blake Stephenson) touched on this as well—that is something that I will discuss with the Minister for Pensions. It may well be teased out in Committee.
I hope that the hon. Member for Spelthorne (Lincoln Jopp) will be a member of the Bill Committee and continue the dialogue with the Minister for Pensions. I am always keen to find volunteers, and I hope that he will put himself forward. On the question of regulatory decision making, I hope that the Pensions Regulator has heard what he said about pace.
On the issue of divestment from funds that invest in fossil fuels and so forth, it is a matter for trustees. Individual flexibility on investments is a cornerstone of the system, but we are consulting on UK sustainability reporting standards and on transition plans.
Finally, we heard from the hon. Member for Strangford (Jim Shannon)—we always save the best for last. I am very grateful for his support for the Bill. If he was not 18 yesterday, I am sure it was the day before. None the less, I wish that everybody had a mum like his. We may not have had some of the challenges with the adequacy of people’s pensions had they all received such superb advice from their parents at the age of 18.
Today we embark on a transformative journey with this Pension Schemes Bill. This legislation underscores our readiness to deliver fundamental changes to the pensions landscape, an endeavour that is not only urgent, but essential for driving a future in which savers and, indeed, our economy can derive the benefits of a better organised, less fragmented and easier to navigate pension system, and I am pleased by the widespread support for the Bill across the House.
Question put and agreed to.
Bill accordingly read a Second time.
Pension Schemes Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Pension Schemes Bill:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 23 October 2025.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill may be programmed.—(Andrew Western.)
Question agreed to.
Pension Schemes Bill (Money)
King’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Pension Schemes Bill, it is expedient to authorise the payment out of money provided by Parliament of—
(a) any expenditure incurred under or by virtue of the Act by the Secretary of State, and
(b) any increase attributable to the Act in the sums payable under or by virtue of any other Act out of money so provided.—(Andrew Western.)
Question agreed to.
Pension Schemes Bill (Ways and Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Pension Schemes Bill, it is expedient to authorise—
(a) the levying of charges under the Pension Schemes Act 1993 for the purpose of meeting any increase in the expenditure of the Pensions Regulator attributable to the Act;
(b) the amendment of section 177(5) of the Pensions Act 2004 so as to increase the limit in that provision on the amount that may be raised by pension protection levies imposed by the Board of the Pension Protection Fund.—(Andrew Western.)
Question agreed to.
Pension Schemes Bill (First sitting)
Tuesday 2nd September 2025
(3 months, 3 weeks ago)
Public Bill CommitteesPension Schemes Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 2 September 2025 - (2 Sep 2025)
The Chair
We are now sitting in public and the proceedings are being broadcast. I remind Members to switch electronic devices to silent. Tea and coffee are not allowed to be drunk during sittings. We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication and a motion to allow us to deliberate in private about our questions before the oral evidence session begins. In view of the time available, I hope we can take these matters formally and without debate. Time Witness Until no later than 9.55 am Association of British Insurers; Pensions UK Until no later than 10.25 am The Pensions Regulator; Financial Conduct Authority Until no later than 10.55 am Age UK; TUC Until no later than 11.25 am Legal and General; Aviva Until no later than 2.30 pm Local Government Pension Scheme Advisory Board; Hymans Robertson Until no later than 3.00 pm Pensions Management Institute; Society of Pension Professionals Until no later than 3.30 pm People’s Partnership; Nest Corporation Until no later than 3.45 pm Phoenix Group Until no later than 4.15 pm Pension Protection Fund; Brightwell Until no later than 4.45 pm Pensions Policy Institute; New Financial Until no later than 5.15 pm Deprived Pensioners Association; Pensions Action Group Until no later than 5.30 pm Border to Coast Pensions Partnership Until no later than 5.50 pm Department for Work and Pensions
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 2 September) meet—
(a) at 2.00 pm on Tuesday 2 September;
(b) at 11.30 am and 2.00 pm on Thursday 4 September;
(c) at 9.25 am and 2.00 pm on Tuesday 9 September;
(d) at 11.30 am and 2.00 pm on Thursday 11 September;
(e) at 9.25 am and 2.00 pm on Tuesday 14 October;
(f) at 11.30 am and 2.00 pm on Thursday 16 October;
(g) at 9.25 am and 2.00 pm on Tuesday 21 October;
(h) at 11.30 am and 2.00 pm on Thursday 23 October;
(2) the Committee shall hear oral evidence on Tuesday 2 September in accordance with the following table:
(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 97; the Schedule; new Clauses; new Schedules; Clauses 98 to 102; remaining proceedings on the Bill;
(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 23 October.—(Torsten Bell.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Torsten Bell.)
Resolved,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Torsten Bell.)
The Chair
Before we hear from witnesses, does any Member wish to make a declaration of interest in connection with the Bill?
Kirsty Blackman (Aberdeen North) (SNP)
If the Government amendments in relation to the local government pension scheme go through, I have an interest as I am a deferred member of a local government pension scheme in Scotland.
Rachel Blake (Cities of London and Westminster) (Lab/Co-op)
I also wish to declare such an interest.
The Chair
We will now hear oral evidence from Rob Yuille, assistant director and head of long-term savings at the Association of British Insurers, and Zoe Alexander, director of policy and advocacy at Pensions UK. We must stick to the timings in the programme motion that the Committee has agreed. For this panel, we have until 9.55 am. Will the witnesses briefly introduce themselves for the record?
Rob Yuille: Hello. I am Rob Yuille. I am head of long-term savings policy at the ABI. We represent several of the largest defined-contribution workplace providers across group personal pensions and master trusts, insurers in the pension risk transfer market and retail pension providers. Between them, they serve tens of millions of customers and manage hundreds of billions of pounds in assets.
Zoe Alexander: My name is Zoe Alexander. I am director of policy and advocacy at Pensions UK. We are a not-for-profit organisation run for the benefit of our members. Our members serve 30 million savers, who invest more than £2 trillion in the UK and abroad.
Mark Garnier
Q
I will start with the most controversial point: the mandation of local government pension schemes when it comes to amalgamation and being forced to go into assets. There are two parts to my question. First, is it fundamentally right to entrust trustees with looking after the interests of the members of pension schemes and then, separately, to tell them how they should be investing that money? Secondly, are there any guardrails to protect pension fund members from being forced to invest in unwise investments?
Zoe Alexander: We are concerned about the precedent set by the reserve power in the Bill. We realise that it might not be used, and we hope that that will be the case. We hope that the work the industry has done to create the Mansion House accord and get DC schemes on track to invest more in the UK will fulfil its promise. The presence of the power creates a series of risks, and certainly enacting it would create a series of risks for savers in terms of its impact on investments, on price and, ultimately, on the value that is accrued to savers in the market.
We are looking for more guardrails on the power. We would like it to be constrained to apply specifically to the commitments in the Mansion House accord, and no more than that. We think that is appropriate, because the market and the Government have together set out what “good” looks like. If we agree on that, let us put that in the Bill and make it clear that that is the extent of the power.
We would also like the sunset clause on the power to be brought forward from 2035 to 2032. That would give more than enough time for the industry to deliver on the commitments in the Mansion House accord, and for the Government to assess progress and whether the power is required. We feel that keeping it on the statute book until 2035 would introduce undue political risk.
Mark Garnier
Q
Zoe Alexander: We absolutely support the general direction of the policy. Our members are very committed to investing more in the UK and they are doing a huge amount of work on that. They have already invested heavily in the UK, with huge investments from schemes such as the local government pension scheme. On the DC side, schemes are maturing; they need time to get to the scale of investment of schemes such as the LGPS, but they are on the journey and they are committed to doing that. We do not take this position because we do not agree that schemes should be investing more in the UK; it is to do with trustee discretion to make the decisions about where to invest.
Mark Garnier
Q
Rob Yuille: Yes, there are better ways. The specific point that you mentioned about prudential regulation rules are not for this Bill, but other measures that could be taken, essentially to make the UK an attractive place to invest, are the kind of things that the Government are trying to do. Along with the Mansion House accord, which we were delighted to take forward with Pensions UK and the City of London Corporation, we agree with the Government’s assessment that use of the reserve power should not be necessary and will not be necessary.
Firms are already investing in the UK. The Pensions Policy Institute’s latest statistics show that 23% of DC assets are in the UK, and annuity providers say that it is around two thirds, so we are talking about hundreds of billions of pounds in the UK. There is the appetite to invest in the home market, because they know it best, in the kind of projects that the Government are trying to drive forward and provide policy certainty about. We share the concern about the precedent it sets and the potential impact on scheme members, and we would propose another guardrail.
There is already provision for a review, were this power to be used, of the impact on scheme members, which is right, and the impact on the economy, which is also fair enough, but they should also look at the impact on the pensions market and the market for the assets that would be mandated, because there is a risk that it would bid up prices in those assets, and that it would create a bubble in them. There are guardrails, but more important, there are other measures, including things that the Government are already doing, that make this power unnecessary.
Mark Garnier
Q
Zoe Alexander: That is right, but often those things are consistent, and our members would agree with that. Those things are not inconsistent.
Rob Yuille: I agree.
Sarah Edwards
Q
Rob Yuille: The challenge is aligning it with scheme members’ interests so that they are not put at risk. If a surplus turns to a deficit, which it can do because it is by no means guaranteed, and if an employer then fails, there is actual detriment to those scheme members. As we know, economic conditions can change. It is an opportunity for employers, though—that is the purpose of it—and schemes can and do extract surplus now, often when they enter a buy-out with an insurer.
It does need guardrails, and the Bill includes the provision that it has to be signed off by an actuary and it is the trustees’ decision. That is important, but there is a related challenge about the interaction of the surplus and superfunds. Each of those is okay: you can extract a surplus, for the reasons that we have discussed, and you can go into a superfund if you cannot afford a buy-out. The problem is, if a scheme could afford buy-out, extracts a surplus and then no longer can, and then it enters a superfund, the scheme members are in a weaker position than they would otherwise be. There are a couple of things that could be done about that: either leave the threshold for extracting surplus where it is—which is buy-out level, rather than low dependency—or change the Bill so that the combination of surplus and superfund cannot be gamed to get around that. In any case, as you say, it is important to monitor the market, and for the regulators to be alive to potential conflicts of interest.
Zoe Alexander: Pensions UK is content with the idea of using the low dependency threshold for surplus release. We think the protections are sufficient. Providing that the actuarial certification is in place, the sponsoring employer is in a strong financial position and a strong employer covenant is in place, we think there are real benefits to be had from surplus release. We highlight the fact that some employers and trustees will be looking to move benefits from DB to DC using surplus release, or even to a collective defined-contribution scheme. We are interested in the potential of that to bolster the benefits of those types of scheme, and we would like Government to look at the 25% tax penalty that applies when doing that, because if those funds are kept within the pensions system, that is to the benefit of savers, so perhaps that tax charge need not apply.
John Milne (Horsham) (LD)
Q
Zoe Alexander: There will of course be metrics in the value for money framework that look at the longer term, and looking at longer time horizons is really welcome. One concern at Pensions UK is about the intermediate rankings in the value for money framework meaning that schemes cannot accept new business. That may well result in schemes doing everything they can, at any cost, to ensure they do not drop from the top rating to the intermediate rating. That could cause damaging behaviours in terms of herding. We want to ensure that people in the intermediate ranking, whether that is within a couple of intermediate rankings—perhaps you have a top one and then a bottom one, but somewhere within that intermediate scale—you can continue to take on new business, and the regulator will perhaps put you on a time limit to get back into the green, back into the excellent rating. We think that if it is so binary that as soon as you drop into intermediate, you cannot take on new business, that will heighten the potential downside risks of investment behaviours that you are describing.
Rob Yuille: I agree with that. I strongly support the value for money framework—I think both our organisations do—and the intent to shift the culture away from just focusing on cost and to value for money more generally, but yes, there is that risk. There are multiple trade-offs here: it is about transparency and how much you disclose, versus unintended consequences of that. We want high performers but, for high performance, you need to take risks.
As well as what Zoe says, which we might build on, we do not want a one-year metric. One year is too short a period; pensions are a long-term business. There should be a forward-looking metric, so that firms can say how they expect to perform over the longer term and then regulators and the market can scrutinise it.
On the points that were raised about intermediate ratings, this is another area where there is a potential combination of two bits of the Bill. There is provision for multiple intermediate ratings. It was originally conceived as a traffic light system, so there would be three ratings. If there were four, it would be okay to say to schemes, “You are not performing; you need to close to new employers,” but if there are three, firms will do everything they can to play it safe and make sure they get the green. So the interaction of those is really important.
John Grady (Glasgow East) (Lab)
Q
Zoe Alexander: The small pots reforms are absolutely critical. The problem of small pots was foreseen by the Pensions Commission years ago. We all knew we would face that problem with automatic enrolment, and I think people would agree that it has taken too long to grasp the nettle. We at Pensions UK are really delighted to see the measures in the Bill to deliver the multi-consolidator model. It is really important that the pot size is kept low, as is proposed in the Bill, at least initially, to solve the problem of the smallest pots in the market. Pensions UK has undertaken a feasibility study, working with Government, to look at how that small pots system might be delivered in practice. That work is publicly available. It gets quite technical quite quickly, so I will not go into the details of it, but we believe there is a feasible model of delivering the small pots solution at low cost—one that should not involve Government in a major IT build.
Steve Darling (Torbay) (LD)
Q
Rob Yuille: We have both mentioned the Mansion House accord already. In addition to the ambition to which providers committed, there were a series of critical enablers. Several of those are in the Bill already—thank you for that—including value for money and the drive to consolidation. But there were other things in there as well, including the need for alignment by the Department for Work and Pensions and the Financial Conduct Authority of their rules and guidance in relation to the charge cap pipeline of infrastructure projects, which I know the Government are proceeding with separately; and the need to ensure that the whole market buys into the value-for-money framework. In the pension investment review, Government did not take forward regulation of intermediaries—employee benefit consultants and so on—and we think that they could keep that under review.
The Government are seeking to take other steps that will evolve over time, such as crowding in investments. There are examples such as the British Growth Partnership and the LIFTS scheme, where the Government are either convening or investing alongside providers, which we would like to see more of. Outside of DC, as has been mentioned already, it is about working with annuity providers on eligibility for certain assets.
Kirsty Blackman
Q
Rob Yuille: The most important thing is that trustees do have the power that is in the Bill—that power should stay there. Conflicts of interest were mentioned earlier; it is interesting what surplus release could do to make occupational schemes more like commercial schemes. With master trusts, commercial schemes and superfunds, if pension schemes could be run for the benefit of the employer by taking surplus, that gives rise to a different relationship and potential conflicts. The Pensions Regulator needs to be alive to that. In any case, TPR is becoming more like the FCA and the Prudential Regulation Authority as a regulator, and I think that needs to continue.
Mr Peter Bedford (Mid Leicestershire) (Con)
Q
Zoe Alexander: I would probably lean towards talking about the local government pension scheme in that context. There are some parts of the Bill where we feel powers are being taken that may not be required; one is around requiring funds to choose a particular pool, and one is requiring particular pools to merge. We think that the LGPS is moving in a very positive direction. Obviously two pools have been closed, and funds are merging with other pools already. We are not sure that those powers are actually required. We think that the direction of travel is set and that the LGPS understands that, so we feel that those powers might be overstepping the mark.
Rob Yuille: I have no view on local government. I think what I am about to say should have cross-party support, or at least cross-party interest. It is a macro Bill about how the market and the system work, but it is also about people and the decisions that they need to make. We are glad to see the small pots provision in the Bill, but it is on an opt-out basis, similar to the default pension benefits solutions. People have decisions to make, such as whether to stay in or not, and they need to be supported in the decision making. We are proposing a textbook amendment that would enable schemes to communicate electronically in a way they currently cannot and in a more positive way—even where people did not have a chance to opt in to that kind of communication, which is seen and regulated as direct marketing. We know that there is cross-party interest in the ability to communicate more clearly with customers, specifically in relation to those provisions.
Rachel Blake
Q
Zoe Alexander: If you put yourself in the position of pension scheme trustees, having the presence of the reserve power, which may or may not be exercised, to direct the way that you invest does not necessarily feel like a comfortable position to be in. We understand why the Government are taking that power. We understand the imperative to get more investment in the UK and we support that. Clearly, the longer the power abides on the statute book, the longer there is that risk hanging over those trustees. They may be required to invest in particular ways. We do not know where we will be politically in 2035. We do not know what Government will be in place. It pushes us potentially into another Government, another Parliament—it is the unpredictability. So we did talk with many of our members about this, and had lively debates about whether it should be 2030, 2032 or 2035. There was a really strong consensus around bringing it forward to 2032. We do not want it too early because it might pre-empt a decision that need not be taken. But 2035 felt too far away.
Rachel Blake
Q
Zoe Alexander: I think the trustees we have spoken to, of the schemes in our membership, would disagree. It is a significant point to them, which they have asked us to pass on.
Rachel Blake
Q
Rob Yuille: I am not sure there is, first of all. Canadian and Australian schemes have a big presence here, but I am not sure that they invest more, especially compared with our bigger schemes or in percentage terms. But will the Bill help that? Yes, it will. Driving scale and consolidation, which was happening anyway but which the Bill will accelerate, will open up different types of investment opportunities for those firms. They will be more likely to have in-house asset capability and bargaining power to invest in those kinds of assets. One caveat, however, is that they will be able to invest globally—the same as Canadians and Australians—so it is not a given that they will invest more in the UK. The UK still needs to work hard to be an attractive place to invest.
Callum Anderson (Buckingham and Bletchley) (Lab)
Q
Zoe Alexander: I am pleased to talk on this point. We are supportive of consolidation and we absolutely see the benefits of scale, but we are concerned that there are a very small number of very high value schemes in the market that are already adversely affected by the presence of the scale provisions in the Bill. EBCs are not sending business their way because they are under £25 billion or cannot necessarily show those that they are on a path to that number. It is really critical that the transition pathway is in place as early as it possibly can be, and also that EBCs are encouraged to understand the way that the market dynamics will work here. What we do not want is for really high-value schemes that are delivering great investment returns, that are really innovative and that may be investing very heavily in the UK to fail simply because of the scale test. We want those schemes to provide and to grow, in the interests of members.
Rob Yuille: I agree with that, but I would like to make a wider, related point about the route to 2030 and the importance of getting the sequencing right for—
The Chair
Order. That brings us to the end of time allotted for the Committee to ask questions. On behalf of the Committee, I thank our witnesses for their evidence. I apologise for having had to cut you off.
Examination of Witnesses
Patrick Coyne and Charlotte Clark gave evidence.
The Chair
We will now hear oral evidence from Patrick Coyne, director of policy and public affairs at the Pensions Regulator, and Charlotte Clark, director of cross-cutting policy and strategy at the Financial Conduct Authority. Again, we must stick to the timings in the programme order, which the Committee has already agreed. For this session, we have until 10.25 am. Would the witnesses please briefly introduce themselves for the record?
Patrick Coyne: Hello, everyone. My name is Patrick Coyne. I am the director with responsibility for pensions reform at the workplace Pensions Regulator. I am pleased to be here today to talk about the Bill, which we believe is a once-in-a-generation opportunity to make the system work for savers.
Charlotte Clark: I am Charlotte Clark. I am the director of cross-cutting policy and strategy at the FCA, where I have lead responsibility for pensions.
Mark Garnier
Q
Patrick Coyne: I think that question is more relevant to me. The reforms across the Bill could be good for savers, but they could also be good for the UK economy. What you are pointing to is a wider, systemic issue in the marketplace, where we have a patchwork quilt of regulation that has built up because the pension system is idiosyncratic, and in some cases 70 years old. The Bill is trying to give trustees the tools for the job. On surplus release, it is trying to give them a statutory override, to look across the piece and say, “When I am a well-run, well-funded pension scheme, is it right that I can extract surplus if it is safe to do so?” We think that is a really important principle.
Mark Garnier
Q
Patrick Coyne: Another important part of the Bill is making sure that we get implementation right. There will be a period now when we can consult, and all of us—Government, industry and the regulators—have a role to play to make sure that that happens. I would say that the Bill will actually prompt a discussion that might not have been had by many trustee boards over the last few years. If you look at the amount of surplus that has been released in recent years, it is in the tens of millions, not the billions. We now estimate that three quarters of schemes are in surplus on a low-dependency basis, which is an actuarial calculation of self-sufficiency. That means there could be up to £130 billion across the market. We think it is right that well-funded, well-governed schemes can consider releasing that surplus, if it is in the interest of members to do so.
Mark Garnier
Q
Patrick Coyne: I think it is highly unlikely that that scenario would happen. Our engagement with the marketplace tends to show that firms considering a different endgame option, which might include running on and releasing surplus, tend to be doing so on a basis where they have hedged their assets, so that they can manage economic volatility, and they are using growth assets above that limit to consider surplus release.
Mark Garnier
Q
Patrick Coyne: It is important that we have a regulatory framework that can cope with different economic conditions. Over a number of years, Parliament has introduced a number of pensions Acts to ensure that defined benefit schemes, which are mostly mature—mostly closed—are secure.
There is a real opportunity in the Bill to build on the fantastic success that we have had in creating a nation of savers—11 million more people putting something away for retirement—and turn that system into something that can provide an adequate income in older life. That means turning the focus of the DC system on to value for money. That is where I believe the real potential is.
Mark Garnier
Q
Charlotte Clark: It is not in this Bill, but there is a very large work programme going on at the moment around the advice guidance boundary review. As Patrick said, as pensions have changed—there have been big changes in the market over the last 10 years or so—more and more people have come to need support, particularly at the point of retirement, but also in thinking about how you build assets in pensions and more generally. All the targeted support work we are doing is about how you help people more to make these difficult decisions. This Bill is very much about, “How do you get the market right?” but at the same time, we want to make sure that savers have the right support to make the right decisions at the point of retirement or before.
Mark Garnier
Or, indeed, when they first start to work. As somebody once said, compound interest is the eighth wonder of the world.
The Parliamentary Under-Secretary of State for Work and Pensions (Torsten Bell)
Q
Patrick Coyne: Over a number of years, we have worked closely with the Financial Conduct Authority to ensure that when we deliver interventions within the pensions landscape, the outcomes are consistent. One way we have done that is through an update to a joint strategy. We also have almost daily calls with one another to ensure that when we consider interventions and how to enable the system to provide value for money and support people at retirement, we do so in a coherent and comprehensive way. We must really understand the different constituents of our marketplace, whether they be workplace versus non-workplace pensions, or, in the People’s Pension space, pensions analogous to the master trust offer.
Charlotte Clark: To add to Patrick’s point, we meet fairly regularly. There are various different forums and working groups. As you say, Minister, there is that sense that it does not matter where you save. Most people are probably saving in both the contract-based side and the master trust side, given that people have pots in lots of different places. It is important not that people understand where the regulation is, but that the regulation is consistent and there is no arbitrage between the two systems.
Steve Darling
Q
Charlotte Clark: I will talk a little about the value for money framework and then specifically about your concern on risk. The value for money framework, which is an area we are working on very closely, will have three aspects to it. One is costs. One is, as you say, investment performance and investment allocation, and one is service. All of those will be important aspects of getting the value for money assessment right.
On the investment side, I hear the opposite charge, actually, rather than dumbing down. There is a sense that a scheme could take too much risk so that it looked like value for money, but there is a trade-off between risk and return. If you are going to do that, and if you have high-risk assets in a downturn, there is a possibility of volatility. Within all these schemes, you still have trustees, independent governance committees and professional advisers who make sure that the investment allocation is right for the saver. That is almost the first part before you get to the value for money assessment. I do not think there should be a dumbing down of investment.
One of the other challenges, which links to the move into private assets that has been raised a couple of times, is the possibility of pension schemes getting more involved in things such as infrastructure. One thing that the industry has asked us to consider is whether, when you invest in those sorts of assets, there is a J-curve in terms of the returns; there might be a suppression at the beginning as projects get up and running. We have been looking at the Australian examples and we do not really see that happening in their data, but it is something we are considering and we are talking to the industry about how to get it right. We do not want the value for money assessment to stop people being able to invest in those sorts of assets.
Patrick Coyne: Just to add that the competitive pressure on the marketplace at the moment is on cost, and cost is not value. To illustrate that point, for the average saver, a 1% increase annually in investment returns would generate a pot that is 20% bigger at the end of a lifetime of saving. We have to move the competitive dynamic, but implementation, as Charlotte said, is critical.
Steve Darling
Q
Patrick Coyne: I think bringing consistent comparable metrics that matter to the marketplace in a format that people can trust can start to drive competitive pressures on what matters, which is holistic value. Trustees—and across the Bill—want to do the right thing. They want to act in members’ best interests, but they do not have the tools for the job. The starting point is to provide them with quality information to act on that intent.
John Grady
Q
Charlotte Clark: It is important to say that most people who are saving in a pension are probably saving in the default. When you say that they are choosing their investment, most of them are not. Whether it is the trustees of that scheme or whether it is the independent governance committee of that scheme, most people are going into that default, so the importance of the default is really crucial. While it is important to really think about engagement and talk about the advice guidance boundary review and some of the work that is happening there, it is also important that some people will not want to make those decisions. It is only people like us who seem to care about these sorts of things. Getting other people engaged in their investment is quite a challenge.
You are right that we are doing quite a lot of work, largely around the ISA area and the at-retirement area. One of the challenges at the moment is people taking money out of their pension and then putting it in cash. That may seem like a really wise decision if you are 55, but if you do not need that money for 20 years, it may keep track with inflation but you are going to miss out on asset returns, equity returns or other aspects of investment. So, we are really thinking about how we engage with people about those sorts of discussions. How can we make sure they are getting the right support? It comes back to the targeted support programme, which goes live in spring next year. So, working with providers at the moment on how they can support people when they are making these sorts of decisions, and just think about whether, if it is not full financial advice—I understand that can be very, very costly—are there other areas where we can give people help that is not as kind of extreme as that but allows people to think about those decisions in the round?
Patrick Coyne: I would just add that one of the reforms in the Bill around guided retirement is reflective of that default conundrum we face. We have a brilliant system—11 million more savers—but nobody making an active choice. That means that when people approach retirement, only one in five has a plan to access and when they do, as Charlotte said, half are taking it as cash. That cannot be the right outcome. Within the Bill, introducing a guided retirement duty enables those institutional investors to start to guide individuals or cohorts of members into the right kind of products for them, with clear opt-outs for them to choose a different way. As Charlotte said, the type of support and new form of regulated advice could really help inform savers and make good choices at that point.
Rebecca Smith (South West Devon) (Con)
Q
Charlotte Clark: Following on from Zoe and Rob—I think they have articulated this issue really well—I do not think anybody disagrees with the direction of travel: trying to get more assets into private markets and higher return markets, and making sure there is more diversity within portfolios and that the scale of pension funds in the UK are using that in an effective way on investment. The issue of whether mandation is the right tool to use is ultimately one for you and the Government. There are obviously challenges, which Rob and Zoe have articulated, around how you do that, when you have a trustee in place whose responsibility is to the member, and making sure that is paramount in the system?
Patrick Coyne: I agree with that. I think it is fair to say that there is a degree of consensus in the marketplace, among Government, industry and regulators, that we need to make structural reforms to the marketplace and put value for money at the heart of the system. A big part of that is a move towards fewer, larger pension schemes, because of some of the factors that Charlotte just outlined—the ability to in-house your investments; the ability to consider a broader range of investments, which can sometimes be quite complex; and broader governance standards. Mandation is of course a matter for Parliament, but clearly structural reform is needed within the marketplace.
Rebecca Smith
Q
As a supplementary question, do you think trustees and scheme managers should be provided with a safe harbour if they are required to invest in assets that underperform? I think that is probably what a lot of the public would be interested in as well. You do not want somebody to be mandated to put money into something that is doing worse than it was doing before it was moved.
Charlotte Clark: There is an exemption in the Bill, though, that basically says that if you are a trustee and you do not believe it is the right thing for your members then you should not put that money in. That is just going to be a very tricky assessment for the trustees or the scheme manager, and then for the regulators, at the point of addressing why they did not meet those levels. If they believe that it is not in the interests of the member, the Bill allows for that.
Rebecca Smith
Q
Charlotte Clark: The level of that process would be something that we would put into secondary legislation and rules. We would really have to think through what that process looks like.
Patrick Coyne: Yes, absolutely. Implementation is critical here. This will be something that is done with wide consultation with the industry.
Torsten Bell
Q
Torsten Bell
The question to the witness is to expand a bit more on that point. In reality, this provides a “comply or explain” power. In terms of the point Charlotte was just making there, it is absolutely right about the ability of the trustees to say, “This is not in the interest of our members.” It might be worth talking a bit about how when we move forward the consultation will allow us to set out how that would work in practice.
Charlotte Clark: It is an area that we would need to work through in terms of the road map. At the moment, our focus is very much on getting the value for money framework right. How the mandation would work and the process around it—as the Minister says, first, we would consult on it. We would have to have a look to see what information was given and how we would monitor it in the period from now to 2030 or 2035. We would have to work through all of those aspects of the process. We would do that in conjunction with the industry, making sure that what we were asking for was information that it could readily provide and that we felt confident that we could make a good assessment around.
Patrick Coyne: Our engagement with the marketplace so far already shows that many are considering investment strategies that have significant proportions of diversified investments, so the market is already responding based on some of the Mansion House accord commitments.
John Milne
Q
Patrick Coyne: I think that fiduciary duty is a powerful force for good. Across the Bill, this is about giving those trustees the tools for the job. I think there are a number of areas where that is true. Within the value for money framework, at the moment, it is very difficult for employers or schemes to effectively compare performance. As an anecdote, I was speaking to a provider recently. They were pitching for new business. They came in and pitched their investment data, and the employer said, “You’re the third provider today that has shown us they are the top-performing provider.” That cannot be right.
Then, when you are looking across the Bill towards the DB space, because of the funding reality that many schemes are facing at the moment, there is choice in end game options—so, “How do I enhance member outcomes at the same time as securing benefits?” Actually providing a statutory framework for super-funds as another option is a good first step, as is allowing the release of surplus, if it is in the members’ best interests to do so.
Kirsty Blackman
Q
Charlotte Clark: It is a good question. It is hard to get over the fact that the vast majority of people are very inert in the pension system. Of course, there are some who are not, specifically around ESG—environmental, social, and governance—investments, but most trustees take those things into account, and there has been clarification about how that aligns with things like the fiduciary duty. Obviously, within the contract-based scheme, there frequently are options, if somebody does not like something that is invested in within the default, to have their own investment strategy, if that is what they choose to do. Do I think this Bill changes that? I do not think so. I think what the Bill is essentially trying to do is use the power of scale and collectivism to get better returns and, really, a better service for most savers.
Kirsty Blackman
Q
Charlotte Clark: Almost certainly.
Luke Murphy (Basingstoke) (Lab)
Q
Patrick Coyne: TPR’s responsibility is not for the asset pools, which are FCA-regulated entities, but we do have responsibility for governance across public sector schemes, including LGPS funds. It is really important to recognise the member voice within good decision-making, as Ms Blackman’s question indicated, but there are a number of ways to do that within standardised corporate governance boards and reporting functions, and that is something that we would look to explore over the coming months. With the LGPS boards, like the rest of the Bill, there is the ability, through greater scale, to start hiring better colleagues, introduce better systems and processes, and put in place better governance practices, and we would expect to see that come to pass.
Sarah Edwards
Q
Charlotte Clark: As Rob says, sometimes it is slightly overplayed. There is a lot of investment from UK pension schemes, whether they are DB or DC, within the UK. Why does Canada look like it invests a lot? It is a very mature system. We have two systems—one is in decline and one is in the ascendancy—whereas the Canadian system has been established for 40 years. The auto-enrolment system is essentially 10 years old, so they have a much more mature system. You see within those schemes that they have scale—they are very large and very mature schemes—and, in terms of things such as their investment approach, it is frequently internalised. They have been looking at private assets for longer than we have, particularly in the DC master trusts, auto—
The Chair
Order. That brings us to the end of the time allotted for the Committee to ask questions. On behalf of the Committee, I thank our witnesses for their evidence and apologise to hon. Members whom I am afraid time did not allow me to call.
Examination of Witnesses
Christopher Brooks and Jack Jones gave evidence.
The Chair
We will now take oral evidence from Christopher Brooks, head of policy at Age UK, and Jack Jones, pensions officer at the TUC. Once again, we must stick rigidly to the timings in the programme motion, as the Committee has previously agreed. For this session, we have until 10.55 am. Could the witnesses please briefly introduce themselves for the record?
Christopher Brooks: I am Christopher Brooks, head of policy at Age UK. We are the national charity for older people.
Jack Jones: I am Jack Jones, pensions policy lead at the Trades Union Congress.
Mark Garnier
Q
Jack Jones: I believe that was aimed specifically at the LGPS requirements, but yes, I would certainly agree with that, and it probably extends to some other areas of the Bill as well. Unison is not alone; all the unions involved in the LGPS scheme would agree that the pooling structures mostly have a clear lack of member representation on their governance boards. There is a real mishmash of governance arrangements and of reporting and transparency arrangements across the different pools at the moment.
We have some examples of quite good practice—there are pools with a meaningful number of member representatives on them, but they are few and far between. Many have no representatives or only have observers that do not have any voting powers. Member representation has an important role in the LGPS, with a long history of ensuring that members’ interests are represented when investment decisions are made. Moving away from that has taken something away from the scheme.
It is particularly important when looking at measures that will make investment decisions more remote from members by pooling into larger geographical areas and larger funds, and by requiring—or expecting—them to invest in more complicated assets with higher up-front fees. That is the point at which it becomes even more important to have oversight, to give reassurance that members’ interests are at the heart of all those decisions.
Mark Garnier
Q
Jack Jones: That is a good question, and it is a wider issue. Member representatives are there to ensure that people with skin in the game are around the table when decisions are made. They are there to reassure members that people like them—those who will be relying on the scheme for their retirement income—are involved in those decisions. Yes, they cannot represent the full range of any large scheme’s membership. A lot of interesting work could be done around how you find out what members think about how their money should be invested and how we then take that into account in decision making.
That is one area where, at the moment, there is potentially a little bit of a gap. The trustees have clear guidance that they can take into account non-financially-material ESG factors, but we hear a lot from unions that there is a very high level of wariness from schemes about actually doing that. They quite often point to their fiduciary duty and say, “Actually, our primary responsibility is towards the financially material factors.” They quite often ignore the guidance that says they can take into account other factors where they know it is in their members’ interest. Work needs to be done on what the best mechanism is to find out what Members think, but there is also a job to make sure that trustees know that they can and potentially should act on that.
Mark Garnier
Q
Jack Jones: Well, it is the members’ money that is being invested. You have to make a balancing decision, but where you have clear evidence that the majority of members have these ethical beliefs that they want to see reflected in how their money is invested, you need to take that into account.
Mark Garnier
Q
Jack Jones: Clearly that risk is there, and it would have to be managed very carefully.
Mark Garnier
Q
Jack Jones: I think it puts a lot of responsibility on trustees to make that assessment. I think it is fair enough to set out the criteria under which trustees might consider surplus release—that is where you have sustained and high surpluses on quite a prudent basis. Whether you actually make that decision to release that surplus and whether you think that is in the members’ best interests relies a lot on trustees making that decision.
One particular weakness at the moment is around potentially allowing sole trustees to make that decision. This is usually where you have a closed DB scheme that, instead of having a fully constituted board with member representation, will have a sole corporate trustee appointed by the sponsor. There, the conflicts seem too great to possibly manage for that corporate trustee to make a decision on behalf of the members and say, “Yes, we think it is appropriate for surplus to be released.”
It would also be really useful for guidance to lay out the ways in which any kind of surplus release must benefit members as well as the sponsor. There is obviously the argument that if the sponsor then goes and invests that money in, for example, either higher pay or better contributions for DC members or investing in the business, that is in the members’ wider interests, but we need to recognise that although employers suffered quite a lot because of the really high deficits that we saw over a sustained periods by having to put in those employer deficit coverage contributions, members also suffered.
You saw schemes being closed and benefits being cut in various ways. We had reductions to accrual, changes to indexation and that kind of thing. Guidance should probably recognise that and say to the trustees, “If you are going to consider releasing surplus, it needs to be done in ways that both benefit the member directly by improving their benefits in some way.” It is a complex question: what is the best way of doing that? I would not want to prescribe that too much. However, the principle that trustees have to consider is how that money is used to actually improve benefits, as well as potentially to—
Mark Garnier
Q
Christopher Brooks: We do not work on final salary pensions, so I do not take a view on it.
Torsten Bell
Q
Christopher Brooks: I think they all work together, so I would say it is a combination of them, but scale seems to be one of the main drivers. I am thinking about NEST in particular, which has been leading the way in terms of investing in private assets. It is able to negotiate a good deal, because of its scale. If you can drive that with similar outcomes across the marketplace, it will be really beneficial to members.
Torsten Bell
Q
Christopher Brooks: NEST has essentially negotiated with the private finance industry, and is not paying the “two and 20” classic fee structure, so it is not paying the performance fees. It has incorporated it all into its existing charges. If the intention is to drive greater investment in private finance, that is the way to go about it. If that scale is replicated across the industry—across the 15 to 20, or however many, schemes remaining at the end of the consolidation process, which I fully support—then hopefully you would be in a position to replicate those types of outcomes for members across the board, in their DC savings.
Jack Jones: I would say something very similar. As a package, on the DC side, it is scale that potentially has the greatest power. It is probably important to look at the factors that would make sure that the scale results in the changes you want. It is interesting to look at NEST; it has scale, but it also has a business model and governance structure that incentivise it to go and build up its experience in investing in those markets, and to have an understanding of what its fiduciary duty is, which very clearly includes looking at the widest range of assets possible and investing in them. So I think it is scale, as long as you have everything else in place there to make sure that schemes are using that scale in ways that benefit members.
Steve Darling
Q
Christopher Brooks: That is a really good question. I think that first, I would flag the decumulation provisions, which are a really excellent idea. They are exactly what should be happening at the moment. Because it is a new regime, there are lots of challenges around designing and implementing it, which probably need quite a bit of thinking through, just to make sure we can get it right for members.
There are some tensions in that process: if you are defaulted into something at, say, 65, there would be some tensions around the point at which you should do certain things. I think the general consensus is that it will result in people purchasing an annuity further down the line—probably around, say, age 75 or 80. We have seen for many years, pre-freedom and choice, big issues with the annuity market, with people shopping around, or failing to shop around, to get a better deal. If you are encouraging people to do that at age 80, that is potentially a recipe for disaster. First, because people will be taking a decision that they are not familiar with, and it is alien to them. Secondly, at age 80, a number of people are experiencing cognitive decline, so it is going to be even more challenging than it would have been at 65. That kind of thing, exactly how it works, needs thinking through in more detail.
On that point, I still think that ultimately, if you are going to force people into the open market, you probably need some kind of clearing house, so that it removes the risk, because there will be scammers out there, listening to this session, I am sure, and rubbing their hands with glee at the thought of lots of people taking those decisions.
The second point is about the contractual overrides, which are clearly crucial to make the whole system work. I think we need to make sure that the best interests test is working for members. When I read the Bill initially, the thing that stood out most for me was that there seemed to be a lack of consumer protection at that point. When the provider undertakes the best interests test, if they are making an external comparison, they only have to compare with one other situation, one other scenario. That is what it says in the Bill. I do not think it is sufficient. I think the Bill should be amended, at least to say, “Make two comparisons,” or possibly to be a bit vaguer and say, “Make a reasonable number of comparisons,” so that it can be left open-ended and give a bit more scope for flexibility. That seems to be one area.
I think the best interests test needs to consider different classes of members as well. At the moment, it just looks at members as a whole, but there are different people in different situations within any scheme. For example, people approaching retirement are in a completely different position from people in their 20s or 30s, so any decisions about transfers need to make sure that all those interests are considered.
Probably the main point is about the independent assessor, who will then look at the best interests test and how it has been conducted and rubber-stamp it according to some FCA regulations yet to be written. We think quite strongly that the independent assessor should have some kind of fiduciary duty applied to them. I do not think there is any reason why this could not work, but at the moment they do not seem to be fully incentivised to act in the members’ interests or prioritise members’ interests above those of the scheme.
That is another really clear addition to the Bill that we think should take place. I think that would make the system so much more robust. There are potentially some really negative outcomes for members if they are transferred into inferior arrangements. I am sure it is not the intention of the Bill to do that, and it is probably not the intention of most providers, but it could still happen. I think putting some kind of fiduciary duty on the independent person would give this a lot more strength and make it fairly watertight for members.
Damien Egan
Q
Christopher Brooks: How the Bill tackles that is probably through the governance structures that will be put in place. When there is a fiduciary duty, the governance is reasonably strong. I believe it is stronger under a fiduciary duty than under the contract-based system. For example, the trustees are better placed than IGCs—independent governance committees. I think we will see IGCs potentially play a greater role in some of the transfers. That is an opportunity to make sure that IGCs can do their job more effectively and have better access to the necessary data, which was flagged previously by the FCA as not always being the case. Clearly they need to be independent, so it will not be appropriate to have employees of the firm sitting on them any longer. I believe a number of them do at the moment, but I do not think getting employees taken off will be an issue.
Once you are in retirement, you have a separate issue. Because the decumulation part of the Bill leaves a lot to the regulators to decide in the future, it has not been clearly specified how the governance will work, so there is an issue about making sure, when those regulations are written, that it does work well for people. There is clearly going to be a gap around information as well. We recently did some research with Aviva, and one of the recommendations was that we need some kind of intervention for people in their mid-70s about how they look after the rest of their lives and how they manage their pension. That kind of support is going to be crucial if people are expected to take a decision in their late 70s or early 80s with regard to annuitisation or how they draw down the rest of their money. There is a big gap there as well.
Mr Bedford
Q
Christopher Brooks: Providing information takes you so far, and it is really important to do that: there are some really big gaps, as we see with Pension Wise UK, which is a really good and well-liked service, but has a really low take-up. That is just an example, but we need to get more people into a position to access the information. However, they will then still need a lot of support, because pension decisions are really challenging for the vast majority of people.
Mr Bedford
Q
Christopher Brooks: It could lie either with Government and the Money and Pensions Service providing a widespread service, for example. It could lie with charities, or providers could be told to help people with these decisions—they could potentially commission charities. We are working with Aviva to look at running a pilot in the retirement space, which will hopefully go ahead soon and give us some insights into what kind of support people need. People think about their lives holistically, and they are not necessarily thinking about a pension as separate from their current accounts, so we need to think about how it works for people. That is the key thing.
Jack Jones: I think we look at this slightly differently. I am not convinced that any more financial education, guidance, or points at which we need to intervene in the system to ensure that people are equipped to make decisions is the way forward. This Bill recognises that, and the introduction of default retirement products is a recognition that everywhere else in the pension system, it works on the principle of default and generally works quite well. We have seen that that principle is really powerful; if people are defaulted into something, they will stay there, whether that is their contribution rate or the investment options. Defaults are really sticky; we rely on that and make use of it through auto-enrolment, to get people into saving schemes.
More and more, as we find ways in which that does not work, we need to go back and look at fixing the system a little bit so that it works better by default, rather than providing people with more education, because that is pushing against the grain of all of our experience of what works and what is effective. I think that Chris is right that it puts a lot on the governance structures and on the consumer protections there, but I think that is where this Bill has to work. It has to put in place something that will be appropriate for the vast majority of members, and that will work with the minimal amount of engagement—we have to have some kind of engagement on retirement, such as, “This is what I am going to retire and this is where my pension should be paid,” but not beyond that.
David Pinto-Duschinsky (Hendon) (Lab)
Q
Jack Jones: As Zoe said earlier, we should be here already. It has taken us a long time to get to the point where we have an agreed solution. It looks as if the mechanics of it will work. I think we need to let that bed in and prove that it works. The main concern from our perspective is the £1,000 definition of a small pot. Obviously, from a lot of angles, £1,000 is a lot of money—but as a pension pot it really is not. Looking at this once you have proved the concept and you have a system that works and that hoovers up the smallest pots and those most likely to become orphaned is one thing, but I think if you are looking at helping people to avoid accumulating 10 medium-small pots over their career, we need to look at how to increase that over time.
Christopher Brooks: I agree with Jack. I think the Bill is really strong on small pots and the system that is envisaged will really help. I guess my only comment would be that £1,000 is not a huge amount of money, so maybe over time that amount could be raised, and some kind of indication that that is the intention might be helpful.
John Milne
Q
Christopher Brooks: Yes; I think a lot of schemes do not interpret it broadly, so they probably take things literally regarding financial materiality—that is obviously very important, but they could probably do more. I think there is a very strong case for reform in fiduciary duties, just to make it clear in the law what it actually means. It is more of an enabling tool for providers, I think, rather than anything restrictive. When there needs to be some direction for schemes to invest in particular ways, I think there is sometimes a bit of reticence. That is true of investing in the UK, maybe with some private finance and maybe with regards to climate change. The larger schemes no doubt do understand it, but all schemes need to understand that they can invest in these things and that that is possible.
I am no expert on this, but, as I understand it the fiduciary duty is all over the place in the law, and sort of hinges on bits of case law and bits of very old legislation, so clarifying that would be a really good move.
Jack Jones: I would agree with that. I think there could be statutory guidance to make it very clear to trustees what their fiduciary duty actually involves, and that it does go beyond that kind of narrow interpretation. As I say, you should take into account your members’ quality of life more generally—for example, investing in ways that support the UK, when that is where your members are, is something that is in their wider interests, and managing systemic risks such as climate change is obviously very material financially, but also has an impact on the kind of world they will be retiring into.
As I said before, we do hear fiduciary duty occasionally being used as a reason not to do the hard stuff and not to think through that. There is nothing inherently problematic there, but clarifying and making sure that trustees are fully aware of the breadth of fiduciary duty would be helpful.
Rachel Blake
Q
Jack Jones: Like I said, I think the one specific measure is not allowing surplus extraction where you have a sole corporate trustee.
Rachel Blake
Okay, so that is the one specific measure.
Jack Jones: Yes, that is the one specific one. More generally, I think there should be guidance that makes it clear to trustees that they have to weigh up the benefits to members, or to make sure that any kind of surplus extraction benefits members through improved benefits, rather than just through improving the company or returning money to the sponsor in some way, which they may or may not then use to do things that would give the member more security in various ways as an employee. Those are the two areas.
Rachel Blake
Q
Jack Jones: It sounds plausible, but we have not really looked at that yet. However, that is certainly something that we can do, and we will look at including that in our written submission.
The Chair
Order. That brings us to the end of the time allotted. I thank the witnesses for their evidence, and we will move now to the next panel. Thank you very much indeed.
Examination of Witnesses
Colin Clarke and Dale Critchley gave evidence.
The Chair
Q
Please could the witnesses briefly introduce themselves for the record?
Colin Clarke: Good morning, everybody. I am Colin Clarke, and I am head of pensions policy at Legal and General.
Dale Critchley: I am Dale Critchley, and I am policy manager for workplace pensions at Aviva.
Mark Garnier
Q
Colin Clarke: It is a very good question. There are risks that an employer could extract surplus so that it puts the scheme in a position where something might happen in the future that caused them to be underfunded. It is quite key that, although the Bill has some very high-level rule-making powers at the moment, the guidance that comes out alongside that makes very clear the circumstances in which it would be appropriate for trustees to be able to do that.
Scheme rules aside, trustees today are able to extract surplus, and they have to follow fiduciary duty, follow a process and get advice from independent advisers to make sure that what they are doing will not jeopardise the security of members’ benefits. The Bill itself is mainly to override any sort of constraints that trustees have within their rules that might prevent them from doing that. However, trustees would still have to follow the same process they would follow today to make sure that they are in a good position from a funding perspective, that they do not take anything out too hastily and that they look a few years ahead. It is not just a case of being able to extract surplus from an affordability point of view today; they need to be looking ahead to the long-term funding position as well.
Mark Garnier
Q
Dale Critchley: It is a trustee decision to take. I do not necessarily think that the trustees need to take into account what the employer is using the surplus for. They are looking at whether it is appropriate to return the surplus to the employer.
If you look at a case from 2023 that went to the ombudsman, Aviva was involved in the buy-out for a company that subsequently returned £12 million of surplus to the employer. The trustees, the ombudsman found, had acted quite rightly by taking into account the fact that the company had made considerable contributions, including considerable deficit contributions, over the years, and that it was right, in the trustees’ opinion, that once all of the benefits promised to the members had been secured, the excess was delivered back to the employer. I am not sure that that company or those trustees took into account what that company was going to use the money for; they just looked at whether or not it was appropriate to return the surplus to the employer.
Mark Garnier
Q
Dale Critchley: I am not a defined benefit pension scheme trustee, but I would expect the trustees to look at the members first of all: are the benefits secured that were promised to the members? Is there room to reasonably augment those benefits? However, to say, “We will only give you this surplus back if you use it for x” is, I think, overstepping the duty of the trustees.
Mark Garnier
Q
Both of you manage annuity funds. For the record, I have had a chance to meet representatives of your organisations and have had long discussions about this. One of the interesting points that has come out of conversations with many people and organisations in your position is that, while the thrust of the opportunity of this Bill is to bring together pensions and make them more efficient, and another is to be able to unlock opportunity to invest into the UK and into various opportunities, yet there are some rules that are not being addressed. As one of your colleagues mentioned to me, Dale, an annuity fund is not allowed to invest into equities, yet investing into something like a wind farm would be an ideal opportunity to get a predictable return. Do you think the Bill is missing out on some of these measures that could be updated?
Dale Critchley: I do not think it necessarily needs any change incorporating into the Bill. It is a matter for the Prudential Regulation Authority to allow us to make the investments that back our annuities. We would be quite happy to take that up afterwards, but I think that could be achieved through a change to PRA rules rather than incorporation into the Bill.
Mark Garnier
Q
The Chair
Can I ask for short answers now, please, because we need to move on to other Members.
Colin Clarke: It is an interesting question. It is not something I am a huge expert on, to be honest, and it needs careful thought, because there could potentially be some unforeseen consequences that I have not considered. If there were going to be any suggestions to change any rules in that regard, there would have to be evidence gathered to understand what the potential implications of that would be.
Torsten Bell
Q
Dale Critchley: Obviously, this is dependent on regulations, but DWP people have been very open in conversations. That has been really welcome, and we have a good picture of where we are headed. We launched a “flex first, fix later” solution called guided retirement. We are now looking at flexing that guided retirement solution to offer different flavours to fit the different cohorts and the amount of risk people can take in terms of fluctuations in their income, dependent upon guaranteed income from elsewhere, or the level of their fund. At one end, you might have a cohort of people who almost need a guarantee. We could go down the route of an annuity, but we are reluctant to do that, because we think that an immediate annuity purchase might put people off. We need to ease people into the idea of an annuity purchase, and that is where we are going. For those people who want more of a guarantee, it might be lower-risk investments and in a drawdown phase for a shorter amount of time. For people who can take more risk, it may be higher-risk investments in the drawdown phase and in drawdown for longer, with an annuity purchase later. That is where our thinking is at the moment.
Torsten Bell
Q
Dale Critchley: It is the ability to take risk.
Torsten Bell
Your metric for that is just other income sources plus size of pot?
Dale Critchley: It is those main two at the moment. We are also working with a guy called Shlomo Benartzi, who is a behavioural science expert, to look at the whole concept of defaults in retirement. It is one thing defaulting people into taking £120 a month from their salary; it is a very different thing to say, “I am now going to take the biggest amount of money you have ever seen in your life and use that to purchase an income.” That is what we want to test, because if the default is strong and if inertia works, we will get people moving away from the poor solutions they are choosing at the moment, but if people still think, “Well, I do not like the look of that,” they will go on to make the same poor decisions they are making now, and we will not achieve the policy aim. So we think we need to deliver what is right for customers and members, but also what is attractive to them—so looking at their wants as well as their needs.
The Chair
Could we have shorter questions and answers? Does Mr Clarke have anything to add?
Colin Clarke: We have been working a lot on the FCA’s targeted support proposals, which are very supportive of the measures proposed in the Bill. We have been doing a lot of research around member segmentation and looking at the different scenarios and outcomes, so potentially going a little bit further than looking just at age and pot value, and also looking at what sort of questions we need to ask people to ensure that they are guided to the solution that is appropriate for them.
I agree with Dale that decumulation defaults and accumulation defaults are completely different things. In accumulation, there is more of a “one size fits all” approach, because it is all about delivering the best returns for members, whereas when you get to decumulation, it is very personalised, and you do not want to put people into something where they cannot change their mind. It needs to be flexible; people have a wide variety of different needs, and we are doing a lot of research on member needs at the moment.
Steve Darling
Q
Colin Clarke: That is a good question. Both our companies have recently been on various trips, to Australia, in particular, and there are various references in the Bill impact assessment to measures that are being or have been done there. One of the key learnings is around improving adequacy. In the round, there are lots of measures in the Bill that will help achieve that—for example, the introduction of the value for money test and the potential for better returns. One of the learnings we took away was around Australia’s “Your Future, Your Super” test, how they define value for money and how appropriate it is to set certain benchmarks. What are the risks if you do set those benchmarks, like the risk of investment herding and things like that? I think the value for money framework, if it is done right, has the potential to improve outcomes for members.
Contributions, obviously, is one big thing—I know that is not in the Bill. The Pensions Commission is going to be looking at that for adequacy in the round. I think that the measures around performance and value, and ensuring that the focus shifts away from cost to value, are among the key things that the Bill will seek to deliver.
Alice Macdonald (Norwich North) (Lab/Co-op)
Q
Dale Critchley: What we have heard from Australia is that the thing to avoid is regulator-defined targets, which will probably lead to herding, and can lead to schemes avoiding certain investments. For example, in Australia, property includes social housing and commercial property, but there is one benchmark for everything. So pension schemes do not invest in social housing, because they cannot achieve the benchmark through investing in social housing, as the benchmark is common across all property. Those are things to watch out for.
The other piece is that if you have set benchmarks, people will look to achieve the benchmark and not exceed it—they do not want to be the white chicken among all the brown chickens. Those are the things to avoid, in terms of the value for money benchmarks.
Rebecca Smith
Q
Colin Clarke: I think it is right that the Bill, as I understand it, places the responsibility for member education and member communications on the provider, because ultimately the pension provider will be the organisation facilitating these things and making them happen. As was touched on in the previous panel, the availability of Pension Wise and other services like that is valuable, but I think pension providers ourselves have a responsibility to make sure that we deliver the right guidance and support for members.
Dale Critchley: The only thing I would add to that is that, if we start to edge towards guidance, we can come into an issue around marketing. If we sell the benefits of, for example, the default solution, rather than just say, “This is who the default solution is designed for,” and leave it to the customer to join the dots, we may have a better outcome, but it would be marketing, and we cannot do that, because of the privacy and electronic communications regulations. We would need member consent to deliver marketing communications, even though we are trying to help the customer.
Rebecca Smith
Q
Dale Critchley: Yes.
Rebecca Smith
The privacy piece came up earlier this morning as well, so that needs looking at.
Dale Critchley: If we deliver something that looks towards targeted support, where instead of just saying, “This is the solution you will go in if you make no choice,” we say, “This is the solution we think is best for you, and you will go in if you make no choice,” that would edge towards marketing, and we could not say that.
Sarah Edwards
Q
Colin Clarke: I do not think the Bill itself necessarily has the timescales in it, because it will be left to secondary legislation to look at when all these things actually fit together. A very helpful document was published alongside the Bill, with a potential road map. There is a logical order in which certain things have to happen. For example, the value for money test will require movement of members from historical defaults into something that will deliver better value. To achieve that, the contractual override for contract-based schemes would need to be in place in good time before the value for money exercise happens. Otherwise, there will be constraints that might inhibit the ability to do that.
Similarly, with small pots, a lot of the measures will lead to consolidation at scheme level. That will address some, but not all, of the small pots issue. The road map sets out small pots being at the end, and that is a sensible place to put them, because there will be a lot of other activity that happens first that will solve some of the problems. It does not make sense for small pots to be moved before they are moved again—you could see things moving around a couple of times.
On guided retirement, the potential timing of implementation is quite tight if it is going to be 2027 for certain schemes, when we do not have any secondary legislation yet. It is very important that that is consulted on as soon as possible so that we have clarity. Dale mentioned working on various different solutions. We have been doing something similar at L&G, and they may well be the right thing for members, but we know that we will have to fit them around regulations and make some adjustments, so having clarity on those early would be very helpful.
John Milne
Q
Dale Critchley: From a practical perspective, producing all the data. We need clarity in the regulations and clear definitions, so that everyone is producing the same data in the same way so that it can be compared.
Setting practical considerations aside, one of the risks is that there is a disjoint between the market and value for money. Value for money is looking at value. We still see lots of evidence in the market in terms of looking at price—“We want the cheapest thing possible”—not necessarily the best value. There is a potential tension there.
Longer term, there is the risk we pointed out around herding: if you set benchmarks, that creates a behaviour which, instead of optimising outcomes for members, produces an average. An example of that is in the metrics around service that are currently being thought about. They are what I have described as 20th-century metrics. Rather than metrics that are looking to engage members to drive decisions through electronic engagement, they are measuring, “How long does it take to change someone’s address? Have you got their national insurance number?” We think we could stretch things further, but that creates some challenges for some providers.
Colin Clarke: One of the other things that the industry as a whole needs to consider is around capacity. The value for money framework, if it is managed and regulated effectively, is going to result, ultimately, in members being moved into things that have the potential to deliver better value. All those kinds of projects take a lot of work and a lot of resource, so it would need to be managed carefully to make sure that the industry has actually got the capacity to manage the high volume of traffic that is going to be going through as funds consolidate.
Mr Bedford
Q
Colin Clarke: At a high level, the Bill, as it stands, is primarily rule-making powers. A lot of the detail is going to be in the secondary legislation. In terms of rule-making powers, as it stands, I think the Bill has the right provisions in place. The detail is going to be around the actual assessments that you have to follow for determining whether something is delivering value, not delivering, intermediate and so on. For me, getting that detail right in the secondary legislation is going to be quite key, as is having clarity at an early stage on what that is, so that it can go through the proper consultation paper and we can look at the risks and at whether there are any unforeseen consequences. At a high level, we know that the Bill’s rule-making powers set the right framework for that secondary legislation.
The Chair
If there are no further questions from Members, I thank our witnesses for their evidence. That brings us to the end of our morning session. The Committee will meet again at 2 pm in the Boothroyd Room to continue taking oral evidence.
Ordered, That further consideration be now adjourned.—(Gerald Jones.)
Pension Schemes Bill (Second sitting)
Tuesday 2nd September 2025
(3 months, 3 weeks ago)
Public Bill CommitteesPension Schemes Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 2 September 2025 - (2 Sep 2025)
The Chair
I remind Members that questions are not limited to what is in the brief, but your questions must be within the scope of the Bill. In line with this morning’s session, for each panel of witnesses I propose to call the shadow Minister first, then the Minister and then the Liberal Democrat spokesperson. I will then go back and forth between the Government and Opposition Benches; anyone who wants to ask a question should catch my eye.
We must stick to the cut-off times specified in the programme motion, so I will have to interrupt questioners if necessary. I remind Members that they must declare any relevant interest both when speaking in Committee and when tabling amendments to the Bill. If there are no further questions, I will call the next set of witnesses.
We will now hear oral evidence from Councillor Roger Phillips, chair of the Local Government Pension Scheme Advisory Board, and Robert McInroy, head of LGPS client consulting at Hymans. We have until 2.30 pm for this panel. Will the witnesses please introduce themselves for the record?
Councillor Phillips: Good afternoon. I am Councillor Roger Phillips. I chair the Local Government Pension Scheme Advisory Board and have done so for the last 10 years. Prior to that, I was on the working party that reformed the pension scheme from final salary to career average.
Robert McInroy: Thanks for inviting me. My name is Robert McInroy and I am the head of LGPS consulting at Hymans Robertson. We provide actuarial, investment and governance services to around 75% of LGPS funds, and it is pleasing to say that we have had some of those partnerships for many decades. In fact, Hymans Robertson was created over 100 years ago to provide services to the LGPS and local government.
Mark Garnier (Wyre Forest) (Con)
Q
Councillor Phillips: I think there is general concern within the sector when language like that is used, because we are talking about a considerable sum of money that belongs to 6.7 million pensioners. You therefore have to treat that with utter respect. You have a fiduciary duty to look after that money and ensure that the investment is wisely made. The fiduciary duty of the funds and pools is there—the funds own the pools—so there will be concern if somebody wants to politicise it. That is a very dangerous road to go down.
When it comes to UK investment, the LGPS is already investing in the UK in a very big way. This is not a case where you use a stick and say, “You’ve got to invest in the United Kingdom.” It is about identifying risk, return and sometimes conflicts of interest. Certainly we should be investing where it is sensible to do so for the benefit of our pensioners and for the least obligation to our employers as well. That should be clearly understood by everyone.
Mark Garnier
Q
Councillor Phillips: Local investment is difficult because, again, I go back to this business of it being our duty to invest wisely, prudently and sensibly. That is important. With local investment, first of all, it depends on your definition of “local”, particularly given the current pooling arrangements. You could have a strategic mayoral authority that has three different pools, because the pools come from all over the geography of England and Wales, so that is a difficulty.
Secondly, it is about return and making sure the pipeline of potential projects is there and that those projects are investable. If LGPS is going to invest in them, surely the rest of the investment industry will also want to invest in them, including the Canadian people.
The other thing I would say, which I surely do not have to tell you as Members of Parliament, is that some local matters are controversial. You may think that a particular local investment is what an area needs, but actually a large part of your people do not. You have to show a little bit of discretion. You may invest in offshore wind, which is very popular, but getting the link to the grid, going across open countryside with massive pylons, is not popular. The LGPS will have to bear that in mind, because sometimes the members, the constituent authorities and the council tax payers will not appreciate it.
Mark Garnier
Q
Councillor Phillips: We go back to the importance of fiduciary duty. You are there to invest for the benefit of your pensioners and to make sure that you do that in a sensible and reliable way. As has been proved to date, the most popular element is probably affordable housing. Cornwall, which you mentioned, has invested very wisely in affordable housing. Together with its relationship with local government as the owners of much land, there is huge potential there, but it only comes right when the return is there. If the return is not there, you are not going to enter into it.
Mark Garnier
Q
Councillor Phillips: If you do not do that, I do not know where you are going with your pension investment.
Mark Garnier
Q
Councillor Phillips: We anticipate that the latest round of valuations will show a very good surplus for all the pensions. That is credit to the investments that have been made to date. That does pose some issues as to what you do with those surpluses, but we live in a very volatile situation, and circumstances can change. You have to be careful, because if you reduce contribution rates considerably, that is a great benefit at this moment in time, but if you then turn around and start to increase them again, that can be very difficult for all employers to deal with, including local government.
Mark Garnier
Q
Robert McInroy: Yes, on the last point about surpluses. I am a fund actuary. We are working through the 2025 valuations, and it is pleasing to see improvements in funding levels across the LGPS. We think that that, in turn, can mean lower contribution rates, particularly for councils—something in the region of 3% to 6% of pay, so that is positive. It is important to realise that the success of the current scheme has perhaps not been picked up in some of the language and assumptions built into the reforms that have been put forward.
Mark Garnier
Q
Robert McInroy: That has been discussed on a fund-by-fund basis—whether the funding target should be increased from something like 100% to 120%, for example. That has been actively discussed.
Mark Garnier
Q
Robert McInroy: I support looking at the range of options, which includes reducing employer contributions and flexing investment strategy, including for some of the areas that we have talked about and will be talking about, that could be available to the LGPS in terms of investments.
Luke Murphy (Basingstoke) (Lab)
Q
Councillor Phillips: Like the local government sector, the local government pension scheme operates in a goldfish bowl: constantly, on a weekly basis, an article is written about you or you receive a freedom of information request. So you are very conscious of the scrutiny, and that helps direct you to manage the investment risks as part of your fiduciary duties. What people do not realise is that there will be particular packages that Government and strategic mayors may think a fine investment that they should be in, but there might be some local problems. To go back to the previous question, it might be better for Northumberland to invest in it rather than Cornwall. That sensitivity has to be there.
Luke Murphy
Q
Councillor Phillips: The fiduciary duty would still be your main concern but in managing your risks you would have to take that into consideration as well.
Luke Murphy
Q
Councillor Phillips: That is problematic, but at the same time you know when there are things it is perhaps best to steer clear of—perhaps a bypass, or something hugely controversial. It goes back to the mandatory business. If you are forced to invest in something that does not go well locally, that is not going to sit right or do the reputation of the scheme any good. Ultimately, as my colleague has said, we are talking about a well-run scheme with good integrity. Our businesses supply pensions to some of the lowest paid people in the public sector.
Luke Murphy
Q
Councillor Phillips: Like a lot of judgments.
The Parliamentary Under-Secretary of State for Work and Pensions (Torsten Bell)
Q
Councillor Phillips: My understanding is that it is a back foot.
Torsten Bell
Q
Councillor Phillips: Right.
John Milne (Horsham) (LD)
Q
Councillor Phillips: The Government have a responsibility to support the strategic authorities in developing the pipeline and the vehicles for investment. Affordable housing is probably one of the best examples to use. The pensioner receiving a pension or paying into a pension from the local government sector would be quite proud of the fact that some of their pension money is being invested in providing homes for the next generation of key workers. That is probably one of the best examples you can ever get of local investment. There is real potential, but I go back to the fact that it has to provide the necessary returns. Just as you have to be careful about some of those controversial ones, there is one that you can absolutely lap up.
John Milne
Q
Councillor Phillips: There is great potential in all the activities that local government can do, but the fiduciary duty is where we need that clearly spelt out and some guardrails put in for that.
Robert McInroy: Where the LGPS can potentially bring an advantage to bear is by tapping into its local connections and local expertise—when it can see local investment opportunities that others potentially cannot. To come back to affordable housing and the fiduciary duty, if you are the asset owner, you have to be looking at the returns, and that is a difficult challenge for LGPS funds, particularly when it is in their local areas. You are talking about, for example, whether you push up rent and potentially displace a family or basically taking a lower return as a result of that. It is a very difficult thing to stack up. It is new to the LGPS. We need to make sure there are guardrails around it. Within the Bill it would be useful to bring fiduciary responsibility into the elements of local investment and how that overrides any of the local considerations.
David Pinto-Duschinsky (Hendon) (Lab)
Q
Councillor Phillips: Let us be quite clear. I think the Government’s frustration, which is shared by many of us, is that we are talking about what is generally accepted to be the sixth largest pension scheme in the world, and it does not punch its weight, which is what it needs to do. That is what pooling, which began in 2016, was meant to address, and to date, it has been successful, but it needs to be better. That is where I see a very big positive of coming together.
David Pinto-Duschinsky
Q
Councillor Phillips: From that point of view, it is very helpful. Because we are a very transparent pension fund, pressure will be put on some of the pools to make sure that their workings are done in a transparent manner. They are now, but there will be even more pressure because lobby groups will go straight to them rather than the funds.
Consolidation with regard to administration is not quite so easy. The last consolidation was between Northumberland and Tyne and Wear, and that was with maximum co-operation on both sides. This is a very well administered scheme, but bringing two administration authorities together is quite challenging. It needs to be done with co-operation and collaboration, never with a big stick behind it.
Certainly in London, there is a case for some rationalisation of the number of funds, and there is always going to be an issue about some of the smaller funds as they deal with it, but pooling is not just about consolidating your investments. It also brings the opportunity for the member funds that own the pools to start working more collaboratively, particularly on things like communications and other areas of work. There is great potential there. One of the things that the scheme advisory board is very keen to do is to make sure we develop and grow those chairs of funds to be the competent leaders that they are, and make them even better.
Robert McInroy: I think you were asking about the challenges of implementation. It is easy to see the direction on this and to think that there is not much change for the LGPS. There is a huge magnitude of change in these reforms. The LGPS funds and the pools already have a very full to-do list. They have stretched resources. They are asked to deliver an awful lot in a short period of time. They are transferring all of the remaining assets from the funds to the pools—there is still about 30% of those assets to come across in a short period of time.
Two pools have been asked to change their operating model to be FCA-regulated. Every pool has been asked to build advisory functions—that is all from scratch, apart from one. They have been asked to build local investment capabilities as well, which is of paramount importance to be able to kick-start and contribute to the UK economy, and to implement some of these governance reforms, and now we know that two of the pools are being asked to wind up, so there is £100 billion of assets to transfer, which is implicated across 21 funds.
That is a huge amount to do under any timescale. Some of what is envisaged in the consultation is that this would be completed in a little over six months’ time. That puts risk on some of these reforms, and I think that should be recognised.
David Pinto-Duschinsky
Q
Robert McInroy: At the moment, there are eight pools across the £400 billion-ish of assets. I believe the plan at the moment is to reduce that to six. You would imagine that that gives a big enough scale. Some of those pools will be £100 billion-plus; that should be able to punch its weight internationally, I would imagine. The LGPS itself is of course open to accrual and to new members joining, so that is just going to grow over time. In some ways, I think these reforms set the plan for the future as the scheme continues to grow.
Kirsty Blackman (Aberdeen North) (SNP)
Q
My question is about consolidation and local concerns that people might have. For example, they may not want a wind farm invested in because they are worried about the infrastructure that goes alongside that. If there is consolidation, will that remove the ability to take account of local concerns and to find great local investment opportunities? Will it dilute the input that people have locally, because it is taking it further away from them, or do you think it will be okay?
Councillor Phillips: As we already know, the establishment of the pools does take it away. There is no denying that. The important thing is to have member representation on pools. The scheme advisory board has always been supportive of that, although you need flexibility in how you do it; I certainly would not go for 50:50, because of the governance and regulatory responsibilities that the administration authorities have. I think Border to Coast particularly has employee representatives on there, and that works very well. In particular funds, you will have representatives on the committee and on the pension board. That is always important.
Getting the right engagement is always going to be a struggle, with all the rest of it, but, particularly with some of the ESG issues, that helps to better understand some of the issues. Of course, elected members that sit there are representatives of their community as well. They are aware as well. They are also aware that when they sit at the table on a pension, they have a responsibility first and foremost to that pension.
Kirsty Blackman
Q
Councillor Phillips: Absolutely. We laid recommendations from the board before Government some time ago. They have now been implemented and rolled out, and that is very much a crucial part of all of this. The headline is all about the pooling, but the Government’s changes, and training and developing your members, are absolutely critical because of the important decisions that they make.
Sarah Edwards (Tamworth) (Lab)
Q
Robert McInroy: It is important to point out that the members are not directly impacted by the scheme returns or cost: their benefits are set in statutes and are guaranteed. However, you can see how that might indirectly implicate them; for example, if there was a higher cost to employers because the scheme was not performing the way we would have liked, that could impact on their business.
Councillor Phillips: We know the deadline has been set for the transfer and it is very much business as usual until that happens. Of course, virtually all the funds have been contributing to their pools anyway, so it is just a case of transferring the rest. There are some sensible discussions going on about where it would cost money to pull out of an investment, and common sense must be the first rule, but the direction of travel is what the Government want to see: that the pool is effectively in charge of delivering that investment strategy, which still remains the responsibility of the fund.
Robert McInroy: Within the 21 impacted funds, there are two pools that are being wound up and they are to find a new home, and they do not know for certain where that will be. There is sometimes a degree of inertia in some of the decisions made: why would you make a new investment when you do not know whether that is going to fit into your new pool? I appreciate that is why there are some short timescales on this; we need to get clarity and move through this quickly, or there will be increased risk, but the short timescales create risk in themselves, so there is a balance to be made and a tension there.
The Chair
If there are no further questions from Members, I thank the witnesses for their evidence today. We will move on to the next panel.
Examination of Witnesses
Helen Forrest Hall and Sophia Singleton gave evidence.
The Chair
The Committee will now hear oral evidence from Helen Forrest Hall, chief strategy officer at the Pensions Management Institute, and Sophia Singleton, president of the Society of Pension Professionals. We have until 3 pm for this panel. Could the witnesses briefly introduce themselves?
Helen Forrest Hall: I am Helen Forrest Hall, chief strategy officer at the Pensions Management Institute. We are the leading professional body for those running pension schemes in the UK. We provide qualifications and training to the sector, as well as continued professional development, and have almost 8,000 individual members.
Sophia Singleton: I am Sophia Singleton, president of the Society of Pension Professionals, and in my day job I am a partner at XPS Group. The society represents providers of advice and services to pension schemes and employers. As such, we represent quite a broad range of the industry, from pensions lawyers and actuaries through to professional trustees, pension providers and administrators.
Mark Garnier
Q
Helen Forrest Hall: I would love to say that. I start by saying that the PMI supports the principle that larger pension funds are likely to lead to better outcomes for members. A great and growing weight of evidence, and obviously an awful lot of international experience, shows that they provide greater economies of scale and greater opportunities to invest in a broader range of assets. Unfortunately, we believe that the reserve power sets a dangerous precedent of political interference with a trustee’s fiduciary duty. The considerations of each individual pension scheme are a matter for the trustees, taking into account their members’ experience and what will drive the best outcomes for those members.
Obviously, significant progress has already been made in terms of pension schemes demonstrating their desire to meet the Government’s eagerness for them to invest in a broader range of assets, and the consolidation elements of the Bill should help with that. But I think that the reserve power provision runs a serious risk of cutting across that well-founded fiduciary duty, as well as creating all sorts of disruption to long-term investment planning—another thing that pension schemes are well set up to do—and creating market distortion.
Sophia Singleton: We are very much aligned with the Government’s objective around investing in these assets. We believe that they can deliver and, as Helen has said, the industry has already made quite a strong move towards investing in them. We are going to get there, and it is really about not forcing that to happen too quickly. Schemes need to deploy capital when the opportunities arise and when the right time is, otherwise we risk distorting the market. That is a real concern, because it could deliver poor outcomes for savers. I am sorry we cannot give you a different answer, but we have three concerns about the mandation. Who is legally accountable if there is underperformance? Underperformance is possible. Is it the Government? Is it trustees? How will it affect the markets? How will it affect public trust? At a time when people need to save more into their pensions, they will worry that their pension scheme is no longer investing for returns as a priority.
Mark Garnier
Q
Helen Forrest Hall: That is the problem with a reserve power. It does not have to be used to influence the decisions that trustees are making about their investment strategies, because they have to consider the instances—and there is not an awful lot of clarity in the Bill about what those instances would be—in which this power might be used. They might suddenly find their long-term, well-considered investment strategy outwith Government legislation. That is a dangerous place to be. Pension schemes, quite rightly, are doing their job when they are thinking about their members and their beneficiaries, and making long-term investment decisions. They have the capacity and the joy of being able to do so, but that means that they have to think about those kind of time horizons. That means that a reserve power with a sunset clause with that kind of short-term time horizon will start impacting decisions that people are making at the moment.
Mark Garnier
Q
Helen Forrest Hall: I am not sure that we would draw a direct correlation, but the point is that it will start to influence investment decisions. Those may be good decisions, or not, and they may be decisions that trustees would have made anyway; the challenge is that the reserve power exists, a good trustee and their legal advisers will be taking account of that at the moment.
Sophia Singleton: We believe that the threat—just the threat—of this power is the worst of all worlds, in a sense, because the lack of clarity about what trustees should do and take into account when investing for the long term makes it very difficult for them to carry out their fiduciary duties.
Mark Garnier
Q
Sophia Singleton: What I would say is that we are already moving in that direction. If you look back a few years ago, it was very difficult operationally for defined contribution schemes to invest in those types of assets. If you look at things now, both on the supply side and the demand side we see factors that are really supporting investment in those assets.
On the demand side, the new value for money framework really incentivised investment into private market assets because of the risk-adjusted metrics included within the framework, and the work that the industry and regulators have done to take away the operational barriers that existed. On the supply side, the Government have committed to help to create that pipeline of investments. Publishing the pipeline that is coming up is very helpful, because people can plan how to employ their capital, and having the British Growth Fund and so on to invest in alongside the private sector is also helpful.
We are already seeing it happen: we are seeing funds recruiting investment experts to help to manage those assets, so they are already gearing up and skilling up to do this, and we are seeing fund managers releasing private market funds suitable for DC schemes on a regular basis. We do due diligence on those funds, and there are more and more that we have to look at. So it is happening.
Mark Garnier
Q
That begs the question that, as the Government at any time is trying to attract foreign direct investment into the UK, not least to try to sort out the current account deficit, you as pension fund managers will find yourselves in competition with, hopefully, foreign investors coming into the UK. What is the hierarchy of offer? Do you think UK pension funds should be offered exciting investment opportunities before foreign direct investors?
Sophia Singleton: I do not think we should be interfering with the market; I think it needs to be a free market and, as trustees of pension schemes, we need to be exercising fiduciary duty to choose the right investments for our members and to give the returns.
Mark Garnier
But you would rather see the opportunities first?
Sophia Singleton: Absolutely—we would love to see the opportunities first.
Helen Forrest Hall: The other dynamic there is that international pension funds, for example, are often looking to invest in the UK for reasons different from the reasons UK pension funds might want to invest. For them, it is often a smaller part of their portfolio, and part of their own need to diversify where their assets are, in order to manage their own volatility risks. There has been a history of going after the same investments, and unfortunately that is the market and that is healthy competition. One of the challenges and one of the market distortions we see with things such as the reserve power is that you will have the same group of people fighting over what, for a short period of time, is inevitably going to be a short pipeline. That will have an impact on things such as the value for money that you are getting for those investments.
Torsten Bell
Q
Given that that is your logic, the question is why that has not happened. If you go and ask actual pension providers why that has not happened, they will tell you they have a collective action problem and an industry focused exclusively on cost and not on returns, and that they struggle to deliver against that. If you have a collective action problem, you need to ask how we resolve that.
You then get to the fact that the Mansion House accord is entirely industry led, with numbers set by them—it is not about distortion to the market; you might want to reflect on that, given the comments you have just made. You also spoke about a lack of clarity, but the Mansion House accord provides clarity about the objectives: everyone can see them and they are set by the industry. When it comes to savers’ interests, you know that the Bill includes a carve-out for trustees to say, “This isn’t in my members’ interests, so we won’t be doing it.” Reflect a bit on the consistency of the argument you have made about the real progress you want to see on investment in a wider range of assets—because it is in savers’ interests and should have happened in the past but did not—and the changes in the Bill. I would gently suggest you might want to think about the consistency of that.
Sophia Singleton: We are not a mature industry—the defined contribution industry—and in the past we have not invested in these assets because there have been operational barriers, including the focus on cost.
Torsten Bell
That is not the view of the whole industry, which points to the collective action problem of an exclusive focus on cost, as much as it is a barrier—
Sophia Singleton: The value for money framework in the Bill is extremely helpful—
Torsten Bell
It is.
Sophia Singleton: —and we have said that we need to move the focus from cost to value, and we are seeing that very much come through in the culture within the industry, to be focusing on value. I have given evidence about funds recruiting investment teams to invest in these assets, because they are not simple to invest in for DC schemes. If you look at the experience in Australia through the covid pandemic, there were some real challenges that those schemes had to face relating to stale pricing, intergenerational fairness and cross-subsidies. They are not simple assets for DC schemes to invest in. The market is moving, going, and will get there. What we are saying is the mandation power is not needed to achieve that, because we are, with your help, getting to the right place.
Torsten Bell
Q
Helen Forrest Hall: Just to give my own perspective, there are a number of structural issues with the development of the sector. Defined benefit has been in run-off, which has driven a particular type of investment strategy. DC has not been at scale, and a number of us in the sector have been calling for consolidation for a long time. I think it goes without saying that we are having this conversation in the context of being very supportive of the vast majority of provisions in this Bill.
Torsten Bell
I was encouraging you to say that; you got there.
Helen Forrest Hall: Apologies; we are very, very supportive of the vast majority. This is basically the one substantive issue from our perspective. As Sophia has said, the value for money and consolidation elements in particular are incredibly helpful in removing some of the barriers that have existed, including for trustees. They technically have the ability to operate within their fiduciary duty, but sometimes the legislation and the structure of the industry get in their way. Things such as value for money and scale will really help with that. This Bill is incredibly enabling in the vast majority of its provisions. There are just a small number—mandation being one of them—where we have a bit of concern.
John Milne
Q
Helen Forrest Hall: From a principles basis, yes, and just to address the funding point, they absolutely can. I know there will be a number of us in the room who have either experienced or been subject to the outcomes of what has happened when those significant events have taken place. In the context of where we are with DB now, a significant proportion of schemes are employing investment strategies that really do protect them against the kind of volatile market movements you might see.
The provisions in the Bill strike the right balance between, as I said earlier, giving trustees greater flexibility to exercise their fiduciary duty in discussion with employers, while also ensuring that they are considering the best interests of the members. One of the key considerations for trustees in that conversation is: how confident are we that our investment strategy would withstand significant market movements at the point when we might release a surplus? That is a key consideration.
We have seen that a number of pension schemes did not benefit from September 2022 in the way that others did, and that was because they had decided to protect themselves against that kind of market movement. There are things that schemes can deploy to give themselves that level of confidence.
Sophia Singleton: We were very pleased to see the stringent funding safeguards that are in the Bill in order to allow a surplus to be released. One thing I would say is that, as Helen says, it is giving the trustees the tools to properly exercise their discretionary power and, in a sense, fiduciary duty, but it has created an opportunity for trustees to negotiate and agree a win-win situation, in a sense. The conversations we are having with schemes is that they are now more likely to be able to feel comfortable in paying, and be able to pay out, discretionary benefits than they would have been before the Bill was in place. It gives schemes the opportunity to run on and for the employer to access the service, but also for members to have more access to discretionary benefits and to additional benefits.
John Grady (Glasgow East) (Lab)
Q
I would like to move on to a slightly different topic: small pots. Ms Singleton, the SPP made supportive comments in its submission about small pots. Would you like to elaborate on why you support the small pots element of the Bill, and are there any practical considerations you would like to draw to the Committee’s attention?
Sophia Singleton: Small pots are a challenge for both the industry and for individuals. You have got a much more mobile workforce, and more and more people have small pots and have lost sight of those pots. Obviously, the dashboard will help them to gain sight of them, but actually bringing them together will help them to manage it. We know that it is much easier for people to manage greater-sized pots of money. For the industry, it is a huge cost to manage lots and lots of very small pots of money. I think it benefits savers and it benefits the industry to have this.
This is a pragmatic solution that is within the Bill, as far as we are concerned. The industry has considered a number of different ways of addressing this problem, and we feel that this is actually a very pragmatic solution. It does rely on a technology platform, so we were pleased to see that it is further down in the timeline for the Government’s road map for implementation, because we all know that introducing technology platforms can take some time and there are a lot of other things that we need to be working through, including consolidation and so on.
We did put forward some small technical suggestions within the Bill. Did you want me to talk to them?
John Grady
No.
Sophia Singleton: Good. We are positive that this will help, and we are also positive about the timeline for it.
Damien Egan (Bristol North East) (Lab)
Q
Sophia Singleton: I might start on this because I think that the Bill should not set out what the product looks like. The policy should set the rules of the game, providers and pension schemes should be allowed to innovate and to develop solutions that meet the needs of their members, and then policy should obviously monitor and oversee product development to ensure that it is effective. When I say “set the rules of the game”, I mean clear guidance around the things that should be considered when developing these solutions. It should consider whether it should deliver an income and consider whether it should provide longevity protection. It should consider those factors, but an income for life might not be the answer for all schemes. It will probably be the answer for many, but not for all, so that is why there needs to be flexibility for providers and schemes to develop solutions.
Helen Forrest Hall: From a PMI perspective, obviously we recognise that with the shift from DB to DC, the choices that are facing people at retirement are growing ever more complicated, and at the moment, they are largely left to their own devices and that is a far from ideal situation so we very strongly support the proposals in the Bill to provide those default pathways, particularly for those who have not made an active choice. Actually, we support the focus on those default options as generating an income because, after all, that is what a pension is for. We do strongly support that.
We have a question around where this sits in the pensions reform road map. We very much share the desire to provide people at that point of retirement with a bit more support, guidance, help and some form of default pathways as soon as possible. But we are concerned that doing so in advance of trying to bring those small pots together and reaching scale in the market puts a burden on schemes, in terms of the number of DC schemes that might not meet the scale test having to put this in place in the meantime, and potentially confuses members. For example, if you have got 11 pots that all happen to be trust based, and you have got 11 different default solutions, that is potentially going to be confusing.
We do not think that nothing should happen in the meantime. Our proposal would be to extend the point at which the mandation requirement would come in, but use engagement from regulators, particularly for large schemes—those that are going to meet scale or be exempt from the scale test—to really start piloting what good looks like in terms of both the guided retirement requirements and the FCA’s proposals for targeted support. There is a really important piece of work to be done thinking about how all of those align into a better, but not perfect, pension saver member journey at the point of retirement. It is not about moving slowly; it is about thinking about the right time that the mandation kicks in so that schemes can plan effectively and things can be tested in the meantime.
Sophia Singleton: Just to add one other element to that point around timescale, I think master trusts are going to be required to comply by 2027. One of the solutions, which might be the right solution for schemes, is the decumulation CDC. We do not expect that the regulations to facilitate that will be in place by 2027. Ensuring that those align so that that option is available to schemes when they are considering their decumulation solution would be beneficial as well. I agree with everything Helen said, but just add that extra element.
Mr Peter Bedford (Mid Leicestershire) (Con)
Q
Helen Forrest Hall: I will take this opportunity to reiterate that we strongly support the vast majority of the provisions in the Bill: the consolidation, value for money and retirement provisions; finally legislating for DB superfunds, which we warmly welcome; and striking the balance on DB surplus—there was a better balance to be struck. To a certain extent we have already talked about our key issue where the Bill potentially goes too far, which is around the mandation requirement and the reserve power.
On value for money, I think that the Bill is doing the right thing. Value for money is going to be an everchanging set of circumstances, particularly if we build scale in the market. What might be required on day one for value for money—we probably want a core set of metrics that can be easily comparable across schemes—might really mature as the market consolidates into a small number of fairly significant defined contribution funds. You might quite rightly expect regulators and the regulations to ask an awful lot more of those schemes in terms of what they are doing under value for money.
We think it is only right and proper that they sit in secondary. There have occasionally been issues with putting too much in a pensions Bill, and creating problems with the market being able to adapt as we go. So I think that this is actually the right thing to do, albeit that we would welcome further clarity from regulators around the fact that they would like to start small and grow—at the moment there is very little detail on the value for money measurements. We are talking actively with them, but it is useful to get the reassurance that we will start from a principle small basis and move out, rather than potentially creating additional burdens for schemes during what will be, on a number of fronts, quite a busy pensions reform road map.
Sophia Singleton: We very much support almost all the provisions in the Bill; mandation, as we have already talked about, is the exception. Where would we go further? There are two things that we would ask for.
The first is in relation to DB surplus. We have talked about how we were pleased to see that the safeguards were in place—we feel that they are very robust. We would like some clarity in the Bill, though, that that provision overrides any existing restrictions in scheme rules, because as it is currently drafted there are some schemes that might not be able to utilise that provision. We have provided some more details about making it open to all in our submission—making it clear that the provision overrides any existing restrictions, subject to the safeguards being properly used and so on.
The second one is an addition that we would love to see to the Bill: the removal of the admin levy, which pays towards the Pension Protection Fund admin costs. The DWP did a review in 2022 that concluded that it was no longer needed—it is a cost to schemes and therefore to employers. We have prepared a simple draft for the legislation that we have shared with you and the DWP that would remove it, and it is a very easy way to remove a cost on employers.
Helen Forrest Hall: If I could just add one point on the DB surplus, because Sophia’s points reminded me of it, I think there are a couple of areas where there could be further easements. They are not necessarily for a pensions Bill—some of them are more Finance Bill-related—but in giving trustees full flexibility to consider all the beneficiaries of a scheme, it would be useful if there were further easements that enabled them to make, for example, one-off payments to members without being subject to extraneous tax charges and, similarly, that would allow employers to pay some of that surplus as DC contributions into another trust. At the moment, the legislation does not provide for that, and obviously that would be a way to help trustees, and actually employers, who might be looking to enhance their pension provision overall—not just being able to move money around within one legal structure.
Kirsty Blackman
Q
Helen Forrest Hall: Yes, I think at least one of us has something, but we can certainly provide more details if that would be helpful.
The Chair
If there are no further questions from Members, can I thank the witnesses for their evidence this afternoon? We will move on to the next panel. Thank you very much for your attendance.
Examination of Witnesses
Patrick Heath-Lay and Ian Cornelius gave evidence.
The Chair
We will now hear oral evidence from Patrick Heath-Lay, chief executive officer of People’s Partnership, and Ian Cornelius, CEO of NEST Corporation. We have until 3.30 pm for this panel. Will the witnesses please briefly introduce themselves for the record?
Patrick Heath-Lay: Good afternoon. My name is Patrick Heath-Lay. I am the CEO of People’s Partnership, a large DC master trust with £35 billion of assets under management and about 7 million members. Importantly, we are a not-for-profit organisation. Within that, we are an asset owner, not an investment manager, so our asset ownership activities are solely for the benefit of members and not commercially for ourselves.
Ian Cornelius: I am Ian Cornelius. I have been the CEO of NEST since May last year. I will say a few words about NEST. It was set up by the Government at the inception of auto-enrolment to make sure that every individual has access to a good-quality pension. It has been a great success story. It now looks after over 13 million members, which is a third of the working population, and manages over £53 billion of assets on their behalf. We receive about half a billion pounds of assets every month.
The focus of NEST has been, and will continue to be, on low to moderate earners, so the typical NEST member earns just under £25,000. In many ways, NEST is probably one of the best examples of the sort of megafund that the Bill is looking to create. It has been able to invest in private assets, invest in the UK and deliver good outcomes for members.
Mark Garnier
Q
Ian Cornelius: I do not think that the Bill particularly focuses on that problem, but the question is whether it is a problem. The pensions dashboard will help to provide more visibility of where people’s money is and help them to manage that more effectively. I think it is right to focus on small pots, because they are inefficient. It is much harder for consumers to track lots of small pots, and it is driving costs in the industry, so I think that that is the right initial focus.
Mark Garnier
Q
Ian Cornelius: Customers—members—can already do that if they choose to.
Mark Garnier
Q
Ian Cornelius: I think that is right. It probably goes back to dashboards. They are key to helping to increase visibility. That will get people thinking about the choices they can make, how they want to manage their pension and how they can consolidate their pensions. That will drive that type of activity naturally. At NEST, we have always had one pot per member to make it as easy as possible for our members. Ultimately, it is about member choice.
Mark Garnier
Q
Patrick, could I turn to you? We met and had a very interesting chat. One thing we discussed was the scale of the funds. There is a requirement in the Bill that funds such as yours will need to be valued at £25 billion by 2035. One thing we discussed at the time was whether that creates a barrier to entry for new asset managers, and a lack of competition among asset managers in order to provide the best value for those funds. Would you share some of your thoughts about the £25 billion minimum size?
Patrick Heath-Lay: Yes, of course. We have conducted research. Toby Nangle did some research for us in 2025, and WPI Economics has also looked at the issue of whether scale drives better economies. Generally, aside from all the international comparisons from Canada and Australia, it is proven that scale will drive better economies. You can leverage scale to drive a more efficient administration. If you are asset owners like these two organisations, we get to choose where we invest the money, which managers we use, who will come with the best solutions and who has the best routes and access to market to allow us to invest in a way that benefits and shares the benefit of that investment with the end saver, which for us as an organisation is the sole focus.
I believe that scale, utilised in the right way, does deliver those efficiencies, but this is where the package in the Bill, and particularly a key element like value for money, is critical to establishing that as this market evolves. You want to be reassured that the investment activity at that scale is delivering increasing value for members, which is really the sole purpose of driving that scale. From our own experience and the research that we have done, it is a proven model, but that scale needs to be harnessed in the right way.
Mark Garnier
Q
Patrick Heath-Lay: I do not want to be flippant in my response, but our scale already means that we are over that limit, so I have not really put too much thought into how they will do it. I believe that there is enough, within the business plans of entities that might be affected, to be able to make some reasonable assumptions as to what ongoing contributions will be coming through the door and how they will respond to some of the opportunities that may arise in this market over the next few years, from organisations that are choosing to move because of the extent of change that is coming.
I emphasise that I still think that the package of measures and that scale test is the right thing to instil that movement, because I think savers will be better off, provided that it is harnessed in the right way. That is why I come back to this: value for money is the proof point, and we need to make sure that we centre on that as an industry. Being able to evaluate how these changes have created a more competitive market in key areas going forward is really quite important.
Torsten Bell
Q
Ian Cornelius: It is one of the elements of the Bill that we very much welcome. I think guided retirement solutions are overdue. Certainly, our members have been opted into a retirement savings scheme, and they end up with a pot of money rather than an income. I think their expectation is an income. In fact, in the research we have done with our members, they say that the most important things for them are to have a sustainable income, confidence that it will not run out and an element of flexibility, because their circumstances can change very quickly in retirement. I think the guided retirement solution moves us in that direction.
At NEST, we have been working on this for some time, as we recognise that it is a core issue for our members. We therefore want to introduce a guided retirement solution—it is very much a work in progress—that delivers that sustainable income, but also gives them a guarantee that it will not run out. That will be some sort of deferred annuity, purchased probably when they are 75, to kick in when they are 85. We are actively working on that and will be looking to introduce it in 2027, aligning with the expectation in the Bill.
Patrick Heath-Lay: It is very similar from our perspective. We should not underestimate how much onus the shift from final salary to DC has put on individual savers, in terms of the decision that they have to make, in a very complex world that they really do not understand. Even if you surface a lot of information, your constituents will still struggle to navigate those decision points. We also should not underestimate the onus they have taken on, in terms of the risk of their own fund, when you think about the productive finance agenda and other things here. I think it is absolutely the right move. It is a good development for us to bring about guided retirement journeys in a way that is either “Do it for me” or “Do it with me” for policyholders.
Similarly, we are thinking about drawdown and how we can facilitate or help people to understand the implications of the actions they may take with accessing their funds, and then, when they get to later life, some sort of deferred annuity as an approach. The really important aspect is the guidance and how we can help, but have certain obligations on ourselves, as providers, to make sure that we are accountable for the help that we are giving as we go through the process.
Torsten Bell
Q
Ian Cornelius: It is difficult to speak for the industry, but I can speak for NEST. At NEST, we are very committed to investing in private markets: 18% of our assets are invested in private markets, and 20% of our assets are invested in the UK.
Torsten Bell
And that compares to the Mansion House benchmarks of 10% and 5%.
Ian Cornelius: The Mansion House commitment is 10% into private markets, with half of that into the UK, so we are already well ahead.
Torsten Bell
Q
Ian Cornelius: Absolutely. It is providing attractive returns, it diversifies risk and it also invests in the UK.
Torsten Bell
Q
Ian Cornelius: It is hard to speak for others, but scale is an important factor, as we have talked about. You need scale and sophistication to access these investment opportunities. NEST has that scale and is building that sophistication. It often involves quite innovative solutions and partnering. Partners want to partner with someone who has got scale and assets coming in at pace, and we have those things. There are some unique circumstances that have made it attractive for us. I will let Patrick speak for People’s, but it is on that journey as well.
Patrick Heath-Lay: Yes, we are, although we are much nearer the start of that journey. Again, it comes back to the scale point. Why is £25 billion or £30 billion about the right amount? Because it is about the right part that you can economically start investing in those items.
To answer your question, and to pick up a more general point, it is incredibly important that we work collaboratively on the issue, because, as an industry, there is not much point in us all sailing our own little boats around trying to find the right harbour to invest. There is a degree of collaboration that the industry, together with Government, can do to open up the opportunities where that investment needs to go and how it can be executed in the most efficient manner. The biggest risk with investing in private markets is that they are expensive. If the vehicles that are being used on a commercial basis are not sharing the economics of that investment well enough with savers, it will certainly not be an investment that we are interested in pursuing.
The other point is that putting down the foundations for this to be a pipeline of repeatable investment activity is critical. Because of its scale, NEST has got ahead of where we are today, but that is the phase we are in at People’s at the moment. There is over £1 billion a year from our scheme alone that will be invested in those markets on an ongoing basis. Given the scale that we are both experiencing, in terms of how we are scaling up, that will be an ever-increasing number, so it is important that we have reliable and very cost-effective routes by which we can deploy that capital.
Ian Cornelius: Going back to your original question, I think that the industry is moving in the right direction. The Mansion House accord had 17 signatories and we are seeing the right moves.
Steve Darling (Torbay) (LD)
Q
Ian Cornelius: There is no doubt that there is detail to work through across the whole Bill. One of the really interesting areas will be the interaction of targeted support and default solutions. There is now a consultation on targeted support, being led by the Financial Conduct Authority. That opens up lots of opportunities to provide an enhanced level of support to people who cannot afford to take advice. The fact is that financial advice is only available to about 9% of the population. Nearly all our members cannot afford to take financial advice, so they need that enhanced level of support, either to check that they are making the right choices—“Is the default solution the right one for me?”—or because they might have circumstances that mean that they want to explore something different. Targeted support is very welcome, and we look forward to engaging with the Pensions Regulator and FCA in making that a reality and making it work for low and moderate earners.
Patrick Heath-Lay: I am probably going to sound quite boring, but this is an area in which value for money and making sure the solutions are developed in the right way to support consumers can be really quite effective.
Mr Bedford
Q
Patrick Heath-Lay: The Government have put forward a default consolidator model. We are completely supportive of that; we think it is the right solution to tidy up the 13 million small deferred pots that are out there and those that are being created on a daily basis. That model has been done with extensive consultation with the industry.
To go back to the first question, which was about all the different options that have been considered before, we do think that this is the right approach. A couple of things around it are critical. First, we need to make sure that the technical solutions—the IT capability or infrastructure—should be as efficient as possible. We are contributing to the various pieces of research being done at the moment to evaluate which models are in existence and ready to be utilised. There is no doubt that the dashboard will contain some elements that will be helpful, such as a pension finder, that will be helpful, and I suspect that they will utilise pieces of that technology. But I do think—and I suspect the conclusion will be—that we need something new. Some of the expertise in the industry can be leveraged. I suspect that that is expertise that our organisations can provide. Given that we have already addressed the big pension savings gap for savers, we can help to develop that model.
On whether the solution is doable within the timeframe, 2030 is a big ask, but we should have that target to go after. We should try to be in a position where default consolidators exist in the market, we are developing the solution and we are able to solve the problem, because the number of small pots being created almost daily by the industry is a big problem for savers.
Ian Cornelius: I agree with Patrick. It is a problem that needs fixing. We also support the default consolidator approach. The sequencing is sensible: we want scheme consolidation first and then small pots, because there is no point in going through the complexity of consolidating small pots before consolidating at the scheme level. Dashboards will help, but they will not solve the problem. A solution is required, because this is driving a lot of cost and a lot of complexity. It would be nice if it were sooner than 2030. Given the ambition of the Bill as a whole, I think that that is probably realistic, but it does need to come after scheme consolidation, as I say.
Patrick Heath-Lay: The requirements on those organisations that choose to apply to be default consolidators need to be of a good standard. Our organisations operate a single-pot model. Whenever anyone rejoins from a different employer, their money goes into exactly the same pension pot. That is not a common model across the industry. Things like that should be thought through when defining the requirements for being a consolidator. Those that wish to apply need to hit a good regulatory standard to ensure that value is delivered through those models.
David Pinto-Duschinsky
Q
Patrick Heath-Lay: As a package, the Bill brings forward the concept of value for money in a general sense. We need to move the conversation in our industry, particularly the conversation around workplace pensions, to the subject of value. We are all here to deliver value for members. The bit that always gets a lot of conversation is what value really means, but you cannot walk past the three fundamental drivers of a pension proposition, which are the investment return we give our members, what we charge them for it, and how our service shows up for them, probably in those moments of truth when they need us for guidance. Those are the three core elements to value, which we should not walk past.
We see this as an incredibly important area. I certainly believe that we should try to get this right as an industry, as best we can, from day one, because I think that it will be an important measure that we—regulators, Government, everyone—will lean on to understand how these reforms are playing through.
As an organisation, we have led a pound-for-pound initiative that others have joined. We brought in expertise from Australia, which is about 20 years ahead of us, and brought together a group of providers that are effectively going to dry-run some value for money measures and utilise that concept to provide some findings to regulators and Government that will hopefully help the iteration of our value for money framework. We really do see this framework as an important area, and I would like to see those three elements at its core.
Ian Cornelius: The focus on value has to be the right thing for our members. That is what they care about; that is what we are here for. There is some complexity to work through, such as how you measure value and what timeline you measure it over. Quite lot of engagement is required. We are piloting and trialling it; we almost certainly will not get it right the first time. It will be important to make it as practical and simple as possible. As Patrick said, it has real potential, in combination with the rest of the Bill, to shift the focus from cost to value. In the past, there has undoubtedly been too much focus on cost and not enough on value.
Kirsty Blackman
Q
Ian Cornelius: It is definitely desirable. One of the challenges with auto-enrolment is—it is a positive and a negative—that people are not engaged. Inertia has worked really well, but you have to work to engage them to make sure they are contributing the right amount, thinking about what they will need in retirement and thinking about their circumstances. For example, at NEST, only 40% of our members are registered with us online, so we have a really big job to play to engage more of them, get them to register, and get them accessing the tools and support that are available to deliver the best outcome for them. It is our fiduciary duty to do that. There is a lot more that we can, need and want to do in that space. Guided retirement is a big step forward. Targeted support would be helpful. There is a big challenge for the whole industry there.
Patrick Heath-Lay: I agree. As this unwinds, we should think a little bit more about how engagement will help. It certainly is a big driver. Both the introduction of these propositions and the guidance and targeted support we can provide through those processes will be important, but we also have to accept that even in the most mature economies’ pension systems, people still do not engage very closely on this. Even when they do, they find it incredibly difficult to interpret what they are being told. How many people can do good compound interest calculations, for example? It is sometimes mind-boggling what we expect people to know. There has to be more onus on us through those processes, as an industry, for the guidance that we provide and the obligation on us to enable effective, accountable support to be there. There is much more, and this Bill goes a long way to enable us to do that.
Kirsty Blackman
Q
Ian Cornelius: Having a strong pipeline of investable assets is key. There is no doubt about that. Patrick touched on this earlier: one other inhibitor has been cost. It is actually quite expensive to invest in private assets. One of the things that NEST does successfully is to drive that cost down, but that is a barrier. The focus on cost rather than value in the past made it harder. The Bill shifts the focus towards value, which will be really helpful. There are a number of challenges that the bigger you are, the easier it is to work through. The Bill as a whole will therefore definitely be helpful, but collaboration with Government and across industry should help to unlock more of those attractive private market opportunities.
Patrick Heath-Lay: I have previously discussed this with the Minister. There is a role for Government to play here. It was even acknowledged within the Mansion House accord that this is for the benefit of savers, and there is a role for all of us to play in finding those efficient routes to deploy that investment through. The problem right now is not whether there is investment to come; there is. The Mansion House accord has created that. There is a wall of capital potentially available. The issue is connecting it in the right way with the investable opportunities—not only the planning and whatever is needed to create those investment opportunities in the first place, but the routes of access and the investment vehicles used. There are further conversations to be had about how we can do that as an industry. Efficient deployment is probably the biggest challenge for us as an asset owner in ensuring that we are sharing that benefit back with members.
John Milne
Q
Ian Cornelius: That is where we welcome the Pensions Commission. It has been set up to actively look at adequacy: what is right, and are people saving enough? There is no doubt that many people are not saving enough and there are a lot of people who are still excluded from retirement savings. There is a big issue and challenge with the self-employed. There is a challenge for the industry and the Government to work on, but the Pensions Commission creates the right environment to do that. Auto-enrolment has been a big success, but it is only a job half done. Completing that job through the Pensions Commission is incumbent upon the Government and industry.
John Milne
Q
Patrick Heath-Lay: I completely agree with what Ian just said. The review is the right way, and we need to look at the interaction between saving rates, state pension and the general economic conditions. One thing that we were concerned about with the Bill is this. There is a lot in here that is trying to create better value in the industry as a result of the transformation, but what we have very much seen over the last few years is the rise of retail consolidators, which encourage people to consolidate their lost pensions towards them and effectively put their pensions on their phone. They have taken control of that future. That is a positive thing in terms of people acting and doing something about the number of small pots they have. The issue is that the Bill ignores the rise of that market.
From our own research, we know people are consistently moving their pensions to these types of vehicles, which are much more expensive and, for an average earner, effectively mean that they will retire three or four years later than they could have done, because the value delivered through those models is not going to be anywhere near the level of the competitive workplace market as it operates today. We would like to see the extension of value for money and those types of issues into that market as soon as possible, as there are some bad outcomes where well-meaning people are trying to do the right things and do not understand the consequences of what they are doing. There is not sufficient obligation on providers in that market to make those people aware of the consequences of their actions.
Ian Cornelius: I wholly welcome the Bill. It will increase and improve standards across the workplace pensions market—but only across the workplace pensions market. The pensions landscape is already pretty complicated with contract-based schemes, trust-based schemes and personal pensions. Consumers do not understand the differences between those—and why should they? The fact that the changes only apply to workplace schemes, and that things such as value for money do not apply across personal pensions, is an issue for consumers. They will be confused and will not necessarily make the right decisions. We need to think about how the landscape can be equalised and made as simple and clear as possible for consumers.
The Chair
Thank you very much. That completes the questions from Members. I thank the witnesses for their attendance and evidence this afternoon.
Examination of Witness
Tim Fassam gave evidence.
The Chair
We will now hear oral evidence from Tim Fassam, director of public affairs at Phoenix Group. We have until 3.45 pm for this panel. Will the witness please briefly introduce himself for the record?
Tim Fassam: I am Tim Fassam from Phoenix Group. We are one of the country’s leading pension and long-term savings providers. We look after about £290 billion for our 12 million customers across a range of brands, most famously for Standard Life. We are a major player in the workplace automatic enrolment market as well as the bulk-purchase annuity market for DB schemes. We are also proud of our history as a consolidator of historical private pensions.
We have been passionate about the investment agenda. Our chairman, Sir Nicholas Lyons, took a year out of being chairman of Phoenix to be Lord Mayor, and the Lord Mayor who co-ordinated the Mansion House compact, which we were supportive of. We were also heavily involved in the development of the Mansion House accord. In order to facilitate that, we worked with the leading asset manager Schroders to create a joint venture called Future Growth Capital to deliver private market investments that are specifically designed for the pension market. We have made an initial commitment of £2.5 billion to that and are looking to invest up to £10 billion over the next five years. This is an agenda that we think is incredibly important, and we are very supportive of the focus that Parliament is giving this Bill.
Mark Garnier
Q
Tim Fassam: The short answer is yes, we are big fans of the value for money framework, but it is worth thinking about why that is. When we are looking at why we have not had the investment that we would necessarily expect, and that we see in other similar countries—so, exposure to private markets and exposure to productive assets—we think there are roughly three groups of reasons. Some are cultural and have been helped by things such as the accord and the compact. Some are regulatory, and that will be a major topic of conversation in this Committee. But some are market, and the market challenges are really around who is the buyer of automatic enrolment pensions. That is usually the employer.
Historically, we have seen most employers focus on the charge, and the charge alone. That means we are now seeing charges well below the price charge cap for automatic enrolment, which is a good thing for consumers, but it is at such a low level that it is very hard to offer more enhanced investment solutions, so that means they tend to be invested in more passive investments and trackers. The value for money framework is important because it should have an impact on those purchasers, making it easier for them to see a more holistic view of the value that they are getting from the pension that is being offered to them, in terms of investment, service and a wider range of metrics. We are not sure it is perfect, as currently developed, but it is certainly in the right direction.
Mark Garnier
Q
Where I begin to get slightly confused is that it then switches to member satisfaction surveys. I am curious as to what the member is. You raised the very good point that the customer is the business, but that is not the same as the member. Who is being asked whether they are investing in the right assets? That is quite a technical question by the time you start looking all of this. Can you see that there are anomalies and Gordian knots within this?
Tim Fassam: There is certainly a lot of detail to be worked through. That will include understanding the impact of all these factors. For example, investment return will be an incredibly important part of the value-for-money framework. It is very hard to do forward-looking investment return analysis, but if you do backward-looking, you cement the best of what we have today. The premise of the Bill is that we want to see a different investment pattern going forward. It will be very hard to, say, model a higher allocation to private markets in a forward-looking metric unless we have some creative thinking. Getting those investment metrics right is absolutely critical.
Service does matter to customers in terms of how easy it is to deal with and how much support they are getting to make good investment decisions. That will have a significant impact. When you combine it with things like the potential for targeted support, that could make a very significant difference in terms of the outcomes that the consumers get. We always think of the end customer being the individual. We have a close and important working relationship with the employer, and they are often working with employee benefit consultants to choose their scheme, but the most important stakeholder in all of this is the end user. We want them to get the best possible result to help them prepare for retirement.
Mark Garnier
Q
Tim Fassam: We are certainly concerned about the intermediate rating and the risk that that could cause a cliff edge if it means that, to get an intermediate rating, you are effectively closed for new business and potentially existing new joiners for a new firm. We think an intermediate rating that aligns with delivering value, but with a warning light that gives the firm a couple of years to get back into high value for money, will stop the perverse consequences. What I mean by perverse consequences is that if the cost of underperformance is significantly higher than the benefit of outperformance, you will see everyone herding in the middle. That will mean that you may well get a better outcome than today, but you will not get the competitive pressure to be the best of the best, which I think will see the better outcome in the longer term.
Mark Garnier
Q
Tim Fassam: Your value for money rating will be published.
Mark Garnier
Q
Tim Fassam: If you see very strong market or regulatory consequences for hitting an intermediate rating, the focus will be on not being intermediate rather than on being the best that you can be. We would like to see a focus on delivering the best value for money that you can.
Luke Murphy
Q
Tim Fassam: That is a very good question. One of the things that makes the Bill powerful but more complex is the number of elements that interact. Eventually, we hope, it makes the whole greater than the sum of its parts, but it does mean it is critical that you get the ordering right. For example, we need the value for money framework and transfer without consent as soon as possible, so that we are able to get in good shape for the 2030 scale test—so those deadlines brought forward. Small pots are part of that scale: we are seeing thousands of new small pots generated every year, so the quicker we can get on with managing small pots, the fewer of them there will be for us to manage going forward.
It is critical to think very carefully about the staging and phasing of the various elements of the Bill. That is the point we are trying to make. On the elements that help the market get to where we hope to get to by 2030, we need to get in as swiftly as possible, with enough time after the detail is in place for the industry to implement. I appreciate it looks like we are asking for things to be slowed down and sped up, but it is just making sure the ordering is correct and we have enough time to get into good shape for that 2030 deadline.
We think the scope should be extended partly because of how supportive we are of the measures. Being a historical consolidator of private pensions, we have millions of customers who are not workplace customers but who could benefit from being transferred into a more modern, larger scale scheme and from going into a consolidator of small pots, for example. We see that value in our own book. We look at the opportunity and think, “We wish we could do that for this group of customers. They would really benefit.”
The pensions market is quite complex, as others have pointed out. It is contract-based and trust-based. You also have workplace and private pensions. The more consistent we can be across all the different types of customer, who often do not think of themselves as being any different from each other, the more coherent a scheme we are likely to get at the end result.
Luke Murphy
Q
Tim Fassam: We see it predominantly as opportunity. We are not saying that the rules necessarily need to change. We are just saying these new opportunities should be extended to a wider group of available schemes, but the infrastructure we are putting in place regarding workplace auto-enrolment savers can be utilised across the piece.
Steve Darling
Q
Tim Fassam: I think eating an elephant is a very good way of putting it. I think £1,000 is certainly a good place to start. This will be an incredibly valuable part of the pensions ecosystem, but it will be complex and getting it right will require a lot of thought and a lot of close working between Government regulators and industry. Having that narrow and focused scope allows us to get it in place and get it working; then it would be perfectly reasonable to look at the level at a later date. For the time being, I think that is a very clear cohort of individuals who are likely to benefit from consolidation, because at the moment they are in uneconomic pools.
Kirsty Blackman
Q
Tim Fassam: That is another very good question. As the previous witnesses said, it is important to ensure that there is a pipeline of assets coming to us. A lot of what the Government are doing with the national wealth fund and the British Business Bank is helping with that. We would like to see—we would say this, wouldn’t we?—a little more focus on insurance versus banks. Banks are a vital form of capital—I am absolutely not suggesting they are not—but there is a skew towards banks. A few more insurance experts in the national wealth fund, and ensuring we have that pipeline of investable assets, could be valuable.
We are very lucky in the UK that we have fantastic start-ups, and amazing universities that are generating brilliant ideas. What we really need is scale-up capital. At the moment, about 70% of firms that need major scale-up capital go overseas for it, and then their head office moves. We need to make sure that we have an attractive environment for those firms to stay in the UK, and that is where scale comes in. A number of witnesses have talked about the benefits of economies of scale and professional asset management capability. That is absolutely right; they are critical benefits. One of the less discussed benefits is if you want to—
The Chair
Order. I apologise for the interruption, but that brings us to the end of the time allotted for the Committee to ask questions of this witness. On behalf of the Committee, I thank the witness for their evidence this afternoon.
Examination of Witnesses
Michelle Ostermann and Morten Nilsson gave evidence.
The Chair
We will now hear evidence from Michelle Ostermann, chief executive officer of the Pension Protection Fund, and Morten Nilsson, executive director and CEO of Brightwell. We have until 4.15 pm for this panel. Will the witnesses please briefly introduce themselves for the record?
Morten Nilsson: I am the CEO of Brightwell. We administer 380,000 members and about £35 billion of assets. Our largest client is the BT pension scheme, which we manage end to end.
Michelle Ostermann: I am the chief executive of the Pension Protection Fund. We were created by legislation in 2004; we have been in existence for 20 years. We manage a little less than Brightwell does, £30 billion. We are effectively a monitor of the entire DB system. We protect and backstop £1 trillion in it, pay compensation to almost half a million members, and enable the industry in general.
Mark Garnier
Q
Morten Nilsson: I see it as a good thing. I think it will change the pension industry quite a bit as a positive innovation. Closed DB schemes, which we focus on, might be seen more as an asset for sponsors, rather than a liability that they would like to get rid of as quickly as possible. I think that it will create quite a lot of innovation, and a lot of good things will come out of that.
Mark Garnier
Q
Morten Nilsson: I see it pretty much as you described. The main duty of the sponsors and the trustees is to ensure that there is enough money in the scheme to pay the benefits that were promised to members. If there are excess funds, it is reasonable that they can be invested back into the economy. In May, we surveyed 100 finance directors who are responsible for schemes with over £500 million of assets: 93% of them said that they would want to access the surplus, 49% said they would reinvest it in their local business, in the UK, to create jobs and do other good things, 44% said they would consider sharing it with members, 42% said they would invest it in their global operations, 40% said they would pay it back to shareholders, and 33% would invest it in DC. That is quite a wide range of uses. I think some of it will be paid back to shareholders, which may be local or abroad, but I expect a lot of it would be invested back into the UK economy in one way or another.
Mark Garnier
Q
Michelle Ostermann: Obviously, just as you describe, because we backstop the entire industry, what we are watching most closely is the fundedness of schemes, combined with the credit quality or the covenant, and the financial stability of the organisation itself. Those two combined are what help us to assess industry-wide risk and determine how much reserve we need to set aside for future claims on the PPF.
There is a spectrum of schemes out there, clearly—some that are very well funded, which you have been speaking of, and several that are not as well funded. On that spectrum, our focus is on the left side tail—the ones that are most underfunded, or nearing the potential to be underfunded. Given the measures that are being discussed for the release of surplus, we at the PPF feel comfortable with it not imposing a material amount of risk to us, as it is currently defined. It seems to find a nice prudent balance between allowing some flexibility for sponsors to use that money in hopefully a productive way, combined with the test to make sure they do not fall below a certain level, which would bring risk upon the industry and the PPF. We have been a constant participant in that conversation, and we would like to suggest that we will continue to play that role as a surveyor of the net residual impact to the industry.
Mark Garnier
Q
Michelle Ostermann: Yes—it is very similar.
Mark Garnier
And you war game it?
Michelle Ostermann: Yes. The biggest variable that we have a hard time predicting in those scenarios is the likelihood of this being used and the manner in which it is used, but we test deep into the tail. We try several scenarios that give us a high probability of it being abused or overused, and the opposite, and we have come out with pretty strong confidence. As it is defined today, we feel comfortable.
Mark Garnier
Q
Michelle Ostermann: Not here in the UK, but as you can tell by my accent, I am not a local. I worked in Canada for most of my career, at two of the largest Canadian “Maple Eight” pension plans, and those are things that we would assess quite regularly. In fact, the open DB schemes here in the UK function very similarly to those in Canada. I joined the PPF in large part because it is a mini-version of the Canadian model. It is exceptionally similar, to me. You will notice that during the liquidity crisis that occurred it was the liability-driven investment strategies, with the degree of leverage, that were most at risk, and it was interest rate-sensitive. Those open DB schemes that were using a more balanced degree of risk, including some equity risk, were unencumbered. It was Railpen, which I worked for when I was here previously. I was phoning back to my peers both there and at the universities superannuation scheme and PPF, and they all withstood that very well.
Mark Garnier
Q
Michelle Ostermann: It is definitely something that was on our radar. When we build the investment strategy for an open DB scheme, such as those I described, it is quite different and less susceptible to that type of risk.
Steve Darling
Q
Michelle Ostermann: I assume you are speaking of our levy?
Steve Darling
Yes.
Michelle Ostermann: We have several types of levies that support our organisation. If I may, I will just take a step back to help everyone to understand what role they play.
The PPF is not terribly well understood because we are a bit unique in this industry and there are only half a dozen bodies like us in the world. The UK is one of the few countries that have a protection fund such as this. In some ways we back as an insurer in that we collect premiums or levies from the industry from the 5,000 corporate DB schemes and backstop 9 million potential future members that still sit in those schemes. We collect the levies and hold them in reserve much like an insurance company. We are not an insurance company, but we do so much like they would mathematically and with similar models.
At the same time, if a corporation fails, we take its pension scheme, which is usually underfunded, and its orphan members and put them into a pension scheme. We are both a pension manager and an insurer of sorts. When there is a failure and a scheme comes to us with insufficient assets to make good on its pension liabilities, we take some of our reserves almost as a claim, and move them over to the pension fund so that it is fully funded at all times using a largely liability-driven investment-type strategy. The levies that we collect are twofold: first we collect a levy related to the risk of the industry. You may be familiar with our purple book and the industry-wide assessment we do. We monitor the risk of that entire complicated £1 trillion industry to decide how much to set aside as reserves.
Our reserves are often referred to as a surplus, but they are not a surplus; they are reserves sitting there for potential claims in 50, 80 or 100 years. We will be the last man standing in this industry. We are here as an enduring and perpetual solution. As long as there is DB in the industry, we will have to backstop it. We set aside those reserves for the 9 million members and current £1 trillion in case of future market environments that we cannot predict today. Those levies have been collected over 20 years from the constituents of that industry. We have collected just over £10 billion from that levy system and have paid out £9.5 billion of it as claims to the pension fund.
As those levies were coming in over that 20-year period we were investing them in an open DB growth-type strategy. As such, we have built up £14 billion of reserves and so now consider ourselves largely self-funding. We no longer need to collect that levy from the industry now that those reserves are sitting there—in so far as we can best tell with our models today. We prefer to reserve the right to turn it back on should we need it in the case of a market correction event, some unforeseen circumstance or an evolution in the industry. However, right now, those fees are no longer required by us; it is a risk assessment that is suggesting that.
Mr Bedford
Q
Michelle Ostermann: We have thought a fair bit about that. We do not see very many scenarios in which we would need to turn it on, although it is always difficult to predict. As you know, the industry evolves in many ways and over the 20 years we have seen quite an evolution, including the creation of new alternative covenant schemes and commercial consolidators. We will backstop those as well, and we will need to charge a levy for them. There could be an unforeseen market event, similar to that just described, so we need the ability to turn the levy back on—simply to keep it as a lever. Today, the legislation reads that if we were to lower it to 0%, we can only increase it year on year by 25%. However, 25% of zero is zero, so we are a bit cornered. We have asked for a measure that would allow us to increase it by as much as a few hundred million a year. The most we have ever charged in one year was just over £500 million.
As I said, we have collected £10 billion gradually over many years. The new measure allows us to increase it by no more than 25% of the ceiling number every year, which is currently £1.4 billion. That means we could go up as much as £350 million in a single year, if needs be. However, we are a very patient long-term investor. Even though we are taking on closed corporate DB schemes, we run it as if we were an open scheme, because we are open to new members all the time. As such, our investment strategy does most of the heavy lifting for our organisation now.
On our £14 billion reserves, we make over £1 billion a year in gains from that investment strategy, which funds the £1 billion we pay out in the pension scheme to members. We are now a mature organisation that should be able to maintain a steady state. The most we would be able to increase the levy by in one year is £350 million, but we would expect to be patient, wait a few years, and try to ride out the situation not needing it, only turning it back on should we need it. We consult before we turn it on and we take a lot of feedback on this. We are quite thoughtful, as we have always been, and I hope people agree.
Mr Bedford
Q
Michelle Ostermann: The biggest example is a macroeconomic shock that would affect the solvency of corporations. The failure of the corporation itself is more likely to have an impact than just a change in interest rates or equity markets. The change in interest rates can affect the fundedness of a scheme, but many of those schemes, over 75% of them now, are actually really well funded. And they have pretty well locked down their interest rate risk because they have put a good chunk of assets against their liabilities in a fairly tight hedge. Although we saw, as a result of the liquidity crisis a few years ago now, that things can change. The degree of risk, specifically leverage risk inside some of those strategies, does make them fallible. I would say the biggest shocks would be massive interest rate movements that are unforeseen, a very significant macroeconomic environment causing failure in many corporations, and technically, even a significant move in equity markets, but we would usually just ride that out. Markets can go down 20% or 30%. We would only go down 10% or 15% and we would be able to recover that in under five years, historically speaking.
John Milne
Q
Michelle Ostermann: We have been progressing on this quite a bit lately. It is one of the most prevalent discussions, both with our board and with our members. We speak very often with the entirety of the industry. Several are very strong advocates for it as well, a few of which are here today, and we have taken quite a bit of humble feedback. We have worked as best we can with the Work and Pensions Committee to estimate a significantly complex set of potential scenarios for making good on historical indexation needs for pre-’97. They range in price, are quite expensive and would require us to incur or crystallise a liability. They are not cheap. It would be difficult for both us and the Government to be able to afford. The taxpayer would have an implication to some of these, depending on how they are formed, and it is beyond our prerogative to make that decision but we have been facilitating and encouraging it to be made. We would welcome progress on that. I understand, in fact, an amendment was tabled earlier today in that regard, so I was warmed by that.
John Milne
Q
Michelle Ostermann: To clarify the word “using”, as I think it is important, the PPF is an arm’s length body and those assets are ringfenced. Our board has independence over those. It was set up that way—arm’s length—20 years ago to make sure that it was a dedicated protection fund for that industry. It so happens that we do fall under some of the fiscal measures, so both our assets and liabilities do show. However, there is a bit of a conflict there in that we manage them in the prudent, almost in a trusteed fashion, on behalf of our members and all of our stakeholders. But the use of them would have to be prescribed by the board, legislated, and then approved by the board for its affordability, so as to not put at risk the rest of the industry that we are backstopping.
The ability for us to be able to afford that and the risk to the organisation is the primary, most sacrosanct thing that our board does. We have very complicated actuarial models to figure out the affordability of all the risks that we take on in the entire industry. That is why we have gone through quite a bit of work to build, just recently, a much more sophisticated model to estimate both the asset and liability implication to us and have even started to form a plan for how we might implement it. So we stand at the ready, but it is beyond our responsibility to be able to legislate the necessary change for it.
Rebecca Smith (South West Devon) (Con)
Q
Michelle Ostermann: That is fascinating. I came to the UK, and back to the UK, because I have so much enthusiasm for the UK and the pension system. I am very fortunate to be the chair of the global pension industry association, so I study pension systems around the world and am quite familiar with many of them. The UK pension system is the second largest in the world by size if you include underfunded pensions. It is one of the most sophisticated, but it is the second most disaggregated. As I think a few of my peers mentioned before we got up here, it has fallen behind, frankly. I think the motives that are in this Bill are exceptionally important—they are foundational. I love that we are speaking on scale and sophistication. These are absolutely key, in both DB and DC. I want to underscore that; it is really key.
One thing that is not spoken of quite as much is the concept of an asset owner and the importance of governance. In relation to the successful countries that I have seen, which have mastered the art of pensions and the ability to translate pensions into growth, it is not a proven model, but there is a best practice such that countries are able to make growth by leveraging pension systems. I think that right now we are trying to solve a problem of two things: reshaping the pension system and trying to solve the need for a growth initiative. They are one thing in my mind; they really are one thing. It is not a surprise that as we have de-risked the pension system over two decades, it has, I suspect, quite directly, but at least indirectly, affected overall economic growth.
Making members wealthier pensioners in general and less dependent on social services is what many countries are trying to do and use their pension systems for. I see that out of the commission that is being started, so I am most excited about the next phase. I think there is a lot of potential, and we at the PPF are doing quite a bit of research and want to be able to feed some global ideas into that.
Morten Nilsson: I come from Denmark originally and I think, to echo some of what Michelle said, scale just matters in pensions. The Danish pension industry has been fortunate to have few and relatively large schemes. One of the things I saw when I came over to the UK 15 years ago was that the industry here is very fragmented, and that fragmentation means also that there are so many conflicts of interest in the market. That in a way makes it quite hard to get the best outcomes, and that of course leads into the governance models that Michelle talks about. So this Bill is something we very much welcome across what it is covering. I think it is a really good initiative, but I think scale matters, and governance really matters. I would not underestimate how big a change it is, in the defined benefit sector, that we are moving from two decades of worrying about deficit into suddenly worrying about surpluses and having very mature schemes, which is the other thing that is important. Most of the DB schemes are closed.
If I talk about the BT pension scheme, the average age is 71, so they are pretty old members and that means there is a risk level, from an investment perspective, that really matters. We are paying out £2.8 billion a year in member benefits. That means liquidity is really important. It is really important that we have the money to pay the members and that we do not end up being a distressed seller of assets.
So there is quite a lot in that evolution we are on, and when we go into surplus management or excess funds—Michelle was talking about this at macro level; we would be managing at our micro level in each scheme— I think it becomes really critical that we have the right governance to manage what is a new era. I would really recommend that the Pensions Regulator issue guidance as soon as possible on all this, because it will be quite uncomfortable for a lot of trustees. It will be quite difficult also for the advisers in how we manage this new era.
David Pinto-Duschinsky
Q
Conversations that I have had also flag up the importance of culture among trustees. We can give people the tools, the powers and the permission to invest, and we can be clear in the framework we set up, but, culturally, they may still be very risk averse. Of course, some of that is appropriate because they have to safeguard member benefits, but there is a point about whether they are overly cautious and about how one creates the appropriate culture to go with the change. From your perspective, what is needed to create the right culture to go alongside the right governance?
Michelle Ostermann: I have one small observation from when I first came to the UK. I recognise that there is a very strong savings culture, but not necessarily an investment culture, and there is a distinct difference there. I even notice the difference when we talk about productive finance targets. We speak in terms of private assets, but there is a difference between private equity and private debt, and between infrastructure equity and infrastructure lending. All those lending capabilities are here in this country. I feel that the debt sophistication is strong, but where it lacks is the equity.
I am a Canadian. With one of the largest Canadian schemes, we had no problem coming in and buying up assets here in the UK—you may have noticed. We own a lot of it, and with Australia, most of it. The supply was never an issue for us. We brought the scale and sophistication, but what we did not have was a local British anchor. We did not have an anchor investor. We did not have a home-grown Ontario Teachers, a Canada Pension Plan or even an ATP that we could use as the local one. I see that the PPF, NEST and Brightwell can be that. We are still not megafunds. I know that we are referred to as behemoths and megafunds at £30 billion and £60 billion, but the peers with £100 billion, £200 billion and £500 billion are those that are putting in £0.5 billion or £1 billion in one investment. They are not lending, but investing.
That is the biggest difference I notice: the definition of scale and the degree of sophistication. It is even about sophistication in the governance model, and having a board and a management team with that sophistication. It is about having a management team with some power that you are hiring out of investment, and being a not-for-profit and an arm of the Government that is allowed to put in that sophisticated capability, with a board that can properly oversee it so it is not done without proper consideration.
Morten Nilsson: I think it is quite critical that you have trustee boards that are supported well by regulation and guidance, as we talked about before. It would also be helpful to start to focus on the management teams that are supporting the trustees. Cultural change is always very difficult. We must acknowledge that we are coming out of a situation that was really quite difficult for a lot of trustees and sponsors in terms of finding out how to fix the big deficits that schemes had. We must acknowledge that that is where we are coming from and that is the mentality we have had for decades. Regulation and guidance is still all over the place, and we must work through how we move that forward. I really recommend more guidance from TPR and, sooner rather than later, more guidance on surplus extraction. That would help a lot of trustees to take more risk and think in a more balanced way about risks.
Of course, if we are considering allowing excess funding to go back, we need to ensure that we are doing that on a prudent and well-considered basis. It is an educational challenge more than anything, but it is also about the advisers. The market really needs to get comfortable with investing for the longer term. Within that, it is critical that we move away from being obsessed with a mark-to-market, day-to-day obligation. We measure our liabilities on one day of the year and then we might panic if there is a little swing in the market, but we are actually working through quite a long horizon and therefore we can smooth that out in a different way. We need to think about how we look through some of these blips.
The Chair
If there are no further questions from Members, I thank the witnesses for their evidence. We will move to the next panel. Thank you very much indeed.
Examination of Witnesses
Chris Curry and William Wright gave evidence.
The Chair
We will now hear oral evidence from Chris Curry, director of the Pensions Policy Institute, and William Wright, managing director of New Financial. We have until 4.45 pm for this panel. Would the witnesses kindly introduce themselves?
Chris Curry: Good afternoon. My name is Chris Curry, and I am director of the Pensions Policy Institute. The PPI is the leading UK research organisation working in pensions and retirement income, with a remit to provide an evidence base, analysis and data across all pensions issues.
William Wright: Good afternoon. Thank you for the opportunity to be with you today. My name is William Wright. I am the founder and managing director of New Financial, a think-tank that makes the case for bigger and—crucially—better capital markets across the UK and Europe.
Mark Garnier
Q
Chris Curry: We heard a little about that from the previous witness, who I think also has first-hand experience of the Canadian investment models, but there are a number of different reasons. First, there is the aggregation in the system that was talked about; the UK has a very fragmented pensions system. There are a number of different large sectors, but each large sector is not large internationally speaking. Scheme maturity, scheme size and scale generally are a factor. Very few individual schemes have the scale and the amount of assets to invest large-scale in some of the UK opportunities in the way that Canadian schemes have invested on a large scale—as has been said. Half a billion pounds to £1 billion in a single investment is very large by UK standards, compared with the size of schemes.
There is also, because of that lack of scale, a lack of development of the expertise required by some of those specialists—sophistication has also been mentioned—across some of the different individual schemes that we have in the UK. If you are larger, you can afford to have those specialist management teams or specialists on the board. It is not such a proportionate cost as it would be to a relatively small scheme.
Cost is another factor. As we heard from previous witnesses, in the UK a lot of focus on schemes has been on the cost of providing a scheme; in the workplace especially, by default a lot of competition is based on cost. With some of the opportunities we are talking about, especially in productive finance, in the UK space, investing in the UK would come at a high cost, so there is less scope for that cost to be absorbed in an overall larger fund. A lot of the things that the Bill is trying to address are probably some of the reasons why we have not seen that UK investment up until this point.
Mark Garnier
Q
William Wright: Certainly on the derisking side, while we are blessed to have the second or third largest pool of pensions assets in the world, the structure of our pensions system—the fact that so many DB schemes have closed or are running off—means that the overall risk appetite simply is not there. There is a danger in this debate of comparing the outcomes that we see in different types of pension fund systems around the world and thinking, “We like the look of that. Can we have a bit of that, please?” I am simplifying here, but we tend not to be too keen on looking at the inputs and the decisions, often taken 20, 30 or 40 years ago in different markets around the world, that have helped to lead to the development of those systems as they are today. The Canadian public sector defined-benefit model did not happen overnight. Michelle knows the history of it better than I do, but it goes well back into the 1980s. That is why so many of the aspects of the Bill should be welcomed. They look at the fundamental drivers of what will help to define pension fund outcomes for members and the structure of our system in 10, 20 or 30 years’ time.
On how other systems think about pension systems in relation to growth and economic wellbeing in their domestic markets, one of the things that we found particularly striking is that when you compare DC pensions in the UK with DC systems in other countries, or public sector DB in the UK with public sector DB in other countries, there tends to be, for DC pensions in other countries, a higher domestic bias. There tends to be more investment, whichever way you look at it, in their domestic equity market than we see from UK DC pensions in the UK equity market. You also see, almost universally, higher levels of investment in private markets. So much of that comes back to scale. Scale is a threshold—it is not enough on its own—and then there is the sophistication, governance and skillset that needs to be built over many years on top of that.
Mark Garnier
Q
William Wright: Yes. As a number of witnesses have mentioned today, because of the structure of the UK pension fund industry, there are many different perspectives, often not entirely aligned, shall we say, with each other. Every participant in the industry has responded perfectly rationally to the incentives in front of them and the regulation behind them in their investment behaviour and risk profile. International accounting standards, rather than just UK standards, have helped to drive that in the private sector. We have seen similar derisking in other corporate DB pension systems around the world. It has been an entirely rational response. It is really interesting to see which elements of which markets around the world seem to have found a more positive response. Canadian public sector DB, the closest comparison to LGPS in this country, is one example. Others are Australian DC or some of the Nordic models—the Swedish and Danish DC models.
Mark Garnier
Q
Chris Curry: First, I agree that we have seen lots of positive response to the value for money framework. Looking across international examples—Australia, in particular—it seems as if it will be very welcome in trying to ensure that, as part of the consolidation and what is potentially coming with the next Pensions Commission, with more investment going into UK pensions, that investment is going into a place that is actually going to work on behalf of the members who are investing their money. That is really important in what we are doing. I would also echo some of the views we heard earlier that it is really important in moving away from just a cost-based analysis of pensions and into value, and in looking at the whole range of different factors that are going to determine whether you get a good outcome rather than just at how much the investment costs.
There are challenges. What we have seen in particular, which Tim mentioned earlier and echoes what we have seen in Australia, is that where you have a very hard measure over a relatively short period of time, that will affect investment behaviour. Because there is such a penalty for falling behind over a short space of time, you do everything you can to avoid falling behind, and there is fairly conclusive evidence that that has led to herding of investments in Australia. That is not to say that a framework, or even an intermediate marker, necessarily has to lead to that; I think that depends on the parameters you set and whether you are looking at the returns over one year, three years or five years, and how that works.
Ideally, recognising that pensions are a long-term investment, you would not want to be looking too much at what happens over a short period of time in investment markets; you would want to be looking over a much longer period and at how the underlying strategy is performing. That is always very difficult, and one of the challenges is trying to get the balance right between what you can measure objectively and what you can measure subjectively. Where you are looking at things like an intermediate report, you tend to be looking at something that is objective, and it is quite difficult to do that over a long period of time. There is always a balance to be struck as part of this, and it would be good to investigate that more as we get further through this process, to work out the best way of doing it in order to achieve the best outcome for members.
Mark Garnier
If I remember rightly, the Bill allows for the detail to come in afterwards, so we will have a bit of work to do when this is all over. Thank you very much.
Torsten Bell
Q
Chris Curry: I listened with interest to some of the earlier witnesses talk about dashboards, and there certainly are some lessons that we can learn from the pensions dashboards programme, as it has been evolving over the past few years, for small pots in particular.
There are two issues that I would pull out. The first is on the technology front. I think someone suggested that the next five years or so could be quite a tight timetable to build a technological solution and get it in place. You have to be very careful—you cannot underestimate just how much complexity there is and how long it takes to do these things—but I would say that the work that we have done on pensions dashboards is giving us a bit of a head start. That is not to say that we necessarily need to build on or use parts of the system that we have already built, but it has helped us understand a lot about, for example, how you can find pensions—the way you can use integrated service providers rather than having to go direct to all the schemes, and use a syndicated model to find where people might have their pensions.
It has helped the industry get a long way down the path to where it needs to be, as well. One of the big challenges for pensions dashboards is the quality of data. Enabling individuals to find their pensions means data quality: it needs not only to exist and be there; it needs to be accurate and it needs to be up to date. When you are thinking about an automatic consolidator or default consolidator for small pots, that is even more important. You are not just transferring information, but transferring money, so it is really important that the data is high quality. The work that is being done on pensions dashboards will get people in the industry a long way to having part of that in place as well.
There are definitely lessons that can be learned from how we progressed on the pensions dashboards programme. It has got us much closer to where we would be if we had had a completely blank page to start from, but there is still a reasonable amount of work to do, because it is working in a slightly different way.
John Milne
Q
William Wright: I think it is a mix of both. It very much depends on what sort of assets we are talking about. For example, if we are thinking about the UK stock market or domestic equity markets, we tend to see that markets such as Canada and the Netherlands have an even lower allocation to domestic equities, whichever way you look at it, than comparable UK pensions have to the UK market.
Ultimately, this comes down to what you might call the accidental design of the UK system. It has evolved over 20, 30 or 40 years, whereas the systems with which we like to compare the UK system, or large parts of them, were actively designed anything from 30 or 40 to 50 or 60 years ago. We are now seeing the benefits of that active design in those systems. Their focus on scale enables them to invest in a far broader range of assets at a lower unit cost.
Going back to the value for money point, UK pensions have ended up in the worst of both worlds. Fee pressure, particularly in terms of winning and transferring new business between providers, is driving down fees, but the average fees on DC pensions today are very middle of the pack: 45 to 50 basis points a year. That is much higher than much larger schemes in Canada, such as the Canada Pension Plan Investment Board, the big Canadian reserve fund, and much higher than large UK schemes, such as the universities superannuation scheme, but they are stuck in the middle: they are actually paying higher fees, but because of the fee pressure they have a very vanilla, almost simple asset allocation. As Tim Fassam from Phoenix pointed out, that tends to steer people towards the lowest cost investment option. Active design, focusing on scale and sophistication, enables pension schemes to take a much longer term and much broader view of what they should invest in and where they should invest in it, whereas in the UK we have tended to accidentally move from one system to another.
John Milne
Q
William Wright: Absolutely. One of the huge challenges in the UK pensions debate over the past 25 or 30 years has been that we sort of knew what was not working and where corporate DB pensions were going to go, and then there was a hiatus and no real active design of what was going to replace them. Auto-enrolment did not start to kick in for a couple of decades, and now we are beginning to see the benefits of that, but the opportunity to actively redesign the structure of the defined-contribution pensions system in this country, and the structure of public sector DB, is long overdue.
The Chair
If there are no further questions, I thank the witnesses very much for their evidence this afternoon. Given that the Committee has been sitting for a couple of hours non-stop, I will suspend the sitting for a brief period.
The Chair
We will now hear oral evidence from Roger Sainsbury, founder member and pensions partner of the Deprived Pensioners Association, and Terry Monk, a member of the Pensions Action Group. We have until 5.15 pm for this panel. Will the witnesses kindly briefly introduce themselves for the record?
Roger Sainsbury: As the Chair said, I am a founding member and the lead organiser of the Deprived Pensioners Association, which was set up for the purpose of fighting for what we loosely know as pre-1997 indexation for Pension Protection Fund members.
Terry Monk: My name is Terry Monk. I have worn various hats over my almost 70 years in the industry. I am probably—with respect to Roger—one of the oldest people in the room. I have been a financial adviser, and I ran a financial services company that was part of Lloyd’s broking group. That group did the first compromise deal to try to save the group and therefore left a lot of its employees, including myself, with hardly any pension. My pension went down from 100% expectation when I was 59 or 60 to just 10% afterwards. Through the restructuring of Bradstock, I joined Independent Trustee Services, part of the Jardine Lloyd Thompson Group—the company that probably saved my life in many ways, and gave me a future. Through that, I became involved with companies that became insolvent.
I then began to work very closely with my colleague Alan Marnes—who is sitting behind me—in the Pensions Action Group, trying to fight for some kind of protection to reverse the disasters that ourselves and our families were facing. That included demonstrations. People ask about the history of the financial assistance scheme and how long FAS has been there. Well, I have brought a picture of my granddaughter when she was young—she is now 22—at one of our demonstrations in Whitehall. FAS started the thing. Alan, John Benson, Phil Jones and the like started the campaign—in Downing Street, on College green and at party conferences—to bring about the compensation that was needed to stop this happening to anybody else.
My take from today is that you guys are all doing what you are doing to make the future work. I am concerned for the people I work with and represent, and I want to make sure that their past is not forgotten, that their pension becomes secure—not one of the future, but one of the past—and that they can rely upon the past. I am afraid I will get emotional at this point— I apologise that I am not doing my introduction; I am doing a speech—because 5,343 FAS members have died since Richard Nicholl and myself gave a presentation to the Work and Pensions Committee. I said to someone just now that my tie is loose because I do not wear ties these days, but I have worn a tie twice in two months at the funerals of founder members of the Pensions Action Group. It just has to stop. I am sorry—I will keep quiet now.
The Chair
Thank you very much indeed. I will go immediately to the shadow Minister, Mark Garnier.
Mark Garnier
Q
Roger Sainsbury: In the light of Terry’s extended life history, I will just add that I am a fellow of the Royal Academy of Engineering and a former president of the Institution of Civil Engineers.
Before I come to your important question, I would like to feel sure that everybody in this room really understands the huge seriousness of the issue we are considering. This business of removing indexation from people who had pensionable service prior to 1997 has been going on for 20 years. Many of the people involved have seen the value of their payments eroded by maybe even more than 50% in that time. It is really very serious.
The second thing I would like to mention is that the scale of the problem is actually greater than the Post Office managers scandal. Of course, I am not suggesting for a moment that any of our claimants is suffering in the appalling way the postmasters did, but the numbers of our people are so huge compared with the postmasters that the actual amount of money at stake is greater. We have 140,000 PPF members who are affected by this bizarre clause of limiting the indexation, 60,000 of whom are 80 and have zero indexation, so it is a truly serious thing.
I would also like to mention one other dimension, which is timing. In our written submission to the Committee, we did not even bother to press the basic argument for why indexation should be awarded; we just focused on timing, because time is absolutely not on our side at all. Our claimants are dying, on average, at the rate of 15 a week—it is probably three while we have been holding this meeting this afternoon—or 5,500 a year. We have been told by the Department that the necessary amendment to the Pensions Act 2004 cannot be made by statutory instrument. There would have to be a new Bill and a new Act, and goodness knows how many years that might take or how many more thousands of people would have died. That is why we are pressing to get an amendment to this Bill to give a more timely answer.
Now I come to your question: what are the main arguments for and against using the reserves to benefit the members? Well, the first argument is simple, but really rather powerful: it is the only purpose that, legally, the PPF is allowed to spend its money on. The Act is very clear: unless some legal judgment was made against them, which is not on the horizon at all at the moment, the only way they are allowed to spend money is either on their own overheads or on giving benefits to members, such as the indexation that we are now talking about.
That is reason No. 1; reason No. 2, in my mind, is that expectations have not been met and promises have not been fulfilled. I go back to the Secretary of State who introduced the Second Reading debate on the 2004 Bill. He pledged that pension promises made, by the original schemes that people were in, must be met—that is, met by the PPF, which is the reason why the PPF was to be, by that Act, created. Yet that has not happened because, somehow, into schedule 7 to the Act came these dreadful words that have had the effect of not permitting the PPF to pay any indexation at all to people for time worked prior to 1997.
The third reason—ultimately, this is the important reason—is that the 140,000 people need this money. They desperately do, some of them. I mean, obviously not everybody’s condition is the same, but a lot of people will be suffering real misery and hardship. They need this money. I ask myself: “Were this Government elected on promises of governing with humanity and compassion? Are this Government going to meet that need? Or are they going to walk by on the other side?” I do not myself believe that they are; I believe that they will come up to the mark and find a way through the perceived difficulties that they have.
I think those are probably sufficient reasons to be going on with; as to the reasons against granting this, frankly, I cannot see any.
Mark Garnier
Q
Roger Sainsbury: Well, if—
Terry Monk: Can I have a go? Alan, who is sitting behind me, and all of us say that we did the right thing at the right time to secure our futures. There was no risk—we were guaranteed there was no risk. The minimum funding requirement was seriously flawed post-Maxwell. That changed it. We were told our pensions were safe. They were no longer safe—I found out to my cost, and many others did, that our pensions were not safe.
If I try to use the argument to our members that are still alive, “We can’t give you these increases because of the national accounts,” they will say, “Hang on, I did the right thing. I was told my pension was safe. I did the right thing all the way along in my life, and I saved for my future—for my comfortable retirement. I did not want to depend upon the state. I wanted to do it for myself. That is what I was proud to do.” To use the argument that the national accounts do not allow these people to get their benefits? I could not use that argument, whatever the reasons might be behind it.
Roger Sainsbury: May I try to answer your question more specifically? I think that indexation would have an impact upon Government finances. The impact would be that cash would flow into the Treasury, because if indexation is permitted and starts to be paid, there will be income tax paid on that money. The money will be going out from the private funds of the PPF, but the income tax and subsequently the VAT on expenditures will be coming into the Treasury coffers. I have yet to meet anybody, other than people in government, who can comprehend how it can be that when the PPF, from its private funds, meets an obligation, which has the incidental effect of bringing cash into the Government coffers, that can at the same time lead to a failure to meet the fiscal rules.
The fiscal rules, incidentally, are set up for a period of four years, when the unravelling of the indexation obligation will take many decades. We have been told in ministerial letters that it has been set up this way with a view to improving transparency. Well, I am sure you have all heard of the fog of war, but I think we are now up against the fog of transparency. I do not think it is real money that the Government are talking about. Even in their own letters, they say it is a statistical way of handling the figures.
The recent Government line on this is that it is the fault—I do not want to put blame on anybody—or the responsibility of the Office for National Statistics, because it was the Office for National Statistics that decreed that the assets and liabilities of the Pension Protection Fund should be counted as part of the public sector national financial liabilities, rather than as part of the public sector net debt, but that decision was made in 2019. We are therefore more inclined to hold responsible the present Chancellor, who, in her Budget of last October, made the decision that, for the Government financial rules, the metric should no longer be the public sector net debt, but the public sector net financial liabilities. It was that that brought the PPF, as it were, on to this part of the playing field.
Mark Garnier
That is very helpful, thank you. I am very conscious that other Members will almost certainly have questions, but I must say that I entirely agree with you that a sum of money set aside for compensation should not be brought into the Government’s balance sheet.
Steve Darling
Q
Terry Monk: We have looked at all sorts of scenarios. I do not know whether Michelle is still here, but the problem is that, although the PPF has done all sorts of “what if” calculations about all sorts of “what ifs”—we have had copies, and the Work and Pensions Committee has had copies—we do know what the “what if” is. We know what our members have lost, but we will not know, until such time as we hear from the Government, what they are proposing. We have offered time and again to meet not just the current Pensions Minister, but previous Pensions Ministers—I have to say that a few of them would not even meet us. This Minister has met us, and he knows the issues, but we do not know what is in the mind of the DWP or the Treasury in dealing with this issue. Once we know that, we will know whether we are fighting or we are working together, and what the answer will be. To answer your question, there is a net effect benefit of paying that amount, but we are in the dark—we do not know how long the bit of string is.
Roger Sainsbury: Incidentally, one of the benefits of the cash coming in, supposing we do get indexation, is that it would at least make a contribution if the Government had decided they were also going to pay money to the FAS members. It would be a contribution to help offset the Treasury payments that would have to be made for the FAS.
Terry has referred to the situation, but I think the key thing is that in 2023 the Select Committee asked the PPF to provide financial estimates for what it would cost to do indexation. The PPF then produced some really excellent tables that showed a number of different hypothetical systems for delivering indexation. It was a bit like a restaurant menu. There was a possibility to have a scheme that would not be hugely beneficial, but that would not cost all that much money to administer, right through the range to a Rolls-Royce scheme, which would obviously cost a lot more money.
We have been asking for RIPA. Just to be absolutely clear, we are not asking for the grim reaper; we have had enough of him already, with people dying. This the bountiful RIPA—retrospective indexation plus arrears. We are pressing for that, but we did not invent it. It was not invented by the DPA. It was part of the menu that the PPF produced, and we merely picked it from the menu. RIPA is reasonably high up the menu, but it is not at the very top. There are other things that we are not asking for that we might have asked for, so we are not being greedy.
With respect to Terry, we are not bothering too much about what is in the PPF’s mind or in the Government’s mind. We are much more concerned with what we are trying to put into their mind. When we decided to go for pushing for RIPA, it was because RIPA is the minimum scheme of indexation that would have the effect of doing away with what is presently a two-tier membership within the PPF. There are two classes of membership: those with indexation and those without. There is nothing in the Bill making any provision for that. It is grossly unfair and it needs to be done away with, and it just happens that the RIPA option is the minimum way of getting rid of that deplorable two-tier membership. I think that gives you perhaps a fuller answer about the situation.
Terry Monk: Are we virtually out of time?
The Chair
We are not quite out of time, but I am going to call other Members to ask questions of the panel. I call Kirsty Blackman.
Kirsty Blackman
Q
Roger Sainsbury: I have to say that there is a great range.
Terry Monk: I cannot remember what it is, but the average FAS member’s pension is something in the order of £4,000 or £5,000 a year, and if you look at the steelworkers, because they are our example, it is those sorts of guys. I worked in the City. I had a different job, but the majority of the people in the scheme had good benefits and good salaries but their pensions were important and they reflected the role they had in their life. I am not sure off the top of my head, but I think the average of the FAS pension is £4,500—some more, some less, obviously.
I want to make a point that I think Roger mentioned: at one stage, we were not at the table to talk as part of the pensions Bill. We lobbied hard. I know some of you have definitely put forward amendments to the pensions Bill to ensure that pre-1997 becomes part of the pensions Bill, which is why we are here today, but we had to work hard just to get that.
Sarah Edwards
Q
Terry Monk: FAS stopped when PPF opened its doors in 2005, so most of the people in FAS did not have much opportunity to accrue any increasing benefits post 1997. The majority of them are old—the average age of the FAS member is now 73, which is much younger than I am. It is that age group of people who would really benefit, and their widows and their spouses—let us not forget them—and they would therefore spend money that they currently do not have to spend. They can afford their council tax. They can afford their heating. It would change their lives, in terms of feeling that they have achieved this success on their behalf and on behalf of the members.
Roger Sainsbury: I would like to talk a bit about the concept of an amendment. We have observed that one amendment has already been offered: new clause 18 suggested by Ann Davies MP. Our team and I have had a bit of a look at that in the last couple of days. While we very much appreciate her good intention in putting the amendment forward, it actually does not do the job in a number of respects. I do not know how many of you have ever grappled with the obscure and complex language of schedule 7 to the Act, but it is mighty complicated. Some time ago, I and my team spent several days trying to work out what an amendment should be to deliver what we wanted. I have got some first class people on the team, but in the end we decided we actually could not do it, and would have to leave it to the expert drafters in the Department.
That is yet another reason why—I mentioned it in the written evidence—at a meeting I have already asked the Minister if he would himself table the requisite amendment. When you come up against the sheer complexity that Ann Davies has obviously already come up against, this is another reason why we think that would be a very good idea. It is slightly unusual for a Minister to table an amendment to his own Bill, but it is permitted, as the Minister said when I was talking to him about it. In a complex situation like this, it would absolutely be the best way of getting straight to the desired answer, so I plead with all of you to join me in urging the Minister to take this on.
John Milne
I think you have answered all my questions already. We have tabled an amendment, and I would really appreciate your input on whether we could improve it or argue around it between now and when it is raised in Committee.
Roger Sainsbury: Thank you.
Rachel Blake
Q
Roger Sainsbury: That is a very timely question, because for the past couple of years, we have been working on the basis that the RIPA scheme would cost £5.5 billion. That was the estimate given to us by the PPF. Now—I might almost say hallelujah!—about three days ago, the PPF notified us that they had redone the calculation using a much superior methodology. I think it is a phenomenally difficult calculation to do, but they have redone it, and the answer now is not £5.5 billion, but £3.9 billion, or possibly a bit less. Whereas for two years we have been arguing that £5.5 billion is eminently affordable, £3.5 billion, for example, is obviously even more affordable. We do not get that much good news, but that was definitely a bit of good news we recently received. I am pleased to be able to share it with you, if you did not know it.
Rachel Blake (Cities of London and Westminster) (Lab/Co-op)
Q
Roger Sainsbury: We would not have any ability to do that calculation at all. It all depends on the statistics held by the PPF of the age of all the members, the amount they have all been receiving and so on. It is way beyond us to make that calculation.
Terry Monk: I worked with FAS before FAS even came about—at the conception, rather than the birth, of FAS. The PPF and I have worked closely with them for over 20 years. I have immense trust and faith in what they do, how they do it, and what they deliver. Whenever we ask them for help, they give it to us as far as they are able.
Roger Sainsbury: I would support that. The PPF have been very helpful and I have had a good working relationship with them. I have to say, that was not always so—about three years ago, it looked as if we would be fighting a continual battle against them, but over time we have got to a really good working relationship, and they have been very helpful. In a question of challenging or doubting their ability to do this sort of calculation, when you look at the asset returns that they are getting, boy, they have got some people that know how to handle numbers, haven’t they?
The Chair
If there are no further questions from Members, can I thank the witnesses for their evidence this afternoon? I will move now to the next panel of witnesses.
Examination of Witnesses
Rachel Elwell gave evidence.
The Chair
We will now hear oral evidence from Rachel Elwell, Chief Executive Officer of the Border to Coast Pensions Partnership. We have until 5.30 pm for this panel. Would you kindly introduce yourself for the record?
Rachel Elwell: Thank you, Chair, and thank you, everyone, for your time today. My name is Rachel Elwell, and I am chief executive of Border to Coast Pensions Partnership, which is responsible for the assets of 11 of the local government pension schemes, although with due care and attention to governance, that may well become 18 LGPS funds and over £100 billion by April next year.
I would like to give a little bit of background to explain to the Committee why I feel so passionately about both the local government pension scheme thriving in the future, and pensions more generally in the UK. I am a pensions actuary by background, and I have worked in the industry now for 30 years. I took this role in Leeds for three reasons. One was because it is Leeds—you probably know that most people from Yorkshire will tell you that within five minutes of meeting them, so there you go: I am from Yorkshire—and Yorkshire has a fantastic financial services region, but we were missing asset management. For me, this was a fantastic opportunity to strengthen that, levelling up, and over the last eight years since I took on the role we have built the largest asset manager outside London and Edinburgh.
I am also passionate about learning and creating new opportunities. Again, this is something that the LGPS has built from scratch since the original policy intent of pooling was introduced about a decade ago. Finally, having worked in many different areas of the financial services industry over the last 30 years, for me the sense of being able to give something back, and doing that for a purpose, is really important. The LGPS, as I am sure you have already heard, has 7 million members—some of the lowest-paid people in the UK. It provides an important policy intent around low-paid earners, as well as potentially having the opportunity to provide real investment drive into the UK. So I am happy to answer any questions and to contribute to your thinking.
Mark Garnier
Q
Rachel Elwell: The LGPS is already investing significantly in the UK, as you have probably already heard. We invest more than 25% of the assets we look after on behalf of pension funds in the UK, and there is a very good reason for that, which I can explore a bit further if you would find it helpful.
To answer the specific question, I am not concerned that the power will instruct the LGPS to invest in specific things. I think there is a real intent; it would be helpful if the Bill were clear that it would not be against fiduciary duty and would not interfere with the FCA regulations that we are also subject to.
I am very thoughtful about how we carefully manage the weight of capital that might come into the market if there is mandation for the wider industry to move quickly into investing in the UK. Work will need to be done on the supply side as well as the capital side, to ensure that the UK can invest well the capital that should be being invested into the UK. So it is important that any use of mandation is very carefully considered, and that the laws of unintended consequences are really thought through.
Mark Garnier
Q
Rachel Elwell: I can understand why the Government would want to have a backstop power to direct pools, because the LGPS is significant—it is one of the top 10 globally by size. It has an impact on council tax, and on the economy more generally. If you have a pool that is not delivering and all the other mechanisms available to their stakeholders have failed, I can understand why that power would exist. But it is important that we clear the scenarios in which it is envisaged that it might be used.
Mark Garnier
Q
Rachel Elwell: History does not necessarily repeat itself, but it is important that we learn from that. The LGPS, and pensions more generally in the UK, have had many, many decades—including through the ’90s, having to manage the fact that there were contribution holidays taken that were using surpluses very quickly. Actuaries have the ability to work with all employers, including those in the LGPS, to smooth out that experience. Where you have a surplus, some of that could absolutely be used to help manage the costs over the long term, and when you have a deficit, you do not try to pay that all off very quickly, so I think there is an opportunity. I am not worried about it because I can see that the LGPS is a very well run, well governed scheme. It has good advice from its actuaries and is well used to making sure that both surpluses and deficits are smoothed over time.
Mark Garnier
Q
Rachel Elwell: I do think there is a fantastic opportunity for us to harness the benefits of scale that come from being one of the top 10 globally by size, but it is important, as we do that, that we maintain the link to local people who are the members of this.
Mark Garnier
Q
Rachel Elwell: Border to Coast, if we do have those 18, will stretch from the Scottish border to the southern coast. Even today, we have partner funds who are right across England, which is brilliant because those are people who have actively chosen to come together, form a partnership and work together.
Time permitting, if it is of interest to the Committee, we could talk a bit more about local investment and the way of getting investment that is truly local for each individual fund but also a way of crowding investment from other people into the slightly larger opportunities that might be in a region. Every investment we make is local—it impacts local people.
You do not need to only have, for example, Durham council investing in Durham. You want all of the LGPS and all asset owners to feel that they can do that. Some of the ways that we are working through doing local investment with our partner funds have really got an eye to the different ways in which you can crowd in versus something very specific that needs to be addressed in the region or locality.
Torsten Bell
Q
Rachel Elwell: Again, for all of us working in the LGPS, that sense of purpose is really important. I know my partner funds do a huge amount to make sure they are engaging directly with members, running events, as well as the importance of member representation on the pensions committees and on the pension boards, whether that is through union representation, pensioner representation or other scheme member representation.
We also have two fantastic scheme member representatives on our joint committee, which is the body that comes together across all of the partner funds to oversee and engage with what we are doing on their behalf. They are really bringing that voice into our considerations as a board and the wider organisation—the wider partnership.
Torsten Bell
Q
Rachel Elwell: This is before I was employed to bring it to life. This is a decision our partner funds made really early, because they recognised the real benefits that can come from being FCA regulated. This is really important. We will hopefully be managing over £100 billion on behalf of the LGPS, and a good proportion of that is managed directly within my team. We are managing that for, hopefully, 18 different customers—effectively, investors and our owners. We need to have those disciplines in place, and we need to make sure that we are following those regulations. We do not need another regulatory set. There are already some very good, strong regulations that exist, so we, as a partnership and as a company, think that is the right thing to do.
Steve Darling
Q
Rachel Elwell: There are some fantastic provisions in the Bill, particularly around implementing the good governance review, and the clarity of roles and responsibilities between the different parties within the LGPS. About five or six years ago, we, along with some of the other pools, commissioned some work looking at good practice internationally, so talking to about 15 others—from Australia, the Canadians, the Dutch, the Norwegians—and looking at the journey they had been on with this. They are about 15 years ahead of us, really, with that policy. We wanted to learn from what they had done.
There were various success factors, some of which Michelle shared with you earlier, but one of those was real clarity about the Government’s policy intent, and I think the Bill really does help with that. That will help us, in turn, engage with our pensions committees and partner funds to make sure that we are providing a holistic joined-up view. There are some areas in the Bill where, particularly for the LGPS, the detail will be in the regulations. I would just make a plea, given the timelines we are working towards, that we see the regulations sooner rather than later, please. I have already said that I think it would be helpful to maybe get a bit more clarity on the circumstances in which we may be directed by the Secretary of State.
Rachel Blake
Q
Rachel Elwell: The primary focus of the Bill is the consolidation of the assets in pools, but there are provisions, particularly when we see some of the wider things that are happening in policy such as local government reorganisation, where that might lead to closer working between funds and potentially merger. I am fortunate enough—I think Roger Phillips mentioned this earlier—that Tyne and Wear and Northumberland are part of the Border to Coast pool, so I was there and living that experience with them personally. They were working very hard together, with very joined-up thinking and close relationships, and it was still fairly hard work.
I suppose from that perspective, like any merger of entities, it comes down to relationships and people. Administration in the LGPS is complex, and many funds have been facing recruitment challenges. What we are seeing already is funds working closely together. For example, again within Border to Coast, Tyne and Wear has recently taken on the administration for Teesside, bringing it in-house. It was previously an outsourced arrangement. There are benefits from that, but it needs to be done very carefully and thoughtfully—it is not something we should rush at.
The Chair
If there are no further questions from Members, I thank the witness for their evidence, and we will move on to the next panel.
Examination of Witness
Torsten Bell gave evidence.
The Chair
We will now hear oral evidence from Torsten Bell, who is the Minister for Pensions at the Department for Work and Pensions. We know who you are, but for the record and for those in the Public Gallery and watching the broadcast, would you kindly introduce yourself?
Torsten Bell: I am Torsten Bell, and I am the Pensions Minister.
Mark Garnier
Q
Torsten Bell: No, obviously. The change that you are referring to is a 2019 change under the last Government. It was taken not by the last Government but by the Office for National Statistics, and it refers not just to the PPF but to funded public sector pension schemes. The same issues apply to the LGPS in the same way. It is a 2019 change made by the statistics body following international guidance on accounting. The changes you are talking about have affected public sector borrowing since then.
Mark Garnier
Q
Torsten Bell: In stark contrast to lots of my predecessors, I have to say, I have spent a lot of time meeting members of both the PPF and the FAS who have been affected by the issue of pre-1997 accruals. If I am honest, the issue has been a real one since then, but it is a significantly bigger one because of the recent phase of high inflation, which made the pace of inflation eating into the real value of those pensions significantly faster. As I said on Second Reading—this was raised then by a number of colleagues on the Committee—we are considering the issue, but it needs to be considered in the round because of the wider public finance implications. That applies to other issues in this space as well; you will have seen that in other pension schemes where the Government have a role.
Mark Garnier
Q
Torsten Bell: To be clear, that is just wrong—it is not. The 2004 Act is very clear about the purposes for which the board’s assets can be used, and there is no question about that. The Office for National Statistics does not get to countermand Acts of Parliament on the use of resources—the 2004 Act is very clear on that. It is nothing to do with that.
If you look at the public sector finances in the round, there are all kinds of different forms of funds that are classified in different ways. The classification within the public finances is not determining the use to which funds can be put. The same applies to whether things are classified as taxes or not. They do their job, and obviously those classifications exist for an important reason, which is that we need to have clarity about the public finances. We use those for discipline in terms of making sure that Government objectives in fiscal policy have metrics that they can be tied to. It is totally reasonable for different parties to take different positions on what those metrics should be. There have been different choices made on that by lots of different parties in recent years, but I think everybody in this room probably accepts that you need to have those metrics. When you accept that, you will be in a situation where classifications by the Office for National Statistics impact on those.
Mark Garnier
Q
We heard some interesting evidence from Phoenix, who referred to clause 15 and the consequences of an intermediate performance rating. While we are going to have big arguments about mandation—that is something we fundamentally disagree on—one thing I hope we can both agree on, as we progress this, is that certain elements of the Bill could have unintended consequences. It seems that this one, the intermediate rating, could have the effect of maintaining the derisking of pension funds, because you are trying to avoid getting an intermediate rating and therefore you will avoid doing the slightly more progressed growth. Sorry; I am being incredibly inarticulate after rather a long day, but you know the point I am trying to make.
Torsten Bell: I definitely get the point you are making. Let me say one thing about the big picture, and then I will talk about the specifics you raise with the intermediate rating. On the big picture, I absolutely agree that one thing we have done badly in the last 30 years is to think about how changes we make to our pension system, which exists to provide income in retirement for the vast majority of the population, also underpin our capitalism. That is a lesson we have learned painfully.
On the substance of risk reduction, I would put it slightly differently, because you have different things going on in the DB and DC landscapes. In the DC landscape, we have been building up a new system. Understandably, because it was starting from small scale, we did not jump to trying to solve all the problems that came with that system, not least getting it to scale, not least what happens in retirement, and not least small pots and the rest. I see this Bill as doing that—taking the next step forward and saying, “Right, we are building this new system. We made big progress in the last 15 years with that, but now is the time to put the change in place.”
On scale and on value for money, that will support the wider range of investments more broadly, not just in the UK, but with a wider range of assets. That is absolutely the right thing, in savers’ interests, to do. I also completely endorse your point on unintended consequences, and that is exactly why scrutiny of the Bill is important to make sure that we pick those up as we go. The last 40 years, not just in this country but in others, shows that that can be the case, for good and ill.
Specifically on your point about the intermediate rating, we are very much aware of the issue. We are not aiming to replicate a hard metric: “fall one side of this line, and suddenly you are de-authorised from taking auto-enrolment contributions”. That is exactly what we need to avoid, which is what we will be doing. There is a reason behind the provision for more than one level of intermediate ranking, and my view would be that you would not expect people who fall into some of those levels being banned from taking further contributions. It is absolutely right that you do not want an absolute binary—just one metric, one division. The consultations that the FCA and TPR have taken forward are all about making sure that we have worked all those issues through. There are lessons, for example, from what happened in Australia.
Mark Garnier
Q
Torsten Bell: I understand the point you are making. I think you have to step back to the big picture, which is a consensus right across the industry that savers’ interests would be better served by change. It does not make sense that the UK industry is a complete outlier compared with other pensions systems around the world when it comes to exposure to wider ranges of assets. What comes with that exposure to a wider range of assets? The nature of assets, where you are likely to see a larger home bias in that more of them would be in the UK.
There is a wider point: is there a good reason why the UK DC pension landscape has a particularly large exposure to equities rather than to a wider range of assets that we see around the rest of the world? No. That is why you have seen the Mansion House accord coming forward—because it is in savers’ interests to change how we are operating. The scale and value-for-money measures, and a lot of the other approaches that we are taking, will facilitate that, but the industry is saying that that is in savers’ interests, and it is right to do so.
Ultimately, we have to step back and say that we are not in the business of just making individual random decisions about the pensions system. The question is: what is there a consensus on about the world we need to move to that has a better equilibrium? One of the strong elements of that, along with larger scale, is investing in a wider range of assets because that is in savers’ interests. That is why there is a voluntary Mansion House accord, setting that out as the objective, with relatively low levels of target, particularly on domestic investment, compared with what we see in other countries. That is what is going on.
What we are saying is that when you speak to the industry, particularly in private, it is very clear that there is a risk of a collective action problem. Under previous Conservative Chancellors, it signed up to commitments that it has not been delivering. Why has it not been delivering? Because of the collective action problem—the risk of being undercut by somebody else who is not making that change because of the nature of a market that is too focused on cost and not focused enough on returns.
I make only one vaguely political point. It is easy to join people in being anxious, but we have to ask ourselves something. There is a reason why the first Mansion House compact was not delivered. Do we want to be here in 15 years saying, “Actually, we all signed up to it and said it needed to happen, but it hasn’t”? No—I am not prepared to do that. Change is going to come. Everybody says that change needs to come because it is in members’ interests. All the reserve power does is to say that it is going to happen.
Steve Darling
Q
The other area that I want to ask about relates to the information that we heard from Nest: only 40% of its members had signed up online. That demonstrates that the issue is about getting positive engagement from those who are perhaps less financially secure. Are you confident that we are doing all we can through the Bill to help those who are most financially challenged? How are you going to hold yourself to account as we proceed to ensure that that is the case?
Torsten Bell: Those are great questions. On regulations, you are absolutely right. This pensions Bill, like most recent ones—although there have been exceptions that have come with unintended side effects, to go back to what was just mentioned—does rely heavily on secondary legislation. My view is that that is the right thing to do and is almost in the nature of pension schemes. That is partly because the detail should rightly be consulted on and partly because things will change in the context.
You are right that there is a large reliance on secondary legislation. Yes, in some areas, as we go through the detail, clause by clause, we will be able to set out to you where our thinking is up to. In lots of cases you will already see consultations by the FCA and TPR, starting to develop the work that will then feed into the regulations—that is particularly true, for example, on value for money, which we have just been discussing. I also think that it is important for us to provide clarity on when we will bring forward those regulations and when we will consult on the input to them, so that people know that. That was why, when we published the pensions reform road map, and when we published the Bill itself, I set out when we anticipate bringing forward those regulations so that everyone in the industry and in the House can see when that will happen. Page 17 of the road map sets out how we envisage that happening, and it is absolutely right. When we come to the clause-by-clause discussion, there will certainly be things where we will not be able to say, “This is exactly what will happen,” and rightly, because there needs to be further consultation with the industry on those things.
On the broader question of engagement with people, particularly those with smaller pensions—there is a very heavy correlation between the chance of someone being engaged with their pension and the size of that pension pot, partly for obvious reasons, but for wider context reasons, too—the pensions dashboard that Chris Curry mentioned earlier is a large part of facilitating that engagement. Lots of countries have had versions of the dashboard; it does make a material effect. One of the lessons from Australia is that the average size of DC pots, as they start to build rapidly—as that becomes the default system in an auto-enrolment world—does have a material effect.
I was with someone who runs one of the big supers recently; her view was that they hit a tipping point when there was suddenly this huge engagement where people were looking at the app provided by the super every week. There are pros and cons to that, by the way. Remember that there is a reason why we default people into pension savings. There are good and bad ways to engage with your pension. We do not want people on an app, in the face of a short-term stock market downturn, making drastic decisions to do with their investments that have long-lasting consequences. It needs to be done right; that is exactly why, when it comes to the dashboard, we are user testing it extensively.
Kirsty Blackman
Q
Torsten Bell: I am happy to take that away. Obviously, the monitoring will need to be different for different parts of the Bill, which are on different timelines.
Kirsty Blackman
Q
Torsten Bell: Let me address that in two minutes before the Chair cuts us off. I definitely recognise that there is a large number of amendments. It is not unprecedented—the Procurement Act 2023 had 350 Government amendments, and 155 on Report.
Kirsty Blackman
I was on that one as well.
Torsten Bell: We have all made life choices. The thing that I am trying to avoid—and the reason why there are so many at this stage—is what has happened with other Bills, such as the Data Protection and Digital Information Bill in the last Parliament. I do not want to table loads of amendments on Report, after the line by line. That is the alternative. This is a very large Bill. The number of amendments, in part, reflects the fact that everyone has signed up to a Bill that is complicated and very large. My judgment was that it is right to get as many of those amendments down now, so that you have them for line by line. Also, I have gone out of my way over the last 24 hours to spell out to you all where the major changes are. The substance and the purpose of the Bill have not changed. In almost all cases, the amendments are relatively minor and technical.
Luke Murphy
Q
Torsten Bell: I understand why people say that but, as I say, it is for trustees. We are not going to legislate to change the offer made in scheme rules to savers, because that would be to fundamentally change the system. But trustees will want to consider that, and they will be in a very strong position to take a strong view about that when discussing with employers what happens with the surplus release situation.
The Chair
Thank you. That brings us to the end of the time allotted for the Committee to ask questions. On behalf of the Committee, I thank all our witnesses, including the Minister.
Ordered, That further consideration be now adjourned.—(Gerald Jones.)
Pension Schemes Bill (Third sitting)
Thursday 4th September 2025
(3 months, 3 weeks ago)
Public Bill CommitteesPension Schemes Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 4 September 2025 - (4 Sep 2025)
The Committee divided: - Ayes: 6 / Noes: 11 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 12 - Question accordingly negatived.
The Parliamentary Under-Secretary of State for Work and Pensions (Torsten Bell)
I beg to move amendment 7, in clause 1, page 1, line 6, leave out “for England and Wales”.
The amendment would secure that Clause 1 applies to a pension scheme for local government workers for Scotland, as well as a scheme for local government workers in England and Wales. Clause 1 does not extend to Northern Ireland (see Clause 100).
The Chair
With this it will be convenient to discuss Government amendments 8, 10 to 12 and 16 to 24.
Torsten Bell
Before I turn to the amendments, I should briefly outline the reform of the local government pension scheme, for which chapter 1 provides the legislative underpinning. The LGPS is the largest pension scheme in the UK, with £400 billion of assets under management, projected to rise to almost £1 trillion by 2040. However, I think it is a matter of cross-party consensus that the LGPS has not realised its full potential, not least because it is too fragmented.
The first chapter of the Bill sets out the legislative basis for reform to modernise the LGPS’s investment framework and governance arrangements, setting robust new standards that all pools must meet, including Financial Conduct Authority authorisation, the capacity and expertise to manage 100% of their partner authorities’ assets, and the ability to deliver on local investment mandates. As part of the reforms, the LGPS will move from eight pools to six. We have set a deadline for the new pool partnerships to be agreed in principle by the end of this month, with new shareholder arrangements in place by March 2026.
The clauses in chapter 1 would mean that by this time next year we will see a world-class LGPS, made up of large pools of professionally managed capital, held to account by authorities who have confidence in robust and transparent governance structures, and who together are delivering the best value for members. I remind the Committee that LGPS members’ benefits are guaranteed in statute, and nothing that we discuss today will affect any of those benefits.
These amendments will extend the LGPS provisions to Scotland. There is a wide range of amendments, but they all have the same objective: to take the matters relating to England and Wales and ensure that those are provided for in the case of Scotland. The Government are making this provision following a formal request from the Scottish Government, and I have written again to the Scottish Government this morning for the legislative consent motion that they will need to put in train to go alongside it. Amendments will be needed in respect of clauses 1, 2, 4 and 7 to give effect to that objective, and that is what the Government amendments in this group do. I commend them to the Committee.
Mark Garnier (Wyre Forest) (Con)
It is great to be starting what I hope will be quite a quick canter through today’s work, Sir Christopher. The Opposition welcome the broad grain of this entire Bill; it seeks to do a lot of very useful things in the pension industry across the UK. We have some contentious points, but those will not come up today.
Regarding clause 1, we welcome the creation of asset pool companies. These are sensible and pragmatic steps towards modernising the local government pension scheme, and much of the work had already been done under the previous Government. Consolidating funds represents a responsible approach that should deliver more effective management and investment of pension assets. The LGPS, as we have heard, is among the largest pension schemes in the UK, with 6.7 million members and £391 billion of capital. Before pooling, of course, it was 86 separate local authorities, which caused huge inefficiency, inequality of opportunities and, in some cases, poorer outcomes for pension beneficiaries.
I should mention at this point, Sir Christopher, that I am a member of the LGPS and also that, as a councillor on Forest of Dean district council, I was responsible for looking after some of this activity in terms of pension management. It was not an efficient way of doing things, so pooling is an incredibly good idea. We welcome the Government’s continuing our work to make these pension funds work more efficiently and deliver better returns for members, and ultimately we all want to see improved returns and lower employer contributions. Small funds, whether in local government or elsewhere, are rarely fit for purpose in the global investment environment.
We have some concerns. The broad framing of the powers contained in chapter 1, clause 1 could allow for the mandation of certain investments by Government. Pools should be investing in line with the investment approach set out by their underlying asset owners in order to deliver against the fiduciary duties of LGPS funds. Governments should not take powers that would erode fiduciary duty.
There are concerns about the costs of the Government’s decision to reduce the number of asset pools from eight to six. This is an administrative cost. We have heard from one council, Wiltshire, which is one of 21 LGPS funds in England now looking for a new pooling partner. Jennifer Devine, head of the Wiltshire pension fund, has said that the cost of closing its asset pool could come to as much as £100 million. There will be some costs incurred, but, none the less, the general thrust of the whole process is one that we support and we certainly would not stand in the way of these amendments.
Steve Darling (Torbay) (LD)
As the Liberal Democrat spokesperson, and echoing the hon. Member for Wyre Forest, I broadly welcome the thrust of the Bill. We heard in evidence that a lot of the industry is playing catch-up and is about 15 years behind those who are best in class. As Liberal Democrats, we are keen to make sure that we are supporting particularly those who are more challenged in being able to save or to make the right decisions, and that we use what levers we can to tackle issues such as climate change and cleaning up our environment. We look forward to working with colleagues on this Committee.
On the local government pension schemes and the pots, we welcome the direction of travel. However, for us it is about making sure that we keep local links to communities, and driving positive change through that investment in our local communities is absolutely essential. I look forward to the debates over the next few weeks.
Kirsty Blackman (Aberdeen North) (SNP)
I declare an interest as a holder of deferred membership of a local government pension scheme in Scotland, which will come into scope should the Government amendments go through, as I imagine they will. First, I thank the Government for working with the Scottish Government to make these changes and for taking the decision to agree with the Scottish Government’s request for these changes to be made. It is appreciated.
While I am on thank yous, the people who manage local government pension schemes are managing an incredibly significant amount of money and are ensuring that benefits are provided to many millions of people in those schemes. The hard work they do to steward those funds appropriately cannot be overestimated, so I say thank you to all the trustees who take that action on behalf of so many of us. Those working in the public sector tend to get a lower salary than they would in the private sector, but they often get access to a defined-benefit pension scheme or a career-average pension scheme, which is better than many people in the private sector get. There is a bit of give and take there.
On Tuesday, we heard from the Local Government Pension Scheme Advisory Board and also from one of the pension schemes. There was a commitment that came forward in the evidence to ensuring trustees are appropriately trained—I am not for a second saying that they are not appropriately trained right now, but we must ensure that level of training is provided when they have many other competing demands on their time. It is important that the Government ensure the correct monitoring, evaluation and also support of those organisations, so that if new training is required—for example, if environmental, social and governance provisions change, or decisions about where it is best to invest funds change—the Government commit to ensuring that trustees are given all the training they need. I believe that all pension trustees have a difficult job, but particularly those managing local government pension schemes, who are often local councillors—a task that, I know, is not a part-time job and is incredibly busy.
The other concern raised on Tuesday, and which was just mentioned by my Liberal Democrat colleague, the hon. Member for Torbay, is about the locality of the decisions made. It is important that the pooling of resources means more investment in important and key projects than would result from a smaller organisation. Hopefully, the reduction in administrative costs will ensure that those schemes are significantly more efficient, but I am keen that we do not lose the local voice within the pension schemes that we have now.
The case was made very eloquently on Tuesday that, while pension schemes take into account value for money—what we would have called best value in local government in Scotland—in decision making, they should ensure that they are not supporting projects that the community are absolutely up in arms about, because so many of their members will live in that community. Scheme members need that guaranteed return, but they also need their communities to be nice places for them to live.
I am slightly concerned that, with pooling, the ability for local projects to be put forward could potentially be lost. Although I am not asking for any specific changes, I would ask that the Government keep an eye on that. Should there be significant numbers of smaller projects that are not being supported because of the changes that previously might have been supported, the Government should consider whether they need to take action to ensure that those voices are better heard and that those smaller projects still have the opportunity for investment.
Thank you very much for allowing me to speak on this, Chair. I am assuming that we have also spoken on the clause stand part and are unlikely to debate that again at the end; I have therefore made most of my general comments here rather than particularly specific ones on the amendments.
Torsten Bell
I thank everyone who has spoken. I am grateful for the welcome for the Bill as a whole, for this chapter and for the amendments that particularly relate to Scotland. As the hon. Member for Wyre Forest pointed out, this Bill builds on progress that was put in train over the last decade, and I am glad to see that. It is only because of that progress that we are now able to accelerate quite significantly.
Questions were raised about mandation. I want to be absolutely clear that questions about asset strategy will sit directly with the administering authorities, as they do today. It is for them to set out those asset allocation decisions, which are, in the end, the biggest driver of returns for members. The investment decisions sit with pools, never with Governments. We will provide clarification, if we come on to one of the amendments later, to make clear that the Government will not be directing individual investment decisions of pools; that was never the intention.
Questions were raised about the administrative costs of transition. Those do exist, as they have in previous moves towards pooling, and will obviously need to be managed sensibly, but I think we all agree that those costs are small relative to the very large savings that will come from a much less fragmented system.
Points about the importance of trustees were powerfully made, and I absolutely agree. Stronger governance reforms have already been put in place for the LGPS trustees in England and Wales, and these reforms build on that through stronger governance more generally.
I also hear the argument about local voice. As I said, the administering authorities are responsible for setting the strategy in relation to local investments. Strategic authorities, because of a Bill that was passed earlier this week, will have a requirement to collaborate with the LGPS on those local investments. I take the points that were made, and I think there is consensus on these amendments.
Amendment 7 agreed to.
Amendment made: 8, in clause 1, page 1, line 12, leave out “Secretary of State” and insert “responsible authority”. —(Torsten Bell.)
This amendment and Amendments 10 and 11 are consequential on Amendment 7. References in Clause 1 to the Secretary of State are changed to “the responsible authority”. That term is defined by Amendment 24 to refer either to the Secretary of State (as regards England and Wales) or to the Scottish Ministers (as regards Scotland).
Torsten Bell
I beg to move amendment 9, in clause 1, page 1, line 16, at end insert—
“(ba) enabling the responsible authority, in prescribed circumstances, to give a direction to an asset pool company specified in the direction, or to all or any of its participating scheme managers, requiring the company or scheme managers concerned—
(i) to take any steps specified in the direction with a view to enabling or securing compliance by a scheme manager with a direction requiring it to participate in, or to cease to participate in, the company (see paragraph (b)), and
(ii) to take any other steps necessary to enable or secure compliance with such a direction;”.
The amendment makes clear that scheme regulations can provide for directions to be given to prevent a direction of the kind mentioned in clause 1(2)(b) (requiring a scheme manager to participate in, or to leave, a particular asset pool company) being frustrated by a failure by the company or its participating scheme managers to take steps necessary to enable or secure compliance with its terms.
Torsten Bell
We turn now to three technical amendments concerning the powers to direct asset pools, which I mentioned in my previous speech.
Amendment 9 ensures that a pool must comply with the use of the power to direct administering authorities to join a particular asset pool, matching powers brought forward in clause 1 of the Pensions Bill. These are powers of last resort. Amendment 13 responds to feedback and removes the power to issue directions to asset pool companies relating to specific investment management decisions. It was never the Government’s intention to intervene in those decisions by pools, so we are removing that sub-paragraph to provide clarity. Amendment 14 adds a duty for Ministers to consult the affected parties before issuing directions more generally. I commend the amendments to the Committee.
Mark Garnier
In the interest of speed, I will not speak to these amendments, other than to say that we have no objection to them.
Torsten Bell
I beg to move amendment 15, in clause 1, page 2, line 34, leave out from “company” to end of line 40 and insert
“limited by shares and registered in the United Kingdom which is established for purposes consisting of or including—
(i) managing funds or other assets for which its participating scheme managers are responsible, and
(ii) making and managing investments on behalf of those scheme managers (whether directly or through one or more collective investment vehicles),
and whose shareholders consist only of scheme managers, and”.
The amendment revises the definition of asset pool company to clarify (a) that the company should be limited by shares held by scheme managers only and registered in any part of the UK and (b) that the mandatory main purposes described in sub-paragraphs (i) and (ii) need not be the only purposes of the company.
The amendment revises the definition of an asset pool company to clarify that they can be established anywhere in the UK and that only LGPS administering authorities can be shareholders of those pools. The amendment also removes limits on the purposes of an asset pool company, making it clear that asset pool companies are free to provide advisory services and perform other functions in addition to their primary purpose of providing management services. The Government do not want to stifle innovation from asset pool companies as they continue to evolve from strength to strength. The amendment makes sure that that is not the case. I commend the amendment to the Committee.
Mark Garnier
I have just one question for the Minister. How are the shareholdings to be decided? Will they be determined based on the size of the investment, and how will the Government decide between councils having shareholders or contracting with asset pool companies? That is my only comment.
Torsten Bell
It is for those forming the pooling companies to agree their own arrangements. The hon. Member rightly raises the question whether people are shareholders or clients of a pool. There is only one current administering authority that is a client rather than a shareholder of a pool, so in the overwhelming majority of circumstances we are talking about shareholders. However, the legislative basis for the pooling allows for that in future, if for some reason that was the way forward that some administering authorities and pools chose. Broadly, the same picture applies to most questions in this space: we expect administering authorities and pools to work together to agree their governance arrangements, and that is what they are doing.
Amendment 15 agreed to.
Clause 1, as amended, ordered to stand part of the Bill.
Clause 2
Asset management
Amendments made: 16, in clause 2, page 3, line 5, leave out “for England and Wales”.
The amendment would secure that Clause 2 applies to scheme regulations relating to pension scheme for local government workers for Scotland, as well as scheme regulations relating to a scheme for local government workers in England and Wales. Clause 1 does not extend to Northern Ireland (see Clause 100).
Amendment 17, in clause 2, page 3, line 23, at beginning insert
“in the case of a scheme for local government workers for England and Wales,”.—(Torsten Bell.)
The amendment would secure that, despite the general extension of the scope of application of Clause 2 to Scotland (see Amendment 16), subsection (2)(c) will remain of relevance only to scheme regulations relating to England and Wales.
Mark Garnier
I beg to move amendment 246, in clause 2, page 3, line 33, at end insert—
“(4A) Scheme managers must publish a report annually on the local investments within their asset pool company.
(4B) A report published under section (4A) must include—
(a) the extent, and
(b) financial performance,
of these investments.”
This amendment provides for scheme managers to report back on the financial performance of any local investments that they might make.
Clause 2 places important requirements on pension scheme managers regarding how they manage pension funds for local government workers, requiring formulation, publication and review of investment strategies. The Bill encourages investment through asset pool companies and emphasises local investments. However, the Opposition’s key concern is that the primary purpose must remain the delivery of strong financial returns for pension funds. Those returns ultimately belong to the pension fund members, but council tax payers also have a responsibility, as they support these schemes. Investment decisions must prioritise financial performance that ensures sustainable pensions while safeguarding public funds.
Although we acknowledge that local investments can bring benefits to local communities and local economies, they should only be a secondary focus and should not compromise returns. Local investment should be considered as an additional benefit, but the overriding duty of scheme managers is to act prudently and in the best financial interests of the scheme members and taxpayers. We caution against overweighing local investment priorities if that risks undermining the long-term financial health of these pension funds. In short, financial returns must come first; local investments can follow, but must not take precedence.
Pensions UK has questioned the need for these new powers and believes that they are too far-reaching. LGPS reform is already progressing at pace, and pools and funds are collaborating in line with the direction set by the Government. Pensions UK would like to understand what specific risks the Government are seeking to manage through the introduction of these powers, and it is seeking amendments to the Bill to ensure that if these powers remain in the Bill, they will only be exercised after other avenues have been exhausted, to guard against adverse outcomes for the pools, funds and scheme members.
The Pensions Management Institute has highlighted that the administering authorities will be required to take their principal advice on their investment strategies from the pool. Given that an administering authority is required to invest all of its assets via the pool, this is a major conflict of interest and puts a significant burden on the administering authority or scheme manager to ensure that the pool is performing effectively, with no independent checks and balances.
The Bill makes it clear that co-operation with strategic authorities, such as regional combined authorities, on appropriate investments will be required. However, there is a risk of investment decisions being influenced by political and local interests. The fiduciary duty should always prevail when local investments are considered. We do not oppose the clause, but we call on scheme managers to maintain discipline in prioritising sustainable returns, with local investments as a welcome but secondary consideration.
We are considering three amendments with this clause. There is uncertainty about what qualifies as a local investment for LGPS funds, how such investments are defined and what assets or projects will meet the requirements under the new rules. In addition, we do not want to shift the focus away from the fiduciary duty of trustees to local investments that might not deliver the best-value returns on schemes. Amendment 246 provides for scheme managers to report back clearly on the financial performance of any local investments that they might make. Scheme managers at local councils should charge the asset pool companies with finding the best value.
Although we are not opposed to local investment, the focus of trustees must clearly remain on achieving best value, and the better performance of a pension fund means that local councils can already use their powers under regulations 64 and 64A of the Local Government Pension Scheme Regulations 2013. Consequently, we can argue that LGPS megafunds with a focus on best returns can lead to more a fully funded council and therefore to employer contribution holidays.
Sir Christopher, would it be helpful for me to speak to the other amendments?
Mark Garnier
That is fine. It has been a few months since I last participated in a Bill Committee, Sir Christopher, so thank you for your advice.
We are not proposing to press this amendment to a vote, but I would be very grateful if the Minister could respond to my points and undertake to take them away and consider how advice can be given to these pool managers to ensure that the issues I have mentioned are taken into account.
The Chair
I refer Members to the Chair’s provisional selection and grouping of amendments, which should give them a guide as to which amendments are grouped and which are not.
Mr Peter Bedford (Mid Leicestershire) (Con)
It is a pleasure to serve under your chairmanship, Sir Christopher. I hope that the Government consider amendment 246, which would require annual reporting by LGPS asset pools on the financial performance of local investments. This is not bureaucratic red tape; it is a necessary safeguard that would help trustees in upholding their fiduciary duties and responsibilities and protect the interests of scheme members and the people whose pensions are at stake. It would be a sensible addition to the Bill, especially when we consider the fact that the Government’s impact assessment offers very little on LGPS consolidation. There is no reference to the impact that the de facto mandation of local investment will have on the trustees’ fiduciary duty or on members’ outcomes. I urge the Government to consider the amendment, not only for those reasons but because it would give consolidated asset pools greater clarity over whether their investments are best placed.
Steve Darling
I start by wishing the Minister a happy birthday. [Hon. Members: “Hear, Hear.”] I am sure that for all of his life he has wanted to be sitting on a pensions Bill Committee on his birthday.
More seriously, when we were in desperate measures in my time as a local authority councillor in Torbay, we borrowed to invest and make money for the local authority—that was once upon a time, because it is no longer possible—so I know from experience that authorities often have to invest elsewhere in the country to get the best financial returns. Our experience in Torbay was that a lot of our investments in the south of England got in the money that we needed to keep the local authority ticking over.
I would therefore welcome the Minister’s thoughts on how we get the balance right. Clearly, investors would want to invest in the local area to drive economic development, but there is a need to balance that with getting positive outcomes for the pension fund. Some guidance from the Minister on how he sees that balance being struck, as the hon. Members for Wyre Forest and for Mid Leicestershire have alluded to, would be helpful.
Kirsty Blackman
I want to ask the Minister about the comments made on Tuesday in relation to the transparency already required of local government pension schemes. My understanding is that local government pension schemes are already pretty transparent, and that they are required to publish significant amounts of information.
On the amendment and the requirement for annual reporting, the case was made on Tuesday—I forget by who—that a particular moment in time may not give a true picture of what is going on. Investments may not provide an immediate return. In fact, pension funds are not necessarily looking for an immediate return; they are looking for a longer-term return so they can pay out to tomorrow’s pensioners as well as today’s. Pension schemes are one of the best vehicles for the patient capital that we need to be invested in the economy for it to grow, so I am little concerned that a requirement for annual reporting on specific investments may encourage short-term thinking. Can the Minister confirm what transparency regulations there are in relation to local government pension schemes and how they compare with those for other pension schemes?
Rebecca Smith (South West Devon) (Con)
I want to build on what the hon. Member for Torbay asked. As a former local councillor myself—I am not part of the pension scheme, I hasten to add, so I do not have an interest to declare—the bit from the evidence session that came out for me, thinking through this bit of the Bill, relates to the equivalent in treasury management. As a council, we often borrowed from the Public Works Loan Board to invest in, for example, a shopping centre to get the income from rent, business rates and so on. What safeguards or requirements will be put in place to ensure that any money spent from a pension fund goes on capital rather than revenue? I appreciate that council tax revenue increases could be used for that, but are there any safeguards to ensure that the money is not just spent and then does not exist anymore?
Torsten Bell
I will try to confine my remarks to the amendment and the points made about it; I am not going to encourage us to focus on the grouping provided. I thank the hon. Member for Wyre Forest for the amendment. I agree with him on many points he made, including that the LGPS is a success story for local investment, with authorities and pools already playing a major role in their communities. We are committed to ensuring that continues, but we also need to ensure it is done in the right way, delivering the right returns for each scheme.
As I said, every LGPS authority will be required to set out its approach to local investment in its investment strategy, providing some of the transparency that the hon. Member for Aberdeen North just set out, including their target allocation. They will need to have regard to existing local plans and priorities. I want to offer the hon. Member for Wyre Forest some reassurance—this goes directly to the point made by the hon. Member for Aberdeen North—that via regulations and guidance, we will already require each pool to report annually on local investments made on behalf of their authorities. The intention of the amendment will be delivered via those regulations and that guidance. On that basis, I am glad that he intends to withdraw his amendment, but I recognise his point.
On the wider question of pool advice, and whether there is a risk of pressure from strategic authorities to make investment decisions that are not consistent with their fiduciary duty, the hon. Member for Wyre Forest should see these reforms as supporting in that respect. Remember that these pools will now all be FCA-authorised. There are significantly improved governance arrangements. If anything, this should provide certainty. It should already not be the case legally, anyway, but the stronger governance arrangements will support that.
The hon. Member for Torbay rightly asked about how administering authorities and pools will think about the balance, weighing the impact on their local economy. As he will be aware, the fiduciary duties are clear about what the objective is, and the Bill is clear on the respective roles, both of the administering authorities in setting their strategic asset allocation, including to local investments, and of the pools in making those decisions, taking into account the available returns. I think that provides much of the balance that he rightly pointed out is an inevitable issue within this. I should also be clear that the LGPS will invest not just across the whole of the UK—rather than just in individual areas—as the hon. Member for Torbay talked about, but also around the world. That is what the LGPS does today and will continue to do.
Mark Garnier
I am reassured by the Minister’s comments. I beg to ask to leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mark Garnier
I beg to move amendment 245, in clause 2, page 3, line 39, leave out from first “in” to end of line 39.
This amendment changes the definition of local investment to remove the reference to the benefit of persons living or working.
This amendment runs closely with amendment 246. Amendment 245 changes the definition of local investment to remove ambiguous reference to the benefit of persons living or working in the area. It is a small, technical amendment, but it is about giving more focus on the key need to members of the fund.
Mr Bedford
At present, the Bill arguably lacks a clear definition of how the priorities of the asset pools must follow, particularly on what qualifies as local investments. Our amendment seeks to address that gap by simplifying this. Put simply, we believe that local should mean local. These asset pools should prioritise investment in large-scale projects, actively promote local growth or make tangible improvements in local infrastructure—improvements that directly benefit the people in that local area.
Where no such opportunities exist, other investment options should be considered, but we cannot allow a situation where, for example, an LGPS fund raised in the midlands is continuously redirected elsewhere in the country. Unfortunately, the Bill appears to suggest that the other areas included in the consolidated LGPS schemes could benefit disproportionately. My constituents may ask me, “Why aren’t these funds being used locally by investing in local opportunities, rather than being gifted to councils in other areas of the country, assisting in the same way?” I believe the amendment will add clarity on that to the Bill, and I would welcome the Minister’s comments on it.
Kirsty Blackman
I was thinking about how the amendment would work in practice in my local area. I live in the Aberdeen city council area. We are landlocked. We are surrounded by the Aberdeenshire council area. If those local authorities were in separate local government pension schemes, the effect of the amendment would be that Aberdeenshire council could not class an investment in Aberdeen as a local investment despite the fact that its local authority headquarters are in Aberdeen. That is the only sensible place for them because Aberdeenshire goes all around Aberdeen, and it is the only place to which someone can reasonably get transport from all the areas in Aberdeenshire.
Although I understand what the hon. Members for Wyre Forest and for Mid Leicestershire are saying about the classification of local investments, I am not uncomfortable with the fact that the clause includes
“for the benefit of persons living or working in”
the area. If, for example, people in Aberdeenshire invested in a new swimming pool in Aberdeen city, I imagine that it would be used by a significant number of people in Aberdeenshire, and would absolutely be for their benefit.
We should remember that the local government pension schemes will have to prove that the thing they are investing in is for the benefit of local people living or working within the scheme area, although it may be slightly outside it. For example, if they invested in a small renewable energy project providing renewable energy to local people across a border, they would fall foul of this. It would not be classed as a local investment despite the fact that it would be very much for the benefit of people living or working within the scheme area.
The level of flexibility in the clause, and the fact that the schemes will have to justify their investments anyway, is more sensible than what the amendment suggests. I understand the drive to ensure that provision is made for local investment in local areas, but because of the nature of some of those boundaries, it makes more sense to keep the clause the way that the Government have written it.
Torsten Bell
I will give a very short speech because the hon. Member for Aberdeen North has just made every single point that I was going to make. I understand the motivation behind the amendment, but we do not support it because it would prevent investments that straddle boundaries—for example, investments in transport and infrastructure that would benefit people living in both Wales and neighbouring English counties. We have heard other examples as well. It would be wrong to limit authorities in where they could invest in this way. I ask the hon. Member for Wyre Forest to withdraw the amendment as it unnecessarily limits the remit of local investment.
Mark Garnier
I thank the Minister and wish him many happy returns. I hope that he has a happy birthday. We are satisfied with the Minister’s comments. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause, as amended, stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 31— Guidance on utilising surpluses—
“(1) The Secretary of State must publish guidance on the utilisation of surpluses within the Local Government Pension Scheme.
(2) Guidance must include—
(a) information about maintaining scheme members’ financial security;
(b) how the surplus can best support local fiscal needs.”.
This new clause requires Secretary of State to publish guidance on how surpluses can be deployed to balance member security with local fiscal needs.
Torsten Bell
Clause 2 sets out how assets will be managed in the LGPS under the reformed system of asset pooling. It requires that asset-pooling regulations introduced under clause 1 include requirements for all LGPS assets to be managed by pool companies. The clause would therefore introduce a statutory requirement to consolidate all LGPS assets into those pools, delivering the significant benefits that I know all hon. Members present agree on.
The clause also sets out that the regulations must require administering authorities to formulate, publish and keep under review an investment strategy for their authority’s assets. It also stipulates that regulations may set out from whom administering authorities can take advice on their investment strategy, a point raised by the hon. Member for Wyre Forest. The Government intend to use regulations to require that the pool be the primary source of advice. That will ensure that advice is provided on a consistent basis and free from competing interests, given that pools exist solely to serve their administering authorities. That is an important wider point to remember: the administering authorities are the shareholders of pools and are working together to deliver for members; they are not competing interests.
Regulations must also require administering authorities to co-operate with strategic authorities to identify and develop appropriate investment opportunities. This requirement will soon see the LGPS involved at an earlier stage on local investment opportunities. For the purposes of this provision, for England the definition of strategic authorities matches that in the English Devolution and Community Empowerment Bill, while for Wales it includes corporate joint committees. Members may wish to note that there is a reciprocal duty on strategic authorities in the English Devolution and Community Empowerment Bill.
In summary, the Government are introducing the provisions to finalise the consolidation of assets into pools, and to codify the role of the administering authorities in setting investment strategies and how that engagement with strategic authorities will happen.
I thank the hon. Member for Wyre Forest for tabling new clause 31, which would require the Government to publish guidance on how LGPS surpluses—of which there are now more, which is welcome—can be deployed to address financial needs in local authorities. I recognise that the hon. Member seeks to support local authorities in considering their financial positions against potential funding surpluses.
Decisions on employer contribution rates in the LGPS are rightly taken locally, not by central Government. Contribution rates for employers are set every three years as part of a valuation process—which hon. Members will know is approaching shortly—in which administering authorities will work with their actuaries and employers, including local authorities, to determine a contribution rate that is sustainable for employers and will allow the fund to pay out pensions in the future. As part of that process, a local authority is able to utilise a surplus in its funding position by reducing employer contribution rates. The LGPS is currently in a healthy funding position, as I said, and it is expected that some employers will follow that path. But crucially, again, that is a decision to be made locally on the basis of each employer’s needs.
The existing statutory guidance says that funds should set out in their funding strategy their approach to employer contributions, including a reduction of contributions where appropriate, and should carefully identify and manage conflicts of interest, including conflicts between the role of the particular administering authority and other local authorities that are participants.
Kirsty Blackman
This is a genuine question that I do not know the answer to. Is reducing the contribution made by employers the only way that the funds can currently utilise a surplus, or are there other methods by which they can spend it?
Torsten Bell
That is the only way that I have seen taken up by local authorities, and it is the main one that local authorities are discussing, although, as I have said, that is a decision for them. I hope that at least partially answers the hon. Lady’s question. I commend clause 2 to the Committee, and ask the hon. Member for Wyre Forest to withdraw his new clause.
Mark Garnier
On new clause 31, as we have heard, the local government pension scheme in England and Wales has reached a record surplus of some £45 billion, which is 112% of funding levels, as of June 2024, with some estimating that it will rise to more than 125% by the end of 2025. Despite that strong funding position, no measures have been introduced to make it easier to allow councils or employers to reduce contributions or take contribution holidays. The surplus could be used to create contribution holidays for local authorities, as we have heard, or potentially to reduce council tax or increase the money available for spending on local services.
The current Government focus remains on asset pooling and local investment strategies, rather than enabling the more immediate and flexible use of surplus funds. Councils can already reduce employer contributions under regulations 64 and 64A of the Local Government Pension Scheme Regulations 2013. The problem is that, in practice, actuaries and administering authorities hold the cards, and the guidance has been used to shut down reviews even when funding levels are strong.
The Minister needs to consider issuing better guidance to councils to make the process more transparent, to rebalance the power between councils and funds, and to ensure that actuaries properly consider reductions when the funding position justifies it. The mechanisms that are currently in place mean that the assumptions are overly prudent, reviews come only in cycles, and councils have no leverage in disputes.
New clause 31 seeks to introduce provisions to allow employers within the local government pension scheme to take contribution holidays or reduce employer contributions when surplus funding is confirmed, with actuarial valuations, subject to maintaining the security of member benefits. It would also require the Secretary of State to issue guidance on how surpluses could be prudently deployed to balance member security with local fiscal needs. That would enable councils to better manage budgets, support local services and stimulate local economies without compromising pension schemes.
However, the Minister seems to be working with the Opposition on trying to find ways to move all this forward, so for the sake of brevity we will seek to withdraw new clause 31.
Steve Darling
The Minister spoke of a couple of opportunities for regulation in this area, and we heard oral evidence about how an awful lot of this Bill is to be drawn out in secondary legislation. Will he give us timelines for when he plans to share the regulations, or at least begin the consultation on them, and say what he sees as the key elements of those regulations that will break cover in due course?
Question put and agreed to.
Clause 2, as amended, accordingly ordered to stand part of the Bill.
The Chair
For the avoidance of doubt, new clause 31 will be put to the vote much later on. At that stage, the hon. Member for Wyre Forest will be able to withdraw it if he so chooses.
Clause 3
Exemption from public procurement rules
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss Government new clause 21—Exemption from public procurement rules.
Torsten Bell
Clause 3 concerns how procurement law relates to the LGPS. New clause 21 is intended to replace clause 3, and I will endeavour to explain why it is a technical but valuable amendment. The existing clause and the replacing new clause are identical in their purpose and desired outcome. The reason for the change is technical: rather than stating in the Bill how procurement law affects the LGPS, new clause 21 will instead move the LGPS exemption directly into schedule 2 to the Procurement Act 2023, thereby future-proofing it against changes to the Procurement Act itself.
The amended clause has two aims. First, to broaden the scope of cross-pool collaboration, and secondly, to put client authorities, of the kind mentioned by the hon. Member for Wyre Forest, on the same footing as share- holders. That is necessary because the Procurement Act effectively caps the potential for collaboration through joint ventures between pools, as the vertical exemption in schedule 2 to that Act requires demonstration that no more than 20% of a pool’s turnover can be generated on behalf of anyone other than that pool’s shareholders. That may limit the collaboration between pools that we expect to see more of.
Legislation should not act as a barrier to collaboration. The clause addresses that by exempting LGPS pools from the 20% limit, such that the relevant procurement rules are satisfied so long as a pool is acting in the interests of any LGPS authority. Furthermore, given that LGPS authorities can choose to participate in their pool as a contracting client or as a shareholder, the clause also enables all LGPS authorities to benefit from the exemption, regardless of whether they are a client only or a shareholder. This means that LGPS pools will be able to specialise as centres of excellence for particular asset classes and for other pools to access those services, thereby reducing duplication and enabling the investments at scale that we heard so much about in the evidence session.
I ask that clause 3 does not stand part of the Bill, but commend to the Committee new clause 21, which replaces clause 3.
Kirsty Blackman
The Government have requested to withdraw clause 3 and replace it with new clause 21. I am slightly confused as to how we got to the point where the Government did not make this decision in the first place, and how the Bill we discussed on Second Reading did not include the change being made to the Procurement Act, instead of the change being made directly in the Bill. Have the Government done significant consultation over the summer, or received input from various organisations that has made it clear that the new way they are now proposing is better than the original?
I can understand that there are two different ways and that there may be a toss-up about which one is best, but why have the Government come down on the side of changing the Procurement Act rather than making the change in primary legislation in the Bill? The Minister has made a little bit of that case, but if he could expand on why the Government have chosen to change their approach, it would be incredibly helpful.
Torsten Bell
I will be very straight with the hon. Lady, in answer to her fair question. It would obviously be preferable if the clause were not changing between Second Reading and Report, so it is a completely reasonable question to ask. The straight answer is that it is both because of consultation responses, or people’s feedback, and because the legal advice is that this is a more foolproof way to make sure that the intent of the Bill on Second Reading is put into effect.
As I set out earlier, the key change is that other changes to the Procurement Act will not have unintended consequences for the LGPS in future. I hope the hon. Lady understands that that is the motivation. There is nothing else going on here. The change has happened over that period because that is when comments came in and when legal advice was received.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
The Chair
I put the Question that clause 3 stand part of the Bill and some people shouted aye and nobody shouted no—so that is it. I suggest that Members will have to deal with this on Report. The only way we learn how to conduct procedure in this House is through experience, and I am sure the Minister and the Government Whip will not forget this experience.
Clause 4
Scheme manager governance reviews
Amendments made: 18, in clause 4, page 4, line 35, leave out “for England and Wales”.
The amendment would secure that Clause 4 applies to scheme regulations relating to a pension scheme for local government workers for Scotland, as well as scheme regulations relating to a scheme for local government workers in England and Wales. Clause 1 does not extend to Northern Ireland (see Clause 100).
Amendment 19, in clause 4, page 4, line 40, leave out “Secretary of State” and insert “responsible authority”.
The amendment and Amendments 20, 21, 22 and 23 are consequential on Amendment 18. References in Clause 4 to the Secretary of State are changed to “the responsible authority”. That term is defined by Amendment 24 to refer either to the Secretary of State (as regards England and Wales) or to the Scottish Ministers (as regards Scotland).
Amendment 20, in clause 4, page 5, line 1, leave out “Secretary of State” and insert “responsible authority”.
See the explanatory statement for Amendment 19.
Amendment 21, in clause 4, page 5, line 19, leave out “Secretary of State” and insert “responsible authority”.
See the explanatory statement for Amendment 19.
Amendment 22, in clause 4, page 5, line 33, leave out “Secretary of State” and insert “responsible authority”.
See the explanatory statement for Amendment 19.
Amendment 23, in clause 4, page 5, line 38, leave out “Secretary of State” and insert “responsible authority”.—(Torsten Bell.)
See the explanatory statement for Amendment 19.
Question proposed, That the clause, as amended, stand part of the Bill.
The Chair
With this it will be convenient to discuss Government new clause 22—Additional powers for certain scheme managers.
Torsten Bell
Thank you for the learning, Sir Christopher.
Clause 4 enables the Government to make regulations that require LGPS administering authorities to undertake and publish an independent review of their governance arrangements at least once every three years. I am sure that Committee members will agree that good governance is critical to the healthy functioning of a pensions scheme. The clause will ensure that authorities face external scrutiny of their governance processes. Many authorities already carry out governance reviews of this form and this measure will merely ensure consistent high standards.
The clause also enables the Secretary of State to direct an authority to undertake an ad hoc governance review if they are concerned by significant weaknesses in an authority’s governance or suspect that an authority is not complying with regulations. As a result of the amendments we have already discussed, the power can also be exercised by Scottish Ministers in relation to the LGPS in Scotland.
New clause 22 enables the Secretary of State to give specified LGPS administering authorities certain additional powers, which most administering authorities will already have by virtue of being local authorities. The new clause allows the powers to be extended to administering authorities that are not local authorities, such as the Environment Agency. The new clause will simply create a level playing field for all administering authorities in England and Wales.
Kirsty Blackman
What is the Government’s rationale for not including Scotland in new clause 22? Is it because the Scottish Government looked at the original Bill and had not seen the amendments? Or is it because the differential structures between Scotland and the rest of the UK mean that it would not help in the Scottish situation? If the Minister is not clear on the answer, will he please commit to ask the Scottish Government whether they want to be included in the new clause and the relevant changes to be made so that it applies in Scotland? If the regulatory systems are the same, it seems sensible that a level playing field apply. It would be incredibly helpful if the Minister could make the commitment to check whether the Scottish Government want to be included.
Torsten Bell
I am happy to give that commitment. I am not aware of any administering authorities in Scotland that would be affected, but I am happy to take that point away.
Question put and agreed to.
Clause 4, as amended, accordingly ordered to stand part of the Bill.
Clause 5
Mergers of funds
Mark Garnier
I beg to move amendment 244, in clause 5, page 6, line 6, at end insert—
“(2) In the case of merger of schemes for local government workers, the Secretary of State must consider the geography of scheme areas and ensure these areas align with strategic authority boundaries before implementing the merger.”
This amendment requires the Government to explicitly consider the geography of new LGPS areas in any reorganisation.
The amendment would amend the Public Service Pensions Act 2013 to explicitly empower the Secretary of State to make regulations if there was a merger, including a compulsory merger, of two or more LGPS-funded schemes. The change in clause 5 would support flexibility for structural consolidation to enhance fund management and efficiencies; however, there is uncertainty about how the Government will confirm geographical boundaries for the local government pension scheme asset pools amid local government reorganisation.
Currently, LGPS reform aims to consolidate assets and strengthen local investment, but concerns remain about the implementation timescales and risks of disruption. Stakeholders highlight the need for clarity on new geographical boundary definitions and on alignment with new or existing local authority boundaries. Potential challenges exist in meeting asset-pooling and Government deadlines if changes coincide with wider local government changes.
Amendment 244 would require the Secretary of State to explicitly consider, for any LGPS scheme merger, the geography of scheme areas, and ensure alignment with strategic authority boundaries. This would help to provide clarity, promote smoother transitions and reduce disruption from concurrent local government reorganisations. The amendment emphasises the importance of integrating pension scheme boundaries with local government structures to support effective government and investment strategies. We hope the Government will reflect on this issue as the Bill progresses through the House.
Steve Darling
As the Lib Dem spokesman for this part of the Bill, I welcome the direction of travel.
Kirsty Blackman
If the hon. Member for Wyre Forest can confirm that he does not intend the change to apply in Scotland, because we do not have strategic authorities, I am quite happy not to vote for or against it and to leave it to those who do have strategic authorities.
Torsten Bell
I thank the hon. Member for Wyre Forest for the amendment and for the points he raised. Amendment 244 would amend clause 5 to allow fund mergers only if the two funds are in the same strategic authority, so it would be a highly constraining power. I recognise the logic, but our view is that it is far too constraining.
I emphasise to Members that the Government do not have any plans to require the mergers of LGPS funds, and that our strong preference is that when mergers take place, that happens by agreement between the administering authorities. The Government would use the power to require a merger of pension funds only as a last resort, if local decision making failed to deliver satisfactory arrangements.
I reassure Members that during the reform process Ministers and officials have looked carefully at how local government reorganisation, which is ongoing and very important, as the hon. Member for Wyre Forest rightly pointed out, maps on to the existing LGPS geography, and we will continue to do so. There should not be any friction between the emerging unitary structures and the LGPS. I reassure the Opposition that the administering authorities that were in the Brunel and Access pools are already carefully considering their choice of a new pool in the light of local government reorganisation.
In summary, it is important that local government pension funds and Ministers retain flexibility in their decision making so that decisions can be taken in the best interests of the relevant scheme. I ask the hon. Member to withdraw amendment 244.
Mark Garnier
I am reassured by the Minister’s comments and appreciate that he wishes to make the measure work in the interests, geographically, of local government or local authorities as they undergo a transition through the reorganisation of local authorities. Obviously, this provision needs to work concurrently with that process, but I appreciate that it is up to the authorities in the first instance. We wanted to be reassured, and the Minister has made the point that there will be no or little Government interference unless they really do disagree with themselves. I am reassured.
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Torsten Bell
Schedule 3 to the Public Service Pensions Act 2013 has already conferred powers on the Secretary of State to make regulations about the administration, management and winding up of any pension funds. Clause 5 amends the 2013 Act to clarify and provide certainty that, in the case of the LGPS, the Secretary of State already has existing powers to make regulations about the merger of two or more LGPS pension funds. That includes compulsory merger. The purpose of the clause is simply to ensure that it is put beyond doubt that sufficient powers are in place to facilitate the merger of pension funds if needed—for example, as a consequence of local government reorganisation.
The power could also be used in the unlikely event that an independent governance review finds particularly grave issues with an administering authority’s governance of its pension fund. Members will note that, as I have just pointed out, the Government do not have any plans to require the merger of funds at present, and our strong preference is that when mergers happen, that is done on the basis of agreement between the administering authorities. These powers can also be exercised by Scottish Ministers in relation to the LGPS in Scotland. I urge that clause 5 stand part of the Bill.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
Amendments of 2013 Act relating to scheme regulations
Question proposed, That the clause stand part of the Bill.
Torsten Bell
The powers and duties to make local government pension scheme regulations under this chapter of the Bill are exercisable under the 2013 Act. Clause 6 sets out the amendments required to that Act to ensure that these powers operate effectively. Subsection (2) clarifies that the power to make scheme regulations under the Act is subject to the Bill’s provisions, and it ensures that scheme regulations can include any consequential, supplementary, incidental or transitional provision that is necessary as a result of the Bill. Subsection (3) further clarifies that the requirement to consult on scheme regulations made under provisions in the Bill, which must be satisfied before the regulations can be made under section 21 of the 2013 Act, can be satisfied by consultation carried out before or after the Bill comes into force. Just to spell this out, that is to say that consultation taking place before Royal Assent could contribute to the consultation required.
I hope that clause 7 provides a useful interpretation of the terms and definitions in chapter 1 as they relate to local government pension schemes. I urge that clauses 6 and 7 stand part of the Bill.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clause 7
Interpretation of Chapter 1
Amendment made: 24, in clause 7, page 7, line 7, at end insert—
“‘the responsible authority’ means (in relation to a scheme for local government workers in England and Wales or Scotland)—
(a) the Secretary of State, in or as regards England and Wales, or
(b) the Scottish Ministers, in or as regards Scotland.”—(Torsten Bell.)
The amendment defines the term “responsible authority” for the purposes of clauses in Chapter 1 of Part 1.
Clause 7, as amended, ordered to stand part of the Bill.
Clause 8
Power to modify scheme to allow for payment of surplus to employer
Torsten Bell
I beg to move amendment 25, in clause 8, page 8, line 2, leave out paragraph (b).
This amendment is consequential on Amendment 27. It removes the power to disapply the section in prescribed cases, as this is now contained in new subsection (5A).
The Chair
With this it will be convenient to discuss the following:
Government amendments 26 and 27.
Clause stand part.
Torsten Bell
Thank you, Sir Christopher, for the progress through the local government pension schemes part of the Bill. We now move on to the defined-benefit clauses. Clause 8, which amends the Pensions Act 1995, enables trustees of private sector defined-benefit schemes to modify their schemes to safely share surplus funds with the sponsoring employer. Through that change, trustees will also be better placed to negotiate with sponsoring employers to get additional benefits from surplus for scheme members.
I know that Members here—that is, hon. Members rather than scheme members—are keen to ensure that the security of pensions is not impacted by these changes. We have consulted on this point and several restrictions are in place that are outlined in clause 9. I will outline the core protections.
First, trustees will remain in the driver’s seat, deciding whether to modify scheme rules to allow surplus release from their individual schemes in line with their duty to the interests of the beneficiaries. Secondly, a prudent funding threshold for surplus release will be set out in regulations, on which we will consult. Surplus will be released only where a scheme is fully funded at a low dependency, which means that the scheme funding is sufficiently high to allow trustees to meet future liabilities with a very low risk of future employer contributions. Thirdly, trustees must obtain actuarial certification to demonstrate that the scheme meets these funding requirements and members must be notified before surplus funds are released.
The amendments clarify two points. First, the treatment of particular cases, such as sectionalised schemes—schemes that have multiple parts to them—is usually set out in regulations. Amendment 27 enables regulations to specify how the new powers to modify by resolution will apply in such cases—for example, to ensure that each section in a sectionalised scheme is treated as a scheme in its own right for the purposes of this power specifically.
Secondly, the power in the clause is not intended to affect schemes in wind up where the majority of schemes will have existing rules about how surplus should be distributed at the point of wind up. The amendment clarifies that when trustees consider the exercise of the power to modify, any separate power to repay surplus on winding up is disregarded. Equally, the new power in clause 8 cannot be used to introduce a power or to modify an existing power to release surplus on winding up.
Mark Garnier
I thank the Minister for his comments. We agree that the law needs to be updated to reflect current circumstances, and it makes sense to ensure that companies that have not made pre-2016 resolutions are not unfairly penalised. We broadly support the update to the law because it corrects an important imbalance. However, it is crucial, as we move forward, that we maintain the necessary guardrails and uphold the independence of trustees to protect scheme members’ interests. These important aspects will be further discussed in relation to clause 9.
I will raise a couple of points made by people we have been engaging with while looking at the Bill. First, the Pensions Management Institute highlighted its disappointment that the Government did not take the opportunity of this legislation, which broadly talks about defined-benefit funds, to make it easier and more tax efficient for employers and schemes to use scheme surpluses to fund contributions under defined-contribution arrangements, including those not held in the same trust. That would have opened up possibilities for many entities that have long since moved their ongoing DC provisions to a master trust or contract-based arrangement.
The Phoenix Group also highlighted an issue. To protect funding levels after surplus release, schemes may adopt more cautious investment strategies, reducing allocations to private and productive assets. That could undermine the Government’s growth objectives. Aside from those points, we are happy with the clause.
Steve Darling
I very much echo what the hon. Member for Wyre Forest said. Clearly, surpluses have built up over a number of years since the last crash. There has been a level of overcaution. It is important for our economy that those surpluses are appropriately released, which could drive economic growth. I am sure that all of us in the room want to see that.
Kirsty Blackman
Perhaps it reflects my ideological position that I am much more comfortable seeing this happen with local authorities than I am here, and I am looking for more guardrails. In fact, there are more guardrails around how local government pension schemes do this. It can be done pretty much only if it is to reduce employer contributions, which increases the amount of money that local authorities have for either reducing council tax, as the hon. Member for Wyre Forest said, or for spending on whatever it is that they want to spend money on a day-to-day basis.
I would like to see more power go to trustees. I am concerned—this was raised previously—about the level of employer pressure that could come to bear on trustees about releasing surplus, when it may not be in the best interests of all the scheme members but the employer might be really keen to use the money. I am also concerned that we have had quite a lot of different ideas about what the surpluses could be used for. The Liberal Democrat spokesperson, the hon. Member for Torbay, made the same point as the Government about ensuring that employers could invest more to grow the economy, whether that is in bits of tech that make the company more productive or workplace benefits for those who are scheme members.
Why did the Government decide not to strengthen the powers of trustees in relation to the surplus release? Could the Government look in future at tightening what surplus release could be used for? Trustees have a fiduciary duty to ensure that members’ pensions grow as promised, and that they get the benefits that they were promised or that their defined-contribution scheme in other circumstances grows at the right level. However, if the fiduciary duty applies, why is there not a similar application in terms of surplus release? Why is there not a similar requirement on trustees to ensure that that surplus release goes the way that we think it should go?
On Second Reading, I said that there had not been enough clarity from the Government about how they want that surplus to be released. Are they encouraging or instructing trustees to release surplus to employers if it will be invested in the business, or if it is being done to invest in workplace training schemes? I am not convinced that there is enough clarity on this issue.
Given the Government’s drive to ensure that more people are working and that there is a reduction in the amount of economic inactivity, they could say, “Actually, if you are going to use this to improve access to work, to ensure that you can employ more disabled people, we will absolutely sign off a surplus release, provided that you have met all the other criteria.” The Government could encourage trustees to do that. I feel as though there are more levers that the Government could use and that they are not taking this opportunity.
I have not tabled any amendments on this issue, but I raised it on Second Reading. It would be great if the Government gave me some comfort that they are considering whether—in the future with the Bill or, down the line, in the guidance that is given to trustees—to strengthen the hand of trustees, so that they can direct employers better and so they do not come under pressure from employers; or whether the Government will take policy decisions or directions, and point them out to trustees so that they are encouraged to go in a certain direction to ensure that there is growth in the economy, which is apparently the Government’s first mission.
Torsten Bell
I welcome the broad consensus about the direction of travel from everyone who has spoken. I will come first to the remarks from the hon. Member for Aberdeen North, who made some key points. She understandably makes the direct comparison with the LGPS. To a large respect, that reflects the fact that the LGPS is an open scheme where the ongoing contributions are much more of a live question, but I take her point.
I will make a few remarks on her more controversial points about the role of trustees and what funds are used for. The powers of trustees are very strong. Trustees have an absolute veto on any surplus release under the clause, as they do currently, and they have fiduciary duties about how they should use their powers. That is stronger than was implied in some of the remarks that we have heard.
As for the wider point about pressure on trustees from employers, that can affect lots of issues and is not specific to the one we are discussing today. That is what the fiduciary duties of the trust system exist to protect against and what the regulatory work of the Pensions Regulator ensures does not happen. If there was inappropriate pressure on trustees, it would be a very serious issue. That is not specific to the surplus question—that applies to trustees just doing their job. My strong impression with every trustee I talk to is that they take that duty very seriously indeed. I agree that we should always keep that under review.
Kirsty Blackman
There is an absolute veto power—a yes or no—but it is also about the power for trustees to be able to say to employers, “This is how we would like you to use the money.” There is less flexibility for trustees there. Once the money is handed over to the employers, there is no comeback for trustees if employers do not use it as suggested.
Torsten Bell
That is a factually accurate description of the situation. The hon. Lady is not the first person to have raised that point with me, and I understand the wish for greater certainty about how funds will be used. My view is that looking for that certainty through legislation is wishful thinking. Funding sitting within companies is fungible. The monitoring and enforcement of those things would not be practical in any sense. I am sure that part of the discussion between trustees and firms will be about exactly the kind of points that the hon. Lady is raising, particularly for open schemes, where there is a large overlap between employees and scheme. Members will be part of the discussion, but I do not think that that is practical for legislation. I am liberal enough, although I am certainly not a Liberal Democrat, to think that that is quite hard for legislation to manage, and that it is the role of trustees and employers to work through that.
On the hon. Lady’s wider point, I offer her some reassurance that the Pensions Regulator is taking very seriously its job of providing guidance for trustees about how they think about the questions of surpluses. I think that will offer her quite a lot of reassurance, particularly about how members benefit—she has focused on how employers benefit—from release.
Amendment 25 agreed to.
Amendments made: 26, in clause 8, page 8, line 2, at end insert—
“(4A) Any power to distribute assets to the employer on a winding up is to be disregarded for the purposes of subsections (2) and (3); and a resolution under subsection (2) may not confer such a power.”.
This amendment ensures that the scope of section 36B is confined to powers to pay surplus otherwise than on the winding up of the scheme.
Amendment 27, in clause 8, page 8, line 6, at end insert—
“(5A) Regulations may provide that this section does not apply, or applies with prescribed modifications, in prescribed circumstances or to schemes of a prescribed description.”—(Torsten Bell.)
This amendment, which inserts provision corresponding to section 37(8), allows for the application of section 36B to be modified in particular cases (for example, in the case of sectionalised schemes).
Clause 8, as amended, ordered to stand part of the Bill.
Clause 9
Restrictions on exercise of power to pay surplus
John Milne (Horsham) (LD)
I beg to move amendment 5, in clause 9, page 8, line 18, at end insert—
“(2AA) Without prejudice to the generality of subsection (2A), regulations made under that subsection must include provision that takes into account the particular circumstances of occupational pension schemes established before the coming into force of the Pensions Act 1995 which, prior to that Act, possessed or were understood to possess a power to pay surplus to an employer.”.
This amendment would allow schemes where people are affected by pre-97 to offer discretionary indexation where funding allows, with appropriate regulatory oversight.
The Chair
With this it will be convenient to discuss amendment 6, in clause 9, page 8, line 23, at end insert—
“(aa) prohibiting the making of a payment until annual increases to payments in line with Consumer Prices Index inflation have been awarded to members,”.
This amendment requires that payments in line with CPI inflation are awarded to members before all other considerations.
John Milne
The purpose of amendment 5 is to ensure that regulations take account of the particular circumstances of occupational pension schemes that were established before the Pensions Act 1995. There is effective discrimination against certain pre-1997 pension holders. That is a long-standing grievance and has remained unresolved for far too long. This has been reflected considerably in my postbag, as I am sure it has been for pretty much every MP.
In the evidence session on Tuesday, we heard moving testimony from Roger Sainsbury of the Deprived Pensioners Association and Terry Monk of the Pensions Action Group. As they told us, many of those affected are, literally, dying without ever seeing satisfaction. Many of these pensioners are receiving a fraction of what they are entitled to and what somebody who paid the exact same sums is currently receiving. It is causing genuine hardship.
Members of the pre-’97 schemes are often in a different position to those in later schemes. These schemes were designed under a different legal and regulatory framework. Current legislation does not always reflect those historical realities, which creates unintended inequities.
The amendment would require regulations under clause 9 to explicitly consider these older schemes. It would allow such schemes, with appropriate regulatory oversight, to offer discretionary indexation where funding allows. The key impacts would be to provide flexibility while ensuring safeguards are in place, give trustees the ability to improve outcomes for members in a fair and responsible way, and help to address the long-standing issue of members who miss out on indexation simply because of the scheme’s pre-’97 status. It also ensures that members can share in scheme strength where resources permit.
Clearly, safeguards are needed, and the amendment makes it clear that discretionary increases would be possible only where schemes are well funded. Oversight by regulators ensures that employer interests and member protections remain balanced. The intention behind the amendment is to bring fairness and flexibility into the treatment of pre-’97 scheme members and to modernise the system so that it works for today’s savers without undermining scheme stability.
Mark Garnier
I will not take up too much of the Committee’s time, but suffice it to say that we all heard the evidence that was presented on Tuesday, and we in the Conservative party agree with the Liberal Democrats’ amendment. We will support it.
Kirsty Blackman
I will not say much just now. I would like to hear what the Minister says, and I might bob again after that, Sir Christopher.
Torsten Bell
I thank the hon. Members for Torbay and for Horsham for their amendments and for giving us the opportunity to discuss the matter of defined-benefit members and pre-1997 accruals. I should be clear that clause 9 and the related amendments refer to defined-benefit schemes, not to the questions of the Pension Protection Fund and financial assistance scheme compensation, which were discussed at such length—and, as several hon. Members have said, powerfully—at the evidence session on Tuesday.
The Government understand the intent behind the amendments. It is crucial that the new surplus flexibilities work for both sponsoring employers and members, for example through discretionary benefit increases where appropriate. That point was raised several times on Second Reading before the summer recess.
On pre-1997 indexation, it is important to be clear that most schemes—as I said, these schemes are not in the PPF or receiving FAS compensation—pay some pre-1997 indexation. Analysis published last year by the Pensions Regulator shows that only 17% of members of private sector defined-benefit pension schemes do not receive any pre-1997 indexation on their benefits, because different scheme rules specify whether someone receives that indexation.
Under the Bill, decisions to enable the scheme to release a surplus will always rest with trustees, who have a duty to act in the interests of scheme beneficiaries. Trustees, working with the sponsoring employer, will be responsible for determining how members should benefit from any surplus release, which may include discretionary indexation. My personal view is that, in lots of cases, it should, but that is where the discussion takes place. The Government are clear that trustees’ discretion is key to this policy. Trustees are best placed to determine the correct use of the surplus for their members, not least because that will involve making some trade-offs between different groups, particularly of members, and it is trustees who are in the position to do so.
It would not be appropriate for the Government to mandate that schemes provide uncapped indexation, in line with the consumer prices index, to all members prior to the making of a surplus payment. Where trustees plan to award discretionary increases, they are best placed to identify what increase is affordable and proportionate for the scheme and its members.
Although scheme rules may require an employer to agree to a discretionary increase—this point was made by several Members who were anxious about it on Second Reading—the trustees will have the final say when deciding to release surplus, and they are perfectly within their rights to request such an increase as part of any agreement that leads to a surplus release. That is a powerful power for trustees to hold on to.
The Pensions Regulator will publish guidance for trustees, as I previously mentioned, and for their advisers, noting factors to consider when releasing surplus and ways in which trustees can ensure that members and employees can benefit. That will happen following the passage of the Bill. These measures already give trustees the opportunity to secure the best outcomes for their members, which could include discretionary increases. I am grateful for the contribution from the hon. Member for Horsham, but on those grounds, I ask him to withdraw the amendment.
Kirsty Blackman
As I said, I wanted to hear from the Minister. I agree that trustees should be the ones making the decision on how to spend any surplus and whether to make an uprating. However, as some schemes are barred by their scheme rules from making such an uprating, my concern is about allowing them the flexibility to make it in any circumstances if they decide that that is the best thing to do. It is not about tying their hands and saying that they have to make an uprating; it is about allowing every single scheme the flexibility to make it if they decide that that is the best thing to do.
Where there are employer blockers or other issues in the scheme rules, can anything be done, in the Bill or anywhere else, to remove those blockers so that we can ensure that trustees have an element of choice and remove some of the unfairness that we heard about on Tuesday?
Torsten Bell
I think I can offer the hon. Lady some reassurance. It is true that within some scheme rules it will be clear that discretionary increases of the kind that we are debating would require employer agreement. I know that that has worried some hon. Members who think that that could be a veto against such releases in a surplus release situation.
My view—and the guidance to be released by the TPR will make this very clear—is as follows. It may formally be for the employer to agree to those discretionary increases. The scheme rules may apply to that, although in some schemes the trustees may be able to make that decision on their own—that will be a distinction that will depend on the scheme rules. However, even when the scheme rules say that the employers must agree, they will have a strong incentive to agree with the trustees if they are asking the trustees to release. That is why I say that the process of surplus release will change the dynamic of those discussions, which I recognise are currently not proceeding in some cases because employers are saying a blanket no to discretionary increases. We do not need legislative change to make that happen.
Kirsty Blackman
Would the Minister encourage those schemes that find that they want to release the surplus in relation to the uplift, but are struggling to get that process across the line, to go to the TPR, look at the guidance that is coming out and ask for assistance with making those discretionary uplifts?
Torsten Bell
I absolutely would. I have been making exactly those points to anyone who will listen.
John Milne
I thank the Minister for his comments. Over the coming weeks, as he will be aware, we will be discussing several amendments that relate to the same issue. It will be interesting to see whether we can reach a satisfactory solution. In the meantime, we will press our amendment to a vote, because we feel that the issue has remained unresolved for such a long time that it needs everything we can give it to get it across the line, but we hope that in the next couple of weeks of debate we can find the best possible solution.
Question put, That the amendment be made.
Mark Garnier
I beg to move amendment 247, in clause 9, page 8, line 23, at end insert—
“(aa) prohibiting the making of a payment unless the scheme’s assets have exceeded a buyout valuation,”.
This amendment requires that surplus extraction is only permitted once buyout funding levels are achieved.
The Chair
With this it will be convenient to discuss the following:
Amendment 260, in clause 9, page 8, line 30, at end insert—
“(e) requiring the trustees to provide a prescribed notification, as set out in (f) below, with the members of the scheme (or their representatives) not less than 60 days before making any payment under this section;
(f) the prescribed notification should include—
(i) the proposed amount of surplus to be paid to the employer,
(ii) the reasons for the proposed payment,
(iii) the impact on member benefits,
(iv) the scheme's funding position after the proposed payment, and
(v) how members may make representations regarding the proposal;
(g) requiring the trustees to have regard to any representations made by members or their representatives having received the prescribed notification.”
This amendment would require trustees to notify members at least 60 days before making surplus payments to employers. It ensures members receive full information about proposed surplus payments, enabling informed participation.
Amendment 265, in clause 9, page 8, line 30, at end insert——
“(e) requiring the trustees to provide a prescribed notification to members of the scheme, or members’ representatives, not less than 60 days before making any payment under this section,
(f) requiring the prescribed notification under subsection (e) include—
(i) the proposed amount of surplus to be paid to the employer,
(ii) the reasons for the proposed payment,
(iii) the impact on member benefits,
(iv) the scheme's funding position after the proposed payment,
(v) how members may make representations regarding the proposal, and
(g) requiring the trustees to have regard to any representations made by members or their representatives having received the prescribed notification under subsection (e).”
This amendment would require trustees to notify members at least 60 days before making surplus payments to employers.
Amendment 267, in clause 9, page 8, line 30, at end insert—
“(e) requiring that, where the scheme actuary certifies under subsection (a) that the scheme’s assets exceed the cost of securing each member’s accrued rights with an authorised insurer for a continuous period of at least six months, the trustees must first secure a full buy-out of those rights before any payment of surplus may be made to the employer or any other person, and
(f) requiring that subsection (e) does not apply if the scheme actuary certifies that any surplus extraction would, after the extraction, still leave the scheme’s assets exceeding the cost of securing each member’s accrued rights with an authorised insurer.”
This amendment inserts a requirement to ensure that surplus extraction prior to a buyout does not adversely impact the scheme’s ability to reach buyout.
Amendment 261, in clause 9, page 8, line 36, at end insert
“and including confirmation that the proposed payment (surplus access) will not adversely impact members' benefits and that the prescribed notification has been completed in accordance with regulations made under subsection (2A).”
This amendment would aim to strengthen an actuary's role and oversight of schemes accessing surplus, by requiring confirmation that member notification has occurred before certifying surplus payments.
Mark Garnier
Any decision to release surplus funds from defined-benefit pension schemes should rest firmly, as we have discussed, with the trustees. It is important to emphasise that trustees bear the ultimate responsibility for such decisions. We believe that surplus repayments to employers should be permitted only when members’ benefits are fully protected and robust safeguards are in place to maintain the security and sustainability of the scheme.
The Bill notes that the detailed criteria for surplus payments will be set out in forthcoming regulations, and those regulations must be subject to close scrutiny with a primary focus on safeguarding members’ benefits before any funds can be released. There remain important unanswered questions regarding what appropriate guardrails for surplus release should look like. One firm belief is that defined-benefit pension funds should be funded to buy-out levels, to the extent that they are capable of securing members’ benefits with an insurer. Additionally, any surplus extraction should demonstrably provide clear benefits to scheme members, rather than simply serving the employer’s interest—although we heard evidence on Tuesday that did not necessarily agree with that.
We acknowledge that there are broader issues facing defined-benefit pension schemes that we intend to explore further when the Committee considers the new clauses. In particular, the post-Maxwell accounting framework is a significant constraint on defined-benefit pension funds. The requirement to show deficits on company balance sheets suppresses growth potential. The Bill should not miss an opportunity to address those structural hurdles.
One of the behavioural outcomes we have seen is that defined-benefit pension funds have been investing large amounts of money into bonds, including Government bonds, and not into equities where there is the greatest growth potential in the economy. That throws up a couple of problems in this area. First, the money is not going into equities, which are much more volatile than bonds. Secondly, if we see surplus extraction from some of those funds, that money will come from the Government bond market—the gilt market—and there may be an impact on the Government’s ability to borrow funds, which is something we will hear more about on 26 November. Crucially, the Minister will now be part of that, and I suspect he will be taking into account the bond market’s ability to meet Government borrowing requirements when he gets close to that date.
Moreover, there is nothing in the current legislation to prevent surpluses from being used for purposes that do not support economic growth, such as share buybacks or dividend payments by the host employer. Neither of those outcomes necessarily aligns with the Government’s growth agenda, although it could be argued that the money is going back into the wider economy and finding its way back. None the less, we would like to see more guidance on how that money is to be spent. Simply repaying—potentially—private equity funds a large dividend will not necessarily help the greater good.
The Bill proposes new flexibilities for defined-benefit schemes in surplus. Currently, the Bill is unclear on the level at which employers can extract that surplus and there is concern that, once a scheme is fully funded on a low-dependency basis, buy-out could happen. That is a lower threshold than for a gold standard buy-out and, while it may free up capital for employers and support investment, there are concerns that the change could risk members’ security, as buy-out remains the safest way to guarantee benefits. Amendment 247 would provide strong protection against a change of environment where DB funds start to slip back into deficit positions.
Our amendments 260 and 261 are linked. Just Group plc wrote to the Committee to highlight that members of pension schemes that undertake employer surplus extractions should receive proper notification. Engagement with members should be undertaken before extraction, because ultimately any decisions on surplus extraction could be impactful on them. Setting out clearly in legislation what effective engagement would look like, including the role of the actuary in the process, would help trustees to understand their obligations and Parliament’s intent.
Amendment 260 requires trustees to notify members at least 60 days before making surplus payments to employers, and ensures that members receive full information about proposed surplus payments, enabling informed participation. Amendment 261 aims to strengthen an actuary’s role in oversight of schemes accessing surplus, by requiring confirmation that member notification has occurred before certifying surplus payments. Both amendments strengthen the guardrails around DB surplus extraction, as part of our overall strategy of putting member interest first and protecting trustees. We will be pressing these amendments.
Steve Darling
I rise to speak in respect of amendments 265 and 267, which echo the issues already covered by the shadow Minister. Allowing 60 days’ notice to scheme members is extremely important to the Liberal Democrats—and, to be fair, I am sure it is also important to the Government—and the central intention is to protect outcomes for members of schemes and ensure that there is enough flexibility. That 60 days’ notice is really important to us.
Ensuring that there is enough money in the scheme for any buy-out is the second element, which the hon. Member for Wyre Forest has already alluded to. We think it is very important that the finances are there and that we put scheme members at the centre of the proposals before us. I look forward to hearing from the Minister what reassurance he is able to give us on those points.
Kirsty Blackman
I will speak specifically to amendments 260 and 265. Any communication with scheme members is a good thing, particularly if there are to be changes such as those we have been discussing. Sometimes, surplus extraction may not be for the benefit of scheme members; sometimes it may be for other reasons, and trustees have a duty to make clear what they think it is for and to release a surplus only if they think it is a reasonable thing to do. However, they may not have a full understanding of how members feel about what the surplus could be used for. For example, scheme members who are active members might feel that they would love their company to invest in something to make their lives and their jobs easier, and might be keener on that extraction than the trustees might think, so it would be great to have that input.
Amendments 260 and 265 are incredibly similar—surprisingly similar, in fact—and I am happy to support both, were they put to a vote. Amendment 261 is consequential; on amendments 247 and 267, I do not feel I have enough information on what trustees think to make a reasonable judgment on whether either amendment would be a sensible way forward for trustees to meet their fiduciary duty, which is to provide the best guaranteed return for scheme members. I will step out of votes on amendments 247 or 267, but I will support the amendment that requires members to be consulted in advance.
Mr Bedford
I rise to speak to amendment 260. I thank my hon. Friend the shadow Minister for outlining our rationale for the amendments. My comments regard informing members. I support the right to pay surplus to employers—I think that is the right thing to do, so long as the correct safeguards are in place—but it is right to inform members of that decision. Not only is it the right thing to do, but it will improve member engagement in the whole pensions process. I made a point in Tuesday’s evidence session on the importance of financial education, and a number of witnesses supported that position. By more actively engaging with members, we will ensure that they take part in their own pension provision and ensure that the right decisions are made in their own interests.
Torsten Bell
My overall reflection on the amendments is that in most cases what is being requested is already happening, or risks reducing flexibility for trustees. I will set that out in a bit more detail, but I am grateful to hon. Members for their contributions and for the amendments targeting important areas of concern.
Amendments 247 and 261 aim to maintain the buy-out funding threshold for surplus release from DB schemes. Member security is at the heart of our changes, as I have already set out. We are clear that the new surplus flexibilities must both work for employers and maintain a very high level of security for members, as we all agree. Under these proposals, surplus sharing will remain subject to strict safeguards, including the actuarial certification and the prudent funding threshold, which is the same threshold that the TPR under the previous Government had put in place for defined-benefit schemes to aim for more generally. The defined-benefit funding code and underpinning legislation require that trustees aim to maintain a strong funding position more generally, leaving aside the question of surplus release. They do that so that we have very high confidence that members’ future pensions will be paid.
However, the Government are minded to amend the funding threshold at which surplus can be released from the current buy-out threshold to the full funding on a low dependency basis, as I mentioned earlier. That is still a robust and prudent threshold that aligns with the existing rules, as I have just said. The goal here is to give more options to DB scheme trustees. Again, that is true across the Bill: we are aiming to provide trustees with more options about how they proceed.
Many schemes are planning to buy out members’ benefits with an insurer. In many cases that is the right thing for them to do, but other schemes might want to continue to run on their scheme for some time without expecting future contributions to be required from an employer. The low-dependency threshold will give flexibility to trustees to do so. It is right that they have a variety of options to choose from when selecting the endgame for their scheme.
The Government will set out the details of the revised funding threshold in draft regulations, on which we will consult. More broadly, we think it right that that is done via secondary legislation, not primary legislation.
Steve Darling
Can the Minister give us some timescales? I asked previously about timescales, regulations and secondary legislation. I would be grateful if the Minister could address that.
Torsten Bell
The hon. Member rightly returns to an important question. As I set out at the evidence session on Tuesday, our pension policy road map, published at the same time as the Bill, details exactly when we are planning to bring forward regulations. My understanding is that these particular regulations should be consulted on in the spring of next year—if that is not right, I will make sure we come back to him with further details. As I say, the road map provides the details of that timeline. It is a very important question for people to be clear on. In that consultation, I am sure the evidence we have heard will be taken into account.
Amendments 260 and 265 correctly aim to ensure that members are well informed and represented when it comes to their pension schemes and retirement. The new paragraphs would be inserted into clause 9 of the Bill, which amends section 37 of the Pensions Act 1995. Section 37 already provides that regulations must require members to be notified in relation to a surplus payment before it is made.
This is therefore not about the flexibility of trustees; it is redundant, given the requirements already in the Bill. It is similar to the existing requirement under section 37 of the Pensions Act 1995, and we will again consult on these draft regulations following Royal Assent. Furthermore, trustees already have a clear duty to act in all matters in the best interests of the beneficiaries of their scheme, and they are best placed to decide, in consultation with the sponsoring employer, what actions are best for members—I will not keep repeating that point as we go through the rest of this Bill.
Finally, I thank the hon. Member for Wyre Forest for proposing amendment 261, with its requirement for actuarial confirmation that proposed payments from a DB surplus to employers will not adversely affect members’ benefits, and that members have been notified ahead of that release. Those are valuable objectives, but they are already achieved by the robust safeguards in place, including trustee discretion, the prudent funding threshold —on which we will consult—and the actuarial certification that a scheme is well funded.
In addition, the defined-benefit funding code and the underpinning legislation already require trustees to aim to maintain a strong funding position, and that is actively overseen by the Pensions Regulator. I believe the safeguards we have put in place put members at the heart of the policy, which is a point of cross-party agreement, and will allow trustees to continue to be the people who strike the correct balance between the benefits for employers and members. I hope this offers some reassurance to the Committee that, for the reasons I have outlined, these amendments are unnecessary; I urge hon. Members not to press them.
Kirsty Blackman
The Minister has said that trustees are required to act in the interests of and to the benefit of scheme members. However, they are required to act so that members will get the benefits that they are promised under the pension. They are not required to act to the benefit of scheme members. As I said earlier, there is a distinct possibility—particularly with surplus, which is not going into the pension scheme and which can only be paid if those benefits are already guaranteed—that the surplus is only a surplus in the case where members are definitely going to get those benefits anyway.
It is the case that trustees might not know what is to the benefit of members. Requiring them, or asking them, to consult members on what they would like, or to provide members with information about how money is going to be spent, could get better results for those members. It is not going to change the amount of pension they will get, which is the trustees’ requirement; however, it may change their lives in a more positive way. Whether or not they are people currently paying into the scheme and actively employed, there are ways that the surplus could be spent that would benefit or disbenefit their lives.
In making that case, I think there should be a consultation with members. The hon. Member for Mid Leicestershire made the point very well that we should encourage people to take more interest in and have more input into their pensions, so that they have a better idea of what is going on, of the possibility of surpluses and of how they are spent. I would appreciate it if the Minister, when he is considering the regulations and the changes being made, could think about how best to consult scheme members. Given that trustees have a duty to act not in the best interests of members, but in the best interests of members’ pensions, I would love to see, around the surplus, arrangements that benefit scheme members—whether they are currently paying, future or deferred members, or those already getting their pensions—rather than solely the employer and the employer’s intentions.
Ordered, That the debate be now adjourned.—(Gerald Jones.)
Pension Schemes Bill (Fifth sitting)
Tuesday 9th September 2025
(3 months, 2 weeks ago)
Public Bill CommitteesPension Schemes Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 9 September 2025 - (9 Sep 2025)
The Committee divided: - Ayes: 6 / Noes: 8 - Question accordingly negatived.
The Chair
We are now sitting in public and the proceedings are being broadcast. Before we begin, I remind hon. Members to switch electronic devices to silent. Tea and coffee are not allowed during sittings.
Ordered,
That the Order of the Committee of Tuesday 2 September be varied, after paragraph 1(d),
by inserting—
“(da) at 9.25 am and 2.00 pm on Tuesday 16 September;”.—(Taiwo Owatemi.)
Clause 27
Authorisation of consolidator schemes etc by the Pensions Regulator
Question proposed, That the clause stand part of the Bill.
The Parliamentary Under-Secretary of State for Work and Pensions (Torsten Bell)
It is a pleasure to serve under you today, Ms McVey. We recommence our consideration of the small pots part of the Bill. I thank all Members for their engagement during the sittings last week.
Clause 27 is fundamental. It allows regulations to be made to create an authorisation and supervisory framework for pension schemes to become authorised consolidators. This framework will allow master trusts to apply to the Pensions Regulator to become authorised, on the basis that they meet certain conditions and standards, including the value for money test we discussed at length last Thursday.
The clause also ensures ongoing oversight. If a scheme no longer meets the standards, regulations can enable the Pensions Regulator to step in to require the trustees to take prescribed steps and, ultimately, to withdraw authorisation if necessary. That ensures better outcomes, not just fewer pension pots. The clause represents a vital safeguard in the small pots framework.
Clause 28 provides a definition of a “consolidator scheme” and “consolidator arrangement”. A “consolidator scheme” can either be an authorised master trust or a Financial Conduct Authority-regulated pension scheme that appears on a designated list published by the FCA. A “consolidator arrangement” refers to a specific part of the scheme that is intended to receive small pots.
This reflects the structure of pension providers that operate in the UK. Some pension providers offer multiple arrangements within their scheme whereas others may have a single arrangement or offering. The clause caters for both scenarios to ensure that regulators can focus on the particular arrangements that will require authorisation.
To simplify: in practice, all schemes will be authorised by specific arrangement, but there will be some occasions where schemes may only have a single arrangement so the whole scheme will be authorised. By having at least one authorised arrangement, schemes or providers will be authorised consolidators.
Mark Garnier (Wyre Forest) (Con)
This is a very uncontentious and highly technical part of the Bill. We have no objections to any of these provisions and so will be supporting them.
Steve Darling (Torbay) (LD)
As the Liberal Democrat spokesperson, I echo that this is a direction of travel that we welcome. The vast majority of the proposals that are before us today are uncontentious. They follow the correct direction of travel in growth and change that we want to see in our pensions system in the United Kingdom.
Question put and agreed to.
Clause 27 accordingly ordered to stand part of the Bill.
Clause 28 ordered to stand part of the Bill.
Clause 29
Further provision about contents of small pots regulations
Torsten Bell
I beg to move amendment 36, in clause 29, page 27, leave out lines 14 and 15.
This amendment clarifies that small pots regulations may confer rights of appeal more broadly than just in relation to the refusal of an application for authorisation.
The Chair
With this it will be convenient to discuss the following:
Government amendments 37 to 40.
Clause stand part.
Torsten Bell
Clause 29 will make the small pot consolidation framework work in practice, through allowing the small pots regulations to cover a range of operational, administrative, data protection and consumer protection matters. It enables the Pensions Regulator to charge a fee for authorisation and gives applicants the right to appeal if their application is refused. Regulations will be able to require trustees and scheme managers to maintain and improve records, and they will protect members from high transfer fees. The clause enables the delegation of functions and powers to the Pensions Regulator, the FCA and the small pots data platform operator. It ensures that data protection and privacy obligations are respected, while allowing necessary data processing to support the scheme’s efficient operation.
The clause will allow the Government to amend existing legislation to support the small pots consolidation framework. Examples of uses of the power include giving the Pensions Ombudsman new powers to investigate member complaints, and ensuring that the small pots data platform is properly funded through the general levy. Pensions law is complex and technical, and needs to evolve with time, so the Government need the flexibility to respond to those changes and regulators’ operational experience without having to table a new Bill every time.
The Bill clearly sets out the multiple default consolidator framework. With targeted amendments, the clause will allow us to fine-tune the framework over time, ensuring operational effectiveness. Any use of so-called Henry VIII powers will be subject to the affirmative procedure. The clause is essential for the practicality, reliability and integrity of the small pots consolidation framework to ensure it is fit for purpose now and for the future.
The Government amendments to the clause are purely technical drafting improvements. Amendment 36 clarifies that appeal rights for schemes are not limited solely to decisions regarding an application for authorisation, so one could appeal on other grounds. Amendment 37 provides further clarity on the liability framework that will be established to ensure that members are protected. It makes it clear that the small pots data platform operator or the trustees or managers of a relevant pension scheme can be made responsible for paying compensation to an individual who has suffered a loss as a result of a breach of the small pots regulations. Amendments 38 to 40 take account of the Data (Use and Access) Act 2025, which was passed by Parliament subsequent to the introduction of this Bill. The amendments do not alter the policy, and I ask the Committee to support them.
Mark Garnier
Perhaps it is exciting for those who enjoy dry reading. We in the Opposition have no objections.
Amendment 36 agreed to.
Amendments made: 37, in clause 29, page 27, line 30, leave out—
“a relevant person, other than the FCA,”
and insert—
“the small pots data platform operator or the trustees or managers of a relevant pension scheme”.
This amendment ensures that the FCA cannot be required to pay compensation under small pots regulations.
Amendment 38, in clause 29, page 27, line 39, leave out “Subject to subsection (4),”.
This amendment is consequential on Amendment 39.
Amendment 39, in clause 29, page 28, line 3, leave out subsection (4).
This amendment removes provision that is no longer needed because of the general data protection override in section 183A of the Data Protection Act 2018, which was inserted by section 106(2) of the Data (Use and Access) Act 2025 and came into force on 20 August 2025.
Amendment 40, in clause 29, page 28, leave out lines 8 and 9.—(Torsten Bell.)
This amendment is consequential on Amendment 39.
Clause 29, as amended, ordered to stand part of the Bill.
Clause 30
Enforcement by the Pensions Regulator
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendment 41.
Clause 31 stand part.
Government amendment 42.
Torsten Bell
Clause 30 seeks to ensure that the rules and conditions set by the regulations are, in practice, followed. These regulations can allow the Pensions Regulator to issue three types of notices: a compliance notice, requiring a person to take specific steps to comply; a third-party compliance notice, directing someone to ensure another party’s compliance; and a penalty notice, imposing a financial penalty for non-compliance or a breach of the regulations. If a scheme fails to comply with the regulations or with a notice issued under them, the Pensions Regulator can impose a financial penalty capped at £10,000 for individuals and £100,000 in other cases. The clause also enables regulations to provide for appeals to the first-tier or upper tribunal, ensuring procedural fairness and accountability. All those are standard approaches to pensions legislation.
Clause 31 gives the Treasury the power to make regulations to enable the FCA to monitor and enforce compliance with the small pots consolidation framework for contract-based schemes. It ensures that the FCA can act decisively to protect consumers and uphold the integrity of the system. Clauses 30 and 31 ensure consistent standards across the pensions market as we look to enforce these measures. Any regulations made under clause 31 must go through the affirmative procedure, ensuring parliamentary oversight.
Amendments 41 and 42 seek to clarify the definition of the term “FCA regulated” when referring to an authorised person in the context of the legislation. The amendments seek to provide greater clarity by ensuring harmony and removing any ambiguity between clause 30(1) and clauses 31 and 34. They ensure that the Pensions Regulator is not inadvertently prevented from regulating a trustee of a pension scheme solely because that trustee is also regulated by the Financial Conduct Authority in a separate capacity. The amendments are purely technical clarifications, and I ask the Committee to support them. I commend the clauses to the Committee.
Mark Garnier
Again, I have no real comments, apart from to ask the Minister, perhaps when winding up, if he could explain how the Government came to the penalty levels of £10,000 for individuals and £100,000 for others. It would be useful to understand what the thinking was behind that.
Kirsty Blackman (Aberdeen North) (SNP)
My question was not dissimilar to the shadow Minister’s question on the amounts of the penalties—£10,000 for an individual and £100,000 in any other case. There is no delegated authority to raise it beyond those levels. There is an ability to set the amounts, provided they do not go above those. Would the process have to be in primary legislation should the Government wish to raise it above those levels? I am not generally in favour of a level of delegated authority, but if we end up in a situation where inflation is out of control, £10,000 may not seem a significant amount for an individual and £100,000 may not seem significant for a larger organisation. They may not be enough to prevent people or create the level of disincentive we wish to see. Have the Government looked at whether £10,000 and £100,000 are the right amounts?
On the clarification about FCA regulation, and the fact that if somebody is FCA regulated in another capacity, it may stop them from being subject to this, it is absolutely sensible that the Government have tabled the amendments. I am happy to support the changes and the clauses.
Torsten Bell
I thank the hon. Members for Wyre Forest and for Aberdeen North. The main question raised is about the level of the fines. To provide some context, the answer is yes—that would need to be amended by further primary legislation; there is not a power in the Bill to change that. It is an increase on previous levels of fines for individuals and organisations—from £5,000 to £10,000 for individuals, reflecting the high inflation we have seen in recent years. On that basis, it gives us certainty that we have seen a substantial increase, and we would not need to change it in the near future, but I take the point that in the longer term, we always need to keep the levels of fines under review, and we will need to do that in this case. I hope that provides the answers to hon. Members’ questions.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Clause 31
Enforcement by the FCA
Amendment made: 41, in clause 31, page 29, line 38, leave out subsection (4) and insert—
“(4) For the purposes of this Chapter a person is ‘FCA-regulated’ if they are an authorised person (within the meaning of the Financial Services and Markets Act 2000) in relation to the operation of a pension scheme.”—(Torsten Bell.)
This amendment clarifies that the definition of “FCA-regulated”, in relation to a person, refers to the person being FCA-regulated in respect of the operation of a pension scheme (as opposed to in a capacity unrelated to small pots regulations).
Clause 31, as amended, ordered to stand part of the Bill.
Clause 32
Power to alter definition of “small”
John Milne (Horsham) (LD)
I beg to move amendment 4, in clause 32, page 30, line 12, at end insert—
“(4) The Secretary of State must, at least once every three years, review the amount for the time being specified in section 20(2) to consider whether that amount should be increased, having regard to—
(a) the effectiveness, and
(b) the benefit to members
of the consolidation of small dormant pension pots.”
This amendment would require the Secretary of State to review and consider increasing the level of small pension pot consolidation every three years.
The purpose of the amendment is to require the Secretary of State to review at least once every three years the threshold for small dormant pension pot consolidation. It aims to ensure that the level set in clause 20(2) remains effective and relevant over time. The Minister will be aware that we have already considered the right level at which to set the consolidation; we tabled amendment 262 as a probing amendment, which would have changed the small pot consolidation limit from £1,000 to £2,000. As we have discussed, industry has a very wide range of views on what would be the best figure.
However, this amendment asks for a review, not a particular figure. As before, we do not intend to push it to a vote. To us, a formal review process seems sensible, but whether it should be set at three-year intervals or any other figure is open to question. Given the lack of certainty about what figure industry would like, it seems a good idea to review the threshold after we have seen the measure working in practice.
The pensions landscape evolves quickly, with more job changes and rising numbers of small inactive pots. Therefore, a static threshold risks becoming out of date and undermining the policy’s effectiveness, whereas a regular review keeps the system responsive to members’ needs. It would consider effectiveness—whether consolidation is working to reduce fragmentation and improve efficiency, and the benefit to members, so whether savers are seeing clearer statements, reduced charges and better value for money. It would also simplify retirement saving by reducing the number of scattered small pots, would help members to keep track of their savings and avoid losing pensions altogether, and would improve efficiency for providers, which could reduce costs for savers.
I stress that the amendment does not dictate that there should be an automatic increase. It simply requires the Secretary of State to consider whether the amount is still appropriate. Therefore, in our view, it strikes the right balance between flexibility and accountability. To summarise, this measure would keep consolidation policy up to date, effective and beneficial for pension savers. A regular, three-year review is a simple, proportionate step to ensure that the system works as intended.
Kirsty Blackman
I am happy to support the Liberal Democrat amendment. I have already mentioned the Regulatory Policy Committee’s impact assessment—it considers the monitoring and evaluation plan to be weak, saying:
“The policies are all due to be reviewed in 2030. More detailed plans are needed, outlining success metrics, reporting requirements, and methodologies, across the policies.”
The amendment fits quite neatly into what the RPC said, which looks for an understanding and acceptance that there needs to be regular reviews, given that the Government have not committed to a three-year—or shorter—time period on this issue.
There seems to be widespread support for the small pots consolidation across the House. This amount has been picked, and as I said in a previous sitting, there is not necessarily a perfect answer. It could be that change is required, or that all the companies and organisations that are consolidating small pots immediately manage to do it amazingly. It could happen as smoothly as possible, as a result of which the Government could decide to increase the threshold.
I think that compelling the Secretary of State to look at this is completely reasonable to ensure that they are doing it on a relatively regular basis, so that the threshold can be changed if necessary. There is potentially widespread support across the House for ensuring that there is a requirement to monitor the threshold on an ongoing basis. It is not that we do not trust, agree with or appreciate the Secretary of State’s work, but it would give us a level of comfort that it would be done regularly should the Minister accept that, consider something similar on Report or, at the very least, make a commitment from the Dispatch Box that a written statement will be made to Parliament on a fairly regular basis explaining the reasons for keeping or changing the level.
Torsten Bell
I thank the hon. Member for Torbay for tabling the amendment. The Government share his commitment to ensuring that the pot limit remains appropriate. As we have just heard, it is a matter of consensus, and it is good to debate how we best do that. The Government’s view is that the amendment is not necessary at this stage. Clause 32 already enables the Government to undertake a review at any time. That is a deliberately flexible approach that allows us to respond to developments in the market—not least reflecting on the question from the hon. Member for Aberdeen North about inflation—but also to any other material changes, and it empowers the Government to act when needed.
The amendment risks creating unintended consequences with a rigid cycle of Government reviews, which might mean that reviews do not happen when there is a good reason for looking at the matter, and that the Secretary of State is forced to carry them out when there is no rationale for doing so. We favour a more flexible approach. I take seriously the request for clarity that there will be regular reviews, and I can give that clarity. That is the intention.
A wider question has been raised about the success of the policy and its monitoring, which is separate from the level of the threshold. Changes to the threshold might be one response to success metrics, but others might be about the operation of the consolidation process more generally. I commit to actively monitoring those—not least what is happening to people’s pots as they are moved, how people are responding to that and levels of awareness. That is exactly what we need to be doing, irrespective of what happens on the scale of the threshold over time. There is cross-party consensus on the objective here. We have taken a slightly different view on the flexibility of that review and how often it happens, but I give all hon. Members a commitment that that will happen.
Kirsty Blackman
I have just one more brief comment. It drives me completely mad that whoever is standing at that Dispatch Box seems to believe that they will be in government in perpetuity. Given that this is the second colour of Government I have faced across the Committee floor, it may be that the Minister and his Secretary of State—who has changed, by the way—are very keen on doing a regular review, and I appreciate the Minister committing to it. However, it is not that easy for him to commit a Secretary of State of a different political stripe. Therefore, to give us all certainty, it would be great if the Minister went away and considered the possibility of including a more regular review on Report, so that a Secretary of State of any party is required to conduct one more regularly.
Torsten Bell
I thank the hon. Member for that comment. The nature of every piece of legislation means that a future Government can take a different decision. Thanks for the reminder of the nature of British politics—that is how it operates. I am slightly more relaxed than she is, because there will be significant pressure from the industry, and from everybody, to keep this under review. That is not a matter of controversy. It is conceivable that there may be a Government who are steadfastly against ever again looking at the small pots threshold, but having lived through the last 15 years, I would put that low down the list of uncertainties in British politics. However, I take the intention behind the hon. Lady’s point, and I promise never to assume that Labour will win every election from now until eternity.
John Milne
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 33 to 36 stand part.
Government amendment 43.
Clause 37 stand part.
New Clause 36—Automatically amalgamated pension pots—
“(1) The Secretary of State must by regulations provide for the establishment of a scheme to ensure that an individual’s pension pot is linked to the person and upon a person’s change in employment the pension pot automatically moves into the pension scheme of the new workplace.
(2) All employees in the UK will be automatically enrolled into the scheme defined in subsection (1) upon its establishment but must be given the option of opting out.
(3) Where a person opts out, they are able to nominate their qualifying scheme of choice for pensions contributions.”
This new clause allows pension pots automatically to follow members from job to job, consolidating with each new workplace scheme rather than relying on a single lifetime provider.
Torsten Bell
The clause provides the flexibility, as I have just said, to increase or decrease the threshold without requiring new primary legislation, enabling the Government to move quickly and efficiently as developments—whether it be wage growth or changes in contribution patterns—change our pensions landscape. Under the clause, any change to the pot limit must always be approved by Parliament through the affirmative procedure, something that we also discussed last week.
The Government are committed to engaging with industry and consumer groups to ensure any adjustments are evidence-based and informed by the relevant data at the time, enabling us to consider wider impacts such as market competition. Under clause 32, the Secretary of State must undertake public consultation, publish details of the proposed amendments and the reasons for making the proposal, and consider any representations made—putting flesh on the bones on the kind of review that would take place, as we have just discussed.
New clause 36 seeks to introduce a new provision to the Bill, which would establish a “pot follows member” model for pension consolidation. The new clause proposes that, on changing employment, an individual’s pension pot would automatically transfer into their new workplace’s pension scheme. This proposal is not aligned with the Government’s established policy direction, and it would present significant practical and operational challenges, although I recognise that that approach has been discussed extensively over the last 20 years. The approach taken in the Bill has been shaped through extensive engagement and formal consultation with industry, regulators and consumer groups. As part of that policy development work, largely under the last Government, they and we carefully considered the “pot follows member” approach, including its potential benefits and risks. Our impact assessment shows that the multiple default consolidator solution in the Bill is projected to deliver greater net benefits. The evidence in the impact assessment supports our view that that route offers the best value for savers and for the system as a whole.
New clause 36 would require a fundamental overhaul of the current framework that the Bill seeks to introduce. It is not consistent with the rest of the Bill. It would introduce a parallel mechanism that risks duplicating effort, creating confusion and undermining the coherence of the consolidation system. Two of its main downsides are significant administrative barriers for employers, if employees choose to opt out, and the risk that pots are transferred into schemes that offer poor value for money—or, at least, poorer value for money than the ones they are sitting in before they move between employers. For those reasons, I ask the hon. Member for Wyre Forest not to press new clause 36.
Clause 33 makes it clear that the small dormant pots consolidation measures in this chapter apply equally to pension schemes run by or on behalf of the Crown and to Crown employees, as we have discussed previously. Clause 34 provides clear definitions for key terms used throughout the small pots legislation to ensure clarity and consistency of interpretation, and clause 35 provides a definition of what constitutes a pension pot. That might be thought to be straightforward, but for the purposes of small pots consolidation we want to provide clarity on the accurate identification and treatment of individual pension pots. To provide an example, if someone is enrolled into the same pension scheme through more than one job and the scheme keeps the accounts separate, each is treated as a separate pension pot so that they can be consolidated together.
As Members will be aware, the Pensions Regulator oversees the trust-based schemes and the Financial Conduct Authority oversees contract-based schemes. Clause 36 amends the Financial Services and Markets Act 2000 to ensure that the FCA has the powers required to support the small pots consolidation framework through the existing financial regulatory system. This is a vital enabling provision to provide the FCA with the necessary statutory powers to regulate contract-based schemes that wish to act as authorised consolidators in the years ahead. It allows the FCA to make rules requiring pension providers to notify them if they intend to act as a consolidator pension scheme, and it allows the FCA to maintain a list of consolidator schemes and to apply appropriate regulatory standards to them.
More broadly, clause 36 ensures that members of FCA-regulated pension schemes benefit from the same level of protection, transparency and accountability as those in the trust-based system, while also avoiding regulatory gaps and ensuring that all consolidator schemes, regardless of their structure or legal framework, are subject to robust oversight.
Consistent with my arguments on clause 36, clause 37 repeals unused provisions of the Pensions Act 2014 related to automatic transfers, also known as “pot follows member”. This is tidying up the statute book. It was the previous Government who initially legislated for “pot follows member”, but they then decided that that was not the policy they wished to pursue and moved away from it between 2014 and 2024. The amendment recognises that and makes sure we do not have powers on the statute book that confuse the situation.
Finally, Government amendment 43 is a minor and technical amendment necessitated by the repeal of schedule 17 to the Pensions Act 2014 by clause 37(1)(b) of the Bill. The amendment is necessary to update the statute book and clarify a reference in section 256 of the Pensions Act 2004, which otherwise would have been unclear and was making hon. Members nervous. The amendment does not alter policy, and I ask the Committee to support it. I commend clauses 32 to 37 to the Committee.
Mark Garnier
I will speak to our new clause 36. I am grateful to the Minister for his comments; I will come to those in a minute. The Government dropped plans for the lifetime provider or “pot for life” model, which would have allowed individuals to direct all workplace pension contributions into a single, personally chosen pension pot throughout their career. That was first proposed by the Conservative Government. Although we appreciate that the initial lifetime pot model has not had support from the current Government or, to be fair, from the industry, we believe there is much merit in exploring a model that would allow for pensions to follow individuals between jobs. The new clause would ensure that fragmented small pots are not left as workers move between jobs. By changing our current proposals from a lifetime pot to a magnetic pot proposal where the pot follows the individual, we hope we can bring down some of the administrative costs of the initial lifetime pot proposal.
Our new clause 36 will provide for a pension pot that would follow members from job to job, consolidating with each new workplace scheme rather than relying on a single lifetime provider. This approach could reduce fragmentation while retaining the advantages of employer oversight and collective governance. This would have similarities with the Australian system, where a person can staple to their first chosen pension provider so that it follows them from job to job. That helps to reduce the administrative burden on individuals and the number of small pots, and that can reduce costs for consumers and help the overall consolidation of the market. These changes have been backed by some in the industry, including Hargreaves Lansdown, which has said that having a single pot would simplify someone’s pension investment, bringing transparency and clarity. It has said that for those who move jobs frequently, a single pension pot would be invaluable.
The Minister made a couple of points. The first was about the substantial overhaul of the system to be able to deliver reform. Although I appreciate that this may be outside the scope of the Bill, we should not worry about substantial overhauls to make things better for people who are saving for their retirement. It is incredibly important that we get this right. Just because it is a lot of work does not necessarily mean it is a bad thing to do, so I urge him to think about it.
The Minister made a very important point: somebody could move from one job to another and find that their pension moves from a fund that offers good value for money and is performing well to a fund that is performing worse. But exactly the opposite is also the case. If somebody frequently changes jobs, the law of averages and statistics means that over their lifetime they will get the average rate, which means they do not get stuck in one or the other. One would cancel the other out—it is a maths problem.
The Minister has made his points. This is not something we want to press, but we feel very strongly that the Treasury and Treasury Ministers should think very carefully about it, because, as I say, hard work is not a reason not to do the right thing. There is much more support from the industry for the magnetic pot rather than the lifetime pot, which stays with one provider.
Mr Peter Bedford (Mid Leicestershire) (Con)
It is a pleasure to serve under your chairmanship, Ms McVey. As a proud Englishman, it is not often that I admit the Australians are better than us at something. I am talking not about cricket, but about the immensely important issue of pensions adequacy. The Australians do it better, and what underpins their success is the super stapling model, a system that fundamentally changes how savers interact with their pensions. That is why our new clause 36 seeks to follow in Australian footsteps by establishing a model that would automatically amalgamate pension pots through an individual’s working life. Although I recognise and commend the Government’s work on small pot consolidation, I believe that real engagement and adequacy benefit lies in moving towards a lifetime pension pot model. It is a bolder, more engaging and more adequate model that would benefit pension funds and savers alike.
Steve Darling
As Liberal Democrats, one of the key lenses through which we look at the legislation is: how does it simplify the world for those who are not the most financially literate savers into their pensions? As Liberal Democrats, we strongly support the “pot follows member” approach, as it would simplify matters for people. It would ensure a clearer mechanism for savers to be aware of the level of their pension as their life moves on, and allow investments to be drawn together more easily. It would be interesting to hear the Minister’s reflections on that, and on why the Australian model is unsuitable for the United Kingdom.
Rebecca Smith (South West Devon) (Con)
It is a pleasure to serve under your chairmanship, Ms McVey. I want to add a few things to what my hon. Friends have said, and to reflect on the Minister’s rejection of our new clause as a significant administrative burden. I think we are talking about two sides of the same coin, because to have to keep hunting out small pension pots is a little like looking for things in the dark.
First, we are effectively advocating for a “Who Wants to be a Millionaire?” approach, where someone banks at each stage. I have done that while moving jobs over my lifetime, but I am fairly financially literate. It would be helpful if there were a box to tick on a form when changing job to say, “Yes, I want to move it to this company,” a bit like we do with our P45—we are quite capable of taking our tax with us from job to job. If there were a way of taking our pension with us as well, that would be helpful.
As my hon. Friend the Member for Mid Leicestershire said, that approach would put ownership in the hands of the employee, and it would mean that they did not have a niggling feeling in the back of their mind that they had missed a pot that they had forgotten about. Anything to enable people to have ownership of that pot, rather than be constantly on the back foot trying to hunt it down, would make significant sense. Allowing people to choose rather than having to accept what is offered to them would be incredibly helpful. Ultimately, it is up to them to do what they wish, but they would at least have the choice.
We heard a lot in the evidence sessions about the challenge of communication. We have seen that with Equitable Life and all sorts of other things to do with pensions. When someone changes employer, if there were a simple way to say, “I wish to take the pension with me to the new job,” that would reduce, not increase, the administrative burden. I appreciate what the Minister said, but although we are not looking to push our new clause to a vote, it is an incredibly pragmatic suggestion that warrants further reflection.
Torsten Bell
I thank hon. Members for their reflections. I agree with the sentiment of what everybody has put forward, including the hon. Member for Mid Leicestershire—apart from his worryingly weak patriotism.
Torsten Bell
It was self-professed weak patriotism. But the hon. Gentleman is completely right to raise the adequacy issue, which is obviously the role of the Pensions Commission, launched in July, to take forward. He and several others are also right to say that making things easier for savers is a really important objective. That is what the pensions dashboard aims to do in the coming years as well.
Let me make a set of reflections directly on the question being raised. To be clear, the policy in 2014 was “pot follows member”. That is also the policy within new clause 36. The policy being more supported here is a lifetime pot, which is a different policy. The “pot follows member” is still that the employer chooses the pension scheme and the pot moves to the new employer’s scheme as the employee goes, so it is still an employer-to-a-single-scheme model. The lifetime provider model, also advocated by many in the industry but never part of Government policy—it was not in the 2014 Act—is that each individual holds a pension pot, and, on joining an employer, provides the details of that scheme to the employer, and the employer then pays to multiple pension schemes whenever it does its PAYE.
The comments I made refer to the “pot follows member” approach. There is a consensus across the industry that that is not the right way to go; I totally hear the points made in favour of a lifetime provider model. That is not the approach being taken forward by this Bill, but it needs to be kept under review in the longer term. I give hon. Members the reassurance that I will continue to do that.
Mark Garnier
I think the Minister has got this the wrong way round. It was the lifetime pot, which was being paid into as people went around, that the industry did not like, because that was administratively quite difficult. The stapled pot—stapled to the lapel, or whatever, to be dragged around like the Australian one—is what we are proposing this time round, which is the new version that the industry does agree with. I think the Minister might have got his notes upside down.
Torsten Bell
Never! No. We should clarify what we mean by “industry”: in a lifetime provider model, employers take on a significantly greater administrative burden, because they have to engage with potentially every pension scheme in the country. Admittedly, we are limiting the number of those in future, but still, that is what employers find burdensome about a lifetime provider model. That was the preferred model of the right hon. Member for Godalming and Ash (Sir Jeremy Hunt) when he was Chancellor, but it was never actioned as Government policy.
As I said before, the 2014 Act was about “pot follows member”—for good reason, to try to address the small pots worry. I hope that that at least reassures the hon. Gentleman that my notes were the right way up.
Kirsty Blackman
I am now entirely confused. Can the Minister please clarify for all of us what the Bill actually does in terms of the consolidation?
Torsten Bell
I am glad we are all thoroughly confused. Three broad approaches have been set out to this small pots problem. The first is the one that the Bill takes forward, which is the multiple default consolidation solution—the automatic sweeping up of small pots into consolidated schemes to make everyone’s lives easier. Members would have one large scheme, or several larger schemes, but no really small schemes that they had to consolidate themselves. They could then choose to consolidate those larger schemes as they wished; there is a debate to be had about the size of the threshold in future. That is an automated approach.
One thing that is really important, about the point on average returns made by the hon. Member for Wyre Forest earlier, is that this is not about average. A scheme can only be a consolidator if it offers good value, so a pot cannot be swept into one that does not.
There has been much debate about other approaches over the years, and I have tried to distinguish between two of them. They aim to provide more of what has been debated here, which is slightly more ownership of one pot by the individual. However, “pot follows member” is, in practice, still maintaining the relationship between an employer and a single provider. It is not the individual but the employer who chooses the scheme. That is the approach we are rejecting today.
There is then a longer-term discussion about whether there are attractions to a lifetime provider. That is the case in some of the countries that have been mentioned—the “stapled to your lapel” model—where it is the individual who chooses their provider; obviously to some degree individuals can opt out now if their employer is happy. That is not on the table here. It needs to be considered, but it is a much more fundamental change to the relationship between the employers and the pension schemes.
Kirsty Blackman
I thank the Minister for that clarification. These are almost two different stages in the same process: we need to do the consolidation of the small pots right now, and then look at what we are going to do so that small pots will not ever exist and nobody will end up with a small pot, because we do one of the two options or some other option presented for the next step.
My understanding is that if we were to move to what the Conservatives have proposed in new clause 36, that would solve future problems but probably not deal with the situation where somebody has five small pots already. It does not schoomp them all together—I do not know how you are going to write that, Hansard; I am really sorry.
I appreciate what the Minister says about ensuring that the next step is kept under review and not automatically ruling out some of the options presented for the future. I tend to agree that we need to get this bit done—get rid of all those tiny pots that are dormant right now—and then move on to having that discussion, perhaps as part of the sufficiency and adequacy discussions, so that we have a pensions system that ensures that people are as well off as they possibly can be in late life.
Question put and agreed to.
Clause 32 accordingly ordered to stand part of the Bill.
Clause 33 ordered to stand part of the Bill.
Clause 34
Interpretation of Chapter
Amendment made: 42, in clause 34, page 31, line 1, leave out
“No. 42, ‘FCA-regulated person’”
and insert
“‘FCA-regulated’, in relation to a person,”—(Torsten Bell.)
This amendment is consequential on Amendment 41.
Clause 34, as amended, ordered to stand part of the Bill.
Clauses 35 and 36 ordered to stand part of the Bill.
Clause 37
Repeal of existing powers
Amendment made: 43, in clause 37, page 34, line 20, at end insert—
“(3) In consequence of subsection (1)(b), in section 256 of the Pensions Act 2004 (no indemnification for fines or civil penalties), in subsection (1)(b), for ‘that Act’ substitute ‘the Pensions Act 2014’.”—(Torsten Bell.)
This amendment amends section 256(1)(b) of the Pensions Act 2004 in consequence of the repeal of Schedule 17 to the Pensions Act 2014 by clause 37(1)(b) of the Bill, including uncommenced amendments of section 256(1)(b) on which the reference to “that Act” in section 256(1)(b) relies.
Clause 37, as amended, ordered to stand part of the Bill.
Clause 38
Certain schemes providing money purchase benefits: scale and asset allocation
Torsten Bell
I beg to move amendment 44, in clause 38, page 34, line 27, leave out
“‘other than an authorised Master Trust scheme’”
and insert
“‘that is not a relevant Master Trust and’”.
This amendment clarifies a verbal ambiguity in the amendment of section 20(1) of the Pensions Act 2008.
The Chair
With this it will be convenient to discuss Government amendments 45, 46, 50, 52, 56, 60, 65, 67, 73, 76, 77, 79, 81, 82, 86 to 89, 110 and 111.
Torsten Bell
We now come to the sections of the Bill that bring in the pensions investment review measures, particularly those on setting minimum scale levels required by schemes.
Before I briefly describe these amendments, I remind the Committee of the purpose of clause 38, which we will probably be discussing for a substantial period. The clause will insert new scale requirements, which we do intend to use, and asset allocation conditions, which we do not, into the Pensions Act 2008. Specifically, it inserts them into section 20, which deals with the quality requirements in UK money purchase schemes for master trusts, and section 26, which provides equivalent requirements for group personal pension schemes.
Mark Garnier
I would like to speak to the wider clause before coming to our amendments. It is important to get on the record that this is a very bad clause. The Minister mentioned asset allocation, and this measure, which is known as mandation, has gone down incredibly badly with the pensions industry.
Mandation risks undermining the core obligation of trustees, which is to act in the best interests of savers. Pension savings reflect decades of work and are not an abstract figure on a balance sheet—they are the hope of a secure future for millions of people. Trustees and fund managers bear a legal responsibility to protect and grow these savings, investing wisely where the best opportunities may be found. Their role is not to follow political direction but to uphold the trust placed in them and the fiduciary duty they owe, which is the foundation of confidence in the pension system.
As has been said in multiple responses to the Bill, clause 38 as currently written undermines the UK’s reputation as a predictable and rules-based investment environment. When trustees select investments, they must find the safest and strongest options for beneficiaries. Can we even be confident that the Government will be able to provide a pipeline of investment opportunities? Pension funds could end up being forced to fight against each other for a selection of low-performing assets. If these powers are used, it changes accountability. If mandated investments fail, is it the trustees or the Government who should answer for those losses? Savers deserve clarity about who ultimately protects their hard-earned pension pots.
It has been said that this merely provides the powers to do mandation and does not necessarily force firms to do this, but I will come to that later. Our amendment 275 highlights the fact that there is a political party, whose Members are not in attendance here, which has already said that if it gets into government—and, let’s face it, it has a fighting chance—it will mandate pension funds to invest in the UK water industry in order to support the Government renationalising the UK water industry.
I would like to highlight some of the issues that have been raised. The Pensions Management Institute has said:
“this provision sets a dangerous precedence for Government interference in the fiduciary duty of trustees to act in members’ best financial interests.”
Pensions UK has said:
“this ambition is subject to fiduciary duties and is dependent on supporting actions by Government, namely that there will need to be a strong pipeline of investable UK assets. Without this, schemes will be competing against each other for the same assets, which risks asset bubbles and poor value for money.”
The Investment Association has said:
“It comes with significant risks for members in the form of capital being poorly allocated if political preferences take priority over member needs. Any resulting poor investment outcomes will be borne by the member. By creating the risk of political interference in capital allocation, the power undermines the UK’s global reputation as a predictable and rules-based investment environment”.
Which? has said that this measure
“may result in schemes making worse or riskier investment decisions that may not be in the best long-term financial interests of savers.”
Aviva has said:
“as currently drafted in Section 28C, the power in the Bill goes far beyond this policy intent and the scope of the Accord, with very limited constraints on how, and under what circumstances, the requirements could be introduced.”
The Institute and Faculty of Actuaries has said:
“We are concerned about the introduction of investment mandation powers, and potential interference of those powers—or their threatened use—with trustees’ fiduciary duties.”
Unison has said:
“We have significant concerns about these clauses. Fiduciaries are best placed to set the correct balance between asset classes, and equities have liquidity, governance, transparency of pricing, equality of treatment between investors, and other advantages for pension funds.”
Finally, the Association of British Insurers said:
“A mandation reserve power would undermine trust in the pension system and create a risk of political interference in capital allocation, which would undermine the UK’s reputation as a predictable and rules-based investment environment.”
I understand that this is a reserve power of mandation, but it sets a very bad precedent, so we will oppose the clause.
Mark Garnier
We have no objection to the technical amendments, but we will oppose the whole clause.
Steve Darling
We have no issue with the technical amendments. However, for us the crucial issue in the Bill is driving an environment of positive investment, and a system in the United Kingdom that individual investors—as in, would-be pensioners—can believe in.
The mandation element causes concern. As has been alluded to, there are assumptions that Ministers are reasonable people; however, we do not have to look that far across the Atlantic ocean to see politicians behaving unreasonably. It concerns us as Liberal Democrats that giving powers in the Bill without clear management of them is potentially a step too far. While the Minister, and other Ministers in the current Government, may be reasonable, who knows what is coming down the line in a very turbulent political system?
We therefore continue to have grave concerns around mandation, and look forward to hearing what assurances the Minister is able to give. The key outcome for us is making sure that there is a stable pensions system in which people can have confidence, because confidence is crucial for driving the positive investment that I am sure everybody in this room wants to see.
The Chair
I remind all Members that we are talking about the technical amendments. There will be a chance to talk about the clause later.
Kirsty Blackman
Thank you, Ms McVey—I was about to start by saying that I will not talk about clause 38; I will just talk about the technical amendments.
I have made the point before about the significant number of amendments. I do not know why the Government chose to table this number of amendments rather than submit a new clause that would replace the entirety of clause 38 and make all the changes that they wanted to make. I appreciate that the Government got in touch with us with some briefing information in relation to the changes to this clause, but we had that information very recently rather than significantly in advance. Given the huge number of technical amendments, it is very difficult to picture what the clause will look like with them all. Would the Minister agree that there could have been a better way to approach amending clause 38?
Torsten Bell
Let me first respond to the thrust of the comments from the Opposition; I will then come directly to that question. I am conscious that, having sat through Second Reading, most hon. Members have heard my views, and the Government’s views, on this, but let us set out the facts. It is the industry itself that set out the case for change. That is what the Mansion House accord does: it says that a different set of asset allocations is the right way to go in the longer term.
I support the industry’s judgment. The previous Conservative Pensions Minister has welcomed its judgment. I think it is the view of every senior Conservative ex-Minister sitting on the Opposition Back Benches that that change needs to come. [Interruption.] I am not speaking for the Opposition Front Bench; the hon. Member for Wyre Forest has just spoken eloquently for himself. I am speaking for former Conservative Ministers, including former Chancellors. If anything, they accuse me of being too timid—I am not sure what the characterisation of their current Front Bench would be in that regard. That is the status of the debate on this.
Why is there consensus? Leaving aside some of the points that have been raised, it is because this is in savers’ best interests. That is the motivation and the goal. It is also wrong to set out the conflict in terms as broad as the hon. Member for Wyre Forest has just used, because there is a clear savers’ interest test within the Bill that enables trustees or scheme managers to say that proceeding in a certain way would not be in the interests of their savers, and the asset allocation requirements would not bite.
Turning directly to the question about unreasonable Ministers—I have heard rumours of such things. They can exist, and there are protections against them: there are the usual judicial review protections, but in the Bill there are specific requirements to provide a report justifying any use of the reserve power and how it would play out. There are significant limits on the assets—it is broad asset classes—that can be set out in an asset allocation and there are limits to which assets can be covered.
There is the savers’ interest test, and importantly, there is a sunset clause for exactly the reason that we cannot predict what 2040 looks like today. I recognise that hon. Members will not support that part of the clause, but I hope they recognise that the goal is the same, which is that a change in investment behaviour is in savers’ interests. That is what the industry is telling us. As I said last Tuesday, the danger of a collective action problem—the problem that saw commitments made by the industry and the previous Conservative Government not delivered—is partly what this reserve power helps to overcome.
I have absolutely heard the points made about the volume of amendments. They are on the record, as will be all the points made during this process. To answer the question directly, the reason there are so many is that we had lots of useful feedback from industry over the summer, and I wanted to provide more clarity through the clause and make sure that we had the best version of it. We did not want to leave it until Report, so people have had a chance to see it as we go through Committee. I absolutely recognise the points made, and the specific point about the drafting choice of a large number of amendments versus an additional clause. I am sure the drafters will have heard that comment.
Amendment 44 agreed to.
Amendments made: 45, in clause 38, page 34, line 32, leave out “Conditions 1 and” and insert “Condition 1 and Condition”.
This amendment makes a minor verbal change to facilitate differential commencement of the scale and asset allocation conditions.
Amendment 46, in clause 38, page 34, line 37, leave out “of that scheme”.—(Torsten Bell.)
This amendment reflects the fact that a main scale default arrangement may be used by multiple schemes.
Torsten Bell
I beg to move amendment 47, in clause 38, page 35, line 1, at end insert—
“(ba) has previously been approved under section 28D (transition pathway relief) and is to be treated in accordance with regulations as if it had approval under section 28A,”.
This amendment allows for relevant Master Trusts that have previously received transition pathway relief to be treated as if they had scale approval.
The Chair
With this it will be convenient to discuss Government amendments 48, 49, 51, 54, 55, 57 to 59, 62, 130 and 132.
Torsten Bell
This group amends sections 20 and 26 of the Pensions Act 2008, which deal with the quality requirements that a master trust and a group personal pension scheme must satisfy. The amendments will improve the operability of the new sections. In particular they will allow, via regulations, relevant master trusts and GPP schemes that have previously received transition pathway relief—the relief that allows schemes that do not reach the £25 billion threshold in 2030, but are on course to do so soon—afterwards to be treated as if they had scale approval on a temporary basis once the pathway ends.
The amendments will also allow the Pensions Regulator to determine that a relevant master trust may be treated as meeting condition 2 of new section 20(1A) of the 2008 Act without a direct application from the master trust concerned. The effect of that is to allow the regulator to delay the impact of not meeting the scale or asset allocation requirements and to enable steps to be taken to protect members and support employers. A similar requirement for GPPs will be inserted into section 26.
Government amendments 130 and 132 amend the provision in the 2008 Act that deals with the parliamentary scrutiny process relevant to regulations made under the Act. These amendments make sure that all significant powers to make regulations as part of the scale and asset allocation measures are subject to the affirmative procedure.
Amendment 47 agreed to.
Amendments made: 48, in clause 38, page 35, line 16, leave out from “determine” to “Master Trust is” in line 17 and insert “that a relevant”
This amendment means the Regulatory Authority can determine that a relevant Master Trust is to be treated as meeting Condition 1 of subsection (1A) without an application from the Trust.
Amendment 49, in clause 38, page 35, line 18, after “1” insert “or Condition 2”
This amendment means that regulations can allow the Regulatory Authority to determine that a relevant Master Trust is to be treated for a period as meeting Condition 2 (the asset allocation requirement) as well as Condition 1 (the scale requirement).
Amendment 50, in clause 38, page 35, line 20, leave out from “Authority” to end of line 21
This amendment removes some unnecessary wording for consistency with the corresponding amendments to section 26 of the 2008 Act.
Amendment 51, in clause 38, page 35, line 28, at end insert—
“(c) make provision about the Regulatory Authority requiring the trustees or managers of a relevant Master Trust to give the Regulatory Authority a plan showing how they propose to meet or continue to meet the scale requirement under section 28A or the conditions for approval under section 28C.”
This paragraph allows regulations to give the Regulatory Authority a power to require the trustees or managers of a relevant Master Trust to give the Regulatory Authority a plan showing how they propose to meet or continue to meet the scale requirement.
Amendment 52, in clause 38, page 35, line 32, leave out “28A(1)” and insert “28A(12)”.—(Torsten Bell.)
This amendment updates a cross-reference.
Torsten Bell
I beg to move amendment 53, in clause 38, page 35, leave out lines 35 and 36.
This amendment is consequential on Amendment 129.
The Chair
With this it will be convenient to discuss Government amendments 61, 106, 116, 125 and 129.
Torsten Bell
The Committee is being very patient so I shall speak briefly to this group. This group is centred around amendment 129, which sets out the interpretation of a number of terms used throughout the clause and consolidates them in new subsection (14). Key among these is the interpretation of “group personal pension scheme”, which is amended after discussion with the Financial Conduct Authority to ensure that only schemes where all members select their investment approach are excluded from the application of clause 38, to ensure that the vast majority of workplace schemes are covered by the clause. The remaining amendments in this group are consequential to amendment 129.
Amendment 53 agreed to.
Amendments made: 54, in clause 38, page 36, leave out line 12 and insert—
“(a) has previously been approved under section 28D (transition pathway relief) and is to be treated in accordance with regulations as if it had approval under section 28B,”
This amendment allows for group personal pension schemes that have previously received transition pathway relief to be treated as if they had scale approval.
Amendment 55, in clause 38, page 36, line 15, leave out “(7C)(a)” and insert “(7A) or (7B)”
This amendment ensures that new subsection (7D) applies both to exemptions from the scale requirement and to exemptions from the asset allocation requirement.
Amendment 56, in clause 38, page 36, line 20, leave out “authorise” and insert “permit”
This amendment ensures consistency with the equivalent language used for Master Trusts.
Amendment 57, in clause 38, page 36, line 20, leave out “, on an application by the scheme concerned,”
This amendment means the Regulatory Authority can determine that a group personal pension scheme is to be treated as meeting the scale or asset allocation requirement without an application from the scheme.
Amendment 58, in clause 38, page 36, line 22, leave out “and sixth conditions” and insert “or sixth condition”
This amendment allows for a determination by the Regulatory Authority under subsection (7E) to be made in relation to one or other of the scale and asset allocation requirements (rather than only in relation to both).
Amendment 59, in clause 38, page 36, line 31, at end insert—
“(c) make provision about the Regulatory Authority requiring the provider of a group personal pension scheme to give the Regulatory Authority a plan showing how they propose to meet or continue to meet the scale requirement under section 28B or the conditions for approval under section 28C.”
This paragraph allows regulations to give the Regulatory Authority a power to require the provider of a group personal pension scheme to give the Regulatory Authority a plan showing how they propose to meet or continue to meet the scale requirement.
Amendment 60, in clause 38, page 36, line 35, leave out “28A(1)” and insert “28B(12)”
This amendment updates a cross-reference.
Amendment 61, in clause 38, page 36, leave out lines 36 and 37
This amendment is consequential on Amendment 129.
Amendment 62, in clause 38, page 37, line 4, at end insert—
“(c) in paragraph (c), at the end insert “, except so far as those requirements relate to Condition 1 or 2 in section 20(1A)””.—(Torsten Bell.)
This amendment ensures that the requirements mentioned in section 28(3)(c) of the Pensions Act 2008, so far as they relate to the new scale and asset requirements, are not a “relevant quality requirement” for the purposes of that section.
Torsten Bell
I beg to move amendment 63, in clause 38, page 37, line 11, after “requirement” insert
“by reference to the main scale default arrangement”
This amendment clarifies how the concept of a main scale default arrangement fits into the approval framework under section 28A.
The Chair
With this it will be convenient to discuss Government amendments 64, 66, 68, 69, 71, 72, 74, 75, 78, 80, 83, 85, 90 and 91.
Torsten Bell
I offer reassurance, as we will shortly come to the end of the amendments for substantive debate.
This group of amendments deals with the main scale default arrangement, along with the scale test and penalties. The MSDA is the pool of investments against which scale will be assessed. As I mentioned, the definition of that is obviously central to the effective enforcement of the scale requirements.
Key among these amendments are Government amendments 72 and 91, which set out some of the details of the MSDA for master trusts and group personal pensions, including that it can be used for the purposes of one or more pension schemes, and that the assets held within it are those of members who have not chosen how they are invested. Regulations will be made that cover other matters, including the meaning of “common investment strategy”. The details we set out in these amendments reflect the invaluable input we received from pension providers and regulatory bodies.
The remaining amendments in the group relating to the MSDA largely clarify how it fits into the wider approval requirements in the new sections 28A and 28B.
Moving on to scale, Government amendments 69 and 85 clarify the circumstances in which assets held by connected master trusts and group personal pension schemes, or where the same provider runs a GPP and master trust, can count towards the scale test. This is to ensure that, where appropriate, assets managed under a common investment strategy where there is a family connection between the master trust and GPP scheme, and where they are used for the same purpose, can be added together to achieve the £25 billion requirement.
Government amendment 71 ensures that the provisions governing penalties are consistent between the TPR and the FCA. Government amendment 90 ensures that regulations can provide for appeals to the tribunal in respect of penalties under regulations under new section 28C(9)(c).
Amendment 63 agreed to.
Mark Garnier
I beg to move amendment 250, in clause 38, page 37, line 12, at end insert
“or
(c) the relevant Master Trust meets the innovation exemption requirement.”
The Chair
With this it will be convenient to discuss the following:
Amendment 251, in clause 38, page 37, line 16, at end insert—
“(3A) A relevant Master Trust meets the innovation exemption requirement if the Trust can demonstrate that it provides specialist or innovative services.
(3B) The Secretary of State may by regulations provide for a definition of ‘specialist or innovative services’ for the purposes of this section.”
Amendment 252, in clause 38, page 39, line 11, at end insert
“or
(c) the relevant GPP meets the innovation exemption requirement.”
Amendment 253, in clause 38, page 39, line 15, at end insert—
“(3A) A relevant GPP meets the innovation exemption requirement if the Trust can demonstrate that it provides specialist or innovative services.
(3B) The Secretary of State may by regulations provide for a definition of ‘specialist or innovative services’ for the purposes of this section.”
Amendments 250, 251, 252 and 253 create an innovation exemption for pension funds that provide specialist or innovative services, as part of the new entrants clause.
Mark Garnier
The Bill sets a minimum asset threshold of £25 billion for workplace pension schemes to operate as megafunds by 2030. This is not, in itself, particularly controversial, and we are all fully aware of the arguments about scale being effective when running pension funds. The requirement is intended to drive consolidation, improve economies of scale and boost investment in UK assets, but there is concern that such a high threshold could disadvantage boutique or niche funds or new entrants into the market that provide specialist services to cater for financially literate members who prefer a more tailored approach to their pension management. For example, Hargreaves Lansdown has highlighted that its £5 billion fund serves members who value investment autonomy and expertise. The risk is that the policy could reduce competition, limit consumer choice and stifle innovation by making it harder for smaller, specialist providers to operate or enter the market
Clause 38 provides little detail of the meaning of the “ability to innovate” and how “strong potential for growth” will be measured, but it is essential that the Bill provides a credible route to support innovation. If we tie the pensions market up by restricting it to a handful of large providers focused on back-book integration and building scale, there will be less space for innovation aimed at pension member engagement. The benefit of the existing market is that its diversity provides choice and creates competition, and competition is an important part of this. Smaller schemes are chosen by employers for specific reasons. If we lose that diversity and essentially create a handful of the same scheme propositions, employers and members will lose out on this benefit.
Realistically, it will be extremely challenging for new entrants to the market to have a chance of building the required scale. Our amendments create an innovation exemption for pension funds that provide specialist or innovative services as part of the new entrants clause. This will allow boutique or niche providers to continue operating if they demonstrate diversity in the market or serve a specific member need, even if they do not meet the £25 billion threshold.
Kirsty Blackman
Amendments 250 to 253, as well as Government amendment 113, which we will discuss later, clarify the word “innovation” and look at how best to define it. There are two different approaches from the Government and the Opposition to what innovation means. I raised the issue of defining innovation on Second Reading, so I am glad that both parties are trying to clarify it here, but I am not entirely happy with the way in which the Government have chosen to do so.
When we come to Government amendment 113, I do not feel that the chosen definition of “innovative products” is necessarily right. There could be a way of working that is innovative not in the product but in the way people access the product. For example, some of the challenger banks that we have had coming up are not necessarily providing innovative products, but they provide innovative ways to access those products, and in some cases, their pitch is that they provide a better interface for people to use. I think there is potentially a niche in the market for innovative services rather than innovative products. Government amendment 113 perhaps ties too much to products, although it depends on what the definition of “products” is.
Obviously regulations will come in behind this that define “innovative”, but I think the pitch made by the Opposition for the addition of “or specialist” is helpful. “Innovative” suggests that it may be something new, whereas there could be specialist services that are not of that size but are specific to certain groups of people who value the service they are receiving, one that is very specific to their circumstances, and who would prefer that operation to keep running and to keep having access to it because of the specialist service that is provided.
I am concerned about Government amendment 113. My views are perhaps closer to the Conservatives’ amendment, but thinking particularly about services rather than the products, and the way in which the services are provided to people and the fact that there could be innovation in that respect. Also, as the hon. Member for Wyre Forest said, there could be particular niche areas that do not need to be that size in order to provide a truly excellent service to perhaps a small group of people. It depends on how the Government define “innovative” and what the regulations may look like this, but I am inclined to support the Conservatives’ amendment.
Torsten Bell
I thank the hon. Member for Wyre Forest for tabling these amendments. We all recognise the importance of innovation in the pension landscape, but I respectfully oppose the inclusion of the amendments in the Bill.
One point that is at risk of being lost from the discussion so far is the central insight that is the motivation for this clause, which is that scale really is important. Scale really does matter. It has the potential to unlock a wide range of benefits, from better governance to lower costs, to access to a wider range of assets. All of those are integral to improving member outcomes, and if we provide many carve-outs, every scheme will say it is a specialist provider that should not be covered because its members value its inherent difference from every other, and we risk undermining the premise that I think has cross-party agreement, which is that we need to move to a regime of bigger schemes.
One of our aims in this Bill, which is relevant to the asset allocation discussion we just had, is to provide clarity that the change will happen, people will not duck and dive around for years attempting to litigate what is and is not a specialist provider and so on. Innovation is really important, as is competition in the market, but we need to do this in a way that does not undermine the purpose of the scale requirements, which I think is a matter of cross-party consensus.
Having said that, while innovation in the market is important, the Government’s view is that it is not an alternative to achieving scale. That is why we have provided for a new market entrants pathway. There, the innovation grants a temporary exemption from scale requirements, not a permanent exemption as the amendments would enable. That is because scale is very important indeed. Applicants to the pathway will be able to enter the market if they can demonstrate they have strong potential to grow to scale, and if they have some kind of innovative design. That is not a permanent exemption from scale requirements, and there should be cross-party consensus on avoiding that.
To provide reassurance on some of the points that have been raised, I emphasise that the scale requirements apply only to providers’ default offers. Providers of specialist offers and the rest, and self-invested personal pensions, are all able to continue to offer those specialist services, but the main offer in the workplace market does need to meet scale requirements. I hope with that explanation, hon. Members will not press the amendments.
Mark Garnier
I am not entirely happy with the Minister’s comments. I am slightly surprised, and I thought he might have listened a bit more carefully. We absolutely understand the economies of scale. A large, £25 billion pension fund can do amazing things. We are 100% behind that. We have not disagreed with that at all. However, I somehow feel myself listening to the Minister and hearing the reverse of the arguments we were making as we tried to allow new-entrant banks into the market after the financial crisis.
Those of a certain age—and the Minister turned 43 the other day, so he will remember the financial crisis—know that the problem was that a few very big banks were spreading the contagion. I remember being on the Treasury Committee and the Parliamentary Commission on Banking Standards after the financial crisis, when we were trying to sort out Labour’s previous mess, and not a single ab initio banking licence had been issued for 100 years. The only way that companies could get into the banking market—as Virgin and Metro were doing—was by buying dormant banking licences. I remember having long conversations—successfully, as it turned out—in order to try to allow companies such as Starling into the market. I think that Starling received the first ab initio banking licence for 100 years.
Having learned over the past 10 or 15 years about the effects of having large scale only, we are now having an argument about potentially stifling the pensions equivalent of companies such as Starling, Metro, Revolut and other innovators coming into the pensions market. I was hoping that from debating the amendments I could be convinced that the Minister would take away the thinking behind what we have come up with: that innovation should be good, and that there should permanently be new, fresh blood coming through. However, I do not think that he has got it. I was not going to push the amendments to a vote, but I now feel motivated to do so.
Kirsty Blackman
I want to make a brief comment about the definition of “specialist”. I appreciate the Minister’s clarification about the default products provided, but there could be a sensible definition of “specialist” that included, for example, that if providers can demonstrate that over 75% of their members engage in the management of their pension fund every year, that would be a very specialist and well-liked service. I understand that the scale is incredibly important. However, if a provider can demonstrate that level of engagement in its pension scheme, because of its innovative product or service, I think it would be sensible to look at the scale requirements, even if that provider does not yet meet them.
The Opposition have kindly left it up to the Minister and the Government to define what “specialist” would be, so I will support the Opposition amendments on that matter. However, when we come to Government amendment 113, I will require some clarification from the Minister about the definition of “products”.
Torsten Bell
I am reassured that our agreement that scale is the desirable outcome is clear. It is great to have that on the record. I also put on the record that there is agreement about the value of innovation and about new entrants. I think that the only distinction is between a new entrant that then grows and a new entrant that does not. Our approach is to allow new entrants, but they need to be ones with a plausible sense that they can get to scale. Inherent to most of the innovation in the market—for example, in collective defined-contribution schemes—is that they would have to operate at scale to be effective. I think that the banking analogy is actually quite apt.
Steve Darling
Would the Minister be kind enough to reflect on a situation currently at play in the market, whereby Phoenix Group is withdrawing the management of billions of pounds from Aberdeen Group? These master products offer opportunities that could significantly impact on viability. Could the Minister reflect on that?
Torsten Bell
Let me just finish the point about the financial crisis, then I will come to the hon. Member’s question. The lesson from the financial crisis was that banks were too big, and the lesson that we all agree about is that pension schemes are too small. That is the distinction—that is why we are doing this Bill now and why the previous Conservative Government introduced different changes after the financial crisis. We are in a very different situation. That said, we need to prepare for the future and, when there are bigger pension schemes, we want a world where new entrants can come into them. I hear what has been said. I want to reassure the hon. Gentleman that we want to see new entrants offering innovative products. I take the point about services, which we will come back to when we come to amendment 113, but that needs to be a pathway, not a permanent carve-out that risks undermining the scale requirements.
Question put, That the amendment be made.
Mark Garnier
On a point of order, Ms McVey. Might it be easier, for brevity, if we vote on amendments 251 to 253 together?
The Chair
The amendments are consequential on amendment 250, so I cannot do that. I will now suspend the sitting while we consider how and whether to meet the hon. Gentleman’s request.
Torsten Bell
I beg to move amendment 70, in clause 38, page 37, leave out lines 39 and 40 and insert—
“(b) what it means for assets of a pension scheme to be managed under a "common investment strategy" (including in particular provision defining that expression by reference to whether or how far the assets relating to each member of the scheme are allocated in the same proportion to the same investments).”
This amendment provides more detail as to how the power to define “common investment strategy” may be used.
Torsten Bell
I will be brief. The link between the definition of a main scale default arrangement and the common investment strategy is key to ensuring that the scale requirements apply to the correct elements of a pension scheme. Amendments 70 and 84 provide more detail on how the power to define a common investment strategy may be used to provide further information on the Government’s meaning when referring to that term.
Amendment 97 removes the “common investment strategy” element from the definition of default funds to avoid confusion with how that term is used in the main scale default arrangement approval in new sections 28A and 28B. I commend the amendments to the Committee.
Amendment 70 agreed to.
Amendments made: 71 in clause 38, page 38, leave out lines 32 to 38 and insert—
“(d) permitting the Authority to impose, on a person who fails to comply with a requirement under paragraph (c), a penalty determined in accordance with the regulations that does not exceed £100,000;”.
This amendment ensures that the penalties language used in section 28A is consistent with that used in new section 28B.
Amendment 72, in clause 38, page 39, leave out lines 1 to 4 and insert—
“(12) In this section ‘main scale default arrangement’ means an arrangement—
(a) that is used for the purposes of one or more pension schemes, and
(b) subject to which assets of any one of those schemes must under the rules of the scheme be held, or may under those rules be held, if the member of the scheme to whom the assets relate does not make a choice as to the arrangement subject to which the assets are to be held.”
This amendment defines “main scale default arrangement” for the purposes of new section 28A.
Amendment 73, in clause 38, page 39, line 7, leave out “relevant”.
This amendment removes an unnecessary tag.
Amendment 74, in clause 38, page 39, line 10, after “requirement” insert—
“by reference to the main scale default arrangement”.
This amendment clarifies how the concept of a main scale default arrangement fits into the approval framework under section 28B.
Amendment 75, in clause 38, page 39, line 12, after “requirement” insert—
“by reference to a main scale default arrangement”.
This amendment clarifies how the concept of a main scale default arrangement fits into the approval framework under section 28B.
Amendment 76, in clause 38, page 39, line 16, leave out “subsection (6)” and insert “subsections (5) and (6)”.
This amendment adds a further cross reference to new section 28B(4).
Amendment 77, in clause 38, page 39, line 17, leave out “held in funds”.
This amendment removes some unnecessary wording for the sake of consistency.
Amendment 78, in clause 38, page 39, line 18, at end insert—
“(ia) are held subject to the main scale default arrangement, and”.
This amendment clarifies how the concept of a main scale default arrangement fits into the approval framework under section 28B.
Amendment 79, in clause 38, page 39, line 20, leave out “held in funds”.
This amendment removes some unnecessary wording for the sake of consistency.
Amendment 80, in clause 38, page 39, line 24, at end insert—
“(ia) are held subject to the main scale default arrangement, and”.
This amendment clarifies how the concept of a main scale default arrangement fits into the approval framework under section 28B.
Amendment 81, in clause 38, page 39, line 27, leave out “held in funds”.
This amendment removes some unnecessary wording for the sake of consistency.
Amendment 82, in clause 38, page 39, line 27, leave out—
“one (and only one) relevant”
and insert “a qualifying relevant”.
This amendment corrects a reference to a relevant Master Trust in new section 28B(4)(c) to take account of new section 28B(8).
Amendment 83, in clause 38, page 39, line 30, at end insert—
“(ia) are held subject to the main scale default arrangement, and”.
This amendment clarifies how the concept of a main scale default arrangement fits into the approval framework under section 28B.
Amendment 84, in clause 38, page 39, leave out lines 38 and 39 and insert—
“(b) what it means for assets of a pension scheme to be managed under a ‘common investment strategy’ (including in particular provision defining that expression by reference to whether or how far the assets relating to each member of the scheme are allocated in the same proportion to the same investments).”
This amendment provides more detail as to how the power to define “common investment strategy” may be used.
Amendment 85, in clause 38, page 40, line 3, leave out from “(4)” to end of line 6 and insert—
“(a) a group personal pension scheme is ‘qualifying’ in relation to the GPP if the provider of the GPP is also the provider of the group personal pension scheme;
(b) a relevant Master Trust is ‘qualifying’ in relation to the GPP if the provider of the GPP is also the scheme funder or the scheme strategist in relation to the relevant Master Trust (within the meaning of Part 1 of the Pension Schemes Act 2017).”
This amendment clarifies the circumstances in which assets held by connected Master Trusts and group personal pension schemes can be counted for the purposes of the application of the scale test to a group personal pension scheme.
Amendment 86, in clause 38, page 40, line 19, leave out “relevant Master Trust or”.
This amendment removes an unnecessary reference to a relevant Master Trust.
Amendment 87, in clause 38, page 40, line 25, leave out—
“managers of the GPP that their”
and insert—
“provider of the GPP that its”.
This amendment replaces a reference to the “managers” of a GPP with “provider” (reflecting normal usage in relation to personal pension schemes).
Amendment 88, in clause 38, page 40, line 27, leave out “the managers” and insert “the provider”.
This amendment replaces a reference to the “managers” of a GPP with “provider” (reflecting normal usage in relation to personal pension schemes).
Amendment 89, in clause 38, page 40, line 35, leave out—
“considered by the Authority to have failed”
and insert “who fails”.
This amendment ensures consistency with the new language in section 28A.
Amendment 90, in clause 38, page 40, line 38, at end insert—
“(e) providing for the making of a reference to the First-tier Tribunal or Upper Tribunal in respect of the issue of a penalty notice or the amount of a penalty.”
This amendment ensures that regulations can make provision for appeals to the Tribunal in respect of penalties under regulations under new section 28C(9)(c).
Amendment 91, in clause 38, page 40, line 42, leave out from beginning to end of line 3 on page 41 and insert—
“(12) In this section ‘main scale default arrangement’ means an arrangement—
(a) that is used for the purposes of one or more pension schemes, and
(b) subject to which assets of any one of those schemes must under the rules of the scheme be held, or may under those rules be held, if the member of the scheme to whom the assets relate does not make a choice as to the arrangement subject to which the assets are to be held.” —(Torsten Bell.)
This amendment defines “main scale default arrangement” for the purposes of new section 28B.
Mark Garnier
I beg to move amendment 248, in clause 38, page 41, line 4, leave out from beginning to end of line 9 on page 43.
This amendment would remove the ability of the Government to set mandatory asset allocation targets for certain pension schemes, specifically requiring investments in UK productive assets such as private equity, private debt, and real estate.
The Chair
With this it will be convenient to discuss the following:
Amendment 275, in clause 38, page 41, line 31, at end insert—
“(5A) A description of asset prescribed under subsection (4) may not be securities in any UK water company.”
This amendment would ensure that the prescribed percentage of asset allocation would not include assets in the water sector and fund trustees will not be compelled to allocate scheme assets to the water sector.
Amendment 249, in clause 38, page 45, line 3, leave out from beginning to end of line 27 on page 46.
This amendment is consequential on Amendment 248.
New clause 4—Establishment of targeted investment vehicles for pension funds—
“(1) The Secretary of State may by regulations make provision for the establishment or facilitation of one or more investment vehicles through which pension schemes may invest for targeted social or economic benefit.
(2) Regulations under subsection (1) must specify the descriptions of targeted social or economic benefit to which the investment vehicles are to contribute, which may include, but are not limited to, investment in—
(a) projects that revitalise high street areas;
(b) initiatives demonstrating social benefit;
(c) affordable or social housing development.
(3) The regulations must make provision for—
(a) the types of pension schemes eligible to participate in such investment vehicles;
(b) the governance, oversight, and reporting requirements for the investment vehicles and participating pension schemes;
(c) the means by which the contribution of such investments to targeted social or economic benefit is measured and reported;
(d) the roles and responsibilities of statutory bodies, including the Pensions Regulator and the Financial Conduct Authority, in authorising, regulating, or supervising such investment vehicles and the participation of pension schemes within them.
(4) The regulations may—
(a) make different provision for different descriptions of pension schemes, investment vehicles, or targeted social or economic benefits;
(b) provide for the pooling of assets from multiple pension schemes within such vehicles;
(c) require pension scheme trustees or managers to have regard to the availability and suitability of investment vehicles when formulating investment strategies, where consistent with—
(i) their fiduciary duties, and
(ii) the long-term value for money for members.
(5) In this Chapter, ‘pension scheme’ has the same meaning as in section 1(5) of the Pension Schemes Act 1993.”
This new clause would allow the Secretary of State to establish investment funds to encourage investment in areas such as high streets, social housing and investments with clear social benefits.
Mark Garnier
Amendments 248 and 249 talk about removing mandation—something I spoke about when we debated clause 38, so I will not cover those amendments other than to say that it is something we feel strongly about. Amendment 275 concerns mandation with regard to the water industry. It comes as a result of an announcement from the leader of Reform about potentially using pension fund money to invest in Thames Water, and part of Reform’s manifesto talked about nationalising the water industry, but using pension fund money to own 50% of those holdings. To a certain extent, that is performative because we are talking about a specific sector. This amendment specifically talks about the water companies, but it could be carried forward to any other potentially nationalised sector.
John Milne
I will speak to new clause 4 on targeted investment vehicles. Its purpose is to empower the Secretary of State to establish or facilitate targeted investment vehicles for pension funds. Overall, the pensions industry is supportive of the Bill, as are the Liberal Democrats, but some sections have expressed concern that a requirement to invest in UK infrastructure and assets could lead to excess demand for a limited stock of investment, especially in the early days when the economy is adjusting. In a worst-case scenario, it could lead to overpaying for investments or difficulty in reaching Government targets. Government assistance to ensure a healthy flow of investment vehicles would therefore serve to prevent that from happening.
Furthermore, there is a unique opportunity to create vehicles that would allow schemes to invest in projects with clear social and economic benefits. It could include many different types of investments. For example, the Government could support the development of investment vehicles designed to revitalise high streets and local communities, provide affordable and social housing development, provide care home accommodation or support other projects that deliver long-term value while strengthening society.
The new clause sets out regulations that would set clear rules on which schemes can participate. Different provision could be made for different schemes and types of investment vehicles. The Pensions Regulator and the Financial Conduct Authority would be given defined responsibilities in authorising, supervising and regulating these vehicles. To be clear, trustees would only be expected to consider the investments where consistent with their fiduciary duties and long-term value for money for members. Pension funds are among the largest sources of long-term capital in the UK, so harnessing even a small proportion for socially beneficial investment could deliver real economic and community impact. Pooling of assets would also facilitate open access for smaller schemes. Done properly, that could align members’ retirement interests with a wider public good.
To summarise, the new clause is designed to ensure a constant supply of suitable investment vehicles so that pension funds can invest at scale in areas that are currently not receiving sufficient attention. At the same time, it would create a framework where pensions could be a force for social renewal and financial security. The clause ensures opportunities with safeguards in place for schemes to contribute to national priorities, while still securing value for members.
Kirsty Blackman
Although I am delighted by the intention of the hon. Member for Wyre Forest to get one over Reform with amendment 275, and I am quite happy to back that notion, I am also pretty happy with nationalised water in Scotland. Scottish Water is significantly better performing than the other water companies, so I would not automatically say that nationalised water is a bad thing, given that our water is lovely in Scotland. However, we could do with a little more rain on the north-east coast, given that we have had the driest spring and summer for 40 years, which is not ideal. I gently disagree with the hon. Member because the amendment does not take into account the Scottish context. I would love to see more investment in Scottish Water from pension funds or from Government-led investment vehicles or decision making.
On amendments 248 and 249, I am much more relaxed about mandation than the Conservatives are, as Members might expect given my ideological position. I have much less of an issue with going in that direction. I have heard all the Government have said about not planning to use those powers. It is reasonable for the Government to direct the economy in certain directions—that is what tax and Government spend are for. A good chunk of that is about ensuring that we make interventions so that the economy grows in the way that we want it to.
In many cases, Governments have historically refrained from picking winners when a decision to do so could have grown the economy faster. For example, historically, the Government could have given more backing to certain ports to ensure that they could grow, particularly through renewable energy or by building offshore wind farms, because we could do with more local capacity throughout the UK. Had Governments of all colours been clearer about which areas and regions they were backing, that understanding could have enabled those areas to win more contracts.
On new clause 4, the options for how mandation could work and the investment vehicles that are in place, I have talked about affordable and social housing development. The biggest thing the Government could do to encourage social housing, in particular, is to cancel the right to buy, which would allow local authorities to build significant levels of social housing. That is how we are managing to increase our housing stock in Scotland. We are not there yet—nobody says that we are—but we are able to build new social housing in Scotland at a scale that most local authorities south of the border are not, because cancelling the right to buy has made it affordable. I would love to see more investment in social housing.
I would have liked renewable energy to be included in the Lib Dems’ new clause 4. I appreciate that we cannot include everything, but it would have been nice, particularly when it comes to smaller renewable energy projects and in combined heat and power initiatives. Large-scale CHP makes a really positive difference in Aberdeen city. We have a large combined heat and power network, which heats a significant number of our multi-storey blocks at far lower prices. They are still seeing an increase in prices, absolutely, but they do not need to worry about putting money in the meter, because they know they will have hot water and heating for a fixed monthly fee, rather than paying more in winter and less in summer.
Lastly, harking back to the Future Generations Commissioner for Wales, it would be interesting for the Government to consider whether any potential mandation benefits future generations, given the intergenerational gap and given that people my age and younger are increasingly of the view that we will never get a state pension, because it will simply not exist by the time we reach retirement age—I am sorry if not everybody is at that level of cynicism, but most people my age and younger are. Looking at where our private pensions are invested and at the Government’s direction of travel, it would at least be an interesting thought exercise, in advance of any Government decision on mandation, to consider whether that money would benefit future generations or make things worse for them. In Wales, decisions can be called in for judicial review, should a public authority act against the wellbeing of future generations.
Looking at whether investments that could be directed by the Government would benefit or have a detrimental impact on future generations would be an interesting way to tie the Government’s hands. That way, we could see investment not simply in massive motorways, High Speed 2 or dual carriageways, but in things that have a demonstrable benefit, or at least no adverse impact, on the wellbeing of future generations. Surely that should be a positive thing for us all, given our huge responsibilities for the future of the planet and to those who will be living on these islands. Requiring that to be considered when the Government look at mandation could be a great way to do it.
I am not sure what I will do when we come to new clause 4—it will be voted on at the very end because it is a new clause. I like the idea, but I am not convinced that I would go down that exact route. I will not be supporting the Conservative amendments in this group, which I understand the shadow Minister is terribly shocked about, but there are places where we can have significant ideological disagreements, and this is definitely one of them.
Mr Bedford
I refer the Committee to my entry in the Register of Members’ Financial Interests, having worked in the water sector before being elected to Parliament. I will be speaking predominantly to amendment 248. The Committee heard evidence from industry experts who expressed concerns about the Bill’s mandation power. They were consistent and clear in raising concerns about the reserve powers in the Bill. I would like to reiterate some of those concerns raised by the industry, which I believe hon. Members should support today.
At the heart of clause 38 is its impact on the fiduciary duty of trustees—not just a mere technicality, but a duty that has been at the heart of trust-based governance for centuries. Trustees have a legal duty to act solely in the best interests of their members. However, the Government believe it is acceptable to tear up that duty through a ministerial power grab. If the Bill is passed in its current form, Ministers will have the power to override the judgment of trustees, which I do not believe is appropriate. That is not to guide or support, but to mandate them—to potentially force them to act against what are arguably the best interests and returns for their members.
That leads me to the potential impact on pensions adequacy in the UK. We are facing a pensions adequacy crisis, as I and other members of this Committee have said before. The majority of people are not saving anywhere near enough for retirement, and the cost to the state pension will only continue to rise, yet we have seen that the Government are willing to take investment decisions out of the hands of pension fund trustees.
David Pinto-Duschinsky (Hendon) (Lab)
As the Minister has previously said, there will be a savers’ interest test. There will be a series of safeguards, including the fact that if the Government want to exercise the power, they will have to file a report. This is a power ringfenced with safeguards. What Opposition Members have not said is what they would do instead to raise the returns of the pension market, because that is the issue. The hon. Member for Mid Leicestershire is exactly right that there is not enough pension saving, but that is exactly because we are not seeing those returns. If not this power, what would the Opposition do instead to raise investment levels?
Mr Bedford
I will come on to some of those points later, so I will address them then.
Mark Garnier
This is rather strange, because I wanted to intervene on the intervention, but I hope that my hon. Friend will come on to the various other things that we have proposed. For example, we have proposed looking at the Maxwell rules, which are driving the incentive of pension fund trustees to invest in gilts because of the implications of volatile markets for balance sheets. We are trying to look at the wider regulation that is driving certain behaviour, and I hope that my hon. Friend will raise that in due course. We are 100% behind the Bill—not every single part of it, although the thrust is very good—but, as my hon. Friend will mention, there are areas that could be changed to achieve its aims.
Mr Bedford
I hope to address some of those points.
The Government are willing to take investment decisions out of the hands of pension fund trustees to force investments into projects that may be politically convenient for them, but may potentially lead to financial loss for members. They are directing investment on the backs of ordinary UK savers. When people save into a pension scheme, they are entrusting their future security to a system that is working supposedly for them and not for political gain. To answer the point made by the hon. Member for Hendon, rather than coercing trustees to follow conditions set by Ministers, would it not be better to create the right economic conditions to make trustees want to invest in the UK?
The last Conservative Government, through their Mansion House reforms and the work of my right hon. Friend the Member for Godalming and Ash, brought in active commitment from the pension fund trustees who want to invest. We did not need to mandate that, and the Government should learn from that approach. Amendment 248 will preserve the fiduciary duty, but continue the trajectory to increase pension fund investment in the UK.
John Grady (Glasgow East) (Lab)
Would the hon. Member accept that pension trustees should, in accordance with their fiduciary duties, actively consider investing in such things as private equity, private patient capital and interests in land? The fact that so many people have agreed, under the Mansion House arrangements, to invest in such classes of assets, which have grown exponentially in scope over the last 25 years, makes the basic point that they will yield much better returns for my constituents. The thrust is simply to get better returns for pension savers in the United Kingdom.
Mr Bedford
I trust the pensions industry to make those judgments because they are the experts in this area, not Government Ministers, who often have short-term views. On Second Reading, one of my hon. Friends raised the example of HS2 and how Government priorities and policies can change over time. Would the hon. Member be happy for his constituents to have their money invested in a Government project or a large infrastructure scheme that is then scrapped, and to see huge losses to their pension scheme? I have huge concerns about the mandation point.
Clause 38, in its current form, undermines the trust that I mentioned earlier. I therefore urge hon. Members to back our amendment to ensure that the fiduciary duty remains and that we protect the security of millions of savers.
Kirsty Blackman
I corrected the Minister the other day on the definition of fiduciary duty, and the hon. Member for Mid Leicestershire just made a similar error. The fiduciary duty is not to act in the best interests of scheme members but to act in the best interests of getting them the pensions they were promised, or of growing their pensions. It is not necessarily about their best interests; it is about the best interests of their pension and the size of it.
We spoke about this quite a lot in relation to the local government pension scheme. There could be investments that make a person’s life significantly better than having an extra fiver a year in their pension. These are two different things. I appreciate that fiduciary duties should be what they are—I am not arguing with that; I am saying that the definition is not about acting in the best interests of scheme members but simply about growing their pension pots.
In terms of the two Lib Dem amendments and the points made about the investability of projects, we could argue about chickens and eggs and what will come first: will it be the economy growing in order that pension funds can find more investable projects, or will it be a pipeline of projects ready for funds to invest in, which is what the witnesses giving evidence last Tuesday suggested they need? If the Government are clear, not necessarily that they will include mandation but that there is a stick at the end of the process if the carrots do not work, confidence in that pipeline will grow in order for those projects to be there. I would love those projects to include what the Liberal Democrats are suggesting—housing and regeneration of town centres, for example—as well as investment in renewable energy and an increase in energy efficiency measures.
John Milne
Renewable energy schemes—particularly community energy, which I am a big fan of—are a very good addition, so we would support that.
Torsten Bell
I shall speak briefly because I am conscious that we need to adjourn shortly for Treasury orals, which I know everybody will be joining us for. I will not rehearse the arguments I have already set out against the purpose of amendments 248 and 249, other than to note that I do not agree with the characterisation by the hon. Member for Mid Leicestershire.
Amendment 275 seeks to prevent the Government from designating securities in UK water companies as qualifying assets for the purpose of the asset allocation requirement. I recognise the points that the hon. Member for Wyre Forest made, and I am not surprised to hear that Reform has not thought through its policies in this regard. The Government have set out the safeguards we have put in place around the use of this power. We do not think we should single out a particular sector in primary legislation, so I ask Members not to press their amendments.
I thank the hon. Member for Horsham for introducing new clause 4. The investment he references is exactly the kind that we think would raise financial returns and improve quality of life at retirement. That is the purpose of these changes. He rightly raises the bringing together of the demand side—that is, the Mansion House accord and the change in investment behaviours—with the supply side. That is exactly what the Government are doing via planning permissions and everything else, to ensure that the pipeline of projects is there, including via the British Growth Partnership work, which is intermediating all of that. On that basis, we think that the new clause is unnecessary, but I completely agree with much that it contains.
Steve Darling
Reflecting on events over the weekend, may I congratulate the Minister on being one of the few who remained in post? There is talk of the Prime Minister using all levers of power to drive forward work on certain wicked issues. One of the big wicked issues is the lack of affordable housing. In my constituency of Torbay, only 8% of our housing stock is social-rented, compared with a national average of 17%. I encourage the Minister to reflect again on this and take the opportunity of new clause 4—surely socialists should vote for clause 4. This is another opportunity to apply all the pressure we can to drive more social-rented housing, to support our communities and those most in need in society.
Torsten Bell
I just point out that many of the measures in the Bill will support exactly that kind of investment in social housing, including those on scale and the local government pension scheme. On that basis, I think these amendments are unnecessary.
Ordered, That the debate be now adjourned.—(Taiwo Owatemi.)
Pension Schemes Bill
Wednesday 3rd December 2025
(3 weeks, 1 day ago)
Commons ChamberPension Schemes Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 3 December 2025 - large print - (3 Dec 2025)
17:11 - The House divided: - Ayes: 87 / Noes: 299 - Question accordingly negatived.
17:24 - The House divided: - Ayes: 77 / Noes: 298 - Question accordingly negatived.
17:36 - The House divided: - Ayes: 143 / Noes: 304 - Question accordingly negatived.
17:38 - The House divided: - Ayes: 154 / Noes: 303 - Question accordingly negatived.
The Parliamentary Under-Secretary of State for Work and Pensions (Torsten Bell)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Caroline Nokes)
With this it will be convenient to discuss the following:
Government new clause 31—Indexation of periodic compensation for pre-1997 service: Great Britain.
Government new clause 32—Indexation of periodic compensation for pre-1997 service: Northern Ireland.
Government new clause 33—Financial Assistance Scheme: indexation of payments for pre-1997 service.
Government new clause 34—Exemption from public procurement rules.
Government new clause 35—Funding of the Board of the Pension Protection Fund.
New clause 1—Independent review into pension losses incurred by former employees of AEA Technology—
“(1) The Secretary of State must, within three months of the passing of this Act, commission an independent review into the pension losses incurred by former employees of AEA Technology who—
(a) transferred their accrued pension benefits out of the UK Atomic Energy Authority (UKAEA) public service scheme to AEA Technology (AEAT) on privatisation in 1996, and
(b) suffered financial losses when AEA Technology went into administration in 2012 and the pension scheme entered the Pension Protection Fund (PPF).
(2) The review must examine—
(a) the extent and causes of pension losses incurred by affected individuals,
(b) the role of Government policy and representations in the transfer of pensions during the privatisation of AEA Technology,
(c) the findings of the Public Accounts Committee and the Work and Pensions Select Committee,
(d) the adequacy of safeguards provided at the time of privatisation,
(e) potential mechanisms for redress or compensation, and
(f) the estimated financial cost of any such mechanisms.
(3) The review must be—
(a) conducted by an independent panel appointed by the Secretary of State, with relevant expertise in pensions, public policy, and administrative justice, and
(b) transparent and consultative, including engagement with affected pensioners and their representatives.
(4) The panel must report its findings and recommendations to the Secretary of State and lay a copy of its final report before Parliament within 12 months of its establishment.
(5) The Secretary of State must, within 6 months of the publication of the report under subsection (4), lay before both Houses of Parliament a statement setting out the Secretary of State’s response to that outcome.”
This new clause would require the Secretary of State to commission an independent review into the pension losses incurred by former employees of AEA Technology.
New clause 2—Transfer of British Coal Staff Superannuation Scheme investment reserve to members—
“(1) Within 3 months of the passing of this Act, the Secretary of State must by regulations make provision for the transfer of the British Coal Staff Superannuation Scheme investment reserve to members of the scheme.
(2) Those regulations must include—
(a) a timetable for transferring the total of the investment reserve to members of the scheme, and
(b) plans for commissioning an independent review into how future surplus will be shared.
(3) 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.”
This new clause would require the Secretary of State to set out in regulations a timetable for transferring the whole of the BCSSS investment reserve to members and committing to review how future surplus will be shared.
New clause 3—Terminal illness: means of demonstrating eligibility—
“(1) The Secretary of State must by regulations make provision about how a person may demonstrate that they are terminally ill for purposes relating to compensation or assistance from the Pension Protection Fund or Financial Assistance Scheme.
(2) In making regulations under this section, the Secretary of State must seek to minimise the administrative burden placed upon the person with a terminal illness.
(3) Regulations under this section must provide that, where the Department of Work and Pensions (“the Department”) holds a valid SR1 form in respect of a person seeking to demonstrate that they are terminally ill for purposes relating to compensation or assistance from the Pension Protection Fund or Financial Assistance Scheme, the Department must share that form with the Pension Protection Fund or the Financial Assistance Scheme.
(4) Regulations under this section must require the Pension Protection Fund and the Financial Assistance Scheme to make the appropriate payment or payments within a specified time of receipt of a valid application.”
This new clause would require the Secretary of State to provide, by regulations, for the use of a valid SR1 form to make it easier for a person to demonstrate that they are terminally ill for purposes related to compensation from the PPF or FAS.
New clause 4—Review into investment in defence companies—
“(1) The Secretary of State must, within six months of the passing of this Act, carry out a review into investment in defence companies within Local Government Pension Schemes.
(2) The review must consider how the investment in defence companies—
(a) impacts on, and
(b) aligns with,
the UK Government’s international obligations.
(3) The Secretary of State must prepare a report of the review and lay a copy of that report before Parliament.”
This new clause would require the Secretary of State to conduct a review into investment in defence companies within Local Government Pension Schemes and how that impacts and aligns with Government international obligations.
New clause 5—Review into defined benefit schemes’ social impact—
“(1) The Secretary of State must, within 12 months of the passing of this Act, carry out a review into the social impact of defined benefit schemes.
(2) The review must include an assessment of—
(a) the efficacy of investment strategies in delivering social good, and
(b) the potential impact of increasing investment in—
(i) social housing, and
(ii) green technology.
(3) For the purposes of this section—
“social good” means something which benefits society as a whole, and
“green technology” means the use of technology and science to create environmentally-friendly products and services.
(4) The Secretary of State must prepare a report of the review and lay a copy of that report before Parliament.”
This new clause would require the Secretary of State to review the efficacy of investment in terms of delivering social good and the benefits of directing more investment towards social housing and green technology.
New clause 6—Indexation of pre-1997 service—
“(1) The Secretary of State must by regulations make provision for indexation on compensation in respect of pre-1997 rights for members of the Pension Protection Fund and the Financial Assistance Scheme.
(2) Those regulations must specify that—
(a) pension payments from the PPF and FAS are increased each year in line with Consumer Prices Index (CPI) inflation for pensionable service before and after 6 April 1997,
(b) where a PPF or FAS member has pensionable service prior to 6 April 1997 which has not increased each year in line with CPI inflation, but which their scheme provided for, the scheme manager must—
(i) determine the annual increase attributable to that service for each year since the date on which the annual payment was first payable, and
(ii) reimburse the member for the amount determined under paragraph (b)(i), and
(c) increased payments must also apply to transferee members, to ill health payments and to payments to surviving dependants.
(3) Regulations under this section—
(a) shall be made by statutory instrument, and
(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”
This new clause would require the Secretary of State to provide, through regulations, for indexation on PPF and FAS compensation in respect of pre-1997 rights.
New clause 7—Report on indexation of pre-1997 Pension Protection Fund and Financial Assistance Scheme benefits—
“(1) The Secretary of State must, within 12 months of the passing of this Act, publish a report on options for providing indexation to pension rights relating to pre-1997 service in the Pension Protection Fund (PPF) and the Financial Assistance Scheme (FAS).
(2) The report must consider—
(a) the current absence of indexation on pre-1997 accrued rights and the financial impact on affected pensioners;
(b) the number of pensioners affected and the mortality rates since the establishment of FAS and PPF, including evidence from the Pensions Action Group;
(c) the feasibility of introducing indexation, in full or in part, for pre-1997 rights;
(d) the potential use of scheme reserves, including residual funds from failed schemes transferred into the FAS, and the implications for taxpayers;
(e) the urgency of reform given the age profile of affected members and the social impact of frozen incomes;
(f) alternative funding mechanisms that could deliver indexation without undermining the sustainability of the PPF; and
(g) comparative approaches to legacy benefit indexation in other jurisdictions.
(3) In preparing the report, the Secretary of State must consult—
(a) the Pensions Regulator,
(b) the Pension Protection Fund,
(c) representatives of Financial Assistance Scheme members,
(d) the Pensions Action Group, and
(e) such other stakeholders as the Secretary of State considers appropriate.
(4) The Secretary of State must lay a copy of the report before both Houses of Parliament.”
This new clause would require the Secretary of State to publish a report examining options for addressing the lack of indexation on pre-1997 pensionable service in the PPF and FAS, with particular regard to evidence provided by the Pensions Action Group, mortality data, scheme reserves, and the urgency of the issue.
New clause 8—Universal Pension Advice Entitlement—
“(1) The Secretary of State must by regulations establish a system to ensure that every individual has a right to receive free, impartial pension advice at prescribed times.
(2) Regulations under subsection (1) must provide for individuals to be offered advice—
(a) at or around the age of 40; and
(b) at a prescribed age, not more than six years before the individual's expected retirement age.
(3) The regulations must make provision about—
(a) the content and scope of the free, impartial pension advice, which may include, but is not limited to, guidance on—
(i) pension types (including both defined contribution and defined benefit schemes),
(ii) investment strategies,
(iii) charges,
(iv) consolidation of pension pots, and
(v) retirement income options;
(b) the qualifications, independence, and impartiality requirements for any person or body providing advice;
(c) the means by which individuals are notified of their entitlement to receive the advice and how they may access it;
(d) the roles and responsibilities of pension scheme trustees, managers, and providers in facilitating access to advice;
(e) the sharing member information with prescribed persons or bodies subject to appropriate data protection safeguards.
(4) Regulations under this section may—
(a) make different provision for different descriptions of pension schemes or different descriptions of individuals;
(b) confer functions in connection with the provision or oversight of the advice on—
(i) the Pensions Regulator,
(ii) the Financial Conduct Authority,
(iii) the Money and Pensions Service, or
(iv) other prescribed bodies;
(c) require the provision of funding for the advice service from prescribed sources.
(5) 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.”
This new clause makes provision by regulations for everyone to receive free, impartial pension advice at age 40 and again around five years before their expected retirement.
New clause 10—Independent review of forfeiture of survivor pensions in police pension schemes—
“(1) The Secretary of State must commission an independent review into the impact and fairness of provisions within police pension schemes that result in the forfeiture, reduction, or suspension of survivor pensions on the grounds of—
(a) remarriage or entry into a civil partnership by the surviving partner of a deceased scheme member; or
(b) cohabitation with another person as if married or in a civil partnership.
(2) The review must examine—
(a) the legal and policy basis for such provisions;
(b) the financial, social, and emotional impact on affected individuals and families;
(c) consistency with other public sector pension schemes, including schemes for—
(i) the Armed Forces,
(ii) the NHS, and
(iii) the civil service;
(d) potential options for reform, including retrospective reinstatement of pensions;
(e) any other matters the Secretary of State considers relevant.
(3) The Secretary of State must—
(a) appoint an independent person or panel with relevant legal, pensions, and public policy expertise to conduct the review; and
(b) publish the terms of reference no later than three months after this Act is passed.
(4) The person or panel appointed under subsection (3) must—
(a) consult with relevant stakeholders, including—
(i) the National Association of Retired Police Officers (NARPO),
(ii) survivor pension recipients,
(iii) police staff associations, and
(iv) pensions experts;
(b) consider written and oral evidence submitted by affected individuals; and
(c) publish a report of its findings and recommendations within 12 months of appointment.”
This new clause would require the Secretary of State to commission an independent review into the impact and fairness of provisions within police pension schemes that result in the forfeiture, reduction, or suspension of survivor pensions.
New clause 11—Independent review into state deduction in defined benefit pension schemes—
“(1) The Secretary of State must, within three months of the passing of this Act, commission an independent review into the application and impact of state deduction mechanisms in occupational defined benefit pension schemes.
(2) The review must consider—
(a) the origin, rationale and implementation of state deduction in the Midland Bank Staff Pension Scheme,
(b) the clarity and adequacy of member communications regarding state deduction from inception to present,
(c) the differential impact of state deduction on pensioners with varying salary histories, including an assessment of any disproportionate effects on—
(i) lower-paid staff, and
(ii) women,
(d) comparisons with other occupational pension schemes in the banking and public sectors, and
(e) the legal, administrative, and financial feasibility of modifying or removing state deduction provisions, including potential mechanisms for redress.
(3) The Secretary of State must ensure that the person or body appointed to conduct the review—
(a) is independent of HSBC Bank plc and its associated pension schemes;
(b) possesses relevant expertise in pensions law, occupational pension scheme administration, and equality and fairness in retirement income; and
(c) undertakes appropriate consultation with—
(i) affected scheme members,
(ii) employee representatives,
(iii) pension experts, and
(iv) stakeholder organisations.
(4) The person or body conducting the review must—
(a) submit a report on its findings to the Secretary of State within 12 months of the date the review is commissioned; and
(b) the Secretary of State must lay a copy of the report before Parliament and publish the report in full.
(5) Within three months of laying the report before Parliament, the Secretary of State must publish a written response setting out the Government’s proposed actions, if any, in response to the report’s findings and recommendations.
(6) For the purposes of this section—
“state deduction” means any provision within a defined benefit occupational pension scheme that reduces pension entitlements by reference to the member reaching state pension age or by reference to any state pension entitlement;
“defined benefit pension scheme” has the meaning given in section 181 of the Pension Schemes Act 1993;
“Midland Bank Staff Pension Scheme” includes all associated legacy arrangements and any successor schemes administered by HSBC Bank Pension Trust (UK) Ltd.”
This new clause would require the Secretary of State to commission an independent review into clawback provisions in occupational defined benefit pension schemes, in particular, the Midland Bank staff pension scheme.
New clause 12—Section 40 commencement—
“(1) The provisions in section 40 shall not come into force except in accordance with regulations made by the Secretary of State.
(2) A statutory instrument containing regulations under subsection (1) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”
This new clause would require that the provisions in clause 40 could only be enacted once agreed through secondary legislation.
New clause 13—Targeted Advice Access for Under-Saving Cohorts—
“(1) The Secretary of State must make regulations to provide enhanced access to pension advice or guidance for cohorts identified as under-saving for retirement.
(2) Regulations may make provision for—
(a) identifying under-saving groups, including but not limited to—
(i) women,
(ii) ethnic minority groups, and
(iii) others affected by long-term pay or pension gaps;
(b) mechanisms to fund and deliver targeted support;
(c) reporting and evaluation requirements to assess take-up and effectiveness.
(3) 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.”
This new clause allows for the creation of targeted pension advice or guidance interventions for groups at risk of under-saving for retirement.
New clause 14—Cap on cost of advice for pension holders—
“(1) The Secretary of State may by regulations introduce a cap on the cost recoverable for providing pension advice per pension holder under any scheme operating free or subsidised advice.
(2) The cap may vary depending on—
(a) the value of the pension pot;
(b) the type of pension scheme;
(c) the complexity of advice required.
(3) 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.”
This new clause enables the introduction of a cost ceiling for advice provision to members of pension schemes.
New clause 15—Independent review into the British Coal Staff Superannuation Scheme—
“(1) The Secretary of State must, within three months of the passing of this Act, commission an independent review into the treatment of members of the British Coal Staff Superannuation Scheme (BCSSS).
(2) The review must consider—
(a) the origin and operation of the Government’s surplus-sharing arrangements with the BCSSS since 1994,
(b) the adequacy of communication to scheme members regarding the use of surpluses,
(c) the impact of the Government’s retention of scheme reserves on members’ retirement income,
(d) representations made by the Trustees of the BCSSS calling for reserves to be released to members, and
(e) options for reforming how any future surpluses in the BCSSS are shared between the Government and scheme members.
(3) The person or body appointed to conduct the review must—
(a) be independent of the Government and the BCSSS Trustees,
(b) possess relevant expertise in pensions law and scheme administration, and
(c) consult with affected members, Trustees, pension experts, and stakeholder organisations.
(4) The review must report to the Secretary of State within 12 months of being commissioned, and the Secretary of State must lay the report before Parliament and publish it in full.
(5) Within three months of publication, the Secretary of State must publish the Government’s response to the review’s findings.”
This new clause would require the Secretary of State to commission an independent review into the treatment of members of the British Coal Staff Superannuation Scheme, including the handling of scheme reserves and future surplus-sharing arrangements.
New clause 16—Report on Pension Scheme Eligibility and Access—
“(1) The Secretary of State shall, within 12 months of the passing of this Act, lay before Parliament a report into the operation of occupational pension schemes where certain categories of employees have been excluded on the basis of job classification or employment start date.
(2) The report must examine the case of employees and former employees of Fife Joinery Manufacturing (a subsidiary of Velux), including—
(a) whether affected workers were provided with opportunity to join existing pension schemes,
(b) the adequacy of record-keeping and employer accountability, and
(c) potential remedies to ensure equal access to workplace pensions.”
This new clause would require the Secretary of State to report on the Velux Pensions case.
New clause 17—Clarification of pension scheme investment duties—
“(1) The Pensions Act 1995 is amended as follows.
(2) In section 36 (Choosing investments), after subsection (9), insert—
“(10) Regulations under subsection (1) must provide—
(a) that when interpreting the best interest or sole interests of members and beneficiaries for the purposes of this section and the regulations, the trustees of a trust scheme may (amongst other matters) take the following into account—
(i) system-level considerations,
(ii) the reasonably foreseeable impacts over the appropriate time horizon of the assets or organisations in which the trust scheme invests upon prescribed matters, including upon members’ and beneficiaries’ standards of living, and
(iii) the views of members and beneficiaries;
(b) that investment powers or discretions must be exercised in a manner that considers and manages the matters specified in subsection (10)(a)(i) and (ii) where they are financially material; and
(c) a prescribed definition of the term “appropriate time horizon” for these purposes.
(11) For the purposes of this section, “system-level considerations” means, over the appropriate time horizon, risks and opportunities relevant to the scheme that—
(a) cannot be fully managed through diversification alone, and
(b) arise from circumstances at the level of one or more economic sectors, financial markets or economies, including but not limited to those relating to environmental or social matters.
(12) Regulations under subsection (1) must come into force no more than one year after the passing of the Pension Schemes Act 2025.
(13) In complying with requirements imposed by this section and regulations, a trustee or manager must have regard to guidance prepared from time to time by the Secretary of State.”
(3) The Financial Conduct Authority must make general rules with effects corresponding to the provisions of subsection (1) for providers of pension schemes to which Part 7A of the Financial Services and Markets Act 2000 (inserted by section 48 of this Act) applies.
(4) The Secretary of State must make regulations with effects corresponding to the provisions of subsection (1) for scheme managers of the Local Government Pension Scheme.
(5) The rules and regulations under subsections (3) and (4) must come into force no later than the date on which regulations pursuant to section 36(10) of the Pensions Act 1995 (as amended by this Act) come into force.”
This new clause gives the Secretary of State a duty to make regulations clarifying investment duties of occupational pension schemes, including system-level considerations and other matters including impacts of investee firms, beneficiaries’ standards of living and views. It also imposes duties on the FCA and the Secretary of State to make corresponding rules and regulations for workplace personal pension schemes and the Local Government Pension Scheme respectively.
New clause 18—Report on indexation of pre-1997 benefits—
“(1) The Secretary of State must, within 6 months of the passing of this Act, publish a report on whether the Pension Protection Fund and the Financial Assistance Scheme should provide indexation on compensation in respect of pre-1997 rights, where pension schemes provided for that.
(2) The report must consider—
(a) the potential benefits for affected pensioners;
(b) approaches of occupational pension schemes to indexation of pre-1997 benefits;
(c) the impact on compensation schemes’ surpluses and on public finances;
(d) international approaches to indexation of legacy pension benefits.
(3) The Secretary of State must lay a copy of the report before both Houses of Parliament.”
This new clause requires the Secretary of State to report on whether the PPF and FAS should provide indexation on compensation in respect of pre-1997 rights, where scheme rules provided for that.
New clause 19—Fossil fuels and climate change risk—
“(1) The Pensions Act 1995 is amended as follows.
(2) In section 41A (Climate change risk), after subsection (6) insert—
“(6A) Regulations under subsection (1) must, within 1 year of the Pension Schemes Act 2025 receiving Royal Assent, prohibit the trustees or managers of schemes of a prescribed description from holding relevant assets.
(6B) The relevant assets in subsection (6A) are issuance by issuers which, in relation to thermal coal—
(a) derive 10% or more of annual revenue from its production, transport or combustion,
(b) produce annually 10 million tonnes or more, or
(c) have 5GW or more of power generation capacity.
(6C) Within 2 years of the Pensions Act 2025 receiving Royal Assent, and every 3 years thereafter, the Secretary of State must carry out and publish a review on whether the definition of relevant assets should be extended to include—
(a) issuance by issuers which, in relation to thermal coal, derive a smaller proportion of revenue, produce a smaller amount or have a smaller amount of power generation capacity than the proportion and amounts specified in (6B),
(b) some or all new issuance by issuers of a prescribed description deriving a prescribed proportion or amount of their revenue from the extraction, transport, trading or combustion of prescribed fossil fuels, or
(c) some or all new or existing issuance by issuers of a prescribed description investing a prescribed proportion or amount in exploring for, or expanding the extraction of, prescribed fossil fuels.
(6D) Regulations under subsection (1) may implement the conclusions of the review referred to in (6C).”
(3) In subsection (8), at end insert—
““thermal coal” means coal and lignite used in the generation of electricity and in providing heat for industrial or residential purposes;
“issuance” means all investable assets, including equity and debt.”
(4) The Financial Conduct Authority must make general rules with effects corresponding to the provisions of subsection (1) for providers of pension schemes to which Part 7A of the Financial Services and Markets Act 2000 (inserted by section 48 of this Act) applies.
(5) The Secretary of State must make regulations with effects corresponding to the provisions of subsection (1) for scheme managers of the Local Government Pension Scheme.
(6) The rules and regulations under subsections (4) and (5) must come into force no later than the date on which regulations pursuant to section 41A(6A) of the Pensions Act 1995 (as amended by this Act) come into force.”
This new clause would require Government and the FCA to make regulations and rules restricting exposure of some occupational and workplace personal schemes to thermal coal investments and to regularly review whether the restrictions should be extended to other fossil fuel investments.
New clause 20—Pensions and savings advice allowance—
“(1) The Secretary of State must by regulations make provision for a tax-free pensions and savings advice allowance which individuals between the ages of 30 and 50 can withdraw from their pensions to access financial advice.
(2) Regulations must specify—
(a) the maximum amount for the pensions and savings advice allowance,
(b) the content and scope of the pensions and savings advice,
(c) the qualifications and independence requirements of any person or body providing pensions and savings advice,
(d) the means by which individuals are notified of their entitlement to the pensions and savings advice allowance and how they may access—
(i) the allowance, and
(ii) advisers who meet the requirements under subsection (2)(c),
(e) the roles and responsibilities of pension scheme trustees, managers, and providers in facilitating access to the pensions and savings advice allowance, and
(f) whether the pensions and savings advice allowance counts towards the Individual Lump Sum Allowance.
(3) 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.”
This new clause requires the Secretary of State to introduce, by regulations, a pensions and savings advice allowance which individuals between the ages of 30 and 50 can withdraw from their pension savings tax-free to access appropriate financial advice.
New clause 21—Significant life event lump sum—
“(1) The Secretary of State must by regulations make provision for a significant life event lump sum of up to £5,000 which a person is entitled to before they attain normal pension age.
(2) The regulations may prescribe circumstances in which, and conditions subject to which, a person may become entitled to a significant life event lump sum, including—
(a) purchasing a first home;
(b) getting married;
(c) unexpected loss of employment.
(3) The regulations must specify that the significant life event lump sum counts towards the Individual Lump Sum allowance.
(4) 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.”
This new clause would require the Secretary of State to introduce, by regulations, a significant life event lump sum of up to £5,000 tax-free which individuals can take from their lump sum allowance prior to reaching pension age.
New clause 22—Indexation of pre-1997 pensions—
“(1) The Pensions Act 1995 is amended as follows.
(2) In Section 51 (Annual increase in rate of pension), omit subsections (1)(b) and (1)(c)(ii).
(3) In subsection (2), leave out from “pensionable service,” to “or”.
(4) In subsection (2), leave out from “commencement day]” to “—".
(5) In subsection (2)(b), leave out from “pensionable service” to “, so much of”.
(6) In subsection (4ZE), leave out from “pensionable service” to “in subsections (3) to (4ZD)”.
(7) In subsection (5)(a), leave out “6 April 1997 or”.
(8) In subsection (8)(a) and (b), leave out “at any time on or after 6 April 1997”.”
This new clause would remove references to 6 April 1997 from section 51 of the Pensions Act 1995 in order to require that annual increases to pension payments in line with CPI and RPI apply to pensionable service both before and after 6 April 1997.
New clause 23—Indexation of pre-1997 service—
“(1) The Secretary of State must by regulations make provision for the use of Pension Protection Fund surplus/reserve funds for the indexation on compensation in respect of pre-1997 rights for members of the Pension Protection Fund and the Financial Assistance Scheme.
(2) Those regulations must specify that—
(a) pension payments from the PPF and FAS are increased each year in line with Retail Prices Index (RPI) inflation for pensionable service before and after 6 April 1997,
(b) the cap on the annual increase is raised to 7%,
(c) where a PPF or FAS member has pensionable service prior to 6 April 1997 which has not increased each year in line with RPI inflation, the scheme manager must—
(i) determine the annual increase attributable to that service for each year since the date on which the annual payment was first payable, and
(ii) reimburse the member for the amount determined under paragraph (c)(i), and
(d) payments made to reimburse members under paragraph (c)(ii) must be made from Pension Protection Fund surplus funds and future funds.
(3) Regulations under this section—
(a) shall be made by statutory instrument, and
(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”
This new clause would require the Secretary of State to provide, through regulations, for indexation on PPF and FAS compensation in respect of pre-1997 rights, for indexation to follow RPI inflation with a cap of 7%, and for retrospective payments to be funded from PFI surplus and/or reserve funds.
New clause 24—Indexation of pre-1997 pensions—
“(1) The Pensions Act 1995 is amended as follows.
(2) In Section 51 (Annual increase in rate of pension), omit subsections (1)(b) and (1)(c)(ii).
(3) In subsection (2), after “52” insert “52A”.
(4) In subsection (2), leave out from “pensionable service,” to “or,”.
(5) In subsection (2), leave out from “commencement day]” to “—”.
(6) In subsection (2)(b), leave out from “pensionable service” to “, so much of”.
(7) In subsection (4ZE), leave out from “pensionable service” to “in subsections (3) to (4ZD)”.
(8) In subsection (5)(a), leave out “6 April 1997 or”.
(9) In subsection (8)(a) and (b), leave out “at any time on or after 6 April 1997”.
(10) After Section 52 (Restriction on increase where member is under 55) insert—
“52A Restriction on increase where a pension scheme is not in surplus
No increase under section 51 in the annual rate of a pension shall not be paid or shall not be paid in full unless the pension scheme is in surplus.””
This new clause would remove references to 6 April 1997 from section 51 of the Pensions Act 1995 to require that annual increases to pension payments in line with CPI and RPI apply to pensionable service both before and after 6 April 1997, with the restriction that annual increases would only be paid if the pension scheme is in surplus.
New clause 25—Review of impact of this Act—
“(1) Within five years of the passing of this Act, the Secretary of State must carry out a review of the impact of the provisions of this Act on actual and projected retirement incomes.
(2) The review must consider—
(a) the impact of the provisions of this Act on actual and projected retirement incomes, and
(b) whether further measures are needed to ensure that pension scheme members receive an adequate income in retirement.
(3) The Secretary of State must prepare a report of the review and lay a copy of that report before Parliament.”
This new clause would require the Secretary of State to review the impact of this Act on retirement incomes and whether additional measures are needed to ensure the adequacy of retirement incomes.
New clause 26—Establishment of targeted investment vehicles for pension funds—
“(1) The Secretary of State may by regulations make provision for the establishment or facilitation of one or more investment vehicles through which pension schemes may invest for targeted social or economic benefit.
(2) Regulations under subsection (1) must specify the descriptions of targeted social or economic benefit to which the investment vehicles are to contribute, which may include, but are not limited to, investment in—
(a) projects that revitalise high street areas;
(b) initiatives demonstrating social benefit;
(c) affordable or social housing development;
(d) capital projects that meet essential public needs, such as care homes;
(e) clean, renewable energy projects.
(3) The regulations must make provision for—
(a) the types of pension schemes eligible to participate in such investment vehicles;
(b) the governance, oversight, and reporting requirements for the investment vehicles and participating pension schemes;
(c) the means by which the contribution of such investments to targeted social or economic benefit is measured and reported;
(d) the roles and responsibilities of statutory bodies, including the Pensions Regulator and the Financial Conduct Authority, in authorising, regulating, or supervising such investment vehicles and the participation of pension schemes within them.
(4) The regulations may—
(a) make different provision for different descriptions of pension schemes, investment vehicles, or targeted social or economic benefits;
(b) provide for the pooling of assets from multiple pension schemes within such vehicles;
(c) require pension scheme trustees or managers to have regard to the availability and suitability of investment vehicles when formulating investment strategies, where consistent with—
(i) their fiduciary duties, and
(ii) the long-term value for money for members.
(5) In this Chapter, "pension scheme" has the same meaning as in section 1(5) of the Pension Schemes Act 1993.”
This new clause would allow the Secretary of State to establish investment funds to encourage investment in areas such as high streets, social housing, care homes, clean renewable energy, and other investments with clear social benefits.
New clause 27—Review of proposed mandated investment powers and their impacts—
“(1) The Secretary of State must, before making any regulations under this Act relating to mandated investment requirements for pension schemes, lay before Parliament a report reviewing the potential impacts of such powers.
(2) The report under subsection (1) must include an assessment of—
(a) the extent to which any mandated investment requirements may conflict with the fiduciary duties of trustees and managers of occupational and personal pension schemes;
(b) the potential effects of such requirements on the long-term financial returns of scheme members, including—
(i) risks relating to illiquid or politically directed assets,
(ii) risks to diversification, and
(iii) any expected increase in costs borne by savers;
(c) the risk that mandated investment requirements could lead to politicisation of pension scheme decisions or undermine public confidence in the private pension system;
(d) the adequacy of parliamentary oversight and scrutiny of the exercise of powers to mandate investment allocations, including whether additional safeguards are required;
(e) the question of accountability in circumstances where mandated investments perform below expectations, including whether liability would rest with trustees, fund managers, or the Government;
(f) the potential for market distortion arising from requirements that schemes invest in specific UK-based assets, including the risk of asset inflation or the creation of investment bubbles; and
(g) alternative policy measures that could encourage pension scheme investment in the United Kingdom without the use of mandatory requirements, including the removal of regulatory barriers and the creation of suitable investment opportunities.
(3) The report must include a summary of views received from—
(a) industry bodies representing pension schemes, trustees, and fund managers;
(b) relevant financial regulators; and
(c) any other persons the Secretary of State considers appropriate.
(4) The Secretary of State must publish a response addressing the findings and any recommendations contained in the report.
(5) No regulations requiring pension schemes to meet mandated investment allocations may be made under this Act until the report under subsection (1) has been laid before Parliament and the response under subsection (4) has been published.”
This new clause requires the Secretary of State to review the potential effects of mandated investment powers including on risks to returns, fiduciary duties, market distortion, and accountability before any powers can be exercised.
New clause 28—Pension Protection Fund: members who have not attained normal pension age at assessment date—
“(1) Schedule 7 of the Pensions Act 2004 is amended in accordance with subsections (2) to (7).
(2) In sub-paragraph 3(3), for “the appropriate percentage” substitute “100%”.
(3) Omit sub-paragraph 3(4).
(4) In sub-paragraph 11(3), for “90%” substitute “100%”.
(5) In sub-paragraph 14(3), for “90%” substitute “100%”.
(6) In sub-paragraph 15(3), for “90%” substitute “100%”.
(7) In sub-paragraph 19(3), for “90%” substitute “100%”.
(8) The Secretary of State must by regulations make provision for the retrospective payment of compensation to PPF members, as if the amendments made by this section to Schedule 7 of the Pensions Act 2004 had had effect on the day on which that Schedule came into force.”
This new clause would provide that pension scheme members who have not reached Normal Pension Age by the Pension Protection Fund assessment date receive compensation at a rate of 100% instead of 90%, and provides for retrospective application.
New clause 29—Pension Protection Fund: estimate of cost of increasing compensation for surviving spouses or partners of members—
“(1) The Pension Protection Fund (PPF) must prepare and publish an annual estimate of the cost of increasing the value of compensation paid to surviving spouses or partners of PPF members to a sum equivalent to the value of any payments to which they would have been entitled had the scheme not entered the PPF.
(2) The first assessment under this section must be published before the end of the 2025/26 financial year.”
This new clause would require the Pension Protection fund (PPF) to publish annually an assessment of the costs of increasing compensation to the spouses or partners of PPF members to equal the amount they would have received if the pension scheme had not entered the PPF.
New clause 36—Local Government Pension Scheme: expenses and duties of administering authorities—
“(1) The Secretary of State must by regulations make provision for—
(a) a cap on the management expenses that can be claimed by administering authorities, such that they do not exceed ten basis points of the asset base of the pension fund,
(b) a cap on the investment management expenses that can be claimed by administering authorities, such that they do not exceed five basis points of the asset base of the pension fund,
(c) a cap on the general administrative expenses that can be claimed by administering authorities, such that they do not exceed five basis points of the asset base of the pension fund.
(2) Regulations under this section must also require administering bodies to provide to the Local Government Pension Scheme Advisory Board—
(a) evidence that they have considered and acted on any guidance issued by the Local Government Pension Scheme Advisory Board, and
(b) evidence of the steps that they have taken to comply with their fiduciary duties in respect of pension scheme members and Scheme employers.
(3) In making regulations under this section, the Secretary of State must consult the Local Government Pension Scheme Advisory Board.
(4) In this section—
“administering authorities” has the meaning given by Schedule 1 to the Local Government Pension Scheme Regulations 2013, and
“Scheme employer” has the meaning given by Schedule 1 to the Local Government Pension Scheme Regulations 2013.”
Amendment 1, in clause 1, page 3, line 7, at end insert “, or
(b) secure employee representation on the company’s board.”
This amendment would add employee representation on boards as a requirement on asset pool companies for Local Government Pension Schemes within the scheme regulations under clause 1.
Government amendments 20 and 21.
Amendment 2, in clause 2, page 4, line 7, at end insert—
“(ba) the funds or other assets for which a scheme manager is responsible (other than money needed for making payments under the scheme from the pension fund maintained by that scheme manager) should be invested in a way that is compliant with the UK’s duty not to aid or assist serious breaches of international law, including genocide and other atrocity crimes, and illegal military occupation.”
This amendment would require that investments of the local government pension scheme should be compliant with the UK’s duty not to aid or assist serious breaches of international law.
Amendment 3, page 4, line 7, at end insert—
“(ba) the funds or other assets for which a scheme manager is responsible (other than money needed for making payments under the scheme from the pension fund maintained by that scheme manager) must be divested from any oil and gas companies within 5 years of the passing of this Act.”
This amendment would require that local government pension schemes divest from oil and gas companies within 5 years.
Government amendments 22 and 23.
Amendment 17, in clause 9, page 9, line 25, leave out from “does” to the end of line 25 and insert
“apply to a scheme that is being wound up unless the trustees determine by resolution that it shall not apply.”
This amendment would ensure that the principles for surplus extraction shall also apply to surplus release after further wind-up, so that employers are not incentivised to wind-up funds rather than release surplus to pensioners.
Amendment 18, in clause 10, page 10, line 21, after “notified” insert “and consulted”
This amendment would ensure that members of pension funds have to be consulted on surplus extraction.
Amendment 4, page 10, line 36, at end insert—
“(e) about the proportion of any surplus that may be allocated, or the manner in which it may be determined, for the purpose of contributing to the provision of free, impartial pension advice and guidance services for scheme members.”
This amendment enables a proportion of surplus funds to be used to fund free pension advice.
Amendment 19, page 10, line 36, at end insert—
“(e) that the trustees are satisfied that it is in the interests of the members that the power to pay surplus is exercised in the manner proposed;
(f) that the trustees have taken full account of—
(i) the extent to which members’ pensions have kept up with the cost of living and inflation (as defined in the relevant rules and deeds), and
(ii) any previously rejected requests for discretionary pension increases.”
This amendment would reinstate the current requirement that ensures trustees consent to the paying of surplus as proposed, and creates an obligation on trustees to take account of any erosion in members’ standards of living.
Amendment 5, in clause 11, page 11, line 38, at end insert—
“(aa) make, publish and keep under review the consistency of—
(i) regulated VFM schemes, or
(ii) regulated VFM arrangements,
with the goals of the Paris Agreement on climate change and clean energy;”
This amendment would require pension funds and managers to show whether their portfolio investments are consistent with the Paris Agreement.
Amendment 6, page 11, line 38, at end insert—
“(aa) make, publish and keep under review the compliance of—
(i) regulated VFM schemes, or
(ii) regulated VFM arrangements,
with statutory and regulatory targets for reducing sewage discharges by water and sewerage undertakers,”
This amendment would require pension funds and managers to monitor and report on the compliance of water and sewerage companies they invest in with targets for reducing sewage discharges.
Amendment 7, page 12, line 10, at end insert—
“(d) publish or share with prescribed persons, for the purpose of enabling VFM assessments to be made, prescribed categories of information (referred to as “climate alignment metric data”) regarding the scheme’s exposure to climate-related financial risks and the alignment of its investments with the goals of the Paris Agreement on climate change and clean energy.”
This amendment, with Amendment 5 would require pension funds and managers to show whether their portfolio investments are consistent with the Paris Agreement.
Amendment 8, page 12, line 10, at end insert—
“(d) publish or share with prescribed persons, for the purpose of enabling VFM assessments to be made, prescribed categories of information (referred to as “sewage discharge compliance data”) regarding the scheme’s exposure to, and investment in, companies holding permits to discharge sewage, including those companies’ performance against statutory and regulatory targets for reducing sewage discharges.”
This amendment, with Amendment 6, would require pension funds and managers to monitor and report on the compliance of water and sewerage companies they invest in with targets for reducing sewage discharges.
Amendment 9, page 12, line 41, leave out “that provides money purchase benefits”
This amendment, together with Amendment 10, would ensure that the value for money provisions introduced by this Bill apply to all occupational pension schemes.
Amendment 10, page 13, line 5, at end insert—
“(14) Value for money regulations may make different provision for different descriptions of relevant pension schemes and must make provision for the application of the value for money assessment with a VFM rating to defined benefit occupational pension schemes.”
This amendment, together with Amendment 9, would ensure that the value for money provisions introduced by this Bill apply to all occupational pension schemes.
Amendment 11, in clause 13, page 14, line 13, at end insert—
“(iv) the consistency of the investment portfolio with the goals of the Paris Agreement on climate change and clean energy, including metrics for assessing climate-related financial risks and opportunities;”
This amendment would require pension funds and managers to show whether their portfolio investments are consistent with the Paris Agreement.
Amendment 12, page 14, line 13, at end insert—
“(iv) the compliance of the investment portfolio with statutory and regulatory targets for reducing sewage discharges by water and sewerage undertakers, including metrics for assessing related environmental and financial risks and opportunities;”
This amendment would require pension funds and managers to monitor and report on the performance of water and sewerage companies they invest in against targets for reducing sewage discharges.
Government amendments 24 to 49.
Amendment 16, in clause 40, page 43, line 38, leave out from beginning to end of line 27 on page 46.
This amendment would remove the ability of the Government to set mandatory asset allocation targets for certain pension schemes, specifically requiring investments in UK productive assets such as private equity, private debt, and real estate.
Amendment 15, page 46, line 9, leave out from “Before” to the end of the subsection and insert
“implementing the first set of regulations under subsection (1) the Secretary of State must—
(a) prepare and publish a report regarding—
(i) what barriers pension funds, based in the United Kingdom, are facing that are preventing them from investing back into the United Kingdom due to—
(A) legislation introduced after The Pensions Act 1995;
(B) regulations introduced by the Financial Conduct Authority, Prudential Regulation Authority, HM Treasury, or Bank of England;
(C) cultural and market behaviours;
(ii) how financial interests of members of relevant Master Trusts and group personal pension schemes would be affected by the proposed regulations;
(iii) what effects the proposed measures could be expected to have on economic growth in the United Kingdom;
(iv) any other matters the Secretary of State considers appropriate; and
(b) respond to any recommendations or issues raised in the report.”
This amendment prevents use of the reserved mandation powers in this Bill until the Government produces a report on the reasons why the powers are needed and the effects of the use of the powers and resolves any issues raised in the report.
Amendment 14, page 48, line 15, leave out paragraphs (a) to (c) and insert—
“(a) The scheme in question demonstrates strong potential for growth and an ability to innovate, and”
This amendment would revert the text of section 28F(2) on the eligibility conditions for new entrant pathway relief to its form in the Bill as introduced.
Government amendments 50 to 85.
Amendment 13, in clause 117, page 120, line 19, leave out “2035” and insert “this Parliament”
This amendment provides that if section 40 is not commenced before the end of the current Parliament in respect of the insertion of certain provisions, then the insertion of those provisions would be automatically repealed at that time.
Government amendments 86 to 89.
Torsten Bell
I start by thanking all hon. Members for their valuable contributions during the Bill’s passage to date. In particular, I thank members of the Public Bill Committee who offered line-by-line scrutiny. They have challenged the Government, but always constructively—that includes the shadow Economic Secretary to the Treasury, the hon. Member for Wyre Forest (Mark Garnier), who is not with us today. That reflects the broad consensus across the House that the Pension Schemes Bill is an important piece of legislation, and it is a consensus for which I am very grateful. The same consensus underpinned the introduction of automatic enrolment under the previous Government.
It is exactly because we as legislators have more than gently nudged people into pension savings that the Bill’s most fundamental job is to drive up returns on those savings. The case for this focus is clear: those retiring in 2050 are currently set to do so with lower private pension income than those retiring today. The Bill also recognises that, with the second largest pension system in the world, pensions matter not just to deliver an income in retirement but for the whole economy as the largest source of domestic capital. With those goals in mind, this Bill builds a solid foundation on which we can build, not least via the Pensions Commission over the next year, exactly as several hon. Members called for on Second Reading.
The vast majority of the amendments tabled by the Government are minor technical amendments, and there are two substantial areas on which I would like to dwell. The first is on pre-1997 indexation within the Pension Protection Fund and the financial assistance scheme.
The PPF is one of the most important legacies of the last Labour Government, but we have all heard about the challenges caused by the lack of indexation of compensation related to pre-1997 pensions. I am grateful for the time that affected pensioners have given me in discussing their experiences directly. I have listened carefully to them and to hon. Members who have kept attention on this issue.
I particularly acknowledge the contribution of my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) and her Work and Pensions Committee, as well as my hon. Friend the Member for Basingstoke (Luke Murphy) and the hon. Member for Aberdeen North (Kirsty Blackman) who raised this matter in Committee. I am also grateful to the hon. Members for Didcot and Wantage (Olly Glover), for Caerfyrddin (Ann Davies), for Torbay (Steve Darling) and for Belfast South and Mid Down (Claire Hanna), and my hon. Friend the Member for Poole (Neil Duncan-Jordan), for their proposed new clauses and amendments related to this matter.
Olly Glover (Didcot and Wantage) (LD)
I welcome that the Government have tabled these amendments to strengthen the Pension Protection Fund arrangements. However, that will be of little use to those such as the AEA Technology pension campaigners, about whom I have met the Minister. Despite many Select Committee reports and National Audit Office findings, they were badly advised by past Governments and have not been given a route to redress. I invite the Minister to reconsider his past decision and consider new clause 1.
Torsten Bell
I do not agree with the premise of the hon. Gentleman’s question, because I think that members of the scheme he mentions will benefit from the improvement in pre-1997 indexation within the PPF, albeit I am sure they would rather not be within the PPF, which applies to most people who have fallen into it. All I would gently say is that the change we are introducing was refused by Liberal Democrat Pension Ministers during the coalition Government, so this is a big step forward and will make a difference to others.
Sean Woodcock (Banbury) (Lab)
I am delighted by the Chancellor’s announcement in last week’s Budget, having had decades of Tory Governments dithering and delaying while pensioners lost out. It is a great sign of what this Labour Government are delivering on pensions. Could the Minister confirm how much, or by what amounts, those affected are likely to benefit from the changes he has incorporated into this Bill?
Torsten Bell
My hon. Friend has been a powerful campaigner on this issue in the run-up to the Budget, and he brings me on to my next point. We are not just listening; we are acting. We have tabled new clauses 31 to 33 and Government amendment 87 to introduce prospective indexation of Pension Protection Fund and financial assistance scheme payments that relate to pensions built up before 6 April 1997. And directly to his question, these will be consumer prices index linked, capped at 2.5% and apply to members whose former schemes provided for such increases. I thank the Pension Protection Fund for its support on this measure and its implementation, which rests with the PPF.
Dr Al Pinkerton (Surrey Heath) (LD)
I have been contacted by many Surrey Heath constituents who often worked for very large American companies such as Atos. These companies are refusing to offer the pre-1997 uplift, and from what I understand, the pensions fall outside both the PPF and the FAS. Can the Minister offer any reassurance to those pensioners today and explain how they can continue to survive on such diminishing returns from the pensions they paid into?
Torsten Bell
The hon. Gentleman asks an important question, and I shall come to exactly that issue when I finish discussing the changes within the PPF, because as he rightly notes there are wider indexation questions for solvent pension schemes.
On the PPF itself, this issue has been long running and many campaigners have long campaigned on it. Our changes aim to bring the matter to a conclusion. It is a step change that will make a meaningful difference to over 250,000 members. Over five years, the average PPF compensation will be boosted by £400 a year. Of course, I recognise that this does not go as far as some affected members would have wanted, but this change is real progress and rightly balances the interests of eligible members, levy payers, taxpayers and the Pension Protection Fund’s ability to manage future risk. I hope all hon. Members will support this step forward, and on that basis, that those with related amendments will feel content not to press them today.
New clauses 22 and 24 and amendment 19 concern that issue of discretionary increases or pre-1997 indexation in solvent defined-benefit pension schemes more generally. I put on record that we all recognise the impact of the high inflation in recent years on the value of some pensioners’ retirement income in exactly the way that has just been set out.
I want to be straightforward with the House that we do not support retrospectively changing scheme rules. Neither did previous Conservative or Liberal Democrat Governments, given that contribution levels were set on the basis of the scheme rules at the time they applied. As I have said before, and as I discussed recently with my hon. Friends the Members for Llanelli (Dame Nia Griffith) and for Ayr, Carrick and Cumnock (Elaine Stewart), wider changes in the Pension Schemes Bill relating to surplus release will put trustees in the lead in a way that will help on this issue.
Dame Nia Griffith (Llanelli) (Lab)
The Minister will understand just how sceptical pensioners are because, quite frankly, they have seen their trustees try to make the companies do the right thing time and again. Will he agree to meet me and trustees from companies such as 3M and Hewlett Packard Enterprise to explain what mechanism he thinks will be available to them that will actually force the companies to give a decent, index-linked rise to their pensioners?
Torsten Bell
Absolutely, is the short answer. I am always very happy to meet my hon. Friend and near constituency neighbour. I will explain how the change may help in that situation, but I am very happy to take that meeting.
The changes give those trustees overseeing schemes without pre-’97 indexation greater leverage in discussions with employers on discretionary increases, should those trustees see fit. I would encourage them to do so.
The other substantial amendments are on the Pension Protection Fund administration levy paid by DB schemes, allowing the Secretary of State to recover the PPF’s administration costs. It also covers the costs of administering the Fraud Compensation Fund. The levy was initially introduced to allow transparency when these administration costs were significant relative to the PPF’s reserves, but this is no longer the case, with the levy standing at around £18.5 million while the PPF manages over £10 billion-worth of reserves. The PPF is now more than able to cover its administration costs, and transparency can be achieved in the normal way through annual reports and accounts. These amendments therefore abolish the levy, simplifying the pension levy landscape.
I will now briefly cover some minor amendments, starting with those on the local government pension scheme. Amendment 22 exempts the Environment Agency, as a national body, from the requirement on other administering authorities to co-operate with strategic authorities on local investment opportunities.
New clause 34 introduces new wording to clause 4, with amendment 23 deleting the existing wording. Rather than stating in this Bill how procurement law affects the LGPS, new clause 34 will instead move the LGPS exemption directly into schedule 2 to the Procurement Act 2023, future-proofing the exemption from future changes to that Act.
Amendment 28 is the central amendment on small pots. It introduces the concept of a destination proposer. This allows for either a single entity or multiple entities to be designated as the proposer of pot transfers. This reflects recent work by the DWP and Pensions UK to consider a federated model as a potential alternative to a centralised data platform for delivering the small pots policy. I want to add that there is no change to the desired policy intent; this is about the mechanism by which we deliver it. We are committed to exploring both models in full.
Amendments 37 to 53, on the scale clauses, are minor in nature. They include clarifying the circumstances in which schemes may count assets held in other schemes towards the scale condition—the requirement to have at least £25 billion-worth of assets under management by 2030—and clarifying when the transition pathway relief will end. On guided retirements, amendment 54 simply removes a redundant interpretation provision. Government amendments 55 to 86 relate to clauses 100 and 107 of the Bill, on the validity of certain alterations to salary-related contracted-out pension schemes—more often referred to as the Virgin Media case.
Steve Darling (Torbay) (LD)
Would the Minister be kind enough to share the timescale he is working to for these proposals?
Torsten Bell
I thank the hon. Member, who was one of the contributors to our debates on this matter in Committee. I hope to bring forward clarity on the next steps in a matter of months.
Peter Swallow (Bracknell) (Lab)
I thank the Minister for making this important announcement about a consultation on the role of trustees. As part of that consultation, will he keep in mind the important issue of pre-1997 indexation so that we can ensure that trustees are acting in the best interests of their pensioners?
Torsten Bell
My hon. Friend has discussed this challenge with me many times and is a powerful campaigner for his affected constituents. I give him absolutely that assurance, and I extend to him the same offer I have given to other hon. Friends: I will be happy to meet him and affected constituents, or trustees who have been affected by this issue.
Sir Julian Lewis (New Forest East) (Con)
The Minister has indeed been most accessible, and I am extremely grateful to him for the meeting he held with members of the ExxonMobil pensioners group. I am still being lobbied very hard by ExxonMobil pensioners who are concerned that whereas changes introduced in the Budget will benefit members of the FAS and PPF schemes, private defined-benefit scheme members will not benefit. He knows far more about the subject than I do, but can he not see that there is a feeling that they are being discriminated against? Is there nothing he can offer to make them feel somewhat more included in the beneficial steps being taken for members of other schemes?
Torsten Bell
I thank the hon. Gentleman for that and for our conversations on this matter in recent months. Although I think it is completely reasonable that people would feel like that—so would many of us if we had seen the high inflation of recent years eat into our non-index-linked pension payments—let me explain the consistency of the Government’s position. We are providing pre-’97 indexation on compensation relating to pensions now held within the PPF to those who were in schemes that did provide for indexation. There is no question of retrospectively changing the entitlement within the schemes; we are simply requiring that the compensation within the PPF and the FAS recognises that the schemes that people were in did previously recognise the need for indexation.
Other schemes within PPF and outside the PPF, including the one that the right hon. Member for New Forest East (Sir Julian Lewis) mentioned, did not provide for indexation in their scheme rules. He is right to say that, on those matters, the changes that I have outlined today on the PPF do not provide relief. I have gone on to say that because of the changes we are bringing forward in the surplus rules, I think the trustees—as was discussed with some of his trustees—do have more ability and more leverage with which to ask for those discretionary increases, but I completely appreciate that that is different in form from the compensation indexation that we are providing within the PPF.
Sir Julian Lewis
The problem, as the Minister knows from our meeting, is that the trustees are rather hemmed in by not having the leverage or the freedom to act if the company itself—particularly if it is headquartered abroad—is disinclined to pass on any surpluses that it might have available.
Torsten Bell
I recognise the right hon. Member’s point. I think the level of pessimism may be overstated. My view is that our changes on surplus, which put trustees clearly in the driving seat, provide for more ability for trustees to seek to change that balance of power within their relationship. I do not want to prejudge the individual discussions between all trustees and their employers—those will be different in different circumstances—but trustees are in a stronger position given the changes on surplus release that we are introducing through this Bill. But I am not pretending for a second that that solves overnight the points that the right hon. Member is making.
Kirsty Blackman (Aberdeen North) (SNP)
To take us back to the consultation and action to provide guidance for trustees, we all think that is a good thing, as trustees have a difficult job to do and providing them with more guidance is incredibly helpful. On the timeline for the consultation and the legislation arising from it, it would be incredibly helpful if the Minister could, as soon as possible, provide us with a road map for what that will look like when it returns to the House and, in particular, set out whether it will involve primary or secondary legislation.
Torsten Bell
The hon. Member brings me back to the part of my speech I was coming to. The direct, quick answer to her question is that I would envisage taking powers in primary legislation and then consulting on the statutory guidance relating to the powers provided to the Government. That is the order in which I would think about it, but, exactly as she has asked for, I will endeavour to provide more clarity on the timeline.
As I said, I think there is good support for such a change across the industry—actually, I heard calls for it long before I became Pensions Minister—and it is time that we get on with setting out more details and providing that clarity to trustees so that, rather than debating whether trustees have the ability to invest with these longer-term structural or systemic factors in mind, they can get on with doing so, if they so wish. I should say that this is about giving trustees that ability and not specifying that they must do so.
I hope I have usefully set the scene for the debate. Let me close my opening remarks by reiterating my thanks to everyone who has engaged with the Bill so far. I look forward to hearing hon. Members’ further contributions this afternoon.
James Wild (North West Norfolk) (Con)
Before speaking to new clauses 24 and 25 and amendments 14, 15 and 16, I shall begin by reiterating the position adopted by my hon. Friend the Member for Wyre Forest (Mark Garnier), the shadow Economic Secretary to the Treasury—he is not here today, as the Minister acknowledged—which is that we support many of the planned changes in the Bill because, fundamentally, we all want a pensions system that is more accessible to the average person and gives all our constituents dignity in retirement. We want to see a Bill that helps make the system work better, and some of its measures will undoubtedly do that.
Equally, the higher-tax Budget, of which the Minister was a controlling mind, is relevant. We know from media reports that he feels passionately about the Budget—he used industrial language that is perhaps more expected from industry than from a think-tanker, and it is certainly not for the Chamber. We also know that, because of the briefings that appeared in the press, hundreds of thousands of people drew down their pensions prematurely, damaging their savings income as a result. The Budget also increases taxes on pension contributions. Taxing people’s incomes, savings and pensions more is the wrong political choice.
There is much in the Bill that we agree with, but some fundamental issues remain. Arguably the most pressing issue is the fact that the Bill does not address pensions adequacy. Research from Pensions UK shows that over 50% of savers will fail to meet the retirement incomes set by the Pensions Commission. The simple, uncomfortable truth is that this will affect millions of people, and that is despite the introduction of auto-enrolment and the triple lock introduced under the last Conservative Government.
The Bill was an opportunity to do more, but it does not currently do so. We are therefore giving the Government another chance through new clause 25, which would require the Secretary of State to conduct a review within five years and to recommend further measures. We recognise that the second phase of the pension review is ongoing, and we have faith in Baroness Drake to lead that review, but we have concerns that it will not report until 2027. We maintain that this part of the pensions review should be fast-tracked, so could the Minister at least clarify in which quarter of 2027 we can expect that report to be published?
Amendment 14 would change the wording on the eligibility conditions for new entrant pathway relief back to the form it was in when the Bill was first introduced. This means that schemes would qualify for relief if they simply demonstrated strong growth potential and an ability to innovate. All of us on these Benches understand the economies of scale and agree on the need for them, but we have concerns about the changes to the eligibility requirements. The benefit of the existing market is that its diversity provides choice, creates competition and incentivises innovation. As it stands, though, the Bill will disadvantage niche or boutique funds. Specifically, if the amendment made in Committee is enacted, existing companies that previously qualified for the pathway will now be excluded.
An example is Penfold, whose workplace pension was launched in 2022 and has grown quickly to over £1 billion of assets under management, tripling the rate since the start of 2024. Even with this trajectory, the timing of the scale test gives insufficient time to reach the £10 billion threshold for the transition pathway. We therefore agree with the chief executive officer of Penfold when he said:
“The original drafting created the scale that everyone agrees is vital, while still leaving room for challengers to innovate without the threat of a hard scale deadline that deters private investment”.
He is right. These are exactly the type of businesses that the Government should be supporting.
I shall turn now to the issue of indexation to pre-1997 pensionable service. We all want pensioners to have dignity in retirement, but when people have done the right thing by putting money in their pension and it is not followed through, that does not give pensioners the dignity they deserve. The issue around the pre-1997 indexation is also time-sensitive, like the infected blood scandal, and the longer the can is kicked down the road, the smaller the problem will become, sadly. We therefore broadly welcome the Minister’s commitment to taking primary powers through Government new clauses 31, 32 and 33. Our new clause 24 was seeking to achieve a similar outcome.
We pay tribute to the lobbying from groups including the Pensions Action Group and the Deprived Pensioners Association. Also, my hon. Friend the shadow Economic Secretary to the Treasury wanted to acknowledge our right hon. Friend the Member for Herne Bay and Sandwich (Sir Roger Gale) for his continued representations on this issue. The Minister has already been pressed by a number of Members about the concerns of organisations, such as the Esso Pensioners Working Group, that want to understand further how the Government will ensure that these groups are not forgotten.
Finally, I want to turn to the part of the Bill with which we have our most fundamental disagreement: namely, the part that deals with mandation. Amendment 15 would prevent the use of the reserve mandation powers until the Government produced a report on the reasons why the powers were needed and the effects of the use of such powers, and resolved any issues raised in that report. It simply asks the Government to undertake an analysis of the barriers that pension funds are facing, rather than rushing to use mandation as perfectly reasonable. Amendment 16 would remove the power altogether.
Dame Nia Griffith
I rise to speak to my new clause 22. There is a group of pensioners who have worked hard for very prestigious companies, and those companies have grown rich and successful on the back of the work that those pensioners have done. These are companies with good reputations. People think of them as being honourable and successful. Many of us will have a computer with “HP” on it. Companies such as Hewlett Packard Enterprise, 3M and a number of others that have already been mentioned have treated their pensioners very shabbily indeed, because they are refusing to index-link the pensions of former employees that were accrued before 1997. In other words, people who worked hard to help build up the success of those companies have had no increase for as long as 23 years. Just imagine how much less they can buy with that pension now compared with 23 years ago. The cost of living crisis over the past few years has exacerbated their problems, eroding their pensions at a frightening rate. What is absolutely terrifying for many of those pensioners is how on earth they are going to manage in the next few years.
Through new clause 22, we are asking for the index-linking to take place from now on, not retrospectively for all the years when there have been no increases, nice though that would be. This is not about some form of compensation for the past. It is about going forward and trying to future-proof these pensions so that they at least they maintain the value they have now. It would not be a retrospective measure; it is about how we want the companies to behave from now on in respect of their pension funds, just as any other legislation would apply from now on.
When the employees were recruited to these companies, they would have thought, “Oh, this is a good job. It’s a good company and it’s got a pension scheme.” They would have assumed that any pension scheme worth its salt, particularly from a reputable company, would be index-linked. Sadly, however, these companies have found a loophole in the Pensions Act 1995, because it refers to 1997 as the start date for its provisions. In other words, the companies have been able to say that, according to the letter of the law, they do not have to index-link pensions accrued pre-1997, even though it would be in the spirit of the Act to do so. New clause 22 would amend the Pensions Act 1995 by removing references to 6 April 1997 from section 51 of that Act, thereby requiring annual increases to pension payments in line with CPI and RPI to apply to pensionable service both before and after that date.
Why do we need to legislate? We need to do so because efforts by trustees over many years have failed. We have had instances of unanimous votes by trustees for inflation-based rises being rejected by companies. We have had trustees appointed by companies. Essentially, the power structure is such that the company has the final word, no matter how healthy the pension funds are.
A recent newsletter for 3M pensioners said,
“Given that the Scheme’s financial position is very positive, and the funding level exceeds the regulatory expectations for solvency levels… we had hoped that the Company would permit some discretionary increases to affected members. Sadly, the Company did not agree to this and has not changed its position on the matter.”
Time and again, pensioners have been given that type of answer to a very reasonable, rational request.
Sir Julian Lewis
May I applaud the hon. Lady’s speech? That is exactly what has happened to so many ExxonMobil pensioners in my constituency and beyond.
Dame Nia Griffith
Indeed, the right hon. Member mentions yet another world-renowned, multinational, household name.
Our Labour Government have just announced that we will change the law to enable the payment of inflation increases on the pre-1997 pensions to Pension Protection Fund and financial assistance scheme members. That is an important principle. If we are doing it for pensioners whose companies have gone bust, we should ensure that successful multinationals like Hewlett Packard Enterprise and 3M pay up for former employees.
Alan Gemmell (Central Ayrshire) (Lab)
Will my hon. Friend allow me to put on the record my thanks to my constituent Patricia Kennedy and the pre-1997 pensions justice campaign for asking for exactly what she suggests? The Minister has taken a brave decision on the Pension Protection Fund pensions, and we should try to do that now for those pre-1997 pensioners.
Dame Nia Griffith
Indeed. I thank my hon. Friend for mentioning Patricia Kennedy, who has been incredibly hard-working and has really tried to put the facts and figures together.
Let me give the House an example now that I had intended to quote later. The number of companies that have reneged on giving out index-linked pensions is extraordinary. Listen to this list, citing the number of years for which companies have not indexed pensions: Goldman Sachs—10 years; KPMG—15 years; Lloyd’s Register—nine years; Johnson & Johnson—11 years; NCR (Scotland)—11 years; Chevron—13 years, 3M—16 years; Pfizer—16 years; AIG—18 years; American Express—20 years, Atos/Sema—20 years; STMicroelectronics—21 years; Hewlett Packard Enterprise—22 years; and Wood Group—23 years. Given that, we can imagine the loss in value of those pensions now.
Dr Pinkerton
The hon. Lady mentioned Atos. I have several constituents who worked for that company who find themselves in precisely the situation she describes. I thank her for the speech she is making and, on behalf of my constituents, I hope that those on the Front Bench are listening to her suggestions.
Dame Nia Griffith
As I said, it is an important principle on the PPF; if we are doing it for those pensioners for the companies that have gone bust, we really should be doing it for the successful companies, too.
Peter Swallow
My hon. Friend is being extremely generous in giving way. Effectively—not legally—the Government act as the trustee for the PPF, which is why they have been able to take this decision. Does she agree that if the Government see fit to use their role to increase PPF pensions, trustees of these companies should act just as the Government have done to address this injustice?
Dame Nia Griffith
The problem is that many of the trustees are trying to get these increases, but the difficulty they are encountering is that the power structure is such that the company has the last word. Sometimes trustees are actually appointed by the company; sometimes it is a unanimous decision that is then rejected by the company, as I mentioned with the 3M trustees. We see time and again the efforts of trustees totally decimated.
I was interested in what the Minister said in his opening speech about the new powers. What we really want from the Front Bench is some support to help these trustees to use the legislation to which the Minister refers—that is, part of this Bill—and to try to make it work.
Torsten Bell
Just reflecting on the excellent speech that my hon. Friend is making, I should add that the Pensions Regulator will be bringing forward guidance to provide exactly that kind of clarity to trustees.
Dame Nia Griffith
I thank the Minister for that, but it is a matter of action and ensuring that it really happens. We are too used to regulators not having the powers they are supposed to have or not being effective in using them. We need some action, and hopefully the Minister will help us to see how it could be done.
There is a bitter irony that the Pension Protection Fund is funded by a levy on the very same companies that are refusing to index-link their own pensioners’ pensions. We know from lots of evidence that the only way the companies will listen is through legislation. These companies are multinationals, and in countries where there is legislation, they pay up—so they do respond if there is a law.
As I was saying, saying that the trustees have the powers is sadly very far removed from the reality. Trustees of various countries have asked repeatedly for indexation, and before handing over any surplus to the companies, they will be very wary because they do not trust them at all. They will want cast-iron guarantees on indexation.
Let us look at the scale of the problem. Seventy-five per cent of UK defined-benefit schemes already provide pre-1997 indexation. The remaining 25% represents approximately 1.5 million members, including some 734,000 pensioners, with 80% of all pensioners concentrated within just 200 large schemes with strong employers. As we have seen, employer discretion has failed in practice, and many pensioners have had years of zero increases.
New clause 22 would set the statutory principle that there should be indexation. The Government can then design proportionate safeguards—for example, phasing in, exemptions and triggers—in order to protect genuinely weak schemes and to ensure, as the Society of Pension Professionals says, that schemes are not pushed into having to be picked up by the Pension Protection Fund.
We want action on this. We are talking about a small, manageable number of schemes, but we want the trustees really to be given the powers to force those companies to make that indexation. If the Minister is not minded to put this provision into the legislation, as we want, we want to see some concerted action and a genuine way forward. If that proves not to work, there needs to be an opportunity to come back and put this into secondary legislation instead.
Madam Deputy Speaker (Caroline Nokes)
I call the Liberal Democrat spokesperson.
Steve Darling
For people who are lucky in the lottery of life, their pension can be one of their biggest assets, but, sadly, we know that 12 million people across the United Kingdom are not saving enough. That is around the population of Belgium. Talking more broadly, there is much about the legislation to be welcomed. I am sure the Minister had his best birthday ever by spending it in the Bill Committee. I am sure that as a 14-year-old, he dreamed of that day, on Committee corridor—sadly I am not joking.
Steve Darling
Thank you for the audio description!
There is much to be welcomed in the Bill, and the way that we rattled through it in Committee demonstrated that there is lots of good within it. However, as a constructive Opposition and a critical friend, I will spend most of my time reflecting on where there could be improvement.
We Liberal Democrats still feel that there are chances to ensure a mid-life MOT on investment opportunities, including five years before retirement. We think that that could be strengthened significantly. I come from an area of sadness in respect of my father, who saw the poverty of his father, a lorry driver, and threw significant amounts of his income into his personal pension just before the 1998 stock market crash. He saw the value of his investment halved. Nobody would expect a lorry driver to understand the full ins and outs of investing in the appropriate manner. It is important to reflect the fact that people live their lives without really understanding financial markets, and further strengthening that part of the Bill would be welcome.
Sir Julian Lewis
I applaud what the hon. Gentleman has said about the AEAT pensioners’ difficulties. It is quite shocking that, despite the fact that a previous Conservative pensions Minister, Paul Maynard, said that he would instruct his civil servants to work on a redress scheme, changes of Minister and Government have meant that the machine has carried on as before, even though a parliamentary Committee did an investigation, found in favour of the pensioners and said that they should get redress.
Steve Darling
The right hon. Member makes a powerful point. I am sure that the Minister will take note and reflect on it further.
I would like to reflect on the proposals to enhance pre-1997 pensions by up to 2.5%, which the Chancellor announced last week. Amendments providing for those measures have now been tabled. We know that there is significant surplus in the Pension Protection Fund. We question whether it is right for the Government to balance their financial books on the backs of that pension pot. I understand that their argument is that, because those billions are taken into account as far as Government finances are concerned, it is not possible to release as much as could be released from that pot to support pensioners with the cost of living crisis, but I urge Ministers to reflect on that.
Colleagues have also highlighted new clause 22 and pensioners who worked at American Express, Esso and Hewlett Packard. Those companies—strangely enough, it seems to be overseas companies—have left pensioners out in the cold. I hope that that consultation is able to pick up on that and give clear guidance to trustees on how they ought to support those members.
Surplus funds is another area that the Bill addresses. It is about getting the balance right. In winding up, will the Minister reflect on how surplus funds could support members and oil the wheels of the economy? That is important. Pensions should be about driving the economy. They are a big beast that should be an engine for change. In fact, the last area that I will touch on is how pensions should be the engine for change. As colleagues have alluded to, mandation feels a bit like the cold hand of Big Brother on the economy. I trust the Minister implicitly in respect of mandation, when he says, “Honestly, guv, it’s not really something I want to do,” but who knows who will walk in his footsteps? We need only look to the other side of the Atlantic, and at the gentleman in the Oval Office, to see the extraordinary things happening there.
Sarah Olney (Richmond Park) (LD)
Does my hon. Friend agree that, although it is certainly advantageous to encourage pension funds to invest in the UK, mandation creates the risk of reducing returns on investments? Would it not be better to incentivise pension funds to invest more productively—in housing and social care—through the creation of appropriate investment vehicles, and to encourage investment in British start-ups to allow them to scale up and create an attractive environment for investment?
Steve Darling
It is almost as if my hon. Friend had just seen the next section of my speech. We see such investment as an opportunity to drive social rented housing, our high streets and other investment in our communities. We need to ensure that UK institutions are the first, second and third investors in opportunities in the UK so that overseas investors see that we are backing ourselves and then pile in after us. That is essential.
We will vote against mandation. There is much to welcome in the Bill, but the devil is in the detail.
Cameron Thomas (Tewkesbury) (LD)
My hon. Friend speaks well about what is good in the Bill, but there is room for improvement. A number of my Gloucestershire constituents were employees of Gulf Oil before its merger with Chevron. Following the merger, they were moved on to the Chevron pension scheme. Between them, they have hundreds of years of service, but they are not protected against inflation, and over years of inflation, the value of their pensions has been eroded significantly. Does my hon. Friend agree that his new clause 7 is a genuine opportunity for pension justice—one that we hope the Labour Government support?
Steve Darling
I wholeheartedly agree with my hon. Friend. I am sure that the Pensions Minister is listening. Politics is all about calling out injustice, and my hon. Friend does a good job of that for his constituents.
Neil Duncan-Jordan (Poole) (Lab)
I will speak to a number of amendments tabled in my name. I thank the Pensions Minister for discussing them with me yesterday. I look forward to his comments later in the debate.
I spent a number of years as a regional trade union official with responsibility for the local government pension scheme, and I think it is important that we see pensions as a force for social good. My amendments aim therefore to make our occupational pensions more progressive. We should remember that such funds represent the deferred wages of millions of workers, and directing pension funds toward socially beneficial projects is one way in which the Government can rewire our economic model, so that it delivers for ordinary people.
In my view, workers’ money should be invested in sectors such as green technology and social housing—stable, reliable sectors that build a better future for the very people whose contributions fund them. Whether this is done through an expanded National Wealth Fund, which could direct investment into socially useful projects, or some other mechanism, it would clearly boost much-needed growth and GDP. What could be more progressive than using workers’ pension funds to build the council houses we so desperately need? That would be a tremendous step forward which not only ensured a solid investment for the funds, but provided decent homes at affordable rents. I designed new clause 5 to address this issue, and I hope the Minister will do more to encourage schemes to redirect their investments in that way.
Likewise, amendment 3 recognises that the voluntary approach to disinvestment in fossil fuels has not worked. The LGPS currently invests over £16 billion in fossil fuels, while 85% of all pension schemes lack a credible climate action plan. The environmental crisis is the great challenge facing us all. Workers’ wages should not be fuelling the climate catastrophe. Fundamentally, there is no retirement without our environment, and I hope the Government will emphasise that position to trustees more forcefully. We need a commitment from all LGPS schemes and pools to having a five-year plan to end their relationship with these harmful investments.
The overwhelming majority of the public would also be horrified to learn that their savings were invested in illegal wars abroad, such as the genocide in Gaza. We know that over £12 billion of LGPS funds are invested in companies that support the illegal settlements in some way, or produce arms or fuel for fighter jets used in the war. We must ensure that pension funds are not complicit in war crimes and human rights violation, whether in Gaza or elsewhere in the world.
The Minister will have noticed the strong cross-party support for my amendment 2, and I urge him to give a statement in the strongest possible terms that the LGPS should not be involved in funding breaches of international law in any form. I understand that many of the pools have money in tracker funds that are connected to arms companies, but that needs to be challenged. If that means disinvesting from arms manufacturers implicated in these breaches, so be it.
That brings me to the important matter of worker representation. Having a seat at the table is one way in which we can influence how money is invested. That is why it is important that we ensure trade unions have a voice on all future pension boards and committees, as outlined in my amendment 1. There is currently no requirement for worker representation on the boards of LGPS pools; the Government reducing the number of pools to six gives us an ideal opportunity in law to guarantee proper worker representation. Fundamentally, it is vital that the workers who pay into the funds have a fair voice in decisions on how their money is invested. I hope the Minister will begin talks with local government trade unions to see how we can bring that about.
Last week’s budget announcement on the pre-1997 pension indexation was welcome, and many have already quoted that this afternoon, but only those whose schemes were eligible for indexation and are members of the Pension Protection Fund and financial assistance scheme will see the benefit. Hundreds of thousands of retired workers whose pension funds were taken over by other companies, such as Hewlett Packard in the case of some of my constituents, and are still in operation will not be protected as was intended in the Budget for that other group; and the money they put into their company pensions before 1997 will continue to be frozen. I know the Minister recognises that over this period their pensions have become virtually worthless. That is why the Government must put pressure on trustees of all schemes to pay some of their surplus funds and ensure that their former staff get the pensions they deserve.
The Pension Schemes Bill offers a once-in-a-lifetime opportunity to help the environment and society more generally by the way we invest. The £3 trillion in UK pension funds could be used to address the historical transfer of wealth away from ordinary working people toward the wealthiest individuals and corporations in our society. Given that pensions account for 40% of wealth in this country, change must include consideration of how this vast pool can be used to improve the lives of those whose payslips created it. The call to use our money and make pensions more progressive is therefore overwhelming. I look forward to hearing the Minister set out in the strongest possible terms the commitments the Government are making to bring that about.
Sir Roger Gale (Herne Bay and Sandwich) (Con)
There is clearly a great deal of good in the Pension Schemes Bill; that is why it went through Committee relatively easily. I do not wish to be a dog in the manger about that, but instead to recognise the good in the Bill. I shall focus on the issues raised in new clauses 22 and 24.
I do not pretend to be expert in these matters, but I do know injustice when I see it. As you know, Madam Deputy Speaker, I fought for many years for the uprating of frozen pensions for ex-pat citizens overseas. That is a shame from which the reputation of this country will take a long time to recover, and I fear that we are about to endorse yet another such shame.
There is absolutely no doubt in most people’s minds that the Pensions Act 1995 was flawed. This issue is an unintended consequence that was not foreseen. That it has taken this long to get to grips with it is wrong, but we now have the opportunity to set things right. The hon. Member for Llanelli (Dame Nia Griffith), in an excellent speech, set out the stall very clearly indeed. I have huge sympathy with her new clause. Were it to be called, I would vote for it without any question.
The right hon. Lady made it very plain—it is indeed very plain—that there is no suggestion that any redress should be retrospective; there is no question of any vast back payments to those whose pensions have been affected. I listened carefully to what the Minister said about retrospection—by the way, I agree that retrospective legislation normally ends in tears—but the proposed measure is not retrospective in that sense.
We come to how to get this right. It seems to me that the Government’s proposals are hugely complicated—unnecessarily so—and do not actually do the job. New clause 24, tabled by Opposition Front Benchers, who I know have put a lot of effort into trying to get this right, gives a get-out in the form of a lack of surplus, which I believe would enable those companies that have neglected their duties until now to carry on neglecting their duties. For that reason, my personal preference is for new clause 22.
I represent the remains of the Pfizer empire in Sandwich. Not entirely surprisingly, I have therefore a significant number—one is a significant number, by the way—of constituents who were affected by the pre-1997 section in the 1995 Act. I find it quite appalling that companies of size and international importance that have been named today—including Pfizer in my own constituency, which is a good employer—should have put themselves in the position that they are in when in some cases, for up to 25 years, pensioners have not been rewarded in the manner to which I believe them to be entitled. As I say, for my money, Pfizer is an excellent company. It does good work and is a good employer, but somewhere along the line, in the back office—probably in the United States—a decision was taken not to uprate pensions. That is quite simply wrong.
While I understand that the Minister comes to this issue with a reasonably open mind and a good heart, I do not think that his proposal does the job and I am not certain that the Opposition Front-Bench amendment does the job. I believe that new clause 22, in the name of the hon. Member for Llanelli, would do the job. I hope that further and very serious consideration will be given to adopting that resolution.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
I rise in support of the Government’s new clauses, particularly those that relate to the pre-1997 pensionable service indexation where scheme rules allow. That will mean that pensioners whose pension schemes became insolvent through no fault of their own and that have failed to keep pace with inflation will have that rectified. As I mentioned yesterday in my speech on the Budget, that will benefit more than 250,000 Pension Protection Fund and financial assistance scheme members.
I pay particular credit to the Pension Action Group, the PAG. It was formed in 2003 following the collapse of the Allied Steel and Wire pension scheme, which left thousands of workers without employment or their promised occupational pension. They are not covered by the Pension Protection Fund, which was introduced by the Pensions Act 2004 for members of defined benefit schemes whose employer went bust after 6 April 2005. The Pensions Action Group campaigned first for the financial assistance scheme to be set up for members of schemes that went bust, then for improvements to FAS benefits to bring them into line with those of PPF members.
In the last Parliament, members of the Pensions Action Group gave evidence to the Work and Pensions Committee on the hardship experienced due to the policy of not indexing pre-1997 benefits. As a relatively new Select Committee Chair, I remember hearing from them at a separate meeting, and it was so moving. Within weeks, unfortunately, different members were dying because of their age. Benefits were not going to their families, and they were not going to have the benefits that we see rightly being given to this group.
FAS members did most of their service before 1997, and most were in schemes that provided for indexation on all members’ pensionable service. Non-indexation of FAS compensation meant that the average award—about £2,700—was progressively lower than the amount expected from the original pension schemes. Terry Monk told the Committee that
“people should get what they paid for—end of story.”
Richard Nicholl said that
“people paid extra effectively, for full indexation…it is only fair that it goes to those who have paid for it.”
I pay credit to the Deprived Pensioners Association, which gave evidence to the Committee about the impact of the non-indexation of pre-1997 on PPF members. Having heard their evidence, the Committee recommended that the Government legislate to allow both compensation schemes, FAS and PPF, to provide indexation on pre-1997 benefits where scheme rules allowed.
I am incredibly grateful to the Pensions Minister for listening and to the Secretary of State for Work and Pensions, who came to the Committee a couple of weeks ago and listened to concerns from members, including the hon. Member for Torbay (Steve Darling). What has happened is right, and I reiterate my thanks.
Manuela Perteghella (Stratford-on-Avon) (LD)
I rise to speak to two new clauses that stand in my name. The first is new clause 3, which concerns the use of the special rules for end of life form to ease the burden on people with a terminal illness seeking support from the Pension Protection Fund or the financial assistance scheme; the second is new clause 19, which deals with fossil fuels and climate risk. Those issues are very different in nature, but they share a common thread: both seek to improve the governance, fairness and long-term resilience of our pension system. I will also speak in support of new clause 11, as it seeks to remedy HSBC’s unjust clawback policy that the Midland Clawback Campaign has been fighting against.
New clause 3 concerns terminal illness and the use of the special rules for end of life form, or SR1. This amendment was born out of the experience of one of my constituents, Nigel. Nigel was diagnosed with incurable stage 4 pancreatic cancer. He told me about the issues he faced in providing several forms, applications and other bits of paper to providers just to demonstrate eligibility and his terminal illness. He told me his story and about the hurdles he encountered following his diagnosis, at what was a very stressful time.
Jim Shannon (Strangford) (DUP)
I have been contacted by some Members of the Northern Ireland Assembly about this issue—the thresholds in cases where a death occurs unexpectedly or suddenly, or when an illness comes on very quickly. When the Minister sums up at the end, I hope he will address that issue, for the sake of those Northern Ireland Assembly Members who asked me to raise that very question today. The hon. Lady is right; well done to her for highlighting this issue.
Manuela Perteghella
I thank the hon. Member for his intervention. When people get terminal illnesses, it is a time full of grief and stress, so new clause 3 aims to address the bureaucratic barriers those people face in accessing compensation or assistance from the Pension Protection Fund or the financial assistance scheme. At a moment when time is precious and stress is already immense, too many people are forced to navigate repeated administrative hurdles simply to demonstrate what another arm of the state has already accepted.
The new clause would require the Secretary of State to set out a clear, fair and straightforward process for demonstrating terminal illness—one that places the least possible administrative burden on the individual. Critically, where the Department for Work and Pensions already holds a valid SR1 form confirming a terminal diagnosis, that form must be shared with the PPF or the FAS; the person should not have to start again from scratch and provide several forms or applications again. Once the necessary information has been received, the PPF and the FAS should be required to make payments within a defined timeframe.
These are not abstract procedural improvements: they would materially affect the quality of the precious time a terminally ill person has left. New clause 3 reflects the explanatory statement’s intent to allow a valid SR1 form to serve as sufficient proof of terminal illness for these purposes, reducing duplication and speeding up support. It is a modest, humane and pragmatic change, and I hope the Minister will consider it in his concluding remarks.
I turn now to new clause 19, which deals with fossil fuels and climate risk. The new clause would require the Secretary of State to make regulations that would require specific schemes to exit investments in firms that are significantly exposed to thermal coal, and thereafter to review whether that restriction should extend to oil and gas expansion. This is a financial risk measure as much as it is a climate one. Despite the welcome climate reporting requirements in the Pension Schemes Act 2021, schemes remain heavily invested in the most damaging fossil fuels. These investments are doubly harmful. They risk becoming stranded as technology and policy move on, and they depress returns across the rest of the portfolio by contributing to climate damage that ultimately, as we have already heard, drags down the entire global economy.
Edward Morello (West Dorset) (LD)
I thank my hon. Friend for speaking to this important new clause, which relates to the fundamental fact that pensions are about planning for the future, and climate change is about making sure that we have a future for all. Having pension funds supporting anything that undermines the outlook for future generations should be prevented in any which way we can. I just wanted to lend my support to her wonderful amendment.
Manuela Perteghella
I thank my hon. Friend for his important intervention. New clause 19 would not create a precedent for ministerial direction of investments more broadly, if that is an issue. In fact, it would be much narrower than the Government’s own proposed reserve power. Existing measures cannot substitute for action now. Large schemes remain invested in the most dangerous fossil fuels, and the Government have not yet even consulted on transition plan requirements for pension schemes, meaning that enforcement is unlikely before the end of this decade.
I urge the Minister to acknowledge that transition plans alone are too little, too late, and we must address pension fund climate risks this decade. New clause 19 would provide a route to do so responsibly and effectively. Taken together, these two new clauses—one addressing long-term systemic financial risk and the other addressing immediate human need—would make our pension system more responsible, more resilient and more compassionate. I hope the Minister will consider them both in that spirit.
Finally, I will speak in support of new clause 11, which would introduce an independent review into state deduction in defined benefit pension schemes. That is necessary because Midland bank’s—now HSBC—outdated clawback policy has misled 51,000 former employees and deprived them of the pensions they were promised. This policy, which was abandoned by most organisations in the 1980s, allows HSBC still to deduct the value of an employee’s state pension using a 77-year-old formula, with payslips disguising it as “state deduction”. It hits the lowest-paid staff hardest and disproportionately affects women. For the same reason of long-standing injustice, I also support all the new clauses and amendments in relation to the indexation of pre-1997 benefits. In conclusion, this Bill is a chance to make pensions fairer, greener and more ethical and to put some of this historic injustice right.
Liam Byrne (Birmingham Hodge Hill and Solihull North) (Lab)
I begin by congratulating the Minister on bringing the Bill forward to this stage. He has been one of the country’s practical idealists since I first began working with him in 2008, and he is demonstrating those credentials once again in stewarding this Bill through the House today with such expertise and intelligence. He, like me, has long been concerned not only by the endemically low investment rates in this country—now languishing at the lowest in the G7—but that we should build up a system of universal basic capital, so that the wealth we create in this country is more fairly shared.
I rise to speak to clause 17, which is in my name, and I give enormous thanks to the 33 Members from all parts of the House who have added their names to it. That depth of cross-party support tells us something important: that here in this House is broad and deep support for the principles enshrined in the new clause. There is a shared belief across this House that working people should be able to use their savings to build a richer and stronger country in which to retire.
My new clause calls for something very simple. It calls for something that has been missing for far too long. As we know, pension fund trustees have fiduciary duties to the people they represent and the people they serve, but those duties need clarity, and for too long that clarity has been missing. What we have instead is confusion, and from that confusion comes a caution, and from that caution comes a world in which pension scheme providers are simply not investing what they could and what they should in the productive assets of our country.
The flight of British savings from investment here has long bedevilled the country. It is a sight to behold. We are not short of savings, but we are desperately short of investment. We have somehow magicked a situation in which we have £3 trillion-worth of long-term savings, but we have the lowest investment rate in the G7. I think the Bill will help to turn that around. I think it will help to break that curse. There is much in it that is welcome: the consolidation of funds, the consolidation of pots, the simplification of structures, and a stronger framework for long-term investment. For all its virtues, however, as it is drafted today we are still left with the core problem, and unless we solve that core problem, the Bill’s noble ambitions will be defeated by its notable omissions. We risk creating bigger and better-managed funds that still fail to invest in our country, and still fail to invest in our country’s future.
The Bill will fail to channel the investment that we need in affordable homes, in net-zero investments, in cleaner power systems, in affordable transport systems, in the social care that we all need for the future, in regeneration, and in the national infrastructure of growth. It will fail because it fails, as currently drafted, to clarify exactly what it is that pension fund trustees can consider. We want those trustees to have the freedom to invest in good things here, not out of some patriotic flourish but because it is plainly in members’ best interests. When national investment grows, our national productivity rises, and when pension pots get bigger, they will get bigger faster if we have a country that is more productive and growing faster than it is today. When a country grows, the returns that shape retirement grow with it.
Many scheme providers today simply do not feel that they have the permission to make those investments. They are unsure of the law. They fear litigation. They worry about the possibility that looking at system-level risks, from low productivity or high housing costs or climate stress, might fall outside their legal remit. This is where the problem lies. It is a paradox that I think we can no longer ignore. We ask trustees to act in members’ best interests, yet the law today is so unclear that many of them feel unable to invest in the very things that could secure the long-term interests of their members: growth, productivity, and the living standards on which those members will one day rely. Today’s rules were built to ensure prudence, but what they are doing is creating paralysis. A framework that was meant to safeguard the future is, in practice, preventing pension savers from shaping that future. Scheme providers want to do more, members expect them to do more and our country needs them to do more, but all that can only happen if Parliament now provides the clarity that the courts have not provided.
This is not an academic matter. At a recent conference, fewer than one in five practitioners said that fiduciary duty was “completely clear”. I believe that 31 industry leaders have now written to the Minister for Pensions to request that legal clarification, including a dozen chief executives. Publicly, the chief executive of Nest, the provider of the UK’s largest defined-contribution scheme, has said much the same.
Fiduciary duty dates back to case law that is centuries old, back to a 19th-century brick factory in Pontefract and, before that, the inheritance of a market lease at some point in 1726. I am afraid that these cases simply cannot answer the questions that trustees must answer today, and they cannot help with the challenges that trustees face today: globalised portfolios, system-wide risks, intergenerational impacts, and the real-world living standards of their members. That is why the spirit of new clause 17 is so important, modest though it is. It does not alter the statutory purpose of pension schemes, and it does not ask a single saver to accept lower returns. What it does is cut through the confusion and allow the Government to produce regulations and guidance that spell out clearly and consistently what trustees must consider, and what they may consider, when making investment decisions.
I warmly welcome the Minister’s commitment to introduce new legislation. I hope that if he gets his skates on, he can table an amendment in the other place once the Bill moves from our precious hands, but mere guidance is not enough, because sometimes it can be ignored. Guidance does not eliminate liability risk and does not give trustees a solid statutory floor, so I urge the Minister to ensure that the legislation he brings forward delivers guidance that is statutory in its bite. I urge him to go big, by pairing guidance with underpinning regulation that gives trustees legal clarity; to go broad, by ensuring that every single kind of scheme falls within the ambit of the legislation; and to be specific, by explaining precisely what those powers can be used for and the way in which they can be allowed to ensure productive investment. That clarity, if we get it right, could avoid the need to resort to the mandating powers that some Members of this House have objected to. It could unlock investment by giving schemes confidence to act, rather than making them fearful and hesitant.
We in this House have a profound duty to ensure that the maximum amount of pension savings in this country not only yield a return to give comfort to savers in their golden years, but do a double duty: they should help to provide the productive investment that we need to build a bigger and richer country. After all, a nation that invests is a nation that builds, and a nation that builds is a nation that will grow its pension pots to help ensure that pension savers enjoy their golden years in comfort.
The steps that we have heard from the Minister go some distance towards helping us deliver on the spirit of new clause 17. I am very grateful to him for his announcement today, which could unlock billions of pounds for affordable homes, clean energy and comfort in retirement for millions of the people we came to this House to serve.
Ann Davies (Caerfyrddin) (PC)
I thank the Minister for his opening remarks this afternoon. The Bill has provided an opportunity for the Labour UK Government to address long-standing pension injustices. Such injustices include the British Coal staff superannuation scheme scandal, whereby surplus sharing arrangements saw billions of pounds heading to the Treasury while former mineworkers’ pensions were eroded, and the lack of indexation for pre-1997 pension accruals under the financial assistance scheme and the Pension Protection Fund, which has caused hardship for pensioners. Addressing such scandals is exactly what my new clauses 2 and 6 set out to do.
New clause 2 would require the Secretary of State to set out a timetable for transferring the whole of the BCSSS investment reserve to members, and to commit to a review on how future surplus will be shared. The coal mining legacy of south Wales extends to my constituency of Caerfyrddin, with the Amman and Gwendraeth valleys bearing the scars of previous industry, so it is of no surprise that my constituents were among those whose funds had been withheld, causing immense hardship for pensioners who had paid into the system for decades. In fact, it affected over 180 residents in my constituency, 20 of whom came to a drop-in earlier this year to share their stories of how this long-running issue has affected their lives.
When the hon. Member for Aberdeen North (Kirsty Blackman) kindly moved new clause 2 on my behalf in Committee, the Minister’s answer gave some hope for long-awaited action. I therefore welcome the recent confirmation that the UK Government have finally listened and have implemented the transfer of the full £2.3 billion reserve to trustees. I pay tribute to my constituents for their hard work, and to former mineworkers everywhere for their long-fought campaign to make this day a reality. On behalf of 180 of my constituents, I thank the Minister.
Former Allied Steel and Wire workers have also campaigned tirelessly to receive their rightful dues in retirement. When the company went bust in 2002, ASW employees lost not only their livelihoods, but the pensions they had worked hard for, and which they were relying on for security later in life. The financial assistance scheme and the Pension Protection Fund were introduced to provide some relief to pensioners in such a situation, but pension contributions made before April 1997 were not inflation-proofed, leaving pensioners without the secure retirement that they were promised.
Dr Scott Arthur (Edinburgh South West) (Lab)
I thank the Minister for introducing the debate. I want to speak in support of Government new clauses 31 to 33, and in the context of new clause 22. Before I do so, let me say that I think it is really good that today’s debate has brought people together after four days of debate on the Budget. There seems to be a lot of agreement today, which is good. In particular, we are agreeing on the pre-1997 measures that were announced in the Budget last week. Nobody mentioned them much in their speeches over the past few days, but today we are all talking about them, which I think is really good.
I warmly welcome the Government’s confirmation in the Budget that we will legislate to allow the Pension Protection Fund and the financial assistance scheme to provide some inflation protection for pre-1997 pensions. This is an issue I have campaigned on, alongside Members from across the House, and I am genuinely pleased to see concrete progress included in the new amendments to the Pension Schemes Bill before the House. I thank the Minister for meeting me in the Treasury in the week running up to the Budget, and for drawing the Chancellor into that discussion. We had our picture taken in the Chancellor’ office, and one of my constituents spotted that there was a mouse trap, which shows that the Treasury hangs on to even the crumbs, as well as to the pounds and pennies.
For years, more than a quarter of a million PPF and FAS members have seen a significant part of their pension frozen—left to lose value year after year—and last week’s announcement begins to right that wrong. It matters deeply for people in Scotland. More than 26,000 pensioners will be helped by this change, which is 26,000 former workers in manufacturing, retail, hospitality and countless other industries. Having spoken to many constituents in this position, I know that many of them have felt forgotten. This reform sends a message that they have not been forgotten, and also that they have been listened to, which I think is even more important.
This decision is important not only for what it delivers, but for what it signals. By acting, the Government have effectively acknowledged that the lack of pre-1997 indexation was an injustice. By recognising that injustice in the public system, I feel that the Government have established an expectation that the private sector must also look at this matter.
The private sector requires encouragement in this area, as a number of companies—primarily under US ownership, in my assessment—are not currently providing regular discretionary increases on pre-1997 pension payments. Many of my constituents, pensioners who used to work for the likes of ExxonMobil—it has been mentioned a few times—and Johnson & Johnson, have told me of sponsoring companies taking a 10-year funding holiday from pension payments into the fund, while simultaneously blocking the indexation in payments. I take the view that the money in the funds belongs to the pensioners and that the funds themselves have a responsibility to move that money from the funds into pensioners’ pockets—and hopefully into the tills of local businesses in my constituency.
The Pensions Regulator itself notes that 17% of pre-1997 pensioners receive no inflation protection, not because of actuarial need but because scheme rules enable companies to do so. For a long time this was an academic matter because inflation was so low, but over the past five years it has eaten some pensions alive, and affected pensioners in Edinburgh South West are now really feeling it. I hope very much that the private pension schemes that do not already provide significant indexation to pre-1997 pensions but have the financial capacity to do so—many do—will see the signal from the Government’s changes to the PPF and the FAS schemes and improve their own schemes for the benefit of those pensioners. I have some slight concerns about the Bill, in that it might not go far enough in forcing them to make those improvements, but I have great faith in the Minister’s negotiating powers.
It is hoped that the surplus release enabled by the Bill will help to underpin additional corporate investment in the UK, but there is a risk that in cases such as ExxonMobil it may simply enable such companies to move the money in those funds outside the UK and into the bank balances of shareholders in other countries. That money really does belong in pensioners’ bank accounts, but there is a credible argument for also using it to invest in the UK. It does not seem like a good outcome for that money to be lost to our economy.
That can be avoided by addressing the issues of trustee governance. Some trustees undoubtedly act in the interest of scheme beneficiaries, but scheme rules do not always allow it and contrary guidance from the Pensions Regulator may be non-binding. Additionally, trustee boards often lack independence, particularly when we see a majority or even all members have been appointed by the employer—perhaps a conflict of interest. Mindful of that, I commend the Minister for announcing that his Department will consult on trust-based pension scheme governance, strengthening the member voice and supporting lay trustees working closely with the Pensions Regulator to ensure that trustees act in the interests of all beneficiaries, and comply with the law and their scheme rules. Again, the money belongs to those beneficiaries.
I have high hopes for the review, as we need significant reform if we are to secure meaningful protection for these pensioners. The urgency is clear: many of these individuals and their spouses are of an advanced age—I hope none of them hears me say that and thinks it is an insult—and we need to act quickly if they are to benefit. Addressing this injustice requires not only technical improvements in governance and trusteeship, but the political will to act. I am proud that this Labour Government are stepping up to act and looking at this issue in detail. We saw progress last week in the Budget and there is a commitment to do more.
Before I end, I want to touch on two slightly aligned issues. First, we have spoken a lot, across the House, about people who have pre-1997 private pensions and we worry that those pensions are not enough to support them. Each week, in Oxgangs in my constituency, I go to a community meal where I meet people who do not have any private pension. They survive on the state pension, often in quite difficult circumstances. When we talk about poor pensioners, it is right that we think about pre-1997 and others with private pensions who are struggling, but we should never forget who is really feeling the cost of living crisis.
Secondly, I have to thank my union, the University and College Union, for the work it has done over many years to protect my pension. I know I will benefit from that. Hardly a month goes by without me getting an email from it saying that there is some risk to pensions in a university somewhere in the UK. I commend it for its work.
Kirsty Blackman
I appreciate the chance to speak in this debate, especially without time limits—it is lovely. I absolutely love a very technical debate in the Chamber, but unfortunately not enough Members do. It would have been nice to see huge numbers delighted to talk about the technical aspects of legislation, but being a veteran of previous Finance Bills, I am aware that there is not often a huge turnout for these debates.
I am thankful for—but have a few criticisms of—the Government’s position throughout the Bill. I will start with a couple of issues around timing. It is appreciated that the changes are being made. The hon. Member for Edinburgh South West (Dr Arthur) mentioned the Budget debates, and I mentioned in my speech then how delighted I was that the change had been made, and how great it was that pre-1997 indexation would be taking place.
However, when I made my speech last Thursday, we had not yet seen the Government amendments. I was aware that there would be Government amendments, because it had been announced, but we did not have the opportunity to properly scrutinise them, or to consider whether those amendments should be amended, because of the timeline of when the details were provided. I appreciate that the Minister tabled the amendments in advance of the deadline, which is great, but there are questions that I potentially would have asked, and I may have tabled some probing amendments, if I had seen those Government amendments in advance.
On the 1997 indexation, I apologise that on Thursday, when I was talking about this, I mentioned the FSA instead of the FAS—I apologise to the Food Standards Agency; I did not mean anything by it. If I do that again, I apologise. In terms of the PPF and the FAS, the PPF got in touch with me last week, and I had a good meeting with it about what the indexation will look like and how many members would potentially be impacted. It suggested that it was getting in touch with 165,000 members, which I thought was a very significant number, with an impressively fast turnaround in the time it was looking to reach out to them. Those are significant numbers, and I appreciate that.
However, I am concerned that the uplift does not involve a one-off payment in order to bring the pre-1997 contributions up to some sort of level. The contributions were made pre-1997, so the compound interest on that would be unbelievable—it would be very significant. If there is no one-off payment to be made, and no recognition of the fact that the indexation has not taken place, then we are looking at adding 2.5% a year on to a tenner—or whatever—instead of 2.5% every year up until now, which would be a significantly different sum.
I appreciate that the change has been made, and I also appreciate that the PPF levy is still going to have the potential to reduce to zero. The PPF’s plans are still intended to go ahead, and it is still able to meet its financial obligations, even with the changes that have been proposed by the Government. However, I would appreciate it if the Government considered the possibility of a small one-off addition to the pre-1997 accrual that members have, in order to bring them closer to what the pension should have been if they had had that indexation previously.
Older pensioners are the group affected, some of whom are very unwell. As was mentioned by the Chair of the Work and Pensions Committee, the hon. Member for Oldham East and Saddleworth (Debbie Abrahams), a number of them are no longer with us. The Chair also mentioned Terry Monk, who has been in regular contact with me via email, and I thank him and all of the members who have fought so hard for this change. They have achieved something, although I expect they will probably go on fighting for more. I can understand that and I will be happy to back them in the search for more justice.
On some of the other issues that have been brought up in this debate, around the fiduciary duties, the right hon. Member for Birmingham Hodge Hill and Solihull North (Liam Byrne) and I probably have a similar idea of what “best interests” looks like, what the words “best interests” mean, and what the interests of scheme members are. Some of the ideas that he was talking about around investments are ideas that I would fully align with.
However, we can all define best interests in different ways. The shadow spokesperson, the hon. Member for North West Norfolk (James Wild), talked about the fact that fiduciary duties mean having to get the best returns—he said something like that—but it is not the best returns, but the best interests. Some people may define best interests as best returns, but some people may not. Some might define best interests as better transport systems for the majority of the scheme beneficiaries who live in a certain area, for example; if there were a more efficient transport system, more housing and better schools and hospitals, that would significantly benefit those members in that area.
Liam Byrne
The hon. Lady is absolutely right. Many members would say that they wanted their investments to help to create a more equal country—a less unequal country—not least because we now know from the work of the OECD and the International Monetary Fund that more unequal countries grow more slowly.
Kirsty Blackman
Absolutely. Productivity and growth are real possibilities if there is better patient capital investment, not just in social housing and renewable energy projects, which I would dearly love to see and have spoken a lot about—in particular social housing—but in tech and appliances, so that companies can use capital investment that is invested for the long term. That could have a significant impact on productivity.
Turning back to the Minister’s announcement around fiduciary duties and that definition, although there will of course be political argument about what best interests mean and how we define best interests, trustees will at least have the benefit of the guidance and will not necessarily labour under the misapprehension that they have to get the best possible financial return.
I draw the Government’s attention to the Well-being of Future Generations Act 2015 in Wales, which I talk about a lot, and which is about making the best decisions for the future. It is not necessarily about chasing economic growth at any cost; it is not necessarily about building certain things. Instead, it is about ensuring that future generations are best provided for. Some of the lessons that could be learned from that could be put into the fiduciary duties consultation that is coming forward about what the term best interests actually means and how it could be defined.
We have largely covered the mandation powers and their direction in the discussion of fiduciary duties. I am pretty relaxed about there being some mandation and some requirement, not least because of the points the right hon. Member for Birmingham Hodge Hill and Solihull North made about the growth in the economy that is likely to occur should capital be invested more in things that will increase productivity. There probably is a balance to be struck between benefiting pensioners of today and the future; if there is a lower return for pensioners 30 years in the future, we might again be causing a level of generational unfairness that we need to think about. How does that balance up? Does that new hospital or that new social housing provide enough of a benefit for those younger people, who will become pensioners in 30 or 40 years? Does that stack up? I do not think that will be an easy decision to make.
However, generally I think we can look at mandation; I do not take an ideological position against it like some with Conservative beliefs. I am, though, happy to support the Conservatives in their amendment that would require a report on what those mandation powers look like, because the more transparency from the Government—the more transparency from everybody in this place, frankly—the better. I therefore think a report on that would be absolutely grand.
I will mention a couple of other things. New clause 3 about terminal illness is a really neat solution to a problem. My local authority has implemented a “Tell us once” policy, whereby if someone has had a bereavement in their family, for instance, they have only to tell their distressing story to the local authority once and everything will be changed—their council tax and benefits—and they will no longer get various charges. I therefore think the solution proposed in new clause 3 is neat.
The Minister might come up with some issues around potential data sharing between the PPF and the DWP. However, if he could come up with a solution so that people do not have to tell their distressing story numerous times—having to explain again to somebody else that they are terminally ill and having to provide a huge amount of paperwork to do that when they have already had to do that with the DWP—that would be hugely helpful.
My understanding from my conversation with the PPF on Friday is that it is pretty good at supporting members, and I felt that it would be willing to be flexible about this should it get direction from the Minister and should the data-sharing issues be sorted out, but I am just guessing—I am not putting words in the PPF’s mouth. I just feel that it is a very member-focused organisation and might be quite keen to support its members in that regard.
Dr Arthur
This is a very slight aside, but is it not interesting that, when it comes to claiming benefits, there are so many silos and barriers to organisations, councils, Government agencies and Departments talking to each other, but they suddenly start speaking to each other and the benefits are stopped overnight when someone passes away?
Kirsty Blackman
I would like to see much more conversation. Gateway benefits allow people eligibility for other things, and sometimes those do not work either. A person might be eligible for universal credit, but they do not necessarily get the follow-through to free school meals, for example. Anything we can do to make that path smoother, either in the cessation of benefits or in agreement on eligibility, would be really helpful. I agree with the hon. Gentleman; we have seen issues with carers, for example, being chased for overpayments that were not their fault.
Again, I support the Government’s move on the consolidation of small pots, which I think is incredibly sensible. I am famously a massive supporter of the pensions dashboard and have never been at all critical of its timelines, but when it comes online there will be a rush for consolidation anyway. This is all about consolidation for people who have not touched their small pots, and making sure they get a return from that is totally sensible.
Guided retirement and the mid-life MOT are mentioned in a number of amendments, and ensuring that people are given the correct advice at the correct time is incredibly important. When the Government do their sufficiency review—when we are looking at the adequacy of pensions and what people will get when they hit retirement—I would be very surprised if that and the consultation do not conclude that more people need more advice earlier. The more advice that people have on their pension, and the more money they put into their pension at the earliest time, the bigger their pension will be.
I have already mentioned compound interest: if we put £100 into our pension when we were 21, it will be significantly bigger by the time we retire than if we put £100 into our pension when we are 40. That is just a fact. The more advice that we can give people at various important life stages, but particularly significantly before retirement, would be really helpful. That is another thing that should be included.
Finally, the hon. Member for Boston and Skegness (Richard Tice) spoke at a press conference about the local government pension scheme and how terrible it is that it is spending so much money on fees. That was in September, after Second Reading, at which he did not speak about that. He did not table any amendments on it before the Committee stage, and he has not shown up to raise it on Report. It is almost as if Reform MPs are saying things in press conferences and not doing any actual work. [Interruption.] I told him I was going to mention him. It is almost as if they make statements in press conferences and do not do anything, just as they have not shown up today.
Should a Reform Member have been particularly keen to make changes to the LGPS—such as to cap the level of fees it can pay, which are probably not unreasonable, as the LGPS is phenomenally successful in its returns for members—they could have amended the Bill, but they would have had to show up to do so. I suggest that the media organisations who are happy to cover press conferences ask the Members giving those press conferences what they will actually do to get their policies implemented. If such Members have an opportunity, they should use it rather than just shouting from the sidelines.
As I think I have made clear, I am largely supportive of an awful lot of things in the Bill, the direction of travel and many of the technical measures, which are great fun to have a good look at. I have some concerns about pre-1997 indexation. I am delighted that it has happened, but more could have been done. I will be interested to follow the progress of the fiduciary duty statutory guidance and the sufficiency and adequacy review and whether there will be mandation powers.
Lastly, on new clause 3, can we please make it easier for members who are terminally ill to have that conversation? I would very much appreciate the Minister committing to taking that away and considering how the PPF and FAS can get that information more easily without requiring people to jump through significant hoops.
Jayne Kirkham (Truro and Falmouth) (Lab/Co-op)
I welcome the real progress made on the pre-1997 fund. I do not have as much specific technical knowledge as most hon. Members in the Chamber, and I was not on the Bill Committee, but I have looked at the amendments and would like to comment on them, as I was lucky enough to chair a local government pension scheme committee—I think it was very well run—and sit on a pool oversight board. I will use that experience as an example.
Our LGPS in Cornwall was a good example of responsible investment and good practice in the sector. The Bill will consolidate LGPS funds into six pools from eight on the basis that that will be effective in achieving scale and diversification of assets and cost savings. Brunel—the pool that Cornwall is in—is not to go forward. Forming Brunel was costly and, as I said on Second Reading, the Cornwall fund was due to break even following the forming of that pool only this year. The costs involved in moving to another fund are expected to be high, which concerns me, as that may impact members, though we hope those costs will be recouped by investment growth as a result of the consolidation.
Being in a bigger pool did enable funds to invest in local infrastructure such as housing, transport and clean energy. Cornwall was good at that: we used our £2.3 billion—not a huge fund when we think of the size of many of these pools—to invest in affordable rental housing near Camborne, where 67 new homes were built on a brownfield site. I am looking forward to seeing the infrastructure projects that further consolidation will make possible.
On Second Reading, I raised concerns that moving to larger funds may affect local links. Brunel is a strong south-west pool and, although it covers as far up as Oxford, we have managed within that pool to be effective on a local level.
The Environment Agency—I noted the amendment on that—was part of our pool, and it did have slightly different rules, which was tricky and somewhat impacted on our pool. I am pleased that the scheme managers will now have a duty to co-operate with strategic authorities, as the inability to do that often led to perhaps unintended consequences. In social housing, for example, we may have been looking at investments that were the same as the local authority’s. It would make sense to be able to talk about such investments so that we are not doing silly things like competing against each other.
In Cornwall, we had a strong responsible investment policy, and our carbon-neutral date was earlier than the rest of the pool by five years. We were able to maintain those policies and our environmental, social and governance focus by having a strong presence on the oversight board, which enabled us to influence the pool and be a bit different within it. I hope that will continue so that pools do not end up following the lowest common denominator when it comes to things like social impact, investment and ESG matters, but instead will be raised up to the highest level. In our local fund, we had employers and employees on our pension committee, and that worked well. The union reps and the employers gave some very valuable input, and I think that would be valuable for the larger pools as well.
Our local social impact fund was, in the end, 7.5% of our investments. We could channel our investment into rented housing and local renewables in Cornwall, as well as more widely around the UK, and I hope that local government pension schemes will still be able to set their own local investment targets in that way, even when working with local authorities.
Vikki Slade (Mid Dorset and North Poole) (LD)
I welcome the overall thrust of the Bill. Measures such as the pension pot consolidations are long overdue and will make a real difference to savers, particularly small savers. Every new year, I try to tidy up the numerous tiny pensions from jobs I had in my 20s and 30s, but the pots are so small that the cost of a financial planner and the exit fees would wipe them out, so this reform is great news for consumers who have been on low incomes and have moved from job to job. I urge the Government to go further by lifting the threshold. After all, a pension pot of £10,000 will generate a payback of only around £50 a month, which is barely enough to cover a basic weekly shop. The Bill goes in the right direction, but it does not go far enough or move fast enough. I am concerned that it leaves groups of pensioners who did the right thing by saving for the future considerably out of pocket.
Like others in the Chamber, I welcome the long-overdue decision to provide some indexation for pre-1997 pensions in the PPF and FAS, but let us be clear: this is not full justice. These pensioners have endured decades without inflation protection, and a CPI increase capped at 2.5% starting in two years’ time, at a time when the cost of living has soared, is still going to leave people struggling. They expected fairness and parity with post-1997 benefits, but what they have received is a compromise that falls short of restoring their full dignity and security in retirement. I call on Ministers to support the calls of many people, including the hon. Member for Llanelli (Dame Nia Griffith), to ensure that pensioners outside the PPF and the FAS are fully supported.
The case of AEA Technology pensioners is a long-running injustice that I have been dealing with since my first days in this place. Employees, who were often nuclear scientists and safety engineers, were promised pensions “no less favourable” than the civil service scheme, and many worked at the Winfrith atomic energy establishment, just outside my constituency in Dorset. I have met and talked to a number of them, including Peter, Phil, Sally and Michael, as well as Jonathan, who wrote to me saying that
“nearly 20% of AEAT pensioners have died since the campaign started in 2012, including my colleague and campaigner Derek Whitmell. This has echoes of the Post Office and infected blood scandals. Delay by the Government is simply unacceptable…this is now in sharp focus for me with Derek’s passing”.
Those pensioners trusted the promise that the Government gave them at the time, yet after AEAT collapsed, their pensions were cut by almost half, with inflation protection stripped away. Today, the fund holds far in excess of what is needed to restore their pensions in full, yet thousands of them remain short-changed.
I recognise the changes in the pre-1997 pensions announced last week, but they are woefully inadequate. That is not just unfair; it is a breach of trust. New clause 1, tabled by my hon. Friend the Member for Didcot and Wantage (Olly Glover), calls for an independent review so that we can finally deliver justice for those pensioners, just as the Government have started to deliver justice on many other historical scandals, which I welcome. This is one of those scandals.
I turn to another. While the Government’s intention to allow surplus sharing of defined benefit schemes is welcome, the Bill as drafted leaves pensioners exposed. UK DB schemes hold an estimated £222 billion in surplus, yet 88% of those funds have failed to use those surpluses to restore pensions eroded by inflation. Companies such as BP transfer the assets to insurers in bulk annuity deals worth £50 billion annually, while pensioners see their living standards fall.
My amendments 17, 18 and 19 seek to put fairness at the heart of the process. Amendment 17 would ensure that surplus sharing principles applied even when schemes were wound up. Amendment 18 would require consultation with members before the surplus was extracted, and amendment 19 would reinstate trustee consent and oblige trustees to consider whether pensions had kept pace with inflation and past requests for discretionary increases.
Mr Alistair Carmichael (Orkney and Shetland) (LD)
I have several BP pensioners, with BP obviously having operated the Sullom Voe terminal in Shetland for many years. The injustice they suffered, which left them with a pension worth about 11% less than it should have been because of the decisions of the trustee in 2021 and 2022, showed the inadequacy of the control and independence of the trustee in relation to the company. Does my hon. Friend agree that that requires urgent attention?
Vikki Slade
I thank my right hon. Friend for his intervention—he has stolen my next line.
John, who works at the BP depot at Wytch Farm, which is the largest onshore oil site in England in Poole harbour, told me that his pension has been eroded by 11%—he probably got the same letter as my right hon. Friend’s constituents. Even modest requests for discretionary increases made by the trustees have been refused by the parent company. Those discretionary increases were affordable; they would not have required any additional funds from the company. Another of my constituents, Suzie, who sits on the steering group, told me that the issue affects 56,000 pensioners from BP alone, but the change—a small one—would support pensioners from many other companies.
I will end by talking to new clause 3, tabled by my hon. Friend the Member for Stratford-on-Avon (Manuela Perteghella). I do so in memory of my mum Lin Foster, who died before she could access her pensions, and in support of my constituent Judith, who came to see me about her sister Alison, who died after receiving a terminal brain tumour diagnosis. Alison found that the paperwork required to access her lump sum meant that she would have to articulate and confront her impending death—something that she simply could not do on top of everything else. It meant that, as a result, she missed out on funds that could have made her last few months more bearable, as well as on potentially accessing treatments that might have given her a bit more time with her family. This simple clause would have allowed her medical team to make that declaration on her behalf via an SR1 and to reduce the administration for all concerned.
The Bill goes a long way in improving the lives of pensioners, but for the pensioners who are missing out, small changes could make a huge difference. I urge Ministers to think about the impact they could have on lives by little tweaks that will not cost the Government anything, or very much, at all.
Peter Swallow
Can I say at the outset how much I have enjoyed the debate? I particularly want to highlight the contributions of my hon. Friend the Member for Llanelli (Dame Nia Griffith), who powerfully raised some of the issues that I will go on to address, and—purely because I enjoyed the fiscal geekery—the contribution from the hon. Member for Aberdeen North (Kirsty Blackman), who rivals the Minister himself in her enthusiasm for financial issues. What a delight it was to experience that.
I welcome the opportunity to speak on this Bill, which touches on several issues close to my constituents in Bracknell Forest. It is also worth acknowledging the strong action that the Chancellor took in the Budget to support all pensioners by raising the state pension by up to £550. That is possible only thanks to Labour’s steadfast commitment to the triple lock on pensions. That is real action on pensioner poverty, at a time when the Conservatives and Reform have flirted with scrapping the triple lock.
Similarly, the Bill delivers real benefits to private pension savers across the country by simplifying and streamlining the system. The measures will increase their returns—around 3,300,000 workers on defined contribution schemes in the south-east alone stand to benefit by about £29,000 more for their retirement—while helping to unlock around £50 billion of investment in the UK economy. Hon. Members need only follow the Minister on Twitter to see why it is so important that we increase investment in the UK economy after many years of under-investment by the previous Government.
I thank the Minister for the work to get the Bill to this stage. I welcome in particular the measures providing for action on an issue close to the hearts of many in Bracknell Forest: the slow erosion of pre-1997 defined benefit pensions. It is for that reason that I will focus on new clause 22, which calls for the indexation of pre-1997 pensions. I sympathise deeply with the spirit of the new clause. The erosion of those pensions is an injustice—one that urgently needs addressing. It is important to say that not all pre-1997 schemes are in surplus. Although I agree that that is not the fault of their members, legislating to index would put entire schemes at risk, and I believe that that is not a risk that any sensible Government would take. However, it is vital that the Bill marks the beginning of further action to bring justice to those with pre-1997 defined benefit pensions whose schemes are now in generous surplus.
I was delighted when the Chancellor announced at the Budget statement that members of the Pension Protection Fund will have their accruals protected from inflation, ending years of degradation. That has been carried through in amendments before us. I welcome the recognition in principle that those with pre-1997 pensions are indeed facing an injustice, and that action must be taken to rectify it. I have met many constituents who were formerly employed by HP and later HPE, which used to be based in Bracknell. They are now members of the HPE pension scheme, and have seen their returns decimated. I have spoken with other pensioners in other schemes, too—many of which have been mentioned by others Members across the House. It is not right that people who have worked hard and paid into their pensions now face ever-diminishing life savings through no fault of their own, despite many schemes, including HPE, having significant reserves.
One of my constituents, Ed, began drawing from his pension nine years ago. In that time, his pension has increased only three times, by three separate percentage increments: 3%, 1%, and 1%. He says that, had his pension risen in line with inflation, he would have seen his pension increase by around 38% over the years to 2025. As a result—this is the real-life impact—he has seen a dramatic fall in his living standards. Ed is not alone. Constituents in Bracknell and across the country should not have to fight any more to make themselves heard and achieve justice.
This is an opportune moment to do what we can to put that right. In the Bill, the Government are reforming the use of surpluses, rightly strengthening the hands of trustees to act, as the Government themselves have done for the PPF scheme, for which they effectively act as the trustee—they are leading by example. I thank the Chancellor and the Pensions Minister for meeting me to discuss that before the Budget. The Minister has been clear on his expectations of trustees following the passage of the Bill, including in his contribution today, and I thank him for his comments, specifically on strengthening guidance for trustees.
Today must be the beginning, not the end, of the story. I have written to the trustees of the HPE scheme urging them to use the powers in this Bill to right the wrong.
I wanted to take this opportunity to call once more on the trustees of the HPE scheme, and other schemes similarly in surplus, to do everything in their power to ensure that pre-1997 pensions are protected from inflation, and I wanted to do so on the Floor of this House because I think it important that we are as clear as possible that trustees will be given the powers they need to act and should follow through with concrete action to protect pensions. That is the right thing to do, and with the powers the Government are granting in the Bill, it is now in their hands to do it.
John Milne (Horsham) (LD)
I shall speak to new clauses 8 and 13, which stand in my name, among others.
With its title, the Pensions Schemes Bill, this piece of legislation was probably never destined to grab headlines—sorry, Minister, but that is the case—which is a pity, because it contains some genuinely intelligent measures, developed over years with significant cross-party support, and could go some way to boosting UK plc, as we all want. Directing more of our pension fund savings into UK investments is a long-overdue mission; however, it is not just about what you do, but how you do it, and as I argued in Committee, I am not convinced the Government have struck the right balance with their plan to take sweeping powers of mandation. Yes, we should be concerned about very low pension fund investment into the UK, but the reason behind that is not some form of trustee treason; rather, it is a logical and predictable response to the UK’s regulatory framework and a market that over-emphasises costs, which discourages any kind of active management strategy.
Mandation is the wrong solution. There are other ways to reach the same outcome through partnership, building on the consensus achieved in the Mansion House accord. I strongly urge the Government to look again at creating more ready-made investment vehicles. The biggest risk in mandation is that it could force pension funds to make sub-optimal investments, because they are chasing the same limited supply of UK assets as everyone else.
In addition to more support for innovation and start-ups, like others who have spoken today, I see a fantastic opportunity for large-scale investment in social housing, care homes, high streets, environmental schemes and infrastructure. That would bring huge social rewards, as well as boosting growth, which is the Government’s mission. That will not happen, though, unless the Government help local and regional authorities to pump prime the system with a stream of investable products. To me, that seems like a small ask, and I hope the Government will reconsider.
I am pleased by Ministers’ positive response to some of the amendments we fought for in Committee. That does not always happen. The scandalous treatment of pre-1997 pension savings has been left unresolved for decades, so I welcome this Government being the first to act and their decision to link compensation payments from the PPF and FAS to CPI inflation. Of course, this is far from a complete solution, and indexation applies only going forward, but given that until now there had been no sign of compensation of any kind or of any group, I will take this as a partial win. I pay tribute to persistence of all my Horsham constituents who have raised pre-’97 indexation with me time and again.
Compensation by the PPF is certainly a solution, but we are in danger of missing a one-off opportunity to access pension surpluses. The Bill will give trustees increased access to surplus savings, which have built up in many funds in recent years, which is good, but without some sort of extra push from the Government, it seems to me likely that none or little of the money will go toward pre-1997 pension injustices. In the Work and Pensions Committee last week, I asked the Secretary of State whether he truly believed that the Bill as it stands would help people, and I got a “Yes, Minister” kind of answer:
“I am not going to call stumps on brand new legislation before it has had a chance to have an effect, so let’s see what effect it has.”
That is not good enough. The companies that have not been shamed into action in a quarter of a century are not miraculously going to discover altruism today. Some form of compulsion is required.
I hope that the pre-1997 section will be taken further in the Lords, where the balance of power gives the Liberal Democrats somewhat more leverage than we had in Committee. [Interruption.] It is a wonderful institution—so democratic, is it not? I also welcome the decision to abolish the Pension Protection Fund levy, which had become effectively redundant; that was the subject of another Lib Dem amendment. That move will reduce hidden fees for pension schemes and pass those savings directly to savers.
However, other things are still missing. As someone with a professional background in pensions communications, I argued in Committee for the Government to enable free universal pension guidance at the age of 40, among other stages, when there is still time to change outcomes, rather than waiting all the way to the moment of retirement itself. There is a ticking time bomb of pension inadequacy that must be addressed today, and pensions guidance is an incredibly low-cost way to improve outcomes. The Pension Wise service would be an excellent vehicle for that, and it is ready and waiting for us to use it. If the Government will not back new clause 8, will the Minister meet with me and members of industry to look at how an auto-enrolment trial could finally move this proposal forward?
That brings me to new clause 13, tabled by myself and my hon. Friend the Member for Torbay (Steve Darling), which seeks to strengthen the people-focused elements of the Bill by using pensions services to offer free, accessible guidance to the groups we know are under-saving. If we look at minority ethnic savers, we see that their pension pots average £52,000—less than half of the £115,000 that applies to white British savers. Let us also consider that women are on average set to retire on just £13,000 a year, compared with £19,000 for men—a third less. Disabled workers are approaching retirement with average pension savings of £47,980—just a third of the UK average. The Government rightly say that they want people to be independent, financially resilient and able to pay their own way, but that cannot happen if entire groups—women, ethnic minorities and disabled people—are destined to retire on a fraction of what others are provided with.
There is a lot to like in this Bill, but legislative opportunities come up only once in a blue moon, and a lot more could be done here. I ask the Government to support new clauses 8 and 13.
Elaine Stewart (Ayr, Carrick and Cumnock) (Lab)
I rise to speak to new clause 22. Let me begin by recognising the work of the Hewlett Packard Pension Association, particularly the work of Patricia Kennedy from Ayrshire—she hoped to be in the Gallery today, but she was too ill to travel. Patricia has been a driving force to keep this issue alive, but of course this is not about only one individual; it is about all pre-1997 pensioners.
Earlier this year, I was proud to host Patricia and many of her fellow campaigners in Parliament. That meeting made clear the human cost of inaction—pensioners seeing their incomes erode for decades, and families struggling because the system has failed them. That is why new clause 22 matters. At its heart, the new clause sets a simple principle: pensions earned before 1997 should not be left to wither away. It also follows a principle that the Government have already adopted.
I welcome the Minister’s commitment in his opening remarks to work with trustees to ensure that schemes in surplus, such as Hewlett Packard Enterprise, work to benefit pensioners. If good co-operation is not forthcoming, will the Government look to other legislative means to correct this course? Many of these schemes are backed by profitable multinationals, yet discretion has failed. It has failed with Wood Group, Hewlett Packard Enterprise, STMicroelectronics, Atos/Sema, American Express, AIG, Pfizer, 3M, Chevron, NCR Scotland, Lloyd’s Register, and Johnson & Johnson.
Some pensioners have gone for 10, 15 or 23 years without a single increase. That is not fairness. NC22 would correct that. I am sure all Labour Members agree that pensioners should not depend on the whims of employers, and we should be wary of accidentally creating an entrenched situation in which pensioners in failed schemes receive protection while those in solvent schemes remain unprotected—to me, that seems inconsistent. New clause 22 would address that inconsistency, ensuring that every pensioner has the security and dignity they deserve, regardless of when their service was accrued. I thank the Minister for meeting me to talk over my worries about this Bill.
Susan Murray (Mid Dunbartonshire) (LD)
I start by thanking my hon. Friends the Members for Torbay (Steve Darling) and for Mid Dorset and North Poole (Vikki Slade), who have clearly devoted a lot of time and care to scrutinising the Bill—along with others, of course—and tabling constructive amendments.
As we have heard, the UK pensions market is currently worth around £3 trillion—a staggering sum. The right hon. Member for Birmingham Hodge Hill and Solihull North (Liam Byrne) has already highlighted the opportunity for national investing, as well as to improve the quality of life for pension holders. For too many people, though, the rules and regulations that determine what they will receive in retirement are opaque—as anyone who has worked through the Bill will know—and often deeply confusing. That is why I welcome the Liberal Democrat proposals to introduce a simple traffic light system, which will help people to understand their scheme and how well their pension is performing.
However, understanding is only one part of the picture; people must also be confident that their pension is being managed legally and ethically. I therefore welcome the amendment tabled by the hon. Member for Poole (Neil Duncan-Jordan), which would ensure that British pension funds are compliant with the UK’s duty not to aid or assist serious breaches of international law. After the horror we have witnessed in Gaza over the past two years, and judging by the strength of feeling expressed both by my constituents and by Members across this House, I believe that safeguard would be warmly welcomed.
Like other Members, I cannot speak in this debate without raising the topic of pre-1997 pensions.
Peter Swallow
I apologise for interrupting the hon. Lady just as she is getting on to a point that, as she knows, I care deeply about, but I wanted to tease out a point about ethical investment. What I am struggling with is that her Front-Bench spokesperson, the hon. Member for Torbay (Steve Darling), has spoken against mandation, but the hon. Lady has talked passionately about the need to ensure ethical investment. Will she address the fact that there is a conflict here? I am deeply sympathetic to both viewpoints and understand both of them, but I also recognise that there is a conflict. We either have a system in which pension schemes are given clear guidance about where they should invest and what they should invest in, or we do not; we cannot have both. Will the hon. Lady address that conflict and come down on one side of the fence or the other, not—if I may very gently say so—do the Lib Dem thing of sitting on that fence too much?
Susan Murray
I appreciate the hon. Gentleman’s point, but the important thing is that there is clear guidance for pension funds to make sure we do not assist breaches of international law. I think that would make things very clear, and quite easy for pension funds to understand and implement.
My constituency of Mid Dunbartonshire has many pensioners who are reliant on schemes that do not provide annual indexation. That is why I was pleased to add my name to Liberal Democrat new clause 7, which takes a nuanced and responsible approach. It calls for an assessment of the position faced by pre-1997 pensioners, and of options to address the reality that their pensions have effectively been frozen for many years. As the hon. Member for Ayr, Carrick and Cumnock (Elaine Stewart) mentioned, when schemes that are in surplus are able to ensure that pension holders have a better quality of life, we should fully support as many of them as possible.
Ultimately, this is about fairness and openness in our system. Pension schemes hold an almost unimaginable amount of money and are among the most powerful financial actors in our economy, which could help to reduce the inequity in our communities. They are too large and too complex for any individual saver or campaign group to challenge alone, and it therefore falls to us in this House to ensure that schemes operate fairly, ethically and transparently, and that the people who contribute to them and rely on them can retire with dignity and confidence.
Clive Jones (Wokingham) (LD)
My constituent David worked for 3M for 31 years, 23 of them pre-1997. His pension payment for service prior to 1997 has not increased since 2008, since when it has lost 40% of its purchasing power. Other constituents have lost more. Another constituent worked for ExxonMobil, which he says gave him written documentation that he would receive annual increases at 80% of RPI. However, since legislation changed in 1995, that has not happened. Those are just two of the 40-plus constituents who have contacted me about the injustice experienced by pensioners whose pension schemes are failing to provide an inflation increase on their service prior to 1997. I know that many more across the country face the same injustice. Their stories are deeply troubling. Rather than enjoying a well-earned retirement, pensioners are left struggling to keep pace with the cost of living, often while their pension scheme is in surplus.
Helen Maguire (Epsom and Ewell) (LD)
I have a similar constituency case with a similar example of discretionary increases. Those were 80% of RPI, but in 2023 that was reduced to half. That has left my constituent, among others, unable to afford their bills and their home. Although I am pleased to see the pre-1997 pension indexation in the Budget for PPF and FAS members, I remain concerned for constituents such as mine. Does my hon. Friend agree that there needs to be a plan for those impacted by a sudden decrease in inflation payments?
Clive Jones
I absolutely agree with my hon. Friend. There needs to be some sort of plan, and sooner rather than later.
The Government appear to recognise the injustice and are proposing to use surplus funds in the PPF to provide inflation increases on some pre-1997 pensions. Why are we not seeking to resolve the same issue for company defined-benefit pension schemes? Many of these pension schemes have a funding surplus but choose not to use it to support their former employees, despite often being asked to do so by trustees who are ignored by foreign-based employers. Surely that cannot be right.
Research by the Pensions Regulator has revealed that even among schemes whose rules allow for discretionary benefits, less than a third had provided those benefits in the previous three years. Employer discretion has failed in practice and will continue to fail unless Parliament acts. The Pension Schemes Bill fails to address this issue.
Only by amending the original legislation can we ensure fairness for those with pre-1997 service. The Society of Pension Professionals argues that legislation on pre-1997 benefits is unnecessary, but the evidence is clear: discretion, more often than not, is exercised to the detriment of pensioners. As I have said, trustees lack the authority to act and pensioners are left behind. The problem appears to be concentrated in a small number of large companies. They were meant to provide long-term financial security for their employees. We must remember that all defined-benefit schemes paid levies into the PPF, creating a surplus that now funds indexation. If pensioners in the PPF deserve protection, so do those in live schemes who helped build the surplus in those schemes.
The Government have taken the first step by restoring indexation for some. They must now take the logical next step by extending inflation protection to all pre-1997 pensioners in live schemes. I believe that pre-1997 pension service should receive inflation protection on the same statutory basis as post-1997 service. This is about fairness, dignity and justice for those who worked hard, paid into schemes, were made promises, and now deserve security in retirement. Pensioners affected by this injustice live in every constituency, and they deserve the support of this House of Commons and the Government. Our constituents affected by these injustices simply ask for fairness, and hopefully the Minister will make sure that it happens soon.
Ayoub Khan (Birmingham Perry Barr) (Ind)
I hope to devote a large portion of my speech to new clause 36, which stands in my name, but let me first swiftly acknowledge the new clauses tabled by the hon. Member for Poole (Neil Duncan-Jordan), the right hon. Member for Birmingham Hodge Hill and Solihull North (Liam Byrne), the hon. Member for Stratford-on-Avon (Manuela Perteghella) and the hon. Member for Llanelli (Dame Nia Griffith).
While pension fund managers should no doubt ensure that they deliver sufficient returns to their clients, they must also reflect on the duties that they have not only to those who make contributions, but to society at large. That means not using public money to prop up industries that rail against our primary objectives, be they preventing violations of human rights, upholding our commitment to net zero or delivering unfettered justice for those who have been wronged, as in the case of those whose pension contributions made before 1997 have not risen with inflation. I wholeheartedly align myself with the hon. Member for Mid Dunbartonshire (Susan Murray) on the need for ethical parameters.
In tabling new clause 36, I hoped to bring a focus to the practices relating to pension funds that fall under the local government pension scheme—those that make provision for the employees of schools, universities, local authorities and police forces, to name just a few. Those pension fund managers preside over £390 billion in assets, under the management of members of the investment banking sector. Given that much, if not all, of the funding that flows from our schools, councils and the like comes from taxpayers’ money, we have a right to ensure that none of it is being put to waste. I regret to report, however, that these local government pension funds are heading for an absolute embarrassment of riches. While public money sits idle in a vault, lining the pockets of the investment bankers who manage the funds, we are experiencing deep funding crises in our schools, our universities and our local councils.
Year after year, since the moment when these pension funds were established, we have seen the same tactics deployed by those who preside over them. Councils, schools and others end up putting too much of their budgets towards employer contributions, leaving them with less money to spend on the things that matter, while obscene amounts of money are left to be used as a lucrative plaything for the investment banking sector.
When calculating the money that councils, schools and the like must pay into their employees’ pensions, the pension fund managers first estimate the annual rate of return that they expect to get from their assets. To do that, they enlist the work of an actuary firm—usually one of the “big four”—which takes into account market conditions and various risk factors in order to come up with a figure. The work of these actuaries is incredibly precise, yet every year they end up drastically underestimating the amount by which the local government pension funds will grow over the next year. Why? Because the local pension boards set the assumptions and parameters on the basis of which they make such calculations, often with the intention of overstating elements that may hit the fund’s assets, such as market volatility and uncertainty. From there, by default, they then skim a substantial percentage off the fund’s assets, usually about 0.5%. While that may not seem a lot, given that, for example, West Midlands Pension Fund holds £21.2 billion-worth of assets, it means that at least £1 billion is being scraped off the top every year.
When a highly conservative estimate for growth is combined with lofty management expenses, the result is one thing, and one thing only: our councils, schools and key institutions end up putting more than they need into the banking sector, under the guise of securing their employees a comfortable retirement. Then, once they get to the end of the year and have mysteriously exceeded their artificially conservative projections for growth, the pension fund managers are left with an even bigger pot of money, from which they take their mandatory percentage fee.
It is this repeated cycle of grossly inflating the contributions of our state institutions that is resulting in more and more taxpayer money being used not to fix our crumbling public services that benefit society as a whole, but for city bankers to make big bets on the market and make profits. It is the equivalent of pension funds setting the rules of the game, marking their own homework and keeping the proceeds for themselves, rather than refunding those who put into the system. It has got to the point that even the LGPS Scheme Advisory Board, which advises local pension boards, has said that they need to stop overcharging their clients and underestimating their growth. Unfortunately, however, all the power lies in the hands of the Secretary of State to make the changes that would put much-needed investment back into our schools, councils and the like.
I will give an example. Research by David Bailey, of the University of Birmingham, and John Clancy, of Birmingham City University, has shown that Birmingham city council has handed over £1.2 billion in employer contributions to the West Midlands Pension Fund in the past 10 years. By 2022 the council was being asked to pay an extra 37% on top of its standard bill, whereas the nine other core city councils in the UK were asked to pay an average of around 17%. Birmingham city council is calculated to have overpaid the West Midlands Pension Fund by roughly £547 million. In 2023 the council declared section 114 bankruptcy, and this year it has approved council tax rises of 21% and £300 million in cuts to vital services.
Hypothetically, had that payment never been made, Birmingham city council would have needed neither to declare bankruptcy, nor to approve budget cuts that reduced its offer to bare-bones skeleton services. The implications that clamping down on the excesses of local pension boards would have for local councils, schools and universities, and for the British taxpayer, are truly incomprehensible, yet as things stand we are shying away from rebalancing the books and from deploying as much of the Government’s investment into public services as we can.
That leads me to my new clause 36, which would put a cap on the investment expenses that can be claimed on LGPS pension funds. In the case of the West Midlands Pension Fund, the management expenses that are charged amount to an increase of four percentage points in employer contributions. Because the fund charges 60 basis points in management fees, Birmingham council tax payers are paying £13.4 million to the investment managers, which works out at £50 on every band D council tax payer’s bill. However, if new clause 36 were to be put in place, only £3.30 would be charged to every council tax payer’s bill. In the same period, the pension fund has consistently failed to report where the investment management expenses that it charges go, and whom they benefit.
As I say, my new clause 36 would implement a cap on the fees that investment bankers can take from pension funds. While that would certainly mark a great step forward in ensuring that excessive wealth gets put into the hands of the private sector, we must also do more to ensure that our schools and councils pay no more in employer contributions than they must, so that they can put more investment into things that really matter—whether that is local government funding for adult social care or for schoolchildren with special education needs, or being able to put more teaching staff in our classrooms.
Torsten Bell
With the leave of the House, I will respond to as many of the points raised as I can manage.
I thank hon. Members for their speeches today. They have shown not only the depth of knowledge in this House, but the breadth of pensions issues that matter to all of us and to our constituents. I start by thanking those who have welcomed some of the changes that we have introduced and set out today. My hon. Friends the Members for Oldham East and Saddleworth (Debbie Abrahams) and for Edinburgh South West (Dr Arthur) spoke about the PPF, and I appreciate their remarks. On the changes we have set out on the statutory guidance for trustees, the speech by my right hon. Friend the Member for Birmingham Hodge Hill and Solihull North (Liam Byrne) is much appreciated, as is that from the hon. Member for Aberdeen North (Kirsty Blackman).
Claire Hanna (Belfast South and Mid Down) (SDLP)
Like others, I was delighted to see in the Budget the pre-1997 indexing. The Minister will know that that softens but does not correct a wrong, and it leaves tens of thousands of former employees of Harland & Wolff and Visteon, including my constituents, without indexation. New clauses 28 and 29, in my name, would address that, and I hope the Minister might be able to incorporate them in the future.
Torsten Bell
I thank my hon. Friend for her intervention. I covered that extensively in my opening remarks.
I want to mention two points raised in the debate. The hon. Member for North West Norfolk (James Wild) asked about the timeline for the Pensions Commission. I can assure him that nothing is going slowly, so the final report will be delivered in early 2027, which is significantly quicker than the last one in the 2000s. I will update the House as soon as I have more to say on that front. The hon. Member for Caerfyrddin (Ann Davies) asked how many people will benefit from the change to the PPF indexation and how many will not benefit. The answer is that 250,000 members will benefit and 90,000 will not benefit, because their schemes did not provide for indexation in the scheme rules in the first place. I hope that answers the question she raised.
Neil Duncan-Jordan
I want to press the Minister slightly more on the need for UK pension funds not to invest in companies that could be guilty of war crimes and breaking international law. Would he like to reflect on that?
Torsten Bell
Specifically on the question of having regard to international law, I emphasise that compliance extends far beyond the LGPS, and it obviously reaches right across Government. That said, the LGPS, as a public sector scheme, has particularly high expectations on responsible investment, and I have heard the points my hon. Friend has made.
The hon. Members for Torbay (Steve Darling), for Horsham (John Milne) and for Stratford-on-Avon (Manuela Perteghella) broadened this debate beyond the LGPS, not least on questions of climate change and the wider social impact of investments. The Department for Work and Pensions is currently conducting a review of the task force on climate-related financial disclosures requirements, and we have also asked the Pensions Regulator to assess the practicalities of transition plans for pension schemes. As I mentioned in my opening remarks, we will also bring forward legislation to clarify that trustees can take systemic factors into account when making their investment decisions. I hope this provides hon. Members with significant reassurance on those points.
The hon. Members for North West Norfolk and for Torbay returned to the issue, which we discussed extensively in Committee and on Second Reading, on the limited reserve or backstop asset allocation power. As I have repeatedly made it clear to this House, we do not currently anticipate it will need to be used. That is precisely because of the industry’s commitment to the Mansion House accord and wider support from the pension industry for greater investment in private assets.
I welcome the recognition of the importance of the pipeline of projects by the hon. Member for Horsham, and I encourage him to make sure that no Liberal Democrat anywhere opposes construction projects—I have seen the leaflets—be they for energy, roads, housing or anything else.
A crucial point was raised in Committee about the importance of monitoring these commitments, and I can confirm that since then the ABI and Pensions UK have committed that they will work together to track progress. I hope that helps answer some of the questions raised in Committee.
The proposals to add to the matters on which the Government must report are, I believe, unnecessary, as any exercise of the power would be subject to a wide range of safeguards—not only the production of a report about the impacts on savers and growth, but a savers’ interest test.
The hon. Member for Stratford-on-Avon spoke powerfully to her new clause 3, as did the hon. Member for Mid Dorset and North Poole (Vikki Slade). I believe the PPF works hard to make sure that it can deal quickly with payments for people with terminal illness, and the Bill contains other measures that mean it can do that at an earlier point in someone’s prognosis. The SR1 form would already be sufficient for the PPF to provide the certainty that the hon. Member for Stratford-on-Avon is looking for. I have checked with the PPF to ensure that currently within the PPF and the FAS we do not currently have any outstanding requests for such payments where they have been unable to make them, for example for the reasons of not having sufficient evidence. That said, she has spoken powerfully on that point and I will speak to the PPF at my next meeting with the chief executive and the chair to see what more can be done. I thank her for raising those issues.
I also thank the hon. Member for Horsham for bringing us back to the question of advice and guidance. Most of us do need help in preparing for retirement. However, I take a slightly more positive view of the current provision of free guidance through the Money and Pensions Service. I also agree a bit more with the hon. Member for Mid Dunbartonshire (Susan Murray) that the task of Government is to reduce the complexity in our pensions system, rather than just hoping that ever more advice will help savers to navigate it. That is exactly why the parts of the Bill on guided retirement and small pots are so important as we move forward.
I would just like to cover some of the commitments I made in Committee. [Interruption.] I know this is going to be electric for all Members. That is the kind of enthusiasm I hope to see from more Members across the House. I will make a quick update on pensions dashboards, which at least one Member will appreciate. User testing on pensions dashboards has begun. I know that will thrill everybody in this House. [Hon. Members: “Hear, hear.”] That is the attitude we need! [Laughter.] It will ramp up over the course of the next year, with greater volumes and more focus on consumer behaviour. We will be conducting a full evaluation of pensions dashboards over the coming years as the service goes live. That will include the impact of dashboards on engagement with pensions. I commit to update the House on that work in due course.
Following on from other issues raised in Committee, I am pleased to report that following the findings of the curriculum and assessment review, the Government will make financial education compulsory in primary schools in England.
One issue raised in Committee was the Department’s monitoring and evaluation plans for the policy programme set out in the Bill, not least the guided retirement measures. Those comments have been taken on board; an updated impact assessment this week lays out how we intend to approach monitoring impact.
I have endeavoured to do justice to the very wide range of different issues raised during the debate today. I hope hon. Members will support Government amendments that build on policies that will make a real difference to all our constituents in the decades to come.
Question put and agreed to.
New clause 30 accordingly read a Second time, and added to the Bill.
New Clause 31
Indexation of periodic compensation for pre-1997 service: Great Britain
“(1) Schedule 7 to the Pensions Act 2004 (pension compensation provisions) is amended in accordance with subsections (2) and (3).
(2) In paragraph 28—
(a) for sub-paragraph (2) substitute—
“(2) Where a person is entitled to periodic compensation under any of those paragraphs, the person is entitled, on the indexation date, to an increase under this paragraph of—
(a) where sub-paragraph (2A) applies, the aggregate of the amount mentioned in sub-paragraph (2C) and the amount mentioned in sub-paragraph (2E);
(b) where sub-paragraph (2B) applies, the aggregate of the amount mentioned in sub-paragraph (2D) and the amount mentioned in sub-paragraph (2E);
(c) in any other case, the amount mentioned in sub-paragraph (2E).
(2A) This sub-paragraph applies where, immediately before the assessment date—
(a) the admissible rules of the scheme included a requirement for all or any part of so much of the annual rate of a pension in payment under the scheme as is attributable to a person’s pre-1997 service to be increased annually,
(b) that requirement did not apply only in relation to a guaranteed minimum pension provided by the scheme, and
(c) that requirement applied in relation to pre-1997 service in respect of which the compensation is payable.
(2B) This sub-paragraph applies where—
(a) the scheme provided a guaranteed minimum pension that accrued during the GMP indexation period,
(b) that accrual was in relation to GMP indexed service in respect of which the compensation is payable, and
(c) immediately before the assessment date the admissible rules of the scheme—
(i) did not include a requirement of the kind mentioned in sub-paragraph (2A)(a), or
(ii) included such a requirement only in relation to a guaranteed minimum pension provided by the scheme.
(2C) The amount mentioned in this sub-paragraph is—
(a) the appropriate percentage of the amount of the pre-1997 underlying rate immediately before the indexation date, or
(b) where the person first became entitled to the periodic compensation during the period of 12 months ending immediately before that date, 1/12th of that amount for each full month for which the person was so entitled.
(2D) The amount mentioned in this sub-paragraph is—
(a) the appropriate percentage of the amount of the notional pre-1997 underlying rate immediately before the indexation date, or
(b) where the person first became entitled to the periodic compensation during the period of 12 months ending immediately before that date, 1/12th of that amount for each full month for which the person was so entitled.
(2E) The amount mentioned in this sub-paragraph is—
(a) the appropriate percentage of the amount of the post-1997 underlying rate immediately before the indexation date, or
(b) where the person first became entitled to the periodic compensation during the period of 12 months ending immediately before that date, 1/12th of that amount for each full month for which the person was so entitled.
(2F) In any case where it is unclear to the Board whether, immediately before the assessment date, the admissible rules of the scheme included a requirement of the kind mentioned in sub-paragraph (2A)(a), this paragraph has effect as if the scheme included such a requirement.
(2G) In any case where it is unclear to the Board whether, immediately before the assessment date, a requirement of the scheme of a kind mentioned in sub-paragraph (2A)(a) (including such a requirement included by virtue of sub-paragraph (2F)) applied in relation to particular pre-1997 service, this paragraph has effect as if the requirement applied in relation to such service.
(2H) In any case where it is unclear to the Board whether the scheme provided a guaranteed minimum pension that accrued during the GMP indexation period, this paragraph has effect as if the scheme so provided.
(2I) In any case where it is unclear to the Board whether the accrual of a guaranteed minimum pension provided by the scheme (including by virtue of sub-paragraph (2H)) was in relation to particular GMP indexed service, this paragraph has effect as if the accrual was in relation to such service.”
(b) in sub-paragraph (3)—
(i) in the opening words for “sub-paragraph (2)” substitute “sub-paragraphs (2) to (2E)”;
(ii) for both definitions of “underlying rate” substitute—
““notional pre-1997 underlying rate” means, in the case of periodic compensation under paragraph 3 or 22, the aggregate of—
(a) a prescribed percentage of so much of the amount mentioned in sub-paragraph (3)(a) of the paragraph in question as is attributable to pre-1997 service, and
(b) so much of the amount within sub-paragraph (3)(b) of that paragraph as is referable to the amount within paragraph (a) of this definition immediately before the indexation date;
“notional pre-1997 underlying rate” means, in the case of periodic compensation under paragraph 5, 8, 11 or 15, the aggregate of—
(a) a prescribed percentage of so much of the amount mentioned in sub-paragraph (3)(a) of the paragraph in question as is attributable to pre-1997 service,
(b) a prescribed percentage of so much of the amount mentioned in sub-paragraph (3)(aa) of the paragraph in question as is attributable to pre-1997 service, and
(c) so much of the amount within sub-paragraph (3)(b) of that paragraph as is referable to the amounts within paragraphs (a) and (b) of this definition immediately before the indexation date;
“post-1997 underlying rate” means, in the case of periodic compensation under paragraph 3 or 22, the aggregate of—
(a) so much of the amount mentioned in sub-paragraph (3)(a) of the paragraph in question as is attributable to post-1997 service, and
(b) so much of the amount within sub-paragraph (3)(b) of that paragraph as is referable to the amount within paragraph (a) of this definition immediately before the indexation date;
“post-1997 underlying rate” means, in the case of periodic compensation under paragraph 5, 8, 11 or 15, the aggregate of—
(a) so much of the amount mentioned in sub-paragraph (3)(a) of the paragraph in question as is attributable to post-1997 service,
(b) so much of the amount mentioned in sub-paragraph (3)(aa) of the paragraph in question as is attributable to post-1997 service, and
(c) so much of the amount within sub-paragraph (3)(b) of that paragraph as is referable to the amounts within paragraphs (a) and (b) of this definition immediately before the indexation date;
“pre-1997 underlying rate” means, in the case of periodic compensation under paragraph 3 or 22, the aggregate of—
(a) so much of the amount mentioned in sub-paragraph (3)(a) of the paragraph in question as is attributable to pre-1997 service, and
(b) so much of the amount within sub-paragraph (3)(b) of that paragraph as is referable to the amount within paragraph (a) of this definition immediately before the indexation date;
“pre-1997 underlying rate” means, in the case of periodic compensation under paragraph 5, 8, 11 or 15, the aggregate of—
(a) so much of the amount mentioned in sub-paragraph (3)(a) of the paragraph in question as is attributable to pre-1997 service,
(b) so much of the amount mentioned in sub-paragraph (3)(aa) of the paragraph in question as is attributable to pre-1997 service, and
(c) so much of the amount within sub-paragraph (3)(b) of that paragraph as is referable to the amounts within paragraphs (a) and (b) of this definition immediately before the indexation date.”;
(c) in sub-paragraph (5)—
(i) in paragraph (a), for “sub-paragraph (2), each definition of “underlying rate”” substitute “sub-paragraphs (2C) to (2E), each definition of “notional pre-1997 underlying rate”, “post-1997 underlying rate” and “pre-1997 underlying rate””;
(ii) in paragraph (c), for “sub-paragraph (2), the definition of “underlying rate”” substitute “sub-paragraphs (2C) to (2E), the definition of “notional pre-1997 underlying rate”, the definition of “post-1997 underlying rate” and the definition of “pre-1997 underlying rate””;
(d) in sub-paragraph (6), before the definition of “post-1997 service” insert—
““GMP indexation period” means the period beginning with 6 April 1988 and ending with 5 April 1997;
“GMP indexed service” means—
(a) pensionable service which is within paragraph 36(4)(a) and occurs during the GMP indexation period, or
(b) pensionable service which is within paragraph 36(4)(b) and meets such requirements as may be prescribed;
“guaranteed minimum pension” has the same meaning as in the Pension Schemes Act 1993 (see section 8(2) of that Act);”;
(e) in sub-paragraph (7), for “and “pre-1997 service”” substitute “, “pre-1997 service” and “GMP indexed service””.
(3) In paragraph 29, for sub-paragraph (2) substitute—
“(2) The Board may also determine the percentage that is to be—
(a) the appropriate percentage for the purposes of sub-paragraphs (2C) and (2D) of paragraph 28;
(b) the appropriate percentage for the purposes of sub-paragraph (2E) of that paragraph,
(and where it does so, the definition of “appropriate percentage” in paragraph 28(3) does not apply in relation to the sub-paragraph in question).”
(4) Schedule 5 to the Pensions Act 2008 (pension compensation payable on discharge of pension compensation credit) is amended in accordance with subsections (5) and (6).
(5) In paragraph 17—
(a) for sub-paragraph (2) substitute—
“(2) Subject to sub-paragraph (3), the transferee is entitled, on each indexation date, to an increase of—
(a) where sub-paragraph (2A) applies, the amount mentioned in sub-paragraph (2E);
(b) where sub-paragraph (2B) applies, the amount mentioned in sub-paragraph (2F);
(c) where sub-paragraph (2C) applies, the amount mentioned in sub-paragraph (2G);
(d) where sub-paragraph (2D) applies, the amount mentioned in sub-paragraph (2H).
(2A) This sub-paragraph applies where—
(a) the transferor's PPF compensation is payable in accordance with paragraph 3, 5, 8, 11, 15 or 22 of Schedule 7 to the Pensions Act 2004 (“the relevant Schedule 7 provisions”), and
(b) immediately before the assessment date—
(i) the admissible rules of the scheme in respect of which that compensation is payable included a requirement for all or any part of so much of the annual rate of a pension in payment under the scheme as is attributable to a person’s pre-1997 service to be increased annually,
(ii) that requirement did not apply only in relation to a guaranteed minimum pension provided by the scheme, and
(iii) that requirement applied in relation to pre-1997 service in respect of which that compensation is payable.
(2B) This sub-paragraph applies where—
(a) the transferor's PPF compensation is payable in accordance with the relevant Schedule 7 provisions,
(b) the scheme in respect of which that compensation is payable provided a guaranteed minimum pension that accrued during the GMP indexation period,
(c) that accrual was in relation to GMP indexed service in respect of which that compensation is payable, and
(d) immediately before the assessment date the admissible rules of that scheme—
(i) did not include a requirement of the kind mentioned in sub-paragraph (2A)(b)(i), or
(ii) included such a requirement only in relation to a guaranteed minimum pension provided by the scheme.
(2C) This sub-paragraph applies where—
(a) the transferor's PPF compensation is payable in accordance with the relevant Schedule 7 provisions, and
(b) neither sub-paragraph (2A) nor sub-paragraph (2B) applies.
(2D) This sub-paragraph applies where the transferor's PPF compensation is payable otherwise than in accordance with the relevant Schedule 7 provisions.
(2E) The amount mentioned in this sub-paragraph is the aggregate of the appropriate percentage of the pre-1997 underlying rate and the appropriate percentage of the post-1997 underlying rate.
(2F) The amount mentioned in this sub-paragraph is the aggregate of the appropriate percentage of the notional pre-1997 underlying rate and the appropriate percentage of the post-1997 underlying rate.
(2G) The amount mentioned in this sub-paragraph is the appropriate percentage of the post-1997 underlying rate.
(2H) The amount mentioned in this sub-paragraph is the appropriate percentage of the general underlying rate.”
(b) in sub-paragraph (3), for “(2)” substitute “(2E), (2F), (2G) or (2H) (as the case may be)”;
(c) after sub-paragraph (3) insert—
“(3A) For the purposes of sub-paragraphs (2A) to (2C)—
(a) in any case where it is unclear to the Board whether, immediately before the assessment date, the admissible rules of the scheme included a requirement of the kind mentioned in sub-paragraph (2A)(b)(i), those sub-paragraphs have effect as if the scheme included such a requirement;
(b) in any case where it is unclear to the Board whether, immediately before the assessment date, a requirement of the scheme of a kind mentioned in sub-paragraph (2A)(b)(i) (including such a requirement included by virtue of paragraph (a)) applied in relation to particular pre-1997 service, those sub-paragraphs have effect as if the requirement applied in relation to such service;
(c) in any case where it is unclear to the Board whether the scheme provided a guaranteed minimum pension that accrued during the GMP indexation period, those sub-paragraphs have effect as if the scheme so provided;
(d) in any case where it is unclear to the Board whether the accrual of a guaranteed minimum pension provided by the scheme (including by virtue of paragraph (c)) was in relation to particular GMP indexed service, those sub-paragraphs have effect as if the accrual was in relation to such service.”
(d) in sub-paragraph (4)—
(i) in the opening words, for “sub-paragraph (2)” substitute “sub-paragraphs (2) to (2H)”;
(ii) for the definition of “the underlying rate” substitute—
““the general underlying rate” , as at an indexation date, is the aggregate of—
(a) the general indexed proportion of the aggregate of the initial annual rate of compensation and (in the case of compensation payable under paragraph 6), the revaluation amount,
(b) so much of any actuarial increase under paragraph 16A as relates to the amount in paragraph (a), and
(c) so much of any annual increase to which the transferee is entitled under this paragraph in respect of earlier indexation dates as relates to the amounts in paragraphs (a) and (b);
“the notional pre-1997 underlying rate” , as at an indexation date, is the aggregate of—
(a) the notional pre-1997 indexed proportion of the aggregate of the initial annual rate of compensation and (in the case of compensation payable under paragraph 6), the revaluation amount,
(b) so much of any actuarial increase under paragraph 16A as relates to the amount in paragraph (a), and
(c) so much of any annual increase to which the transferee is entitled under this paragraph in respect of earlier indexation dates as relates to the amounts in paragraphs (a) and (b);
“the post-1997 underlying rate” , as at an indexation date, is the aggregate of—
(a) the post-1997 indexed proportion of the aggregate of the initial annual rate of compensation and (in the case of compensation payable under paragraph 6), the revaluation amount,
(b) so much of any actuarial increase under paragraph 16A as relates to the amount in paragraph (a), and
(c) so much of any annual increase to which the transferee is entitled under this paragraph in respect of earlier indexation dates as relates to the amounts in paragraphs (a) and (b);
“the pre-1997 underlying rate” , as at an indexation date, is the aggregate of—
(a) the pre-1997 indexed proportion of the aggregate of the initial annual rate of compensation and (in the case of compensation payable under paragraph 6), the revaluation amount,
(b) so much of any actuarial increase under paragraph 16A as relates to the amount in paragraph (a), and
(c) so much of any annual increase to which the transferee is entitled under this paragraph in respect of earlier indexation dates as relates to the amounts in paragraphs (a) and (b).”;
(e) omit sub-paragraphs (5) and (6);
(f) before sub-paragraph (7) insert—
“(6A) For the purposes of paragraph (a) of the definition of “the general underlying rate”, “the general indexed proportion” is such proportion as is determined in accordance with regulations made by the Secretary of State.
(6B) For the purposes of paragraph (a) of the definition of “the notional pre-1997 underlying rate”, “the notional pre-1997 indexed proportion” is such proportion of the amount mentioned in sub-paragraph (3)(a) of the paragraph of Schedule 7 to the Pensions Act 2004 under which the transferor’s PPF compensation is payable that is attributable to pre-1997 service as may be prescribed.
(6C) For the purposes of paragraph (a) of the definition of “the post-1997 underlying rate”, “the post-1997 indexed proportion” is the proportion of the amount mentioned in sub-paragraph (3)(a) of the paragraph of that Schedule under which the transferor’s PPF compensation is payable that is attributable to post-1997 service.
(6D) For the purposes of paragraph (a) of the definition of “the pre-1997 underlying rate”, “the pre-1997 indexed proportion” is the proportion of the amount mentioned in sub-paragraph (3)(a) of the paragraph of that Schedule under which the transferor’s PPF compensation is payable that is attributable to pre-1997 service.”;
(g) in sub-paragraph (7), for ““the underlying rate”” substitute ““the general underlying rate”, the definition of “the notional pre-1997 underlying rate”, the definition of “the post-1997 underlying rate” and the definition of “the pre-1997 underlying rate””;
(h) in paragraph (9)—
(i) before the definition of “post-1997 service” insert—
““GMP indexation period” means the period beginning with 6 April 1988 and ending with 5 April 1997;
“guaranteed minimum pension” has the same meaning as in the Pension Schemes Act 1993 (see section 8(2) of that Act);”;
(ii) in the definition of “post-1997 service” for “has” substitute “, “pre-1997 service” and “GMP indexed service” have”;
(iii) after that definition insert—
““the assessment date” , in relation to a pension scheme, has the same meaning as in that Schedule (see paragraph 2 of that Schedule);”.
(6) In paragraph 20, in sub-paragraph (1)(b), for “for the purposes of paragraph 17(2)” substitute “—
(i) of the pre-1997 underlying rate and of the notional pre-1997 underlying rate for the purposes of sub-paragraphs (2E) and (2F) of paragraph 17;
(ii) of the post-1997 underlying rate for the purposes of sub-paragraphs (2E), (2F) and (2G) of that paragraph;
(iii) of the general underlying rate for the purposes of sub-paragraph (2H) of that paragraph.””—(Torsten Bell.)
This new clause makes provision for certain compensation paid by the Pension Protection Fund in respect of a person’s pre-1997 pensionable service under legislation extending to England and Wales and Scotland to be increased annually.
Brought up, read the First and Second time, and added to the Bill.
New Clause 32
Indexation of periodic compensation for pre-1997 service: Northern Ireland
“(1) Schedule 6 to the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255 (N.I. 1)) (pension compensation provisions) is amended in accordance with subsections (2) and (3).
(2) In paragraph 28—
(a) for sub-paragraph (2) substitute—
“(2) Where a person is entitled to periodic compensation under any of those paragraphs, the person is entitled, on the indexation date, to an increase under this paragraph of—
(a) where sub-paragraph (2A) applies, the aggregate of the amount mentioned in sub-paragraph (2C) and the amount mentioned in sub-paragraph (2E);
(b) where sub-paragraph (2B) applies, the aggregate of the amount mentioned in sub-paragraph (2D) and the amount mentioned in sub-paragraph (2E);
(c) in any other case, the amount mentioned in sub-paragraph (2E).
(2A) This sub-paragraph applies where, immediately before the assessment date—
(a) the admissible rules of the scheme included a requirement for all or any part of so much of the annual rate of a pension in payment under the scheme as is attributable to a person’s pre-1997 service to be increased annually,
(b) that requirement did not apply only in relation to a guaranteed minimum pension provided by the scheme, and
(c) that requirement applied in relation to pre-1997 service in respect of which the compensation is payable.
(2B) This sub-paragraph applies where—
(a) the scheme provided a guaranteed minimum pension that accrued during the GMP indexation period,
(b) that accrual was in relation to GMP indexed service in respect of which the compensation is payable, and
(c) immediately before the assessment date the admissible rules of the scheme—
(i) did not include a requirement of the kind mentioned in sub-paragraph (2A)(a), or
(ii) included such a requirement only in relation to a guaranteed minimum pension provided by the scheme.
(2C) The amount mentioned in this sub-paragraph is—
(a) the appropriate percentage of the amount of the pre-1997 underlying rate immediately before the indexation date, or
(b) where the person first became entitled to the periodic compensation during the period of 12 months ending immediately before that date, 1/12th of that amount for each full month for which the person was so entitled.
(2D) The amount mentioned in this sub-paragraph is—
(a) the appropriate percentage of the amount of the notional pre-1997 underlying rate immediately before the indexation date, or
(b) where the person first became entitled to the periodic compensation during the period of 12 months ending immediately before that date, 1/12th of that amount for each full month for which the person was so entitled.
(2E) The amount mentioned in this sub-paragraph is—
(a) the appropriate percentage of the amount of the post-1997 underlying rate immediately before the indexation date, or
(b) where the person first became entitled to the periodic compensation during the period of 12 months ending immediately before that date, 1/12th of that amount for each full month for which the person was so entitled.
(2F) In any case where it is unclear to the Board whether, immediately before the assessment date, the admissible rules of the scheme included a requirement of the kind mentioned in sub-paragraph (2A)(a), this paragraph has effect as if the scheme included such a requirement.
(2G) In any case where it is unclear to the Board whether, immediately before the assessment date, a requirement of the scheme of a kind mentioned in sub-paragraph (2A)(a) (including such a requirement included by virtue of sub-paragraph (2F)) applied in relation to particular pre-1997 service, this paragraph has effect as if the requirement applied in relation to such service.
(2H) In any case where it is unclear to the Board whether the scheme provided a guaranteed minimum pension that accrued during the GMP indexation period, this paragraph has effect as if the scheme so provided.
(2I) In any case where it is unclear to the Board whether the accrual of a guaranteed minimum pension provided by the scheme (including by virtue of sub-paragraph (2H)) was in relation to particular GMP indexed service, this paragraph has effect as if the accrual was in relation to such service.”
(b) in sub-paragraph (3)—
(i) in the opening words for “sub-paragraph (2)” substitute “sub-paragraphs (2) to (2E)”;
(ii) for both definitions of “underlying rate” substitute—
““notional pre-1997 underlying rate” means, in the case of periodic compensation under paragraph 3 or 22, the aggregate of—
(a) a prescribed percentage of so much of the amount mentioned in sub-paragraph (3)(a) of the paragraph in question as is attributable to pre-1997 service, and
(b) so much of the amount within sub-paragraph (3)(b) of that paragraph as is referable to the amount within paragraph (a) of this definition immediately before the indexation date;
“notional pre-1997 underlying rate” means, in the case of periodic compensation under paragraph 5, 8, 11 or 15, the aggregate of—
(a) a prescribed percentage of so much of the amount mentioned in sub-paragraph (3)(a) of the paragraph in question as is attributable to pre-1997 service,
(b) a prescribed percentage of so much of the amount mentioned in sub-paragraph (3)(aa) of the paragraph in question as is attributable to pre-1997 service, and
(c) so much of the amount within sub-paragraph (3)(b) of that paragraph as is referable to the amounts within paragraphs (a) and (b) of this definition immediately before the indexation date;
“post-1997 underlying rate” means, in the case of periodic compensation under paragraph 3 or 22, the aggregate of—
(a) so much of the amount mentioned in sub-paragraph (3)(a) of the paragraph in question as is attributable to post-1997 service, and
(b) so much of the amount within sub-paragraph (3)(b) of that paragraph as is referable to the amount within paragraph (a) of this definition immediately before the indexation date;
“post-1997 underlying rate” means, in the case of periodic compensation under paragraph 5, 8, 11 or 15, the aggregate of—
(a) so much of the amount mentioned in sub-paragraph (3)(a) of the paragraph in question as is attributable to post-1997 service,
(b) so much of the amount mentioned in sub-paragraph (3)(aa) of the paragraph in question as is attributable to post-1997 service, and
(c) so much of the amount within sub-paragraph (3)(b) of that paragraph as is referable to the amounts within paragraphs (a) and (b) of this definition immediately before the indexation date;
“pre-1997 underlying rate” means, in the case of periodic compensation under paragraph 3 or 22, the aggregate of—
(a) so much of the amount mentioned in sub-paragraph (3)(a) of the paragraph in question as is attributable to pre-1997 service, and
(b) so much of the amount within sub-paragraph (3)(b) of that paragraph as is referable to the amount within paragraph (a) of this definition immediately before the indexation date;
“pre-1997 underlying rate” means, in the case of periodic compensation under paragraph 5, 8, 11 or 15, the aggregate of—
(a) so much of the amount mentioned in sub-paragraph (3)(a) of the paragraph in question as is attributable to pre-1997 service,
(b) so much of the amount mentioned in sub-paragraph (3)(aa) of the paragraph in question as is attributable to pre-1997 service, and
(c) so much of the amount within sub-paragraph (3)(b) of that paragraph as is referable to the amounts within paragraphs (a) and (b) of this definition immediately before the indexation date.”;
(c) in sub-paragraph (5)—
(i) in paragraph (a), for “sub-paragraph (2), each definition of “underlying rate”” substitute “sub-paragraphs (2C) to (2E), each definition of “notional pre-1997 underlying rate”, “post-1997 underlying rate” and “pre-1997 underlying rate””;
(ii) in paragraph (c), for “sub-paragraph (2), the definition of “underlying rate”” substitute “sub-paragraphs (2C) to (2E), the definition of “notional pre-1997 underlying rate”, the definition of “post-1997 underlying rate” and the definition of “pre-1997 underlying rate””;
(d) in sub-paragraph (6), before the definition of “post-1997 service” insert—
““GMP indexation period” means the period beginning with 6 April 1988 and ending with 5 April 1997;
“GMP indexed service” means—
(a) pensionable service which is within paragraph 36(4)(a) and occurs during the GMP indexation period, or
(b) pensionable service which is within paragraph 36(4)(b) and meets such requirements as may be prescribed;
“guaranteed minimum pension” has the same meaning as in the Pension Schemes Act (see section 4(2) of that Act);”;
(e) in sub-paragraph (7), for “and “pre-1997 service”” substitute “, “pre-1997 service” and “GMP indexed service””.
(3) In paragraph 29, for sub-paragraph (2) substitute—
“(2) The Board may also determine the percentage that is to be—
(a) the appropriate percentage for the purposes of sub-paragraphs (2C) and (2D) of paragraph 28;
(b) the appropriate percentage for the purposes of sub-paragraph (2E) of that paragraph,
(and where it does so, the definition of “appropriate percentage” in paragraph 28(3) does not apply in relation to the sub-paragraph in question).”
(4) Schedule 4 to the Pensions (No.2) Act (Northern Ireland) 2008 (pension compensation payable on discharge of pension compensation credit) is amended in accordance with subsections (5) and (6).
(5) In paragraph 17—
(a) for sub-paragraph (2) substitute—
“(2) Subject to sub-paragraph (3), the transferee is entitled, on each indexation date, to an increase of—
(a) where sub-paragraph (2A) applies, the amount mentioned in sub-paragraph (2E);
(b) where sub-paragraph (2B) applies, the amount mentioned in sub-paragraph (2F);
(c) where sub-paragraph (2C) applies, the amount mentioned in sub-paragraph (2G);
(d) where sub-paragraph (2D) applies, the amount mentioned in sub-paragraph (2H).
(2A) This sub-paragraph applies where—
(a) the transferor's PPF compensation is payable in accordance with paragraph 3, 5, 8, 11, 15 or 22 of Schedule 6 to the 2005 Order (“the relevant Schedule 6 provisions”), and
(b) immediately before the assessment date —
(i) the admissible rules of the scheme in respect of which that compensation is payable included a requirement for all or any part of so much of the annual rate of a pension in payment under the scheme as is attributable to a person’s pre-1997 service to be increased annually,
(ii) that requirement did not apply only in relation to a guaranteed minimum pension provided by the scheme, and
(iii) that requirement applied in relation to pre-1997 service in respect of which that compensation is payable.
(2B) This sub-paragraph applies where—
(a) the transferor's PPF compensation is payable in accordance with the relevant Schedule 6 provisions,
(b) the scheme in respect of which that compensation is payable provided a guaranteed minimum pension that accrued during the GMP indexation period,
(c) that accrual was in relation to GMP indexed service in respect of which that compensation is payable, and
(d) immediately before the assessment date the admissible rules of that scheme—
(i) did not include a requirement of the kind mentioned in sub-paragraph (2A)(b)(i), or
(ii) included such a requirement only in relation to a guaranteed minimum pension provided by the scheme.
(2C) This sub-paragraph applies where—
(a) the transferor's PPF compensation is payable in accordance with the relevant Schedule 6 provisions, and
(b) neither sub-paragraph (2A) nor sub-paragraph (2B) applies.
(2D) This sub-paragraph applies where the transferor's PPF compensation is payable otherwise than in accordance with the relevant Schedule 6 provisions.
(2E) The amount mentioned in this sub-paragraph is the aggregate of the appropriate percentage of the pre-1997 underlying rate and the appropriate percentage of the post-1997 underlying rate.
(2F) The amount mentioned in this sub-paragraph is the aggregate of the appropriate percentage of the notional pre-1997 underlying rate and the appropriate percentage of the post-1997 underlying rate.
(2G) The amount mentioned in this sub-paragraph is the appropriate percentage of the post-1997 underlying rate.
(2H) The amount mentioned in this sub-paragraph is the appropriate percentage of the general underlying rate.”
(b) in sub-paragraph (3), for “(2)” substitute “(2E), (2F), (2G) or (2H) (as the case may be)”;
(c) after sub-paragraph (3) insert—
“(3A) For the purposes of sub-paragraphs (2A) to (2C)—
(a) in any case where it is unclear to the Board whether, immediately before the assessment date, the admissible rules of the scheme included a requirement of the kind mentioned in sub- paragraph (2A)(b)(i), those sub-paragraphs have effect as if the scheme included such a requirement;
(b) in any case where it is unclear to the Board whether, immediately before the assessment date, a requirement of the scheme of a kind mentioned in sub-paragraph (2A)(b)(i) (including such a requirement included by virtue of paragraph (a)) applied in relation to particular pre-1997 service, those sub-paragraphs have effect as if the requirement applied in relation to such service;
(c) in any case where it is unclear to the Board whether the scheme provided a guaranteed minimum pension that accrued during the GMP indexation period, those sub-paragraphs have effect as if the scheme so provided;
(d) in any case where it is unclear to the Board whether the accrual of a guaranteed minimum pension provided by the scheme (including by virtue of paragraph (c)) was in relation to particular GMP indexed service, those sub-paragraphs have effect as if the accrual was in relation to such service.”
(d) in sub-paragraph (4)—
(i) in the opening words, for “sub-paragraph (2)” substitute “sub-paragraphs (2) to (2H)”;
(ii) for the definition of “the underlying rate” substitute—
““the general underlying rate” , as at an indexation date, is the aggregate of—
(a) the general indexed proportion of the aggregate of the initial annual rate of compensation and (in the case of compensation payable under paragraph 6), the revaluation amount,
(b) so much of any actuarial increase under paragraph 16A as relates to the amount in paragraph (a), and
(c) so much of any annual increase to which the transferee is entitled under this paragraph in respect of earlier indexation dates as relates to the amounts in paragraphs (a) and (b);
“the notional pre-1997 underlying rate” , as at an indexation date, is the aggregate of—
(a) the notional pre-1997 indexed proportion of the aggregate of the initial annual rate of compensation and (in the case of compensation payable under paragraph 6), the revaluation amount,
(b) so much of any actuarial increase under paragraph 16A as relates to the amount in paragraph (a), and
(c) so much of any annual increase to which the transferee is entitled under this paragraph in respect of earlier indexation dates as relates to the amounts in paragraphs (a) and (b);
“the post-1997 underlying rate” , as at an indexation date, is the aggregate of—
(a) the post-1997 indexed proportion of the aggregate of the initial annual rate of compensation and (in the case of compensation payable under paragraph 6), the revaluation amount,
(b) so much of any actuarial increase under paragraph 16A as relates to the amount in paragraph (a), and
(c) so much of any annual increase to which the transferee is entitled under this paragraph in respect of earlier indexation dates as relates to the amounts in paragraphs (a) and (b);
“the pre-1997 underlying rate” , as at an indexation date, is the aggregate of—
(a) the pre-1997 indexed proportion of the aggregate of the initial annual rate of compensation and (in the case of compensation payable under paragraph 6), the revaluation amount,
(b) so much of any actuarial increase under paragraph 16A as relates to the amount in paragraph (a), and
(c) so much of any annual increase to which the transferee is entitled under this paragraph in respect of earlier indexation dates as relates to the amounts in paragraphs (a) and (b).”;
(e) omit sub-paragraphs (5) and (6);
(f) before sub-paragraph (7) insert—
“(6A) For the purposes of paragraph (a) of the definition of “the general underlying rate”, “the general indexed proportion” is such proportion as is determined in accordance with regulations made by the Department.
(6B) For the purposes of paragraph (a) of the definition of “the notional pre-1997 underlying rate”, “the notional pre-1997 indexed proportion” is such proportion of the amount mentioned in sub-paragraph (3)(a) of the paragraph of Schedule 6 to the 2005 Order under which the transferor’s PPF compensation is payable that is attributable to pre-1997 service as may be prescribed.
(6C) For the purposes of paragraph (a) of the definition of “the post-1997 underlying rate”, “the post-1997 indexed proportion” is the proportion of the amount mentioned in sub-paragraph (3)(a) of the paragraph of that Schedule under which the transferor’s PPF compensation is payable that is attributable to post-1997 service.
(6D) For the purposes of paragraph (a) of the definition of “the pre-1997 underlying rate”, “the pre-1997 indexed proportion” is the proportion of the amount mentioned in sub-paragraph (3)(a) of the paragraph of that Schedule under which the transferor’s PPF compensation is payable that is attributable to pre-1997 service.”;
(g) in sub-paragraph (7), for ““the underlying rate”” substitute ““the general underlying rate”, the definition of “the notional pre-1997 underlying rate”, the definition of “the post-1997 underlying rate” and the definition of “the pre-1997 underlying rate””;
(h) for sub-paragraph 9 substitute—
“(9) In this paragraph—
“GMP indexation period” means the period beginning with 6 April 1988 and ending with 5 April 1997;
“guaranteed minimum pension” has the same meaning as in the Pension Schemes Act (see section 4(2) of that Act);
“post-1997 service” , “pre-1997 service” and “GMP indexed service” have the same meaning as in paragraph 28 of Schedule 6 to the 2005 Order (annual increase in periodic compensation);
“the assessment date” , in relation to a pension scheme, has the same meaning as in that Schedule (see paragraph 2 of that Schedule).”
(6) In paragraph 20, in sub-paragraph (1)(b), for “for the purposes of paragraph 17(2)” substitute “—
(i) of the pre-1997 underlying rate and of the notional pre-1997 underlying rate for the purposes of sub-paragraphs (2E) and (2F) of paragraph 17;
(ii) of the post-1997 underlying rate for the purposes of sub-paragraphs (2E), (2F) and (2G) of that paragraph;
(iii) of the general underlying rate for the purposes of sub-paragraph (2H) of that paragraph.””—(Torsten Bell.)
This new clause makes provision for certain compensation paid by the Pension Protection Fund in respect of a person’s pre-1997 pensionable service under legislation extending to Northern Ireland to be increased annually.
Brought up, read the First and Second time, and added to the Bill.
New Clause 33
Financial Assistance Scheme: indexation of payments for pre-1997 service
“(1) The Financial Assistance Scheme Regulations 2005 (S.I. 2005/1986) are amended as follows.
(2) In paragraph 7(1)(b) of Schedule 2 (determination of annual and initial payments), after “(b)(i)” insert “, (ia) and (ib)”.
(3) Paragraph 9 of that Schedule is amended in accordance with subsections (4) to (6).
(4) In sub-paragraph (2)—
(a) in paragraph (a) of the definition of “underlying rate”, after sub-paragraph (i) insert—
“(ia) where sub-paragraph (2A) applies, the product of X multiplied by so much of the expected pension as is attributable to pre-1997 service;
(ib) where sub-paragraph (2B) applies, the product of X multiplied by the relevant percentage of so much of the expected pension as is attributable to pre-1997 service;”;
(b) in paragraph (b) of the definition of “underlying rate”—
(i) omit the “and” at the end of sub-paragraph (i);
(ii) after that sub-paragraph insert—
“(ia) where sub-paragraph (2A) applies, so much of the expected pension as is, proportionally, attributable to pre-1997 service;
(ib) where sub-paragraph (2B) applies, the relevant percentage of so much of the expected pension as is, proportionally, attributable to pre-1997 service; and”;
(c) after the definition of “post-1997 service” insert—
““pre-1997 service” means—
(a) pensionable service (whether actual or notional) which occurs before 6th April 1997; or
(b) where the annual payment is payable to, or in respect of, a qualifying member who is, or was, a pension credit member of the scheme, pension credit rights deriving from rights attributable to service (whether actual or notional) which occurred before 6th April 1997;
“relevant percentage” means such percentage as may be determined by the Secretary of State;”.
(5) After sub-paragraph (2) insert—
“(2A) This sub-paragraph applies where, immediately before the qualifying pension scheme began to wind up—
(a) the scheme rules included a requirement for all or any part of so much of the annual rate of a pension in payment under the scheme as is attributable to a person’s pre-1997 service to be increased annually,
(b) that requirement did not apply only in relation to a guaranteed minimum pension provided by the scheme, and
(c) that requirement applied in relation to pre-1997 service in respect of which the annual payment is payable.
(2B) This sub-paragraph applies where—
(a) the qualifying pension scheme provided a guaranteed minimum pension that accrued during the GMP indexation period,
(b) that accrual was in relation to GMP indexed service in respect of which the annual payment is payable, and
(c) immediately before the scheme began to wind up the scheme rules—
(i) did not include a requirement of the kind mentioned in sub-paragraph (2A)(a), or
(ii) included such a requirement only in relation to a guaranteed minimum pension provided by the scheme.
(2C) For the purposes of sub-paragraphs (2A) and (2B)—
(a) in any case where it is unclear to the scheme manager whether, immediately before the scheme began to wind up, the scheme rules included a requirement of the kind mentioned in sub-paragraph (2A)(a), those sub-paragraphs have effect as if the scheme included such a requirement;
(b) in any case where it is unclear to the scheme manager whether, immediately before the scheme began to wind up, a requirement of the scheme of a kind mentioned in sub-paragraph (2A)(a) (including such a requirement included by virtue of paragraph (a)) applied in relation to particular pre-1997 service, those sub-paragraphs have effect as if the requirement applied in relation to such service;
(c) in any case where it is unclear to the scheme manager whether the scheme provided a guaranteed minimum pension that accrued during the GMP indexation period, those sub-paragraphs have effect as if the scheme so provided;
(d) in any case where it is unclear to the scheme manager whether the accrual of a guaranteed minimum pension provided by the scheme (including by virtue of paragraph (c)) was in relation to particular GMP indexed service, those sub-paragraphs have effect as if the accrual was in relation to such service.
(2D) In sub-paragraphs (2B) and (2C)—
“GMP indexation period” means the period beginning with 6 April 1988 and ending with 5 April 1997;
“GMP indexed service” means—
(a) pensionable service (whether actual or notional) which occurs during the GMP indexation period; or
(b) where the annual payment is payable to, or in respect of, a qualifying member who is, or was, a pension credit member of the scheme, pension credit rights deriving from rights attributable to service (whether actual or notional) which occurred during the GMP indexation period.”
(6) In sub-paragraph (3)—
(a) after “attributable to” insert “pre-1997 service or”;
(b) for “that amount” substitute “the amount in question”.
(7) In paragraph 7(1)(b) of Schedule 2A (determination of ill health and interim ill health payments), after “(b)(i)” insert “, (ia) and (ib)”.
(8) Paragraph 9 of that Schedule is amended in accordance with subsections (9) to (11).
(9) In sub-paragraph (2)—
(a) after the definition of “E” insert—
““EA” means so much of the expected pension as is attributable to pre-1997 service;
“EB” means the relevant percentage of so much of the expected pension as is attributable to pre-1997 service;”;
(b) after the definition of “post-1997 service” insert—
““pre-1997 service” means—
(a) pensionable service (whether actual or notional) which occurs before 6th April 1997; or
(b) where the ill health payment is payable to, or in respect of, a qualifying member who is, or was, a pension credit member of the scheme, pension credit rights deriving from rights attributable to service (whether actual or notional) which occurred before 6th April 1997;
“relevant percentage” means such percentage as may be determined by the Secretary of State;”;
(c) in paragraph (a) of the definition of “underlying rate”, after sub-paragraph (i) insert—
“(ia) where sub-paragraph (2A) applies, the product of X multiplied by (C x EA);
(ib) where sub-paragraph (2B) applies, the product of X multiplied by (C x EB);”;
(d) in paragraph (b) of the definition of “underlying rate”—
(i) omit the “and” at the end of sub-paragraph (i);
(ii) after that sub-paragraph insert—
“(ia) where sub-paragraph (2A) applies, so much of the amount “A” for the purposes of paragraph 2 as is, proportionately, attributable to pre-1997 service;
(ib) where sub-paragraph (2B) applies, the relevant percentage of so much of the amount “A” for the purposes of paragraph 2 as is, proportionately, attributable to pre-1997 service; and”;
(10) After sub-paragraph (2) insert—
“(2A) This sub-paragraph applies where immediately before the qualifying pension scheme began to wind up—
(a) the scheme rules included a requirement for all or any part of so much of the annual rate of a pension in payment under the scheme as is attributable to a person’s pre-1997 service to be increased annually,
(b) that requirement did not apply only in relation to a guaranteed minimum pension provided by the scheme, and
(c) that requirement applied in relation to pre-1997 service in respect of which the ill health payment is payable.
(2B) This sub-paragraph applies where—
(a) the qualifying pension scheme provided a guaranteed minimum pension that accrued during the GMP indexation period,
(b) that accrual was in relation to GMP indexed service in respect of which the ill health payment is payable, and
(c) immediately before the scheme began to wind up the scheme rules—
(i) did not include a requirement of the kind mentioned in sub-paragraph (2A)(a), or
(ii) included such a requirement only in relation to a guaranteed minimum pension provided by the scheme
(2C) For the purposes of sub-paragraphs (2A) and (2B)—
(a) in any case where it is unclear to the scheme manager whether, immediately before the scheme began to wind up, the scheme rules included a requirement of the kind mentioned in sub-paragraph (2A)(a), those sub-paragraphs have effect as if the scheme included such a requirement;
(b) in any case where it is unclear to the scheme manager whether, immediately before the scheme began to wind up, a requirement of the scheme of a kind mentioned in sub-paragraph (2A)(a) (including such a requirement included by virtue of paragraph (a)) applied in relation to particular pre-1997 service, those sub-paragraphs have effect as if the requirement applied in relation to such service;
(c) in any case where it is unclear to the scheme manager whether the scheme provided a guaranteed minimum pension that accrued during the GMP indexation period, those sub-paragraphs have effect as if the scheme so provided;
(d) in any case where it is unclear to the scheme manager whether the accrual of a guaranteed minimum pension provided by the scheme (including by virtue of paragraph (c)) was in relation to particular GMP indexed service, those sub-paragraphs have effect as if the accrual was in relation to such service.
(2D) In sub-paragraphs (2A) to (2C)—
“GMP indexation period” means the period beginning with 6 April 1988 and ending with 5 April 1997;
“GMP indexed service” means—
(a) pensionable service (whether actual or notional) which occurs during the GMP indexation period; or
(b) where the ill health payment is payable to, or in respect of, a qualifying member who is, or was, a pension credit member of the scheme, pension credit rights deriving from rights attributable to service (whether actual or notional) which occurred during the GMP indexation period;
“guaranteed minimum pension” has the meaning given in section 8(2) of the 1993 Act.”
(11) In sub-paragraph (3)—
(a) after “attributable to” insert “pre-1997 service or”;
(b) for “that amount” substitute “the amount in question”.
(12) In paragraph 6 of Schedule 3 (determination of certain annual payments)—
(a) in sub-paragraph (2)—
(i) in the definition of “underlying rate”, after paragraph (a) insert—
“(aa) where sub-paragraph (2A) applies, the product of X multiplied by—
(i) where the beneficiary is a qualifying member or a survivor or surviving dependant of a qualifying member who died on or after the calculation date—
(aa) where the qualifying member is not a qualifying member to whom regulation 17D applied, so much of the revalued notional pension as is attributable to pre-1997 service; or
(bb) where the qualifying member is a qualifying member to whom regulation 17D applied, so much of the sum of R-A as is attributable to pre-1997 service; and
(ii) where the beneficiary is a survivor or surviving dependant in respect of whom a survivor notional pension has been determined, so much of the survivor notional pension as is attributable to the qualifying member’s pre-1997 service;
(ab) where sub-paragraph (2B) applies, the product of X multiplied by—
(i) where the beneficiary is a qualifying member or a survivor or surviving dependant of a qualifying member who died on or after the calculation date—
(aa) where the qualifying member is not a qualifying member to whom regulation 17D applied, the relevant percentage of so much of the revalued notional pension as is attributable to pre-1997 service; or
(bb) where the qualifying member is a qualifying member to whom regulation 17D applied, the relevant percentage of so much of the sum of R-A as is attributable to pre-1997 service; and
(ii) where the beneficiary is a survivor or surviving dependant in respect of whom a survivor notional pension has been determined, the relevant percentage of so much of the survivor notional pension as is attributable to the qualifying member’s pre-1997 service;”;
(iii) after the definition of “post-1997 service” insert—
““pre-1997 service” means—
(a) pensionable service (either actual or notional) which occurred before 6th April 1997; or
(b) where the pension was payable to, or in respect of, a qualifying member who is, or was, a pension credit member of the scheme, pension credit rights deriving from rights attributable to service (whether actual or notional) which occurred before 6th April 1997;
“relevant percentage” means such percentage as may be determined by the Secretary of State;”;
(b) after sub-paragraph (2) insert—
“(2A) This sub-paragraph applies where immediately before the qualifying pension scheme began to wind up—
(a) the scheme rules included a requirement for all or any part of so much of the annual rate of a pension in payment under the scheme as is attributable to a person’s pre-1997 service to be increased annually,
(b) that requirement did not apply only in relation to a guaranteed minimum pension provided by the scheme, and
(c) that requirement applied in relation to pre-1997 service in respect of which the annual payment is payable.
(2B) This sub-paragraph applies where—
(a) the qualifying pension scheme provided a guaranteed minimum pension that accrued during the GMP indexation period,
(b) that accrual was in relation to GMP indexed service in respect of which the annual payment is payable, and
(c) immediately before the scheme began to wind up the scheme rules—
(i) did not include a requirement of the kind mentioned in sub-paragraph (2A)(a), or
(ii) included such a requirement only in relation to a guaranteed minimum pension provided by the scheme.
(2C) For the purposes of sub-paragraphs (2A) and (2B)—
(a) in any case where it is unclear to the scheme manager whether, immediately before the scheme began to wind up, the scheme rules included a requirement of the kind mentioned in sub-paragraph (2A)(a), those sub-paragraphs have effect as if the scheme included such a requirement;
(b) in any case where it is unclear to the scheme manager whether, immediately before the scheme began to wind up, a requirement of the scheme of a kind mentioned in sub-paragraph (2A)(a) (including such a requirement included by virtue of paragraph (a)) applied in relation to particular pre-1997 service, those sub-paragraphs have effect as if the requirement applied in relation to such service;
(c) in any case where it is unclear to the scheme manager whether the scheme provided a guaranteed minimum pension that accrued during the GMP indexation period those sub-paragraphs have effect as if the scheme so provided;
(d) in any case where it is unclear to the scheme manager whether the accrual of a guaranteed minimum pension provided by the scheme (including by virtue of paragraph (c)) was in relation to particular GMP indexed service, those sub-paragraphs have effect as if the accrual was in relation to such service.
(2D) In sub-paragraphs (2A) to (2C)—
“GMP indexation period” means the period beginning with 6 April 1988 and ending with 5 April 1997;
“GMP indexed service” means—
(a) pensionable service (whether actual or notional) which occurs during the GMP indexation period; or
(b) where the pension was payable to, or in respect of, a qualifying member who is, or was, a pension credit member of the scheme, pension credit rights deriving from rights attributable to service (whether actual or notional) which occurred during the GMP indexation period;
“guaranteed minimum pension” has the meaning given in section 8(2) of the 1993 Act.”;
(c) in sub-paragraph (3), after “attributable to” insert “pre-1997 service and”.
(13) In paragraph 6 of Schedule 5 (determination of certain ill health payments)—
(a) in sub-paragraph (2)—
(i) in the definition of “underlying rate”, after paragraph (a) insert—
“(aa) where sub-paragraph (2A) applies, the product of X multiplied by (C x VA);
(ab) where sub-paragraph (2B) applies, the product of X multiplied by (C x VB);”;
(ii) after the definition of “post-1997 service” insert—
““pre-1997 service” means—
(a) pensionable service (either actual or notional) which occurred before 6th April 1997; or
(b) where the pension was payable to, or in respect of, a qualifying member who is, or was, a pension credit member of the scheme, pension credit rights deriving from rights attributable to service (whether actual or notional) which occurred before 6th April 1997;
“relevant percentage” means such percentage as may be determined by the Secretary of State;”;
(iii) after the definition of “V” insert—
““VA” means—
(a) where the beneficiary is a qualifying member or a survivor or surviving dependant of a qualifying member who died on or after the calculation date—
(i) where the qualifying member is not a qualifying member to whom regulation 17D applied, so much of the revalued notional pension as is attributable to pre-1997 service; or
(ii) where the qualifying member is a qualifying member to whom regulation 17D applied, so much of the sum of R-A as is attributable to pre-1997 service; and
(b) where the beneficiary is a survivor or surviving dependant in respect of whom a survivor notional pension has been determined, so much of the survivor notional pension as is attributable to the qualifying member’s pre-1997 service;
“VB” means—
(a) where the beneficiary is a qualifying member or a survivor or surviving dependant of a qualifying member who died on or after the calculation date—
(i) where the qualifying member is not a qualifying member to whom regulation 17D applied, the relevant percentage of so much of the revalued notional pension as is attributable to pre-1997 service; or
(ii) where the qualifying member is a qualifying member to whom regulation 17D applied, the relevant percentage of so much of the sum of R-A as is attributable to pre-1997 service; and
(b) where the beneficiary is a survivor or surviving dependant in respect of whom a survivor notional pension has been determined, the relevant percentage of so much of the survivor notional pension as is attributable to the qualifying member’s pre-1997 service;”;
(b) after sub-paragraph (2) insert—
“(2A) This sub-paragraph applies where immediately before the qualifying pension scheme began to wind up—
(a) the scheme rules included a requirement for all or any part of so much of the annual rate of a pension in payment under the scheme as is attributable to a person’s pre-1997 service to be increased annually,
(b) that requirement did not apply only in relation to a guaranteed minimum pension provided by the scheme, and
(c) that requirement applied in relation to pre-1997 service in respect of which the ill health payment is payable.
(2B) This sub-paragraph applies where—
(a) the qualifying pension scheme provided a guaranteed minimum pension that accrued during the GMP indexation period,
(b) that accrual was in relation to GMP indexed service in respect of which the ill health payment is payable, and
(c) immediately before the scheme began to wind up the scheme rules—
(i) did not include a requirement of the kind mentioned in sub-paragraph (2A)(a), or
(ii) included such a requirement only in relation to a guaranteed minimum pension provided by the scheme.
(2C) For the purposes of sub-paragraphs (2A) and (2B)—
(a) in any case where it is unclear to the scheme manager whether, immediately before the scheme began to wind up, the scheme rules included a requirement of the kind mentioned in sub-paragraph (2A)(a), those sub-paragraphs have effect as if the scheme included such a requirement;
(b) in any case where it is unclear to the scheme manager whether, immediately before the scheme began to wind up, a requirement of the scheme of a kind mentioned in sub-paragraph (2A)(a) (including such a requirement included by virtue of paragraph (a)) applied in relation to particular pre-1997 service, those sub-paragraphs have effect as if the requirement applied in relation to such service;
(c) in any case where it is unclear to the scheme manager whether the scheme provided a guaranteed minimum pension that accrued during the GMP indexation period, those sub-paragraphs have effect as if the scheme so provided;
(d) in any case where it is unclear to the scheme manager whether the accrual of a guaranteed minimum pension provided by the scheme (including by virtue of paragraph (c)) was in relation to particular GMP indexed service, those sub-paragraphs have effect as if the accrual was in relation to such service.
(2D) In sub-paragraphs (2A) to (2C)—
“GMP indexation period” means the period beginning with 6 April 1988 and ending with 5 April 1997;
“GMP indexed service” means—
(a) pensionable service (whether actual or notional) which occurs during the GMP indexation period; or
(b) where the pension was payable to, or in respect of, a qualifying member who is, or was, a pension credit member of the scheme, pension credit rights deriving from rights attributable to service (whether actual or notional) which occurred during the GMP indexation period;
“guaranteed minimum pension” has the meaning given in section 8(2) of the 1993 Act.”;
(c) in sub-paragraph (3), after “attributable to” insert “pre-1997 service and”.”—(Torsten Bell.)
This new clause makes provision for certain assistance paid under the Financial Assistance Scheme Regulations 2005 in respect of a person’s pre-1997 pensionable service to be increased annually.
Brought up, read the First and Second time, and added to the Bill.
New Clause 34
Exemption from public procurement rules
“(1) After paragraph 2 of Schedule 2 to the Procurement Act 2023 (general vertical arrangements exemption from public procurement rules) insert—
2A “(1) A contract between a local government pension scheme manager and an asset pool company providing for the company—
(a) to manage the funds and other assets for which the scheme manager is responsible,
(b) to make and manage investments on behalf of the scheme manager, and
(c) if the contract so provides, to carry out other investment management activities for or on behalf of the scheme manager,
if each of the conditions set out in sub-paragraph (2) is met.
(2) The conditions are—
(a) that more than 80% of the activities of the company are investment management activities carried out for or on behalf of local government pension scheme managers;
(b) that no person exercises a decisive influence on the activities of the company (either directly or indirectly) other than—
(i) the participating scheme managers in the company, acting in their capacity as local government pension scheme managers, and
(ii) where the only shareholder in the company is another company (see section 1(9)(a) of the Pension Schemes Act 2025), that other company;
(c) that the company does not carry out any activities that are contrary to the interests of—
(i) the participating scheme managers in the company, in their capacity as local government pension scheme managers, or
(ii) where the only shareholder in the company is another company, that other company.
(3) The contracts covered by this paragraph include a contract where the local government pension scheme manager concerned is already a participating scheme manager in the company (as well as one where the scheme manager concerned will become a participating scheme manager in the company as a result of entering into it).
(4) An appropriate authority may by regulations make provision about how a calculation as to the percentage of activities carried out by an asset pool company is to be made for the purposes of sub-paragraph (2)(a).
(5) For the purposes of sub-paragraph (2)(b), a person does not exercise a decisive influence on the activities of the asset pool company only by reason of—
(a) being a director, officer or manager of the company, acting in that capacity, or
(b) where the only shareholder in the company is another company, being a director, officer or manager of that other company.
(6) In this paragraph—
“asset pool company” has the meaning given by section 1(7)(a) of the Pension Schemes Act 2025;
“investment management activities” means activities involved in or connected with the management of funds or other assets for which a scheme manager is responsible (including making and managing investments on behalf of the scheme manager);
“local government pension scheme manager” means a person who is, by virtue of section 4(5) of the Public Service Pensions Act 2013, a scheme manager for a pension scheme for local government workers in England and Wales;
“participating scheme manager” , in relation to an asset pool company, means a local government pension scheme manager who participates in the company within the meaning of section 1(9)(b) of the Pension Schemes Act 2025.””—(Torsten Bell.)
This new clause amends the Procurement Act 2023 to create a new category of exempted contract covering certain investment management contracts between a local government scheme manager and the asset pool company. This is intended to replace Clause 4 in the current print of the Bill.
Brought up, read the First and Second time, and added to the Bill.
New Clause 35
Funding of the Board of the Pension Protection Fund
“(1) The Pensions Act 2004 is amended in accordance with subsections (2) to (5).
(2) Omit section 116 (power of Secretary of State to pay grants to Board of Pension Protection Fund).
(3) Omit section 117 (power of Secretary of State to impose administration levy on pension schemes).
(4) In section 173 (Pension Protection Fund), in subsection (3), before paragraph (a) insert—
“(za) any sums required to meet expenditure of the Board that is attributable to the operation or administration of the Pension Protection Fund,”
(5) In section 188 (fraud compensation fund), in subsection (3), before paragraph (a) insert—
“(za) any sums required to meet expenditure of the Board that is attributable to the operation or administration of the Fraud Compensation Fund,”
(6) No amount is payable to the Secretary of State by virtue of section 117 of the Pensions Act 2004 (administration levy) in respect of the financial years beginning with 1 April 2023 and 1 April 2024.
(7) In the Pensions Act 2008, in Schedule 10 (interest on late payment of levies), omit paragraph 3 (which makes an amendment about interest for late payment of the administration levy that has not been brought into force).”—(Torsten Bell.)
This new clause (which is intended to be added after clause 112) enables administrative expenses of the Board of the Pension Protection Fund to be paid out of the Pension Protection Fund and the Fraud Compensation Fund, and removes the existing administration levy mechanism; it also clarifies that no administration levy is payable for 2023/24 or 2024/25.
Brought up, read the First and Second time, and added to the Bill.
New Clause 3
Terminal illness: means of demonstrating eligibility
“(1) The Secretary of State must by regulations make provision about how a person may demonstrate that they are terminally ill for purposes relating to compensation or assistance from the Pension Protection Fund or Financial Assistance Scheme.
(2) In making regulations under this section, the Secretary of State must seek to minimise the administrative burden placed upon the person with a terminal illness.
(3) Regulations under this section must provide that, where the Department of Work and Pensions (“the Department”) holds a valid SR1 form in respect of a person seeking to demonstrate that they are terminally ill for purposes relating to compensation or assistance from the Pension Protection Fund or Financial Assistance Scheme, the Department must share that form with the Pension Protection Fund or the Financial Assistance Scheme.
(4) Regulations under this section must require the Pension Protection Fund and the Financial Assistance Scheme to make the appropriate payment or payments within a specified time of receipt of a valid application.”—(Manuela Perteghella.)
This new clause would require the Secretary of State to provide, by regulations, for the use of a valid SR1 form to make it easier for a person to demonstrate that they are terminally ill for purposes related to compensation from the PPF or FAS.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Torsten Bell
I beg to move, That the Bill be now read the Third time.
Pensions matter. They are the means by which we deliver on some of the biggest promises we have made to the public: that the prospect of a comfortable retirement, with the option of leisure—hon. Members may choose not to take it—in later life, is there for the many, not just the few. We need not only to encourage people to save, but to ensure that those savings work as hard as possible for them to deliver that comfortable retirement. That is ultimately what this occasionally technical Bill is all about. Better returns mean better retirements, and there are few things more important than that.
The Bill adds wind to the sails of some of the major changes already under way in our pension landscape. Most importantly, it pushes ahead with the shift towards larger, better-governed schemes, better able to access and deliver returns for savers and to invest in a wider range of assets. It introduces a new value for money framework, so that schemes are judged on performance and service, not just cost. It removes one of the big barriers to people engaging with their pensions by consolidating small, inactive pension pots. It delivers reforms to ensure people are building up a pension, not just a savings pot, with simple default pensions that do not require each of us to become a financial expert as we approach retirement.
For defined benefit schemes, the Bill strengthens the local government pension scheme, puts more trustees in the driving seat for managing scheme surpluses, and addresses the lack of pre-1997 indexation within the PPF and the FAS. Those are real improvements shaped by constructive debate and detailed scrutiny in this place and across the pension industry.
I again thank Members from all parts of the House for their contributions and I thank the Clerks for taking us through Committee. I also thank the Bill team—Jo, Amanda, Mike, James, Sagar, Saadia and Steve—and the many officials across DWP and the Treasury who have worked behind the scenes to support the Government in bringing forward this important legislation. I appreciate that it is not a short Bill. The PPF, the Financial Conduct Authority and the Pensions Regulator have also played important roles for which I am grateful. I commend all of them, and this Bill, to the House.
Helen Whately (Faversham and Mid Kent) (Con)
As this Bill nears the end of its journey through our House, I take a moment to acknowledge some of the people who have played their part, whether that is former Pensions Ministers, including my right hon. Friend the Member for Sevenoaks (Laura Trott), the former hon. Member for Hexham, my hon. Friend the Member for Wyre Forest (Mark Garnier), who cannot be with us today, or my hon. Friend the Member for South West Devon (Rebecca Smith), who also cannot be here today. My hon. Friend the Member for North West Norfolk (James Wild) did such a brilliant job speaking earlier this afternoon. I also thank the hard-working members of the Bill Committee, including my hon. Friend the Member for Mid Leicestershire (Mr Bedford). Many civil servants will have worked on this Bill and pensions experts will have contributed, and I thank them all for their hard work and expertise. May I also finally offer congratulations to the current Pensions Minister, the lucky one who gets to be here to see this Bill off to the other place?
We on the Conservative Benches do not agree with all of the Bill, but there is a lot in it that we do welcome, particularly the parts that the Minister inherited from us, including the consolidation of fragmented pension pots, the introduction of the value for money framework and the pensions dashboard. Those will help people to manage their pension savings and get better returns. We also welcome the Government’s amendment of the Bill, reflecting our new clause, to index pre-1997 pensions, for which there was significant consensus across the House. That will provide some dignity for pensioners who have seen their pensions eroded over the years, and we hope that the Government continue to work with campaign groups to see that through. I also thank my right hon. Friends the Members for Herne Bay and Sandwich (Sir Roger Gale) and for Hereford and South Herefordshire (Jesse Norman) for their representations on that.
The Bill also has some serious flaws. Nestled within the sensible reforms that the Government inherited is a power that no Government should wield: the power to mandate how pension funds invest. Today, the job of a pension fund manager is to make the best possible decisions for their fund members about where to invest. Their sole objective is the interests of those members. That is their legal duty, and mandation would change that, because mandation means the Government will be able to tell pension funds how to invest their assets. We should not for a minute underestimate the significance of that. Ministers have insisted it is merely a backstop and a tool they hope never to use, but a threat made just in case is still a threat, and pension trustees know it. I say to the Pensions Minister that a Minister should always consider the worst thing that someone else might do in their position—in essence, “I am not a bad man, but what might a bad man do?” He might be confident that he would not abuse the power, but what if someone else had it?
Those in the pensions sector do not support this plan. Earlier in the year the Minister told them to “chillax”. He may be intensely relaxed, but I must say to him that he is also intensely wrong. Trustees are the custodians of people’s life savings. They are not there to carry out manifesto pledges or pet projects, and the Minister should not put himself or any future pensions Minister in a position to tell them to do so.
Instead of forcing pension funds to invest in the UK, Ministers should ask why they have not been investing and then do something about that. Our amendment 15 gave them the opportunity to diagnose these problems and resolve them, but, as we have just seen, they voted it down. In any event, they should stop making Britain a worse place in which to do business, ramping up taxes on employment, slapping on red tape, and briefing out bad Budget news for months in advance to kill confidence in every sector of the economy.
As my hon. Friend the Member for North West Norfolk (James Wild) said earlier, our other concern with the Bill is the relationship between scale and innovation. We agree with the need for scale, but the Government should avoid blocking the emergence of new entrants and the scaling up of existing smaller players.
Finally, there is the question of pension adequacy. While the Bill should help people to manage their pension savings and boost their returns, it falls short when it comes to tackling the serious problem of people under-saving for later life. Millions of people simply are not saving enough for old age. The Government should be acting now in this regard, rather than delaying the next phase of the pensions review and attacking pension savings at every turn. First they came for pensioners’ winter fuel payments, then they came for self-invested personal pensions, and last week they came for salary sacrifice—and that was not a small tweak. The cap on salary sacrifice will net the Treasury nearly £5 billion of extra tax revenue in 2029-30—money that would otherwise have gone into people’s pensions.
We have made our points, argued our position and put amendments to a vote, so we will not be voting against the Bill on Third Reading. However, I urge the Government to listen to the wise and the many expert words that will be spoken when it is debated in the other place, and to use that opportunity to fix it.
Kirsty Blackman (Aberdeen North) (SNP)
I figured that, as I had only about 17 minutes in which to speak on Report, the House deserved to hear from me again on Third Reading, but I shall be very brief in expressing my views and those of my hon. Friends.
Members spoke earlier about people’s understanding of pensions, and I continue to have concerns about people’s understanding of defined contribution schemes. People who are given a figure for how much money is in their defined contribution scheme are often confused about what that will actually mean when they hit retirement. Those schemes are very different from defined benefit schemes, and, given the massive increase in the number of people investing in defined contribution schemes rather than defined benefit schemes, those issues will continue unless an incredible amount of education is provided so that people can understand what they might receive in their pensions, rather than just the amount in the total pot.
The Minister has made a number of changes to the Bill that I appreciate, not least the pre-1997 indexation for the Pension Protection Fund. The fiduciary duty announcement that he made today is, I think, extremely helpful in clarifying for trustees what their objectives are. He also mentioned that the Association of British Insurers had come up with an agreement. In my experience of serving on a significant number of Bill Committees, it is very unusual for so many changes to be made. I appreciate the fact that the Committee members were listened to, and that some of the concerns raised by Members in all parts of the Committee have been tackled during the Bill’s progress. I have already raised concerns about the short notice that we had for some of the amendments and new clauses and the fact that we were not properly able to scrutinise the Government changes, both in Committee on Report.
Finally, let me thank Matt and Fergus, who helped me with some of this. We rarely see pension Bills presented, and I would love to see another—shortly, probably. Given that the Minister has made commitments in relation to fiduciary duty, and given that he said he expected such a measure to appear in primary legislation with guidance to follow, I assume that a Bill will follow those commitments. I also think that the adequacy review may—hopefully—kick up some requirements for legislation.
This House should get used to talking about pensions. As the generations shift, the state pension will become a smaller percentage of what people rely on in retirement, and auto-enrolment and defined contribution schemes mean that significantly more people will rely on private pensions. Ensuring that they have the best possible outcomes for retirement is something that all Members of the House can support, and we need to have a legislative framework that keeps pace with how people are actually investing for the future, rather than one that reflects how people invested 20 or 30 years ago.
As the Minister will be aware, I would be delighted to debate more pensions Bills as they come forward. We will do our best to provide cross-party support wherever we can.
Bill read the Third time and passed.
Pension Schemes Bill
Friday 5th December 2025
(2 weeks, 6 days ago)
Lords ChamberPension Schemes Bill 2024-26 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 3 December 2025 - large print - (3 Dec 2025)
Pension Schemes Bill
Thursday 18th December 2025
(1 week ago)
Lords ChamberPension Schemes Bill 2024-26 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 3 December 2025 - large print - (3 Dec 2025)
Baroness Sherlock
Northern Ireland and Welsh legislative consent sought. Relevant document: 42nd Report from the Delegated Powers and Regulatory Reform Committee
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, it is a privilege to open the Second Reading of the Pension Schemes Bill. I am grateful to noble Lords for the engagement we have already had, and I look forward to working constructively together as the Bill progresses through this House. I also very much look forward to the maiden speech of the noble Baroness, Lady White of Tufnell Park.
Pensions are really important, and the Bill will transform our pensions landscape for the better. It will play its part in delivering growth, as well as helping to raise living standards in every part of the UK. It will assist the pensioners of the future to feel more confident about the economy in general, as well as their own futures.
Pensions are the promise we make to millions of people that their years of hard work will be rewarded with security and dignity in retirement. UK pension schemes invest hundreds of billions of pounds in our country. The reforms outlined in the Bill will make those pounds work harder for pensioners by making schemes more efficient—more money invested, and less on overheads and administration.
The first Pensions Commission laid the groundwork for a new pensions landscape, with a simpler state pension and automatic enrolment into retirement savings. This transformed private pension saving in the UK. The Bill, along with the work of the pensions investment review, moves our private pensions system forward. Bigger, better pension schemes will drive better returns, as well as tackling inefficiencies in our system.
The new Pensions Commission is looking at the issue of adequacy across the state and private pensions systems, with a clear objective of building a strong, fair and sustainable pension system. I look forward to this debate on the Bill, which is all about making every pound saved work harder for members, unlocking investment for our economy and restoring confidence in the promise of a decent retirement.
I will now outline the main measures in the Bill. First, the Bill addresses the fragmentation of the Local Government Pension Scheme, which is currently spread across 87 funds in England and Wales. This fragmentation limits efficiency and scale. Through these reforms, all assets in the Local Government Pension Scheme, or LGPS, will be managed through FCA-regulated investment pools, ensuring professional oversight and better value for money. Administering authorities will set clear targets for local investment, working with strategic authorities to align with regional growth plans.
Of course, LGPS members’ pensions and benefits are protected, as they are guaranteed in statute and are not affected by the performance of investments. These reforms are about the LGPS being well governed and well invested to deliver efficiency and value for money.
Next, the Bill introduces powers to enable more trustees of well-funded defined benefit, or DB, schemes to share some of the £160 billion of surplus funds to benefit sponsoring employers and members. This will enable employers to drive growth through investment and higher purchasing power, but it will be subject to strict safeguards. The measure will allow trustees, working with employers, to decide how surplus can benefit both members and employers, while maintaining security for future pensions.
The defined contribution, or DC, workplace pensions market prioritises competition on cost rather than on the overall value. The Bill introduces a value-for-money framework to enable a shift in focus away from cost towards a longer-term consideration of value. This new framework looks to standardise how value is assessed, in a transparent, consistent and comparable way. It will require schemes to disclose standardised metrics, undertake a holistic assessment of value, and take improvement actions where needed.
Automatic enrolment has been a huge success, ensuring that millions more people are now saving for their retirement. However, frequent job changes mean that individuals are often enrolled into a new pension scheme by each employer, leaving them with multiple small pots over their working life, often with very small amounts saved. This has created a challenge across the workplace pensions market, with current estimates suggesting that within the system there are more than 13 million pots worth less than £1,000 each. This is hugely expensive for pension schemes to administer, with an estimated cost of £240 million a year, ultimately resulting in poorer value for members.
Through the Bill, we are taking powers to introduce automatic consolidation of these dormant small pension pots through a multiple default consolidator model. Opportunity for member choice will be built in; members can choose a consolidator scheme or choose to opt out entirely if they wish. This will simplify the system, reduce costs and support members so they can better track their retirement savings.
There is strong evidence that larger pension schemes mean better outcomes for members through efficiencies of scale, stronger governance and better investment opportunities at lower cost. The Bill will therefore drive scale by accelerating the consolidation of multi-employer DC schemes.
From 2030, schemes used for auto-enrolment must reach at least £25 billion in assets in a single main scale default arrangement, or £10 billion on a transition pathway with a credible plan to reach £25 billion within five years. This is about harnessing the power of scale: larger schemes can negotiate better deals, access more diverse investments and deliver better outcomes for savers.
On asset allocation, earlier this year, the Mansion House Accord was signed by 17 major pension providers, which, between them, manage about 90% of active savers’ DC pensions. This initiative was led by industry, and the signatories pledged to invest 10% of their main default funds in private assets, such as infrastructure, by 2030. The purpose of this voluntary commitment is, as the signatories put it,
“to facilitate access for savers to the higher potential net returns that can arise from investment in private markets as part of a diversified portfolio, as well as boosting investment in the UK”.
The Bill includes a backstop provision that would permit the Government, with Parliament’s approval, to require DC pension providers of auto-enrolment schemes to invest a fixed percentage of their default funds in specific asset classes. The Government do not anticipate exercising the power, unless they consider that the industry has not delivered the change on its own. There are also strong safeguards around it.
All workplace pension schemes are required to have a default arrangement, where contributions are invested if members do not choose an investment option. Most members go into a default arrangement and remain there throughout their scheme membership. There are currently thousands of different default arrangements in pension schemes, creating fragmentation, inefficiency and poorer outcomes for members.
The Bill introduces new requirements to review those default arrangements, with a power to make regulations as needed, following the review, to require default arrangements to be consolidated into a main scale default arrangement. There is also a power to make regulations for new default arrangements to be subject to regulatory approval. That will ensure that savers benefit from economies of scale and improved governance by reducing the fragmentation in the pensions market.
Many pension schemes, especially legacy ones, are not delivering good outcomes for savers. As contract-based schemes rely on individual contracts between firms and members, firms usually need individual members’ consent to make any changes, even when the change would improve outcomes for members. Obtaining this consent is often difficult and costly, especially when members are disengaged, even when a scheme offers poor value. This leaves members stuck in poor-value schemes.
To address that, the Government are introducing the contractual override power in the Bill. It will allow the providers of FCA-regulated DC workplace pensions to transfer members to a different pension arrangement, make a change which would otherwise require consent, or vary the terms of members’ contracts without the need for individual member consent, but only when the legal and regulatory requirements are met. That includes rigorous consumer safeguards such as the best interests test, which must be met and certified by an independent expert before a contractual override can take place.
At retirement, DC scheme savers face complex financial decisions. They need to evaluate the different options to suit their own individual circumstances, assess risks and uncertainty in financial products, and factor in their own estimation of their life expectancy. We know that savers do not always use the support available: only 16% used a regulated source, such as Pension Wise or a professional financial adviser.
The Bill puts new duties on trustees to develop and provide one or more default pension plans at retirement to help members access their savings without these complex decisions. These plans will provide a straightforward income solution for most members, with opt-out rights for those who prefer alternatives. Trustees must design plans based on member needs, communicate options clearly and publish a pension benefits strategy, which will be overseen by the Pensions Regulator. The Bill also requires the FCA to make rules that deliver default pension plans in relation to pension schemes regulated by the FCA, ensuring consistency and better outcomes for savers.
Superfunds are commercial consolidators that offer a new route for employers to secure the legacy liabilities of closed DB schemes that cannot secure an insurance buyout. Building on the current interim regime, the Bill establishes a permanent legislative framework for superfunds. It introduces an authorisation and supervisory regime with robust governance, funding and continuity arrangements, so that members of those schemes can have the confidence that their pensions are properly protected. Superfunds may invest more productively because of their scale, expertise and buying power, so they are good for members, employers and the wider economy.
Part 4 contains a range of important measures. Following the Virgin Media court case, certain DB pension benefit alterations could be treated as void if schemes cannot produce actuarial confirmation that they met the minimum standards in place at the time. This affects schemes that were contracted out between 1997 and 2016. The court judgment has the potential to cause pension schemes significant cost and uncertainty, even where the schemes did, in fact, meet the minimum standards required. To resolve that, the Bill allows schemes to ask their actuary to confirm that past benefit alterations would not have caused the scheme to fall below the relevant minimum standards.
The Chancellor announced in the Budget that the Government will introduce pre-1997 indexation into the Pension Protection Fund and the Financial Assistance Scheme—the PPF and the FAS—to address the long-standing issue faced by members. As noble Lords will be aware, those are the compensation schemes that provide a safety net for members of DB schemes. Currently, payments in respect of service before 1997 are not uprated with inflation, and affected members have seen the real value of their compensation decrease significantly in recent years.
The Bill will pave the way to introduce increases on PPF and FAS payments for pensions built up before 6 April 1997. These will be CPI-linked and capped at 2.5%, and will apply prospectively for members whose former schemes provided for these increases. That will help those members’ pensions keep pace with the cost of living. This is a step change that will make a meaningful difference to over 250,000 members. Incomes will be boosted by an average of around £400 for PPF members and £300 for FAS members after the first five years. Our changes strike an affordable balance of interests for all parties, including eligible members, levy payers, taxpayers and the PPF’s ability to manage future risk. The Bill makes some other changes to the PPF and the FAS that will benefit the members of these schemes and the levy payers supporting the PPF, including around terminal illness and the levies.
Finally, some noble Lords may have seen that the Delegated Powers and Regulatory Reform Committee published its report on the Bill last night. I emphasise that the Government recognise the importance of getting the right balance when taking delegated powers and using them appropriately. The pensions industry is highly technical and rapidly evolving, and there is a complex interaction between legislative requirements, regulatory oversight and changes in practice or innovation. In pensions legislation, it is common for a mix of requirements and principles to be set out in primary legislation, with finer detail, which is liable to frequent development, to be set out in secondary legislation. That allows for a quicker response to developments in the industry, including to protect scheme members. We think we have the right balance in the Bill, but I thank the committee for its report and will respond in due course.
This Bill will initiate systemic changes to the pensions landscape, with the aim of building a pensions system that is fit for the future—one that is strong, fair and sustainable, and that delivers for savers, employers and the economy. At its core, the Bill is about making sure that people’s hard-earned savings work as hard for them as they have worked to save, while galvanising the untapped benefits that private pensions can offer the economy at large. I look forward to our discussions today. I beg to move.
Baroness Stedman-Scott (Con)
My Lords, I too look forward to the maiden speech of the noble Baroness, Lady White. I have every confidence that she will make a great contribution, including to the work of the House generally. Having had some interface with her at the DWP, I am very confident that will happen.
Although the Bill is not perfect, I hope the Minister will take comfort from the broad cross-party consensus that exists around many of its core measures. Across your Lordships’ House, we share a common ambition: having a pensions system that delivers strong returns for those it serves.
In 2010, we inherited from the previous Labour Government a private pensions system that was not fit for purpose. The shift from defined benefit to defined contribution had left millions behind and, in 2011, just 42% of people were saving into a workplace pension. The cornerstone of reform was auto-enrolment—a Conservative innovation and an undeniable success. Today, around 88% of eligible employees are saving for retirement, with most opt-outs made on the basis of sound financial advice.
Workers deserve dignity in retirement, not merely a safety net. That is why, before the last election, the Government rightly focused on two enduring challenges: value for money and pensions adequacy.
Let me begin by acknowledging what the Bill gets right. We welcome progress on the pensions dashboard, which will help savers access their information more easily and plan for retirement. We also support the Bill’s emphasis on consolidation, including larger pension funds, the consolidation of the Local Government Pension Scheme, and the long-overdue merging of small, stranded pots—all of which have the potential to improve efficiency and value for money, provided that risks are properly managed. Finally, we welcome the humane and necessary measures to improve access to pensions for those facing terminal illness. Taken together, these provisions represent steps in the right direction.
However, while there is much to commend, there are also areas where we believe the Bill falls short, and in ways that matter deeply to the millions depending on it. The most striking omission in the Bill is the absence of any meaningful progress on pension adequacy. The uncomfortable truth is that too many people are simply not saving enough to secure a decent standard of living in retirement: a situation made all the more difficult in the current economic circumstances.
Auto-enrolment was never intended to be the finished article. It was a foundation, not the building itself. Yet the Bill proceeds as though the task were complete. The central question of whether current savings levels are sufficient is not confronted but deferred: pushed into the second stage of the review. This is not reform: it is a holding space, in which difficult but necessary decisions risk being postponed rather than resolved.
Adequacy should have been the organising principle of this legislation. Instead, it has been quietly parked for another day. In its place, the Government have focused on taxing pension contributions, increasing the cost of employment, and layering additional regulation on to the terms and conditions of work. We are regulating, taxing and constraining the very mechanisms through which retirement savings are generated, yet we have failed to address the most basic and consequential question of all: are people saving enough to retire with security and dignity?
A further missed opportunity is the failure to support the self-employed with new and innovative ways to save affordably for their retirement—more than 4 million people who drive our economy, create jobs and take risks, yet too often face retirement with no provision at all. Only around one in five self-employed workers earning over £10,000 a year currently saves into a pension. This is not a marginal problem; it is a structural gap in our pensions system. We need practical and pioneering solutions to support this growing group, and the Bill should have set that direction. We have spoken directly to the self-employed in preparation for this legislation, and in Committee we stand ready to assist the Minister by bringing that engagement and evidence to bear.
Our wider engagement also brought into sharper focus the Bill’s treatment of public sector pensions. This Bill is, in our view, decidedly LGPS-light. We will therefore table amendments to address that omission, ensuring that the scheme operates with greater clarity, flexibility and accountability. At the heart of our concern is the need for a more transparent, simpler and reformed approach to reviewing employer contribution rates for local authorities. This is not about loosening discipline or weakening the scheme. It is about prudent financial management and giving councils the tools they need to govern responsibly. This is what local authorities deserve and it is good financial governance.
The Bill shows no enthusiasm for addressing excessive prudence and the record surpluses within the Local Government Pension Scheme. We are not naive enough to suggest that the LGPS surpluses can be extracted or treated in the same way as those of private defined benefit schemes. But, under the Chancellor’s revised fiscal rules, those surpluses are now treated as assets offsetting public debt. That may be fiscally convenient but it represents a missed opportunity to enhance councils’ resilience. In appropriate circumstances, those surpluses could—and should—be used to support reductions in employer contribution rates. However, too often, overly cautious actuarial methodologies, excessive prudence and a lack of transparency have locked councils into contribution rates that are simply too high.
Proportionality and openness in how assumptions are set and decisions are reached are pivotal. Without transparency, those assumptions cannot be properly challenged through due diligence, and Section 151 officers cannot fully discharge their statutory duties. We must therefore ensure that interim reviews of employer contributions are more accessible, transparent and accountable, through clearer statutory trigger conditions, published policies, improved actuarial transparency and strengthened statutory guidance.
Kensington and Chelsea demonstrated precisely that approach in the aftermath of the Grenfell tragedy. Yet, across the country, councils are still forced into an exhausting and uncertain process to navigate the existing regulatory framework simply to secure interim contribution reductions after a formal valuation. We look forward to engaging constructively with the Government to ensure that councils are properly supported in delivering services while fully meeting their LGPS obligations.
Finally, I turn to what I regard as the most troubling element of the Bill: the proposed reserve power to mandate pension fund investment strategies within master trusts and group personal pension schemes used for automatic enrolment. Mandation is not a neutral tool; it is the quiet nationalisation of pension investment strategy. It is a fundamental shift in who ultimately controls investment decisions. Automatic enrolment has succeeded because it is trusted. Mandation threatens that trust: automatic enrolment is trusted by employers, by industry, and above all by millions of ordinary savers who have neither the time nor the confidence to manage complex financial decisions themselves.
It is therefore deeply concerning that this power is targeted specifically at automatic enrolment default funds. These are the schemes used disproportionately by those with the least means and the least financial confidence: the very people who rely most heavily on the integrity and independence of the system we have built over decades.
This is where the injustice bites. Those with the fewest means and the least financial confidence are the ones Labour’s mandation would trap. The savviest can opt out; the poorest get locked in. That is the injustice of mandation. Those savers need our protection, not a situation in which their pension outcomes become indirectly shaped by ministerial preferences, however well intentioned. Conservatives built automatic enrolment; Labour now stands a chance of threatening it.
We built automatic enrolment on a simple settlement: the state sets the framework, but trustees make the investment decisions. The Bill risks blurring that line. At stake here is trustee independence and fiduciary duty, principles that sit at the very heart of pensions policy. Trustees are bound, both legally and morally, to act in the best financial interests of their beneficiaries. Pension schemes exist to serve savers, not to serve the shifting political priorities of the day.
In this context, I am reminded of the warning offered by the respected pensions expert Tom McPhail, who invoked Chekhov’s famous dramatic device: the gun on the wall. If the gun is hung on the backdrop of the stage in the first act, it will be fired by the third. Once a Government arm themselves with a power, no matter how benignly it is presented, history suggests that it will eventually be used. If the Government do not intend to use the power, why is it in the Bill?
Rather than relying on the logic of “mandation as a backstop”, I urge the Minister and her team to step back and address the underlying reasons why pension funds are not investing more in the UK in the first place. Low domestic investment is not simply a collective action problem, as the Government suggest. It reflects real structural barriers, and the Government should compile the relevant evidence and report back on how those obstacles might be removed.
Will the Minister undertake to do this? There are better and far less constitutionally troubling ways to unlock long-term investment. I offer her just one example. Solvency rules continue to constrain insurers from investing in productive UK assets that offer stable long-term returns. Reforming those outdated rules could, according to Aviva, unlock billions of pounds over the next decade. That is how we should be driving growth, by removing barriers to investment and not by inserting the state into decisions that properly belong to independent trustees acting solely in the interest of savers. It is therefore striking that the Government have chosen to expend so much political capital on a mandation policy that commands little support beyond the DWP and lacks a wider consensus across the industry. Can the Government provide assurances that savers in auto-enrolment pension schemes will not subsequently discover that their pension providers have been instructed to invest in specific entities such as Thames Water?
I close by reaffirming our commitment to work constructively with the Government. Stability and confidence in the pensions market are paramount. It is in that spirit that we approach this Bill. Where improvements can be made, we will table amendments. We will engage in good faith to ensure that the detail is right and that the framework ultimately serves savers, schemes and the wider economy. We broadly support the direction of travel that the Government are pursuing. However, as today’s debate has made clear, there remain important questions around the detail, the intent of forthcoming regulations and what has been omitted from the Bill.
When closing today’s debate, my noble friend Lord Younger of Leckie will expand on these points, set out further concerns and put several direct questions to the Minister. We hope that the Government will reflect carefully on those issues as the Bill progresses. I look forward to working with the Minister in the weeks and months ahead and to continuing this constructive, robust dialogue as we seek to strengthen the legislation.
Lord Sharkey (LD)
My Lords, I join the Minister and the noble Baroness, Lady Stedman-Scott, in saying how much I look forward to the maiden speech of the noble Baroness, Lady White, especially since I too live in Tufnell Park.
It is always a pleasure to follow the Minister. We welcome an important set of proposals for reform. We would support many of these proposals, but several merit serious examination and probing in Committee. As things stand, I should say upfront that we cannot support the mandation proposals in the Bill. I hope that we can constructively modify these proposals during the Bill’s passage through the House.
The Minister will know that stakeholders have expressed significant concerns about risk to member security, trustee independence and long-term saver outcomes that may be contained in the Bill’s proposals. For example, there are worries that easing access to DB surpluses of employers could undermine member benefits. Phoenix has noted that surplus release thresholds will be set in secondary legislation. It believes that a post-release funding level is essential to protect members and limit covenant risks. It opposes lowering the threshold to “low dependency” and believes that surplus should only be released above buyout affordability. Some MPs and the ABI have called for stricter oversight, including retention of the three “gateway tests” to prioritise buyouts over superfunds.
The ACA also recommends that trustees have a formal role in assessing and agreeing any rule changes and in determining any refund of a surplus to an employer. The CEO of TPR, Nausicaa Delfas, whose name I googled—it means “burner of ships”—is on record as saying that:
“Where schemes are fully funded and there are protections in place for members, we support efforts to help trustees and employers consider how to safely release surplus if it can improve member benefits or unlock investment in the wider economy”.
It is not entirely clear how those two outcomes may be traded off, but I would be grateful if the Minister could say more about government thinking on member protection in release and distribution of surplus. I know that my noble friend Lord Thurso, who cannot be here today because he is undergoing a medical procedure in Inverness, will also wish to test the Government’s thinking in this area in Committee.
Then there is the critical question of mandated asset allocation. This Bill, as everyone knows, contains a reserve power to authorise DC master trusts and group personal pensions used for automatic enrolment to invest a minimum proportion of assets in “productive” investments, including UK assets. On the face of it, this cuts directly across trustees’ fiduciary duties and members’ best interest tests. It risks political direction of asset allocation. Does anyone really believe that the Government would be better at allocating funding than the markets? This mandation may well create significant market distorting effects if, for example, the demand for such “productive” assets outpaces their availability.
There is also the risk that such a power may be extended over time to influence allocation on an even larger scale than might be currently envisaged. It is worrying that the Governor of the Bank of England has been reported as saying that he does not favour mandation. The Institute and Faculty of Actuaries has said in a written submission:
“The criteria for Master Trust authorisation were intended to produce a safe and reliable savings environment and we do not believe the concept of qualifying assets belongs there”.
This power to mandate
“introduces a commercial conflict between pension providers and trustees over asset allocation, weakening the fiduciary accountability of the trustees … It is also premature to give the Government a sweeping power it does not expect to make use of (we note the percentage of mandated assets cannot be increased after 2035 but that might encourage a government to ‘use it or lose it’.) We would urge Parliamentarians to consider the implications of a future government—of any configuration—having a power to define qualifying assets as any project that the government of the day can meaningfully define, charging the capital costs to the auto-enrolled pension savings of the nation … Should mandating schemes to invest in accordance with Government direction proceed, it needs to be made clear what the respective responsibilities of Government and trustees are”
as the finances work themselves through.
I would be very grateful if the Minister could set out for us how mandation and fiduciary duty can be reconciled without complicating or diluting the proper exercise of fiduciary duty. Perhaps a definition of “productive” would be a useful start. My noble friend Lady Kramer, who is attending a funeral this afternoon, had intended to speak to this point and wanted to ask for a detail and risk profile of assets that will qualify as “productive”.
Most people contribute through auto-enrolment into default funds. They have few resources and should not be in high-risk investments—and certainly not without their permission. Ministers have promised statutory guidance to help resolve the issue of potential conflict between mandation and fiduciary duty. On Report in the Commons, Torsten Bell said
“I intend to bring forward legislation that will allow the Government to develop statutory guidance for the trust-based private pensions sector”.—[Official Report, Commons, 3/12/25; col. 1043.]
He did not specify what kind of legislation or when. The Minister has told us that this guidance will not amount to direction and will have the usual force, or lack of force, present in the many existing “have regards” that exist in the financial services arena. She has also told us that this draft guidance will not be available before Committee begins. This is surely not ideal.
Can the Minister reassure us that, at the very least, this draft guidance will be available before the end of Committee stage? We need to be able to discuss the details of the guidance before we agree to legislation. That is especially the case if the Government intend to rely on the use of SIs, which would of course deprive Parliament of any effective means of scrutiny at all. May I ask her to take another look at the timing, so that we may be able to take guidance properly into account in our discussions of mandation?
Perhaps the Minister can also explain why the mandation currently has sunset provisions for expiry in 2035 if no regulations are in fact made. Why not use, for example, the Mansion House targets to generate a significantly earlier cut-off?
Then there are questions of value for money and consolidations, which have been discussed already. The ABI, as I am sure the Minister knows, pushes for regulatory mechanisms to force consolidation only when it clearly benefits customers. I heard the Minister endorse that approach. The key word here is “clearly”—what does this mean? What will be the test, and who will be doing the testing?
As important as any of these things is the question of pensions adequacy or inadequacy. It is very disappointing that the Bill does nothing to tackle such things as low contribution rates, self-employed exclusion and early savings barriers. The question of whether people are saving enough is probably easy enough to answer, but what to do about it is entirely absent from the Bill. We will want to discuss this further.
Finally, there is no substantive mention of climate issues in the Bill and no reference to, for example, the Paris Agreement. There is an obvious asymmetry here. The Bill provides for increasing investment in productive assets, which are to be defined. It says nothing about which assets should be avoided or minimised. Industry analysts caution that, if the mandation favours domestic growth sectors without, or which do not have strong, climate screening, schemes could be nudged into assets misaligned with the 1.5 to 2 degrees pathway. That would certainly conflict with the spirit, if not the letter, of the Paris Agreement, and it would damage everybody and every enterprise.
Proposed new Clause 19, brought forward at Third Reading in the Commons by my honourable friend Manuela Perteghella, addresses this issue. This new clause, not voted on, would have required the Government and the FCA to make regulations and rules restricting exposure of some occupational and workplace pension schemes to thermal coal investments, and to regularly review whether the restriction should be extended to other fossil fuels. We will bring forward a similar amendment in Committee.
This is a very important Bill with some obviously welcome proposals but also some deep causes for concern, especially as regards mandation and the failure to address pension inadequacy. We look forward to a constructive discussion with the Government and detailed examination of the Bill.
Lord Vaux of Harrowden (CB)
My Lords, it is about five years since we last saw a Pension Schemes Bill in this House, and it is good to see so many familiar faces, albeit sitting in different places in the Chamber. It is also good to be welcoming some new faces to our small band of pension enthusiasts, and I am particularly looking forward to hearing the maiden speech of my noble friend Lady White of Tufnell Park.
This is a big Bill, and there is a lot in it, much of which is to be welcomed and is not particularly controversial. I am going to restrict my comments to two areas of the Bill, one of which I think we will hear quite a lot about.
First, I understand and agree with the reasons and the desire to consolidate small dormant pension pots, but I have some concerns about the details. We are all aware of the problem of lost pensions, whereby a person has forgotten about a pension, perhaps from a long-ago short period of employment. This is one of the problems that the much-delayed pensions dashboard is designed to solve. Compulsorily moving a small pot from one provider to another risks increasing that problem: it will be much more difficult to track down a pension that you dimly remember if it has been moved, perhaps with any correspondence having been sent to an out-of-date address.
The definition of “dormant” is also slightly concerning: a pension pot will be considered dormant if no contributions have been made into the pot during the last 12 months and the individual has taken no steps to confirm or alter the way the pension pot is invested. I have a couple of pension pots that would be considered dormant under that definition, but that is simply because I am happy with the choices I made in the past; I would not consider them to be dormant. In the opposite direction, £1,000 seems a rather low definition of small, although I see it can be changed by regulation.
I am not clear when the Secretary of State intends to make the relevant regulations, but to avoid making the problem of lost pensions worse, I would suggest that it should not be done until the first pensions dashboard is fully operational and accessible to the public. As I understand it, that will not be until late 2027. Perhaps the Minister could provide a brief update on that. Also, there should be a clear requirement that any such transfer, carried out in a situation where no response has been received from the individual, should be clearly flagged on the dashboard to help people track them down.
The second issue I want to raise is more important. Here, I fear that a trend is beginning to emerge already—and that, most unusually, I am going to find myself in disagreement with the noble Baroness, Lady Altmann. This is the power for the Government to mandate the asset allocation of a master trust or group personal pension scheme. Pension schemes should be managed for the benefit of the beneficiaries. The trustees have a fiduciary duty to that effect. The Government mandating that a proportion—and there is no limit to this in the Bill—should be directed into types of assets and locations chosen by them rides a coach and horses through that principle. Who will be liable if such investments are not suitable or go badly wrong? I do not see any indemnification of trustees here. What makes the Government think that they know better than a professional qualified pension manager as to what is best for scheme members? The track record of government investing is not stellar, to say the least.
Of course, the reason for this is to push more pension funds into UK assets, often described as “productive assets”. Like the noble Lord, Lord Sharkey, I have that in inverted commas here, but even that makes little sense in this respect. Let us look at the sorts of assets that the Bill refers to. The first is private equity. Now, private equity may be a good place for a pension fund to put some of its money. Over time, returns have generally exceeded public markets and bonds, primarily because of the use of leverage, but I would love to understand why the Government think this would be a good thing for the country.
What private equity does is buy existing assets, then leverage them up with high levels of debt, thereby gearing up the possible returns that can be made on normal levels of growth. That reduces the corporation tax payable by the company because debt interest is tax-deductible, and the debt is often located in overseas low-tax jurisdictions. Typically, then, overheads and costs are reduced as far as they can be to make the company appear more profitable for sale after three to five years, and that often has the effect of reducing investment in the company and often leads to job reductions.
So where is the benefit to the country from this? If noble Lords do not believe me, I give them Thames Water, left underinvested and indebted by Macquarie, which took out billions in the process, or Debenhams, where the three private equity owners collected £1.2 billion of dividends financed by debt and property sales that left the company to go bust. Others we could mention would be Southern Cross Healthcare and Silentnight, where, ironically, pensioners also lost out, and we have the current anti-competitive situation with veterinary practices. Of course, this is a generalisation, and there are exceptions, but the idea that PE generates growth is doubtful at best—venture capital, development capital, growth capital, yes; PE, not so much. Why do the Government think it would be a good idea to force pension funds to invest in private equity?
Amazingly, the Bill does not actually set out that allocations must be made into UK assets. The wording is drafted so widely that the only assets globally that cannot be prescribed are assets listed on a recognised exchange; nor does it set any limits to what percentage should be allocated into the assets the Government prescribe. In theory, 100% could be allocated. The only safeguard in the Bill—contrary to the Minister’s comment that there are many safeguards—is that the Secretary of State must review the effects of any such regulation within five years of the regulations coming into force. We should note that this is not an independent review; it is a review by the Secretary of State, the very person who made the regulations. That does not fill me with huge confidence. Anyway, if things have gone wrong after five years, what can be done? Is the Secretary of State to be liable for the losses that scheme members have incurred because of the Government overriding the fiduciary duty?
We are an outlier in terms of our pension funds investing in their own country’s productive assets, especially when compared with countries such as Canada and Australia, so I understand why the Government wish to change that, but the way to achieve that is first to understand why it is not happening now. I would be interested to hear from the Minister why she thinks that is. I suspect it is down to a number of issues, including demographic issues, the attractiveness of our markets versus others, regulation, taxation—Gordon Brown’s dividend stealth tax has a lot to answer for—and, I am sure, others. The better solution, surely, is to identify and deal with the barriers that exist to make UK productive assets a more attractive investment prospect, not to take the frankly lazy and inefficient route of mandating without addressing the underlying reasons. Neither Canada nor Australia mandates. Rather, they promote domestic investment in infrastructure and projects through collaboration, not by forcing specific allocations. We should learn from those examples.
The Minister has been clear that the Government do not expect to use this mandation power. This raises a wider point of principle, one that the Minister and I have debated in other contexts in the past, which is that the Government should not give themselves powers that they do not intend to use. As the noble Baroness, Lady Stedman-Scott, said, there is a tendency to use them regardless at some point, even if it is another Government who use them. This is becoming a bit of a trend, and one that I feel should be strongly resisted. There are two potential solutions to this part of the Bill. Either we need to clarify the whole fiduciary duty principle and improve safeguards, or we should remove the power altogether, and I must say that I favour the latter.
With that, I look forward to working with Members from all around the House, as ever, and the Minister on the Bill. In the meantime, I wish everyone a very happy Christmas.
Baroness Altmann (Non-Afl)
My Lords, it is a pleasure to follow the noble Lord, Lord Vaux, and to take part in this Bill, which is a historic measure proposed by the Government with noble intentions. I need to declare my interests as an adviser to NatWest Cushon and a non-executive director of Capita Pension Solutions. I too look forward to the maiden speech of the noble Baroness, Lady White, who has so much success and experience to offer the House. I thank the Pension Protection Fund, CityUK, Pensions UK, the Institute and Faculty of Actuaries, and the Pensions Action Group for their helpful briefings and information for this speech.
The Bill introduces reforms that aim to improve pension outcomes for members of defined benefit schemes, defined contribution schemes and local government schemes and to increase investment in UK productive assets via the route of consolidation into a few larger asset pools or by ensuring default arrangements for direct pension funds in a way that the Government will mandate. I certainly support the aim of increasing UK investments by UK pension funds and the aim of improving pension outcomes. I warmly welcome many of the Bill’s provisions, but I believe that some of the assumptions underlying these reforms could prove dangerously false and that there is a real risk that there will be a lack of innovation in future as smaller, newer providers drop out or do not even start, while the Government could and should be bolder in encouraging pension schemes to support UK growth than the measures in the Bill provide for.
Using both unlisted and listed investment seems to make far more sense than just requiring a specific exposure to private unlisted assets. I hate to disappoint the noble Lord, Lord Vaux, but I think we are on a similar page when it comes to the Government’s specific proposals. Many of our listed companies are selling at attractive ratings or discounts to their real asset value.
There are many aspects of the Bill that my remarks today could cover, but I will have to try to concentrate on a few and leave the rest for Committee. The aim of increasing UK pension fund support for UK growth is right and long overdue. However, much more could be done with the Bill. According to the Government’s workplace pensions road map, the UK has the second largest pension system in the world, and it is clearly the largest potential source of domestic long-term investment capital. Taxpayers provide £80 billion a year of reliefs to add to individual and employer contributions, but most of that money helps other countries, not ours. If taxpayers were presented with the question, “Would you like £80 billion of your money to build roads and fill potholes in other countries, rather than keeping it here in Britain?”, I am not convinced that they would answer in the positive.
UK pension funds have stopped supporting British companies, large and small. I believe that the future of British business can be successful and I believe in Britain, but it seems like our own pension funds do not. Even the parliamentary pension scheme has about 2.8% of its equity exposure in the UK. The Bill does not address that, as the Government are focusing on DC and local government schemes. One of the proposals that I would like to put to the Government is to see whether there are ways in which, instead of mandating specific areas that the Government want pension funds to invest in—which happen to be, in my view, some of the riskiest areas that they could support—the Government should require, let us say, at least 25% of all new contributions into pension schemes to be put into UK assets, listed or unlisted.
The UK listed markets have become exceptionally undervalued in a global context because our pension funds no longer support our markets. We used to have a reliable source of long-term domestic investment capital. If schemes want taxpayers to put huge sums into their pension funds each year, and if managers and providers wish to continue to receive such sums, is it so unreasonable to ask that they put, as I say, maybe just one-quarter of those contributions into the UK? That could include unlisted assets, listed assets or infrastructure—that would be up to trustees to decide—and if they wanted to put more than 75% overseas, they could go ahead, but should not expect taxpayers to give them money to do so. That seems to me to be not mandation but a proper incentivisation, using the incentive mechanism that we already have of tax relief, which does not have to support Britain at all.
We find ourselves in constrained fiscal circumstances. New Financial recently showed that each bit of the UK pension system has lower allocations to domestic equities as a percentage of assets, as a percentage of their equity allocation and relative to the size of the local market than other countries. What is wrong with Britain? I believe in Britain, and there are reasons to expect that pension schemes—after all, 25% of the pension is tax free—should do far more now to protect and boost our growth. This would not have to wait until 2030, either; it could happen immediately.
If I may, I want to cover the question of relying on consolidation as the answer to driving better returns, and what that might do to the marketplace. Defined contribution workplace schemes and the LGPS are supposed to somehow automatically generate better long-term returns by being bigger. Well, there is a case for that, and some studies would support it, but the figure of £25 billion that must be reached by default funds, and the £10 billion by 2030 that is required, are totally arbitrary. There is no rationale that says that is the right number, yet we are putting it in primary legislation. That is most unwise. What if there is a market crash between now and 2030, for example? What is magic about that number?
Can the Minister say what evidence there is that scale is a reliable future predictor of returns? What consideration have the Government given to the damage to new entrants by favouring these large-scale incumbent funds? The risk of schemes herding and all doing the same thing with such large pools of capital, especially in global passive funds, could distort markets. What consideration has been given to that? What level of confidence is attached to the predictions that the Government have made for improvements in outcomes?
I have heard from new entrants to the market, such as Penfold, which say they are now unable to get new business because they are growing fast but may not reach the £10 billion by 2030—and of course people cannot recommend that employers now invest in them. That company has innovative financial methodologies and is offering a new way of reaching out to pension scheme members, as are Cushon and Smart Pension, which may be further down the line in reaching the target. I have concerns that the Bill will stop new competition and new entrants coming in. An oligopoly is not normally the best way for a market to succeed.
I am particularly puzzled by the explicit exclusion of closed-ended listed companies within the Bill. Part 2 says that none of those investment trusts that have invested in precisely the types of investment that we need, and that the Government want to encourage to boost the UK economy, are excluded from the Bill. I do not understand why the Government would be doing this. I know that they want to encourage long-term asset funds, which are open-ended structures, but there are enormous reasons for and benefits from having closed-ended structures when holding such illiquid assets and long-term growth assets. These are proven companies that have produced very good returns in net asset value yet have shrunk to discounts, due partly to macro factors but also to regulatory overkill, which needs urgently to be reviewed.
Investment in just UK infrastructure and renewables by this investment company sector has exceeded £18 billion. Overall, in the kind of assets that the Government want to encourage—funding solar and wind projects, energy efficiency initiatives, social housing, biotech, property and private equity—these companies have put more than £60 billion to work. But they are now struggling to survive and having to buy back their shares, rather than invest in the kind of growth assets that they could otherwise be selling and managing for pension funds in this country.
I hope that the Minister will help us understand whether the Government are going to reverse this particular exclusion and recognise the benefits of this long-standing, world-leading investment sector. Unquestionably, it can be part of the answer in this scenario. I also urge the Government to clarify what fiduciary duty means. I know that there have been many calls for that to be put into statutory guidance, and I would support this.
Finally, as regards the Pension Protection Fund and the Financial Assistance Scheme, I welcome the flexibility that is being put in to allow the levy to be changed. I welcome the change in the terminal benefits. I welcome the acknowledgment of the injustice of the pre-1997 frozen payments, with the oldest people both in the Pension Protection Fund and particularly in the Financial Assistance Scheme, suffering most. I also welcome the flexibility that will mean that, where a scheme is unsure whether the previous rules would have granted increases on the pre-1997 benefits, it will be assumed that they will. The terminal illness increase, from six to 12 months, is again very welcome. But I would urge the Government to look carefully at how we can recognise the injustice to the pre-1997 members, such as Terry Monk, Alan Marnes, Richard Nicholl and John Benson, who gave years of their lives to achieve better outcomes in the Financial Assistance Scheme, and promote the PPF, which has been such a success. I have also heard from Carillion workers who were in the Civil Service pension scheme and have ended up in the PPF, losing their pre-1997 benefits. This injustice hurts, especially in light of the Government’s generosity to mineworkers and the British Coal Staff Superannuation Scheme, which has been given a 30% to 40% increase to pensions that is effectively publicly funded. I hope that the Government will think again about potentially one-off increases, or some other way of helping the pre-1997 members who lost their benefits.
Lord Willetts (Con)
My Lords, I welcome many features and proposals in this substantial and significant Bill. It does, of course, draw on the work of the previous Government, and indeed continues progress on pensions that has long been conducted on a cross-party basis. I think back to my time as shadow Work and Pensions Secretary 20 years ago, when I worked with the then Pensions Minister James Purnell as he investigated auto-enrolment; I then served in the coalition Cabinet with Sir Steve Webb implementing these proposals. I remember also many years of debating with my noble friend Lady Altmann, and I agree with a lot of what she has just said. I look forward to the maiden contribution from the noble Baroness, Lady White, and I rather suspect that during her time in the No. 10 Policy Unit she may have also been engaged in some of these debates.
The Bill comes before the proposals from the re-established Pensions Commission, and I hope that it will have the flexibility to make it possible to implement ideas that emerge from the Pensions Commission. There is a still a crucial question hanging over the original Pensions Commission work, and it is great to see the noble Baroness, Lady Drake, in her place. She knows that I agonise over whether there was a scenario where defined benefit pension schemes could have been saved 20 years ago. They had become very onerous, and over decades successive Governments had added to the regulations to make the defined benefit promise more and more generous and more and more cast iron. Eventually, they had become so onerous that companies closed them to new members, so what had always been intended as an intergenerational contract was made so generous that it became a once-off special offer for the members of those schemes when they closed. It is possible that a significant reduction in the burdens on employers might have enabled some version of those schemes to survive. That is relevant to today’s debate on measures such as collective DC, which is an attempt to recreate some of those strengths. We went instead to pure DC, and younger employees have not been able to enjoy anything like the pension promise of older members of company schemes.
We did some work on this at the Resolution Foundation back in 2023. I cannot remember what has happened to the chief executive at the time, but perhaps I can quote some figures from our intergenerational audit in 2023. We estimated that millennials born in the early 1980s will reach the age of 60 with, on average, £45,000 less in pension assets than boomers born 20 years earlier. That is the challenge of boosting the pensions savings of the younger generation, which I hope is the cross-party basis for this legislation.
A particularly acute example of how this generational unfairness can work is that some of those defined benefit schemes closed to new members were in deficit. The company plugged the deficit gap by using revenues generated by all of its workers, including the younger workers, which it put into the defined benefit scheme available only to some of the workers. We now have some very interesting examples of what happens when these schemes find themselves now, thank heavens, in surplus. The recent Stagecoach deal is a very interesting example; it has been widely welcomed in the media, and in many ways it is good news. However, the Stagecoach pensions scheme closed to new members in 2017. After that, the younger workers had no opportunity to join it. There will now be a distribution of the surplus. I hope the Minister might comment on the feasibility of some of the uses for that surplus, which are not in the current provisions. We heard from my noble friend Lady Stedman-Scott about the importance of pension adequacy. Would it be acceptable for one use of the surplus to be to pay increased auto-enrolled employer contributions into the pension schemes of employees of Stagecoach who joined post 2017 and were therefore not in the earlier scheme? Some of their work will have generated the revenues that created the surplus. Would helping them through the successful auto-enrolment model not be one way forward? Another use, which is being talked about, is funding a collective DC pension arrangement to help get those schemes going. I very much hope we will move beyond the single CDC we have at the moment with Royal Mail. Pensions UK has an interesting proposal for some tax waivers for extra contributions going into CDC, especially out of pension surpluses. Again, I hope the Minister might be able to give that a welcome.
The closure of DB schemes and the creation of pure DC was the background to some of the big shifts we have been talking about. There has been a massive shift from equities into bonds and away from UK assets into assets held abroad. We are talking about this as if it is just rational capitalism working and trustees exercising their discretion, but I have a lot of sympathy with the points that my noble friend Lady Altmann made, because the British model is a very unusual model. I believe it is largely to be explained, not by some higher economic rationality, but by the strange features of the closure of DB and moving to pure DC. It means that the percentage invested in UK equity fell from 50% 20 years ago to 5% now. That makes us a complete outlier across the OECD for the willingness of our pension funds to invest in UK assets.
This is not what the pension fund members and contributors expect. As we know from recent polling published by the London Stock Exchange, when you do a survey of 1,000 current members of workplace pension schemes and ask them how much of their pension contributions they think are going into British business, their estimate is 41%—nearly 10 times larger than what is actually happening. If you ask them whether they think their pension scheme should invest more in British industry, even if this would involve some sacrifice in their future pensions, 61% say yes.
Most funded pension schemes in other advanced western countries are much more deeply rooted in their own national economy and realise that part of what they are trying to do is create the environment in which their national pensioners thrive in a healthy economy in a generation’s time. It is absolutely right to have this debate now in Britain and, for me, having been involved—and still being involved, in different ways—in the science base and research, it is deeply frustrating that we have one of the world’s great research bases and one of its great financial centres but we have totally failed to link the research base with the commercial investors in the City. That needs to change.
Successive Chancellors have been trying to do this, and of course we have had the Mansion House compact and now have the Mansion House Accord. There is now a fraught debate about mandation, and I realise all the delicacies about it. I personally think that the recent proposal from the London Stock Exchange is a very interesting way forward: not specifying the asset allocation by type of asset but saying that, whatever asset allocation has been decided upon, 25% should go into UK assets—absolutely not with full mandation but expecting this as a provision for UK DC default funds. So I hope the Minister will say that the Government are considering this proposal from the London Stock Exchange, now backed by 250 founders and chief executives of UK companies. I hope she will assure the House that, if that proposal were to go forward, this Bill would provide the necessary legislative framework, which I am assured is not an ambitious set of changes. There are things that can be done to secure a far greater understanding of the value of investing in British industry and other British assets than we have seen over the last few years.
I will briefly raise one other issue involving the other Pensions Commission: the investigation of pension age. I hope the Minister may be able to say something about this, because the clock is ticking. There was a half-hearted partial announcement of the decision that the pension age should go up further under the previous Government, which has not been followed up. My view is that that debate has got totally trapped in a preoccupation with life expectancy and using projected life expectancy as the only metric—what I call RIP minus X—or formula that has to be used. What pension age you set is not simply a mechanical calculation around life expectancy but an important fiscal decision. As in all other decisions, there are other factors, including long-term public expenditure costs and the likely income of pensioners from other sources.
I hope therefore that we will not find that we look back on this debate and ask why we missed another opportunity to prepare the ground and properly consider whether, given the fiscal constraints that any Government face, we should also be considering increases in the pension age.
Baroness Warwick of Undercliffe (Lab)
My Lords, I too look forward to the maiden speech of the noble Baroness, Lady White of Tufnell Park. I was delighted to discover that we are both honorary alumni of the University of Bradford.
An adequate pension must be the goal for everyone to ensure a happy and secure retirement. This Bill aims to achieve higher returns for pension savers. As many millions more people are now in pension schemes through automatic enrolment, it is imperative that we ensure they get good value for the money they are saving from their hard-earned incomes. At the same time, those savings must provide the best possible support in their retirement.
Both the previous and current Governments recognised that, if we are to achieve the growth our country needs, domestic markets must be stimulated to invest in the UK. This inevitably led to a review of the pension system. The pension sector is a major allocator of capital, which has a direct impact on the efficiency of the wholesale financial markets in driving innovation and investment in our economy.
The pension systems in most other advanced economies invest significantly more in their domestic economies than does the UK, as has already been said, where pension savings, as we should remind ourselves, are also supported by tax relief of over £70 billion per annum. The UK has deep savings pools, yet we have seen a reduction in domestic investment in the UK. The UK has one of the largest pension systems in the world. As the parliamentary Under-Secretary of State for Work and Pensions reminded us in another place, it is our largest source of domestic capital, underpinning not just retirement of millions of people but the investment on which the country’s future prosperity depends. It makes so much sense to seek better to harness that capital, to invest in a more diverse range of assets that would benefit the UK economy, but also not to place savers at risk. This Bill is a serious and most welcome attempt to address both issues of concern: domestic capital investment in the UK and improving the outcomes for millions of workers saving for their retirement.
The pension sector’s role as a major allocator of capital will come increasingly from defined contribution schemes. There is momentum behind the need to focus on the DC pension sector’s ability to deliver good value for pension savers. In addressing these twin challenges of improving the outcomes for pension savers and achieving sustainable economic growth, there is general agreement that we need market consolidation, to see fewer pension providers operating at scale, and to deliver higher returns to savers and greater investment in UK productive assets. The Bill introduces the enabling powers to achieve that structural reform and greater consolidation in the market. But that raises major issues in respect of regulation and the governance standards required in both the management and administration of those schemes and the oversight of them by those with the fiduciary duty to protect the scheme members.
The case for consolidation is compelling, but will the Government give further consideration to the governance and regulatory requirements that need to be placed on those fewer scale pension providers managing billions, even trillions of assets over time so that downside risks are controlled and the desired outcome is achieved?
On the specific issue of trustees in these consolidated schemes, in another place, Liam Byrne MP called out the risk that in creating scale through fewer and bigger pension funds, there would still be a failure to deliver desired levels of investment in the UK. He called for greater legal clarity on trustees’ fiduciary duties, their ability to consider systemic factors and their impact on members pension savings when taking investment decisions. The Minister, Torsten Bell, advised that the Government will bring forward legislation to clarify that trustees can take systemic factors into account. Can the Minister advise the House as to the timescale for bringing forward that legislation?
The Bill aims to improve the returns workers receive on their retirement savings. We know that the DWP, the regulator and the FCA are working together to create a disclosure framework for assessing value for money that is to apply across the whole DC market, enabling consistent and comparable assessments of workplace pension schemes. To fully implement that framework, however, will require primary legislation in addition to the provisions in this Bill. When do the Government anticipate fully rolling out a new framework for assessing value for money?
I turn to the issue of accessing pension savings on retirement. In a DC world, UK savers are not well supported at retirement in making the complex decisions they face. They must manage their own longevity, inflation, and investment risk, and many struggle. Which? rightly points out that these decisions may have severe consequences and can mean that an individual outlives their savings. So it is good news that the Bill requires trustees of pension schemes to provide their scheme members with default retirement solutions that are relevant to their needs, and to help them manage the risks they face when they move into retirement. But we have to ensure that those solutions are fit for purpose. Are the Government actively considering additional guidance and regulation on the assessment of the value and benefit for members of the default retirement solutions to be provided by the schemes?
There are now many millions of small pension pots, as workers move from employer to employer, and the numbers are increasing. It is a major inefficiency in the pension system, as the Minister herself pointed out. The welcome advent of the pensions dashboard will help savers to take action to consolidate their pension pots. Characteristically, however, inertia means that many will not. The Bill provides for very small pots to be automatically transferred into qualifying consolidator schemes, which should reduce administration costs and deliver better returns for consumers through lower costs and charges. Can the Minister say what the Government’s current thinking is on the timetable for implementing the necessary regulation to allow this to happen?
There are several other important changes in the Bill which other noble Lords have already raised, but I finish by highlighting one of the changes to the PPF—the Pension Protection Fund—compensation. The decision to introduce legislation to enable prospective annual increases on pre-1997 compensation to PPF and FAS members is welcome. It could benefit more than a quarter of a million PPF and FAS members, but I am concerned that it will leave an unfairness, because no retrospective increases are applied to pre-1997 accrued pensions. The prospective increases will not apply to those members whose schemes did not provide increases to pre-1997 pensions prior to entering the PPF, and there is no recognition in any form of the major past loss of pension value, particularly given the incidence of high inflation and the acute financial impact on those affected. In its foreword, a recent PPF levy policy document concludes:
“The likelihood of the PPF encountering significant funding problems in the future … is low and is expected to continue to reduce over time … if funding problems did arise, these could be resolved over a multi-year period with our investment returns likely to be the most significant contributor”.
I go back to the points made by my noble friend Lady Drake on 23 April, when she raised this issue. Taking into account the considerable confidence in the funding level and investment returns, that £32.2 billion of assets, £19 billion in liabilities and reserves of £13.2 billion are held by the PPF, and the reduction in the levy to zero, the level of fairness set in the striking of the balance between levy payer and PPF/FAS member does not appear right. As my noble friend said:
“Not only has the levy in quantum declined hugely; the levy has also declined as a proportion of the PPF’s funding mix. Roughly one-third of the funding comes from the assets transferred to the PPF from those members’ pension schemes. Similarly, another third comes from the investment returned on assets, and 11% comes from assets recovered by the PPF on behalf of those schemes. Less than a quarter—23%—of the funding comes from the levy, and that is going to fall”.—[Official Report, 23/4/25; col. GC 32.]
Can the Minister take back to the Government consideration of an ad hoc payment to those members of the PPF with pre-1997 service, in recognition of the considerable real loss of pension that they have experienced? Such a payment should be well within the funding levels of the PPF. Payment of the prospective increases to pre-1997 pensions accrued to those whose original scheme may not have made provision for such increases.
Baroness Coffey (Con)
My Lords, there is a lot in this Bill. Some of it is to be welcomed—there are quite a few crackers in it. However, there are also large elements of it that feel—dare I say it at this time of Christmas?—like a little bit of a turkey. It is such a skeleton Bill that it is more appropriate for Halloween than the time in which we find ourselves.
I am not the only person here who believes that. I must say that the report from the DPRRC is one of the most damning that I have seen on a piece of primary legislation coming to your Lordships’ House. Indeed, the committee says that
“we have found it exceedingly difficult to provide meaningful comment on the Bill precisely because it is so skeletal”.
This extent of delegated powers—there are nearly more delegated powers than there are clauses—does not feel like the right place to be. Of course, I know that trying to work with the pension industry and see the scope of what it is trying to achieve means that a bit of flexibility may be needed, but it is important that we do not just, candidly, hand things over to almost a ministerial diktat, which I am afraid that parts of this Bill do.
I was Secretary of State when the previous Pension Schemes Act was passed in Parliament, and my noble friend Lady Stedman-Scott took it through this House; in fact, it started in this House. It built on—and this Bill continues to build on—the idea that where consensus comes together, we can get a very good product. Indeed, that continuity of thought is important, not just for the pensions industry but for the current and future pensioners that we seek to serve.
It has been useful to see the variety of consultations there has been, going back even to 2015, including about local government funds, and the actions taken when consolidation started to happen. There was a consultation in 2022 about other aspects of small pot consolidation. The clause I probably welcome the most is about value for money. It is really important that we make sure that we address these issues. In particular, the power to effectively shut down underperforming funds is good because, regardless of how little or how much people put in, many people are putting into their pensions all the time but do not necessarily realise quite how little will come out at the end of it. We will see more communication with the pensions dashboard, but the value-for-money framework will be a critical part of that.
There has been quite a lot of talk about trustees, and I know that a number of bodies have been trying to see if we can move to having solely professional trustees. That would be a mistake. I appreciate that is not what the Bill is calling for, but one of the challenges is that trustees, driven by a certain type of asset adviser, have been attracted to low-cost and low-risk pension schemes, but too often that has led to low return. So many of the gradual changes we have seen and that will start to come through in response to some of this legislation will be able to address that. That is vital and I will support measures to achieve it.
However, there is an underlying issue here about the mandation clause. From my experience in government, I remember a meeting in Downing Street with a bunch of pension providers, which was mainly driven by insurers. People had been told that they could not raise the issue of Solvency II being a problem. One or two were brave and did so, and were later chastised by Treasury officials. Nevertheless, it was important that they did. I understand the frustration of Government Ministers at the very top of government. People saying “We need investment” is all well and good, but why do they not put some of their money into it? I include the Local Government Pension Scheme in that. Ultimately, our traditional approach is one of state pensions not being particularly generous and trying to incentivise people to put into the private pension market, as well as what has happened historically with the defined benefit industry. That is why we have the system that we do, which has grown to the extent that it has so far—so much so that, as has been recognised, trillions of pounds in assets could be deployed to greater use, but it still must be for the benefit of current, future and, indeed, deferred pensioners.
Further, there is a missed opportunity in this Bill. Having two different regulators for pensions is a wasted opportunity. I know that the two bodies, the FCA and the Pensions Regulator, have been working on joint strategies, but fundamentally we still have significantly different rules on what can or cannot happen with pension funds, depending on how they are regulated. That just does not make sense.
This is the moment to try to change that. Frankly, the FCA has enough to do. Under their different rules, TPR allows a particular investment but the FCA does not, although it may seem to be a very similar product. We should not leave that element of complexity to be solved via delegated powers but take the opportunity to fix it in this Bill. That will need primary legislation and I hope that, although she may not welcome it—and, as I am trying to get it all out of the Treasury and the FCA, they certainly will not welcome it—the Minister will try to get it into one regulator to make a difference for the prosperity of our pensioners.
I am conscious that this is a missed opportunity in how pensions can help our planet. I strongly promoted the concept of planet, prosperity and people. These are mutually beneficial and there is no doubt that investment by the industry can play a part. That is why we put in place world-leading, pioneering regulations making the link to the TCFD and net zero. However, crucially, they did not mandate how investments were to be made or the drawing from a variety of assets but, basically, put a much greater duty of transparency on what was happening in the long term. The same needs to happen with nature and the TNFD. I will explore that in Committee.
In terms of what we want to achieve from this, I think your Lordships will share with the Government the outcome of having a good, robust and fully functioning pensions industry that generates prosperity, but let us not go down this tricky route of mandation. In particular, the DPRRC singles out that Ministers keep saying, “We don’t intend to use it”. In that case, let us not legislate for it. Let us make sure that we keep that blunt instrument away and continue to have a productive pensions industry. Nest, which was originally provided for in legislation prior to 2010 and came into effect within the last decade or so, has been a fantastic source to drive and make sure that we have private asset allocations. Let us celebrate that, work out why it worked so well and, as I have already suggested, make sure that we get rid of the stuff that is massively underperforming when prospective pensioners do not realise it.
It is going to be an interesting time in Grand Committee. I am afraid there will be a lot of amendments—this is not the only Bill I will be tabling amendments to—but I hope the Government will think again on the themes we will get into. If a lot of this is just about getting investment in Britain, the Government will need to answer why they scrapped the British ISA, which was a ready-made model. It is almost because it was not invented here. Fortunately, on the pensions journey, there is normally good cross-party consensus, but I fear that mandation has blown that out of the water. Nevertheless, let us see if we can try to fix it.
Baroness Bennett of Manor Castle (GP)
My Lords, it is a pleasure to follow the noble Baroness, Lady Coffey, and to hear nature-positive sentiments from the Conservative Benches. We are hearing a wide range of perspectives in that space, and I am glad to hear those. I declare my position as a vice-president of the Local Government Association and the National Association of Local Councils.
I echo the noble Lord, Lord Vaux of Harrowden, in enjoying seeing so many familiar faces on the pensions trail. My first ever Committee was on the Pension Schemes Bill some six years ago. It is also nice to welcome new faces such as the noble Baroness, Lady White of Tufnell Park. I very much look forward to her speech as someone who, when in London, stays just across the border in Kentish Town. I also join the noble Lord, Lord Vaux, in his expressions of concern about any forced investment in private equity. It is an extractivist, exploitative model which benefits a few at the cost of the many and does not have the long-term perspective that we surely need when talking about pensions.
I will start by looking at the context. We are starting from when the Chancellor initiated a pensions review in August 2024, led by the DWP and HMT, aimed at bolstering investment in the UK and dealing with pension adequacy—or rather, the significant levels of pension inadequacy that so many now suffer from.
Picking up the point about pension age raised by the noble Lord, Lord Willetts, although from an opposite perspective, I note that when the state pension age rose from 65 to 66, between December 2018 and October 2020, the percentage of 65 year-olds in income poverty more than doubled from 10% to 24%. A quarter of a million more 60 to 64 year-olds are now in poverty than in 2010, when the state pension age began rising. These figures are from a report by the Standard Life Centre for the Future of Retirement. According to the research, the poverty rate for 60 to 64 year-olds increased from 16% to 22% from 2009 to 2024. There are now 8 million people in their 60s in the UK, up from 6.7 million in 2010, and that is expected to peak at 8.7 million in 2031. Many of those are pre-pensioners now, but they are very soon going to be pensioners. Some are pensioners already, and we have a huge poverty problem there. The noble Lord, Lord Willetts, said that this has to be a fiscal consideration. I am afraid we have to look at it much more broadly and consider the state of public health in the UK, whether many of those people are indeed fit to work, and the huge inequality of health at age 60, 65 or 70 that operates across different communities and social groups.
We also have to acknowledge that 2.8 million pensioners are now living in households below the minimum income standard. I note that the House of Commons Work and Pensions Committee said in July:
“No older person should be unable to have a minimum, dignified, socially acceptable standard of living”.
The Green Party concurs with that. I know the Minister will be interested that women make up 67% of those pensioners in poverty. There has been some improvement in the situation with the new state pension but, as the committee noted in July, there are “blind spots” in policy-making. The reality of women’s lives is still insufficiently recognised. I cannot see anything in this Bill that deals with that, but I would be interested if the Minister could contribute anything on it.
Staying with the context, because it is important that we think about where we are before we get to the detail, according to ONS data we now have 44% of adults aged 16 and over actively contributing to a pension pot. This compares to 34% a decade earlier. Obviously, auto-enrolment is a really important factor, but according to the recent Scottish Widows 2025 Retirement Report, 39% of working-age adults are not on track to achieve what the Pensions and Lifetime Savings Association deems a minimum lifestyle in retirement, and that is a 1% increase since 2024, so we are headed in the wrong direction.
The Minister said this is all about security and dignity in retirement. Before we start talking about private pensions, we have to acknowledge that the financial sector’s private pensions are not going to meet everybody’s needs. There are great risks with the financial sector in this age of shocks, and we have to acknowledge that the state pension must be the anchor of security, certainty and freedom from fear for everybody in our society.
Picking up the point made by the noble Baroness, Lady Coffey, on our Delegated Powers and Regulatory Reform Committee report, there are a couple of extra facts from that report that I think are telling and concerning. At 149 pages, the Bill’s delegated powers memorandum is nearly as long as the Bill itself, which is 161 pages. The number of delegated powers in the Bill—119—nearly exceeds the number of clauses, which is 123.
I have spent quite a bit of time on context because I think it is important, but I turn now to a couple of points that I expect to raise in Committee and possibly later. One of those is the term “fiduciary duty”. Lots of people have been asking me, “What are you doing in the last week before Christmas?” and I have said, “I am going to be talking about fiduciary duty for pension schemes”. I have then got lots of blank looks.
But this is something I have actually long been familiar with as a Green, as we have been struggling over many years to ensure that local pension schemes in particular are able to avoid investing, say, in the merchants of death, big tobacco, because that is bad for pensioners in a broader context, or able to avoid investing in fossil fuels because of their health and environmental impacts, and also because of the financial risks of the carbon bubble. So things like “fiduciary duties” roll off my tongue so easily.
Noble Lords will know that this was debated very strongly in the Commons. They have started the work in some ways but have left us with an unfinished piece of work. In response to the amendment in the Commons supported by 34 MPs, including all four Green MPs, the Pensions Minister has now committed to legislate to bring forward statutory guidance—again—on fiduciary duty. However, as I understand it—I am happy to be corrected by the Minister—the statutory guidance provided by the Government would not apply to the whole range of pension schemes and would not provide the legal clarity that schemes would need to wish to act on these issues. Any statutory guidance of course need not be followed and is at risk from potential future Governments.
Although this sounds technical, it is of course terribly important. I note that Liam Byrne in the other place said that there is currently confusion—and what the Government are proposing does not seem to deal with that confusion. With confusion comes caution. Then, we see trustees understandably following the safe path, rather than the one they can actually see is the right path.
The noble Baroness, Lady Coffey, has covered a lot of what I was going to say about nature, so I will not repeat that. But it is worth looking at this from my perspective of six years in this place. I am delighted to see the noble Baroness, Lady Hayman, in her place, because she has been a leader in finally getting successive Governments to put climate and nature into Bills. To get the climate and nature bit in because the Government initially left it out has become almost the standard part of the role of your Lordships’ House. That is something I am sure we will return to.
I have one final point to make on the Bill. The Financial Conduct Authority has, to be charitable, a chequered regulatory history. The Minister said that the FCA would have this extra responsibility and that extra responsibility, which is deeply concerning. I am interested in the suggestions from the noble Baroness, Lady Coffey, on how we might look at that regulation. I do not have a view on that yet, but I would be interested in the debate.
I note that, a year ago, the All-Party Parliamentary Group on Investment Fraud and Fairer Financial Services—I declare I am a Member—published a report on the effectiveness, or not, of the FCA, and blamed it for doing too little, too late, and doing nothing to prevent or punish alleged wrongdoing, with errors being all too common. That is really important, given that we are giving it oversight over some significantly increased powers for trustees, where trustees will not be referring back to members of the scheme.
Finally, I come to the fun bit. Given that this is the last contribution from a Member of the Green group for this session before Christmas, I sincerely thank all the staff—the doorkeepers, clerks, Library, catering, security and cleaning staff—for the many hours they have laboured for us, all too often hours very late in the evening. To offer a wish for all of them and all of us, my hope for 2026 is that we might see more sensible working hours for your Lordships’ House and for all our staff.
Baroness Noakes (Con)
My Lords, it is a pleasure to follow the noble Baroness, Lady Bennett of Manor Castle. But, not for the first time, she will find that I disagree with practically everything she has just said.
I have a few problems with the Bill, which has a number of sensible things in it. I will focus on aspects of the Bill that are being sold as supporting UK business investment and hence the Government’s growth mission.
I have big concerns about pension scheme money being seen as available for investment in ways that the Government choose but which conflict with the views of trustees, who have a duty to act in members’ best interests. I am as patriotic as anybody, but I do not think it is right to allow the Government to require investment in the UK. There have been times when investing in the UK was a terrible idea financially. I can remember the 1970s, when the only reason anyone held assets in the UK was the existence of exchange controls—we could not get money out. I say to my noble friend Lady Altmann that forcing or incentivising pension schemes into listed UK assets does absolutely nothing to enhance UK growth. These are existing assets; they have nothing to do with new investment.
The Government’s proper role is to create the economic environment where businesses want to invest. That requires confidence in the economic future, taxes that are predictable and low, and regulatory burdens that are kept in check. Anti-business and anti-growth Budgets, and changes to employment laws, are the main drags on investment in the UK at the moment, and no amount of playing around with pension fund assets will change that. With the exception of scale-up financing, which is a problem in the UK, there is no evidence that funds are not available to back profitable business investment in the UK. The powers in the Bill need to be judged against that background.
The part of the Bill that concerns me most, in line with many other noble Lords who have spoken, is Chapter 3 of Part 2, which deals with scale and asset allocation. These provisions go much too far. I get the benefits of scale, both in terms of cost efficiency and the ability to diversify into alternative asset classes. However, I do not think that there is any conclusive evidence that £25 billion is a magic threshold. I am concerned that the Bill will have the effect, after first having consolidated the market, of ossifying the pensions landscape. As I have said many times in your Lordships’ House, I am a believer in competition and markets.
Large players love regulations that create barriers to entry, because they insulate them from market disrupters. The Bill says that subscale players—new entrants—have to be regulated. Risk-averse regulators are not the best people to judge growth potential or the power of innovation. The Bill should encourage new entrants into the pensions market, even if that means a prolonged period of operating below scale. We need to look at how the long term for pensions investment can be protected and I will want to explore that in Committee.
The real shocker, of course, is asset allocation. Put simply, I believe that mandating asset allocation is wrong in principle and carries a significant risk of moral hazard. Pension trustees have a clear fiduciary duty to act in the best interests of their members. The Government should have no right to say to trustees that they must invest in particular things, especially if that conflicts with trustees’ views. I do not doubt the sincerity of the Government’s desire to get pension schemes to invest in a wider range of investments to improve returns for their members: that is broadly what scale facilitates. The danger comes with eliding that desire to facilitate higher returns for members with wanting to direct the investment into particular things, which may or may not turn out to deliver those higher returns. Legally requiring certain types of investment will inevitably result in calls for the Government to pick up the tab if the returns from those sorts of investments fall short. The moral hazard implications of these provisions for mandation are huge.
I am also disturbed to read proceedings in another place where some MPs wanted to direct pension schemes assets into their pet projects; they talked about social housing, hospitals and net zero. Such investments may well be socially desirable but there is no confidence that they will yield high returns for members of pension schemes. If the Bill does not rule out that kind of mandation, I am sure that it should. At the end of the day, trustees need to seek the best possible returns for their members, because it is investment performance that drives the retirement income of defined contribution members.
The drafting of the mandation clause is also a horror story; I will not weary the House with a commentary on that today, but I give notice that I shall want to examine it in Committee. I am sure that in Committee we will also want to look at capping the percentage which could be mandated—if indeed we wish to keep mandation at all, which I suspect we will not.
The other area that I wanted to talk about today is Clause 9, which creates a welcome ability to extract surpluses from defined benefit schemes. While only a tiny number of private sector DB schemes are still open to new members, very many employers are still burdened with schemes which have been long closed to new members or indeed to future accrual. Gordon Brown’s tax raid in 1997, followed by the prolonged period of low interest rates, meant that for the last 25 years, employers have had to pay large amounts to support the funding status of their defined benefit pension schemes. Recently, the good news is that some of those have swung back into surplus. It is only right that there should be an opportunity for those employers, who have borne this burden for such a long time, to get some of that surplus back. Doubtless, trustees will want to argue for further benefits for members in return for returning surpluses, but I hope that they will be mindful of the fact that the corporate sector has borne significant costs of keeping the defined benefit pension promises intact over many years, and they deserve a major share of those surpluses.
The Government have portrayed this as supporting business investment in the employing company, which it might do if the business environment is right for those companies to invest, but it may also be entirely rational for those companies to return excess money to their shareholders because that would be the best outcome for those shareholders. There is a provision in Clause 10 which allows conditions to be set on making payments. I shall want to ensure in Committee that this power cannot be used to direct what companies do with liberated pension surpluses once it has been agreed that it is safe for those surpluses to be removed from the pension scheme.
The Bill focuses on pension schemes, but it does not deal with many of the other problems that continue to exist in the pensions world. The Pensions Commission will tackle some but not all of those problems. In particular, around £1.3 billion of unfunded public sector pension obligations will weigh very heavily on future generations—that is currently largely hidden from sight at the moment. Into that category I would also put the continuation of the triple lock. This Bill is not the end of the pensions story.
Lord Davies of Brixton (Lab)
It is always a pleasure to follow the noble Baroness, Lady Noakes; I still worry on those occasions when I find myself agreeing with what she says. No doubt we will have interesting debates in Committee.
It is a real pleasure to take part in this debate, which is a perfect start to the festive season. I declare my interest as recorded in the register as a fellow of the Institute and Faculty of Actuaries, and I look forward to the maiden speech of the noble Baroness, Lady White of Tufnell Park.
I thank all the individuals and organisations that have written to me about the Bill. They have raised too many issues to deal with them all today, but I and others will seek to raise them in Committee.
I welcome this Bill. It is the first leg of the route to better pensions that was set out in the Government’s pensions road map. It seeks to make existing provision work more effectively and to ensure that people derive the maximum benefit from their pension savings. These objectives are to be welcomed. The second leg of this journey will be the outcome of the Pensions Commission. Part 2 will address the adequacy of retirement incomes and the fairness of a system that currently contains persistent inequalities. I welcome my noble friend the Minister repeating that it will look at state as well as private pensions.
It is worth pointing out, particularly given the welcome presence of the noble Lord, Lord Willetts—though he is not in his place—that this Bill marks the effective end of personal pensions and sets out how we can move to a better system of collective provision, leading to improved, fairer and appropriate outcomes for members.
Taking the various proposals in turn, the Bill takes important steps to remove inefficiencies in the current system. They include the consolidation of small dormant pension pots, contractual overrides for FCA-regulated schemes and the resolution of the issues that have arisen from the Virgin Media judgment through the validation of certain amendments. Each of these changes affects individual member’s rights without their active involvement and therefore must be handled with care, supported by appropriate regulation and professional oversight. These measures will require careful scrutiny in Committee.
Next, the Bill requires defined contribution schemes to offer default retirement arrangements for members. I welcome this initiative and consider it to be the most significant part of the Bill—potentially, as it is still unclear how these arrangements will operate in practice. The Bill provides broad regulation-making powers. We have now had the helpful report from the Delegated Powers and Regulatory Reform Committee, but the details, as the committee emphasises, will depend on what is in the regulations. I therefore hope that we will be able to explore these issues in Committee and identify the main parameters that will apply to these default arrangements.
Turning to the value-for-money proposals, I have some reservations about what they can achieve. Greater and clearer disclosure based on defined parameters is undoubtedly desirable. However, value for money is not a simple or uniform concept. It varies significantly from individual to individual, reflecting different circumstances, attitudes to risk and personal needs. The problem is that there is no simple metric that can adequately capture this diversity. While charges are relatively straightforward to identify and compare, investment returns are inherently uncertain and can be assessed only by reference to the past. Beyond these factors, value for money is also shaped by the quality of the scheme administration, the level of service provided to members and the effectiveness of communication and support. Crucially, it also depends on how benefits are adopted and delivered and whether they meet differing members’ needs. Bringing these factors together, deciding how to weight them and reaching meaningful conclusions of value to members is highly complex. Therefore, while everyone is in favour of the concept of value for money—no one favours its opposite—its practical delivery is far more challenging than the Bill appears to acknowledge. The fear is that the process will simply end as a justification for making higher charges and hence lower benefits.
As a number of previous speakers have explained, the Bill contains provisions relating to pension scheme investments, which the Government consider a central element of the Bill. Other noble Lords have addressed, and will address, this in some detail, but I will make a couple of points.
I have no objection in principle to mandation, unlike other speakers. However, it is very important that the Government understand the implications of directing how members’ money is invested. Doing so carries responsibilities; this is where I found myself agreeing with the noble Baroness, Lady Noakes. I do not think that that aspect has been sufficiently recognised by the Government. I am also concerned, as other Members have mentioned, about the provisions that would be inserted into the Pensions Act 2008 by Clause 40 that refer to specific classes of investment that will be the subject of mandation. I do not believe that this belongs in the Bill.
I have a general concern about the Government in effect providing investment guidance—so much can go wrong—but my particular concern is the appearance of private equity in that clause. Private equity has a mixed performance record and presents significant liquidity and transparency challenges for pension provision. Where members have pension rights, illiquidity raises a question about who ultimately carries the risk that is inevitably involved: is it the member, the scheme or other members? I think the point was made by the noble Lord, Lord Vaux of Harrowden.
There are, of course, other issues that require careful consideration, alongside broader concerns, such as climate and systemic risk. I am sure these will be touched on by other Members.
I turn to my two principal concerns about the provisions in the Bill: first, the provisions relating to the release of surplus, and secondly, the provision for pension increases where no statutory guarantee currently exists. On the release of surplus, ministerial Statements have suggested clearly that members are intended to share where surplus is released—I have a series of quotes, but I am running out of time. If that is the case then this objective should be set out clearly in the Bill. This is particularly important as there is a requirement under the existing legislation that the release of surplus should be for members’ benefits, and that is being removed. The Government justify this on the grounds that trustees’ responsibility to members is sufficient. I am afraid my experience in the industry tells me that that is not correct. It needs to be in the Bill if that is the Government’s intention.
Also, where employers are involved in the process of releasing surplus, it is absolutely right that it should involve the independent recognised trade unions that represent the affected employees. This is established practice elsewhere in pensions legislation, where unions must be notified and, in some cases, consulted before decisions are taken. This should clearly apply. If it applies to benefit and changes, it should apply in the case of surplus release.
I turn to my other area of concern: pension increases. It is important to understand the context. Prior to 1997, there was no general statutory requirement for increases in payment, other than those associated with contracting out. However, by the mid-1990s, particularly after the Scott and the Goode reports, it had become standard practice for pensions in payment to be increased annually by at least a minimum amount. In some schemes, this was set out in the rules; in others, it depended on trustee discretion. Which approach was adopted was largely a matter of chance. Either way these increases were funded, members paid for them during their working lifetime as part of their pension contributions, and they had a reasonable expectation that they would receive increases when they retired.
Although scheme finances have fluctuated since then, in general schemes now have sufficient resources to pay increases. It is therefore reasonable to expect them to provide those increases, whether guaranteed or discretionary. This reflects the reasonable expectation members acquired when they accrued benefits in the 1980s and 1990s. This applies in two overlapping contexts. The first is to benefits provided by the Pension Protection Fund and the Financial Assistance Scheme, where the original legislation in both cases excluded any allowance for pre-1997 increases, regardless of rules or practice. The second aspect is members of active schemes: the scheme is continuing, but they no longer receive the discretionary benefits to which they have a reasonable expectation given their service in the 1980s and 1990s.
I welcome the provisions in the Bill relating to the PPF/FAS. They are clearly a response to the current financial state of the PPF. Without the surpluses in the PPF, I doubt that these measures would have come forward, so they are welcome. However, as I have explained, making a distinction between those for whom the rules say they are going to get increases and those for whom the practice was making discretionary increases is invidious. All affected members should receive the same increases. The benefits from these schemes have never been or been intended to be an exact copy of the benefits that were provided by the schemes that were lost. They were always a broad-brush approach to what is fair to provide.
Given the current financial circumstances, it is absolutely fair that all members should benefit from those surpluses. The Bill provides for employers to share in those surpluses by the suspension of the PPF levy. Employers are sharing in the surplus; members should also, whatever the precise details of their entitlement to past increases. Crucially, none of these members is getting any younger and many, sadly but inevitably, will benefit from the Government’s proposals for only a limited period. For 28 years they have suffered a loss and they are now going to benefit from the change in policy but, for many of them, it will be for far too short a period.
Finally, I turn to the circumstances of defined benefit schemes that are continuing to run. Many are in a healthy financial state but are failing to provide discretionary increases for members’ benefits that were accrued before the statutory requirement was introduced in 1997. I believe that it is now reasonable to expect schemes in general to provide these members with discretionary increases, and we need to investigate ways in which we can make sure that that will happen in Committee. I look forward to hearing my noble friend’s response to these and other points that have been made in the debate.
Lord Ashcombe (Con)
My Lords, like other noble Lords, I very much look forward to the maiden speech of the noble Baroness, Lady White of Tufnell Park. I declare an interest as an employee of Marsh, the sister organisation to Mercer, a pension and investment advisory and management company.
I welcome many parts of the Bill. The Government’s ambition to reduce fragmentation, lower costs and secure better outcomes for savers is clear, and I am sure that Members across the House share the desire for a system that functions more effectively. Some measures in the Bill will undoubtedly support that aim.
However, from my discussions with those in the industry, it is clear there are substantial concerns about elements of the Bill. The central purpose of the Bill, as I see it, is to create scale that unlocks access to a broader range of asset classes, including private markets and UK-based investments. Scale is not an end in itself; it is a mechanism to strengthen negotiating power, secure better pricing and deliver improved outcomes for savers. Equally important, it is the potential for operational efficiencies that reduces costs and complexity across the system.
It is crucial, however, that the Bill does not become entangled in prescribing or favouring any particular business model. The pensions market is dynamic and diverse, with multiple viable routes to achieving the Government’s objectives. Flexibility is essential if innovation and competition are to flourish, allowing the best solutions to emerge in a live market environment.
I welcome the amendments made at Third Reading in the other place, which removed from the Bill detailed structures concerning the relationships between product lines and their contribution to the main scale default arrangement. That is a positive step. These issues are complex and better addressed through secondary legislation, where they can be explored with the nuance they require, and which is difficult to capture fully in primary legislation. However, these future regulations will have a profound impact on the efficiency, pace of change and cost across the pension system. It is therefore essential that the Government commit to a full and transparent consultation. I invite the Minister to assure the House that examples included in the Bill will not become exclusionary, and that the regulatory framework will be developed in a way that supports, rather than hinders, the delivery of the policy’s core objectives.
The policy in the evolving legislation must engage constructively with market realities and good industry practice. If that engagement does not occur, the result could be inefficiencies and additional costs that bring no tangible benefit to savers. We must avoid creating a system that is overly rigid or prescriptive and risks stifling innovation, increasing administrative burdens and potentially causing some large funds to lose auto-enrolment eligibility through no fault of their own.
In practice, many pension providers operate multiple product lines, such as group personal pensions and master trusts, while making investment decisions and negotiating prices at an overarching level across these products. That is not fragmentation; it is a sensible and efficient approach that leverages scale and expertise to the benefit of savers. The regulatory framework must recognise and support this reality.
For that reason, I urge the Minister to confirm that the approach to regulation will be principles based. The MSDA and common investment strategy tests must avoid creating unnecessary fails or imposing constraints that do not deliver real value for savers. A principles-based approach would provide the flexibility needed to accommodate different business models and market practices while ensuring that the policy’s objectives were met.
I turn to the Local Government Pension Scheme. I note with concern the significant reserve powers delegated to the responsible authority. While these powers are intended to provide flexibility, there is a risk that political motivations could influence the management of LGPS assets. What protections will be in place to ensure that these reserve powers cannot be used, or threatened, to pursue political objectives regarding LGPS investment decisions?
Alongside the introduction of governance reforms, it is paradoxical that the draft secondary legislation and guidance appear to control and limit external scrutiny and challenge of the enlarged pools. Independent external challenge is a vital component of robust governance, ensuring transparency and accountability.
Another area of concern is the balance between rules-based and principle-based legislation. While clarity is important, again, the current draft secondary legislation appears overly prescriptive and directive.
Almost all noble Lords have hit on the point about mandation. Many in the industry, including Mercer, signed the Mansion House Accord, but the Government should be aware that voluntary support for that accord does not equate to support for mandation, which I know the industry strongly believes poses a conflict with fiduciary duty. I hope that the Minister understands that and will consider it as the Bill moves forward.
In closing, it is vital that secondary legislation governing group personal pensions, the LGPS and the wider Bill remains flexible and not overly prescriptive. Multiple models and approaches can effectively achieve the policy aims. I hope that the Government recognise these market realities and will ensure that regulations support innovation, efficiency and practical implementation while delivering the intended outcomes. Striking this balance is essential to avoid unnecessary burdens and secure the best possible results for savers across all pension schemes.
Baroness Penn (Con)
My Lords, we have had a wide range of expertise in the speakers today, although I suspect that the noble Lord, Lord Davies of Brixton, might be the only one of us who could not think of a better Christmas present than a pensions Bill. I am also conscious that my remarks stand between the House and the much anticipated maiden speech from the noble Baroness, Lady White of Tufnell Park, to which I too am looking forward, so I will try to be brief and focused.
I want to touch on three areas but before that, like many others, I welcome many aspects of this Bill, including on consolidation and value for money. However, there are important areas of detail that the Government need to provide for us to understand how they will better work; in particular, around the requirements on scale and value for money, and what they mean for competition and market dynamism, as the noble Baroness, Lady Altmann, and my noble friend Lady Noakes have spoken to. There is also the risk that, at some point, scale no longer promotes investment in innovation and scale-ups, as those businesses would no longer be able to meet the minimum investment thresholds for very large funds.
The first area I want to focus on, which may be no surprise, is mandation. I am not convinced about the decision to include a mandation power in the Bill, as others have said. I will not repeat those arguments, but if I was convinced of the case for mandation, I would not be convinced of how it is being legislated for in the Bill as it stands. We are told that it has a sunset clause, but that is not the case. The 2035 deadline is only for increasing the maximum allocations set out by regulation and before this sunset moment, as I read it, there is no maximum limit on what proportion of investments can be mandated. I ask the Minister: why not? If the Government want to use the existence of this power to drive delivery against the Mansion House Accord, why not set a maximum level of mandation in line with those commitments made in the accords? There is also absolutely no clarity on what assets may be mandated for investment, only that they are not listed assets. In doing so, the Government have excluded a potentially important class of productive asset, as raised by the noble Baroness, Lady Altmann, and surely to be raised by the noble Baroness, Lady Bowles. I would also like to hear from the Minister whether the Government intend to change course here.
As to what can be included within mandation, the answer appears to be: absolutely anything else. There are examples, of course, as to what the Government want to do but no legal limits whatever, and the prescribed assets can be altered at any time by regulation, in perpetuity. Normally, the argument for such an approach is to maintain flexibility. But given this is a power that the Government themselves say they do not want to use, surely the case for constraining it to the limits of what the Government intend could not be stronger. If a future Government wanted to go further than this, it would also seem reasonable to put forward further primary legislation to do so, because it is important not to think about the use case one might agree with, but the one that one might disagree with.
I can think of credible cases being put forward for mandating for portions of assets significantly above 5% or 10% for investment in net zero or defence, to name two examples. I make no judgment on the values of these: rather, I ask whether, even if noble Lords might support one of those use cases or scenarios, they would support the other.
In explaining the need for the power that the Government do not expect to use, the Pensions Minister has said that its existence will provide clarity to industry. But, for clarity, we need more detail than is included in the Bill: the definition of a qualifying asset and the percentage required. To provide that clarity, you would need to provide draft regulations. Is that the intention of the Government, will we see them during the course of the Bill and can the noble Baroness set out a timeline for us?
If the Government do not wish to use mandation, perhaps I might ask the Minister what feedback she has had from pension providers on the barriers to investing in the UK economy, and what action the Government are taking to address those, both to increase the pipeline of investment opportunities but also, specifically, regulatory barriers that have been raised by providers. Are the Government committed to looking at those also, and over what timeline? I also ask the Minister what happens if valuations change, over time or in response to a specific shock? There is a lot of detail to be looked at with regard to how the mandation powers will work, as well as the principle of them.
The second area I want to touch on is fiduciary duty. This was something that noble Lords discussed in some detail during the passage of the Financial Services and Markets Act, during which I committed to this House that the Government would consider the work of the Financial Markets Law Committee and host their own round tables to consider whether further action was needed. One of those round tables did take place, but I am afraid further ones did not. The Financial Markets Law Committee reported in 2024, however, and made it clear that, in its view, it is proper for pension fund trustees to consider climate change, along with other factors, when discharging their fiduciary duties. As the Pensions Minister conceded in the Commons, however,
“more clarity about the ability of trustees to take into account such factors would help”.—[Official Report, Commons, 3/12/25; col. 1043.]
The Minister committed to bringing forward legislation that will provide statutory guidance in this area. Could the Minister confirm whether that legislation will be in this Bill and, if so, when we can expect to see those amendments, and also the timescale for the statutory guidance to be produced? Given that there will continue to be different interpretations of the underlying law in this area, I ask the Minister why an amendment in primary legislation would not be preferable to address the issue?
Finally, in the same discussions around fiduciary duty during the Financial Services and Markets Bill, the issue of deforestation-linked finance was discussed, including in relation to pension funds. Could the Minister update the House on the Government’s plans to bring forward regulations under Schedule 17 of the Environment Act 2021 to ban the import of forest-risk commodities and conduct a subsequent review to assess whether the financial regulatory framework is adequate for the purpose of eliminating the financing of illegal deforestation, and to consider what changes to the regulatory framework may be appropriate in this context? The EU’s framework on deforestation-linked finance is coming into force this month, so it would be a timely moment for the Government to set out their plan in this area.
Finally, the Bill does nothing to address pension adequacy, as we have heard. My noble friend Lady Stedman-Scott and the noble Lord, Lord Sharkey, have highlighted in particular the issue of self-employed people and pension adequacy. I will be focusing in particular on the women’s pension gap, which remains at over 30%. My understanding is that there has been little progress on narrowing that gap over the years, and what progress has been made is as a result of men’s contributions falling, rather than any improvement in contributions from women, and I do not think that is the right way to be narrowing the gap. We are storing up huge inequalities in retirement unless further action is taken. Can the Minister reassure me and this House on the action that the Government are planning in this area, both potentially through the commission but also alongside and in advance of its work.
Baroness White of Tufnell Park (CB) (Maiden Speech)
I rise to address your Lordships’ House for the first time. I want to start by saying a little bit about myself. I am a child of the Windrush generation. My mother came from Jamaica to London aged 19. In fact, my grandfather sold a field to fund her passage. My father arrived as a 26 year-old and they met and married here in London. I spent most of my childhood in Leyton, east London, and it was something of a dilemma whether to take the name of the place I grew up or the name of the place that I have chosen to live with my husband and two boys, Tufnell Park. Noble Lords will see that I chose the latter.
At a time when the national discourse is so full of division, I hope that the successful integration of the West Indian community into the UK serves as a reminder of those close, common bonds that tie together so many communities, many from the previous British Empire. Thanks to this country, I was able to get a free education at Cambridge and then in London—an education my parents did not get. My mother left school as a 10 year-old and my father as a 15 year-old. It has enabled me to enjoy what is charitably described as a rather eclectic career between the public and the private sectors. I have a rather wide range of interests across public policy, economics and business and I hope your Lordships will be tolerant of those over the coming years.
I am both humbled and privileged to be making my maiden speech as part of the Pension Schemes Bill debate. For me, pensions are both personal as well as professional. They are personal as I creep ever closer to pension age myself, but also because I am scarred by my father’s experience. Probably the single worst financial decision he made was leaving the British Rail defined benefit pension scheme and joining the little-known SERPS many years into his working career.
It is professional because, as the noble Lord, Lord Willetts, mentioned, I have spent quite a lot of my career working on pensions. I was trying to remember the first time, which was the Goode report in the aftermath of the Maxwell pension scandal. The equalisation of the state pension age was when I was at the Treasury. The reform of SERPS was when I was at No. 10, and I am currently advising one of the big Canadian pension schemes.
As we have heard already in the debate, the country desperately needs to increase its productivity and growth. It is the only way, sustainably, to raise living standards in this country across communities—living standards which, extraordinarily, have not budged in real terms since the great financial crisis of 2008. As is well known, we lose too many companies to the US, where growth capital is more plentiful. Again as the noble Lord, Lord Willetts, has already said, this is no accident. It is rooted in past regulation, which was well intentioned and aimed to de-risk defined benefit schemes. But it has had the result, as we have heard, of dramatically reducing the proportion of pension assets going into UK equities, from around 50% to, broadly speaking, 5% today.
Plans put forward by this Government and championed by the former Government to require UK pension funds to invest more of their funds in the domestic economy and within domestic businesses are, in my view, a positive and important step. We have heard already that several UK funds have voluntarily made commitments through the so-called Mansion House Accord, and it is welcome that the Bill provides a legislative backstop to ensure that what is promised is actually delivered. I note the controversy that this particular set of legislative recommendations has raised already in the House, and I look forward to being part of the debate in the future.
In a similar vein, the consolidation of the myriad diffuse local government schemes should improve efficiency—efficiency not just for its own sake but to release more funds to invest in the UK. However, the move falls short of the creation of the sort of mega funds in Australia and Canada that have driven a more wholesale move of public sector pensions into private funds.
I thank your Lordships. Joining the House is one of the privileges of my life, and I look forward, over the coming months, to listening, learning and, over time, contributing in some small way. Like others today, I take a moment to thank the many Members of the House of Lords and its staff. I am spatially dyspraxic, so finding my way around over the last few months has not been without its challenges, and the team has been incredibly kind, patient and generous. I thank them.
Lord Wood of Anfield (Lab)
My Lords, it is a pleasure and an honour to follow the noble Baroness, Lady White, and her excellent maiden speech. I congratulate her on her appointment and her debut outing here in the Chamber and say how much all of us look forward to her future contributions. I am sure her family, not for the first time, is extremely proud of her today.
On that subject, if noble Lords ever worry about the limited breadth of their professional experience, I advise them not to look at the noble Baroness’s CV. In her extraordinary career so far, she has—strap in for a minute—studied at the University of Cambridge and University College London. She worked at Her Majesty’s Treasury twice, at the British embassy in Washington, as a senior official at Downing Street, at the World Bank, at the Department for International Development, at the Ministry of Justice—I have not finished yet—and at the Department for Work and Pensions, before becoming the third chief executive of Ofcom and then the sixth chair of the John Lewis Partnership. She then became the chair of Frontier Economics and a senior managing director at a Canadian pension fund. That is exhausting just to read. I think I am right in saying, however, that her first job after studying was in a church in Birmingham. She has spoken publicly and movingly about the importance of faith to her and her family.
If noble Lords talk to former colleagues of the noble Baroness, Lady White, some of whom are here today, they will find universal agreement that she is someone who faces professional challenges in her career with calmness, humanity to those around her, sound judgment, expertise and a warm inviting intelligence that most of us can only admire. She once told an interviewer:
“You often learn more from things that did not quite go to plan than things that did”.
As a former adviser to Gordon Brown for many years, alongside my noble friend the Minister, I can only endorse those as the wisest of words. We are truly fortunate to have the noble Baroness, Lady White, in our midst, and I am sure everyone agrees that this House’s work will be the richer for her wide-ranging experience, expertise and generosity.
Like the noble Baroness, I strongly welcome aspects of this Bill—most of it, in my case—and the way in which it has been welcomed across the political divide, almost. It will make a positive difference to savers, increasing the value of their savings through pot consolidation and driving greater scale, improving the range of guided retirement products and strengthening the value for money framework—all issues on which other noble Lords have spoken with much greater expertise than I can.
I want to focus my comments on the ambition in this Bill to make UK pension funds a greater driver of investment in UK infrastructure companies and communities, as the noble Baroness, Lady White, said. There is a wide consensus, whatever your view on the measures in the Bill, that we have a big problem in this country with the interface between pension funds as value generators for their clients and their investment contribution to the UK’s real economy.
The statistic has been cited a number of times that, 25 years ago, UK pension funds allocated half their assets to UK equities. That figure is now under 5%. This alarming fall is not for want of scale or size, as many colleagues have mentioned. The UK has, as the noble Baroness, Lady Altmann, remarked, the second largest pool of pension capital in the world. Indeed, UK DC pension assets are set to grow from around £500 billion in 2021 to £1 trillion by 2030. That is a 100% increase in under a decade, with growth predicted to accelerate further after that date. Yet DC pension funds have only 9% of their overall equity allocation in the UK. The global average is 30%. Across all types of domestic pension funds’ equity portfolios, UK equities make up 15% of the total. In Australia, the figure for domestic equities is 52%; in Japan, it is 48%.
We know a lot about why we have become such a worrying outlier in this respect. The £1.5 trillion corporate DB sector has been derisking for some time, as it has approached meeting its liabilities. At the same time, DB schemes have pivoted, for reasons of value generation, from a UK-biased equity approach 30 years ago or so to a global market cap approach in the past 20 years.
One side effect of this move is that the proportion of overseas investors in UK equities has risen to well over 50%, and, because of scarce domestic capital, UK companies have therefore become more reliant on debt for financing expansion. This combination of a growing reliance on debt finance and foreign capital is a matter of concern. As the noble Baroness, Lady Altmann, has written, it is a matter of concern from the point of view of national economic security. There is no simple response to this, but this Bill takes some first important steps to reconfiguring the structure of the industry, the regulatory environment that fund managers face and the incentives that confront them.
One key challenge is to create larger, more powerful and more strategic investment capacity. The last Government made welcome progress on this, and the current Chancellor’s Mansion House Accord, as many colleagues have said, has built further on that. The Bill builds on that accord by gripping the issue of generating scale and simplicity where there is currently too much fragmentation. Like other noble Lords, I welcome the LGPS consolidation, strengthening asset pooling and improving administering authorities’ governance structures. I welcome the requirement for master trusts to reach a minimum size of £25 billion, but I share the concern of the noble Baroness, Lady Altmann, and echo her question to the Minister to assure us that this threshold will not be to the detriment of innovation and new entrants, and to tell us how these two objectives that we all share can be reconciled. The noble Baroness, Lady Penn, also mentioned this.
Lastly, there is the issue of pension mandation, undoubtedly the most contentious issue. It raises issues about the tension between government policy, regulation and fiduciary duties. Again, whatever your view on mandation, our starting point has to be that we have a real problem on our hands here—and the public agrees. The noble Lord, Lord Willetts, mentioned data from a survey on this showing that two-thirds of all UK savers think pension funds should increase investment in UK companies, even if returns are lower. Why do we not listen to them?
The Government in this Bill are taking a reserve power to mandate pension fund investment, but are accompanying it with ministerial protestations that they do not intend to use that power. At the very least, I thank the Government for giving me an excellent case study that I can present for the coming years when I teach my students in the real-world use of game theory. More seriously, I think that I understand the logic of taking the power to do something when you have no intention of using it. The spectre of a big stick locked away in a cupboard, but still on view, is designed to have an incentivising effect on fund managers to reorient their strategies to start to take UK investment much more seriously. Critics might say you cannot have your big stick and eat it, to mix my metaphors—that you cannot have a power and then credibly say that it will never be used, or, to flip it the other way round, that you cannot hope that taking the power will have a chastening effect on the industry while also saying that you will never use it.
My own explanation for what the Government are doing here—I am sure that my friend the Minister will have a better explanation—is that it is a strategy based on sequencing the necessary changes. So, first, the fund industry needs to be defragmented, consolidated and scaled up, which this Bill is primarily about. Secondly, collective reorientation of the UK pension fund industry is incentivised through these reforms but also the accompanying reserve power. Thirdly, alongside the strategic capacity that is being built up, the Government know that they have work to do to make investment in UK equities and non-listed destinations more attractive, which involves lots of measures. By the way, one down payment on these measures that is to be warmly welcomed is the Chancellor’s decision in the Budget to introduce a three-year stamp duty holiday for new listings on the stock exchange. We will see whether this works. For my own part, I am a subscriber to the view of the noble Baroness, Lady Altmann, that 25% of new contributions should be invested in UK public markets.
This Bill is a building block in the attempt to make progress through what we might think of as pressured voluntarism rather than straightforward compulsion, and I welcome that very much. However, we need to be clear that this is a change that, from a UK plc point of view and a public finances and public services point of view, must happen one way or the other.
Lord Kirkhope of Harrogate (Con)
My Lords, before I make my few remarks, I also congratulate the noble Baroness, Lady White, on her most excellent maiden speech. I declare my interest as a trustee and a director of pension funds for a number of years. I acknowledge that this Bill is, in general, a good idea; however, as has been said by many people—I hate to repeat it again—it is a complex multifaceted set of proposals, and the devil is in the details. As I said, I have read this in almost every report so far at this stage of the Bill.
To most working people, their pensions are prospectively there simply to support them when they retire. Good employers, whether in the public or private sector, know that pension provision is often measured carefully when job opportunities are considered. Whether it is a defined benefit plan or a defined contribution plan is quite often a matter of good luck rather than good management and is often determined as a result of historic tradition in the particular industry or business.
In this legislation, the Government have the good general intentions of assisting members in DC schemes, including the enhancement of opportunities to get better returns through increasing the size of schemes and returning surpluses to employers. They also want to encourage schemes to invest in UK asset classes, thus hoping to help the economy, which I am sure is a laudable aim, particularly at present. All well so far, but let me at this early stage of our deliberations just put down one or two markers for later debate.
Increasing DC schemes to £25 billion—an arbitrary figure—has some real downsides. I suspect that this will reduce competition due to consolidation, leaving less choice and barring entry for new schemes, and will increase vulnerability, especially to cyber attack. DC schemes have been the preferred formula now for over 20 years and master trusts for only about 10 years and, of those, only a handful have achieved that magic £25 billion.
Next is the question of surpluses in DB funds. When interest rates were low, many employers put billions into schemes to repair a large number of deficits. They became less competitive than employers who did not have any DB schemes. I therefore hope that, in the Bill’s changes, we might find ways in which some of these surpluses could be returned to be utilised to fund capital expenditure, and I hope the Minister might be able to agree to that.
There are examples of surplus sharing and, in that context, I mention the Aberdeen Group’s adoption of the Stagecoach pension scheme less than two weeks ago—perhaps already mentioned by noble Lords. Members there will get two-thirds of future surpluses and Aberdeen one-third. I have no doubt that this will give great pleasure to bus drivers all over the UK but, like so many other aspects of pensions, there must be safeguards. It is the trustees who must always decide to distribute surpluses and they must act independently of employers, remembering that the basic principle is always to act in the best interest of the members. The intentions in the Bill for the allocation of surpluses in DB schemes seem to extend quite widely and to include enhancement of contributions in DC schemes. This crossover needs some care and further explanation.
Superfunds should be respected as an alternative destination, but advisory costs can be enormous. Also, actuaries must follow their obligations under Technical Actuarial Standard 300 and give advice on alternatives when consideration is taking place to transfer pension scheme obligations to insurers under buyout contracts. Improving the superfund regime is all well and good, but the Government must deal with the barriers around adviser intransigence and those potentially enormous costs. Without that attention, the idea of growing superfunds is a non-starter, as is evidenced by there being only one such fund in the UK at present.
Regarding encouragement to invest in UK assets, I also retain great reservations on mandation powers. As I said at the beginning, in theory it is a good idea that investing to help the UK should be given greater priority, but I remain concerned about the conflict of interest that might arise. This issue was raised by my honourable friend Mark Garnier at Second Reading in the other place. I go back to the strict obligation on trustees to always perform their role in the best interests of beneficiaries. That might suggest a new concentration on UK investment, but not necessarily. We need some more help for trustees for this responsibility. In response, the Minister in the other place suggested an opt-out if there were to be material detriment to members in taking such preferential decisions. I suggest that that would not satisfy the need for trustees to consider a wide list of things in determining those best interests of members.
On the powers for the ombudsman, we need to delve further into the intentions of the Government. Moving the ombudsman to become a form of court or tribunal changes to some extent the nature of its work. The relationship between the regulator, trustees and the ombudsman is currently very clear. We need a better explanation of their future respective roles and powers. My experience is that, although the Pensions Regulator imposes and controls duties and reminds pension trustees of their obligations, it is always, of course, ultimately up to the trustees themselves to decide what they believe is a proper course. Putting the regulator or the ombudsman into an enhanced role will not only diminish the absolute responsibility of trustees; it could also put those bodies into invidious situations of decision-making between themselves. No doubt there are also substantial resource issues to consider.
Lastly, I mention the pensions dashboard to the Minister, which has no doubt been referred to. A progress report would be welcome, as would an assurance that, as was clearly stated by the Minister at Second Reading in the other place, it will be completed and ready by autumn next year.
No doubt we can perfect matters as the Bill proceeds, as is the way with this House. The intentions are fine; the logistics and implementation to meet those intentions may well take quite a lot of work.
Baroness Bowles of Berkhamsted (LD)
My Lords, I declare my interests as a director of the London Stock Exchange and of Valloop Holdings Ltd. I also have experience engaging with local authorities and their pension funds, in relation to both funding proposals and policy. I congratulate the noble Baroness, Lady White of Tufnell Park—she is no longer in her seat—on her excellent maiden speech. I welcome her to this House and look forward to her future contributions.
Like other noble Lords, I welcome much of this Bill, and my reflections are directed at what is missing or where small but significant adjustments could deliver real benefits for scheme members. I shall give some examples. When engaging with local authority fund managers on social impact investing, I found that while they valued local options, they also wanted diversity through investing in similar localised assets but beyond their immediate region. An amendment to reflect that flexibility, perhaps in Clause 2, concerning local and localised investments, may be worth considering.
On scale tests and value for money, should there not be some kind of linkage? Presently, some of the best performers in the DC market have assets under £10 billion. If such schemes deliver outstanding benefit for members, as demonstrated in value for money assessments, should they not be allowed to continue? Other issues in this space include whether the definition of “hybrid” is wide enough and whether the focus on forward looking metrics risks dismissing past performance, which surely still has relevance.
I also hope that some solution can be found for the many schemes in the charity and social housing sector that are disallowed from using retrospective confirmation measures due to an ongoing legal review. Concerns also remain about the PPF’s recent pre 1997 increases in the wind up trigger for DB superfunds, which create issues for funding levels and viability. Additionally, gateway test 1—that if a scheme is funded to buyout level it cannot enter a superfund—seems to prevent schemes augmenting member benefits via a superfund. Is that fair?
I turn to trustees’ fiduciary duty. It is undeniable that the Government have opened a Pandora’s box by taking the power of mandation, even if it is intended as a reserve power. I happen to think it is about time Pandora’s box was opened, emptied and hope allowed to get out, at least on interpretation of fiduciary duty. However, it is essential that this be done in primary legislation. Regulatory guidance or an SI is not enough. We are already seeing banks stung for compensation on car loans when lenders followed flawed guidance from the FCA.
Systemic issues such as the resilience of the UK economy and ESG are not abstract considerations; they directly affect pension scheme members’ long term retirement outcomes. Climate breakdown, financial crises and economic instability all influence the value of investments, the type of investments that need to be made in future and the returns available to members over time. They also determine how far pensions will stretch when drawn. These factors should already be integral to fiduciary considerations, requiring trustees to balance risk mitigation with support for long term stability. Yet trustees remain concerned about how to demonstrate alignment with member outcomes, even though investment results of any kind can never be guaranteed. Clarifying in this Bill that systemic factors are legitimate concerns would help.
At the same time, by naming and favouring certain vehicles, the Bill risks going too far and putting trustees in jeopardy. It could cause herding, market distortions and valuation bubbles and discriminate between comparable structures while failing to provide a safe harbour for trustees regarding financial benefit. The only way to achieve definite financial benefit would be through tax penalties for failing to meet mandated allocations, a possibility noted by the noble Baroness, Lady Altmann.
We have already seen the dangers of herding in both DB and DC schemes, driven by regulatory and advisory consensus. Advice focused on global indices, coupled with regulatory encouragement, led to a retreat from UK equities, an overreliance on gilts and the use of nested leverage through repo borrowing, culminating in the LDI crisis. The only accepted defence that trustees have is that they take advice, but it is from unregulated advisers. While many are excellent, some were noticeably reticent when this House’s Industry and Regulators Committee investigated LDI. We found it striking that such influential advice was not regulated, unlike advice to individuals. This should be addressed, perhaps by making it a designated activity under FSMA.
I turn now to the discrimination against listing. The Government mandate investment into private assets but exclude that investment from being via listed entities, despite their ability to provide superior liquidity. Not all listed entities operate in the same way, and I am going to have to explain that later. It is openly acknowledged that the Mansion House provisions reflected in this Bill are tailored to LTAFs, the new long-term asset funds, which are themselves a variation on the EU’s LTIFs—the long-term investment funds developed during my time as chair of the EU’s ECON Committee. At that time, the UK rejected implementing LTIFs, with the Treasury assuring me that we did not need them because we had listed investment funds, also known as investment companies and trusts, which were better. Yet, under this Bill, they are explicitly excluded, even when investing in the prescribed assets, as the alt sector does.
This exclusion is extraordinary. Before the mistaken, and now nearly corrected, regulatory cost disclosure and cost cap debacle, listed investment funds were favoured by local authority pension funds precisely because they financed local UK infrastructure such as schools, hospitals and renewables, and provided venture capital to growth companies. Those local authority pension funds were major investors at IPO and follow on stages, often for the local infrastructure they were subscribing to. Many retail investors hold listed investment funds in their portfolios for similar reasons.
I have recently been told that somewhere in the Treasury there is a belief that listing and then trading shares is not new money. Interestingly, the noble Baroness, Lady Noakes, whom I very much respect and often find myself in common cause with, also made that point. That is not the proper story if you are looking at a listed investment fund. Listing is what keeps the underlying investment funding in place so that it is not sold out for redemptions, as happens with open ended funds like LTAFs. In fact, the way in which money is raised and then put into investments is a similar procedure to that of an LTAF or any other open-ended fund. The only difference is a clever trick: instead of having to sell off the investments if somebody wants to get liquidity and withdraw their shares, the shares can be traded on the market and there is no damage to the underlying investment. That does not seem to have been recognised in the provisions in the Bill.
It is interesting that even some LTAF providers have contemplated investing in listed investment companies because they want the liquidity, and that will enable them to stay listed in productive assets for longer while still having the safety of being able to trade and get their money if they need more money for paying pensions, so why discriminate against them? The fact is they are complementary investments. They are often going to be smaller and local-sized, as opposed to massive. They can be used in combination with LTAFs and it is very foolish and stupid thing to exclude them. I will certainly be tabling an amendment to try to adjust that.
Overall, it is about time that the Government’s discrimination and denigration of listed investment companies end. I say “denigration” because there is damage done to these companies by this wording in the Bill. How many times has this House talked about having to improve the state of our stock exchange, both for listed companies of the operating variety and for listed funds? What do we do at every turn? The Government and the Treasury do not understand and, here, seem to be undoing a lot of the good work they have tried to do in all the listing reviews.
The Bill contains important reforms, but it must not undermine fiduciary duty, encourage herding or exclude proven vehicles that deliver value. With constructive amendments, we can ensure that it strengthens pensions while saving members’ long term outcomes and delivering for the UK economy.
Lord Bourne of Aberystwyth (Con)
My Lords, it is a great pleasure to follow the noble Baroness. She speaks with great experience and knowledge, and I certainly very much agree with the points she made on fiduciary duties and the need for clarity on them.
I congratulate the noble Baroness, Lady White of Tufnell Park, who is not in her place at present, on a maiden speech of great humour and informed with important principles and pointers to what we should be seeking in this legislation. We will certainly look forward to her future contributions in your Lordships’ House.
I want to make some generalised points about the Bill—echoes, inevitably, of what has been said previously in the debate. But I would also like to focus on four specific areas: first, mandation of investment; secondly, fiduciary duties; thirdly, addressing the wrongs suffered by the pensioners of the former Allied Steel and Wire company; and fourthly, the Delegated Powers and Regulatory Reform Committee report. The Minister, whom I greatly respect, referred to this in opening but dismissed it somewhat breezily—possibly not; maybe I am being unfair. There are some important concerns there that we have to address.
The Bill proposes many sensible reforms. It is a largely good piece of legislation. The creation of megafunds delivering lower-cost, diversified investments and better returns is sound and sensible. The consolidation of the Local Government Pension Scheme is also very sensible. There is much to welcome in this legislation.
My fundamental concern, along with many others who have spoken from around the House—almost universally—is the objection to defined contribution schemes and the Government’s backstop power to mandate investment. This really concerns me. It is potentially in conflict with the fiduciary duties of pension trustees. I would like to hear in the Minister’s response what the Government are proposing for that potential conflict.
Government-dictated investment risks undermining trustees’ fiduciary duty and risks distorting markets. Far more preferable, surely, is the voluntary approach that we have in the Mansion House Accord—built on reforms of July 2023 and based on, later again, the approach of my right honourable friend, the then Chancellor, Sir Jeremy Hunt MP—a voluntary agreement of 17 of the UK’s largest workplace pension schemes, signing up to committing at least 10% of their default funds to private markets by 2030, with a minimum of 5% in UK private assets. That is surely the preferred approach. It may well be the Government’s preferred approach, but I have real concerns about the backstop approach that is also in this legislation. The approach in the Mansion House Accord is expected to unlock up to £50 billion for high-growth UK companies and major infrastructure. That seems to be the sensible way forward, and it is based on the approach of Australia, for example, and other states.
Another area I want to touch on, which has also been touched on by the noble Baroness, Lady Bowles, is the fiduciary duties and the need for clarity here. These duties are in many ways similar to the duties that company directors owe to their companies. The fiduciary duties of company directors are in many ways based on case law, but there is also a statutory framework since the Companies Act 2006, which is very important to underpin the case law that is vital in interpreting the duties. It seems sensible to have a statement of duties on which the case law then elaborates and on which it rests.
There is a need to set the duties of pensions trustees in a broader context. How do they take account, for example, of the impact of climate change, the local community and the views of pension savers? The Government talk of guidance, but in my view there is a very strong case for the introduction of a statutory framework, as we have in company law.
I also want to raise the case of the wrongs suffered by pensioners of the former Allied Steel and Wire company, and indeed others, who have lost out because of the pre-1997 pension compensation not being index-linked. Allied Steel and Wire, a company largely based in Cardiff at the time, went into liquidation in 2002, affecting around 1,000 workers in Cardiff but also in Belfast and Sheerness.
A pensions action group was set up 2003, after the collapse, by those who had lost not just their jobs but their occupational pensions. These workers’ pensions are not protected by the Pensions Act 2004, which helped members of defined benefit schemes that went into liquidation but after 6 April 2005—so obviously it preceded that. In fairness, a government scheme, the Financial Assistance Scheme, was set up and helped to provide some relief for these pensioners—up to 90%—but it was not inflation-proofed. This led to the erosion of the pensions’ value over time. As the pensions built up before April 1997 were not linked to rising prices, that failure for index-linking meant that they have suffered massively and continue to suffer.
I know the incoming Government promised to re-examine the situation, but the Minister will realise that there is still real hurt among these pensioners that this has not been recognised in proper compensation. These pensioners played by the rules; they deserve the pensions they invested for. It seems the Pension Protection Fund has a considerable surplus, which could be used to right this very obvious wrong, and I hope the Government will take this unfinished business on board.
Lastly, the Delegated Powers and Regulatory Reform Committee report, to which my noble friend Lady Coffey and the noble Baroness, Lady Bennett of Manor Castle, referred, outlines some very serious concerns. There are almost as many delegated powers, 119, as there are clauses in the Bill, 123—that is serious. It is a pretty damning report, I have to say. It refers to a licence for the Minister to make subordinate legislation. I feel that is something we will inevitably have to return to as we go through Committee and Report, and I would be very interested in hearing what the Minister has to say on that.
I otherwise welcome the legislation. There is a lot to be welcomed in it—it is good legislation—but I have those reservations.
Baroness Hayman (CB)
My Lords, I declare my interests as a past chair and present director of Peers for the Planet. It is a great pleasure to follow the noble Lord in what he has just said. We have worked together on these issues before, and I feel somehow that on the issue to which I will return, fiduciary duty, we have the very good beginnings of a cross-party amendment with him, me and the noble Baroness, Lady Bowles—and I hope we will recruit from the Labour Benches as well.
The noble Lord, Lord Sharkey, some hours ago—not long hours, interesting hours—mentioned the absence in the Bill of any reference to the Paris Agreement and the Climate Change Act. The noble Baroness, Lady Bennett, mentioned the previous Pension Schemes Bill, in which we both participated six years ago.
That Bill, thanks to a cross-party amendment and great support from the noble Baroness, Lady Stedman-Scott, who was the Minister at the time, included references to the Paris Agreement and the Climate Change Act. I am assured that it was the first piece of pensions legislation in the world that mentioned those things, and it has been followed by many pieces of pensions legislation in many jurisdictions since then. Therefore, I am hopeful that we may make some progress on this.
As the Pensions Regulator has said, pension schemes are
“uniquely placed to understand that short-termism in the face of systemic risk is not the right approach for … pension savers”.
Successive Governments have recognised that the UK’s long-term prosperity will depend on our ability to lead the transition to a greener financial system. However, financial experts, such as the Institute and Faculty of Actuaries and the Pensions Regulator, warn that many schemes continue dramatically to underestimate climate and environmental risks. The Pensions Regulator has stressed that climate change and nature loss are not “abstract concerns” and that
“awareness of and managing systemic risks is … a core part of effective trusteeship”.
The Chancellor recognised the centrality of the issue in her Mansion House speech last year. In letters to the Bank of England and financial regulators, she said:
“The climate and nature crisis is the greatest long-term global challenge that we face”.
She recommended that they
“consider how these risks could impact financial stability over the near and longer-term”.
She also reaffirmed her commitment to make the UK a global leader in sustainable finance.
There are clear benefits to placing the UK at the centre of global financial flows that will drive the economy of the future, creating high-quality jobs and enabling the investment we so urgently need in the face of ongoing economic and cost of living pressures. The pension sector must be central to that endeavour. With the third-largest stock of pension assets in the world, the UK has the capacity to set a global benchmark for responsible investment. The £3 trillion held in UK pensions represents an enormous opportunity to align long-term investment with long-term risks and long-term economic stability.
However, significant exposure to environmental and supply chain risks and fossil fuels leaves savers at risk of holding stranded assets or seeing significant reductions to their pension pots in the years ahead. This is neither in members’ interests nor in our national interests. Therefore, in our discussions on the Bill, I will be very interested to hear how pension schemes investments can align with our climate and nature goals.
As the Bill stands, it remains silent on how the major pension reforms it contains will support the delivery of our nature and net-zero targets, despite the risk to both savers and our economic prosperity that institutions, such as the International Energy Agency and the Climate Change Committee in this country, have highlighted. UKSIF has estimated that approximately £88 billion-worth of UK pensions are directly invested in fossil fuel assets, and that, even if the limited decarbonisation pledges made so far by countries are fulfilled by 2040, £15 billion of UK pensions are at risk of loss due to stranded assets.
The Bill offers a practical, incremental opportunity to put a direction of travel in statute on the need to move away from investment in carbon-intensive assets in a managed and orderly way. It could send a clear signal about the long-term risks we face and help pension schemes to prepare for the transition in a considered way.
One of the measures we could take, and something that I will certainly be focusing on, as I said, as we go through the remaining stages of the Bill, is the clarification of fiduciary duty. For too long, many pension schemes’ trustees have reported confusion about what they should take into account when making investment decisions, particularly when those decisions involve long-term structural risks such as climate change, nature loss and other systemic factors. This can lead to unnecessary and unjustified caution and reinforce a bias towards short-term financial returns, even when the long-term risks are clear.
I think we all absolutely understand and agree that trustees of pensions have a fundamental responsibility to act in their members’ financial interests. However, the clarification of fiduciary duties in legislation, far from detracting from that responsibility, would enable trustees to fulfil it more effectively. So, while I welcome the commitment made on Report in the other place for guidance on this issue to be brought forward, guidance alone falls short of providing the legal certainty that is needed, as the noble Baroness, Lady Bowles, said so clearly.
Guidance can be challenged, ignored, and reversed without primary legislation. The legal ambiguity to which trustees are currently exposed will remain, even if in a slightly lesser degree, if there is only guidance on which to rely. Legislative clarification would dispel that uncertainty and future-proof the system to ensure that pension schemes are better able to recognise and to manage the systemic risks of climate change and nature loss. It would support trustees to act in the long-term interests of all beneficiaries and address issues of intergenerational fairness that are becoming of increasing importance as the longer-term consequence of the climate and nature crisis becomes clearer. It could also lead to better returns and increase new investment in the areas we need to future-proof our economy: clean energy, clean transport, clean infrastructure and, crucially, to unlock the economic opportunity of investing in nature-positive solutions.
I very much look forward to pursuing those issues as the Bill proceeds through your Lordships’ House.
Viscount Trenchard (Con)
My Lords, I too congratulate the noble Baroness, Lady White of Tufnell Park, who is not in her place, on her excellent and well-informed contribution. It is a great pleasure to follow the noble Baroness, Lady Hayman, who just made a most interesting and informative speech.
I thank the Minister for introducing the Bill today. Reforms to the structure of the pension schemes market introduced over the last 14 years have been generally beneficial. In particular, I am sure the Minister will agree that introduction of auto-enrolment into a pension scheme is the principal reason why the number of people saving into such a scheme has increased from 42% of the workforce back in 2011 to 88% today. That is a huge change and one of which the last Government can feel proud. Of course, the 8% of income invested into these schemes is not enough, but it is a start on which we can build.
While current economic conditions necessitate a review of the triple lock, it has been successful in restoring the relative position of pensioners in our society and has lifted 200,000 pensioners out of poverty. As my honourable friend Mark Garnier said at Second Reading in another place,
“the previous Government had turned their attention to two central issues: first, getting the best value for money out of our pension schemes and, secondly, pensions adequacy”.—[Official Report, Commons, 7/7/25; col. 722.]
There are some positive measures in the Bill which I welcome, but I want first to remind the House that it was a Labour Government who did enormous damage to our defined benefit pension system, which was previously a jewel in our financial services crown and the envy of the world.
Shortly after his appointment as Chancellor in 1997, Gordon Brown launched a stealth tax raid on our pensions by abolishing dividend tax credits. The removal of the dividend tax credit has been estimated to have cost occupational pension schemes over £3 billion annually. This led to increased contributions required from employers and employees to maintain pension levels. The consequences of the change were, first, reduced investment in UK companies. Following the abolition, pension funds have been less incentivised to invest in British companies, with their ownership of UK-quoted shares dropping from about 50% in 1997 to just 4% in recent years. This shift is one of the main reasons for the failure of the London Stock Exchange to value new listed companies competitively or to provide the necessary investment to support economic growth.
Secondly, the abolition of the dividend tax credit resulted in the double taxation of corporate earnings, since dividends are paid out of post-tax income whereas loan interest is deductible from corporate tax. This harmful move effectively destroyed many final salary-linked pension schemes by making them too expensive for companies to run. It has been estimated that the tax rate destroyed around £200 billion of the value of the nation’s pensions. Besides the abolition of the dividend tax credit, which was a fatal blow to DB pensions, the continuing restriction of the tax-free allowance for dividends provides an additional disincentive to investment in equities. The dividend allowance was £5,000 per annum in 2016-17 but was reduced to only £500 in 2024-25. Besides that, the income tax rate applied to dividend income has been increased by 2%. A higher rate taxpayer now pays 35.75%.
Take the example of an entrepreneur who has established a successful small business. He does not take a salary but pays himself through dividends when his company can afford it. The company has paid 20% corporation tax, and the 35.75% dividend tax means that the income that the business owner takes out of the business that he has built is now taxed at a rate of 55.75%. Leaving the entrepreneur aside, for years, dividend tax has been a second-tier concern—something that mainly affected company directors and high net-worth investors. That is no longer the case. Dividend tax is now a mainstream issue and hits ordinary people with modest portfolios who have never thought of themselves as investors in the past. If you hold shares outside an ISA, receive dividends from your own company or invest through funds and ETFs, dividend tax now matters.
There have been ongoing discussions about the potential reinstatement of the dividend tax credit to stimulate investment by pension funds into listed equities. That would encourage more domestic investment and help to restore London’s previous status as the best stock market for innovative new technology and other companies to list on. In Australia, as I am sure that the Minister is aware, dividend tax credits have been reintroduced as part of the dividend imputation system. This is designed to prevent double taxation of company profits.
Does the Minister recognise that it is a missed opportunity not to introduce a measure which would be warmly welcomed by the City and would certainly help the London Stock Exchange recover its lost position? Have the Government considered reintroducing dividend tax relief, and if not, why not? Surely this kind of radical measure is exactly what our financial services industry needs. Reintroducing tax credits on dividend payments and cutting stamp duty on UK share purchases are among the 10 recommendations that the Pensions and Lifetime Savings Association has made for using investment and fiscal incentives to encourage pension schemes to allocate more of the nation’s savings to British assets.
I welcome the measures in the Bill which seek to consolidate and build on auto-enrolment and the encouraging progress towards the pensions dashboard, which will greatly assist people’s access to their pension information and help them plan more effectively for their financial future. As the noble Baroness said, larger schemes generally perform better than smaller ones. I believe that the measures enabling the consolidation of small pots and the creation of superfunds are sensible, although regulations must ensure that protection for scheme members is not weakened.
The Association of British Insurers, the Society of Pension Professionals and other industry groups in the main support many of the measures contained in the Bill, including the value for money framework. Will the Minister introduce a requirement that it will be regularly reviewed to ensure that it operates as intended? Referring to the point on the consolidation of small pots, I suggest that the definition of small pots should be revised to £5,000 rather than £1,000, because the latter is too small.
The biggest problem with the Bill, as well explained by my noble friend Lady Stedman-Scott and others, is the proposal to empower the Government to mandate asset allocation within large multi-employer defined contribution schemes. I am not aware that the Government is a well-qualified fund manager with a spectacular track record, and it is absolutely not right to interfere with trustees’ fiduciary duties. It is all the more unacceptable because it applies only to those very large schemes and will therefore affect only pensioners of relatively modest means. This is unfair. This Government are pickpocketing the pensions of poorer people. Fund managers and the trustees who appoint them are under a legal duty to prioritise the financial well-being of savers. Their job is not to obey political whims but to invest prudently, grow pension pots and uphold the trust placed in them by millions of ordinary people. While I hold the noble Lord, Lord Wood of Anfield, in the highest regard, I am afraid I do not agree with his view on this matter. It may be that many pensioners would like to invest in UK assets, even if the returns are low, but they should take action separately to achieve that end.
The fiduciary duty is not a technicality; it is the bedrock of confidence that the entire pension system rests on. Rather than impose new regulations and take powers to do things that they are not qualified to do, I would like to see the Government free up insurers from solvency rules which prevent them owning equity in productive assets. Indeed, following the Mansion House Accord, the pension sector is already moving towards greater investment in productive assets. Seventeen of our largest workplace pension providers have already committed to invest 10% of their main default funds in private assets by 2030. Mandation is not required to achieve this trajectory. To attempt to define and enforce allocation thresholds risks concentrating activity too narrowly, crowding investment into specific asset classes and inadvertently restricting investment in broader activities.
The Government seek to take a power that is unnecessary. Their possible intervention in the market creates operational ambiguity. How schemes and pension providers will prove compliance with requirements lacks clear thresholds and enforcement logic, and creates reputational risk for pension schemes. The clause offering opt-out in cases of material financial detriment is too vague. The best solution to the problem is for the Government to drop this reserve power from the Bill entirely. If the Minister will agree today to do this, it will save us all a lot of time and trouble. I look forward to hearing what the Minister has to say about this.
Concerning local government pension schemes, I welcome the proposal to consolidate the pensions of 86 different authorities, which should contribute to enhanced performance. But, as my noble friend Lady Stedman-Scott explained, surpluses should be used to reduce the burden of contributions going forward, particularly as councils are faced to go through deeply damaging and expensive reorganisation.
Lastly, I am happy that the Bill attempts to find a solution to the problem of defined benefit surpluses. As drafted, it does not provide sufficient safeguards. In this area and others, I look forward to working with noble Lords to improve the Bill in the months ahead. I entirely agree with what my noble friend Lady Noakes had to say on this matter. I look forward especially to hearing the Minister’s winding-up speech.
Lord Evans of Guisborough (Con)
My Lords, I should preface my remarks by declaring an interest in that I am a member of the Local Government Pension Scheme. I am, of course, much too young to be drawing any benefits from that scheme as yet.
It is a great pleasure to follow my noble friend Lord Trenchard, who gave us a good, detailed critique of the Bill and made a number of constructive suggestions. Indeed, it is even more of a pleasure to be following—well, everybody, really. The Minister pointed out the generosity of the Whips this morning; when I looked at the list, I discovered they had been even more generous in giving me basically the last slot of the last debate of the year, at least from the Back Benches—the Front Benches can follow up afterwards. Bearing that in mind, I will keep my remarks mercifully brief and focus on a couple of the contributions that people have made during this extremely informative and interesting debate.
First, I congratulate and thank the noble Baroness, Lady White of Tufnell Park, for her excellent maiden speech. It was interesting and, I think, will be inspiring to people from outside this place who see that clip. I know that she will bring a great deal of expertise to us here, and I look forward to her future contributions.
Secondly, I thank my noble friend Lady Noakes, who raised the spectre of the dead hand of regulation, as it has been referred to at times in the past, and the concern that if we regulate schemes too much, we will discourage new schemes or even make it impossible for them to open up and operate, which will harm competition. We have already seen this in recent years with the situation that pertains to challenger banks in the UK, because a lot of the financial rules that were set up after the market crash made it very difficult for new banks and new financial institutions to gather the capital and put in place the administration they needed to start up. I believe that the Treasury has relaxed some of those rules recently to enable more people to take part in the financial market. I hope that the Government will reflect on that and not repeat mistakes that have been made in the past.
I shall refer briefly to the contribution from my noble friend Lady Altmann, who gave us an informed and passionate plea to encourage pension providers to invest more of the money they have in UK assets. I was quite persuaded by that, but saying to investors, “We’d like you to invest a percentage of your assets and you get to decide, with all your expertise, knowledge and experience, what you invest them in”, is very different from being asked to give the Minister permission to make a much more detailed investment decision on their behalf, with what, in effect, is other people’s money. I think that is what we are being asked to do in the Bill.
I hope we will revisit the whole mandation issue and help to moderate it or even remove it from the Bill altogether. I would go out on a limb and say that I would trust the Minister to make investment decisions on my behalf, but that does not mean that I would trust future Ministers and future Governments to do so. That is not just about the sort of people with the sort of ideas who might occupy those posts in the future; it is also about the sort of challenges that the Government may face and the sort of temptations that this legislation may lay open to them at a time when future years are looking difficult and unpredictable.
I mostly welcome what is in the Bill. There has been a tendency today to focus on the things we do not like about it; that is the job of scrutiny. Back in the 1990s, I worked for a visionary entrepreneur, and he used to say that in the future there will be no such thing as security of employment but there will be security of employability. He was running a training company, so your Lordships can maybe understand why he said that, and we have moved a long way towards embracing the new jobs market since then, but the pensions market needs to catch up. A lot of the measures in the Bill will help us to do that.
Lord Palmer of Childs Hill (LD)
Yes, my Lords, we are getting towards the end. I thank all noble Lords who have who have spoken. My particular thanks and congratulations go to the noble Baroness, Lady White of Tufnell Park, who made a marvellous first speech, which I am sure will be one of many.
There is much to welcome in the Bill; let us start positively. My noble friend Lady Kramer—as noble Lords know, she cannot participate today because she is at a funeral—is seeking the detail and the risk profile of the assets that will qualify under the Mansion House compact. Most people contributing through auto-enrolment into default funds have few resources and should not be in high-risk investments, certainly not without their permission.
My noble friend Lady Bowles, with great expertise, emphasised that fiduciary duty must remain the overriding principle of pension governance. She warned that mandating specific investment vehicles risks undermining trustees’ discretion, encouraging herding and discriminating against proven structures such as listed investment funds. Drawing on lessons from the LDI crisis, she argued that statutory preference cannot guarantee financial benefit and may expose pension members to unnecessary risk.
My noble friend further highlighted the Bill’s unjustified exclusion of listed investment companies and trusts, despite their track record in financing UK infrastructure and growth businesses. She also cautioned that lobbying pressures appear to have shaped the preference for long-term asset funds and urged that legislation should not be dictated by sectoral interests. Her message was clear: fiduciary duty must not be subordinated to lobbying or legislative preference, because it is pension members who will ultimately bear the cost.
My noble friend Lord Sharkey raised many important matters, many of which I will mention, including mandation, DB surpluses and DC master trusts. My noble friend Lord Thurso, who cannot be present—he is up in Inverness—was particularly keen to ensure proper guardrails and governance in relation to DB surplus release, mandation and adherence to the stewardship code, as well as seeking to improve the lot of pre-1997 pensioners who have not benefited from inflation uplifts. He will pursue these matters. Noble Lords can therefore see a lot of amendments lining up.
We will need to consider any action in the Bill to remedy pre-1997 pension erosion. The absence of discretionary increases for pre-1997 pensioners has clearly resulted in an erosion in the real value of their pensions. That is not the only injustice that has impacted on many pensioners. I draw attention to the AEA Technology Pensions Campaign’s work fighting for pensioners who were misinformed by the Government and ended up losing out as a result, as recognised by the Committee of Public Accounts in its June 2023 report on this issue. Although that is not the only example of injustice in our pensions system, it illustrates the challenges many pensioners have faced uniquely. Therefore, we will look to scrutinise these elements of the Bill in detail.
Legislation to formalise the framework around defined benefit superfunds is long overdue and is in the Bill. A main question is how the gateway test for DB funds—in other words, which DB schemes are allowed to enter them—compares with other options such as a buy-out. I hope the Minister can elaborate when she replies on when a new option is created, so that what might be considered the appropriate schemes use it and the wrong schemes do not.
The Bill provides for master trusts to have a default retirement solution so, having built up a pension pot, schemes need to assist in managing it. Can the Minister provide details on how the new advice or guidance will work in practice? The noble Baroness, Lady Stedman-Scott, made that point. Broadly speaking, extraction of surplus funds from DB schemes as if in surplus is mostly paid in by the employer. At present, it is difficult to access the surplus. Can the Minister elaborate on, and perhaps estimate, whether these new powers will be taken up? Will they just be there to be looked at?
Creating defined contribution megafunds sounds okay, but can the Minister elaborate on schemes being too big to fall, and whether new entrants will struggle to enter the market? We need to have the value-for-money framework elaborated on. In Australia, where there are league tables, there is evidence of investment herding, as mentioned in another context, where everyone invests in the same way. That is hardly a dynamic, competitive market, which is what seems to be one of the purposes of the Bill.
We will, I am sure, discuss mandation at length. Mandation is a reserve power to force pension schemes to invest at the whims of the Government, but I state clearly that I oppose this, as it crosses a dangerous line. It is fine saying that the Government do not plan to use the power, but we have to provide for the actions of future Governments: for instance, a Government who do not believe in climate change, a point made by the noble Baronesses, Lady Stedman-Scott and Lady Hayman.
The Bill’s idea of auto-consolidating small pots of less than £1,000 sounds good, but it is a big effort resulting in very little change and not much happening until 2030. Perhaps I have that wrong, but it was a point raised by the noble Lord, Lord Vaux, and I wanted to emphasise it.
The pensions system is evolving. We see what is happening; we are trying to let it evolve in the correct way. There are few easy solutions and, as noble Lords have mentioned, there will be a lot of scope for amendments to the Bill to make it absolutely right. I hope we can work collaboratively, throughout the House, on improving the Bill so that it can be built on and relied upon by pensioners, pension funds and everybody else.
Viscount Younger of Leckie (Con)
My Lords, it is a pleasure to follow the noble Lord, Lord Palmer, who, like me, has become a regular on the pensions circuit here. As this debate draws to a close, I thank all noble Lords who have contributed with such seriousness and expertise this afternoon. For my part, I will try to touch on the key themes raised but, before I do, I would like to pay my own tribute to the noble Baroness, Lady White of Tufnell Park, because she gave an assured, charming and exceptional speech. She comes with a distinguished career record and I have no doubt that we will be hearing much from her here in future.
The seriousness of this debate was exemplified by my noble friend Lady Stedman-Scott, who set out with great clarity our central concerns raised by this Bill. Those concerns, however, point to a wider issue with the legislation itself. This is a framework Bill, light on detail and heavy on intention, which has left your Lordships debating concepts and hypotheticals rather than the Government’s concrete plans. That is not only unsatisfactory but disappointing. These points were made by my noble friend Lady Coffey. Certainty in legislation comes from detail on the face of the Bill. When that detail is repeatedly altered, deferred and subject to numerous government amendments—by the way, there are over 50—even the limited certainty we believed we had is further diminished. I look forward to the Minister’s response, not just on the preparation of the Bill, or perhaps lack of it, but, as has been raised, on the report from the Delegated Powers and Regulatory Reform Committee.
Nowhere is the lack of certainty more evident than in the proposed value-for-money framework. This was one of the first themes raised, not least by the noble Baroness, Lady Warwick, the noble Lord, Lord Davies of Brixton, and my noble friend Lady Penn. This element of the Bill is thin, almost skeletal, yet it is pivotal—again, my noble friend Lady Coffey spoke about this. In practice, much of what this legislation seeks to achieve will stand or fall on how the value-for-money framework is designed and applied. If it is to drive genuine improvement rather than box-ticking, its methodology must be transparent, robust and genuinely comparable across schemes. Cost alone cannot be allowed to dominate decision-making at the expense of outcomes. A scheme that is cheap but delivers persistently poor returns is not offering value to savers, however attractive its headline fees may appear.
Against that background, I have two specific questions for the Minister. First, do the Government envisage the value-for-money framework operating as a standardised pro forma, with clearly defined and comparable metrics covering costs, net investment performance, and cost-to-return ratios applied consistently across schemes? Secondly, how will the Government ensure meaningful comparability between very different types of schemes? In particular, what steps will be taken where schemes meet fee thresholds but nevertheless deliver consistently weak investment outcomes? My noble friend Lord Trenchard touched on this.
This feeds into a wider concern about the order of priorities in the Bill. Rather than committing to the notion of the reserve power—so-called mandation, which I will touch on later—the Government should have concentrated first on getting value for money right. That should have been the central driver of this legislation. If value for money is properly defined, transparently measured and rigorously applied, it can strengthen outcomes for savers without trampling on the fiduciary duties of trustees. We have heard quite a bit about that this afternoon.
As the Minister for Pensions himself has said, trustees must remain free, and indeed obliged, to act in the best financial interests of their members, but I say that this should be guided by evidence and judgment rather than direction by mandate. We should be confident enough to demonstrate the benefits and drawbacks of widely used default strategies, such as global passive equities, which underpinned many DC schemes’ investment approaches. That case should be made openly and empirically, yet the Government have underplayed the extent to which a robust value-for-money framework could drive improvement without compulsion. If value is genuinely improved and transparently measured, much else should follow.
My noble friend Lady Stedman-Scott has already clearly set out the Opposition’s wider concerns about mandation. I will not repeat them at length, but the subject was raised by my noble friends Lord Ashcombe and Lady Noakes, the noble Lord, Lord Vaux, and a number of noble Lords. However, I wish to raise one further point that reflects a broader theme running through today’s debate: the need to strike the right balance between flexibility and discipline. My noble friend Lord Ashcombe spoke on this.
Beyond the constitutional and fiduciary issues already raised, there is also a practical market risk that should not be overlooked. This matter was raised by the noble Lord, Lord Sharkey, and the noble Baroness, Lady Bowles, about market distorting effects, as the noble Lord put it. Mandation risks inflating asset prices if multiple funds are required to allocate to the same asset classes at the same time. I believe that the noble Baroness, Lady Altmann, raised this matter too. Markets may also interpret Government direction as an implicit signal of future price support, potentially amplifying distortions rather than improving capital allocation.
Against that background, I have two specific questions for the Minister. First, have the Government assessed the risk that mandated investment could lead to asset price inflation or wider market distortion? If so, what conclusions have they reached? Secondly, how do the Government intend to ensure that mandated allocations remain aligned with changing economic conditions, particularly in cases where schemes may reach a mandated threshold only after the relevant asset class is no longer aligned with economic need or the Treasury’s broader objectives?
There are a few further questions on this important subject. The noble Lord, Lord Davies, asked this as well. If, after mandation, or, in the case of mandation, if investments underperform or indeed fail, who takes responsibility, the Government or trustees? My noble friend Lady Penn asked how the qualifying assets will be defined. I think other Peers may also have asked that. The noble Baroness, Lady Bowles, asked some important questions in this sphere, so I am looking forward to the response from the Minister.
I should say also that I noted the constructive advice and ideas from the noble Baroness, Lady Altmann, on how the Government could better encourage pension funds to invest in the UK, short of introducing the reserved power. There were also some suggestions from my noble friend Lord Trenchard.
Next, let me touch on the treatment of surpluses in defined benefit schemes. I agree that surpluses can present opportunities, but they are not windfalls: they exist to absorb future shocks, manage demographic risk and ensure that promises made to members are kept. Flexibility in how surpluses are treated is sensible, but only if it is underpinned by robust safeguards. None of us wishes to see surpluses eroded by ill-judged extraction or quietly diverted into activities that weaken long-term scheme resilience. In that context, the forthcoming guidance from the Pensions Regulator will be pivotal. Can the Minister confirm when that guidance will be published, whether it will be subject to consultation and how Parliament will be able to scrutinise the balance it strikes between prudence, flexibility and long-term security?
Much of today’s debate has also rightly returned to auto-enrolment. The question of paucity of pensions adequacy has been highlighted by the noble Lords, Lord Sharkey and Lord Davies of Brixton, and my noble friend Lady Penn. Introduced by a Conservative Government, auto-enrolment has been one of the quiet successes of the past decade. I would like to remind the House that the operational aspects of this were progressed and tested going back as far as 2012. Participation among eligible employees now stands at around 88%. I would argue that this is a remarkable achievement. But success should not breed complacency, because upwards of 8.5 million people remain undersavers, and the question of adequacy remains unresolved. There is still work to be done, as the noble Baroness, Lady Bennett, said.
Crucially, auto-enrolment is highly sensitive to labour market conditions. Every percentage point increase in unemployment pushes more people out of workplace pension saving altogether. Against that backdrop, the recent “benefits Budget” is concerning. Unemployment is rising and, with it, the number of people falling out of pension saving. I therefore ask the Minister whether the Government have undertaken updated modelling on the impact of higher employment on future pension adequacy, whether those projections differ from earlier assumptions and whether they will be published so that Parliament can properly understand the long-term consequences of the Government’s policy choices.
As many noble Lords have noted, pension engagement remains the missing leg of the stool. Millions are saving, but fewer than half have checked the value of their pension in the past year. This is not simply apathy; it reflects a system that has become increasingly complex and opaque to ordinary savers. The pensions dashboard, which has been mentioned this afternoon, is therefore not a technical adjunct. It is central to enabling informed decision-making, and various questions have been raised about that. Can the Minister confirm when the revised staging timeline will be published, whether clear delivery milestones will be set out and how Parliament will be able to track progress so that savers can have confidence that this long-delayed reform will finally be realised?
Engagement, however, is also constrained by the current regulatory environment. In consultation with industry, we heard compelling evidence that FCA and the TPR regulation makes genuine member education extraordinarily difficult to design. The boundary between advice and marketing has become so blurred that most communications fall into a grey area, leaving schemes with very few compliant touch points for meaningful engagement. If we are serious about improving outcomes, the Government must enable better education and clearer communication. Perhaps the Minister could comment on this and what work is under way to review these constraints and how the Bill supports rather than frustrates the goal of informing saving.
I turn to salary sacrifice, because this decision strikes at the heart of pensions adequacy, individual engagement and, ultimately, trust in the system itself. The recent disappointing Budget has taken a sledgehammer to a mechanism that has for many years made pension saving both affordable for workers and sustainable for employers. For millions of people saving at or near the minimum auto-enrolment rate, salary sacrifice is not a perk but the difference between saving and not saving at all. Removing this relief will mean lower take-home pay, lower pension contributions and, over time, materially smaller pension pots. This is a short-sighted political choice—one that appears designed to plug immediate fiscal pressures while storing up greater dependency on the state in retirement.
The impact on employers is equally concerning. By reimposing employer national insurance on previously sacrificed earnings, the Government are increasing the cost of labour at precisely the wrong moment. For many medium-sized firms, this will translate into tens of thousands of pounds in additional annual costs—money that could otherwise have supported wages, investment or workforce expansion. The decision to charge both employer and employee national insurance on salary-sacrifice contributions above £2,000 introduces a sharp and, I believe, irrational cliff edge. The OBR estimates that 76% of the burden will fall on employees. Once again, private sector workers bear the cost, while public sector employees in defined benefit schemes remain largely insulated.
The figures are stark. An employee earning £45,000 and saving 5% through salary sacrifice will be £58 worse off in the first year and more than £15,000 worse off over the course of a working lifetime. In the light of this, can the Minister confirm whether the Government have undertaken a sector-by-sector distributional analysis of these changes, whether they will publish an assessment of the long-term impact on pension adequacy and future welfare expenditure and whether she accepts that this measure operates in effect as a tax on work and on responsible long-term saving?
Some noble Lords have rightly raised the broader macroeconomic implications of pension reform. UK pension funds and insurers together hold around 30% of the gilt market—this point was made earlier. If mature defined benefit schemes are nudged away from gilts into equities, the consequences for debt management, interest rates and mortgage markets could be profound. It would therefore be reassuring to hear from the Minister whether the Debt Management Office and the Bank of England have been consulted on these potential effects and whether their views will be made available to Parliament.
I realise that time is marching on. I hope the Government will reflect carefully on all the concerns raised across your Lordships’ House today and respond with the assurances that savers and schemes alike are entitled to expect—we owe them nothing less. However, in the spirit of Christmas, and as this is the season of good will—I am feeling more Christmassy now than I did before the Question this afternoon—I say to the Minister that, despite everything I have said, and in a rare outbreak of festive generosity, there are parts of the Bill that we agree with, such as the PPF changes and the terminal illness time extension. As others have said, we will work constructively with the Government in the weeks and months ahead. I look forward to the Minister’s response and wish Peers and staff in the House a very happy Christmas.
Baroness Sherlock (Lab)
My Lords, I am grateful for the incredible range of thoughtful and constructive contributions we have heard during today’s debate. I should declare that I am a member of the parliamentary pension scheme; otherwise, I have a private pension.
I am so grateful to have heard the maiden speech of the noble Baroness, Lady White. I realise we have quite a bit in common: we are children of migrants, I too have spatial dyspraxia—I have never yet found my way around here—and we both engage with a church. I am afraid that there it ends; no one will ever ask me to chair John Lewis, which may be just as well for anybody who likes shopping there. She may have had an eclectic career but, now that she has joined this House, it will get a lot more eclectic still. It is a joy to have her on board and, if there is more of that to come, I look forward to it.
The range of views around of the House reflects the significance of the Bill for savers, employers and the pensions industry. The level of interest underscores how important pensions are to savers and the UK economy, and we need to help people get the best from their savings. There were some fascinating discussions in the debate today. I could have listened to the noble Lord, Lord Willetts, and my noble friend Lord Wood for a lot longer, and I shall not be able to do justice to what they said. But I shall go back and read it very carefully and I hope that we can continue to have some really interesting conversations.
There were a lot of questions, and I will not be able to respond to all of them. I shall do my very best, but I have only 20 minutes and it may be that noble Lords have to listen back to this at half-speed, if I am not careful.
I will start with adequacy, as that is where the noble Baroness, Lady Stedman-Scott, began. I was grateful to the noble Lord, Lord Willetts, for setting out that this has been very much a cross-party journey that we have been on together, and I hope that we can keep it that way. I am sure that the noble Baroness did not mean to presume that auto-enrolment started with the last Conservative Government, when in fact it was legislated by the previous Labour Government—and there was also the Pensions Commission. I am sure that she did not mean to say that. What we have done is provide some remarkable continuity in the journey, and I hope that we can carry on doing that.
I was delighted by the work done by the last Pensions Commission, on which my noble friend Lady Drake served with such distinction—and I know that she will serve with equal distinction on the next Pensions Commission. That is the place where adequacy will be addressed fully. The Government are committed to that—it is a key priority for us—but it is also important that we get the market into the right shape so that, if savers are saving more, they will get the returns on their money.
I turn to the issue of surplus. I listened very carefully to the noble Baroness, Lady Noakes, and my noble friend Lord Davies, and thought, “I can’t make them both happy on this front”. That is generally true, I think, but it is illustrated particularly on the subject of surplus. I shall say two things. First, to the noble Viscount, Lord Younger, I say that we are very careful about what surplus extraction will do. Schemes are currently enjoying high levels of funding, with three in four in surplus on a low-dependency basis. They are also more mature, with the vast majority having a hedge to minimise the risk of future volatility with investment strategies: they are protected against interest rate and inflation movements. The DB funding code and underpinning legislation introduced in 2024 require trustees to maintain a strong funding position.
The decisions to release surplus are of course subject to trustee discretion and underpinned by strict safeguards, including the requirement for a prudent funding threshold, actuarial certification and member notification. Of course, as part of any agreement to release surplus funds, trustees are in a good position to negotiate, and it will be down to trustees to negotiate with their employers about the way in which surplus is released.
My noble friend Lady Warwick rightly pressed me on the questions of scale. As outlined in the impact assessment for the Bill, there is a range of evidence showing that scale can help deliver better governance, with economies of scale, investment expertise and access to a wider range of assets all helping to improve outcomes. We may not be heading for the sunlit uplands of Aussie megafunds, described by the noble Baroness, Lady White, but we are pushing in that direction. In response to her question, we will ensure that the governance and regulatory requirements needed for these much bigger pension schemes will be robust. We will develop those with the industry going forward.
On the question of whether the scale measures are going to be tougher on smaller schemes, the problem is that our evidence shows, across a range of studies, that scale is what makes the difference. We are asked why there is a magic number of about £25 billion. The evidence from a number of studies shows that a greater number of benefits can arise from a scale of £25 billion to £50 billion of assets under management, including investment expertise and sophistication and the balance sheet to provide a more diverse portfolio to savers. We have not seen sufficient evidence that other approaches will enable the same benefits for savers and the economy, so we do believe that scale is the best way to realise benefits across the market for savers. However, there will be a transition pathway to enable those schemes that are not there now to have a route to scale where they have a credible plan to achieve it in five years, and we will consult the industry on what a credible plan may look like as part of the development of regulations.
A number of noble Lords, including the noble Baronesses, Lady Altmann and Lady Noakes, and the noble Lord, Lord Ashcombe, as well as my noble friend Lord Wood, mentioned the position of new entrants. The potential for future market innovation is really important; we are very conscious that scale requirements could, if not done correctly, prevent this future innovation. So the Government have provided for a new-entrant pathway, designed specifically to provide a route for this future innovation. We will monitor future movement in the market to ensure that the pathway is working as intended. In addition to innovation, these schemes will be required to have the strong potential to grow to scale over time.
I dive in briefly to the reserve power and asset allocation. I am clearly not going to satisfy the House today; we will have plenty of time in Committee to discuss this. But I shall make a few points now about it in general and the interaction with fiduciary duty. Questions were raised by the noble Baronesses, Lady Stedman-Scott, Lady Penn and Lady Noakes, the noble Lords, Lord Sharkey and Lord Vaux, my noble friend Lord Davies, the noble Lords, Lord Bourne of Aberystwyth and Lord Evans—and I am going to stop saying these names now.
There is widespread recognition of the benefits that a diverse investment portfolio can bring for savers. That is exactly why the signatories to the Mansion House Accord are committing to invest in private markets. This reserve power will help to ensure this change happens, but we have built in a number of safeguards. Let me just knock one thing on the head. I say to the noble Lord, Lord Ashcombe, that this asset allocation power does not apply to the LGPS. Following an amendment in the House of Commons, the Bill no longer allows a responsible authority, such as the Secretary of State, to direct asset pool companies to make specific investment decisions. I hope that reassures the noble Lord on that point.
On the wider question, the making of regulations under this power will be subject to a raft of safeguards contained in the Bill. To respond to the noble Viscount, Lord Younger, I say that the Government anticipate that we will not have to use this power if all goes well. Were the Government ever to use it, there are a series of safeguards, and we would have to consult and produce a report. We would at that point look at developing how it would be done. Let me briefly touch on the safeguards: first, the power is time limited, and I say to the noble Baroness, Lady Penn, that it will expire if it has not been used. Any percentage headline asset allocation requirements enforced beyond that date will be capped at their current levels. Secondly, and crucially, the Government are required to establish a savers’ interest test in which pension providers will be granted an exemption from the targets where they can show that meeting them would cause material financial detriment to savers. Finally, the regulations will obviously be subject to parliamentary scrutiny but, before that, the Government will need to consult and publish a report on the impact of any new requirements on savers and economic growth both before exercising any power for the first time and within five years of it being exercised.
I am going to have to rush through. I turn to the points raised by the noble Baronesses, Lady Altmann and Lady Bowles, about qualifying assets and investment trusts. I can see that the noble Baroness, Lady Bowles, feels very strongly about this—I listened carefully to the points that she and the noble Baroness, Lady Altmann, made. I say to the noble Baroness, Lady Bowles, in particular that the Government recognise the role that investment trusts play in the UK economy and in supporting the Government’s growth agenda, and we are committed to supporting this important sector. We put that on the record very clearly. However, when it comes to qualifying assets in a reserve power, we have aimed to stick closely to the scope of the Mansion House Accord, which itself is limited to investments made by unlisted funds. That is consistent with our general approach to this part of the Bill, where we deliberately ensure that the powers are suitably targeted and contain guardrails. In other words, they are not intended to be open-ended but should be capable of serving as a backstop to the commitments that pension providers have voluntarily made.
There were a number of points made by my noble friend Lord Davies about consumer protections. I reassure him that consumer protection is a priority for the Government, and ensuring that there are strong consumer safeguards is something we take very seriously. That is why the Bill introduces a number of robust consumer protections, including in the contractual override process, in small pots and in DB surplus. I look forward to discussing these in more detail with him and others in Committee.
My noble friend Lady Warwick raised the question of VFM. I am grateful to the noble Baroness, Lady Coffey, for welcoming that; my noble friend Lord Davies raised it as well. The noble Viscount, Lord Younger, asked about the interaction in different parts of the scheme. The pensions road map, which I am sure he has had the opportunity to read, shows very clearly how the different measures that we are proposing connect and how they are all necessary. They are all key parts of a machine necessary to achieving the Government’s objective of moving the pensions landscape forward. I can tell him that the next step will be a joint consultation by the FCA and the Pensions Regulator, which will be published early next year. This will then inform our draft regulations on value for money, which we intend to consult on during 2026. We expect the VFM framework to be implemented in 2028, with the first set of VFM metrics published in March 2028. The first VFM assessment reports and ratings will then be published in October 2028. On that basis, we would expect to see poor performing schemes starting to exit the market from November 2028.
On the pre-1927 indexation in the Pension Protection Fund and FAS, I listened very carefully to the comments that have been made by my noble friend Lady Warwick, the noble Lord, Lord Bourne of Aberystwyth—I thank him for his thoughtful reflection—and many other colleagues. We are laying the groundwork for the first major step forward in this area, and I think that some credit should be given to the Government for doing that. However, I understand that this will not go as far as many had hoped.
We need to recognise that the PPF maintains a substantial financial reserve. It is not a surplus; it is a financial reserve to protect against future risks. The cost of retrospection and arrears is significant and would greatly reduce that reserve. Any change that reduces the PPF’s reserves will, by definition, reduce the vital security the PPF provides to its current and future members. The PPF has very successfully navigated the past 20 years. It is well regarded as a prudent fiduciary acting in the best interests of pension savers, and we need to ensure that it can continue to do so.
I am going to disappoint my noble friend Lord Davies on the matter of pre-1997 indexation in wider DB schemes. I need to tell him clearly that the Government have no plans to change the rules on pre-1997 indexation for DB schemes. These rules ensure consistency across all schemes, and changing them would increase liabilities and costs. Over three-quarters of schemes pay some pre-1997 indexation because of scheme rules or as a discretionary benefit, but reforms in the Bill, as we have mentioned, will enable more trustees of well-funded DB pension schemes to share surplus with employers and deliver better outcomes for members, which may include discretionary indexation.
I turn to the questions on fiduciary duty, raised by many noble Lords, including the noble Baronesses, Lady Hayman, Lady Bowles and Lady Penn, the noble Lords, Lord Sharkey and Lord Bourne of Aberystwyth, and my noble friend Lady Warwick. It is often said that fiduciary duty is the cornerstone of trust-based pension schemes and that trustees should invest in the best interests of their members. That principle remains fundamental. The Government believe that the current legal framework gives trustees flexibility to adapt and protect savers’ interests. However, at the same time, we acknowledge the calls for more clarity on considering systemic factors, such as climate risk and members’ living standards, when making investment decisions.
My colleague the Minister for Pensions set out in the Commons that we intend to develop guidance for the trust-based private pension sector to provide this clarification. I know that he plans to come forward shortly with more details on what the guidance will look to cover. He has already confirmed how he intends to start engaging with a wide range of stakeholders in producing the guidance, starting with a series of industry round tables early in the new year.
Through guidance, the Government are trying to address a barrier that some trustees say they face when investing in savers’ best interests. Guidance has the potential to support climate and sustainability goals, and our wider goal to improve saver outcomes and unlock pension investment in UK growth. We are still in the early stages of undertaking consultation and exploring options on this, and we will provide further updates in due course.
The noble Lord, Lord Bourne, and the noble Baroness, Lady Penn, asked why we do not just change the primary legislation. It is the Government’s view that introducing statutory changes to refine investment duties could risk creating rigid and complex obligations, which would reduce the ability of trustees to respond to changing investment landscapes and circumstances. On the questions of how and when, we are exploring possible options for taking this forward if and when parliamentary time allows.
The noble Baronesses, Lady Bowles and Lady Coffey, raised the position of trustees, and others also alluded to it. Successful implementation of the Bill’s reforms will rely on highly skilled trustees operating independently, applying good governance and focusing on delivering the best outcomes for savers. That is why we launched a consultation on stronger trusteeship and governance earlier this week. It aims to bring all schemes up to the required standard and explore what changes might be needed to raise the bar for all trustees. The industry has welcomed the consultation and there seems to be a consensus that high-quality trusteeship and governance is vital to ensuring good outcomes for pension scheme members. I encourage anyone with an interest in this area to respond to the consultation.
A number of other points were raised. The noble Baroness, Lady Coffey, talked about the need for a single regulator. I say simply that the Government recognise the importance of clarity and co-ordination in the regulation of workplace pensions. The FCA and the Pensions Regulator work effectively together, including through joint working groups and consultations. They have shared strategies and guidance, and regular joint engagement with stakeholders. The Government keep the regulatory system under review.
The noble Lord, Lord Ashcombe, made some interesting points. The Government are committed to appropriate regulation, and to do that we need to engage regularly with stakeholders and industry to make sure that we get it right. There are some genuine questions, which we will go on to debate in Committee, about getting the balance right between primary legislation, secondary legislation, regulation, supervision, governance and guidance. We need space to be able to engage with industry, because any regulations we produce have to work and the details of the scheme will have to be worked through. That will inevitably mean that there will be times when the House will want more detail than we are able to give. One of the challenges is that it should not be possible both to criticise the Government while they are trying to make their mind up on everything at the same time in some areas and to criticise them for not being open to consultation. We will see how it goes and continue to consult extensively with industry and other stakeholders as we move through this.
A few more points were raised. The noble Lord, Lord Kirkhope of Harrogate, asked about the Pensions Ombudsman. It is important to clarify that the measure on the Pensions Ombudsman neither increases nor widens their powers, nor that of the TPO, beyond what was originally intended. This is reinstating the original intent of the ombudsman’s powers in pension overpayment dispute cases, which were debated in Parliament when the ombudsman was established in 1991. There was a High Court ruling; we are amending the existing legislation because that ruling stated that the TPO is not a competent court in pensions overpayment cases. The aim is to reinstate the original policy intent and reaffirm the government view and that of the pensions industry. I hope that reassures the noble Lord. It restores the original policy intent—that is all. It is not designed to try to widen it. I hope that is an encouragement to him.
On the question of small pots, the noble Lord, Lord Vaux of Harrowden, and the noble Viscount, Lord Trenchard, queried the pot limit. We had to choose somewhere. The initial pot limit of £1,000 will address 13 million stock of small pots, which we think strikes the right balance between achieving meaningful levels of pot consolidation and reducing administration costs for pension providers without distorting the market. However, the Secretary of State will keep the threshold under review to ensure that it remains appropriate as the market continues to develop following the reforms made in the Bill.
A number of noble Lords asked about the position on pensions dashboards. The Government have committed to regular updates to the House—we will be doing another one of those—but let me put some headlines on the record for now. The House will be glad to know that good progress has been made with the pensions dashboards. The first pension provider successfully completed connection to the pensions dashboards ecosystem on 17 April this year, forming a crucial step towards making dashboards a reality. More than 700 of the largest pension providers and schemes are now connected to the dashboards ecosystem; over 60 million records are now integrated into dashboards, representing around three-quarters of the records in scope.
Further, state pension data is now accessible, representing tens of millions of additional records. The pensions dashboards programme is confident that pension providers and schemes in scope will connect by the regulatory deadline of 31 October 2026. When we have assurances that the service is safe, secure and thoroughly user tested, the Secretary of State will provide the industry with six months’ notice ahead of the launch of the Money Helper pensions dashboard.
A number of noble Lords mentioned the gender pensions gap, including the noble Lord, Lord Vaux, and the noble Baroness, Lady Bennett. Auto-enrolment has delivered substantial progress in increasing pension participation among women, which has meant, as the noble Baroness said, that workplace pension participation rates between eligible men and women in the private sector have now equalised. However, it is absolutely right that gaps remain in pension participation and wealth, reflecting wider structural inequalities in the labour market. A gender pay gap leads to a gender pensions gap. Women now approaching retirement still have, on average, half the private pension wealth of men. The Pensions Commission will consider further steps to improve pension outcomes for all, especially women and groups identified as being at greater risk of undersaving for retirement.
That is probably about as far as I can go. I am really grateful to be part of a House with so much interest and knowledge in a subject that not everybody—noble Lords will be shocked to hear—finds as interesting as those of us here today do. However, we do, and I look forward to lots of really interesting discussions in Committee. This Bill marks a decisive step in modernising the pensions system, strengthening security for members, driving better value and enabling innovation across the sector. It combines ambition with safeguards, ensuring schemes can deliver improved outcomes while maintaining confidence and trust. I look forward to working with noble Lords—after they have had a very happy Christmas—and to continuing constructive engagement. I commend the Bill to the House.
Baroness Penn (Con)
The Minister has made a valiant attempt to answer all questions. Can she commit to writing to the noble Lords in this debate on the questions she did not reach, and to that letter reaching us before we start Committee?
Baroness Sherlock (Lab)
This is the last sitting day before we finish. I will look at what I can put in writing before we get to Committee. I have never been asked so many questions in such a short period—and I have talked to church youth groups. I will see what we can do on that front.
Baroness Sherlock
That the bill be committed to a Grand Committee, and that it be an instruction to the Grand Committee that they consider the bill in the following order:
Clauses 1 to 118, the Schedule, Clauses 119 to 123, Title.
Lord in Waiting/Government Whip (Lord Katz) (Lab)
My Lords, I beg to move that the House do now adjourn and, in doing so, wish everyone in the House, and all those working in the House, chag sameach, a very happy Christmas, a restful break and a happy new year.