Lord Palmer of Childs Hill (LD)
My Lords, I say to the noble Lord, Lord Davies, that no apology is needed.
This is a wide-ranging set of review and process amendments. The noble Viscount, Lord Younger, explained what I think he described as his “modest” amendments—indeed, they are. The noble Lord, Lord Kirkhope, said that this was all set up for secondary legislation; we ought to take that point into account.
These amendments are linked by a common theme: whether the Government are willing to build a stronger evidence base for future pensions policy and to improve the basic safeguards for savers. Several of these amendments ask Ministers to review pension adequacy, contribution rules, labour market impacts and public understanding, while others seek an independent look at specific injustices or practical improvements to data accuracy.
These amendments are probing, but they raise real policy gaps. Taken together, they test whether Ministers are prepared to move beyond structural reform and address the practical foundations of trust in pensions, adequate incomes, fair treatment, accessible information and correct records. I hope that, in replying, the Minister will explain which of these issues the Government accept in principle and whether they believe that the existing powers, regulators and reviews are already sufficient. I expect that to happen. The Bill changes structures and powers, but savers also need fairness, clarity and accurate data. When Ministers resist new duties, they should set out a clear alternative route and timetable. I hope that the Minister will do so.
The noble Lord, Lord Davies of Brixton, made important points. We will disagree, but I shall pursue the amendments in my name. Amendment 214 in my name would establish a universal entitlement to free and impartial pension advice at key stages of life. It would ensure that everyone, not just the financially literate or well advised, can make informed decisions about retirement. Such advice would, I hope, be offered around the age of 40—a critical moment for mid-life planning and pension consolidation—and again within six years of expected retirement to support decisions on drawdown, annuities and retirement income options, which are a mystery to many people at that or any stage of life.
The advice would include essentials such as pension types—DB or DC schemes—investment strategies, charges and fees, consolidating multiple pension pots and retirement income choices, and would be practical, comprehensive and relevant. The advice would have to be qualified, independent and impartial. Trustees, managers and providers would have a role in facilitating access. Data sharing would be permitted, but with strong data protection safeguards.
This amendment in my name would also offer flexibility, in that responsibility could be placed with established bodies such as the Pensions Regulator, the Financial Conduct Authority and the Money and Pensions Service. It would be funded from prescribed sources to ensure sustainability. The regulations will be subject to the affirmative procedure, ensuring proper parliamentary scrutiny. Amendment 214 is designed to ensure that people have confidence in and clarity on their pensions, which, I assure noble Lords, many people do not have; to avoid poor decisions that undermine pension security, which many people make; and to make sure that everyone, not just those who can pay for private advice, gets the help they need.
The purpose of my Amendment 215 is to require the Secretary of State to commission an independent review into provisions in police pension schemes that result in the forfeiture, reduction or suspension of survivor pensions. It focuses on cases where survivor pensions are affected by remarriage—as mentioned by the noble Lord, Lord Davies—civil partnership or cohabitation.
Why is this review needed? These provisions can have significant financial, social and emotional impacts on survivors and their families. This would ensure fairness and consistency with other public sector pension schemes—the Armed Forces, the NHS and the Civil Service—and would address potential inequities or outdated rules that disproportionately affect survivors. This review would ensure an independent—that is the point—and transparent process, as well as stakeholder consultation, reporting and accountability. The review panel must publish its findings and recommendations within 12 months. The report must be laid before both Houses of Parliament, ensuring transparency and parliamentary oversight.
This amendment is designed to act to assess the fairness and impact of current survivor pension rules in police schemes and to identify practical reforms that protect survivors’ rights while maintaining scheme integrity, to ensure that the system is consistent, equitable and transparent. I look forward to hearing whether the Minister addresses my points about these amendments.
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
I am grateful to all noble Lords who introduced and spoke to these varied amendments. The range of subjects covered here shows the interest across the whole pensions landscape, but at heart is the objective that we all share of putting members first.
There was a theme around adequacy in Amendments 207 and 213 from the noble Viscount, Lord Younger of Leckie. Amendment 207 seeks to introduce a statutory requirement for the Secretary of State to conduct a review of the Bill’s impact on retirement incomes five years after it is passed, and to have subsequent reviews at intervals not exceeding five years from the first assessment. Amendment 213 wants a statutory requirement for the Secretary of State to conduct a review of the relationship between employment rates, earnings patterns and pension adequacy. Although both amendments raise key issues around pension adequacy and proper monitoring, the Government’s view is that the proposals risk the duplication of work already being undertaken. I shall explain why.
There are many different strands to this Bill, which will be implemented in phases over the next several years. For example, the first small-pots consolidation will not take place before 2030, so obviously any review in the next five years will not have allowed many of the reforms any time to take effect. It is for that reason that a comprehensive impact assessment was produced, setting out not only the potential impacts but also plans to evaluate the Bill in further detail, including developing new research projects to address evidence gaps.
The Government already carry out and publish analysis of projected future retirement incomes, which provides estimates of the number and proportion of working-age individuals aged 22 to state pension age who are undersaving for their retirement. The modelling that underpins that analysis uses a number of economic factors, including employment levels based on the OBR long-term forecasts, which are regularly reviewed and updated.
Separately, the Government have revived the Pensions Commission. I say to the noble Viscount, Lord Younger, that adequacy is absolutely not a secondary issue. As I have explained repeatedly in Committee, we are doing these things in the order that is appropriate to the matters. The Bill makes sure that steps are taken so that the market works well to make sure that increased savings will get appropriate returns for the savers.
The Pensions Commission’s legacy under the last Labour Government was of course to create a system of workplace pension saving via automatic enrolment, which has transformed workplace pension saving for millions of workers. There was cross-party support for this. But the Government recognise that millions are still not saving enough for their retirement, which is exactly why we revived the Pensions Commission to finish the job we started 20 years ago.
I will respond to the noble Viscount, Lord Younger. As indicated previously in Committee, the commission will produce an interim report this spring, setting out the evidence base and strategic direction for its work on assessing the UK’s pension system. It will set a direction based on the purpose that the Government have given it to identify remedies to address pension adequacy, fairness and risk before preparing its final recommendations in early 2027 for the Government to consider.
Viscount Younger of Leckie (Con)
My Lords, I am very conscious that I spoke at some length in my opening speech, so I will be brief in closing and do not intend to question the Minister too much on the points that she made. I will say only that, as my noble friend Lord Kirkhope rightly said, pensions are complex and need to be well thought through. This is a skeleton Bill, which we have pointed out in many of the debates, but I understand that, as the Minister said, it is important to look long term.
I have only one question. I may not be the only one who is confused about the timings of the commission. I think the Minister said that an interim report is being produced by the commission this spring and leading through to early 2027 pensions adequacy will be included in that report and the commission will set out options for the Government to comment on. I am putting words into the Minister’s mouth. I wonder whether she can confirm exactly where we stand on pensions adequacy. It may be that that will be in the letter that is being written, which might come my way.
Baroness Sherlock (Lab)
A letter is being prepared and will be sent after Committee. I want to put on record the timings and to be very clear about them. The interim report will be published this spring, and the aim is for the final report to be in early 2027. I will put any further detail in the letter to the noble Viscount.
Viscount Younger of Leckie (Con)
I am sorry to labour this like a long-playing record, but will pensions adequacy be included in that report? Or are we looking for something further?
Baroness Sherlock (Lab)
The Pensions Commission is there to look at the adequacy and sustainability of the pension system; that is its job.
Viscount Younger of Leckie (Con)
I would be grateful if the Minister would let me look at the letter, anyway; it is important to see that in detail.
To conclude, I want to pick up on Amendment 214 in the name of the noble Lord, Lord Palmer, concerning a universal pension advice entitlement. The context for this amendment is certainly well understood. The structure of pension provision has altered fundamentally over recent decades, and most private sector workers are now members of defined contribution schemes rather than defined benefit schemes. As we know, defined benefit schemes provided a predictable income for life; by contrast, defined contribution schemes require individuals to determine contribution levels, investment choices, consolidation of pension pots and the manner and timing of drawing retirement income. The risks associated with investment performance and longevity now rest primarily with the saver rather than the sponsoring employer.
In that environment, the case for improved engagement is compelling. Without appropriate support, individuals might under-save, remain invested in default arrangements without appreciating the degree of risk involved or make irreversible decisions at retirement without a full understanding of the consequences. There are also wider public policy implications. Inadequate retirement provision can increase reliance on means-tested benefits, intensify pressure on the state pension and contribute to intergenerational fiscal strain. In that sense, the noble Lord, Lord Palmer, has identified a matter of genuine structural importance.
However—this chimes with the Minister and the noble Lord, Lord Davies—there are practical considerations that cannot be ignored. The amendment refers to free and impartial pension advice. In regulatory terms, advice is distinct from guidance. Regulated advice requires authorisation by the FCA, entails suitability obligations and carries legal liability. To extend personalised regulated advice as a universal entitlement would require significant capacity, funding and oversight, and it would not be a modest undertaking. I reiterate that I agree with the noble Lord, Lord Davies of Brixton, and the Minister. The complexity of the system is real but so too are the operational and financial implications of delivering such an entitlement at scale, although I appreciate the noble Lord, Lord Palmer, bringing this up; it has been a valuable debate.
With that, I will dwell on what has been said in this debate in Hansard to work out what we might bring back on Report but, for now, I beg leave to withdraw my amendment.
Lord Palmer of Childs Hill (LD)
My Lords, I forgive the technicalities. This group—I will not speak at length on it—focuses on employer communications and decision-making. These are not peripheral issues. Poor communications, which there often are, and unclear boundaries between information, guidance and advice, can directly affect member outcomes. Amendment 208 asks for a review of the legislation and regulatory rules on marketing, financial promotion and member communications, while Amendment 210 would support employers through guidance and tools when choosing and operating workplace pension arrangements.
There is a legitimate policy question here around whether the current rules strike the right balance between consumer protection and practical communication that helps people make informed choices. I hope that the Minister will clarify whether the Government believe that there are avoidable barriers that prevent providers and employers from communicating useful non-advisory information to members and workers. They should be able to give that information easily and freely. Good pension outcomes depend on not only product design, on which we tend to focus, but understandable communications and workable employer support.
I hope that these amendments will try to improve the communications part of the scenario. I do not think that they are mind-bogglingly important, but they would, I believe, improve the system for pensioners, which is what we all, I hope, want to do.
Baroness Sherlock (Lab)
My Lords, I am grateful to noble Lords who have spoken. I absolutely agree with the noble Lord, Lord Palmer, that these are important issues. I hope to persuade him that the right action either has been taken or is being taken.
I appreciate the purpose behind the new clause proposed in Amendment 208 from the noble Viscount, Lord Younger. It aims to ensure that pension providers can communicate effectively with their members and provide appropriate guidance. The new clause would require the Government to review legislation and rules that might restrict pension providers from communicating with their members about a range of topics. I should say at the start that there is good reason to protect people from unsolicited marketing in many circumstances. Not only can irrelevant marketing be a nuisance but of course there are people who would exploit an increase in legitimate marketing as an opportunity for fraud or scams. In 2019, the last Government banned companies from making unwanted and unsolicited phone calls to people about their pensions.
At the same time, I recognise the need for clarity to help pension providers navigate the regulatory framework when communicating with their members. That is particularly important given the increased emphasis on pension providers supporting members directly through both guided retirement and, as raised by the noble Viscount, Lord Younger, the targeted support regime. The targeted support, as I have explained previously, could include helping people to make decisions about their pension.
The FCA and the Information Commissioner’s Office published a statement in December to provide clarity on the interaction between direct marketing rules and targeted support. That statement details how firms can promote their targeted support service to those who have opted out of direct marketing, while still complying with the relevant regulations. The statement also emphasises that financial services providers can send neutral, non-promotional and factual messages about important financial matters to all customers, even if they have opted out of marketing communications. That includes warning a pension member that they are undersaving for retirement or drawing down on their pension unsustainably.
However, in developing targeted support, the Government identified some specific issues in how the direct marketing rules in place for workplace pensions would interact with the new regime. The Government will be taking forward secondary legislation to address this, enabling these providers to deliver targeted support communications which amount to direct marketing to members who have not opted out of receiving it. This reflects that workplace pension providers have fewer opportunities to obtain consent for direct marketing, limiting the level of engagement they have with their members.
Turning to value for money communications, I am confident that the Bill already empowers us to achieve these aims. The Government have carefully considered the necessary requirements under the VFM framework. Clause 14 enables the provision of detailed requirements for member communications and interaction, including ensuring that guidance can be tailored to meet the needs of all members. The Government have already engaged in the process of reviewing the legislation and the rules identified in the amendment where appropriate and will continue to do so in a transparent manner.
Amendment 210, which is also from the noble Viscount, Lord Younger, seeks to require the Secretary of State to consider what steps are needed to help employers make the decisions they must make in relation to workplace pensions. While this is a positive aim, I do not think the proposal is necessary. Reasonably extensive guidance is already available to employers to support them to fulfil their pension duties. New statutory requirements are not needed in order to maintain or improve that information as the market evolves.
The Pensions Regulator has published guidance on workplace pension scheme selection, with supporting resources on what to look for in a scheme, including matters such as cost, tax treatment and different ways of making contributions. The FCA has also made guidance available to employers about providing support for employees, which includes pensions among other relevant areas. The DWP has guidance on default fund investment options, which sets out best practice concerning scheme design, governance and member communications. In response to the comment from the noble Viscount, Lord Younger, about smaller employers, that was developed particularly with those employers, including SMEs, which have been newly brought into the pensions world following the rollout of automatic enrolment.
Pensions UK also has its own independent guidance for employers, including its pension quality mark accreditation for high-quality schemes. These sources provide a wealth of information for employers and are regularly supplemented as the market evolves. There is not a need for new statutory requirements.
Once again, I highlight the VFM proposals in the Bill, which will enable the Secretary of State to place duties on trustees and managers to publish standardised performance information. This will help members and employers make informed decisions when choosing a scheme. It will also increase competition across different schemes on quality, not just cost, and could remove poor performing schemes from the market entirely, helping employers avoid low-quality options automatically.
The Government are committed to supporting members and employers to make the best decisions about pensions, but this amendment is not needed to allow the Government to continue to do that, and it does not in fact require the Secretary of State to take any steps if they do not consider them necessary. Overall, we believe there are some cases where more advice and support are needed for members, which is why we are introducing guided retirement and targeted support. We will always consider the interaction of new policies with a wider regulatory framework, but equally it is important to keep guardrails against unsolicited marketing and scams. We also believe that sufficient support is already available for employers in their decision-making, and powers are already available should more be needed. I hope that has reassured the noble Viscount and that he can therefore withdraw his amendment.
Baroness Stedman-Scott (Con)
My Lords, I am grateful to all noble Lords who have contributed to this debate. I recognise that these amendments are brought forward in a spirit of good will and genuine concern, and I thank all noble Lords for that. I turn first to Amendment 212 in the name of the noble Lord, Lord Sharkey, and to the amendment tabled by my noble friend Lady Coffey.
It is important that we approach this discussion with clarity about the framework that already governs occupational pension schemes. From my understanding, there is already a substantial and detailed regulatory architecture in place. First, schemes are required to maintain a statement of investment principles since the reforms introduced in 2019 and 2020. That statement must explicitly address financially material considerations, including environmental, social and governance factors. It must set out how climate change is taken into account, describe stewardship policies, including voting and engagement, and explain how such risks are integrated into investment decision-making. This is no longer optional; it is embedded in the core governance documents of the scheme.
Secondly, larger schemes are required to publish an annual implementation statement. This must explain how the policies set out in the statement of investment principles have in fact been followed. In other words, schemes must not merely declare their approach to environmental, social and governance matters but demonstrate how that approach has been put into practice. This has moved the framework from being purely policy-based to being demonstrably action-based.
Thirdly, schemes with £1 billion or more in assets, together with authorised master trusts, must comply with climate risk reporting aligned with the Task Force on Climate-related Financial Disclosures framework. This includes governance of climate-related risks, strategy for transition, scenario analysis, metrics and targets, such as carbon intensity, and annual public reporting. These are not light-touch obligations; they are detailed, prescriptive and public-facing requirements. Taken together, this represents a significant body of regulation. It requires trustees to consider financially material risks, including climate-related risks. It requires them to disclose how those risks are managed and to report publicly on progress and metrics.
Against that background, we should be cautious before layering additional statutory requirements on top of what is already a comprehensive regime. Trustees have fiduciary duties to act in the best interests of members, they must take into account financially material considerations, they are accountable to the Pensions Regulator and they operate within a framework that has been progressively more demanding in recent years. Trustees should retain the ability to determine, within that framework, which investments are in the best interest of their members.
Our task in this House is to ensure there is clarity, coherence and proportionality in regulation, and that we identify genuine gaps, rather than duplicate existing obligations. My aim in engaging on these amendments is precisely that: to ensure that we debate this matter with a clear understanding of the substantial framework that already exists, and to probe carefully whether there are specific technical deficiencies that require further legislative interventions. This is an important area, but it is equally important that we legislate with precision and with full awareness of the structure that is already in place.
Baroness Sherlock (Lab)
My Lords, I am very grateful to the noble Baronesses, Lady Hayman and Lady Coffey, and the noble Lord, Lord Sharkey, for introducing their amendments, and all noble Lords for contributing to a very interesting discussion. I will start with Amendment 212 from the noble Lord, Lord Sharkey.
While I recognise the aim behind this amendment, the Government believe that decisions about whether to invest, divest or engage must rest with trustees, who are already legally required to invest in the best financial interests of their members and to consider climate-related risks as part of that duty.
Baroness Sherlock (Lab)
I cannot get two sentences in before I am interrupted.
Lord Sharkey (LD)
I am sorry, it will not happen again, but the Government are trying to do precisely what the Minister said they should not do: they are trying to mandate investments.
Baroness Sherlock (Lab)
My Lords, I am simply not going to relitigate that all over again. Okay, I will give it two minutes, since the noble Lord has raised it. If he is referring to asset allocation mandation, as I made very clear during our debates on that subject, the trustees’ fiduciary duty should guide them, were those provisions ever to come into operation. If the trustees believe that they were not in the interest of their members, we would expect their duties to guide them to make representations and seek an exemption under the savings interest exemption test. That, along with all the other safeguards around it, deals with that question. Now, let me try and focus on climate for today; I have no doubt we will have plenty of other opportunities to discuss mandation, and I look forward to those.
Under the existing regulatory framework—I think that the noble Baroness, Lady Stedman-Scott, put it very well—trustees of UK pension schemes must already set out their policies on financially material environmental, social and governance factors, including climate change, within their statement of investment principles. They then have to publish annual implementation statements showing how those policies have been applied in practice. Since the Pension Schemes Act 2021, the larger schemes also have to publish annual reports aligned with the Task Force on Climate-related Financial Disclosures framework, the TCFD. Those disclosure requirements ensure that trustees have the information they need to make informed investment or divestment decisions.
The Government are strengthening these reporting frameworks to equip businesses and investors with the tools, standards and clarity they need to plan credible transitions and seize the opportunities of a net-zero economy. For example, last year DESNZ advanced an important manifesto commitment and consulted on transition plan requirements for UK financial institutions. Alongside that, DBT consulted last year on new UK sustainability reporting standards. My own department, DWP, working with the Pensions Regulator, is currently reviewing trustees’ TCFD requirements to assess the impact of the current climate disclosure regime, including a comprehensive stakeholder survey exploring the impact of TCFD requirements on governance, strategy, scenario analysis, risk management, member outcomes, engagement, reporting costs and future reporting. To support that, the regulator will present its findings on the practicalities of introducing transition plans for pension schemes to us this spring. These future reporting reforms are intended to modernise disclosures and provide schemes with critical insights into companies’ decarbonisation plans, which is information trustees can then use to judge whether investment or divestment is the appropriate course of action.
We should acknowledge the scale of the voluntary action that is already under way. Around two-thirds of UK pension funds now have net-zero commitments, many of them ahead of 2050. Funds are backing these commitments for significant investment: the London Pensions Fund Authority has allocated £250 million to its environmental opportunities fund; Border to Coast is investing in new UK wind and solar projects; and Nest has committed almost £1.3 billion to renewable energy infrastructure.
There is no single correct approach to managing climate-related risk. Trustees can, and do, divest where appropriate—for example, the Church of England Pensions Board announced its divestment from Shell plc and other remaining oil and gas holdings in 2023, following more than a decade of engagement. However, we recognise that some pension funds could, and should, be doing more. We will continue to support and challenge the sector in rising to that task. The right levers are better governance, better data and better transparency, not hard-wired requirements to decarbonise that remove trustee judgements and risk unintended harm to savers’ long-term outcomes.
Amendment 212 would prohibit schemes holding certain fossil fuel-related investments, even where companies have credible decarbonisation plans. The Government believe that such rigid prohibitions risk rushed divestment and would undermine trustees’ ability to exercise informed judgement. For those reasons, the Government cannot support this amendment.
Baroness Bennett of Manor Castle (GP)
It is very easy to cherry-pick individual schemes that have taken action but, as I said in my initial comments, the Financial Innovation Lab says that there are still more than £10 billion in thermal coal investments. Some industry research due to be published shortly by Corporate Adviser Intelligence shows that seven of the largest 19 schemes used for automatic enrolment, including Aviva, Royal London and Scottish Widows, remain invested, via their default fund, in one or more of thermal coal, tar sands and Arctic drilling. Another, SEI, reported that it has excluded these sectors but, last summer, it still had holdings in Glencore, which mines around 100 million tonnes of coal a year.
So, although there are these nice examples, such as those just provided by the Minister, surely the Government must look at this as an overall whole and see not just some good case studies but the norm and the rule right across the industry.
Baroness Sherlock (Lab)
It is probably worth me being really clear on the Government’s position. We recognise the high financial and climate risks associated with thermal coal investment. We support strong climate risk governance and expect trustees to integrate climate considerations into decision-making. We welcome industry-led reductions in coal exposure, as well as broader alignment with net-zero goals where we see them. However, we want to see more. As I have just said, we want specifically to challenge schemes to do more; I was offering examples of where things are going. Exposure is expected to decline over time, driven by market forces, global moves towards cleaner energy and evolving investment practices, but we still think that it is essential that trustees and managers retain the flexibility to make responsible long-term investment decisions in the best financial interests of their members.
I turn to Amendment 218A from the noble Baroness, Lady Hayman. I thank her for taking the time to come and discuss these issues with me; it was a very helpful meeting. The question of whether pension trustees may take long-term factors into account in their investment decisions is manifestly not a new one. I will not rehearse the full history, but we should acknowledge the considerable body of work that already exists in this space; in case I did not want to do so myself, the noble and learned Lord, Lord Thomas, helpfully reminded us of some of that. We had major contributions from the Law Commission in both 2014 and 2017. More recently, in 2024, as the noble and learned Lord said, the Financial Markets Law Committee produced its comprehensive report. Alongside these, there have been several respected legal opinions, including Eversheds’ work on behalf of NatWest Cushon and that of Sackers for ShareAction, which relates directly to this amendment.
Across all these analyses, one central principle emerges with complete consistency: a trustee’s primary duty is, and must remain, to invest in the best interests of scheme members. However, what is equally clear is that a degree of uncertainty persists, although I take the noble and learned Lord’s point on whether or not it should. Trustees can, and do, reach different interpretations of how their duties apply when considering factors that extend beyond immediate financial returns, such as climate risk, demographic pressures and impacts on members’ future living standards. Although these matters are often long term in nature, they can be financially material and are plainly relevant to both savers and the wider economy. We recognise the need to give trustees greater confidence in this area.
However, the Government do not agree that creating a new statutory duty in primary legislation is the right or necessary approach. The current legal framework already allows trustees to consider ESG factors, systemic risks and long-term impacts where they are financially material. That position has been consistently affirmed.
Baroness Sherlock (Lab)
Let me explain. We are concerned that replicating the climate provisions of Sections 41A to 41C of the biodiversity Act 1995 on a separate statutory track risks creating overlapping or potentially inconsistent strategies, metrics, scenarios and governance. Trustees could find themselves operating parallel regimes that could cut across one another, generating unnecessary process burden without necessarily improving outcomes for savers.
Crucially, there is also a sequencing issue. Although the evidence base on nature-related financial risk is advancing rapidly, nature data remain less mature than climate data, and the international baseline is still being established. Last November, the ISSB announced the beginning of nature-related standard setting, with the intention that these will become the global baseline. More than 30 jurisdictions worldwide have already adopted, or are preparing to adopt, these sustainability standards. Introducing a UK-specific statutory duty ahead of those developments would risk locking schemes into a domestic framework that could quickly be superseded internationally.
As I noted in our earlier discussion on Amendment 212, the Government are progressing their commitment to credible transition plans, beginning with companies. We believe that it would be premature to legislate for a separate, pension-specific biodiversity regime in advance of those cross-economy frameworks and the ISSB’s nature baseline. Our approach is to sequence reforms so that pension disclosures plug into a consistent, interoperable flow of corporate information, rather than obliging trustees to build bespoke and potentially temporary architecture. As part of our forthcoming statutory guidance on trustee investment duties, we will consider including concrete, good-practice examples of how schemes can identify, assess and manage biodiversity and broader nature-related risks, including supply chain deforestation, nature dependency mapping, data sources and stewardship escalation, as well as how to treat nature-related impacts where they are financially material.
The Government’s role is to enable and accelerate this momentum with coherent, internationally aligned frameworks; it is not to create parallel statutory silos. For these reasons, although we fully share in the intent behind Amendment 218E—I acknowledge the work done by the noble Baroness, Lady Coffey—we do not believe that this approach is correct. This has been a very good debate but I hope that, in the light of my remarks, noble Lords will feel able to withdraw or not press their amendments.
Lord Sharkey (LD)
The fact is that some, though not all, pension funds are invested in climate-changing activities. We need to do something about that, and we need to do it soon.
The other point I ought to pick up is, again, to do with statutory guidance. I have frequently asked when we will see the guidance, but the only thing I know for certain is that it will not be before this Bill becomes law. Parliament seems to be being bypassed in all this—and in all the secondary legislation that will be necessary to make this mean anything at all. It is reasonable for guidance to explain how pension schemes should go about considering certain matters, but it is not reasonable for what those matters are to go unscrutinised by Parliament and to be changeable at the whim of a Minister. Parliament will be unable to hold the Government to account. Why is it that, in the face of such concerns about guidance and fiduciary duty, as well as the obvious inherent dangers to the proper exercise of fiduciary duty, the Government choose to exclude Parliament?
I beg leave to withdraw my amendment.
Baroness Sherlock (Lab)
My Lords, I am grateful to the noble Lord, Lord Palmer, for introducing his Amendments 216 and 218. Amendment 216 would require the Secretary of State to establish an independent review into injustices experienced by members of occupational pension schemes due to the actions or omissions of employers, scheme sponsors or scheme administrators. Amendment 218 would require the Secretary of State to establish an independent review into pension losses former employees incurred when AEAT went into administration and their scheme entered the PPF.
Speaking to both amendments, the Government recognise the importance of pensions security in retirement, and member protections for those saving into pension schemes. We understand the hardship it can cause when people do not receive what they expect to receive in retirement. We also recognise the importance of strong member protections to ensure trust and confidence in our pensions system.
Amendment 216 refers to injustices, but it does not define these, so the remit for such a review is potentially very wide and would be difficult to achieve. The Minister for Pensions has met with a number of representatives from schemes to ensure that their issues are heard. This Government have listened and are taking action. For mineworkers, the Chancellor announced in the 2025 Budget that the investment reserve fund of the British Coal Staff Superannuation Scheme will be transferred to its members.
As covered in an earlier debate, the Government are also introducing increases in compensation payments from the PPF and the FAS that relate to pensions built up before 6 April 1997. This has been a concern for members of several schemes, including AEAT. I recognise the difficult position members have found themselves in and am pleased to say that members whose former schemes provided for these increases will benefit from these changes.
We also recognise the importance of members having a route to raise concerns or complaints with their scheme when things go wrong. Where a member has a concern about a scheme that cannot be resolved through the internal dispute resolution process, they can go to the Pensions Ombudsman. Where its remit allows, the Pensions Ombudsman provides an independent, impartial service to resolve pension complaints and disputes, offering a route to settle issues fairly and ensure that members’ rights are upheld.
The Pensions Regulator was set up to ensure that pension schemes and employers fulfil their duties to occupational pension scheme members. It makes sure that employers enrol their staff into a pension scheme and pay contributions into that scheme. It also makes sure that workplace pension schemes are run properly, so that people can save safely for their later years.
Central government and regulators are working actively with industry representatives to identify scam activity and put appropriate safeguards in place to prevent scams. To avoid members becoming victims of scams, pension schemes must carry out due diligence on transfers. All sides of the House agreed the introduction of the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021, introduced in November 2021. Those regulations limit a member’s statutory right to transfer if concerns are identified. In certain circumstances, the transfer will be paused, while in others, the transfer will not be able to proceed.
Baroness Neville-Rolfe
“Review of public service pension schemes(1) The Secretary of State must, within 12 months of the day on which this Act is passed, conduct and publish a review of the long-term affordability, intergenerational fairness, fiscal sustainability, and accounting treatment of public service pension schemes.(2) In conducting the review under subsection (1), the Secretary of State must have regard to—(a) the current and projected cost to the Exchequer of such schemes,(b) their affordability in the context of long-term public finances,(c) the impact of such schemes on different generations of taxpayers and scheme members,(d) the implications of demographic change, including longevity and workforce participation, for the sustainability of such schemes, and(e) the manner in which the liabilities associated with such schemes are recorded, disclosed, and accounted for within the public sector balance sheet and related fiscal reporting frameworks.(3) In preparing the review, the Secretary of State must consult—(a) the Office for Budget Responsibility,(b) the National Audit Office,(c) His Majesty’s Treasury, and(d) such other persons or bodies as the Secretary of State considers appropriate.(4) The schemes to which subsection (1) applies are—(a) the NHS Pension Scheme,(b) the Teachers’ Pension Scheme, (c) the Civil Service Pension Scheme,(d) the Armed Forces Pension Scheme,(e) the Police Pension Scheme,(f) the Firefighters’ Pension Scheme, and(g) any other public service pension scheme designated by the Treasury by regulations as operating on an unfunded or pay-as-you-go basis.(5) The review must be laid before both Houses of Parliament.(6) Nothing in this section affects any pension entitlement accrued in respect of service.”Member’s explanatory statement
This new clause would require the Secretary of State to conduct and publish a review of the long-term affordability, intergenerational fairness, fiscal sustainability, and accounting treatment of public service pension schemes.
Baroness Neville-Rolfe (Con)
My Lords, Amendment 217 would require the Secretary of State to conduct and publish a review of public sector pensions. I am very grateful to my noble friend Lady Noakes for her support and am only sorry that she has other commitments this evening.
I have always worried about the cost and sustainability of such pensions. I am a beneficiary of a modest one myself from my years in the Civil Service, and it is generously uprated every year.
Interestingly, there is a lacuna in the work the Government are undertaking on pensions. We have the Pension Schemes Bill, which we are busy scrutinising and which addresses problems with local government pensions and value for money in private schemes; we have the Pensions Commission review, led by this House’s eminent pensions expert, the noble Baroness, Lady Drake; and we have another independent review of the state pension age in progress. I expect that that review, like the one I conducted some years ago, will recommend an increase in the pension age in due course, and ways to encourage people to stay in employment for longer—for many good reasons.
However, there is a glaring gap. As far as I can see, none of these initiatives will address the sustainability of unfunded public sector pensions, their accounting treatment, or how best to tackle the issue of intergenerational unfairness that is an almost inevitable result of the fiscal unsustainability of these schemes. They include pension provision for some of the most important public services: the NHS pension scheme, the teachers’ pension scheme, the Civil Service pension scheme, the Armed Forces’ pension scheme, the police pension scheme and the firefighters’ pension scheme.
The numbers are big. There are over 3 million active members in the NHS, teachers’, Civil Service and Armed Forces schemes, 2.2 million deferred members and 2.8 million pensioners. That is a total of 8 million individuals. As populations grow older, the proportion receiving gold-plated defined benefit pensions will grow if nothing is done.
This is a virtually forgotten area of inquiry, perhaps because all of the policymakers and public sector trade unions are beneficiaries. However, since I tabled my amendment, there has been a useful report on the subject by Policy Exchange. I have also discussed the problem with the Centre for Policy Studies and with the economist Neil Record. I am glad that my noble friend Lord Moynihan of Chelsea is speaking today, as he has addressed this subject in his book, Return to Growth. As we will no doubt hear, he is very passionate about the unfairness that this represents.
Most people are aware that Britain has a huge national debt, which already sits at £2.9 trillion—97% of GDP—and is growing. However, as Neil Record has argued, there is a second national debt, the public sector pension debt, reflecting the cost of public sector workers’ defined benefit pensions. This is kept out of the limelight but, on government figures, the past five years’ average public sector pension liability as a percentage of GDP is 74%. That is on a scale that approaches the order of magnitude of the actual national debt. At the heart of the problem is the fact that this is a very long-term issue, like the actual national debt, with reform virtually impossible to reconcile with the electoral cycle.
I need to explain some of the complexities. On the surface, things look fine. In 2025-26, according to PESA 2025, there was a total of £58.6 billion-worth of public sector pensions being paid to about 3.5 million pensioners—that is a CPS estimate. This compares to a total of employer and employee contributions of £57.3 billion, which has dramatically risen in recent years. So, apparently, all is well.
But I am afraid that is not the case. The sums paid in pension contributions by employees do not go towards their pensions but to pay the pensions of those already retired. There are no savings to pay future retirees. I know that the figures in the OBR’s Fiscal Risks and Sustainability report of July 2025 are lower than Mr Record’s, but it is partly a question of how you do the calculations. Estimates on longevity and long-term public sector salaries are particularly difficult to predict.
My main point today is that, on any credible estimate, the numbers are frighteningly large. Something must be done. Moreover, the situation is getting worse, as commitments grow over time. It is unfortunate and regrettable that the scale of the problem is not properly reflected in the national accounts, although this is very difficult to unravel, even for those who are reasonably financially literate.
It is hidden by a combination of the accounting conventions and the moves in interest and gilt rates, which have made things look temporarily much healthier than they are. One of the most important variables in pensions is the interest rate applied to notionally invested contributions. Higher interest rates result, according to standard accounting conventions, in lower pension costs, and, of course, vice versa. However, when the facts are unravelled, even if no new pension commitments are made from this point—that is, if all the current schemes were closed to new accruals—existing public sector pension payments will continue to rise until the early 2060s, which, on best estimates, will by then amount to some £130 billion a year, with no capping mechanism of any sort.
You will struggle to find any acknowledgement of this in our national accounts. The Government use a long-standing convention called SCAPE—superannuation contributions adjusted for past experience. I will not go into the detail, but it is uniquely vulnerable to manipulation and, according to informed opinion, has been manipulated with the use of artificial rather than market-based interest rates.
I have also discovered an allegation that there has been a surprising adjustment in the NHS arrangements—the largest of the public sector pension schemes. So, when employer contribution rates were raised, as they certainly needed to be, from 14.3% to 20.6%, the then Government decided to finance the gap of 6.3%—allegedly temporarily—by paying that amount directly from the Treasury rather than charging the NHS employing organisations. In 2024-25, the gap rose to 9.4%, or £6.6 billion per annum, which the Government have now decided to fund permanently. Although there is no overall impact on the public finances, this sets a poor precedent of obscurity in an already obscure system. So, can the Minister kindly let us know the justification for this decision to fund this gap permanently?
Baroness Stedman-Scott (Con)
My Lords, I support Amendment 217, tabled by my noble friend Lady Neville-Rolfe. This amendment does not seek to diminish the value of public service, nor to undermine the pensions of those who dedicate their careers to the NHS, our schools, the civil service, the Armed Forces, the police or the fire service. Rather, it asks for something far more modest and necessary: transparency, long-term thinking and honesty about sustainability.
The amendment would require the Secretary of State to conduct and publish a review of the long-term affordability, intergenerational fairness, fiscal sustainability and accounting treatment of our major public service pension schemes, including the NHS pension scheme, the teachers’ pension scheme, the Civil Service Pension Scheme, the Armed Forces pension scheme, the police pension scheme and the firefighters’ pension scheme. My noble friend Lady Neville-Rolfe has outlined clearly and forensically the challenges of the concerns about the sustainability of unfunded public sector schemes. These are not new, but they are becoming more pressing. In 2023-24, total employer and employee contributions amounted to £49.9 billion. Total payments to pensioners were £55 billion. That left a shortfall of £5.1 billion, met directly from general taxation. In other words, today’s taxpayers are already topping up the system.
According to the Policy Exchange, unfunded public sector pension liabilities now stand at approximately £1.4 trillion: around 45% of GDP and approaching half the size, or more, of the official national debt. These are not hypothetical sums; they are long-term promises underwritten by future taxpayers. Unlike funded private sector schemes, most public sector pension contributions are not invested to generate returns; they are returned to the Treasury while current pensions are paid from current spending. This means future liabilities depend on future taxation. The burden is simply rolled forward. That may be sustainable—but it may not be. Surely this Committee is entitled to know which it is.
My noble friend Lady Noakes in her foreword to the Policy Exchange report set out clearly that transparency and realism are essential if we are to protect both pensioners and taxpayers. A mature system does not fear review; it welcomes it. I ask the Minister: do the Government believe the current trajectory of unfunded public service pension liabilities is sustainable over the next 20 or 30 years, what assessment has been made of the intergenerational fairness of asking younger taxpayers—many without access to defined benefit pensions themselves—to underwrite these commitments, how does the Treasury account for these liabilities in long-term fiscal planning, and are they fully reflected in measures of public sector net worth? Finally, if the Government are confident in the system’s sustainability, why resist a formal review that would provide clarity and reassurance?
This amendment would not prescribe reform; it simply asks for a comprehensive review and publication of the facts. If the costs are sustainable then let us demonstrate it, and if adjustments are needed then let us confront them honestly.
Baroness Sherlock (Lab)
My Lords, I thank the noble Baroness, Lady Neville-Rolfe, for introducing Amendment 217, which would require the Secretary of State to produce and publish a review of public service pension schemes, focusing on different aspects of the cost, affordability and accounting treatment of these schemes. I remind the Grand Committee that I am a member of the parliamentary pension scheme, and therefore of my appreciation of the work of the noble Viscount, Lord Thurso.
The noble Baroness is quite right to focus on the affordability of these schemes and what this means for intergenerational fairness, given that unfunded public service pension schemes pay out over £60 billion in pensions and lump sums each year and are often the single largest liability in the whole of government accounts.
However, as has been indicated already, and as the noble Baroness will know only too well, her party conducted a major review during the coalition Government, in the form of my noble friend Lord Hutton’s Independent Public Service Pensions Commission. That led to major reforms, including the new schemes to which all active members of the main schemes are contributing today, with a move from final salary to career average design, higher pension ages and higher member contribution rates. Due to the McCloud judgment and the resulting choice exercise for affected members, those members may have been building up only since April 2022, meaning that these major reforms are only now fully bedding in for all members. As my noble friend Lord Davies noted, the then Government committed to the 25-year guarantee, in effect committing to no further major reforms to public service pension schemes until 2040.
The proposed review would be conducted by the Secretary of State for Work and Pensions. However, I note that statutory public service pension schemes are the responsibility of the Chancellor of the Exchequer, and I know that the Treasury works closely with the OBR and the NAO on this policy area already.
The centrality of the questions that the amendment would require the review to consider means that much of this information is regularly published already. For example, the OBR publishes a forecast of the cash-flow cost of public service pensions over the coming years as part of its forecast at every fiscal event, including spending on pensions and lump sums, income from pension contributions and the net balancing payment to or from the Exchequer. The OBR also publishes long-term projections of spending on public service pension schemes as a share of GDP as part of its fiscal risk and sustainability reports. As noted, the most recent forecast from September 2024 projects that spending will decline from 1.9% of GDP to 1.4% of GDP over the next 50 years.
Demographic changes as a result of longevity or migration are taken into account in the OBR’s long-term analysis. The sensitivity of scheme liabilities to longevity is central to the four-yearly valuation reports used to set employer contribution rates across schemes. Both the valuation reports and the whole of government accounts contain detail on different accounting treatments of scheme liabilities and how to interpret the resulting headline figures. Given that all this information is regularly published already, and the reforms to public service pension schemes that have already been implemented, a government review into the affordability of these schemes would merely collate existing information in one place.
Let me address some of the specific questions that were raised, turning first to the treatment of pensions and the whole of government accounts. In recent years, liability has decreased significantly, falling from £2.6 trillion in 2021-22 to £1.4 trillion in 2022-23 and £1.3 trillion in 2023-24. The whole of government accounts report is fully transparent in explaining that these changes were driven by an increase in the applicable discount rate rather than changes in the amount of pension being accrued by scheme members. The whole of government accounts reports present this liability in accordance with the international financial reporting standards. There are no plans to change that approach and nor do we think there should be.
However, I am aware that members of the PAC have asked whether this liability could be presented on a more permanent basis, to show how it would change in the absence of changes to the discount rate, to aid user understanding. The Treasury is currently exploring options to present pension liabilities on a constant basis. To be clear, any such presentation would be purely supplementary and would not affect the underlying pension liability calculations or the way those are presented in the financial statements.
The noble Baroness, Lady Neville-Rolfe, asked why the Government are funding the gap permanently. The answer is that current contributions reflect the cost of current employment—pensions to be paid in the future. Current contributions are not intended to be and do not relate to current pensions in payment, which were earned years or indeed decades ago. So current pension costs reflect pensions earned. This is therefore not an appropriate basis to consider affordability. Traditionally, the central measure for Governments has been pensions as a proportion of GDP.
On whether it is right to be paying these kinds of pensions, I am very grateful to the noble Viscount, Lord Thurso, for his stirring defence. It is really important to recognise that, sometimes, this is discussed as though all public sector employees are calling in huge salaries and doing little for them. He defended how so many people in the public sector are driven by vocation and a calling into public service: they do things to serve and often have lower salaries than they might have elsewhere. I pay tribute to all those who are in that position.
It is true that, compared with the private sector, remuneration in the public sector is weighted towards pension. This is why public service pension schemes are so central to the Government’s fiscal forecasts. However, the noble Viscount is quite right: public sector remuneration has to be considered in the round, across pay and pensions. That is why pension provision is specifically taken into account as part of the pay review body process across the major public service workforces.
It is also important to distinguish between the generosity and cost of the schemes and their DB design. My noble friend Lord Hutton noted in his review for the coalition Government that they are a large employer capable of bearing the risks inherent in a DB design. It is thus in a different position from other employers. In a sense, cutting public service remuneration, whether from pay or pensions, would allow any Government to score savings for the Exchequer, but the fact is that reward packages for each public sector workforce have to be designed to maintain the required levels of staffing and to deliver the required public services.
Finally, it is worth remembering that the changes made following the Hutton review were significant. As I said, the scheme design changed from final salary to career average; pension ages were increased to state pension age for most schemes and to 60 for the police, firefighters and the Armed Forces; member contribution rates were increased across schemes, except for non-contributory Armed Forces schemes; and other aspects of scheme design were modernised, for example, in supporting flexible retirement. At the time, it was estimated that those reforms would save £400 billion over 50 years. Separately from the Hutton reforms, the then Government also switched the indexation of the scheme from RPI to CPI, in line with other forms of spending.
This has been a very interesting debate but, as I have said, most of the information that has been sought in the review is out there already, so such a review is not currently worth while. I hope the noble Baroness can withdraw her amendment.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful for the support I have received this evening, particularly from my noble friend Lady Stedman-Scott and the noble Baroness, Lady Bowles, who, like me, cares a lot about transparency and favours a review. I listened with care to what the Minister said, and will look carefully at Hansard, but I do not think that the arrangements are very easy to understand, nor do I think that the OBR or government accounts are easy to understand or transparent.
I tabled my amendment because I wanted to air the problem of the unsustainability of public sector pension schemes as I see them. My noble friend Lord Moynihan described the current schemes as a Ponzi scheme, which was very strong, but he is right that we have a sustainability issue. That is in part caused, as has been mentioned, by the happy fact that we all now live longer. We face this issue in all our pension discussions and we cannot hide from it.
The noble Lord, Lord Davies of Brixton, helpfully agreed that a debate on these issues is needed. He and I go back, and we debate these things, which is very useful, but I was surprised to hear that a 25-year guarantee can be given by any Government. However, as has been said and is true, contributions by employers and employees in the public sector have increased as a result of Hutton, but we still have an unsustainable situation, so we need new thinking and certainly a review. I have been careful not to make any recommendations today, but to highlight the issues as I see them. It is wrong that this important Bill sidesteps the issue that is storing up problems—for our children and our grandchildren—from the pay-as-you-go schemes that we have.
Baroness Sherlock (Lab)
I am grateful to the noble Baroness, Lady Coffey, for introducing her Amendment 218D and drawing attention to pensions dashboards. The Government recognise the important role pensions dashboards will play in increasing people’s engagement with their pensions, and we note the purpose behind the amendment. Obviously in practice it would require the FCA to make rules within six months of the Bill receiving Royal Assent to enable private sector pension dashboards to receive data and operate. It would also repeal the requirement for the Secretary of State to give notice specifying the dashboards’ available point at least six months in advance of that point.
I know that many noble Lords here are supporters of pensions dashboards and are keen that they are launched as soon as possible, so it has been good to be able to update noble Lords on the progress that has been made. I know some noble Lords were able to come to the presentation, but for those who were not, I just say that over 700 of the largest pension providers and schemes are now connected to the dashboards ecosystem, and over 60 million records are now integrated into dashboards. That represents around three-quarters of the records in scope. The state pension has now connected, adding tens of millions of state pension records.
My noble friend Lord Davies is right to say that we need to get this right. It is important that pension dashboards are launched only when they are safe, are secure and have been properly user tested. When noble Lords attended the demonstration, they could see that pensions dashboards provide a great opportunity for consumers. In order to realise that opportunity fully, we need to make sure that the service offers them a positive experience and meets their needs. Consumers need to be able to understand the information a pensions dashboard is showing them and the limitations of that information. They need to be supported by broader pensions guidance to help them with any potential actions after viewing their information. User testing is key to getting this right.
I am pleased to be able to advise the Committee that user testing of the MoneyHelper Pensions Dashboard is under way. Low-volume testing began last year and will ramp up during the course of this year. Only once we have confidence from this testing that the service is ready for widespread public use will the Secretary of State give six months’ notice for launch. The Government have previously confirmed that the delivery of the MoneyHelper Pensions Dashboard will be prioritised, to be followed at a later date by the launch of private sector dashboards. That will allow the launch of private sector dashboards to be informed by learning from the launch of the MoneyHelper Pensions Dashboard—for example, on volumes of users.
The noble Baroness, Lady Coffey, is more or less saying, “Why is it taking so long and what has happened?” She is right that there was a reset between March 2023 and March 2024 and the programme is currently rated amber, but the fact is that delivering pensions dashboards is a very complex task. The digital architecture will facilitate the search of millions of pension records held by thousands of pension schemes and providers, each with a different IT system and different ways of calculating values. It is important we get it right. Dashboards have to be safe and secure and must meet the need of consumers before they are launched. While the scale of the task of making dashboards a reality is huge, the fact is that delivery partners are making good progress. The pensions dashboard programme is confident that schemes and providers in scope will be able to connect by the regulatory deadline on 31 October 2026.
In terms of private sector dashboards, I can reassure the noble Baroness, Lady Coffey, that the Government are fully committed to delivering private sector dashboards and that MaPS is working closely with potential dashboard providers, the DWP and regulators on a pathway for their development and implementation. The FCA has already consulted on and finalised the rules that will apply to dashboard providers after they are authorised and connected to the live environment. MaPS is also engaging actively with the industry and launched a call for input in January this year seeking feedback on how best to support the delivery of private sector dashboards. While the Government recognise the innovation that private sector dashboards will bring to the industry, the date for the dashboards’ available point cannot be specified at this stage. The decision to launch private sector dashboards must be subject to many factors, including securing a sufficient level of coverage, being assured of the safety, security and reliability of the service and testing the user experience.
The noble Viscount asked whether we can confirm a date. It is too early to confirm a launch date because it is vital that the foundation on which dashboards are built, the whole ecosystem, is safe and secure and works for both the pensions industry and individuals.
Once the service is secure, operationally reliable and thoroughly user tested, the Secretary of State will provide six months’ notice ahead of the launch of the MoneyHelper Pensions Dashboard for public use. The requirement to provide six months’ notice in each case through the dashboards available point is intended to provide the pensions industry with notice to provide for the launch of private sector dashboards, which will help support a positive user experience.
I understand that noble Lords want to get this done quickly, but I would say two things. Pursuing speed at the expense of security and user experience would be a mistake, one that Governments have learned over the years. We need to get this right. Secondly, the noble Baroness, Lady Coffey, wants something out there as soon as possible—so do I. Prioritising the public sector dashboard is the fastest way to get something out there. We are pursuing that. We all want this to be done as soon as possible, but we can do it only when we are confident it can be secure and meet users’ needs. I hope that is enough reassurance for her to withdraw her amendment.
Baroness Coffey (Con)
Of course I will withdraw the amendment, but I do not want to give the Minister any suggestion that I have any assurance from what I saw at that briefing, in terms of user testing. I do not want to go into detail, because that is not relevant for this Committee, and I am more than happy to meet to discuss.
What I will say is that it is clearly making certain amounts of progress, technically. But I am concerned about aspects of the user testing, which were laid out to us, because that is what is taking very long. This is something that the Government and MaPS are not very good at. I have plenty of experience of that from my time running DWP, in terms of aspects of its communications, particularly on something technical such as this. That is why I am concerned, and why I brought this to the attention of the Committee today. That said, I seek leave to withdraw the amendment.
Baroness Stedman-Scott (Con)
My Lords, I shall speak to Amendment 219A, tabled by the noble Baroness, Lady Altmann, and moved by the noble Baroness, Lady Bowles. This amendment would ensure a more structured and joint approach between government departments and their related regulators, including the PRA, the FCA and the Pensions Regulator, so that their respective responsibilities for solvency, consumer interests, member protection and the promotion of growth are properly aligned.
I understand very clearly where the noble Baroness is coming from. Indeed, I am reminded of our earlier debate in Committee when I spoke to Amendment 206 alongside my noble friend Lady Coffey’s Amendment 180A. At that time, we touched on an issue that remains unresolved—the fact that very similar pension products could be treated differently, depending on whether they fall within the remit of the Pensions Regulator or the Financial Conduct Authority. That observation is not controversial—it is simply a reflection of how our current regulatory architecture has developed over time. Different bodies created at different moments for different purposes now oversee parts of what, to the saver, appears to be the same market. It is therefore entirely reasonable to ask whether greater alignment would improve clarity, consistency and outcomes. There may well be areas where closer co-ordination would be beneficial.
I shall not rehearse in full the arguments that I made previously, but I continue to believe that a formal co-ordination protocol offers three important virtues. First, it provides flexibility. A protocol can evolve as the regulatory landscape changes, allowing co-operation to deepen or adjust without the need for immediate structural overhaul. Secondly, it allows for escalation. If problems persist or new risks emerge, the framework for co-ordination could be tightened, strengthened or made more prescriptive. Thirdly, and perhaps most importantly, such a protocol can generate the evidence base for future reform. If, over time, it becomes clear that more fundamental consolidation of regulatory functions would better serve consumers and markets, the experience of structured co-ordination would provide the practical foundation of that decision. In that sense, this amendment is not about precipitating institutional change but about coherence; it is about ensuring that solvency, consumer protection, member outcomes and growth are pursued not in isolation but in a balanced and mutually reinforcing way.
For those reasons, I believe that the amendment from the noble Baroness, Lady Altmann, raises an important and constructive point for the Committee to consider.
Baroness Sherlock (Lab)
My Lords, I am grateful to the noble Baroness, Lady Bowles, for introducing Amendment 219A on behalf of the noble Baroness, Lady Altmann. As we have heard, it would require regulations made under the Bill to be aligned with the technical actuarial standards.
I say at the start that I share the concern that governing bodies work together to ensure that members are protected and that schemes work to secure the best outcomes. It is also important that trustees have considered the range of options available to them before making decisions on their schemes’ direction of travel and committing funds to any particular option. However, I assure the Committee that there is already a lot of collaboration between the Government and regulators on a formal and informal basis. Trustees, in line with their duties, are considering the options for their schemes in the round.
This amendment would require trustees themselves to comply with the criteria for technical actuarial standards. These are intended for actuaries to comply with, who must operate according to the standards set by the Financial Reporting Council. Actuaries will then provide advice to trustees in response to trustee requests, highlighting the risks, assumptions and options available to them.
Actuarial analysis plays an important role in informing the process. It provides a clear assessment of the risks, underlying assumptions and range of options available for a given request. But it is advisory in nature and does not, in itself, determine the final decision. Trustees will then draw on this information to inform their decisions about the effective operation and governance of the scheme. It will be considered alongside other advice that trustees may consider appropriate to obtain, including investment, legal and covenant advice. But trustees are ultimately the decision-makers, and they remain fully accountable for the choices that they make on behalf of their members.
Trustees already consider the correct endgame for their schemes. The risks and opportunities facing schemes differ according to a range of factors, including the maturity of the scheme and the strength of the employer covenant. Under the funding code, trustees are required to set out their funding and investment strategy, describing how they intend to meet members’ benefits over the long term—their long-term objective. The funding code requires trustees to assess the key risks to delivering their funding and investment strategy, to explain how these risks are monitored and to set out the steps being taken to mitigate them. Trustees must also assess the employer covenant, as the employer’s financial strength is central to supporting the scheme.
The Pensions Regulator has set out guidance for schemes to consider their long-term objective and options, including buyout, superfunds and run-on, which sets out clear expectations of trustees. It will be updating the guidance and will work with the FCA and, where appropriate, the PRA and FRC to ensure alignment across all guidance relating to considerations of alternative options. Requiring alignment between regulations and professional standards could have unintended consequences, including reducing flexibility for trustees and requiring a succession of further legislative changes to maintain alignment as these standards evolve over time. It could also result in the actuarial profession being the driver behind the content of regulations, when this should clearly be a matter for government policy.
It is crucial that trustees remain in the driving seat when making decisions for schemes, which this amendment would have the effect of removing. I am grateful to the noble Baroness, Lady Bowles, for giving us the opportunity to have this debate, on behalf of the noble Baroness, Lady Altmann, but I hope she feels able to withdraw the amendment for the reasons that I have outlined.