Pension Schemes Bill (Fifth sitting)
Tuesday 9th September 2025
(2 days, 12 hours ago)
Public Bill CommitteesPension Schemes Bill 2024-26 View all Pension Schemes Bill 2024-26 Debates 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 (Sixth sitting)
Tuesday 9th September 2025
(2 days, 12 hours ago)
Public Bill CommitteesPension Schemes Bill 2024-26 View all Pension Schemes Bill 2024-26 Debates 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: 3 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 2 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 10 / Noes: 3 - Question accordingly agreed to.
The Chair
I remind the Committee that with this we are discussing 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.
Question put, That the amendment be made.
The Parliamentary Under-Secretary of State for Work and Pensions (Torsten Bell)
I beg to move amendment 92, in clause 38, page 41, line 8, leave out “of the totality”.
This amendment is consequential on Amendment 94.
The Chair
With this it will be convenient to discuss Government amendments 93 to 96 and 133.
Torsten Bell
It is wonderful to have you in the Chair, Ms Butler. Amendments 92 to 96 are minor amendments that clarify that any asset allocation percentage requirements should be calculated as a percentage of default funds, rather than as a percentage of the total assets of a scheme. That is how the Mansion House accord works and how these powers are intended to operate.
Amendment 133 simply ensures that the Government can remove redundant provisions from primary legislation should the sunset provisions—which as a result of Government amendment 228 will now appear in clause 101—cause the power we have been discussing to expire. I commend the amendments to the Committee.
Amendment 92 agreed to.
Amendments made: 93, in clause 38, page 41, line 9, after “in” insert “default”.
This amendment confines the application of the asset allocation requirement to default funds of a relevant Master Trust or a group personal pension scheme.
Amendment 94, in clause 38, page 41, leave out lines 10 to 14 and insert—
“(2) Regulations under subsection (1) may prescribe a percentage by reference to—
(a) all of the assets of the scheme that are held in default funds, or
(b) a prescribed description of the assets of the scheme that are so held.”.
This amendment clarifies that a percentage may be prescribed under section 28C(1) in respect of either all the default funds of a scheme or a particular subset of those default funds.
Amendment 95, in clause 38, page 41, line 15, leave out “or (2)”.
This amendment is consequential on Amendment 94.
Amendment 96, in clause 38, page 41, line 18, leave out from “description” to end of line 19.—(Torsten Bell.)
This amendment is consequential on Amendment 93.
Amendment proposed: 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.”—(Mark Garnier.)
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.
Question put, That the amendment be made.
Torsten Bell
I beg to move amendment 98, in clause 38, page 42, line 12, leave out “relevant Master Trusts or” and insert—
“the trustees or managers of relevant Master Trusts or the providers of”.
This amendment clarifies that legal obligations fall on the trustees or managers of relevant Master Trusts or on the providers of group personal pension schemes (rather than on the schemes themselves).
The Chair
With this it will be convenient to discuss the following:
Government amendments 99 to 105.
New clause 32—Impact Assessment for defined benefit schemes’ asset allocation changes—
“(1) Before implementing any regulatory or policy change for defined benefit schemes’ asset allocation, the Secretary of State must assess the impact of such a change on schemes’ asset allocations.
(2) To determine the impact of a change outlined in subsection (1), the Secretary of State must consult with—
(i) the Debt Management Office,
(ii) industry stakeholders, and
(iii) such individuals or organisations as they deem appropriate.
(3) If the assessment under subsection (1) determines that a change could result in schemes shifting away from owning gilts to equities, the Secretary of State must publish an impact assessment before the implementation of the change.”.
This new clause requires an impact assessment for defined benefit schemes’ asset allocation changes.
Torsten Bell
I will start with the Government amendments and then turn to new clause 32. The amendments relate to proposed new section 28C and specify more detail about the role of the regulator in over- seeing the granting and withdrawal of approvals under this section, including a penalty-making power where a provider does not comply with the relevant requirements, and a clarification to ensure that subsection (14) on the interaction of these provisions with scheme documentation operates as intended.
New clause 32 would require the Secretary of State to conduct an impact assessment—and I appreciate, as I am sure the Opposition will come to shortly, that it is an impact assessment for a particular purpose—before implementing any regulatory or policy change for defined-benefit schemes’ asset allocation. First, let me reassure the hon. Member for Wyre Forest that the Government have no plans to make such changes to defined-benefit schemes’ asset allocation. I reiterate that the reserved powers contained in the clause only relate to defined-contribution workplace schemes. There are no plans to change defined-benefit asset allocations through the Bill. Therefore, the new clause is not considered necessary, and I encourage the hon. Member not to press it. I am sure he will want to make some wider points about the changes in asset allocation within defined-benefit schemes, and their impact on the wider economy.
Mark Garnier (Wyre Forest) (Con)
I rise to speak to new clause 32, which looks at the effects of some of the changes on the UK gilt market. Defined-benefit pension schemes are major holders of UK Government bonds, with pension funds holding around 28% of the gilt market —the UK Government bond market—as of early 2022. Those investments provide stable, long-term funding for the UK Government and are essential to the functioning of the debt market.
Significant shift by DB schemes away from gilts and into equities—which, in itself, is not a bad thing, as long as it does not happen in a disorganised way, which could be prompted by policy changes—may reduce the demand for gilts, potentially increasing yields and destabilising the market. At the end of the day, if 28% of the ownership of the gilt market is taken away, somebody else needs to be found to buy it. Otherwise, there will be a falling market. We all know what a gilt crisis looks like for pension funds. The 2022 gilt crisis highlighted the market’s vulnerability to large and sudden sales by pension funds, which triggered a fire-sale spiral and required Bank of England intervention to stabilise prices. It was not a good day. The Debt Management Office and market experts have noted that the gilt market is highly reliant on pension fund investment, and any structural reduction in demand could impact Government borrowing costs and market stability.
The Office for Budget Responsibility has highlighted concern about the impact of a low gilt allocation scenario, which is likely if the Bill achieves the outcomes that the Government want. A low gilt allocation scenario would mean that pension sector allocation of gilt holdings would drop to 10% of GDP by around 2040, down from around 30% today. That in itself, all other things being equal, would result in an extra £22 billion of debt interest payments on the current gilt market. We are highly concerned that a wholesale move from the gilt market by the pension industry places even more burden on the Treasury to manage debt payment. As the deficit continues to grow, the Government must have laser focus on the impact on the gilt market in relation to how they fund Government debt.
The new clause introduces a requirement for an impact assessment before any regulatory or policy changes that could materially alter DB schemes’ asset allocations away from gilt. It should mandate consultation with the Debt Management Office and industry stakeholders to monitor and mitigate risk to market stability. We are not trying to stop the Government persuading pension funds into equities or other alternative investments, but we need a proper conversation with the Debt Management Office about what that means for the cost of Government borrowing, which could potentially be significant.
Torsten Bell
I will not speak for long. The hon. Member is absolutely right to say that defined-benefit schemes have been material buyers of gilts over a long period. The market is perhaps deeper and more robust than what some of his remarks might imply. There is a range of participants in our gilt markets. However, I take the point that pension schemes are one of them. Contributions such as those from the Office for Budget Responsibility are valuable in that debate, and I reassure him on two fronts. First, I know that he did not mean it quite like this, but the deficit is not growing this year; in fact, it is falling by around 1% of GDP, marking us out from some other countries. Secondly, he is absolutely right to say that the DMO should and does engage with market participants across a wide range of matters. However, on that basis, and on the basis that the Bill does not envisage changes in DB schemes’ asset allocations, I ask him to withdraw the new clause.
Amendment 98 agreed to.
Sarah Edwards (Tamworth) (Lab)
I beg to move amendment 276, to clause 38, page 42, line 41, at end insert—
“(aa) the progress towards the targets set out in the Mansion House Agreement (2025) and the state of the supply pipeline of qualifying assets;”.
To clarify the extent of the review to be conducted before the “mandation” power is deployed.
It is an honour to serve under your chairship, Mr Turner. It may be that the subject of my amendment is already covered or that the Minister may wish to take it away for consideration. I commend the tracked changes document that was shared with us and that has enabled us to read clause 38 with all of its new additions in a much easier format. I implore the House to use that tool in other Committees, because it has made it much easier this afternoon.
The all-party parliamentary group for pensions and growth heard from the pensions industry at the roundtables that it held, and this amendment speaks to a point that I made on Second Reading. It is a clarifying point concerning the Mansion House agreement, which sets out targets and a supply and pipeline of investments to be made available by pension funds to invest into. It is a point of clarification because it is arguably good and noble to channel that investment, but the pipeline needs to be managed to ensure good outcomes for members, whose money will be helping to build these projects. It is about future-proofing the Bill, because as the Minister has said in previous sittings, he may not be our Pensions Minister forever.
In short, the purpose of my amendment is to clarify the extent of the review to be conducted before a mandation power is deployed. It is merely a clarification point for the pensions industry.
Kirsty Blackman (Aberdeen North) (SNP)
I rise to support amendment 276. It is similar to some of the points that I brought up earlier, which were also brought up in the oral evidence session, about the consistency and existence of that pipeline and the fact that it needs to be there. Reviewing in advance of a decision being made on mandation would be the sensible thing.
I mentioned earlier the issue with chickens and eggs—which comes first?—and I think the amendment brings more of a focus in primary legislation on ensuring that the pipeline exists in order that these companies and organisations can meet their commitments under the Mansion House agreement. It is all well and good for them to have the Mansion House agreement, but if the opportunities are not there and are not investment-ready, it will be difficult for them to meet those targets. This is a sensible amendment, and I am more than happy to support it.
Torsten Bell
Before I come to the detail of the amendment, I should re-emphasise the point made by my hon. Friend the Member for Tamworth about the volume of amendments to clause 38 in particular, which is why I asked for the amended clause with track changes to be circulated to the whole Committee. I hope that Members have found that useful.
Turning to the amendment, I have a lot of sympathy for what my hon. Friend is trying to achieve. It is important that we monitor progress on the Mansion House commitments and continue to stay focused on the strength of the pipeline. There are parts of the Bill that would already facilitate that, including data collection that is consistent with monitoring the Mansion House progress, and the strength of the pipeline, which was obviously relevant to consideration of the saver’s interest test, and thus left in the Bill. I suggest that, given our sympathy with the idea of this amendment but its interactions with several other existing parts of the Bill, we commit to reviewing it with a view to deciding whether we should come back with something similar on Report, if the hon. Lady is content with that.
Sarah Edwards
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: 105, in clause 38, page 43, line 7, at end insert—
“(and for that purpose, a provision of the trust deed or rules of the scheme is ‘in conflict’ with provision under this section so far as the former does not allow for the assets of the scheme to be managed in such a way as to meet the conditions for approval under this section)”.
This amendment clarifies the application of section 28C(14).
Amendment 106, in clause 38, page 43, line 8, leave out subsection (15).—(Torsten Bell.)
This amendment is consequential on Amendment 129.
Torsten Bell
I beg to move amendment 107, in clause 38, page 43, line 9, at end insert—
“28CA Information
(1) Regulations may make provision about information that the trustees or managers of a relevant Master Trust or the provider of a group personal pension scheme must give to the Regulatory Authority about the allocation of assets of the relevant Master Trust or group personal pension scheme.
(2) The regulations may make provision about—
(a) the types of information that must be given;
(b) when it must be given;
(c) the form and manner in which it must be given.”
This new section would allow regulations to require the provision of information about asset allocation to the Secretary of State and the Regulatory Authority.
The amendment is supplementary to a provision in the introduced Bill, proposed new section 28C(10)(d), which permits the Government to make regulations about the provision to regulators of information relating to the allocation of assets by the relevant pension providers. The amendment ensures that, in the event that the regulator does not possess crucial information that the Government require in order to design the possible asset allocation framework, or to write the report on saver and growth impacts that they will be legally required to produce, the Government can obtain that information via the regulators.
Kirsty Blackman
I want to ask the Minister why the amendment has been tabled. Have the regulators asked for it so that they can get the information they need, or has the provision been identified by the Government? Basically, what consultation is being done to ensure that the amendment makes sense and is doing what people need it to do?
Torsten Bell
The direct answer is that, yes, the amendment comes from discussions with regulators, to make sure that the flow of information is sufficient to live up to Parliament’s intent and that meaningful reports on the saver and growth impacts can be provided.
Amendment 107 agreed to.
Torsten Bell
I beg to move amendment 108, in clause 38, page 43, line 19, at end insert “, and
(b) has a credible plan in place for meeting the scale requirement within the meaning of section 28A(2)”.
This amendment makes it a condition of approval for transition pathway relief that a Master Trust has a credible plan in place for meeting the scale requirement.
Torsten Bell
This group of amendments deals with the transition pathway relief, which we touched on earlier in the context of support for innovation within the pension landscape.
First, amendments 108 and 109 amend proposed new section 28D so that, to be approved on the transition pathway, a master trust or group personal pension scheme respectively must produce a credible plan for meeting the scale requirements, before the end of the pathway. I should clarify what I said earlier, sorry—this is the transition pathway; we are not talking about the new entrant pathway.
In addition, via amendment 131, we are inserting new subsection (15A) into clause 38, to ensure that the pathway will expire five years after the scale requirements come into force. We accept that in certain circumstances schemes may need more time to reach scale, but we want the end destination—going back to our conversation about scale and certainty that scale will be achieved—to be clear. I commend these minor amendments to the Committee.
Mark Garnier
I thank the Minister for talking through the amendments. We understand the intention behind them, but we are worried that, as can often be the case, there may be an unintended consequence: the creation of a closed shop for master trusts. We do not want suddenly to find that, in trying to make a transition pathway, we end up making things more difficult because it has been interpreted in the wrong way. We are minded to oppose the amendments, but perhaps the Minister could instead give us his thoughts on how we can ensure that they do not get used the wrong way and that we do not end up with a closed shop of master trusts.
Steve Darling (Torbay) (LD)
I echo what the shadow Minister has just highlighted. We all want the reform that the Bill introduces, but we do not want what results from this process to be set up forever, with a lack of opportunity for change; I will talk a little further about that when we come to new clause 3. Some reassurance from the Minister that there is an opportunity for new entrants and innovation would be extremely welcome.
Torsten Bell
I apologise for my slip of the tongue at the start of my speech. This group of amendments deals with transition pathway relief. Here, in many cases we are talking about existing schemes that may not meet the £25 billion threshold, but which have a plausible path to that scale requirement over the following five years—I think that is a point of consensus across the Committee. That is what we are engaging with here. It is a reasonable approach to avoid a cliff edge, for exactly the reason that the shadow Minister set out.
Mark Garnier
I completely understand that. The question is, what is plausible? One man’s plausible might be another man’s impossible. That is the bit that we are worried about: how to ensure that someone is not squeezed out who otherwise could be in it.
Torsten Bell
I completely recognise that. Let me say a few words about how we have tried to balance those tests. We want to see the industry get to scale, and we want clarity about what the end point is, but we want to provide a pragmatic approach to how we get there. Balancing that is what drove us to the five-year approach, which is different from some of the earlier discussions in the pensions investment review about an earlier, harder deadline of 2030.
Within the Bill there is flexibility for regulators where people are just approaching the deadline or in other situations, to avoid difficult situations where people’s authorisation is put into question at short notice. That is important, but so is providing the clarity that they will be required to get to scale. It cannot be a never, never. It needs to be a pathway to a destination; it cannot just be a hope.
I think that we have taken a pragmatic, balanced approach, but I appreciate that others will have their views. There will be those in the industry who will worry that they may not be on track to meet those scale requirements, but that is in the nature of the beast of our saying that the industry needs to change. I appreciate that that will mean some change for some organisations. We have tried to be flexible and to take a pragmatic approach.
Amendment 108 agreed to.
Amendments made: 109, in clause 38, page 43, line 28, at end insert—
“, and
(b) has a credible plan in place for meeting the scale requirement within the meaning of section 28B(2).”
This amendment makes it a condition of approval for transition pathway relief that a group person pension scheme has a credible plan in place for meeting the scale requirement.
Amendment 110, in clause 38, page 43, line 33, leave out “authorisation” and insert “approval”.
This amendment is to ensure that new section 28D of the Pensions Act 2008 refers correctly to an approval under new section 28A or 28B of that Act.
Amendment 111, in clause 38, page 44, line 15, after “20(1A)” insert “or section 26(7C)(c)”.—(Torsten Bell.)
This amendment corrects an omission so that new section 28E of the Pensions Act 2008 works effectively for group personal pension schemes.
Torsten Bell
I beg to move amendment 112, in clause 38, page 44, line 20, at end insert—
“(za) the scheme in question does not yet have any members,”
This amendment ensures that relief under section 28E is only available to schemes that are not yet operational.
The Chair
With this it will be convenient to discuss the following:
Government amendments 113 to 115.
New clause 3—New market entrants: scale and asset allocation—
“(1) In making regulations under Chapter 3, the Secretary of State must have regard to the need to identify and mitigate barriers faced by new market entrants in the defined contribution pensions market.
(2) The Secretary of State must consider how regulations will—
(a) foster a competitive environment that supports innovation among new and existing providers;
(b) ensure fair access to the market for schemes with strong potential for growth and an ability to innovate, including those not yet meeting prescribed scale thresholds.”
This new clause would require the Secretary of State to consider the effect of regulations under Chapter 3 on scale and asset consolidation on new market entrants.
Torsten Bell
These amendments clarify aspects of the approval criteria for prospective new entrants into the multi-employer DC market after the scale requirements come into force. Amendment 112 requires that a new prospective provider must have no current members—it must actually be new to the market. We want to ensure that the route is used only by those for whom it is intended, rather than as a loophole around the main intent of the Bill.
Amendment 113 requires that new entrants have strong potential to grow in order to meet the scale requirements under section 28A, and that the prospective scheme in question has an innovative product design. I think we will come to the question of product shortly, but to skip ahead, the regulations would allow us to talk about innovation in the nature of the service, not just in the product. That is a question for us to take away in the design of those regulations. That is not in the Bill itself, but it is an important clarification.
The remaining amendments in this group are consequential on amendment 113. They will offer greater clarity to potential applicants to this pathway, and I commend them to the Committee.
I thank the hon. Member for Torbay for tabling new clause 3 and acknowledge his wish that the pathway for new entrants into the DC multi-employer market be as supportive as possible for new providers. We of course agree with that sentiment. We want to see fewer, bigger schemes, but not a lack of competition in the longer run, even though we are a long way from that.
From an innovation viewpoint, the new clause is not necessary to achieve that aim. Competition will come from the possibility of innovation, but must also flow into the building of scale, which is the overall intent of the legislation. Given that the spirit of the new clause is achieved by the new entrants pathway, I ask the hon. Gentleman not to press it to a vote.
Steve Darling
It is a pleasure to serve under your chairmanship, Mr Turner.
Will the Minister put a little more flesh on the bone in respect of the ladder of opportunity for new entrants? We need to make sure that we do not end up with a system with large schemes and nobody being able to get into the super-league of opportunity that we have currently. We want to see innovation over time and hoped that, through the new clause, we could bake that into the system. We can have aspirations for how future Ministers deal with these matters, but we must give confidence to the industry in respect of future entrants, so that it continues to be a vibrant industry that drives investment and growth for people’s pensions. That is essential. We would be extremely grateful for some more flesh on the bone.
Kirsty Blackman
I appreciate the Minister’s clarification that I had talked about amendment 113 prematurely, but it was relevant in the context of the previous discussion.
I also appreciate the Minister’s clarification on the definition of “product”. I understand why he wants to make the amendment to tighten the Bill up a wee bit; however, it potentially tightens it up too much. Before Report, will he consider whether the use of the word “product” is right? Does he need to look at including that word in the definitions provided at the end of clause 38—I do not think it is currently included—to cover not only the physical things or offerings to people in terms of the products and investments they could look at, but the niche and specific service provision that might be attractive to people who are looking to invest their pensions because they have specific life conditions, or because their life and work does not fit into a normal box? I appreciate the earlier clarification in respect of the default products, which was incredibly important and helped to clarify my mind, but it would be helpful if the Minister agreed to take away my suggestion.
I can understand why the Liberal Democrats tabled new clause 3. We should consider where we are with the innovation pathway, and the fact that the new entrant pathway exists and the relevant regulations have not yet been created. I assume that the Minister and his team will listen to a huge number of people. Clause 38 says that
“such persons as the Secretary of State considers appropriate”
must be consulted; I hope that will be a wide group of people with significant experience in the industry.
Given that so many of us have mentioned challenger banks and new financial institutions, perhaps the consultation will look at what has been learned in that respect and whether some of the innovative decisions, and the regulations that allowed the provision of innovative products, should be included in the scope of the regulations. I would rather the innovation be quite wide, rather than quite tight, given that the scale thresholds and requirements have to be met anyway.
If somebody has a credible plan to reach that scale, surely pretty much any of the innovative solutions they may be suggesting are good, because they are also providing a credible plan to get that significant level of scale and the efficiencies that come along with that. Potentially the definition of products in the defined terms at the end could be a good vehicle for the Minister to ensure that the scope is as wide as he would like it to be.
John Milne (Horsham) (LD)
To add briefly to the comments of my hon. Friend the Member for Torbay, I emphasise that with new clause 3 we are taking a non-prescriptive approach. It says that
“the Secretary of State must have regard to the need to identify and mitigate barriers faced by new market entrants in the defined contribution pensions market.”
It is a very gentle ask. We are all very aware of the issues today, but will they still be in everybody’s mind in the future?
Torsten Bell
I will come back on the question about the word “product” and definitions. I reassure the Committee that I will go away and make sure that is clear if it is not clear enough already.
The core Liberal Democrat question is, are we baking innovation in? It is a good question for us all to be asking. I think the answer is yes. To broaden the conversation out slightly, we want to see innovation from existing providers as well. We anticipate that there will still be 15 or so large providers in the 2030s. That is still a highly competitive market. Not just looking at costs but also at customer service and all the rest in the value for money regime should be a spur to that innovation. That is a key part of the set of clauses we were discussing last week.
I should explicitly note that the scale tests do not cover the most obvious innovation that is likely to come in the market in the coming years, which is CDC schemes. By their nature, if they are to be successful, they will get to scale anyway, but to make their path easier and to be clear that we do see a role for CDC innovation moving forward, those are not part of these requirements. The innovation pathway exists for exactly this reason, as we have discussed.
Several Members have raised a question about consultation. I confirm that there is a requirement for a public consultation, which should certainly learn lessons that go beyond the experience of the pensions industry to the wider financial services sector—lessons of competition entry. We talked about that in the banking sector earlier, but the same thing would apply, for example, to other parts of the insurance sector and others. We will take that away. We are very conscious at the moment, in our wider approach to regulation, of providing earlier authorisation, where that can be done. I suspect we may come back to that in the superfunds discussion later this week.
Amendment 112 agreed to.
Amendments made: 113, in clause 38, page 44, leave out lines 21 and 22 and insert—
“(a) the scheme in question has strong potential to grow so as to meet the scale requirement under section 28A,
(aa) the scheme in question has an innovative product design, and”.
This amendment ensures that the eligibility conditions for new entrant pathway relief are more precisely articulated.
Amendment 114, in clause 38, page 44, line 34, leave out from “of” to “(including” in line 35 and insert “ “strong potential to grow” and “innovative product design” ”.
This amendment is consequential on Amendment 113.
Amendment 115, in clause 38, page 44, line 36, leave out from “has” to end of line 37 and insert “strong potential to grow or an innovative product design”.
This amendment is consequential on Amendment 113.
Amendment 116, in clause 38, page 45, leave out lines 1 and 2.—(Torsten Bell.)
This amendment is consequential on Amendment 129.
Torsten Bell
I beg to move amendment 117, in clause 38, page 45, line 4, leave out “may” and insert “must”.
This amendment, together with Amendment 118, means that regulations about suspending the requirement for approval under section 28C have to have effect at any time when section 28C has effect as a result of regulations under that section.
Torsten Bell
This is a group of minor amendments, mostly aiming at improving the clarity of proposed new section 28F, for example by removing duplication. I draw Members’ attention to the most significant amendments, which are amendments 117 and 118. They make clear that the Government must introduce the savers’ interest exemption mechanism if they are to introduce asset allocation requirements. That is a “must” rather than a “may” because the Government’s intention is that there must always be a savers’ interest exemption.
Kirsty Blackman
I have a brief comment on Government amendment 117. Because there were so many amendments, it was quite difficult to ensure that the Minister went through all of them with a fine-toothed comb. The explanatory statement for this one does not make any sense to me—it perhaps makes sense to other people. Reading the explanatory statement was deeply unhelpful, and I ended up being more confused than I was before. I appreciate the intention—what the Minister said amendment 117 was for—and the way that he described the rest of the amendments in this group, but I am pointing out for future reference that it would be helpful if we could understand the explanatory statements.
Torsten Bell
Noted.
Amendment 117 agreed to.
Amendments made: 118, in clause 38, page 45, line 9, at end insert—
“(1A) The Secretary of State must make regulations under subsection (1) so that they have effect whenever regulations under section 28C(1) or (2) have effect.”
See the explanatory statement for Amendment 117.
Amendment 119, in clause 38, page 45, line 14, leave out “the scheme or”.
This amendment means the asset allocation requirement can only be suspended where it would cause material financial detriment to the members of a scheme.
Amendment 120, in clause 38, page 45, line 15, leave out from “the scheme” to end of line 17.
This amendment simplifies the description of what may be done by regulations under new section 28F(1).
Amendment 121, in clause 38, page 45, line 17, at end insert—
“(aa) may make provision about the basis on which the Authority may or must form such a view, including about the evidence which the Authority may or must take into account;”.
This amendment clarifies that the regulations can circumscribe the basis on which the FCA or TPR can reach a view on the material financial detriment test in subsection (2)(a).
Amendment 122, in clause 38, page 45, line 23, at end insert—
“(c) must provide for the Authority’s determination on an application to be referred to the Upper Tribunal.”
This amendment ensures that decisions on an application for the suspension of the asset allocation requirement will be referable to the Upper Tribunal.
Amendment 123, in clause 38, page 45, leave out lines 24 to 26.
This amendment is consequential on Amendment 121.
Amendment 124, in clause 38, page 45, line 28, after “as” insert “material”.
This ensures that regulations under subsection (4) can also make provision about what kind of detriment is classed as “material”.
Amendment 125, in clause 38, page 45, line 30, leave out subsection (5).—(Torsten Bell.)
This amendment is consequential on Amendment 129.
Torsten Bell
I beg to move amendment 127, in clause 38, page 45, line 31, at end insert—
“28G Risk notices
(1) The Regulatory Authority (‘the Authority’) may give a risk notice to the trustees or managers of a relevant Master Trust if the Authority considers that—
(a) there is an issue of concern in relation to the relevant Master Trust, and
(b) the relevant Master Trust will, or is likely to, cease to meet the conditions for approval under section 28A or 28C if the issue is not resolved.
(2) A ‘risk notice’ is a notice that requires the trustees or managers of a relevant Master Trust to submit to the Authority a plan (a ‘resolution plan’) setting out proposals for resolving the issue of concern.
(3) A risk notice must—
(a) identify the issue of concern;
(b) specify the date by which the resolution plan is to be submitted.
(4) If the Authority is not satisfied that the proposals in a resolution plan are likely to be adequate to resolve the issue of concern, the Authority may give a further notice to the trustees or managers requiring them to submit a revised plan by a date specified in the notice.
(5) The trustees or managers must implement the proposals in a resolution plan if the Authority—
(a) is satisfied that the proposals are likely to be adequate to resolve the issue of concern, and
(b) notifies the trustees or managers accordingly.
(6) The Authority may direct the trustees or managers to comply with the requirement imposed by subsection (5).
(7) Where the trustees or managers are required by subsection (5) to implement the proposals in a resolution plan, they must—
(a) submit to the Authority, before the end of a period specified in regulations, a report setting out what progress they are making in implementing the proposals (a ‘progress report’);
(b) submit further progress reports to the Authority at intervals specified by the Authority.
(8) Resolution plans and progress reports must be provided in the manner and form specified by the Authority.
(9) A reference to a resolution plan in subsections (4) to (8) includes a reference to a resolution plan as revised under subsection (4).
(10) Regulations may—
(a) specify information that a risk notice must contain;
(b) provide that the date referred to in subsection (3)(b) or (4) must fall before the end of a period specified in the regulations.
(11) Section 10 of the Pensions Act 1995 (civil penalties) applies to a trustee or manager of a relevant Master Trust who fails to comply with—
(a) a notice under subsection (1) or (4),
(b) a direction under subsection (6), or
(c) a requirement imposed by subsection (7).”
This amendment allows the Regulatory Authority to issue risk notices to the trustees or managers of a relevant Master Trust or the provider of a group personal pension scheme if there were an issue in relation to the scheme relating to the quality requirement.
Torsten Bell
These amendments relate to compliance and enforcement. Government amendment 127 allows the Pensions Regulator to issue risk notices to the trustees or managers of a relevant master trust or the provider of a group personal pension scheme if there were an issue in relation to the scheme relating to the quality requirement. This will require the relevant master trust to develop a resolution plan to address the regulator’s concerns. The regulator may then direct the relevant master trust to implement the measures in that plan.
Amendment 128 allows regulations to make provision for the imposition of penalties where a relevant master trust or GPP scheme accepts contributions from an employer when it should not. It will allow the regulator to issue penalties of up to £100,000 in relation to each employer from which contributions continue to be accepted. It will also give the provider the right of appeal against the penalty.
Amendment 126 enables the FCA to monitor and enforce compliance of any FCA-regulated person in scope of chapter 3 of part 2 of the Bill. It also provides that the Treasury may make regulations to enable the FCA to take action for monitoring and enforcing compliance of any FCA-regulated person with any provision under chapter 3. I commend the amendments to the Committee.
Kirsty Blackman
It looks like these amendments came up because of conversations with the regulator, which is looking to ensure that it can use the powers that the Bill intends to create. This is not the first time we have had amendments that have been suggested by the regulator. I would appreciate it if the Minister could go away, and, perhaps when he is making regulations or bringing forward future legislation on pensions, ensure that he has more in-depth chats with the regulator in advance, so the original legislation can be drafted in a way that will work for the regulator, rather than having to be amended after Second Reading.
Torsten Bell
Point noted.
Amendment 127 agreed to.
Amendments made: 128, in clause 38, page 45, line 31, at end insert—
“28H Penalties
(1) Regulations may make provision about the imposition by the Regulatory Authority of a penalty on the trustees or managers of a relevant Master Trust or the provider of a group personal pension scheme where the scheme—
(a) fails to meet the condition in section 20(1A) by virtue of not being approved under section 28A or 28C, and
(b) accepts contributions from an employer in relation to a jobholder on the basis that it is an automatic enrolment scheme in relation to that jobholder.
(2) Regulations may make provision about the imposition by the Regulatory Authority of a penalty on the provider of a group personal pension scheme where the scheme—
(a) fails to meet the condition in section 26(7A) or (7B), and
(b) accepts contributions from an employer in relation to a jobholder on the basis that it is an automatic enrolment scheme in relation to that jobholder.
(3) The regulations must provide—
(a) that a penalty must not exceed £100,000 in relation to each employer from which contributions are accepted as mentioned in subsection (1)(b) or (2)(b), and
(b) that there is a right of appeal against the imposition of the penalty.”
This amendment allows regulations to make provision for the imposition of penalties where a relevant Master Trust or a group personal pension scheme accepts contributions from an employer in relation to a jobholder on the basis that it is an automatic enrolment scheme in relation to that jobholder.
Amendment 126, in clause 38, page 45, line 31, at end insert—
“28I Enforcement by the Financial Conduct Authority
(1) The Treasury may make regulations to enable the Financial Conduct Authority to take action (in addition to any action it may otherwise take under the Financial Services and Markets Act 2000) for monitoring and enforcing compliance of any FCA-regulated person with any provision of or under this Chapter.
(2) The regulations may apply, or make provision corresponding to—
(a) provision made by or under this Part in relation to the Regulator, or
(b) any provision of the Financial Services and Markets Act 2000,
with or without modification.
(3) In this section, ‘FCA-regulated person’ means an authorised person (within the meaning of the Financial Services and Markets Act 2000).”
This amendment allows monitoring and enforcement functions to be conferred on the FCA in relation to the compliance of FCA-regulated persons with provisions of or under Chapter 1 of the Pensions Act 2008, including the new provisions on scale and asset allocation.
Amendment 129, in clause 38, page 46, line 9, leave out subsection (14) and insert—
“(14) In section 99 (interpretation of Part)—
(a) the existing words become subsection (1);
(b) in that subsection, at the appropriate places insert—
‘“group personal pension scheme” means a personal pension scheme which is available, or intended to be available, to employees of the same employer or of employers within a group, but does not include—
(a) a stakeholder pension scheme (as defined in section 1 of the Welfare Reform and Pensions Act 1999), or
(b) any pension scheme that requires all its members to make a choice as to how their contributions are invested;’;
‘“Regulatory Authority” has the meaning given by regulations under subsection (2);’;
‘“relevant Master Trust” has the meaning given by section 20(4);’;
(c) after that subsection insert—
‘(2) The Secretary of State may by regulations define “Regulatory Authority” for the purposes of this Part.’”
This amendment consolidates certain interpretative provisions. It also amends the definition of “group personal pension scheme” so that only schemes where all members select their investment approach are excluded.
Amendment 130, in clause 38, page 46, line 19, leave out “26(7A), 28E” and insert—
“26(7A), (7B), (7C) or (7E),”.
This amendment, together with Amendment 132, ensures that regulations relating to the new scale and asset requirements are subject to affirmative parliamentary procedure.
Amendment 131, in clause 38, page 46, line 20, at end insert—
“(15A) The following provisions of the Pensions Act 2008 (which relate to transition pathway relief) are repealed at the end of the period of 5 years beginning with the day on which they come into force—
(a) paragraph (c) of Condition 1 in section 20(1A);
(b) section 26(7C)(b);
(c) section 28D;
(d) the word ‘28D’ in section 143(5)(a).”
This amendment provides for transition pathway relief to cease to be available 5 years after the commencement of the scale requirement.
Amendment 132, in clause 38, page 46, line 20, leave out “28C,” and insert—
“28C (other than subsection (10)(d))), 28D, 28E, 28F, 28H, 28I,”.
See the explanatory statement for Amendment 130.
Amendment 133, in clause 38, page 46, line 21, leave out subsection (16) and insert—
“(16) If this section is repealed under section 101(5A) (repeal where asset allocation requirement uncommenced) in respect of the insertion of the provisions mentioned in that subsection, the Secretary of State may by regulations amend this section in consequence of that repeal.
(17) Regulations under subsection (16) are subject to the negative procedure.”—(Torsten Bell.)
This amendment is related to Amendment 228. It allows for regulations to be made tidying up the various references to the asset allocation requirement in clause 38 in the event that the power to commence that requirement is never exercised.
Question put, That the clause, as amended, stand part of the Bill.
Torsten Bell
I beg to move amendment 134 in clause 39, page 46, line 36, after “2008” insert—
“in relation to the scale requirement in section 28B or the asset allocation requirement in section 28C,”
This amendment, together with Amendment 135, ensures that provisions in or under the Pensions Act 2008 are added to section 204A of the Financial Services and Markets Act 2000 (meaning of “relevant requirement” and “appropriate regulatory”) only so far as they relate to the scale requirement or the asset allocation requirement.
The Chair
With this it will be convenient to discuss the following:
Government amendments 135 to 137.
Clause stand part.
Clause 40 stand part.
Torsten Bell
As amended, the clause introduces consequential amendments relating to clause 38 to ensure that the changes needed for the asset allocation and scale measures appropriately wire into existing legislation. The clause does this by making amendments to the Financial Services and Markets Act 2000 and the Pension Schemes Act 2017. The clause makes an insertion into section 1A and an amendment to section 204A of the 2000 Act. It ensures that the FCA’s statutory functions are extended, which would include its new enforcement functions for clause 38 in relation to scale and asset allocation.
The second part of the clause adds new authorisation criteria for master trusts into the 2017 Act. These new criteria will require trustees of a master trust to satisfy the Pensions Regulator that they have a sufficient investment capability and continue to have a main scale default arrangement. Introducing these criteria will enable implementation of the Government’s policy objective, set out in the final report of the pension investment review, to ensure schemes utilise the benefits of scale to deliver better investment outcomes.
The clause sets out factors that the Pensions Regulator will be required to consider in deciding that the master trust authorisation criteria are met and enables further detail to be set out in regulations. The effect of these additions to the authorisation regime are essential as they help to drive capability within master trusts. I commend clause 39 to the Committee.
Government amendments 134 and 135 ensure that the necessary extension of the FCA’s authorisation functions under FSMA encompass only its new role in overseeing the scale and asset allocation requirements and does not extend to other non-relevant requirements in the Pensions Act 2008. It has a constraining effect.
Government amendment 136 makes it clear that the addition to section 5 in part 1 of the Pension Schemes Act 2017 regarding decisions on application is about the scheme meeting the scale requirements under condition 1 of section 20(1)(a) of the Pensions Act 2008. Government amendment 137 gives the Secretary of State the ability to set out the meaning of terms in specific areas. I urge Members to support Government amendments 134 to 137.
Clause 40 deals with the application of scale and asset allocation measures to Crown schemes. The substantive provisions in chapter 3 take the form of amendments to the Pensions Act 2008, the Pension Schemes Act 2017 and the Financial Services and Markets Act 2000. These Acts already deal with application to the Crown in their own way, and it is not the intent of the Government to disrupt or confuse these settled positions. Accordingly, after consideration, we seek to delete this clause. To be clear, I do not commend the clause to the Committee.
Amendment 134 agreed to.
Amendments made: 135, in clause 39, page 46, line 38, after “2008” insert
“in relation to the scale requirement in section 28B or the asset allocation requirement in section 28C,”
See the explanatory statement for Amendment 134.
Amendment 136, in clause 39, page 47, line 10, leave out “quality” and insert “scale”
This amendment changes a parenthetical description so that it is clearer.
Amendment 137, in clause 39, page 47, line 27, leave out from “(2)” to end of line 32 and insert—
“(4) The Secretary of State may by regulations—
(a) make provision about the meaning of terms used in subsection (2);
(b) specify further factors that the Pensions Regulator must take into account in deciding whether it is satisfied about the matters mentioned in subsection (1).
(5) The first regulations that are made under this section are subject to affirmative resolution procedure.
(6) Any other regulations under this section are subject to negative resolution procedure.”— (Torsten Bell.)
This amendment expands the power currently in the new section 12A(3) of the Pension Schemes Act 2017, created by clause 39(11) of the Bill, so as to allow the Secretary of State to make provision about the meaning of terms in new section 12A(2) of the Pension Schemes Act 2017.
Torsten Bell
I beg to move amendment 138, in clause 39, page 47, line 32, at end insert—
“12B Scale requirement
(1) The Secretary of State may by regulations make provision about how the Pensions Regulator is to decide whether it is satisfied that a Master Trust scheme that has its main administration in the United Kingdom meets Condition 1 in section 20(1A) (scale requirement) of the Pensions Act 2008.
(2) The regulations may, among other things, specify matters which the Pensions Regulator must take into account in making its assessment.
(3) The first regulations under this section are subject to affirmative resolution procedure.
(4) Any subsequent regulations under this section are subject to negative resolution procedure.”
This amendment inserts in the Pension Schemes Act 2017 a power to make regulations about how the Pensions Regulator is to decide whether a Master Trust meets the scale requirement.
It is with some relief that I reassure Members this is the last amendment to this section of the Bill. Government amendment 138 amends one of the new authorisation criteria for master trusts that the Bill inserts into the Pension Schemes Act 2017, which provides that a master trust scheme must meet the scale requirement. It grants the Government the power to make regulations about how the pensions regulator should satisfy itself that a master trust scheme has met the scale requirements. I commend the amendment to the Committee.
Amendment 138 agreed to.
Clause 39, as amended, ordered to stand part of the Bill.
Clause 40 disagreed to.
Clause 41
FCA-regulated pension schemes: contractual override
Torsten Bell
I beg to move amendment 140, in clause 41, page 48, line 22, after “2008” insert “or section 3(2), 5(2) or 7(3) of the Pensions (2) Act (Northern Ireland) 2008 (c. 13 (N.I.))”
This amendment extends the application of the contractual override measure to Northern Ireland pension schemes.
The Chair
With this it will be convenient to discuss the following:
Government amendments 141 to 146.
Clause stand part.
Torsten Bell
We now come to the contractual override part of the Bill. This group of amendments expands the scope of clause 41 to apply to Northern Ireland pension schemes. Just like in Great Britain, many pension scheme members in Northern Ireland will be in arrangements delivering poor value and outcomes. However, due to a lack of engagement from members, there is often little providers can do to address that. Extending these changes to Northern Ireland will help to solve that. These amendments will create better outcomes for pension scheme members in Northern Ireland, and I therefore ask the Committee to support these amendments.
Amendments 143 and 144 add another layer of consumer protection to the already rigorous consumer protections we have included in the Bill. Currently a provider is required to receive certification from an independent person with sufficient expertise that the best interest test has been met. To clarify, that test requires the provider that wishes to use the contract override to carry out an assessment that it is in the interests of scheme members that the override take place. That test then has to be certified by an independent person. This is about strengthening that independent person test. The amendments require the Treasury to make regulations defining “independence” by specifying requirements which must be met by an independent person before they can be appointed, and ensure that the independent person has no conflict of interest. The FCA is then required to include the provisions made by these regulations in its rules. The amendments make an important change to the Bill by ensuring there will be clear rules on who can undertake this important role, and I therefore commend them to the Committee.
Clause 41 inserts proposed new part 7A, on what we call the contractual override mechanism—referred to as a unilateral change—into the Financial Services and Markets Act 2000. This will enable providers of FCA-regulated, defined-contribution workplace pension schemes —note we are talking about FCA-regulated, defined-contribution workplace schemes only—to override the terms of a pension scheme without the consent of members and either transfer members to a different pension scheme, make a change that would otherwise require consent, or vary the terms of members’ contracts, but only when certain clear conditions, including most importantly the best interest test, are met. This will establish broad equivalence with the trust based market, where these changes are already available, so trustees already have these powers within the trust-based market. It will also create better outcomes for consumers, deliver on a long-awaited industry ask, and help drive scale and consolidation within the sector, achieving the consolidation we talked about in relation to the previous clause. It is an important enabler of those changes.
The clause also amends sections 105, 168 and 429 of FSMA to ensure that the contractual override mechanism can work as intended, and to ensure that the appropriate parliamentary procedures apply to regulations that are made under this part, and that amend or repeal primary legislation. I commend the clause to the Committee.
Amendment 140 agreed to.
Amendments made: 141, in clause 41, page 48, line 24, leave out from “member”” to end of line 25 and insert
“means an active member within the meaning of Part 1 of the Pensions Act 2008 (see section 99 of that Act) or Part 1 of the Pensions (2) Act (Northern Ireland) 2008 (c. 13 (N.I.)) (see section 78 of that Act).”
This amendment is consequential on Amendment 140.
Amendment 142, in clause 41, page 48, line 33, leave out from “arrangements”” to end of line 34 and insert
“means direct payment arrangements within the meaning of section 111A of the Pension Schemes Act 1993 or section 107A of the Pension Schemes (Northern Ireland) Act 1993.”— (Torsten Bell.)
This amendment is consequential on Amendment 140.
Sarah Edwards
I beg to move amendment 278, in clause 41, page 49, line 26, at end insert
“and only after VFM assessments are available to the Trustees as part of the decision making process.”
This amendment would restrict external transfers until VFM assessments are available to ensure that Trustees can carry out their fiduciary duty.
The amendment relates to contractual override. It may have been covered in the new drafting of the clauses, as it was tabled on the previous text. The Minister may have seen this potential eventuality, and it may be provided for elsewhere, but we have spoken at length in Committee about the importance of pensions adequacy and about the landscape moving towards a higher membership of defined-contribution schemes.
The amendment is an attempt to bridge the gap presented by the delay between the regulations’ implementation, and to ensure that investments are made not on the basis of low-cost, low-risk funds prior to the regulations being implemented, which potentially would lock down investments. It is another small addition that clarifies the importance of the value for money framework, which the Bill is championing, and it adds to the requirement of consent in the provision by adding focus on ensuring that value for money assessments are available prior to the transfer, as an extra protection for trustees to carry out their fiduciary duty.
Torsten Bell
I thank my hon. Friend. She is right that it is important that we think through how to line up the value for money work with the question we are now turning to on contractual overrides. I will come back to distinguish between the data that comes through the value for money process and the actual formal assessments themselves, which is what is referred to in the amendment. We agree that the value for money data is vital for ensuring consumer protections, and it is why the implementation of the contractual override mechanism is already being timed so that it is in conjunction with the value for money framework. The very keen can read that in the road map we set out in June, which gets into exactly those questions.
To go into a bit more detail—and I appreciate that my hon. Friend already knows this—the data for the value for money assessment will be available ahead of the formal assessments, and it is on that basis that people will be able to go ahead with some forms of contract override—for example, when they are moving members within parts of the individual providers, so they would have all the information that they require.
My hon. Friend raised a specific question about when people are being transferred between schemes. Should that always wait for the full value for money assessments? I will give her another commitment that I will take that away and consider it. There may be some circumstances in which that information is available, and we do not wish to unduly constrain providers, but it is a reasonable point for us to be discussing. As I say, she is right to raise the point about the interaction between the value for money data, including its visibility to other people, and the contractual override. If she is happy to withdraw the amendment, I will consider whether we can provide further clarity on the point on Report.
Sarah Edwards
On that basis, I am happy to beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mark Garnier
I beg to move amendment 257, in clause 41, page 53, line 7, at end insert—
“117GA FCA guidance
(1) The FCA must issue guidance on contractual overrides.
(2) Guidance on contractual overrides must include—
(a) when and how overrides can be used;
(b) how to demonstrate transfers are always in members’ best interests; and
(c) how contractual overrides are independently certified.”
Amendments 255, 256 and 257 ensure that contractual override powers are operational in advance of the first value for money assessments.
The amendment is very similar to amendment 278, which was tabled by the hon. Member for Tamworth. The industry has highlighted to us a concern that the Government’s proposed sequencing will not provide enough time between contractual overrides becoming permissible and VFM assessments being conducted, which will totally undermine the effectiveness of consolidation and value improvement. Pensions UK has encouraged the Government to accelerate that and to bring forward the implementation to allow schemes to make progress on consolidation sooner, so that the override is in place well in advance of the VFM framework.
We drafted amendment 257 with the idea that if transfers took place before the VFM framework was implemented, further guidance from the FCA would be required on how and when overrides could be used. However, we welcome the compromise set out in amendment 278, which would ensure that external transfers do not take place until VFM assessments are available. Frankly, that amendment is better-crafted than ours. If we had done them the other way around, I would have deferred to the advice of the hon. Member for Tamworth on whether she wanted to move the amendment. She was right to withdraw her amendment, and we will withdraw ours, but I urge the Minister to write to us both on the outcome of this matter before Report. It would be useful to have his comments beforehand so that we can challenge him on Report, and possibly move the amendment again—who knows?
Torsten Bell
As the hon. Member has asked so kindly, I assure him that I will write to him and to my hon. Friend the Member for Tamworth ahead of Report.
Mark Garnier
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: 143, in clause 41, page 53, line 8, leave out “Powers to make” and insert “Treasury”.
This amendment is consequential on Amendment 144.
Amendment 144, in clause 41, page 53, line 25, at end insert—
“(1A) The Treasury must by regulations require the FCA to include provision of a description specified in the regulations in general rules made in compliance with section 117E(4)(a) (how to determine whether a person is independent), alongside any other provision included in such general rules.
(1B) Regulations under subsection (1A) must in particular require the FCA to include in such general rules provision designed to ensure that the independent person does not have a conflict of interest.”
This amendment requires the Treasury to make regulations about the requirements that need to be met by an independent person appointed under section 117E.
Amendment 145, in clause 41, page 53, line 38, leave out from “benefits”” to end of line 39 and insert
“means money purchase benefits within the meaning of the Pension Schemes Act 1993 (see section 181(1) of that Act) or the Pension Schemes (Northern Ireland) Act 1993 (see section 176(1) of that Act);”.
This amendment is consequential on Amendment 140.
Amendment 146, in clause 41, page 54, line 3, leave out from “scheme”” to end of line 4 and insert
“means a personal pension scheme within the meaning of the Pension Schemes Act 1993 (see section 1(1) of that Act) or the Pension Schemes (Northern Ireland) Act 1993 (see section 1(1) of that Act);”.—(Torsten Bell.)
This amendment is consequential on Amendment 140.
Clause 41, as amended, ordered to stand part of the Bill.
Clause 42
Default pension benefit solutions
Torsten Bell
I beg to move amendment 147, in clause 42, page 55, line 9, leave out “eligible members” and insert “each eligible member”.
This amendment clarifies that trustees or managers are required to make a default pension benefit solution available to every eligible member of the scheme.
The Chair
With this it will be convenient to discuss the following:
Government amendments 148 to 155.
Clause stand part.
Torsten Bell
We now move from the contractual override provisions of the Bill to the default pension benefit solutions. This is a material change to our pension landscape, as the defined contribution landscape has matured, as I will come to. Again, I am glad that there has generally been cross-party consensus on the issue.
Clause 42 is pivotal in ensuring that members of defined-contribution pension schemes are provided with default options for pension benefit solutions when they want to access their pension assets, thereby reducing the complexity for individuals of securing an income in and through later life. These solutions must be designed to provide a regular income to members during retirement. The clause makes provision for an exemption where that would not be appropriate. We intend to set out in regulations what is meant by
“designed to provide a regular income”
and by “retirement”.
Members will have access to pre-designed benefit solutions that are tailored to meet the needs of the scheme’s membership. The intention is that, normally, individuals need not make a decision about how they would take their pension benefits, except to confirm that they want to start receiving payment. The clause also provides for periodic reviews to be prescribed to ensure that the solutions remain appropriate.
Not only will this measure support our commitment to enhancing the pension system robustness and ensuring that members normally benefit from a later-life income with the necessary communications of governance alongside it, but it will potentially provide the trustees with a level of assurance in relation to the investment strategy, enabling decisions about investment in longer-term assets, which will support the opportunity for investment in productive assets, including in the UK. The Opposition spokesperson, the hon. Member for Wyre Forest, raised that point in another context, but in this part of the DC landscape in particular, this provision means that schemes will not need to move all assets into safer assets as people approach retirement, if they are clear about the product that people will be in during their retirement.
Government amendments 147 to 155 are minor. They provide clarity on what is a default pension benefit solution, who is an eligible member and what is a relevant scheme, and they provide for the negative parliamentary procedure for subsequent regulations relating to when, and in what circumstances, default pension benefit solutions need to be reviewed.
Kirsty Blackman
If you will give me a bit of leeway, Mr Turner, I promise to speak only once on default pension benefit solutions. I might stray slightly outwith clause 42.
I am looking for clarity from the Minister on default pension benefit solutions. We have heard a lot of concern about how communications cannot be made to members, how there are possible issues with advertising and how members are communicated with. Can the Minister confirm that he is taking that concern seriously and has ensured that, under the General Data Protection Regulation and other data protection legislation, schemes can communicate legally with members in order to provide pension benefit solutions without being traced by the Information Commissioner’s Office or marketing regulators? Providers have raised that concern regularly.
I made it clear on Second Reading and in the oral evidence sessions that I think this proposal is a good thing. It is a massive concern that so many people are taking a lump sum without any plan for what that might look like or how the rest of the money will enable them to continue to live their life as they would like. I am really pleased that we are moving towards a better situation. However, we have not asked providers to do this before; it is something new. Providers will have to upskill themselves to make this change, both in their conversations with scheme members and in assessing whether the solutions that they provide are the correct ones.
Pension providers and insurers are used to putting people in boxes and saying, “This is a box of people for whom this solution might work.” However, some providers may not be used to clumping people together like that and providing solutions that will work for as many of them as possible. I do not think that there is a different way to do it. However, I would appreciate reassurance from the Minister that this will be kept under review; that there will be a significant amount of conversation with providers, as well as with scheme members who are receiving advice or a direction to a default scheme; and that regulators will keep an eye on whether the suggested default pension benefit solutions are appropriate for as many people as possible.
Of particular interest to me is the review timescale. What will happen to ensure that the proposal is working as intended? As I say, I think it is the right thing to do, but I want to make sure it works. I want people to have the best possible outcomes in retirement. If the position is marginally better than it is today, that will be good but not great. It would be lovely if it were way better, and if people were being suggested or guided to the solutions most appropriate for them. We do not just want to move from people dumping everything in a bank account to some people not doing so. It would be great to know that the solutions provided were working for a majority of people.
I would welcome any comfort that the Minister can give me on the review period and on what reassurance Parliament will have that people are being offered the solutions. As I say, provided that I get decent answers from him, I will be quite happy not to talk again for this entire portion of the Bill. I am sure that people will be delighted to hear that.
Torsten Bell
I thank the hon. Lady for rightly raising the important question of communication to members. I draw the Committee’s attention to clause 44, which explicitly aims, in quite some detail, to engage with that question. It contains requirements on providers—again, with the detail to come in regulations—about how they set out their general policy, but also how they communicate to particular individuals as they head towards retirement and, potentially, enrolment in a default solution.
It is absolutely right to say that this measure is new for providers, for regulators and for the industry in the UK, and we should always have that in mind. We should take some comfort from the success of automatic enrolment in doing something new. Other countries had moved to auto-enrolment solutions ahead of us, and the same is true here to a degree. In Australia, there is a similar pattern: it has got further ahead in terms of the average size of pots, has seen some of the negative outcomes that we can potentially see in the data in the UK, and has then moved to a version of this and is working that through. We will be able to learn from its experience, as well as just working this through ourselves.
The hon. Lady asked how the measure will be taken forward. We aim to launch a public consultation in the spring and summer next year. These requirements would come in earlier than some of the wider changes that the Committee has discussed—on small pots, for example, which will come far later, and on value for money. We think it is urgent that we get on with this, because we are approaching a situation in which DC pots will be significant for some members, but I completely appreciate her point that it is a large change for the industry.
Clause 44 requires some direct communications with members. I reassure the hon. Lady that there is nothing in the GDPR or other data protection requirements that would prevent providers from communicating in that way. They will not require consent from members to do it, which is important, because otherwise it would not be effective. There are wider questions about direct marketing—communications that are not about setting out the actual situation—in this space, and I am considering those. They are tied up with questions about targeted support and the rest, but it is important for us to continue thinking about this in the pensions space, where there is a history of downsides to direct marketing. We want to make sure that this is not that, but provision of information about the working of a scheme of which someone is a member.
Kirsty Blackman
Once this measure beds in—once we have people being moved to default benefit solutions, or those boxes and the solutions have been created—how will it be kept under review? Will there be a process for review five years down the line, when a significant number of people have been moved to default benefit solutions, to ensure that it is working as intended and that any potential problems that Australia perhaps did not come across can be ironed out?
Torsten Bell
I thank the hon. Lady for that question. There is not a formal requirement on the Secretary of State to carry out a review as we are going. My honest view is that any regulator and Secretary of State will want to actively monitor what happens. I very strongly expect that this will be discussed at great length at every single pension conference around those years, because all the providers will be talking to each other about how they are taking these things forward.
The hon. Lady will remember the discussion last Tuesday with some providers, including the National Employment Savings Trust and People’s Pension, about how they are already planning to bring these solutions forward. Although they are new for the industry, most providers had already been thinking about this, because they know that it would be the right thing to do even if there were not a Government requirement to do it, and because I have been clear with them for quite some time that this is the direction of travel in both the trust market and the GPP market.
I am not sure that we need a rigid, set date for a review, but I will take away the hon. Lady’s wider question about what reassurance we can offer that people will be actively monitoring what has happened rather than just watching and seeing what happens. I can certainly write to the regulators, for example, to make it clear that that will be our expectation.
Amendment 147 agreed to.
Amendments made: 148, in clause 42, page 55, line 11, at beginning insert
“at least in such circumstances or”.
This amendment allows for regulations to provide that particular events (as well as times or intervals) trigger a requirement to review default pension benefit solutions.
Amendment 149, in clause 42, page 55, line 13, leave out “relevant” and insert “pension”.
This amendment ensures that the definition of “pension benefit solution” is capable of operating in relation to a pension scheme that is not a relevant scheme (such as a collective money purchase scheme).
Amendment 150, in clause 42, page 55, line 25, leave out
“as a default pension benefit solution,”
and insert
“of the scheme as the pension benefit solution under which—
(i) the eligible members of the scheme generally, or
(ii) a subset of those eligible members,
will receive pension payments unless they choose to receive pension payments under a different pension benefit solution,”.
This amendment clarifies the definition of “default pension benefit solution”.
Amendment 151, in clause 42, page 55, line 40, at end insert
“;
(d) such other factors as may be prescribed.”—(Torsten Bell.)
This amendment allows other factors to be added by regulations to the factors that trustees or managers of a relevant scheme have to take account of in determining what default pension benefit solutions the scheme should make available.
Steve Darling
I beg to move amendment 279, in clause 42, page 55, line 40, at end insert—
“(4A) The trustees or managers of a relevant scheme, in determining whether to adopt or vary a default pension benefit solution, must—
(a) issue a written notice of the proposal to all members of the scheme, including—
(i) the expected impact on benefits and investment strategy, and
(ii) a written attestation that a market-wide assessment of all available options was undertaken;
(b) ensure a consultation period of at least 60 days has elapsed;
(c) confirm that fewer than 10 per cent of eligible members have objected in writing.”
This amendment adds the “without member opposition” safeguard to defined contribution schemes when changes to default pension benefit solutions are considered. It also requires a whole of market assessment to ensure the best solutions are chosen for members.
It is a privilege to move the amendment, because as Liberal Democrats we want to make sure that pensioners are at the heart of the Bill, as do many colleagues of different parties in this room, I am sure. For us, it is about driving a positive culture of engagement. The expectations that these proposals would place on managers or trustees would drive a positive engagement culture, as well as putting guardrails and protections around investments. I would welcome the Minister’s reflections on how the Bill would tackle our aspiration for the positive engagement culture that I am sure all Members in the room wish to see achieved through the Bill.
Torsten Bell
The amendment is absolutely right that trustees should consider a wide range of options when they are developing their default pension benefit solutions. As I have just remarked to the hon. Member for Aberdeen North, I suspect that that will be a big focus for trustees and scheme managers in the years ahead. Clause 48 does make provision for trustees or managers to consider the needs and interests of scheme members. I would emphasise that as the priority, as opposed to considering every option already on the market, because we are looking for them to develop the right solutions. In most but not all cases, that will be in-house; we will come back to some of the cases where they will not be doing that. We do not want to make it sound like an off-the-shelf situation in lots of cases, although I appreciate that doing their job will require them to look across the market.
I have a slight worry about setting a hard 10% of membership expressing an objection as a way of vetoing an approach. First, in many cases, there will not be a single default solution for members within a scheme; there will be a number of them for different cohorts within that scheme, not least based on the size of pots or their wider situation. We do not want a subset of a scheme to be able to vote down the solutions for everybody within the scheme, which is what the amendment would allow. The amendment would also allow those who are a very long way from retirement to shape the outcomes for those who are about to come to retirement.
My most important point, however, is that individuals have an absolute right to opt out. Although we talk in terms of default, just as we talk about automatic enrolment, the purpose is that this is a softer default than automatic enrolment. That is partly because we are expecting multiple defaults, not a single one where everyone is required to save at least a certain amount, but also because people will be able to opt out and have a range of different defaults.
I hope that I have provided reassurance that the Bill already includes important safeguards, and that trustees and scheme managers will already need to consider the issues that the Liberal Democrat amendment rightly puts on the table.
Steve Darling
I thank the Minister for his positive feedback. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: 152, in clause 42, page 56, line 1, leave out
“are to assess the needs and interests of its”
and insert
“of a scheme are to assess the needs and interests of the scheme’s”.
This amendment corrects a minor verbal inconsistency.
Amendment 153, in clause 42, page 56, line 14, leave out “money purchase benefits” and insert
“benefits falling within paragraph (a) of the definition of ‘money purchase benefits’ in section 181(1) of the Pension Schemes Act 1993”.
This amendment restricts the definition of “eligible member” of a relevant scheme so that it does not include members who are accruing or entitled to collective money purchase benefits.
Amendment 154, in clause 42, page 56, line 16, leave out “established under a trust”.
This amendment amends the definition of “relevant scheme” so schemes that are not established under a trust may fall within the definition.
Amendment 155, in clause 42, page 56, line 25, at beginning insert “(1)(b) or”.—(Torsten Bell.)
This amendment provides for negative parliamentary procedure for regulations that prescribe when or in what circumstances default pension benefit solutions need to be reviewed.
Clause 42, as amended, ordered to stand part of the Bill.
Clause 43
Transferable members
Torsten Bell
I beg to move amendment 156, in clause 43, page 56, line 29, leave out—
“a member of the scheme”
and insert—
“eligible members of the scheme (whether comprising the members of the scheme generally or a subset of those members)”.
This amendment clarifies how the exclusion in clause 43(1) operates.
The Chair
With this it will be convenient to discuss Government amendments 157 to 160 and 165.
Torsten Bell
We have now reached clause 43—the clause that deals with the situation I mentioned briefly earlier, which is where a scheme thinks that it is in the best interests of its members that the default solution is provided by another scheme or provider, and it sets out how that should take place. Amendments 156 to 160 and 163 and 165 all relate to the operation of providing pension benefit solutions via transfers to another scheme. The intention of the amendments is merely to provide helpful clarifications or to otherwise ensure that the clauses operate in line with the policy intent.
Amendment 156 clarifies that trustees or managers may choose to offer to transfer all the scheme’s members to another scheme for the purpose of providing a pension benefit solution, or just a subset of those members—as I said before, there may be a different cohort within each scheme with the right default for them. Amendment 158 clarifies that it will be for trustees or managers of a relevant scheme to determine whether it is reasonably practical for the scheme to provide a default pension benefit solution. Amendment 160 clarifies that trustees or managers of a relevant scheme may offer to transfer members to another scheme if they have determined that the other scheme would provide a better outcome for those members than they would provide within their own scheme—again, the interests of members should come first.
Amendments 157 and 159 are consequential amendments. Amendment 163 clarifies that trustees or managers of a relevant scheme must arrange for transfers to take place and not just facilitate them. That ensures that members should be supported through the whole process—we do not want schemes thinking their job is done as soon as they have set out that process, and leaving members to wrestle with it. These are minor but important technical amendments. They do not alter policy. I ask the Committee to support them.
Amendment 156 agreed to.
Amendments made: 157, in clause 43, page 56, line 30, leave out from “such” to end of line 31 and insert—
“members are referred to in this Chapter as ‘transferable members’.”
This amendment is consequential on Amendment 156.
Amendment 158, in clause 43, page 56, line 32, leave out from “that” to “to design” in line 33 and insert—
“the trustees or managers of the principal scheme have determined that it is not reasonably practicable for them”.
This amendment makes the first condition in clause 43(2) subject to the determination of the trustees or managers.
Amendment 159, in clause 43, page 56, line 33, leave out “that member” and insert “the members concerned”.
This amendment is consequential on Amendment 156.
Amendment 160, in clause 43, page 56, line 36, leave out from “have” to end of line 38 and insert—
“determined that a qualifying pension benefit solution of a qualifying scheme (other than the principal scheme) will provide a better outcome for the members concerned than any default pension benefit solution that the trustees or managers of the principal scheme could design and make available to them.”—(Torsten Bell.)
This amendment clarifies the application of the second condition in clause 43(3).
Torsten Bell
I beg to move amendment 161, in clause 43, page 57, line 1, leave out “and willing” and insert “to and agrees”.
This amendment is consequential on Amendment 174.
The Chair
With this it will be convenient to discuss Government amendments 162 to 164, 175, 174 and 176.
Torsten Bell
In cases where trustees or managers of a relevant scheme have determined that it is not reasonably practical to provide a solution themselves, or that better member outcomes could be achieved if another scheme delivered a solution, they can arrange for the transfers to be made. That is what clause 43 permits. Whether a member is receiving a default solution in-house or being transferred to another scheme to receive that solution, the policy intent is that the member experience should be broadly similar—there should not be a difference in their experience of it. Amendment 164 seeks to ensure that there is parity in the requirement placed on schemes. In particular, the amendment requires schemes to ensure that a scheme receiving transferable members is able to provide a pension benefit solution that meets the needs and interests of the scheme’s membership.
Amendment 174 aims to ensure that no scheme will be left in a position where it is unable to comply with the wider guided retirement provisions due to factors outside their control. There is a requirement on schemes to provide guided retirement under the Bill, but if there are factors outside their control that make that difficult, we want to have a backstop that is provided by introducing a power to designate schemes of last resort, which could be used to facilitate transfers from any relevant pension scheme for the purpose of providing a qualifying pension benefit solution. Hon. Members will think of the similar approach that NEST provided in auto-enrolment world—although we are not intending to need it in this case—where employers would always have a scheme they could go to, given that there was a requirement on them to enrol employees.
Amendments 161, 162 and 174 merely provide helpful clarifications or otherwise ensure that clause 43 operates in line with the policy intent. Amendment 176 applies the negative parliamentary procedure to regulations relating to highly technical aspects of the policy. These amendments, taken together, provide for small targeted changes to clause 43, and I encourage hon. Members to support them.
Amendment 161 agreed to.
Amendments made: 162, in clause 43, page 57, line 7, at beginning insert
“at such times or in such circumstances as may be prescribed,”.
This amendment allows for regulations to specify when transfer arrangements need to be entered into.
Amendment 163, in clause 43, page 57, line 8, leave out “facilitating relevant transfers” and insert
“effecting a relevant transfer to that scheme”.
This amendment clarifies that schemes will be required to arrange with receiving schemes to carry out relevant transfers (not just to facilitate them).
Amendment 165, in clause 43, page 57, line 9, leave out
“steps required by the regulations”
and insert “prescribed steps”.
This amendment corrects a verbal inconsistency.
Amendment 164, in clause 43, page 57, line 9, at end insert—
“(5A) In carrying out the step in subsection (5)(a), the trustees or managers of the principal scheme must have regard to the matters mentioned in section 42(4) (and for that purpose references in those paragraphs to “the scheme” are to the principal scheme).
(5B) Section 42(5) applies for the purposes of subsection (5A) as it applies for the purposes of section 42(4).
(5C) The trustees or managers of the principal scheme must, at least in such circumstances or at such times or intervals as may be prescribed, review the suitability of any qualifying pension benefit solution in respect of which they have identified a qualifying scheme as mentioned in subsection (5)(a).”—(Torsten Bell.)
This amendment ensures that schemes are subject to similar duties in respect of their “transferable members” to the duties to which they are subject in respect of other eligible members.
Torsten Bell
I beg to move amendment 167, in clause 43, page 57, line 10, leave out “In subsection (5)(a)(ii)” and insert “In this Chapter,”.
This amendment reflects the fact that “qualifying pension benefit solution” is, as a result of other amendments, now used more widely in the Chapter.
The Chair
With this it will be convenient to discuss the following:
Government amendments 166 and 168 to 173.
Clause stand part.
Torsten Bell
We now move to the substance of clause 43 and the proposed amendments. Clause 43 allows schemes to partner with another for the purpose of delivering a suitable pension solution to their membership—or cohorts of their membership. It allows those transfers to qualifying pension benefit solutions when either providing an in-house solution is not reasonably practicable, or a solution offered by another scheme is deemed to provide a better outcome for members. It requires trustees or managers of the principal scheme to identify qualifying schemes that provide solutions that meet the requirements of their membership. That could, for example, include transferring members to a collective defined-contribution scheme. Power is also taken to limit or prohibit the charging of transfer fees. This clause is vital overall, as it provides the flexibility that I have discussed in the course of debate on the previous group of amendments and allows trustees to deliver the best outcomes for their members.
Amendment 154 removes a drafting error and clarifies that all occupational pension schemes that provide defined-contribution benefits are included in the definition of relevant scheme, not just those established under a trust. Whether a pension scheme member is receiving a default solution in-house or being transferred to another scheme to receive a qualifying solution, as I said earlier, the policy intent is that they have a similar experience.
Amendments 166 to 169 and 173 ensure that there is a parity of requirements on schemes in those cases. Amendments 170 and 171 are consequential amendments, while amendment 172 corrects a minor inconsistency in language. I commend them and the clause to the Committee.
Amendment 167 agreed to.
Amendments made: 166, in clause 43, page 57, line 10, after “solution”” insert
“, in relation to a qualifying scheme,”.
This amendment is consequential on Amendment 167.
Amendment 168, in clause 43, page 57, line 12, leave out “receiving”.
This amendment is consequential on Amendment 167.
Amendment 169, in clause 43, page 57, line 15, leave out
“eligible members of the receiving”
and insert “members of the”.
This amendment is consequential on Amendment 167, and also reflects the fact that a qualifying scheme need not necessarily be a relevant scheme, so the reference to “eligible members” (which is defined by reference to “relevant schemes”) is not right in all cases.
Amendment 170, in clause 43, page 57, line 16, leave out “eligible”.
This amendment reflects the fact that a qualifying scheme need not necessarily be a relevant scheme, so the reference to “eligible members” (which is defined by reference to “relevant schemes”) is not right in all cases.
Amendment 171, in clause 43, page 57, line 17, leave out “eligible”.
This amendment reflects the fact that a qualifying scheme need not necessarily be a relevant scheme, so the reference to “eligible members” (which is defined by reference to “relevant schemes”) is not right in all cases.
Amendment 172, in clause 43, page 57, line 21, leave out “But”.
This amendment makes a minor verbal change in light of other amendments to clause 43.
Amendment 173, in clause 43, page 57, line 23, leave out “subsection (5)” and insert “this section”.
This amendment reflects the fact that, as a result of other amendments, “qualifying scheme” is used more widely in the section.
Amendment 175, in clause 43, page 57, line 35, at end insert—
“(9A) Regulations may make provision about the conditions in subsections (2) and (3), including about the basis on which the determinations mentioned in those subsections are to be made.”
This amendment allows for regulations to make provision elaborating on the conditions in subsections (2) and (3).
Amendment 174, in clause 43, page 57, line 35, at end insert—
“(9B) Regulations may require a pension scheme of a prescribed description to agree to receive a transfer in respect of the accrued rights of a transferable member where—
(a) the principal scheme has been unable, having used reasonable endeavours, to identify a qualifying scheme that is able and willing to do so, and
(b) any other prescribed conditions are met.
(9C) A requirement under subsection (9B) may only be imposed on a pension scheme that is one or both of the following—
(a) a Master Trust scheme within the meaning of the Pension Schemes Act 2017;
(b) a consolidator scheme within the meaning of Chapter 2 of Part 2 (consolidation of small dormant pension pots).”
This amendment allows for regulations to require certain schemes to act as schemes of last resort in cases where the principal scheme cannot find a qualifying scheme that is willing to receive a transfer.
Amendment 176, in clause 43, page 57, line 40, at beginning insert
“Regulations under subsection (5C), (10) or (11) are subject to the negative procedure; and other”.—(Torsten Bell.)
This amendment applies negative parliamentary procedure to regulations under subsection (5C), (10) or (11).
Clause 43, as amended, ordered to stand part of the Bill.
Clause 44
Provision and gathering of information
Torsten Bell
I beg to move amendment 177, in clause 44, page 58, leave out line 2 and insert
“Where only one pension benefit solution is available to the members of a relevant scheme,”.
This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.
The Chair
With this it will be convenient to discuss the following:
Government amendments 178 to 195.
Clause stand part.
Torsten Bell
Clause 44 relates to the provision of information to members about the solution or solutions that they offer them. We discussed the clause earlier with the hon. Member for Aberdeen North. The clause requires schemes to communicate and describe the default pension benefit solutions available and the circumstances for those for whom it would be suitable. Powers are taken to make further provisions in secondary legislation. The key policy behind the clause is to ensure that scheme members are well informed about their pension options. The Bill requires all communications issued by schemes to be in clear and plain language, which will help members to make better decisions regarding their retirement income.
The clause allows trustees or managers to request relevant information from their members to determine what an appropriate default solution would be for their membership. Pension schemes will also have the ability, and potentially be required, to gather information from their members to ensure that where a scheme has multiple default pension benefit solutions, the member receives communications about the one deemed most appropriate for them. For example, what wider pension provision people have is important when they think about what is the right solution for them.
Amendment 177, 179 to 181, 183, 186, 187, 190 and 192 to 195 ensure that clause 44 operates in relation to qualifying pension benefit solutions, as well as default pension benefit solutions. That change will mean that the same communication requirements will apply irrespective of whether a scheme member is being transferred to another pension scheme to receive a pension benefit solution or staying with the same scheme. Amendments 178, 182, 184, 185, 188, 189 and 191 provide minor language changes to improve consistency across the Bill.
Clause 44 is essential for promoting informed decision making among scheme members.
Amendment 177 agreed to.
Amendments made: 178, in clause 44, page 58, line 3, leave out “the member” and insert
“each eligible member of the scheme”.
This amendment corrects a minor verbal error.
Amendment 179, in clause 44, page 58, line 5, leave out “member’s default”.
This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.
Amendment 180, in clause 44, page 58, line 8, leave out “default”.
This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.
Amendment 181, in clause 44, page 58, line 9, leave out from beginning to “the trustees” in line 10 and insert
“Where more than one pension benefit solution is available to the eligible members of a relevant scheme,”.
This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.
Amendment 182, in clause 44, page 58, line 10, leave out “the member” and insert
“, each eligible member of the scheme”.
This amendment corrects a minor verbal error.
Amendment 183, in clause 44, page 58, line 12, after “solution” insert
“or qualifying pension benefit solution”.
This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.
Amendment 184, in clause 44, page 58, line 14, leave out “option” and insert “solution”.
This amendment makes a clarificatory change to the tag used in clause 44(2).
Amendment 185, in clause 44, page 58, line 17, leave out
“the default pension benefit solution”
and insert “the specified solution”.
This amendment is consequential on Amendment 184.
Amendment 186, in clause 44, page 58, line 18, leave out “member’s default”.
This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.
Amendment 187, in clause 44, page 58, line 27, leave out from “of” to “is” in line 29 and insert
“a default pension benefit solution or qualifying pension benefit solution and an explanation that such a solution”.
This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.
Amendment 188, in clause 44, page 58, line 29, leave out “an” and insert “a regular”.
This amendment makes the language of clause 44(4)(b) consistent with clause 42(3)(b).
Amendment 189, in clause 44, page 58, line 31, leave out “eligible members” and insert “each eligible member”.
This amendment makes a minor clarificatory change.
Amendment 190, in clause 44, page 58, line 32, leave out
“the default pension benefit solutions offered by the scheme”
and insert
“the pension benefit solutions available to the eligible members”.
This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.
Amendment 191, in clause 44, page 58, line 34, leave out paragraph (b).
This amendment is consequential on Amendment 190.
Amendment 192, in clause 44, page 58, line 38, leave out from “describing” to end of line 40 and insert
“a particular pension benefit solution that the trustees or managers consider to be suitable for the eligible member in question;”.
This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.
Amendment 193, in clause 44, page 59, line 2, leave out “default”.
This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.
Amendment 194, in clause 44, page 59, line 10, leave out “default” and insert
“, or in the case of transferable members identifying,”.
This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.
Amendment 195, in clause 44, page 59, line 11, leave out “default”.—(Torsten Bell.)
This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.
Clause 44, as amended, ordered to stand part of the Bill.
Clause 45
Information etc in connection with selection of benefit solution
Torsten Bell
I beg to move amendment 196, in clause 45, page 59, line 27, leave out “offer” and insert “provide or make available”.
This amendment allows for regulations either to require information to be provided directly to members or to require it to be made available to them.
The Chair
With this it will be convenient to discuss the following:
Government amendments 197 to 202.
Clause stand part.
Torsten Bell
The purpose of the clause is to help improve pension engagement so that individuals can make better decisions themselves if they want to do so. As I said earlier, this is about softer defaults than we have in the case of automatic enrolment. The clause grants a power to make regulations requiring schemes to offer and provide information to assist members in the selection of their pension benefit solutions. The clause also includes a regulation-making power that could require schemes to monitor rates of decumulation —that is the drawdown of the pension pot used by members—and issue warnings if they believe that that should be changed. That could be used to help prevent individuals from inadvertently running out of money in later life, or it could even be used to recommend increasing withdrawals. Again, we have talked a lot about Australia. I do not know whether we are feeling patriotic at the moment, but one of the lessons from Australia is that in many cases one of the dangers is insufficient drawdown, and people under-consuming in later life. In either case, this approach could potentially help to prevent people from living in poverty during retirement, either because they are not spending enough or because they are drawing down too much early on.
The Government’s broader objective is that individuals need not make any decisions about how their savings are invested or how they should take their pension benefits, except to confirm that they want to start receiving payment. That is a big change from the status quo, which is very complicated at the point someone approaches retirement. However, I want to emphasise that individuals will retain their pension freedoms and are able to opt out of any default, should they wish to do so.
This provision allows for members to receive information to enable engaged and engageable members to make informed decisions. The clause includes a power to require that the information provided is based on members’ individual circumstances, where those are known to the scheme. The intention is that relevant general information will be provided to individuals. The policy behind this clause is to help bridge knowledge gaps and enhance members’ understanding of their options.
I turn to the associated amendments. Amendments 196 and 201 provide clarity that information may be sent directly to scheme members or made available to them, for example via websites. Amendments 198 and 199 clarify that schemes may be required to provide information to their members on any of the options available to them under pension freedoms, not just those available under the default scheme. Amendment 202 clarifies that schemes may tailor the information provided to scheme members using information already held by the scheme. Amendment 197 requires that information provided to scheme members under clause 45 must be
“in clear and plain language”.
Finally, amendment 200 removes some unnecessary wording.
The amendments are all technical in nature. They are not intended to change, but to enhance the deliverability of the policy.
Amendment 196 agreed to.
Amendments made: 197, in clause 45, page 59, line 28, after “information” insert
“expressed in clear and plain language”.
This amendment requires that information required by regulations under clause 45 be in clear and plain language, mirroring the requirement in clause 44(6).
Amendment 198, in clause 45, page 59, line 30, leave out “default”.
This amendment, together with Amendment 199, ensures that clause 45 operates in respect of pension benefit solutions other than default pension benefit solutions.
Amendment 199, in clause 45, page 59, line 31, leave out “default”.
See the explanatory statement for Amendment 198.
Amendment 200, in clause 45, page 59, line 32, leave out
“(for example as regards the rate of income withdrawal)”.
This amendment removes the suggestion that members would decide the rate of income withdrawal, since that would be determined by the scheme.
Amendment 201, in clause 45, page 59, line 33, leave out “given” and insert
“provided or made available to a member”.
This amendment is consequential on Amendment 196.
Amendment 202, in clause 45, page 59, line 35, leave out
“obtained under powers conferred by section 44”.—(Torsten Bell.)
This amendment removes the reference to clause 44 from clause 45(2), so that information given by virtue of clause 45(1) may be based on information that the trustees or managers hold otherwise than by virtue of clause 44.
Clause 45, as amended, ordered to stand part of the Bill.
Clause 46
Pension benefits strategy
Torsten Bell
I beg to move amendment 203, in clause 46, page 60, line 8, leave out “default”.
This amendment ensures that clause 46 operates in respect of qualifying pension benefit solutions as well as default pension benefit solutions.
The Chair
With this it will be convenient to discuss the following:
Government amendments 204 to 208.
Clause stand part.
Torsten Bell
This clause is the one most relevant to the Liberal Democrat amendment 279 that we discussed earlier, because it requires trustees or managers of relevant pension schemes to formulate, review and, where appropriate, revise their pension benefits strategy. This is where they will need to show that they have considered the range of options set out in that Lib Dem amendment.
The production and review of such a strategy will hold occupational pension schemes to account for how they have identified the requirements of their membership and how they have used that information to design the default pension benefit solution, or solutions, that they have put in place, or to identify an appropriate qualifying pension benefit solution elsewhere.
Additionally, schemes will need to set out in their strategy their plans for how they will communicate effectively with their members—another issue that has been at the centre of our discussions today. There is also a requirement for the scheme to review their strategy, and Government have taken a power to specify minimum intervals for review. Regulations may also set out further requirements for evidence of how the scheme has complied with any of the requirements set out in this chapter. The strategy must be published and made available to both the regulator and members of the scheme, which will enable effective monitoring, analysis and evaluation at an aggregate level.
Government amendments 203 and 204 will ensure that clause 46 operates in respect of qualifying pension benefit solutions as well as default pension benefit solutions. Amendment 205 adds effective communication to the list of things that must be addressed in the strategy. Amendments 206 and 207 correct an error in the Bill as drafted. Amendment 208 allows regulations to require that the information about compliance with provisions of the chapter be published alongside a benefit strategy. Amendment 210 removes a provision made redundant by other amendments.
Amendment 203 agreed to.
Amendments made: 204, in clause 46, page 60, line 9, leave out from beginning to “pension” in line 10 and insert
“design, or in the case of transferable members identify,”.
This amendment ensures that clause 46 operates in respect of qualifying pension benefit solutions as well as default pension benefit solutions.
Amendment 205, in clause 46, page 60, line 12, leave out paragraph (c) and insert—
“(c) communicate effectively with eligible members of the scheme with regard to pension benefit solutions and comply with any regulations under section 45.”
This amendment adds effective communication to the list of things that a pension benefits strategy must address.
Amendment 206, in clause 46, page 60, line 25, leave out “and” and insert “or”.
This amendment corrects an error.
Amendment 207, in clause 46, page 60, line 26, leave out “be authorised to”.
This amendment corrects an error.
Amendment 208, in clause 46, page 60, line 35, at end insert—
“(3A) Regulations may require the trustees or managers of a relevant scheme to publish, alongside a pension benefits strategy (or revised pension benefits strategy), prescribed information or evidence as to whether and how they have complied with the requirements imposed by virtue of this Chapter.”—(Torsten Bell.)
This amendment allows regulations to require that information about compliance be published alongside a pension benefits strategy.
Torsten Bell
I beg to move amendment 209, in clause 46, page 60, line 36, leave out subsection (4).
This amendment leaves out a penalty provision that government amendments to Clause 47 would make redundant.
The Chair
With this it will be convenient to discuss the following:
Government amendment 211.
Clause stand part.
Clauses 47 and 48 stand part.
Government amendments 212 and 213.
Clause 49 stand part.
Torsten Bell
Clause 47 allows for a compliance framework to be developed to ensure that trustees or managers of pension schemes comply with the requirements of chapter 5 of the Bill and take their responsibilities seriously; hon. Members will by now be used to seeing parts of this at the back of sections of pension legislation.
It is worth noting up front that amendment 211 replaces the penalty provisions in clause 47 with a new mechanism for introducing enforcement powers via regulations. The regulations could allow for the Pensions Regulator to issue compliance notices, third-party compliance notices and penalty notices. These types of enforcement notice are not unusual, and they appear in other pensions legislation, such as the pensions dashboard regulations and the regulations on climate change governance and reporting.
Penalties will be limited to no more than £10,000 in the case of individuals and up to £100,000 in other cases, such as corporate trustees. We have introduced these changes to ensure consistency with other clauses in the Bill, including the provisions related to value for money and small pots consolidation; we discussed the size of those penalties recently.
Clause 47 will enable the regulator to remove and replace trustees in the event of non-compliance. Amendment 209 will remove a penalty provision in clause 46 that is made redundant by amendment 211. Clause 48 makes it clear that the measures in this chapter apply to pension schemes run on behalf of the Crown, another standard provision. Clause 49 provides the definitions for terms used in chapter 5 of the Bill, including many of the important ones I have run through today. Amendments 212 and 213 add the definitions of “pension benefit solution” and “qualifying pension benefit solution” to the list of defined terms in clause 49. They do not change the definition of these terms elsewhere in the clauses.
Amendment 209 agreed to.
Clause 46, as amended, ordered to stand part of the Bill.
Clause 47
Enforcement and compliance
Amendment made: 211, in clause 47, page 61, line 4, leave out subsections (1) to (5) and insert—
“(1) Regulations may make provision with a view to ensuring the compliance of any person with any provision of or under this Chapter.
(2) The regulations may in particular—
(a) provide for the Pensions Regulator to issue a notice (a ‘compliance notice’) to a person with a view to ensuring the person's compliance with a provision of or under this Chapter;
(b) provide for the Pensions Regulator to issue a notice (a ‘third party compliance notice’) to a person with a view to ensuring another person's compliance with a provision of or under this Chapter;
(c) provide for the Pensions Regulator to issue a notice (a ‘penalty notice’) imposing a penalty on a person where the person—
(i) has failed to comply with a compliance notice or third party compliance notice, or
(ii) has contravened a provision of or under this Chapter;
(d) provide 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;
(e) confer other functions on the Regulator.
(3) The regulations may make provision for determining the amount, or the maximum amount, of a penalty in respect of a failure or contravention.
(4) But the amount of a penalty imposed under the regulations in respect of a failure or contravention must not exceed—
(a) £10,000, in the case of an individual, and
(b) £100,000, in any other case.
(5) Any penalty payable under the regulations is recoverable by the Regulator.
(5A) In England and Wales, any such penalty is, if the county court so orders, recoverable under section 85 of the County Courts Act 1984 or otherwise as if it were payable under an order of that court.
(5B) In Scotland, a penalty notice is enforceable as if it were an extract registered decree arbitral bearing a warrant for execution issued by the sheriff court of any sheriffdom.
(5C) The Regulator must pay into the Consolidated Fund any penalty recovered under this section.”—(Torsten Bell.)
This amendment replaces the provisions in subsections (1) to (5) of clause 47 about fixed penalty notices with a power to make regulations providing for compliance notices, third party compliance notices and penalty notices.
Clause 47, as amended, ordered to stand part of the Bill.
Clause 48 ordered to stand part of the Bill.
Clause 49
Interpretation and general
Amendments made: 212, in clause 49, page 62, line 13, at end insert—
“‘pension benefit solution’ has the meaning given by section 42(2);”.
This amendment adds “pension benefit solution” to the list of defined terms in clause 49.
Amendment 213, in clause 49, page 62, line 19, at end insert—
“‘qualifying pension benefit solution’ has the meaning given by section 43(6);”.—(Torsten Bell.)
This amendment adds “qualifying pension benefit solution” to the list of defined terms in clause 49.
Clause 49, as amended, ordered to stand part of the Bill.
Clause 50
Corresponding provision in relation to FCA-regulated schemes
Torsten Bell
I beg to move amendment 214, in clause 50, page 62, line 33, leave out from beginning to end of line 8 on page 63 and insert—
“137FBD FCA general rules: guided retirement
(1) The FCA must make general rules for the purpose of ensuring that default or qualifying pension benefit solutions are made available to members of relevant pension schemes.
(2) In determining what provision to include in the rules, the FCA—
(a) must have regard to provision made by, and any provision made under, Chapter 5 of Part 2 of the Pension Schemes Act 2025 (guided retirement: schemes regulated by the Pensions Regulator), and
(b) must aim to ensure, so far as possible, that the outcomes achieved by the rules in relation to relevant pension schemes correspond to those achieved by that Chapter, and any regulations made under it, in relation to pension schemes to which that Chapter applies.
(3) In this section—
‘default or qualifying pension benefit solution’ means a pension benefit solution which—
(a) is designed for delivering money purchase benefits under a pension scheme to some or all of the members of the scheme,
(b) is designed to provide a regular income for the members concerned in their retirement (whether or not together with other benefits), and
(c) meets any other prescribed conditions;
‘FCA-regulated pension scheme’ means a pension scheme whose operation—
(a) is a regulated activity, and
(b) is carried on in the United Kingdom by an authorised person;
‘money purchase benefits’ has the same meaning as in the Pension Schemes Act 1993 (see section 181 of that Act);
‘pension benefit solution’, in relation to a pension scheme, means a contractual or other arrangement for making pension payments in respect of members’ accrued rights;
‘pension scheme’ has the meaning given in section 1(5) of the Pension Schemes Act 1993;
‘relevant pension scheme’ means an FCA-regulated pension scheme that is—
(a) an auto-enrolment scheme,
(b) a workplace personal pension scheme that is not an auto-enrolment scheme, or
(c) a pension scheme of a prescribed description,
and for that purpose ‘auto-enrolment scheme’ has the meaning given in section 117A(3) and ‘workplace personal pension scheme’ has the meaning given in section 117A(5).”
This amendment adjusts the requirement for the FCA to make rules corresponding to Chapter 5 of Part 2. It ensures that the FCA has the flexibility to make provision that is different from that contained in Chapter 5 of Part 2 provided that the FCA’s rules aim to achieve corresponding outcomes to that Chapter.
Torsten Bell
We now turn to clause 50, the last clause in this part of the Bill. The overriding objective of this clause, together with amendment 214, is to make corresponding provision in relation to FCA-regulated schemes. Clause 50 inserts into the Financial Services and Markets Act 2000 new section 137FBD, which will deliver default pension benefit solutions to FCA-regulated pension schemes, ensuring that members on both sides of the market benefit from default solutions.
Amendment 214 is a technical amendment that refines the requirement on the FCA to deliver those solutions for members of FCA-regulated pension schemes and ensures consistency between FCA and TPR-regulated schemes—a key objective of the Government. It clarifies that the FCA must make rules to ensure that default pension scheme solutions are made available to members of FCA-regulated schemes and, in making those rules, must have regard to provisions made by the rest of chapter 5 of part 2, which we have been discussing and which sets the framework for the TPR to provide those solutions.
The FCA must also aim to ensure, as far as possible, that the outcomes achieved by its rules correspond to those achieved under chapter 5, and any regulations made under it regarding TPR-regulated pension schemes. The amendment therefore seeks to ensure that, from a member’s perspective, default pension benefit solutions are provided consistently across the market, whether they are a member of a TPR or an FCA-regulated pension scheme, while giving the FCA the flexibility to deliver that outcome in a way that suits its methods of regulating pension schemes. DWP, the FCA and The Pensions Regulator will work together to develop and deliver default pension benefit solutions, further boosting fairness and consistency across the market.
Amendment 214 agreed to.
Clause 50, as amended, ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Taiwo Owatemi.)