Pension Schemes Bill

Monday 23rd March 2026 Lords Chamber

Report (3rd Day)

Scottish, Welsh and Northern Ireland legislative consent granted. Relevant documents: 42nd and 47th reports of the Delegated Powers Committee.

15:38

Amendment 120

Moved by

[Lord Palmer of Childs Hill]

120: After Clause 96, insert the following new Clause—
“Report on the impact of pension market consolidation(1) The Secretary of State must, within 12 months of the day on which this Act is passed, publish a report on the impact of consolidation in the occupational pensions market.(2) The report must include an assessment of—(a) the level of market concentration among pension scheme providers, including trends in the number and size of schemes;(b) the effects of consolidation on competition, innovation, and consumer choice in the pensions market;(c) the potential barriers to entry and growth for small and medium-sized pension providers;(d) the adequacy of existing regulatory and competition safeguards in preventing anti-competitive behaviour regarding—(i) exclusivity arrangements,(ii) exit charges, and (iii) pricing structures;(e) the role of The Pensions Regulator and the Competition and Markets Authority in monitoring and responding to market concentration;(f) the merits of policy or regulatory measures to support new market entrants.(3) The Secretary of State must lay a copy of the report before both Houses of Parliament.”Member’s explanatory statement
This new clause would require the Government to report on the impact of market consolidation on competition and new market entrants.

[Lord Palmer of Childs Hill (LD)]

My Lords, in leading once again on this Bill, I say that this group is bound together by a simple question: is the pensions system working as it should for its members and do we have the evidence to judge this properly? The proposed review is on consolidation, access to impartial pension advice, injustices experienced by scheme members, communications and data accuracy. It all goes to trust, fairness and whether savers can navigate the system with confidence.

From these Benches, we think these are legitimate concerns. Consolidation may bring efficiencies but could also reduce competition and choice if left unchecked. Better access to impartial advice is plainly in members’ interest, especially at key decision points. If data is inaccurate or communications unclear then even a well-designated, well-designed system can fail the people it is meant to serve.

I am pleased to have raised in my amendments the issues of competition, access to impartial pensions advice, and injustice experienced by scheme members. These are matters that I raised in Committee and I appreciate the time of, and the response from, the Minister and her colleagues in government. With all the pressures on us, I will not use any more of your Lordships’ time and bring my remarks on my amendments to an end. I beg to move.

[Baroness Altmann (Non-Afl)]

My Lords, briefly, I support Amendment 120, in the name of the noble Lord, Lord Palmer. It is important to look at the issues he rightly raised that relate to the market. Indeed, Amendment 165 is particularly important, given that the injustices, some of which we will come on to in later groups, seem to have few redress routes. For a good pensions system, it is incumbent on us to have a better system to identify and remedy occupational pension injustices.

I will briefly speak to my Amendment 160, which would require a review to ensure that data in pension schemes must be accurate. Currently, there is no legal requirement to ensure that the amounts of money being paid into pension schemes for auto-enrolment workers or anyone else—I am particularly concerned about auto-enrolment—are correct. The Pensions Regulator has to make sure that pension contributions are being paid, but there is no requirement to make sure that this money is the correct amount.

I suggest amending the Pensions Act 2008 so that the section on “quality requirements” includes something that confirms regular checking of pension contributions; the regulations in Section 33 on “deduction of contributions”

“must require employers to obtain confirmation from the trustees or managers … that the amounts … paid into a scheme … are regularly checked … recorded and corrected as quickly as possible”;

and Section 60 on “requirement to keep records” would require schemes to provide confirmation that regular data accuracy checks and contribution verification, including for tax relief and national insurance relief, are correctly reported.

I have so often seen pension scheme records riddled with errors. It is surprising that there are no requirements in the legislation to make sure that the amounts of money going in are correct. I am interested to hear the Minister’s comments on the Government’s thinking as to whether they would consider this.

[Baroness Stedman-Scott (Con)]

My Lords, I will speak broadly in support of these amendments. They reflect a thoughtful and welcome focus from across the House on some of the most important structural issues in our pension system. In particular, I welcome the attention given by noble Lords to the effects of consolidation on competition and market entry, and to the importance of robust data accuracy checks. A market that consolidates without sufficient scrutiny risks reducing innovation and choice, while poor data integrity undermines trust at its very foundation. These are therefore welcome points of focus, and I thank the noble Lord, Lord Palmer, and the noble Baroness, Lady Altmann, for raising them.

However, I will speak primarily to Amendment 169 in my name and that of my noble friend. This amendment would require a review of pension communications and financial promotion rules, examining whether the current framework unduly restricts providers from communicating clearly with members, particularly in relation to risks, guidance and comparative information. This is, I believe, a profoundly important issue. The reality is this: pensions are complex, technical and often opaque. For many people, they are also distant—something to be thought about later rather than now—but that distance is illusory. The decisions made or not made today will shape financial security decades into the future. Knowledge in this area is power, yet too often, individuals lack both the information and the confidence to engage meaningfully with their pensions. Communications can be overly cautious, overly technical or constrained in ways that make it difficult for providers to present information in a way that is clear, comparative and genuinely useful.

15:45

We have heard several times in our discussions with industry that professionals can be hesitant to provide what would be sound and helpful advice, because of concerns that rules like those set out in the Privacy and Electronic Communications (EC Directive) Regulations 2003 can impose significant uncertainty and burdens on pension providers and make it more difficult to provide scheme members with timely and helpful information. The result is confusion, disengagement and, in turn, poorer outcomes. Our amendment asks fundamental questions. Are we striking the right balance between protecting consumers and empowering them? Are the rules enabling clear, accessible and honest communication, or are they inadvertently limiting it? If we are serious about building a pension system that works for everyone, we must ensure that people are able to understand it and that the rules do not prevent them receiving timely and helpful advice from experts. Engagement and understanding must be enabled, and it can be enabled only if individuals and professionals are given the tools, information and clarity they need to take ownership of their financial futures.

This amendment is therefore about more than communications; it is about trust, transparency and, ultimately, outcomes. I will therefore be listening carefully to the Minister’s response to the issues that I and other noble Lords have raised in this group. I provide notice that I will seek to test the opinion of the House on Amendment 169 when it is called.

[Lord Davies of Brixton (Lab)]

Is the noble Lord, Lord Palmer of Childs Hill, going to contribute to this debate?

[The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

He has spoken already.

[Lord Davies of Brixton (Lab)]

Okay. This demonstrates the clear fact that I am still suffering from my cold, which is so bad that it kept me from attending the second day of Report.

There is an important issue that needs to be highlighted, and that is addressed in Amendment 165. I want to say a word on behalf of the members of a number of different schemes—NatWest is one, but there are others—who feel aggrieved because they were not properly informed of their rights under their scheme. Their major complaint is that when they reach state pension age, they suffer a diminution in their benefits. These rules were introduced in all good faith, and I participated in such negotiations myself, but it is the failure of the employer to ensure adequate information for members that has led to the complaint.

Do I have a different grouping from everyone else? I am speaking to Amendment 165, which is in the first group—is that correct?

[Lord in Waiting/Government Whip (Lord Katz) (Lab)]

Yes.

[Lord Davies of Brixton (Lab)]

Okay; good. As I say, I am still suffering from my cold, and I hope the House will indulge me. But I think it is important to make the point on those members’ behalf.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords who spoke. I think the noble Lord, Lord Palmer, decided not to dwell on a number of his amendments because there is more to come, I suspect, in later groups. I had a nice long speech written in response to all these, but I may spare the House parts of that and concentrate on the issues raised during the debate.

Briefly, on consolidation, I think in general we all agree on the importance of understanding and monitoring the impact of the reforms presaged in this Bill. The Government have already taken steps to do this. A comprehensive, green-rated impact assessment was produced and an updated version was published as the Bill entered this House, with details of our monitoring and evaluation plans, including critical success factors and collaboration across regulators and departments. We have published a pensions road map, setting out clearly when each measure will come in. So the kind of review envisaged in the first amendment would not be helpful.

Amendment 160 from the noble Baroness, Lady Altmann, would give new powers to the Secretary of State to require employers and pension providers to undertake regular data accuracy checks in relation to contributions paid into workplace pension schemes. I completely agree about the importance of ensuring that members get the contributions they are due. However, I do not agree that the additional requirements proposed are necessary or proportionate, given the robustness of the current regulatory framework. Compliance with automatic enrolment duties remains high. The Pensions Regulator—TPR—runs a proportionate and effective compliance regime, underpinned by detailed guidance.

As I explained in Committee, employers, together with the trustees or managers of pension schemes, are already required to keep certain records. That includes details of both employer contributions and deductions from members’ earnings for each relevant pay reference period. Employers have to keep payment schedules and contribution records for six years and opt-out information for at least four. TPR has issued codes of practice setting out clearly how trustees of DC schemes and managers of personal pension schemes should monitor the payment of contributions. These also cover the provision of information to scheme members, enabling them to check that their contributions are made correctly, and they establish clear expectations around the reporting of material payment failures.

There is already a requirement for scheme providers to have sufficient monitoring processes in place, which includes a risk-based approach to monitor employers, who should have appropriate internal controls to ensure correct and timely payment of contributions. If a trustee—

[Baroness Altmann (Non-Afl)]

Can the Minister confirm for the House whether there are any checks or reporting on accuracy of the contributions? There is a requirement, but is anybody actually checking whether the amounts are correct?

[Baroness Sherlock (Lab)]

I invite the noble Baroness to come back in at the end if she feels I have not answered that. I would say two things to her. One is that the duty is on the trustees or managers. If they become aware that the appropriate things are not being done by employers, or that an employer does not appear to be taking adequate steps to remedy a situation where things have gone wrong—for example, if there are repetitive or regular payment failures—they have a duty to report it to the regulator.

But crucially, the proposed value-for-money framework introduces an assessment of quality-of-service metrics, which directly addresses the accuracy and promptness of core administrative functions, including the secure, timely and accurate processing of contributions. Metrics related to saver engagement will be phased in at a later date, but schemes will be required to disclose how often they review and correct both common and scheme-specific data as well as the proportion of members with complete and accurate records. They also will have to report on the timeliness and accuracy of core financial transactions, such as paying in contributions.

We are currently considering the feedback received from industry on the latest VFM consultation in order to make sure that we develop a VFM regime that will drive greater transparency and higher standards around data quality and contribution accuracy. I hope that is exactly what the noble Baroness wants, and that that has encouraged her. These measures demonstrate that there is a well-established and effective framework that, together with the VFM measures, will make all the things she wants come into place.

I will not dwell on Amendment 163 from the noble Lord, Lord Palmer, about universal pension advice; we gave that a fair outing in Committee. I simply say that we completely share the view that we want to make sure that people get the appropriate advice at the time they need it. But there is already a very large amount of support out there. Being realistic, the option proposed in his amendment would probably, at the best guess on first estimates, cost around £2 billion and require us to double the size of the financial advice sector. I know he is not pushing that, but he is pushing the important underlying point: to make sure that people have access to the support they need. We believe that, between what is available at the moment and what is coming on stream—Pension Wise, stronger nudge and guidance, and targeted support and guided retirement—there is a lot out there that will do that job.

I turn to Amendment 169 from the noble Baroness, Lady Stedman-Scott. It is always faintly dispiriting when someone announces at the start that they will listen to you but they are going to vote on it anyway. But let me do my best, notwithstanding that challenge, and maybe I can persuade the noble Baroness and she will change her mind—one never knows.

This amendment relates to pension communications. I understand that its aim is to ensure that pension providers can communicate effectively with their members so that they can navigate their choices with confidence. We share that aim, which is why we are acting to reduce complexity and strengthen the support available to pension members. The Government have heard extensive feedback from firms on how targeted support may interact with the direct marketing rules contained in the privacy and electronic communications regulations.

Having considered this feedback, the Government have committed to take forward secondary legislation to amend those regulations. This change will enable workplace pension providers to send targeted support recommendations, which amount to direct marketing, to members who have not opted out of receiving it. That reflects the fact that workplace pension providers have fewer opportunities to obtain consent for direct marketing, limiting the level of engagement they have with their members. We aim to deliver this legislative change quickly to ensure that targeted support can reach as many pension members as possible, while maintaining robust protections from unwanted marketing. We will continue to engage with stakeholders and regulators throughout to ensure that we get the right balance.

In Committee, concerns were also raised around communications that may be required under guided retirement. The Government have examined this carefully in developing the policy, including engaging with the sector and the Information Commissioner’s Office. We will seek further stakeholder views through a public consultation, expected later in the year; this will cover proposed requirements on the information and communications journey for pension members, including the extent to which trustees can intervene to provide support, but that is the best way in which to consider any such interactions in a timely manner. Running a separate review to a different timescale would make it difficult to incorporate any findings in the design and implementation of the policy, but I hope that reassures the noble Baroness that the Government are taking action, and she will not feel the need to test the opinion of the House.

Finally, Amendment 165 is from the noble Lord, Lord Palmer, although he did not speak to it—my noble friend Lord Davies did. I do not want to dwell on any particular scheme but say simply that the Government recognise the importance of pension security in retirement and protections for those saving into pension schemes, and those concerns are at the heart of the Bill. We are also acting where previous Governments have not; for example, by introducing annual increases on compensation payments from the PPF and FAS relating to pensions built up before 6 April 1997, when the scheme provided for this. There are clear and established routes for members to raise concerns or complaints about their scheme when they feel that things have gone wrong. The Pensions Ombudsman provides an independent and impartial service to resolve pension-related complaints that cannot be resolved through a scheme’s internal dispute resolution process; that gives a route to settle issues fairly and ensure that members’ rights are upheld.

This has been a good chance to have a canter across the waterfront of pensions, but I hope, in the light of my responses, the noble Lord feels able to withdraw his amendment.

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank the Minister for her reply—and she got to the crux of the matter. We are trying to make sure that there is information and advice for people who do not have easy access to that information and advice. I take her reassurances that the Government are looking to give that information and advice by whatever means available. These Benches will look at and keep abreast of what advice and information are given, and whether they are sufficient. I hope that we can come back to the Minister, even if informally, if we feel that they are not and to see whether they are what we want. I think that we are after the same thing—we are just looking at it in a different way. I kept my words brief because I want to get through things today, as much as we can, so I did not concentrate on some of those matters.

The problem with the how we deal with things in your Lordships’ House is that Amendment 169 happens to be a very high number—the highest-numbered amendment is around 170, I think, so the Division will come right at the end of the day, and that is very much in our minds when we think about it. My feeling from these Benches is that, if there is anybody left in the House, we will support it if the noble Baroness puts it to a vote. It is not at the top of my wish list, but I think it does make a point, and if it was an earlier amendment than Amendment 169 it would get a lot more support—but the practicalities mean that it will not.

In the light of all that, I beg leave to withdraw the amendment.

Amendment 120 withdrawn.

Clause 108: Indexation of periodic compensation for pre-1997 service: Great Britain

Amendment 121

Moved by

[Baroness Sherlock]

121: Clause 108, page 116, line 5, after “scheme” insert “or for the purposes of complying with a GMP equalisation obligation”
Member’s explanatory statement
This amendment makes clear that sub-paragraph (2B) (and not sub-paragraph (2A)) of paragraph 28 of Schedule 7 to the Pensions Act 2004 (inserted by this clause) applies to a case where pension scheme rules required pre-1997 indexation only for the purposes of removing inequalities as between men and women arising from the provision of guaranteed minimum pensions.

[Baroness Sherlock (Lab)]

My Lords, in moving Amendment 121 in my name, I will speak also to the other government amendments. We have already debated our reforms introducing prospective increases in compensation payments from the Pension Protection Fund, PPF, and the Financial Assistance Scheme, FAS, on pensions built up before 6 April 1997. These will be CPI-linked, capped at 2.5% and applied prospectively to payments going forward for members whose former schemes provided for these increases. I have tabled two groups of minor and technical amendments to ensure that the measures operate as intended.

16:00

All the government amendments in this group, apart from Amendment 144, apply to schemes that, in relation to pre-1997 pensionable service, provided for statutory increases only on guaranteed minimum pensions, GMPs, earned on or after 6 April 1988—post-88 GMPs—but have at some point equalised their GMPs. As noble Lords may be aware, GMPs differ for men and women, reflecting historical inequalities of treatment. Men and women received GMPs at different ages, 65 and 60 respectively, but the principle of equal pensions for men and women has long been established through a series of court judgments. Pension schemes use different methods to equalise their GMPs to address the historical inequalities of treatment between male and female pension scheme members.

Some schemes provide for increases in benefits over and above the GMP for the member with the lower-value GMP to equalise with a comparator opposite-sex GMP. Provisions in the Bill create an unintentional inconsistency of treatment for members of the subset of schemes that provided statutory increases only on post-88 GMPs but also equalised their GMPs by increasing benefits over and above the GMP. I hope noble Lords are with me still. Where GMPs have been equalised in this way, these amendments to the legislation introducing pre-1997 increases ensure consistent treatment between men and women.

Government Amendment 144 relates to FAS. It restores the original policy intention by removing from Clause 110 references to Schedules 3 and 5 to the FAS regulations. We have understood that the changes made to the schedules would have the unintended consequence that some members would have received higher payments than those to which they are entitled. This amendment corrects that. FAS members will receive the higher of the pension that their original scheme could have notionally offered to secure with the remaining assets or the standard FAS assistance. I beg to move.

[Lord Davies of Brixton (Lab)]

I hope the House will bear with me. I once bragged that if I were ever on “Mastermind”, GMPs would be my specialist subject, so I feel compelled to ask a question. Of course, through the Pensions Act 2012 the coalition Government made significant changes to the impact that GMPs had on people who retired after 2016. In effect, they were abolished and forgotten about. That issue was corrected in public service schemes but not in private schemes. Perhaps my noble friend the Minister could write to me and assure me that there is no difference in the effect of these amendments between people who retired before and after 2016.

[Baroness Altmann (Non-Afl)]

My Lords, I shall speak to my Amendment 155, and I am grateful for the support of the noble Viscount, Lord Thurso. This amendment and the noble Viscount’s own Amendment 162, to which I have added my name, deal with the same point, which is something we talked about in Committee. They aim to secure provisions that were made in the Pensions Act 2004 which would allow schemes to be extracted from the Pension Protection Fund if there were a new opportunity; for example, for the pension scheme members to be treated to better pensions than those available in the Pension Protection Fund itself.

That provision, in Section 169(2)(d) of the Act, has never been commenced. That provision means that if an employer had two or three workers in a pension scheme, had a company which fell on hard times and became insolvent—at which point the members’ pensions went into the PPF—then had a particularly fortunate experience and found himself or herself in a position where they could try to remedy the shortfalls of the members’ pensions and wanted to be able to take the scheme back out of the PPF, then that would be possible. Currently, that would be against the law because the provision has not been commenced, even though it is in the Pension Act 2004.

These amendments seek to ensure that this is at least a possibility, especially now that employers may start to be more attracted to running pension schemes, given the different financial situation that surrounds pension schemes now that we no longer have quantitative easing, with schemes finding themselves more often in surplus. Therefore, I hope that the Minister might accept that this is a possibility. These amendments would not commit the Government—or anyone—to spending any money; they would merely bring into force a provision that was already provided for in 2004.

[Viscount Thurso (LD)]

My Lords, I support Amendment 155 from the noble Baroness, Lady Altmann, and will speak briefly to my Amendment 162, which seeks to achieve exactly the same effect. Since the noble Baroness has explained it so well, I do not have to repeat the arguments in favour of it. Amendment 162 was tabled shortly after I tabled Amendment 161, when I was looking for remedies for the problem that was being created around Amendment 161. As most of the arguments for that should properly be deployed when we get to Amendment 161, I will not make them at this point, which I hope the Minister will understand to be appropriate. However, I give notice that if we get to that point and we have not had anything helpful—you can always hope—then I will seek the opinion of the House on Amendment 162.

[Lord Palmer of Childs Hill (LD)]

My Lords, people often wonder, speak and write about whether the House of Lords performs a valid function. This group of amendments justifies the House of Lords in one fell swoop. In this group, the Government are proposing 20 amendments to their own Bill, which shows that it had not been thought out properly in the beginning and we are now trying to amend it in your Lordships’ House—and amend it correctly, I add. I am not speaking against the amendments but noting that things are coming to us ill prepared; that there are 20 amendments makes that clear to see.

This group has amendments that raise an important issue of fairness for members of the Pension Protection Fund and the Financial Assistance Scheme, particularly in relation to pre-1997 service, as well as technical government amendments, to which I just referred. There are amendments probing whether members should, in some circumstances, be allowed to move to a better supported arrangement or receive more meaningful redress where historic indexation has been lacking. On these Benches, our instinct is that member protection must remain the starting point, but protection should not become an unnecessary rigidity. There is a secure and properly funded route to a better outcome for members. The Government should at least be willing to consider this, and I hope that the Minister will say some positive words on it.

On pre-1997 rights in particular, Parliament is entitled to ask whether the proposed remedy is full enough or whether fairness is justified. The noble Viscount, Lord Thurso, and the noble Baroness, Lady Altmann, referred to Amendments 155 and 162, which both seek to do a similar thing. As I said, we are going to vote on the amendments with high numbers later; which one we will vote on, or whether we will vote on both, I do not know. However, we on these Benches agree with the principle of both. We shall see later whether we have had some success in persuading the Government to support these amendments.

[Viscount Younger of Leckie (Con)]

My Lords, I start by referring to the reference the noble Lord, Lord Davies, made to “Mastermind”; I am tempted to say that I have started so I will finish. I thank the Government for bringing forward these technical amendments, which seek to protect schemes from unintended consequences arising from the Bill; to ensure that GMP equalisation is properly treated as a narrow legal correction rather than as full indexation; and to provide greater technical clarity and consistency across the relevant legislative framework. These seem very sensible and constructive changes, and I thank the Minister for her clarifications and the detail she gave.

I thank the noble Baroness, Lady Altmann, and the noble Viscount, Lord Thurso, for the points they succinctly raised on their amendments. As we have heard, Amendment 162 would require the Secretary of State to bring into force the currently uncommenced power in the Pensions Act 2004, allowing the PPF to discharge certain compensation liabilities by paying a cash lump sum. Activating this long-dormant paragraph would add a pragmatic fourth option alongside insurance policies, annuity contracts or transfers. As the noble Baroness, Lady Altmann, said, it would not cost any money to do so.

We therefore support the amendment because it would widen the PPF’s toolkit to act in the best interest of members, giving flexibility to settle appropriate cases efficiently where regulations specify the safeguards and calculation method while retaining parliamentary oversight under the negative procedure and the PPF’s core purpose of protecting members of failed schemes. I therefore say to the noble Viscount, Lord Thurso, and the House that, should he wish to seek the opinion of the House on Amendment 162, we will be minded to support him.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Lords for introducing their amendments. The amendments in the names of the noble Baroness, Lady Altmann, and the noble Viscount, Lord Thurso, would commence the regulation-making power in Section 169(2)(d) of the Pensions Act 2004 to allow the PPF board to discharge its liabilities through a lump sum. As we have heard, Amendment 155 would have the additional effect of enabling PPF members to transfer out of the PPF to an arrangement that offers benefits higher than PPF compensation, where an alternative sponsor can be found.

The PPF is designed to discharge its liabilities by making regular payments to its members. That enables investment returns, plus levy payments, to make good the funding of schemes that transfer to the PPF and to build a buffer against future risk. This model has put the PPF in a strong financial position, but allowing transfers out would undermine its operation. Before the PPF board takes responsibility for a scheme, there is an assessment period, the aim of which is to ensure that the scheme does not go into the PPF until it is clear that no linked employer will rescue the scheme. Given that nobody took up the option originally for schemes that have transferred into the PPF, it is hard to see related employers who would do so many years later.

However, Amendment 155 opens up this possibility, including from non-related entities. It could therefore require a fundamental restructuring of the PPF’s funding and investment strategy to reflect transfers out. This is not a minor option which costs nobody any money; in practice, it raises range of complex issues to be addressed. Importantly, these include how to safeguard members by ensuring that their destination is appropriately secure. The complexity could be significant.

Enabling transfers out of the PPF would require a fundamental rethink of how it operates, its compensation structure and how the compensation system more broadly is managed. At this time, if any willing sponsors were identified, there is no framework to assess how adequate their funding would have to be to minimise the risk of returning to the PPF. If the sponsor were to fail subsequently, the scheme could end up transferring back to the PPF, and members could receive benefits at PPF levels even lower than they had been before they were taken out in the first place. The Government cannot agree to commence a regulation-making power which would enable lump sums to be paid in this way. The provisions in Section 169 were meant to be used only in exceptional circumstances, which have not yet come to pass. To open it up more widely would not be wise when the potential costs and risks of the PPF are unclear.

16:15

I am going to attempt to respond to my noble friend’s question about GMPs. I confidently assure the House that, if I ever went on “Mastermind”, my specialist subject would not be guaranteed minimum pension schemes, but let me do my best. On 6 April 2016, the old state pension was replaced by the new state pension—I know my noble friend knows this, but I say this for the benefit of the House and the record. At that point, contracting out ceased. That meant that the in effect indexation of GMPs ended for people reaching state pension age from 6 April 2016. Transitional arrangements for the new state pension are particularly beneficial to contracted-out people, including those with GMPs accrued between 1978 and 1988. However, some people will still lose out because of the loss of in effect indexation. I encourage my noble friend to read Hansard and, if that is not enough, I will write to him, and perhaps even consider applying for “Mastermind”—who knows where that will take me.

I thought the noble Lord, Lord Palmer, was uncharacteristically harsh about the government amendments. They are very minor and technical and do not reflect a lack of clarity in the policy objective. We were clear as to what happens. Every now and again—and pensions law is especially complex—it turns out there is an unintended consequence in the drafting, and these amendments simply make sure that the original policy intent is followed through. I apologise to the House for the fact that they are necessary, but this does not reflect anything about the clarity of the policy that GMPs were intended to address.

[Lord Palmer of Childs Hill (LD)]

I accept the Minister’s answer.

[Baroness Sherlock (Lab)]

I am grateful to the noble Lord for his gracious response. In light of what I have said, I hope that the House feels able to support the government amendments and that the noble Viscount, Lord Thurso, and the noble Baroness, Lady Altmann, will not press theirs.

Amendment 121 agreed.

Amendments 122 and 123

Moved by

[Baroness Sherlock]

122: Clause 108, page 116, leave out lines 14 to 24 and insert—
“(c) sub-paragraph (2A) does not apply.”Member's explanatory statement
This amendment is consequential on the amendment to this clause in my name at page 116, line 5.

123: Clause 108, page 119, line 33, at end insert—
““GMP equalisation obligation” means any obligation under an enactment, a rule of law or the scheme rules which relates to the removal of inequalities as between men and women in respect of the provision of a guaranteed minimum pension;”Member's explanatory statement
This amendment is consequential on the amendment to this clause in my name at page 116, line 5.

Amendments 122 and 123 agreed.

Amendment 124

Moved by

[Baroness Altmann]

124: Clause 108, page 119, line 44, at end insert—
“(2A) After paragraph 28, insert—28A “(1) In all cases which qualify for an increase in periodic compensation under paragraph 28(2A) to (2I), the person may also qualify for a lump sum payment or payments, the amount of which must be—(a) related to the loss of inflation protection on pre-1997 pension benefits, and(b) paid by the Pension Protection Fund out of excess reserves,in recognition of the years of pension increases that were unpaid since the failure of the pension scheme.(2) The Secretary of State may issue guidance about lump sum payments under this paragraph.””Member's explanatory statement
This amendment seeks to make provision for lump sum payments from the Pension Protection Fund to persons who qualify for an increase in periodic compensation for pre-1997 service to compensate for unpaid increases in the years since the failure of the pension scheme.

[Baroness Altmann (Non-Afl)]

My Lords, I apologise—during my first contribution I should have declared my interests as a non-executive director of a pensions administration company and as a board adviser to a master trust. I also take this opportunity to wish the noble Lord, Lord Davies of Brixton, a full and speedy recovery; we missed him.

These amendments—and I am very grateful for the support of the noble Viscount, Lord Thurso—are all related to enabling either the pension protection fund or the financial assistance scheme to recognise the losses suffered by the oldest members of the schemes, who have lost the inflation increases they would have had in their schemes. I understand and appreciate that the Government have decided that, for the future, they will increase for inflation all pre-1997 benefits that were available to the scheme members in their original scheme. However, that does not really help those who are towards the end of their lives and whose pension, or compensation, is mostly comprised of pre-1997 accruals.

Although I understand why the Government are reluctant to commit to an open-ended amount for the future—which the current proposals will of course do, and we are grateful for that—my amendments seek to find an alternative way of recognising the losses in a one-off payment, a lump sum. I have drafted the amendments carefully to allow the Government to authorise that, and to enable the Pension Protection Fund to push some of its reserves into this kind of payment. I have not specified an amount. It would obviously need to be related to the amount each member has lost, but if the member is going to qualify for future uplifts, these amendments would also allow for an extra payment to recognise the amounts that were unpaid because of the inflation increases they had in the scheme but have lost.

The failure to pay any increases has resulted in the oldest members finding that their pensions have been whittled away, in many cases to less than half their value. I pay tribute to members such as John Benson and Phil Jones from Allied Steel and Wire—Phil Jones is seriously ill and now living on less than half his promised pension after 20 years of losing the inflation uplifts—and Richard Nicholl and Terry Monk. These are elderly gentlemen who have campaigned for years. I see the noble Lord, Lord Hain, in his place: he was instrumental in achieving our financial assistance scheme breakthrough in 2007, for which these members are extremely grateful, after a long campaign from 2001 to 2007.

The reality of the situation for the Pension Protection Fund is radically different from that which prevailed in 2004, and indeed in 2007. In those days, it was unclear how the PPF would fare. The rationale for getting rid of the pre-1997 increases was based on the fact that there was no legal requirement for employers to do that, and a recognition of the need to control costs, potentially, in future, should a massive number of large schemes fail and the PPF prove unable to afford the benefits. It was unclear how many employers might become insolvent, what types of schemes would be affected, and how much the PPF would have to pay. It was going to be able to collect its revenues from employer levies, assets from the unfunded schemes, assets of insolvent employers that were recovered, and investment returns, but it was unclear at the time how any of that would pan out.

In practice, the PPF has been an amazing success. It now finds itself with a significant surplus, with assets relative to its compensation liabilities far in excess of what is required to pay all the future pensions. The provisions of the Pensions Act 2004 state that these huge reserves, of well over £14 billion, cannot be used for anything other than member compensation or funding related to the PPF itself. The PPF is a separate statutory fund; it is not the property of government. Therefore, I am trying to suggest the payment of a portion of that £14 billion. Full retrospection is calculated to cost £3.5 billion. I am not talking about that, but even after that payment, the PPF would still be 150% funded—50% more than it needs to pay its expected liabilities.

However, I am not talking about that. The Government or the PPF could work out a sum—whatever it might be; perhaps it could be £1 billion—that could be allocated to paying the lump sums for those members who were promised their money but have lost it. It would be hugely welcomed by those members. They tend to be the oldest ones, and often the ones who have campaigned for so long, at such personal cost, for the other members of the Pension Protection Fund and the Financial Assistance Scheme.

Amendments 124, 128, 132 and 136 relate to the Pension Protection Fund paying those lump sum payments. Amendment 154 is about mirroring that for the Financial Assistance Scheme. I accept that the Government may have to find public money for that, but I argue that—after allocating billions of pounds to the Mineworkers’ Pension Scheme and the British Coal Staff Superannuation Scheme to increase the already full benefits that those members were receiving at the expense of the taxpayer—spending a small fraction of that on remedying this injustice, for so many people who are becoming gradually poorer every year, would be a sensible way to spend some of the surplus in the Pension Protection Fund. As the members say, the Government’s hugely welcome current proposals to increase with inflation in the future will not make any of them better off now. It will make sure only that they get worse off more slowly—but is that really all we can achieve given the success of the Pension Protection Fund? I beg to move.

[Lord Hain (Lab)]

My Lords, I strongly support what the noble Baroness said and commend her for her work with the Pensions Action Group. I was Secretary of State in the DWP at the time and was lobbied effectively by her in a very good campaign. I managed to persuade the then Prime Minister, Gordon Brown, in favour of it—mostly against his initial will and as a result of a fierce argument, during which my private office thought I might be sacked. That policy succeeded. Pensioners who had suffered a terrible injustice—150,000 were robbed of their pensions when their companies went bust; those companies took those pensioners down with them—were given the assistance that I believe they deserved.

I do not know exactly how to remedy the issue that was not addressed then—the lack of indexation—and whether it is through the proposal set out in the noble Baroness’s amendments. That seems to make sense to me, but I can understand why my noble friend the Minister would find it difficult to concede. However, there is an injustice that needs to be addressed. I simply wanted to make that point.

I personally met members of Allied Steel and Wire—ASW—in Cardiff. Many who had served some 30 years suddenly found themselves, on the point of retirement, losing their pensions—all their plans had gone up in smoke. This was a terrible injustice. Some 150,000 workers across the country were in that predicament. The Government acted—I am proud that we did—to remedy that, but there was one gap that was not addressed, and the amendments from the noble Baroness, Lady Altmann, seek to do that. I hope that the Government will find a way to accept the basic case that she put.

[Viscount Thurso (LD)]

My Lords, briefly, I support the noble Baroness in her amendments, to which I have added my name. As usual, she has done a splendid technical exposition of the amendments. More importantly, as the noble Lord, Lord Hain, said, she outlined the immense emotional damage that was done to so many people. We should all look for a way to remedy that. Therefore, the noble Baroness has my full support.

[Lord Wigley (PC)]

My Lords, I strongly support the objectives of Amendments 124, 128 and 154, as well as the similar provision made for Northern Ireland in Amendments 132 and 136. I thank the noble Baroness, Lady Altmann, for all the work she has done, and continues to do, on this matter. I hope she will continue until this has been won.

16:30

I spoke in Committee about the failure to provide full compensation or equivalent assistance to the former workers of Allied Steel and Wire in Cardiff, about whom we heard a moment ago from the noble Lord, Lord Hain. I pay tribute to the work he did in 2007 when this matter was largely sorted, but it left one group very much out in the cold, and we are addressing that now.

Over the two decades that have elapsed since the Allied Steel and Wire workers discovered that they were in danger of losing the full value of their pensions—for which they had worked for decades, as the noble Lord, Lord Hain, will recall—there has been a campaign run by them and others to try to get justice for them. Some assistance has been provided, as described by the noble Baroness, Lady Altmann, and by the noble Lord, Lord Hain, who facilitated it. That was substantial and very much worth having. However, the plight of those dependent partly on pre-1997 pension benefits has still not been adequately addressed. They lost out on the value of a pension for which they had worked for years. This happened to very many at an age when it just was not possible to recoup the full value of those lost entitlements.

The position of steelworkers, as of coal miners, has to be given some special attention. We are talking about workers who have given the best years of their working lives to those strategic industries. It is heavy and arduous work, often in unhealthy working environments—that takes its toll. While we who have worked in representative politics for most of our lives can continue to work in our chosen profession well beyond 65, as many here are doing today, that just is not practical for workers in industries such as coal and steel. By their retiring age they have earned their pensions and they deserve the full value of those pensions without any loss of the sort we are describing. When it is in part taken away from them, for reasons well outside their control, they have every right to hope and expect that a Government of a civilised society can take steps to safeguard their financial position.

There have been coal miners who, through no fault of their own, had difficulties with parts of their pension. The Government, to their credit, have taken steps to help them and I pay tribute to that. But if it is right in principle for the miners to be so helped, then it is equally right for steelworkers and other similar pensioners. That is the objective of the amendments introduced by the noble Baroness, Lady Altmann. These amendments deal with the financial impact of the loss of the inflation protection for the pre-1997 pension benefits. I understand that there are adequate excess reserves in the Pension Protection Fund to meet such needs—to more than meet them; there is an abundance of resource there for that purpose.

In the dinner break, we will hear a Statement delivered on Thursday in the other place on the strategic importance of the UK steel industry. It was opened by a statement that steel production is essential as a “driver of social justice”, and that it is an industry that underpins communities. That has a rather hollow ring in those communities where Allied Steel and Wire pensioners live on dwindling incomes that fail to maintain them, let alone repay the debt society owes to those who gave their working lives to those industries and often sacrificed their health in so doing.

I conclude by thinking back to my first full Parliament in the other place, where I gave my campaigning priority to securing compensation for slate quarrymen who had lost their health, and often their lives, to pneumoconiosis. We secured this with the vital help of that great parliamentarian Michael Foot, who represented Ebbw Vale, a steelmaking constituency, and without whose involvement we never would have got that compensation.

In this, my last full Parliament, I look around this House to seek similar support for the steelworkers who lost the full benefits of the pension for which they had worked so hard. Are there parliamentarians today who are willing to make the same stand as did Michael Foot in 1979 in support of a relatively small group of workers and to give them the justice for which they have long struggled? I urge this House to vote for the amendment in the name of the noble Baroness, Lady Altmann.

[Lord Davies of Brixton (Lab)]

I thank the noble Baroness, Lady Altmann, for these amendments. We have discussed this issue a number of times during the passage of the Bill, and other noble Lords who have spoken so far have all spoken strongly in support of necessary action.

The facts are established. These people were poorly treated and it is the Government’s policy that they should be better treated. That is established: there is no debate about that. I have heard no one suggesting that it does not really matter that these people do not get any money. We have agreed to give them some extra money by revaluing these pensions from next year onwards. However, because of the structure of who has lost out—the age profile when the losses occurred—these people stand to make very little gain from that proposal, so the Government’s proposal to help these people just does not hack it. Something more needs to be done.

I have argued at previous stages that the shortfall over the number of years since their compensation started should be made good and the pension that has increased in future should start from that higher level. Clearly, that was not going to receive the support of the Government, so the noble Baroness has proposed an alternative: that the money that is in the Pension Protection Fund should be used as a lump sum to compensate those who have lost out. Clearly, when you are in your 70s and 80s, a lump sum is of much greater advantage than future increases. That is the point of these amendments. Therefore, this is a compromise; it is not what those affected have actually called for. As has been said, these people are towards the end of their life and they need help now.

We know what it is going to cost. When the scheme was set up by my noble friend Lord Hain, there was some debate about the benefits. I was advising the TUC at the time. We might have argued against the restrictions, but it was accepted that, to get the show on the road, we would accept these benefits. But we now know what it is going to cost and that the money is there. It is all in the Pension Protection Fund. If it does not go to these people who have lost out, eventually it will end up in the Government’s coffers. The Government will not be entitled to it, but where else is it going to go? We need to act now to help these people, not leave it to a future Government. So I am strongly in support of the proposal.

My noble friend the Minister might make one additional point. There are two groups of pensioners here. There are those who are receiving benefits from the Pension Protection Fund and there is another group receiving benefits from the Financial Assistance Scheme. It is important to understand that the only reason they are in the Financial Assistance Scheme is that the Government failed to accept their responsibilities early enough. They are only in the FAS because the Government failed to comply with their legal requirement to introduce this sort of compensation arrangement on redundancy. Therefore, there is no argument that the FAS people should be treated any differently from the people in the PPF. They are entitled to money to make good the deficiency and to allow them to enjoy some sort of benefit for what remains of their lives.

[Viscount Younger of Leckie (Con)]

My Lords, I will speak briefly. We welcome the intent behind these amendments. We have spoken with campaigners and representatives of affected members and understand the concerns that sit behind them. Those concerns are real and deserve to be taken seriously. I have listened very carefully to the remarks from the noble Baroness, Lady Altmann, and the noble Lords, Lord Hain, Lord Wigley and Lord Davies, with the case studies that they have cited relating to the losses suffered by individuals, and also the emotional consequences.

However, we have reservations about the proposed approach. As drafted, these amendments would, in certain circumstances, compel the payment of lump sums. That does not sit comfortably with the core principle that we have adopted throughout the passage of this Bill: that we should not seek to direct or constrain pension funds in a way that limits their ability to act in the best interests of their members. If the PPF determines that using surplus to provide such payment is appropriate, proportionate and in members’ best interests, of course we would support that. However, that judgment is properly one for the fund itself, not something that should be prescribed. It is for the Government to offer a response to the questions and the points raised by other speakers, and I look forward to the remarks from the Minister.

While we have sympathy with the objective of these amendments, we do not believe that mandating this approach is the right way to achieve it. Therefore, I am afraid that we are unable to support them.

[Baroness Altmann (Non-Afl)]

The Minister may correct me, but I do not believe that the Pension Protection Fund could itself agree to make these lump sum payments; they need to be enabled by legislation. I have not double-checked that, but that was what I was led to believe.

[Viscount Younger of Leckie (Con)]

The noble Baroness asks a fair question. Can the Minister clarify that? We have looked into this in some depth and come to our own conclusion, and I am afraid we will have to stick to that: but I do take the noble Baroness’s point.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords who have spoken and thank the noble Baroness, Lady Altmann, for introducing her amendments. I understand her concerns. We did discuss this in Committee at some length.

Amendments 124, 128, 132 and 136 would require the payment of arrears to members of the PPF whose original scheme provided for increases on pensions built up before 6 April 1997. The amendments would also enable members to receive a one-off lump sum payment from the PPF reserve. Amendment 154 would require the Secretary of State to determine how these lump sum payments are to be funded in the financial assistance scheme. I fully understand that many affected PPF and FAS members are having to adjust to a level of income less than they were expecting at retirement, after their employers became insolvent and the pension schemes wound up being underfunded. I understand the distress that has caused to many of them.

Regarding the comments made by my noble friend Lord Hain and the noble Lord, Lord Wigley, about Allied Steel and Wire, my honourable friend the Minister for Pensions has met with a range of members, including former Allied Steel and Wire workers whose scheme qualified for the financial assistance scheme, and he has heard their cases.

These amendments go much wider than that. This Government have acted to address this issue through measures in the Bill which address prospective pre-1997 indexation to eligible PPF and FAS members. However, I understand that this does not go as far as some affected members and some Members of the House would have wanted. None the less, these reforms represent a step change that will significantly strengthen the protection offered by the two compensation schemes. We have taken action and now want to implement it.

16:45

The noble Baroness, Lady Altmann, is quite right—as I understand it, I think we would need to legislate to allow lump sums—but, of course, that has significant public finance implications, which I spelled out in Committee. Providing for the payment of arrears to members whose schemes provided for pre-1997 increases is not a limited measure; it potentially paves the way for future long calls on the PPF and FAS. The amendments would further reduce the PPF reserve, which is there to protect the PPF and to protect against future risks across the defined benefit system.

While risks faced by the PPF are lower given improved scheme funding levels, the reserve that it has built up provides security for its current members and the nearly 9 million members of DB schemes that it protects. The reserve remains essential for it to manage any future challenges and to fulfil its role as the ultimate backstop to the nearly £1 trillion of liabilities in DB schemes, a part of which is still open and accruing benefits. Historically, the PPF has supported nearly £10 billion in claims, funded in part by the amount collected through levies. Without future levies, the reserve must cover upcoming claims.

The noble Baroness said that the cost of FAS might come from the Exchequer. It will—there is no other place from which it could come—and any implications for the public purse like that, on that scale, would need very careful consideration.

I simply stress that these issues have been around for a long time, and no previous Government have done anything about any of them. This Government have acted where previous Governments have not in making the decision; however, it has been difficult. We had to strike a balance between the needs and interests of all parties, including members, levy payers and taxpayers, and the PPF’s ability to manage future risk. We believe that our approach, providing prospective pre-1997 indexation to eligible PPF and FAS members, strikes the right balance. I know that that will be disappointing to the noble Baroness, but I regret that it is the Government’s position. We think we have gone a long way, but that is as far as we can go. I hope she will feel able to withdraw her amendment.

[Baroness Altmann (Non-Afl)]

My Lords, I thank the Minister for her response and her understanding. Obviously, her reply is extremely disappointing. I thank all noble Lords who have spoken, without exception, in support of helping these members, who are the oldest and have typically lost the most as a result of their scheme failing.

I would like—and I feel, in all good conscience, having heard the support across the House for these principles and having worked for more than 20 years with many of those who have lost out, that I am morally obliged—to test the opinion of the House, but I will not do so on Amendment 124. I give notice that I will do so on Amendment 154, on the Financial Assistance Scheme, later in this debate on Report.

Amendment 124 withdrawn.

Amendments 125 to 127

Moved by

[Baroness Sherlock]

125: Clause 108, page 120, line 40, after “scheme” insert “or for the purposes of complying with a GMP equalisation obligation”
Member's explanatory statement
This amendment makes clear that sub-paragraph (2B) (and not sub-paragraph (2A)) of paragraph 17 of Schedule 5 to the Pensions Act 2008 (inserted by this clause) applies to a case where pension scheme rules required pre-1997 indexation only for the purposes of removing inequalities as between men and women arising from the provision of guaranteed minimum pensions.

126: Clause 108, page 121, leave out lines 10 to 20 and insert—
“(d) sub-paragraph (2A) does not apply.”Member's explanatory statement
This amendment is consequential on the amendment to this clause in my name at page 120, line 40.

127: Clause 108, page 124, line 24, leave out paragraph (h) and insert—
“(h) in paragraph (9), for the definition of “post-1997 service” substitute—““GMP equalisation obligation” has the same meaning as in paragraph 28 of Schedule 7 to the Pensions Act 2004 (annual increase in periodic pension compensation);“GMP indexation period” means the period beginning with 6 April 1988 and ending with 5 April 1997;“guaranteed minimum pension” has the same meaning as in the Pension Schemes Act 1993 (see section 8(2) of that Act);“post-1997 service” , “pre-1997 service” and “GMP indexed service” have the same meaning as in paragraph 28 of Schedule 7 to the Pensions Act 2004;“the assessment date” and “admissible rules”, in relation to a pension scheme, have the same meaning as in that Schedule (see paragraphs 2 and 35 of that Schedule);”.”Member's explanatory statement
This amendment is consequential on the amendment to this clause in my name at page 120, line 40 and inserts a missed definition.

Amendments 125 to 127 agreed.

Amendment 128 not moved.

Clause 109: Indexation of periodic compensation for pre-1997 service: Northern Ireland

Amendments 129 to 131

Moved by

[Baroness Sherlock]

129: Clause 109, page 125, line 29, after “scheme” insert “or for the purposes of complying with a GMP equalisation obligation”
Member's explanatory statement
This amendment makes clear that sub-paragraph (2B) (and not sub-paragraph (2A)) of paragraph 28 of Schedule 6 to the Pensions (Northern Ireland) Order 2005 (inserted by this clause) applies to a case where pension scheme rules required pre-1997 indexation only for the purposes of removing inequalities as between men and women arising from the provision of guaranteed minimum pensions.

130: Clause 109, page 125, line 38, leave out from beginning to end of line 7 on page 126 and insert—
“(c) sub-paragraph (2A) does not apply.”Member's explanatory statement
This amendment is consequential on the amendment to this clause in my name at page 125, line 29.

131: Clause 109, page 129, line 14, at end insert—
““GMP equalisation obligation” means any obligation under an enactment, a rule of law or the scheme rules which relates to the removal of inequalities as between men and women in respect of the provision of a guaranteed minimum pension;” Member's explanatory statement
This amendment is consequential on the amendment to this clause in my name at page 125, line 29.

Amendments 129 to 131 agreed.

Amendment 132 not moved.

Amendments 133 to 135

Moved by

[Baroness Sherlock]

133: Clause 109, page 130, line 22, after “scheme” insert “or for the purposes of complying with a GMP equalisation obligation”
Member's explanatory statement
This amendment makes clear that sub-paragraph (2B) (and not sub-paragraph (2A)) of paragraph 17 of Schedule 4 to the Pensions (No.2) Act (Northern Ireland) 2008 (inserted by this clause) applies to a case where pension scheme rules required pre-1997 indexation only for the purposes of removing inequalities as between men and women arising from the provision of guaranteed minimum pensions.

134: Clause 109, page 130, leave out lines 35 to 45 and insert—
“(d) sub-paragraph (2A) does not apply.”Member's explanatory statement
This amendment is consequential on the amendment to this clause in my name at page 130, line 22.

135: Clause 109, page 134, leave out lines 7 to 18 and insert—
““GMP equalisation obligation” has the same meaning as in paragraph 28 of Schedule 6 to the 2005 Order (annual increase in periodic pension compensation);“GMP indexation period” means the period beginning with 6 April 1988 and ending with 5 April 1997;“guaranteed minimum pension” has the same meaning as in the Pension Schemes Act (see section 4(2) of that Act);“post-1997 service” , “pre-1997 service” and “GMP indexed service” have the same meaning as in paragraph 28 of Schedule 6 to the 2005 Order;“the assessment date” and “admissible rules”, in relation to a pension scheme, have the same meaning as in that Schedule (see paragraphs 2 and 35 of that Schedule).””Member's explanatory statement
This amendment is consequential on the amendment to this clause in my name at page 130, line 22 and inserts a missed definition.

Amendments 133 to 135 agreed.

Amendment 136 not moved.

Clause 110: Financial Assistance Scheme: indexation of payments for pre-1997 service

Amendments 137 to 144

Moved by

[Baroness Sherlock]

137: Clause 110, page 135, line 35, after “scheme” insert “or for the purposes of complying with a GMP equalisation obligation”
Member's explanatory statement
This amendment makes clear that sub-paragraph (2B) (and not sub-paragraph (2A)) of paragraph 9 of Schedule 2 to the Financial Assistance Scheme Regulations 2005 (inserted by this clause) applies to a case where pension scheme rules required pre-1997 indexation only for the purposes of removing inequalities as between men and women arising from the provision of guaranteed minimum pensions.

138: Clause 110, page 136, leave out lines 1 to 10 and insert—
“(c) sub-paragraph (2A) does not apply.”Member's explanatory statement
This amendment is consequential on the amendment to this clause in my name at page 135, line 35.

139: Clause 110, page 136, line 35, leave out “(2B) and” and insert “(2A) to”
Member's explanatory statement
This amendment is consequential on the next amendment to this clause in my name.

140: Clause 110, page 136, line 35, at end insert—
““GMP equalisation obligation” means any obligation under an enactment, a rule of law or the scheme rules which relates to the removal of inequalities as between men and women in respect of the provision of a guaranteed minimum pension;”Member's explanatory statement
This amendment is consequential on the amendment to this clause in my name at page 135, line 35.

141: Clause 110, page 138, line 9, after “scheme” insert “or for the purposes of complying with a GMP equalisation obligation”
Member's explanatory statement
This amendment makes clear that sub-paragraph (2B) (and not sub-paragraph (2A)) of paragraph 9 of Schedule 2A to the Financial Assistance Scheme Regulations 2005 (inserted by this clause) applies to a case where pension scheme rules required pre-1997 indexation only for the purposes of removing inequalities as between men and women arising from the provision of guaranteed minimum pensions.

142: Clause 110, page 138, leave out lines 18 to 27 and insert—
“(c) sub-paragraph (2A) does not apply.”Member's explanatory statement
This amendment is consequential on the amendment to this clause in my name at page 138, line 9.

143: Clause 110, page 139, line 7, at end insert—
““GMP equalisation obligation” means any obligation under an enactment, a rule of law or the scheme rules which relates to the removal of inequalities as between men and women in respect of the provision of a guaranteed minimum pension;”Member's explanatory statement
This amendment is consequential on the amendment to this clause in my name at page 138, line 9.

144: Clause 110, page 139, line 24, leave out subsections (12) and (13)
Member's explanatory statement
This amendment removes provision amending Schedules 3 and 5 to the Financial Assistance Scheme Regulations 2005.

Amendments 137 to 144 agreed.

Amendment 145

Moved by

[Baroness Sherlock]

145: After Clause 110, insert the following new Clause—
“Chapter 2AAWE pension schemeNew public pension schemes
Establishment of new public schemes and transfer of rights(1) The Secretary of State may by regulations establish one or more schemes (“new public schemes”) which provide for pensions or other benefits to be payable to or in respect of persons who are or have been members of the AWE pension scheme (“qualifying persons”).(2) The Secretary of State may by regulations make provision for the transfer of qualifying accrued rights to a new public scheme (without the need for any approval or consent of the trustee company or AWE PLC, or any other person, to the transfer). (3) Regulations under subsection (2) may include provision for the discharge of liabilities in respect of qualifying accrued rights that are transferred.(4) In this Chapter—“qualifying accrued rights ” means— (a) any right to future benefits under the AWE pension scheme which, at the qualifying time, has accrued to or in respect of a qualifying person,(b) any entitlement under the AWE pension scheme to the present payment of a pension or other benefit which a qualifying person has at the qualifying time, or(c) any entitlement to benefits, or right to future benefits, under the AWE pension scheme which a survivor of a qualifying person has at the qualifying time in respect of the qualifying person;“the qualifying time ” means the time immediately before the date specified or described in regulations.(5) For the purposes of the definition of “qualifying accrued rights”—(a) references to pensions or other benefits (including future benefits) includes money purchase benefits, and(b) references to a right include a pension credit right.(6) Regulations under subsection (4) specifying or describing a date for the purposes of the definition of “the qualifying time” may make provision for the purposes of transfers of qualifying accrued rights generally, transfers of a particular description or a particular transfer.”Member’s explanatory statement
This new clause provides for the pension scheme of AWE PLC (a wholly owned government company) to be transferred to a new public sector pension scheme, while preserving existing rights of scheme members. It will be the first clause of a new Chapter in Part 4 of the Bill.

[Baroness Sherlock (Lab)]

My Lords, I shall speak also to the other government amendments in this group. I start with the context for these amendments. The AWE pension scheme is a trust-based defined benefit—DB—pension scheme for employees and former employees of AWE plc, the Atomic Weapons Establishment. Since 2021, AWE plc has been wholly owned by the Ministry of Defence, and the pension scheme is backed by a Crown guarantee.

The new clauses will allow the Government to defund the existing scheme and establish a new central government pension scheme for its members. They apply only to the DB pension scheme; AWE’s DC contract-based scheme is not affected.

The assets held by the scheme will be sold and proceeds transferred to the Treasury. This measure was announced by the Chancellor in her 2025 Budget, but the principle was announced by the previous Government in a Written Ministerial Statement on 6 July 2022. The new scheme will be a public pension scheme. This is in accordance with wider government policy that when a financial risk sits wholly with government, as it does here, it should not hold assets to cover that liability. The taxpayer is already exposed to the risks, and the liability can be managed more efficiently in the round along with other unfunded liabilities met out of general taxation.

This measure will help to ensure that liabilities are funded in the most efficient way while ensuring the long-term security of members’ benefits. This will also support the Government’s fiscal strategy by reducing near-term borrowing, as it will reduce the amount to be raised in debt markets.

I assure the House that the amendments in this group explicitly protect the accrued rights of all members at the point of transfer. The new public scheme must make provision that is, in all material respects, at least as good as that under the AWE pension scheme. This includes any rights to discretionary benefits that may exist under that scheme at the point of transfer.

The new statutory scheme will be based on the existing rules, and the discretions exercised under the existing rules by the trustee, AWE plc and, indeed, by the Secretary of State for Defence will be codified into the rules of the new statutory scheme. The rules of the new scheme will be drafted in consultation with the trustee of the present scheme. The Government will work with the trustees and future administrator of the scheme to ensure transparency and clarity at the point of transfer. AWE will also work with the current trustee and the future administration to ensure members receive all the information they need at that time.

The new clauses in Amendments 145 and 146 provide that the new scheme should be established by regulations and set out the kind of provision that may be made by these regulations and any amending regulations. Although they are fairly standard for public schemes, I assure the House that the Government have considered carefully how they may be relevant to this scheme.

The new clause in Amendment 148 ensures that scheme rules cannot be amended unless prescribed procedures have been followed. In most cases, the requirement is to consult. However, if the proposed amendment might adversely affect members’ rights, the regulations must prescribe additional procedures to protect the interests of members, including obtaining the consent of interested persons or their representatives. This will include the employer, the members and their representatives.

AWE has already engaged with both its recognised trade unions—Unite and Prospect—and will continue to have regular contact with the unions about future changes.

The new clause in Amendment 149 will enable the Government to direct the disposal of the assets currently held by the pension scheme for the benefit of the Exchequer. We expect the bulk of the assets to be sold before the new scheme is established. Regulations under this clause must ensure that trustees’ liabilities following the sale of assets will be met by public funds, thus ensuring that pensions in payment and any other trustee expenses will not be affected.

Regulations under this clause will also ensure that the trustee and AWE plc are protected against any liability that might otherwise arise because they have complied with the Government’s direction to sell assets. This clause includes a Henry VIII power to disapply or modify specified statutory provisions. To be clear, these powers can be used only in relation to regulations made under this clause and are intended to enable protection for the trustee. For example, we expect that we will need to disapply the scheme funding regime in relation to the scheme once the sale of assets begins.

The new clause in Amendment 150 will allow the Treasury to amend tax legislation to ensure that the transfer of the AWE pension scheme to a new public scheme will be tax-neutral, meaning no additional or unexpected tax liabilities will arise for those affected by the changes. The Treasury will use these powers to modify the application of relevant tax law where it is needed, following the precedent set when the Royal Mail pension scheme was defunded. Indeed, this clause is based closely on that legislation.

The new clause in Amendment 151 provides a legal gateway to permit the sharing of information between named parties to facilitate the establishment and administration of the new scheme. It also gives the Government the power to make regulations requiring individuals or organisations to provide the information needed to establish and administer the new public scheme and transfer the accrued rights. This should not be needed, as the Government are collaborating with the relevant parties. The provision will be required only in the unlikely case that a party does not provide the necessary information upon request.

The proposed new clause in Amendment 152 ensures proper consultation and parliamentary scrutiny for regulations made under this part of the Bill, particularly those affecting the establishment and operation of the new public pension scheme and the transfer of assets. The Government are required to consult the trustee of the AWE pension scheme before making regulations to establish the new public scheme, to transfer accrued rights, or to transfer assets and liabilities. That will ensure that the interests of scheme members will be fully considered before these regulations are made.

In addition, any regulations that could adversely affect existing rights that have retrospective effect or that set financial penalties are subject to the affirmative procedure. That will ensure that significant changes are subject to parliamentary approval and scrutiny. Other regulations under this part of the Bill are subject to the negative procedure, although I note that the taxation regulations are subject only to annulment in pursuance of a resolution in the other place, as is usual for such legislation. I beg to move.

[Lord Palmer of Childs Hill (LD)]

My Lords, what can I do but say that I welcome these amendments? They are overdue and I hope they will pass with no dissension.

[Viscount Younger of Leckie (Con)]

My Lords, in the spirit of consensus, we had some initial concerns with the Government’s approach, which we raised in Committee, specifically whether these provisions might render the Bill hybrid. That would be a serious procedural issue, and one we felt was important to explore fully. Since then, we have engaged constructively with the Government and the Public Bill Office on this question. As the Minister will know, there were a good number of meetings and exchanges. I am grateful to both for their time and careful consideration. We have been reassured that these provisions do not, in fact, make the Bill hybrid and we are content to proceed on that basis. I place on record our thanks for that engagement.

I turn briefly to the substance of the amendments, which set out a comprehensive framework for the transfer of the AWE pension scheme into a new public sector arrangement, while seeking to preserve the accrued rights of members, ensure appropriate handling of assets and liabilities, and provide for the necessary technical matters, including tax treatment, information sharing and parliamentary oversight. I thank the Minister for setting out her approach with such detail. Given the reassurances we have received on the procedural point, we are content with the approach set out in this group.

[Baroness Sherlock (Lab)]

My Lords, I am thrilled and grateful to both noble Lords for this outbreak of consensus; long may it continue. I have some other lovely amendments coming next, so I encourage them to support those as well. I thank the noble Viscount and to the noble Lord, Lord Palmer, very much.

A concern was raised in Committee that these amendments might make the Bill hybrid, so we were very happy not to move them until everybody was happy that they would not. We never thought they were hybrid, but I am really grateful that the noble Viscount has taken the time to satisfy himself of that too. Given that and the lack of opposition, I beg to move.

Amendment 145 agreed.

Amendments 146 to 153

Moved by

[Baroness Sherlock]

146: After Clause 110, insert the following new Clause—
“New public schemes: further provision(1) A new public scheme may include provision—(a) for pensions or other benefits to be payable to or in respect of some or all persons described in section (Establishment of new public schemes and transfer of rights)(1);(b) for the provision of money purchase benefits or benefits that are not money purchase benefits (or both);(c) for increasing in particular circumstances the amounts payable in respect of qualifying accrued rights;(d) for the payment or receipt of transfer values or other lump sum payments for the purpose of creating rights to benefits under a new public scheme or otherwise;(e) in relation to any persons who are active members of the AWE Pension Scheme which differs from the provision made in relation to persons who are deferred members of the AWE Pension Scheme, other than provision in relation to qualifying accrued rights.(2) Regulations under section (Establishment of new public schemes and transfer of rights)(1) may—(a) provide for a new public scheme to be treated as an occupational pension scheme, a previously contracted-out scheme or another type of occupational pension scheme for the purposes of an enactment specified or described in the regulations; (b) provide for the enactment to apply in relation to a new public scheme subject to modifications specified in the regulations.(3) Regulations under section (Establishment of new public schemes and transfer of rights)(1) amending a new public scheme may make retrospective provision.(4) Regulations under section (Establishment of new public schemes and transfer of rights)(1) may—(a) confer functions on the Secretary of State or another person; (b) provide for a person to exercise a discretion in dealing with a matter.(5) The Secretary of State may—(a) make arrangements for a new public scheme to be administered by any person;(b) delegate to any person a function exercisable by the Secretary of State under a new public scheme.(6) In this section, a “previously contracted-out scheme” means a scheme that before 6 April 2016 was a salary related contracted-out scheme within the meaning of Part 3 of the Pension Schemes Act 1993.”Member's explanatory statement
This new clause contains further provision about the transfer of the AWE Pension Scheme. It will be the second clause of the new Chapter referred to in the explanatory statement for the amendment in the name of Baroness Sherlock to insert the new clause “Establishment of new public schemes and transfer of rights”.

147: After Clause 110, insert the following new Clause—
“Protection against adverse treatment: transfer of rights(1) When making regulations under section (Establishment of new public schemes and transfer of rights) which transfer qualifying accrued rights to a new public scheme, the Secretary of State must ensure that the following requirements are met in respect of each person whose qualifying accrued rights are transferred—(a) the general scheme requirement (see subsection (2)), and(b) where the qualifying accrued rights transferred are a person’s rights or entitlements to money purchase benefits other than pensions in payment, the money purchase requirement (see subsection (3)).(2) The general scheme requirement is that, so far as relevant to the qualifying accrued rights transferred by the regulations, the provision in the new public scheme immediately after the regulations are made is in all material respects at least as good as the provision in the AWE Pension Scheme immediately before that time.(3) The money purchase requirement is that the value of the rights or entitlements to money purchase benefits, other than pensions in payment, that a person has under the new public scheme immediately after, and as a result of, the transfer is at least equivalent to the value of the qualifying accrued rights of the person that are transferred.(4) The Secretary of State may by regulations make provision about the determination of the value of rights or entitlements for the purposes of subsection (3).(5) Regulations under subsection (4) may, among other things—(a) make provision about the person by whom, and the manner in which, the value of rights or entitlements is to be determined,(b) make provision about the date or period by reference to which the value of the qualifying accrued rights transferred is to be determined (subject to subsection (6)), and(c) make provision that applies generally or only for a specific purpose (for example, in relation to a particular transfer). (6) Regulations under subsection (4) may not make provision for the value of the qualifying accrued rights transferred to be determined by reference to a date which falls, or a period which ends, more than three months before the transfer.(7) Subsection (1) does not require provision to be included in a new public scheme if the Secretary of State is of the opinion that the provision would be incompatible with an enactment (including an enactment applying as a result of any provision made by or under this Chapter). (8) Nothing insubsections (1) to (3)is to be read as—(a) requiring particular provisions of a new public scheme to take a particular form,(b) requiring a new public scheme to be established in a particular way,(c) requiring any power or duty conferred or imposed by a new public scheme to be exercised or performed in a particular way, or(d) affecting any power of any person to amend a new public scheme.”Member's explanatory statement
This new clause contains provision about the protection of existing rights of members of the AWE Pension Scheme. It will be the third clause of the new Chapter referred to in the explanatory statement for the amendment in the name of Baroness Sherlock to insert the new clause “Establishment of new public schemes and transfer of rights”.

148: After Clause 110, insert the following new Clause—
“Protection against adverse treatment: amendment of new public schemes(1) The Secretary of State may not make regulations under section (Establishment of new public schemes and transfer of rights) amending a new public scheme unless—(a) in a case where the amendment, on coming into force, would or might adversely affect subsisting rights at that time, the consent requirements or the procedure requirements are satisfied in relation to the amendment, or(b) in any other case, the consultation requirements are satisfied in relation to the amendment.(2) The consent requirements are requirements specified or described in regulations made by the Secretary of State for the purpose of obtaining the consent of interested persons, or their representatives, to amendment of a new public scheme.(3) The consultation requirements are requirements specified or described in regulations made by the Secretary of State for the purpose of consulting interested persons, or their representatives, about amendment of a new public scheme.(4) The procedure requirements are requirements which—(a) are specified or described in regulations made by the Secretary of State for steps to be taken before amending a new public scheme, and(b) are not requirements for the purpose of obtaining the consent of, or consulting, interested persons or their representatives.(5) In this section, “subsisting rights”, in relation to any time, means—(a) any right to future benefits under a new public scheme which, at that time, has accrued to or in respect of a member of the scheme,(b) any entitlement under a new public scheme to the present payment of a pension or other benefit which a member of the scheme has at that time, or (c) any entitlement to benefits, or rights to future benefits, under a new public scheme which a survivor of a member of the scheme has at that time in respect of the member.(6) For the purposes of the definition of “subsisting rights”—(a) references to pensions or other benefits (including future benefits) include money purchase benefits, and(b) references to a right include a pension credit right. (7) In this section, “interested persons”, in relation to an amendment of a scheme, means persons who appear to the Secretary of State to be likely to be affected by the amendment.”Member's explanatory statement
This new clause contains further provision about the protection of existing rights of members of the AWE Pension Scheme. It will be the fourth clause of the new Chapter referred to in the explanatory statement for the amendment in the name of Baroness Sherlock to insert the new clause “Establishment of new public schemes and transfer of rights”.

149: After Clause 110, insert the following new Clause—
“Transfer of assets and liabilities(1) The Secretary of State may by regulations provide for the transfer of assets or liabilities of the AWE Pension Scheme (without the need for any approval or consent of the trustee company or AWE PLC, or any other person, to the transfer) to—(a) the Secretary of State,(b) a nominee of the Secretary of State or the Treasury, or(c) a company established by the Secretary of State or the Treasury for the purpose of holding the assets or the liabilities pending their disposal or discharge.(2) Where any assets of the AWE Pension Scheme are transferred before regulations under section (Establishment of new public schemes and transfer of rights)(2) are made, regulations under this section must make provision for the purposes of—(a) securing the ability of the trustee company to meet any liability it has, or may have, or(b) securing that any such liability is to be met by the Secretary of State or the Treasury.(3) The regulations may in connection with those purposes, or otherwise in connection with a transfer of assets or liabilities under the regulations—(a) make provision for the Secretary of State or the Treasury to give directions to the trustee company or AWE PLC;(b) exempt the trustee company, or AWE PLC, from liability in connection with acts or omissions pursuant to any such directions;(c) disapply (to such extent as is specified) any specified statutory provision or rule of law;(d) provide for any specified statutory provision to apply (whether or not it would otherwise apply) with specified modifications;(e) impose a moratorium on the commencement or continuation of proceedings or other legal processes of any specified description.(4) “Specified” means specified in the regulations.(5) Regulations under this section may include provision for the making of payments into the Consolidated Fund.”Member's explanatory statement
This new clause contains provision about transfer of assets and liabilities of the AWE Pension Scheme and provision securing scheme liabilities are met after assets are transferred. It will be the fifth clause of the new Chapter referred to in the explanatory statement for the amendment in the name of Baroness Sherlock to insert the new clause “Establishment of new public schemes and transfer of rights”.

150: After Clause 110, insert the following new Clause—
“Supplementary
Taxation(1) The Treasury may by regulations make provision for varying the way in which any relevant tax would, apart from the regulations, have effect in relation to— (a) a new public scheme;(b) members of a new public scheme;(c) persons who have survived a member of a new public scheme and who have an entitlement to benefits, or a right to future benefits, under the scheme in respect of the member;(d) a person within section (Transfer of assets and liabilities)(1)(a), (b) or (c).(2) Regulations under subsection (1) may include provision for treating a new public scheme as a registered pension scheme.(3) The Treasury may by regulations make provision for varying the way in which any relevant tax would, apart from the regulations, have effect in relation to, or in connection with, anything done by or under, or in consequence of, regulations made under this Chapter in relation to—(a) the AWE Pension Scheme;(b) the trustee company;(c) AWE PLC;(d) the Secretary of State;(e) a qualifying person;(f) a person who has survived a qualifying person and who has an entitlement to benefits, or a right to future benefits, under the scheme in respect of the qualifying person.(4) Regulations under subsection (1) or (3) may include provision for any of the following—(a) a tax provision not to apply or to apply with modifications;(b) anything done to have or not to have a specified consequence for the purposes of a tax provision;(c) the withdrawal of relief and the charging of a relevant tax.(5) Provision made by regulations under subsection (1) or (3), other than provision withdrawing a relief or charging a relevant tax, may make retrospective provision.(6) In this section—“relevant tax ” means—(a) income tax;(b) capital gains tax;(c) corporation tax;(d) inheritance tax;(e) stamp duty and stamp duty reserve tax;(f) stamp duty land tax;“registered pension scheme ” has the meaning given in Part 4 of the Finance Act 2004;“tax provision ” means any provision made by or under an enactment relating to a relevant tax.”Member's explanatory statement
This new clause contains provision to secure the right tax treatment in relation to the transfer of the scheme (for example, to avoid tax becoming due on any transfer). It will be the sixth clause of the new Chapter referred to in the explanatory statement for the amendment in the name of Baroness Sherlock to insert the new clause “Establishment of new public schemes and transfer of rights”.

151: After Clause 110, insert the following new Clause—
“Information(1) The Secretary of State may by regulations make provision requiring a person specified or described in the regulations to give the Secretary of State a document or other information specified or described in the regulations. (2) Regulations under subsection (1) may only make provision in respect of documents or other information which the Secretary of State reasonably requires for the purposes of—(a) making regulations under this Chapter, or(b) establishing or administering a new public scheme, including transferring qualifying accrued rights to such a scheme.(3) Regulations under subsection (1) may, among other things, include—(a) provision about the time when the document or other information must be given;(b) provision about the form and manner in which it must be given;(c) provision for the imposition of a financial penalty on a person who, without reasonable excuse, fails to comply with a requirement imposed by the regulations (including provision for appeals to a court or tribunal).(4) For the purposes of facilitating the establishment or administration of a new public scheme, including the transfer of qualifying accrued rights to such a scheme, information described in subsection (5) may be shared among the following persons—(a) the Secretary of State;(b) the Treasury;(c) a trustee company of the AWE Pension Scheme;(d) a person who exercises functions under the AWE Pension Scheme;(e) AWE PLC;(f) a person who administers, or exercises functions under, a new public scheme.(5) The information is information relating to—(a) rights or entitlements to pensions or other benefits under the AWE Pension Scheme;(b) the administration of the AWE Pension Scheme;(c) rights or entitlements to pensions or other benefits under a new public scheme, so far as they are rights or entitlements of, or in respect of, qualifying persons;(d) the administration of a new public scheme.(6) The disclosure of information in accordance with this section, or regulations made under this section, does not breach—(a) any obligation of confidence owed by a person in relation to that information, or(b) any other restriction on the disclosure of information (however imposed).”Member's explanatory statement
This new clause contains provision about powers to require information or to share information in connection with the transfer of the AWE Pension Scheme. It will be the seventh clause of the new Chapter referred to in the explanatory statement for the amendment in the name of Baroness Sherlock to insert the new clause “Establishment of new public schemes and transfer of rights”.

152: After Clause 110, insert the following new Clause—
“Regulations(1) The Secretary of State must consult the trustee company before making—(a) regulations under section (Establishment of new public schemes and transfer of rights) which establish a new public scheme or transfer qualifying accrued rights to a new public scheme, or(b) regulations under section (Transfer of assets and liabilities) which make provision for the transfer of assets or liabilities. (2) The Secretary of State may not make regulations under any provision of this Chapter, other than under section (Information)(1), unless the Treasury have consented to the making of the regulations.(3) Regulations under section (Establishment of new public schemes and transfer of rights) are subject to the affirmative procedure if—(a) the making of the regulations is subject to the consent requirements (see section (Protection against adverse treatment: amendment of new public schemes)), or(b) the regulations make provision which has retrospective effect.(4) Regulations under section (Transfer of assets and liabilities) are subject to the affirmative procedure if they make provision falling with subsection (3)(c), (d) or (e) of that section.(5) Regulations under section (Information)(1) are subject to the affirmative procedure if they make provision about the amount of a financial penalty.(6) A statutory instrument containing regulations under section (Taxation) is subject to annulment in pursuance of a resolution of the House of Commons.(7) Any other regulations under this Chapter are subject to the negative procedure.”Member's explanatory statement
This new clause contains provision about consultation and parliamentary scrutiny of regulations about the transfer of the AWE Pension Scheme. It will be the eighth clause of the new Chapter referred to in the explanatory statement for the amendment in the name of Baroness Sherlock to insert the new clause “Establishment of new public schemes and transfer of rights”.

153: After Clause 110, insert the following new Clause—
“InterpretationIn this Chapter—“active member” has the meaning given by section 124(1) of the Pensions Act 1995;“deferred member” has the meaning given by section 124(1) of the Pensions Act 1995;“enactment ” includes—(a) an enactment comprised in subordinate legislation (within the meaning given by section 21 of the Interpretation Act 1978),(b) an enactment comprised in, or in an instrument made under, a Measure or Act of Senedd Cymru,(c) an enactment comprised in, or in an instrument made under, an Act of the Scottish Parliament,(d) an enactment comprised in, or in an instrument made under, Northern Ireland legislation;“member ” has the meaning given by section 124(1) of the Pensions Act 1995;“money purchase benefits ” has the meaning given by section 181 of the Pension Schemes Act 1993;“new public scheme ” has the meaning given by section (Establishment of new public schemes and transfer of rights)(1); “occupational pension scheme ” has the meaning given by section 1 of the Pension Schemes Act 1993;“pension credit right ” has the meaning given by section 124(1) of the Pensions Act 1995;“qualifying person” has the meaning given by section (Establishment of new public schemes and transfer of rights)(1);“the trustee company” means AWE Pension Trustees Ltd.” Member's explanatory statement
This new clause contains definitions for the purposes of the new Chapter referred to in the explanatory statement for the amendment in the name of Baroness Sherlock to insert the new clause “Establishment of new public schemes and transfer of rights”. It will be the ninth clause of that Chapter.

Amendments 146 to 153 agreed.

Amendment 154

Moved by

[Baroness Altmann]

154: After Clause 110, insert the following new Clause—
“Lump sum payments for members of the Financial Assistance Scheme(1) Any member of the Financial Assistance Scheme, or their survivor or surviving dependent if the member is deceased, who would qualify for an increased Financial Assistance Payment after 2027 as a result of changes made to the Financial Assistance Scheme Regulations 2005 (S.I. 2005/1986) by section 110 of this Act, may also receive a lump sum payment or payments in recognition of the years of pension increases that were unpaid since the failure of the pension scheme.(2) The Secretary of State must, by regulations, determine the amount of the lump sum payments to be made under subsection (1) within one year of the day on which this Act is passed.(3) Regulations under subsection (2) must—(a) specify, in consultation with the Pension Protection Fund, the calculation methodology for the lump sum payments to be made in connection with the loss of inflation protection on pre-1997 pension benefits, and(b) require Ministers, in consultation with the Pension Protection Fund, to lay appropriate regulations to identify the resources to be used for the lump sum payments specified in paragraph (a).(4) Regulations made under this section are subject to the affirmative procedure.”Member's explanatory statement
This amendment seeks to make provision for lump sum payments to members of the Financial Assistance Scheme who qualify for an increase in periodic compensation for pre-1997 service to compensate for unpaid increases in the years since the failure of the pension scheme.

[Baroness Altmann (Non-Afl)]

My Lords, as we have already debated this amendment and I alerted the House that I would like to test its opinion after such strong support from nearly all sides, I beg leave to test the opinion of the House on Amendment 154.

16:58

Division 1

Amendment 154 disagreed.

Ayes: 77

Noes: 161

17:09

Amendment 155 not moved.

Amendment 156

Moved by

[Baroness Sherlock]

156: After Clause 117, insert the following new Clause—
“Investment principles and choosing investments: guidanceIn Part 1 of the Pensions Act 1995 (occupational pensions), after section 36 insert—“36ZA Investment principles and choosing investments: guidance(1) The Secretary of State must issue guidance explaining such aspects of the law contained in regulations made under section 35(4) (statement of investment principles) and section 36(1) (choosing investments) as the Secretary of State considers appropriate.(2) Guidance issued under this section may, in particular—(a) explain the meaning of any expression relevant to that law; (b) include examples to illustrate how that law applies to particular scenarios.(3) The trustees of a trust scheme, and any fund manager to whom any discretion has been delegated under section 34 (power of investment and delegation), must have regard to guidance issued under this section.(4) The Secretary of State—(a) must from time to time review any guidance issued under this section; (b) may from time to time revise and re-issue guidance under this section.(5) Before issuing guidance under this section, the Secretary of State must consult such persons as the Secretary of State considers appropriate.(6) The requirement to consult those persons may be satisfied by consultation carried out before this section comes into force.(7) The Secretary of State must—(a) lay guidance issued under this section before Parliament, and(b) publish such guidance in such manner as the Secretary of State considers appropriate.(8) The first guidance issued under this section must be laid before Parliament, and published, before the end of the period of 12 months beginning with the day on which this section comes into force.””Member’s explanatory statement
This amendment would require the Secretary of State to issue guidance explaining aspects of the law contained in certain pensions regulations. The guidance may in particular explain the meaning of expressions in those regulations, such as “financially material considerations” (including “environmental, social and governance considerations”) and “best interests of members”.

[Baroness Sherlock (Lab)]

My Lords, I will speak to government Amendments 156 and 178 in my name. I am delighted to bring forward an important amendment to this Bill, delivering on a commitment made by my honourable friend the Minister for Pensions in the other place to provide greater clarity and support for trustees exercising their existing investment duties.

Trustees and others tell us that, although their duties are well established in law, they lack practical tools to apply them in today’s complex investment environment. These amendments respond to that need by requiring the Secretary of State to issue statutory guidance explaining how these duties operate within the existing legal framework. For the first time, there will be a statutory obligation to provide accessible and authoritative guidance on the meaning and application of key legal concepts contained in regulations made under Sections 35 and 36 of the Pensions Act 1995, including the statement of investment principles and the provisions governing the choosing of investments.

Let me be clear: these amendments do not change trustees’ duties or prescribe outcomes. What the amendments provide is guidance that clarifies how the law works in practice. Across DB, DC and hybrid schemes, trustees and advisers have asked for concise, practical and legally grounded guidance. They want confidence that the law gives them the room to take proper account of long-term, financially material risks, such as climate change, biodiversity loss and evolving economic conditions when determining how best to invest in members’ interests.

At a recent round table chaired by the Pensions Minister, stakeholders stressed the need for guidance that distils existing law into simple usable terms supported by real-world examples. They were equally clear that the guidance must remain flexible and able to evolve as investment practice develops. The Government’s view is that fast-moving concepts such as standards of living, member views and complex system-level risks should not be hard-wired into primary legislation because they risk creating rigidity and could quickly become outdated. By contrast, statutory guidance offers a pragmatic responsive approach that can evolve alongside the global investment environment, stewardship expectations and emerging environmental, social and governance data.

Under these amendments, the Secretary of State will issue guidance explaining such aspects of the law as they consider appropriate. This includes clarifying key expressions, such as “financially material considerations” and the “best interests of members”, covered in existing regulations. The guidance will also use examples and case studies to illustrate how these concepts should be interpreted—something that trustees and advisers have repeatedly said would be of real value.

To ensure that the guidance is genuinely useful, DWP has convened a technical working group chaired by Sir Robin Knowles, a serving High Court judge whose leadership of the Financial Markets Law Committee’s work on fiduciary duties and sustainability brings deep expertise to this task. The group brings together experienced DB, DC and LGPS trustees, actuaries, investment practitioners, stewardship specialists, civil society representatives and senior pensions lawyers. The group has already met and agreed terms of reference. Its objectives include supporting DWP in developing statutory guidance that provides clarity and confidence to trustees without imposing undue prescription, translating existing law into practical expectations supported by real-world examples—for instance, showing how trustees might assess long-term financial risks linked to climate change, biodiversity loss, supply chain exposures, nature-related dependencies and stewardship escalation, as well as financially material social risks and other forms, drawing on good practice from schemes such as Nest, Brunel and People’s Partnership. The guidance will outline reasonable sources of evidence, data, member views and professional advice on which trustees may rely.

The group will look to recognise in guidance the differing capacities of schemes, with case studies showing how schemes of various sizes can meet the same principles in different ways. It will also identify appropriate areas of alignment with LGPS and FCA guidance to promote coherence across the pensions landscape. I know this will be of particular interest to the noble Baroness, Lady Hayman, who has asked about the interaction of this guidance with other pension schemes. I pay tribute to her for her work in this area and for the amendment she tabled, which, along with similar work in the other place, has prompted the Government to respond in the way they have.

As we have indicated previously, this guidance is intended only for occupational trust-based schemes, where questions of legal clarity arise most acutely. FCA-regulated providers operate under the consumer duty, and the LGPS already has its own guidance to LGPS administering authorities, setting out that they must include preferences on financially material ESG factors in their investment strategies. However, I can assure the House that the FCA, the Pensions Regulator and the MHCLG for the LGPS are fully engaged in the statutory guidance work to help to support alignment and share best practice.

17:15

I have been asked previously about the legal effect of the duty to “have regard” to the guidance. Our amendments make it clear that trustees and delegated fund managers must genuinely consider the guidance and show that they have taken it into account, but they are not bound to follow it where they have rational grounds to depart. Trustees retain full discretion and independent judgment.

These amendments also provide transparency and accountability. The Secretary of State must consult widely before issuing the guidance and the final version must be laid before Parliament prior to publication. The Secretary of State must also keep the guidance under review and may revise and re-issue it, so trustees receive up-to-date support as investment landscapes and systemic risks evolve. The first guidance must be issued within 12 months of the provision coming into force, two months after Royal Assent.

Some have argued in the past that only primary legislation can move the dial on trustees’ duties. However, trustees and experts consistently tell us the opposite: that the existing law has much to offer—it is sufficient, but its application is sometimes misunderstood or inconsistently interpreted. They have been clear that trustees do not need new obligations; they need assurance. This amendment provides that assurance. By creating statutory guidance to which trustees must have regard, it strengthens the defensibility of trustees’ decision-making and reduces the scope for legal challenge. In doing so, it supports better long-term investment, improves consistency across schemes and ensures that trustees are equipped to consider the risks and opportunities that increasingly shape member outcomes.

These amendments strengthen trustee confidence, enhance governance and modernise the interpretive framework that underpins pension savings. I beg to move.

[Baroness Hayman (CB)]

My Lords, when I came into the Chamber today, a Cross-Bench colleague congratulated me on the way in which my amendment has been handled; it is an absolutely perfect example of how the House of Lords should operate. We are all very aware, I think, that sometimes we are not operating at our best at the moment. In this case, an amendment was put forward on a cross-party basis and negotiations went on with the Minister; we managed to thrash out an amendment—and we did not get everything that we wanted, but we certainly got the legislative basis on which guidance could be issued. That guidance has been asked for by trustees and the industry and considered by working groups. I first got involved with the issue and knew that there was a request for clarity some five or six years ago, when we had another Pension Schemes Bill.

I am seriously disappointed that what I thought was a consensus that this was a good way forward has not been accepted across the House. I am particularly distressed that, as I understand, the Liberal Democrat Benches will not be supporting the government amendment today. My understanding up to this morning was that the concerns that existed there related to the fact that my amendment had in some way been watered down and was less tough, putting less into statute and giving more reassurance to those who were concerned about overinvolvement. The Minister set out very clearly that this was not a case of overinvolvement; it is certainly not a case of mandation. I was once told that a Secretary of State in a previous Government said that he did not worry at all about “have regard” amendments, because they could be ignored if there was a basis for so doing.

So I am, as I say, very upset. I will not go through all the arguments as to why this would be valuable—I did it at Second Reading and in Committee and the Minister has done it for me today. I am no expert, and I accept that there are experts in the Chamber, but pension investments are the ultimate long-term investments—the ultimate investments in which long-term, systemic risks should be taken into account. The anxiety that some pension fund trustees had about taking those into account was holding those funds back from acting in the best interests of their pensioners. That, quite simply, was what we were trying to put right in this amendment. The Minister has made a compelling case for this amendment, which she and her officials have taken infinite care over, and I still hope, even at this late stage, that those who are thinking of not supporting it will reconsider and support it strongly, as I do.

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I shall make a few brief remarks in support of the Government. I declare an interest as chairman of the Financial Markets Law Committee, which issued a paper about two years ago now to try to explain the very complicated problems. This would be an easy matter to solve if lawyers were not paid at the extortionate rates at which they are paid, because each bunch of trustees could take their own legal advice, but unfortunately we live in a world where lawyers are grossly over-remunerated, and it is not practicable for trustees of pension schemes to take legal advice. It is therefore necessary to provide some guidance in relation to fiduciary duties.

These are complicated, partly because they have a very ancient history, albeit one that has worked well, and partly because the Law Commission issued a paper some years ago which was not entirely clear. The paper that the Financial Markets Law Committee issued, although it was agreed unanimously by the committee, is not entirely easy to follow. Therefore, what was needed was something that ordinary trustees could look at and be guided by in the exercise of their fiduciary duties. As the Minister has explained, and as my understanding is, the guidance is going to be prepared by an independent group. Having had to see some of those who have been involved, “independent” is a correct description of them. Pension lawyers are tough people and I have no doubt whatever that they will produce independent advice and will not be cowed by any Minister into providing something that does not accord with the law—what they will be doing is giving guidance on the law.

There is one point upon which I disagree with the Minister. She says that the guidance will be authoritative. Yes, in one sense, but not authoritative in the sense in which it is popularly understood. They cannot give advice that changes the law in any way whatever, because that would be ultra vires what they are intending to do, and if they did, one could go to the court and say, “The Secretary of State’s guidance does not represent the law”. Therefore, the argument that this is in some sense changing the law is totally misconceived, maybe because some have not read the amendment very closely. This is simply guidance.

When we look at fiduciary duties and at the 2005 pension regulations, as amended in 2018, there are phrases that are not easy to understand. Therefore, what the Secretary of State is going to do seems to me entirely sensible. She is going to get a group of independent people—and jolly independent they are too—presided over by Sir Robin Knowles, who is fiercely independent, and all they will be doing is trying to explain the law to people, without the people concerned having to pay the fees of lawyers.

I cannot understand how anyone could possibly oppose this. If there is something in the wording that is not quite right, it would be wonderful if someone could say what it is; no doubt it could be corrected in time for Third Reading. To deprive pension trustees of advice and force them into the hands of lawyers is quite wrong. Who pays the fees of the lawyers? The pension funds. This is a good piece of legislation, and we ought to support His Majesty’s Government.

[Lord Hendy (Lab)]

My Lords, what a pleasure it is to follow the noble and learned Lord, Lord Thomas of Cwmgiedd, in supporting the Government’s amendments and Amendment 167 in the name of the noble Baroness, Lady Hayman, and others, which all propose that the Secretary of State should publish statutory guidance for trustees in investing their funds. In Committee, the noble Baroness, Lady Janke, and I proposed an amendment to require regulations to guide trustees’ investment; in particular, so that trustees should avoid incompatibility with international law. My noble friend the Minister was against regulating in a way which would constrain the autonomy of trustees, and we have not pursued that amendment on Report.

The proposal for guidance rather than regulations is an attractive one. My request today is that the factors to which the guidance should have regard should include not just pension law but the international legal obligations of the UK, to ensure that pension scheme investments do not, directly or indirectly, cause or contribute to activities which are inconsistent with the provisions of human rights and international law; otherwise, UK pension schemes, particularly those which are an arm of the UK state, such as the Local Government Pension Scheme, risk involving the UK in breaches of its international obligations.

The UK is obliged not to authorise, explicitly or implicitly, serious breaches of peremptory international norms by other states; nor must it render aid or assistance to any entity involved in serious breaches of such norms by another state. The UK must co-operate with other states and take all reasonably available measures to bring an end to any violations of such norms by another state. This self-evidently applies to the entities involved in the activities of the Israeli Government in Gaza and the West Bank, but, sadly, it applies to many other states too. It also applies to entities in supply chains which involve the UK and other states breaching the minimum labour standards of the International Labour Organization and the Council of Europe through its European Social Charter.

I ask my noble friend the Minister: will she ensure that the guidance proposed encourages pension fund trustees to take into account, among other things, the obligations of international law in making their investment decisions? Pending that guidance, an expression of encouragement from her would be much appreciated.

[Lord Thomas of Cwmgiedd (CB)]

Before the noble Lord sits down, can I ask him a question? The instrument says, “on the law”. We know that English law operates so that there are some obligations that are performable only by His Majesty’s Government, and other obligations that are accorded only into domestic law. He surely is not suggesting that obligations that go beyond domestic law are somehow to be brought within the guidance. If so, that would be a massive change in the law and well beyond anything that this group of people or the Secretary of State were permitted to do.

[Lord Hendy (Lab)]

The answer to that question is complex, but there is one proposition that is not: institutions that constitute an arm of the state are bound by international law. That will apply to the Local Government Pension Scheme and, as I understand it, to other pension schemes.

17:30

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise with some trepidation; I am not going to get into that particular discussion, although I entirely agree with the intention of the noble Lord, Lord Hendy, without getting into the legal details.

I rise briefly to express Green support for Amendment 167 from the noble Baroness, Lady Hayman, which she so ably introduced. As I understand it, the government amendment is, essentially, delivering the same purpose. I said at Second Reading, which I recall was the day before our Christmas Recess, that my festive conversations were entirely preoccupied by the term “fiduciary duty”, which was really appropriate to the season—but what we are talking about is really important.

Having got into the legal details, it is worth coming back to what we are talking about here. Pensioners are people. They have to live on this damaged and deeply unhealthy planet. They hope to live for many years, so what their money is invested into has real, concrete impacts on their lives. It is in their interests that their money is invested well for the future. That is why we support the government amendment.

[Baroness Stedman-Scott (Con)]

My Lords, we have significant concerns about the direction of travel shown by the Government with their amendments in this group. These amendments risk opening the door to mandation by the backdoor, and that is something we cannot support.

The Government’s Amendment 156 would require the Secretary of State to issue guidance explaining key aspects of pension law, including fundamental concepts such as “financially material considerations” and, crucially, what constitutes the “best interests of members”. If the Government are given the power to define what is in the members’ best interest, what is to prevent that definition shifting over time to reflect political priorities? What is to stop a future Secretary of State asserting that particular forms of investment—perhaps in UK assets of their choosing—are, by definition, in members’ best interests? If that becomes the case, have we not simply created mandation in another form?

Throughout the passage of the Bill, we have been clear that decisions about investment must remain with trustees acting in the interest of their members, and not be directed implicitly or explicitly from the centre. These amendments risk undermining that principle by centralising significant interpretive power in the hands of the Government. When the Government issue guidance to schools, the health service or other areas in their purview, the effect can be to clarify and support operations in a practical sense. The sort of guidance the Government propose to issue on this point goes precisely the wrong way and can serve only to limit the options open for trustees to act in their members’ best interest.

For these reasons, we believe that these amendments represent a step in the wrong direction. They risk politicising what should remain independent fiduciary judgments. Accordingly, I put the House on notice that we will oppose these government amendments when they are called.

[Baroness Sherlock (Lab)]

My Lords, I will start where we just finished. I can only assume that the noble Baroness, Lady Stedman-Scott, did not listen to the words of the noble and learned Lord, Lord Thomas; I hope she would take it from him if not from me. He made it clear that this guidance does not change the law; it simply seeks to explain how the law can be applied. As he pointed out, were any Government—this Government or a subsequent one—to try to make the guidance represent something that the law is not, the courts would very quickly set it aside. Frankly, I find the objections risible. They do not stack up at all.

To be really clear, the amendments require the Secretary of State to issue guidance that explains existing law. The guidance would not instruct trustees how to invest. It would not give Ministers any power to set investment policies or require trustees to invest in any assets. Trustees must consider the guidance, but they can depart from it if they have rational grounds for doing so. Trustees retain full discretion and independent judgment. The amendment does not change trustees’ duties or prescribe investment outcomes. It simply clarifies how the existing duties operate.

The aim of the guidance is to clarify, not control. Trustees and industry stakeholders have asked for clearer, practical explanations of legal concepts, and that is what the guidance will provide. There will be a technical working group, as the noble and learned Lord pointed out. I certainly have no intention of expecting the kind of people in that group to bow to the wishes of this or any other Government, and we will not be disappointed in that respect.

To be really clear: guidance cannot override the law. Trustees must still make investment decisions based solely on what they judge to be in members’ best financial interests. They can depart from the guidance if they explain their reasoning and set it out. Nothing in the guidance allows Ministers to mandate their investment choices.

I regret that I cannot agree to my noble friend Lord Hendy’s request to expand the guidance in the way he described. I clarify that the amendment does not apply to the Local Government Pension Scheme, as I think I made clear in previous stages.

I was disappointed that no one from the Lib Dem Front Bench got up to explain the decision they have taken. I was as surprised as the noble Baroness, Lady Hayman, to find that they did not propose to support what we had all thought was a proper consensus. I pay tribute to the noble Baroness, Lady Hayman, as I think she has done a really good job in putting forward the case of trying to make sure that trustees who want to take appropriate account of long-term factors, such as climate risk, are enabled to do that.

That is what this Government have brought forward. If the House votes it down then so be it, but it would be a major mistake.

17:36

Division 2

Amendment 156 disagreed.

Ayes: 202

Noes: 225

17:47

Amendment 157

Moved by

[Baroness Neville-Rolfe]

157: After Clause 117, insert the following new Clause—
“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, my Amendment 157 would require the Secretary of State to conduct and publish a review of unfunded public sector pensions. I am very grateful to my noble friends Lord Moynihan of Chelsea and Lady Noakes for their support. My amendment is the same as the one I moved in Committee but, in the light of our debate then, there is one major point I want to stress. My motivation is in no way to denigrate public servants, nor to assert that they are not entitled to proper pensions, nor that we should renege on entitlements already earned. My aims are to draw attention to the fact that there are no savings pots or funds from which these public sector defined pensions are paid; that, with increasing numbers of public servants, the long-term burden is increasing; and that, when public servant DB pensions are paid, they have to be funded from current taxation, and that fact is insufficiently and obscurely reflected in national accounts. There is a real risk that the burden posed by these pensions will eventually come to be seen as unsupportable. Hence, we should set up a high-powered review.

Given these concerns, it is unfortunate in the extreme that this Bill does nothing to address them. 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, which is a total of 8 million individuals. As people live longer and public sector employment grows, the proportion receiving gold-plated defined benefit pensions will grow if nothing is done.

Most people are aware that Britain has a huge national debt that is growing and sits at £2.9 trillion, or 97% of GDP. However, the obligations of future public sector DB pensions are equivalent to 75% of GDP and probably growing. When I first learned that, I was amazed, but I am afraid it is true. At the heart of the problem is the fact that this is a very long-term problem—like the national debt—with reform difficult to reconcile with electoral cycles.

However, on the surface things look fine. In 2025-26, according to the Treasury PESA analysis of 2025, there was £56.8 billion-worth of these public sector pensions being paid to some 3.5 million pensioners. This compares with a total of employer and employee contributions of £57.3 billion, which has dramatically risen in recent years. Indeed, according to the OBR in March, because of the growth in the public sector payroll, receipts from working employees are growing more quickly than the growth in pensions paid, which are uprated by CPI, with net spending forecast to be £1.4 billion lower by 2030-31.

So, apparently, all is well, but I am afraid that 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. The future liability figure from the OBR in July 2025 is £1.4 trillion, somewhat lower than other estimates. However, 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 is that, on any credible estimate with, happily, people living longer, the numbers are frighteningly large.

Moreover, the situation may actually be getting worse, as commitments grow over time and per capita growth—which could transform the situation—recedes. It is unfortunate and regrettable that the scale of the problem is not properly reflected in the national accounts. As the OBR commented in its July report, which is well worth a read:

“Unfunded pension liabilities represent the second-largest government liability after gilts, but are not included in the PSNFL”—


public sector net financial liabilities.

The scale of the problem is hidden by a combination of 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 vice versa.

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 annually, with no capping mechanism of any sort. Noble Lords will struggle to find any acknowledgement of that in our national accounts.

More generally, comparison with the private sector is enlightening, particularly now most of the generous defined benefit schemes in that sector have been closed. The net effect for those under 40 is that most—in practice, those in the private sector—will have to rely on defined contribution pensions augmented by non-pension savings and the state pension. This contrasts starkly with the position in the public sector.

One salient and growing cause of the problem is the sheer size of the public sector, the generous pay settlements in 2024 and the barely noticed drift upwards in grading which increases pension costs. For example, in the Civil Service in 2016, before Covid, there were 420,000 employees; today, there are 550,000, and the numbers are growing. The extra pension contributions paid by a bigger workforce make the situation look better in the very short term, as I have acknowledged, but this is illusory. They in fact store up trouble for the future when the pensions have to be paid out of current income. This is very different to the private sector, where we have funded schemes.

I turn now to incentives. One reason why this problem has arisen, I suggest, is that pension costs are not properly taken into account in public sector decision-making. Those adding to the workforce, or making people redundant, rarely take into account, or know, what the long-term consequences of their decisions are for pension costs. Consequences are simply passed on to the Treasury—in other words, on to taxpayers great and small. So even if officials want to do the right thing, they cannot calculate what it is.

That brings me on to the final area, which is intergenerational unfairness. We are constantly adding to the burden on coming generations without any thought as to how the burden can be paid off. That cannot be sensible or fair to those already facing the challenges of housing, childcare, student loans and now inflation. If nothing is done, once the youngsters get to pension age, the pensions promised to them will be unaffordable, so there will be a crisis, and hard and damaging decisions will have to be taken. It is becoming clearer by the day that we need much more transparency in the government accounts and a proper and realistic look at the implications of present policies.

In Committee, the noble Lord, Lord Davies of Brixton, argued against our proposed review and cited a Written Statement relating to the Civil Service scheme. He quoted the Cabinet Office Minister, speaking on 20 December 2011, as having given

“a guarantee, outside of the scheme designs parameters … of no further reform for the next 25 years”.—[Official Report, Commons, 20/12/11; col. 151WS.]

The Minister picked this up. She said that was

“in effect committing to no further major reforms”

in public service pensions

“until 2040”.—[Official Report, 23/2/26; col. GC 318.]

That is a generous interpretation, referring, we should note, to the public sector, not just to the Civil Service. It was not a legal guarantee. In any case, such a guarantee in no way precludes examining the situation. Even if such an examination ended in recommendations for action, these would take time to implement—much time, in my experience. I am surprised that the Minister does not see value in a review, particularly as a number of issues on accounting and transparency have already been raised by the Public Accounts Committee.

I fully accept that all this is not the fault of the present Government only. The situation has developed over many years, but we need to act now before the situation deteriorates further. I am conscious that it is an uncomfortable subject, but for the reasons I have set out, there is a strong case for a special review. This is not a call for a public or independent inquiry, which would cost a great deal and drag on, nor am I making any policy recommendations—but I want Ministers to grip the problem, and to do so with an open mind. Because of the long timescales involved in pensions and the importance of public servants, all parties have an interest. I beg to move, and I may seek to test the opinion of the House.

[Baroness Nichols of Selby (Lab)]

My Lords, I am just going to ask a question because I am slightly confused. The noble Baroness did say that it was not just a problem of this Government, but could she explain why the previous Government did not take this on?

[Baroness Noakes (Con)]

My Lords, I have added my name to the amendment of my noble friend Lady Neville-Rolfe, and I congratulate her on pursuing this important topic. I will make just three brief points in support of the review that my noble friend’s amendment calls for.

First, we need greater transparency about the current and future costs of public sector pension obligations. The Government’s Whole of Government Accounts provides some information, but it is massively out of date—the latest available are for 2023-24, and the only certain conclusion from those accounts is that the value of future pension liabilities is so dependent on the underlying accounting and actuarial assumptions that the numbers have no real meaning. That is why the Public Accounts Committee of the other place has constantly called for more information to be given on the gross cash amounts and timing of the pension liabilities—but so far, the Government have refused.

Secondly, the real question is not about numbers—interesting though they are to people such as me—but a political one. It is a fact that defined benefit private sector pensions are now unaffordable and will likely never be seen again in the private sector. How fair is it that the private sector pays the taxes that fund the public sector pension benefits that cannot be afforded in the private sector? How long will the British public accept that?

Thirdly, the Government’s policies are biased against private sector pension provision. The private sector has had to pick up the tab for Gordon Brown’s pension tax raid and the regulatory burdens imposed by the Pensions Regulator. It has had to fund the huge deficits that emerged after the long period of low interest rates, as well as the Pension Protection Fund. The Chancellor’s latest raid on salary sacrifice schemes with national insurance was aimed squarely at the private sector. Little of this ever affects public sector pensions. However, when the rules that affect all employees start to impact public sector employees—for example, judges and doctors—the Government bail them out. This is a policy bias that does not stand up to scrutiny. My noble friend’s review is long overdue.

18:00

[Lord Lucas (Con)]

My Lords, I am delighted to see this series of requests for reviews. I support my noble friend’s Amendment 157. I support also my noble friend on the Front Bench in his Amendment 159, which he will no doubt speak to in due course. It echoes what the noble Lord, Lord Vaux of Harrowden, said on a previous day: we really need to understand the causes of the drop in investment in the UK and address them, rather than try to apply some layer of instruction on top without dealing with the foundations.

I am particularly fond of Amendment 170A. As was shown by the last Division and previous Divisions, I feel that the Government are getting themselves into some difficulty on the question of mandation. Surely it should not be the Government telling pension funds what to do—it should be their members. Their members should have a say in and influence over the question of whether more should be invested in the UK. There is also the question of whether we should invest more in protecting us from climate change—again, that should be decided by members; it should not be mandated centrally. However well-intentioned this Government may be on mandation, there is such huge potential for it going wrong under future Governments. Members are the people who have to suffer if their investments go wrong; they should be the people whose views are taken into account.

[Lord Palmer of Childs Hill (LD)]

My Lords, this group brings together a number of proposed new clauses on the wider health and fairness of the pensions system: public service pension availability; intergenerational fairness; the impact of the Act on retirement incomes; barriers to UK investment; and member engagement and rights. In addition, my amendment proposes a new clause to address the fairness of police pension survivor benefits forfeiture rules. Taken together, the amendments reflect a wider concern that major structural reform should be accompanied by a proper review, transparency and evidence.

On these Benches, we believe that there is obvious merit in asking the Government to come back to Parliament on these questions, whether the issue is long-term sustainability, actual retirement outcomes or the obstacles that may prevent productive investment. They are not hostile to reform; they are part of legislating responsibly in an area as consequential and complex as pensions. On these Benches, we are minded to support Amendment 157, moved by the noble Baroness, Lady Neville-Rolfe.

Through the amendment in my name, I am pleased to have raised the issue of police pension survivor benefits in this Chamber. I raised the matter in Committee, and I feel strongly about it. I appreciate the Government’s response to our earlier discussion, so I will not pursue the amendment further today.

[Lord Davies of Brixton (Lab)]

I welcome the comments from the noble Lord, Lord Palmer of Childs Hill, on police pensions. It is a clear injustice that my noble friend the Minister will understand. The truth is that the only objection is the classic “read-across”—the implications it has for other groups—but I do not see that as a good reason to continue with an injustice. I am therefore happy to express my support for Amendment 164.

I do not support Amendment 157, calling for a review of public service pensions. In truth, the House deserves a proper, full debate on the issue and not as a by-product of this Bill. If other Members want to take the necessary steps to have a proper debate on the issue, I would welcome that. I am confident in that because I know that when such a review takes place, it will come up with the same conclusion as the last review.

It should be of no surprise to anyone that an unfunded pension scheme is not funded—it is inherent; it is in the name. Why do we fund private sector pensions? We do so to provide members with a guarantee. There is no ideological issue involved here. For members to feel safe about receiving their pensions, they want to see the employer putting aside the members’ money into a fund that will be there to provide the pensions when they get to retirement—that is why we have a fund. If the pension is being provided by the Government, we can rely on the Government. We have always relied on the Government, and so a fund is not necessary. Calculating what the fund would be, if it were funded, is an interesting exercise—I would do it myself for a reasonable fee—but it does not tell you anything about the management of that unfunded pension scheme arrangement.

The noble Baroness, Lady Neville-Rolfe, mentioned interest rates. Interest rates make no difference whatever to the cost of an unfunded scheme, because it is not funded. They do make a difference to the figure that you calculate at the current time, but that is purely a ghost figure—that is not the cost of the scheme. The cost of the scheme is what arises when you pay the benefits, which is not affected in any way by interest rates.

I look forward to the noble Viscount, Lord Younger, introducing his amendment on member engagement. If I had seen it before this weekend, I would have been minded to add my name to it—I like the amendment. I do not know whether my noble friend the Minister will accept it, but I agree that it is time for a review of how members are engaged in their pension scheme. The system we have now dates back almost 30 years; it is post Maxwell. The Pensions Act 1995, introduced by the noble Lord, Lord Hague—as he is now—established the structure, and the operation of pension schemes has moved on so much since then.

An interesting wrinkle in the legislation comes in the light of the Goode report. Professor Goode was asked to provide advice on member involvement in the wake of the Maxwell scandal. He recommended that there should be member-nominated trustees. This was adopted by the then Conservative Government. The interesting fact is that the Goode commission recommended that there should be a majority of member-nominated trustee in defined contribution schemes, which, of course, is the majority form of provision at the moment. If we were to adopt its approach, as part of the noble Viscount’s review, we would want much greater involvement in looking after the money and taking investment decisions, which I regard as a very good thing.

There have been big changes since 1995. There has been massive growth in single corporate trustees, which precludes the possibility of member-nominated trustees—again, another good reason to support the noble Viscount’s amendment. Of course, how you have member involvement in schemes that are closed is a much more difficult issue than when they are open with active members.

There are good reason for having a review of how members are engaged in occupational pension provision. I have not discussed this with my noble friend the Minister but my guess is that she will reject the amendment, which is a bit of a pity but I will of course, as almost always, support the Whip.

[Baroness Altmann (Non-Afl)]

My Lords, I support Amendment 164 in the name of the noble Lord, Lord Palmer. I agree that there seems to be something of an injustice in relation to survivor pensions for the police. For policemen who pass away, pensions for their spouse are suspended if the spouse remarries or even moves in with a partner. Do the same provisions apply in the Armed Forces, NHS and Civil Service pension schemes, or does the deceased member’s partner not lose their pension in those schemes if they remarry or cohabit, unlike for the police?

[Lord Moynihan of Chelsea (Con)]

My Lords, I revert to the amendment from my noble friend Lady Neville-Rolfe. I thank her for this important contribution and welcome the contributions from various noble friends, the news from the noble Lord, Lord Palmer, that he would be minded to support this amendment, and even the super news from the noble Lord, Lord Davies of Brixton, that he too might support some form of inquiry.

I have been struggling for some weeks now to think how I could persuade the House that my noble friend Lady Neville-Rolfe’s amendment was crucial and urgent, and how we have got ourselves into a really dangerous situation with public sector pensions. We discussed this in Committee. The noble Viscount, Lord Thurso, gave a speech in which he seemed to believe that these pensions were necessary because pay was—I think this is the number that was given—30% below that of the private sector. As I think we know, studies show that public sector workers get about 6% more for the same job as the private sector worker before these generous pensions. Yes, a commitment was made for these pensions, but so was it made to the civil servants of Greece and of Ireland—suddenly there was no money and those commitments were reneged on. We do not want to get to that situation.

The mood of the House is always to say, “Look, these people are working hard. They need a good a retirement. There is a wonderful security in being promised a salary increasing with inflation that is about two-thirds of what they were getting before until they die. All that is wonderful, we should be generous, and it would be an injustice to take it away”, but the fact is that this House is also for scrutiny and looks at the finances of this country, not just at where we can give more money to people. I listened earlier this afternoon to people arguing for more money to be laid out. It is what we tend to be quite good at, but the fact of the matter is that we now know that there is no money, when we cannot afford to spend enough on defence and when, as my noble friend, Lord Elliott of Mickle Fell, said, we are paying out more in benefits than we are receiving in income tax. In area after area, there are calls for money that is not available, and the Government, quite rightly, reject those calls for more money to be spent. There is no more money.

18:15

Can we afford these public sector pensions? Let us look, for example, at the numbers that my noble friend Lady Neville-Rolfe came up with. Totally coincidentally, we are paying about £57 billion out and we are putting contributions of about £58 billion in. I have spoken to many civil servants and public sector workers, who have harangued me and said, “Oh, my pension is assured; I’m paying in every year”. I say to them, “Do you know that your money is being used to pay people who have already retired?” They say, “No, that cannot be right”. I show them the numbers and explain it to them, and they are appalled to discover that no money is being put aside to pay the pensions that they have been promised. Even public sector workers are being fooled by this.

Let us say we did the very minimum and took those contributions by public sector workers, ring-fenced them and said, “That’s yours. It’s not going to be used for anything else. It’s not going to be used to pay other people’s pensions. We’re just going to take your contributions and ring-fence them—no other change”. Immediately, there would be a £57 billion black hole in the nation’s accounts, which would reflect the reality of the situation, even on a pay-as-you-go measure. We had to endure months, even years, of the £20 billion black hole that the previous Government were meant to have left. It varied: it was £20 billion, it was £40 billion; it was a moveable feast. Never was it anywhere near as high as the £57 billion that would immediately occur. What would the Government do then? It is not their fault—this is a long-standing problem—but what I have explained is the reality of the situation that we are all carefully ignoring.

Let us say that we went a little bit further and said, “Okay, we’re going to stop these defined benefit pension plans right now. We’ll secure your benefits, as of now, that we promised you, but from now on those contributions you put in will be given to a defined contribution scheme, not a defined benefit scheme, as has had to happen in the private sector, because that is all we can afford”. If we did that, if we kept the promises we made so far—

[Viscount Thurso (LD)]

Might I ask the noble Lord what the notional employer’s contribution is that he is putting into his calculation?

[Lord Moynihan of Chelsea (Con)]

I am putting the same contribution in that is made by employers—by the Government—right now. If you carry on doing it, you have a bunch of obligations for past promises. In the future everybody has a defined contribution scheme but you have the defined benefit scheme up to now. By 2060, as my noble friend Lady Neville-Rolfe told us, those obligations will result in £130 billion of annual payments, even if we stop now. If the economy grows by a considerable amount more than it has been growing in the past few years, those will amount to 3% of GDP being paid to pensioners of the public sector.

If you think that a £58 billion black hole is bad enough, fancy that £130 billion black hole that you have left to future generations because we failed to act—and because we refused even the reasonable request of the noble Baroness to have an inquiry. If we go beyond that and keep on with these schemes each year, that £130 billion will be dwarfed by a far larger amount. We are paying civil servants more, we have more civil servants and they are living longer, so the payments each year will rack up until at some point it will be like Greece or Ireland.

Right now, the bond markets are not at all impressed with us. Both the 10-year rate and the 30-year rate are well above those rates that noble Lords opposite claimed were evidence that Liz Truss crashed the economy. If she did, then goodness, they have crashed it much more. The bond markets are saying, “We’ve got you on watch and, if this goes on and you keep on with the deficits that you’ve got, you’re going to get into considerable trouble”.

We have the opportunity to think about this and, at least, to look at it. I hope that noble Lords will agree to this amendment. I also hope, by the way, that, if there is an inquiry, it is headed by somebody who is not in receipt of such a pension. In the private sector, we have a rule. If you have a great employee and they come to you and start talking gibberish, strangely, you think, “Oh, it’s going to be about their remuneration”. When it comes to their own remuneration, people find it very difficult to be realistic, logical and fair. So I hope not only that the Government will accept this amendment for an inquiry but that they will put somebody in charge of it who is not a captive of that public sector pensions system.

[Viscount Thurso (LD)]

My Lords, very briefly, I will support our Front Bench and the noble Baroness, Lady Neville-Rolfe, because it is quite a wise thing to have an inquiry. I wholly reject the argument the noble Lord, Lord Moynihan, just made: his maths is suspect and his conclusions are wrong. I have a son who is a special constable—until very recently he was a constable—a daughter-in-law who is a constable and another son who is a primary school teacher. As I said to him then, I say now: tell it to them that their pensions are not part of their remuneration, and I say you will be looking for teachers, policemen and nurses until kingdom come.

[Viscount Younger of Leckie (Con)]

My Lords, I begin by welcoming the amendment in the name of my noble friend Lady Neville-Rolfe, because it addresses a matter of real and enduring importance: the long-term affordability, intergenerational fairness, fiscal sustainability and accounting treatment of public service pension schemes. We heard a powerful speech from her in Committee and another from my noble friend Lord Moynihan, and they gave two further powerful speeches just now.

Fundamentally, this amendment asks the Government to examine how very large sums of public money are being managed, how liabilities are being accounted for, and what this means for the sustainability of public spending over the long term. These schemes represent a significant and growing commitment, and it is entirely right that Parliament should have a clear and transparent understanding of their implications, both for today’s taxpayers and for future generations.

The figures seem to be stark, as set out by the movers of the amendment, and some strong arguments have been put, backed up by evidence, but I very much noted the remarks from the noble Viscount, Lord Thurso, and perhaps some further debate and discussion should go on about the veracity of the figures after this debate.

Indeed, when the Government are choosing to place additional burdens on private pension saving through measures such as the national insurance changes and restrictions on salary sacrifice, in part to sustain these very substantial public sector commitments, the question of balance, fairness and sustainability becomes more and more pressing. For these reasons, we strongly support my noble friend’s amendment and we will support her should she seek to divide the House on it when it is called.

The other amendments in this group, including those in our names, seek to address two further fundamental issues: first, the question of pensions adequacy, ensuring that reforms are judged by their real-world impact on the retirement incomes of individuals, and, secondly, the question of why pension funds are not investing more in the United Kingdom. This is a critical issue, which was covered in Committee, not least by the noble Lord, Lord Vaux. If the Government wish to see greater domestic investment, the answer surely is not to reach instinctively for the levers of mandation but to understand and to address the underlying barriers, whether regulatory, tax-related or rooted in fiduciary duties. This point was made when we discussed the issue only last week, after which, I am glad to say, we voted to remove this dangerous power from the Bill. The point was repeated today by the noble Lord, Lord Lucas.

This is essential work that needs to be done. The Government are planning to intervene in the system without first properly understanding why it is behaving as it is. There is a risk that they are seeking to correct the symptoms of a problem that they have not even diagnosed, rather than addressing its causes. We have been clear from the beginning that the Government must not mandate investment, but we have also been clear that we should understand why we are not seeing the investment we need in our country. Our amendment allows the Government to do that work and then take the responsible and necessary steps to start promoting investment in a responsible way.

I close by speaking to Amendment 170A in my name and that of my noble friend Lady Stedman-Scott. I am grateful to the noble Lord, Lord Lucas, for his work on this amendment, as well as grateful for the—perhaps unusual—support from the noble Lord, Lord Davies of Brixton, for having a review, which is our wish, on member engagement on rights in pension schemes. Amendment 170A raises a fundamental question of agency: namely, the extent to which members of pension schemes are able to influence the governance and decision-making of the schemes to which they belong. We believe this is an important issue, and it invites the Government to reflect on whether pensions savers truly have a meaningful voice in shaping their financial futures. It is right that we consider not only the existence of engagement mechanisms but whether they operate effectively in practice, particularly in relation to investment decisions and scheme governance. I will therefore listen very carefully to the Minister’s response on these points.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords for introducing their varied amendments calling for a series of reviews. I have been trying to keep track and I think we are now up to 23 reviews called for in Committee and up to 14 amendments on Report calling for reviews. I know that the party opposite would like to have fewer civil servants; if noble Lords pursue all the amendments, half the civil servants left will be doing reviews.

I will at least try to work through what we have here. Amendment 157 from the noble Baroness, Lady Neville-Rolfe, proposes a review of public service pension schemes. As we discussed in Committee, a major review took place through the Independent Public Service Pensions Commission of the noble Lord, Lord Hutton. That happened under the coalition Government and the reformed schemes were introduced from April 2015. I will just remind the House of the changes that were made then to make the schemes more affordable.

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 Armed Forces. Member contribution rates were increased across the scheme, except the non-contributory Armed Forces Pension Scheme, and other aspects of scheme design were modernised: for example, supporting more flexible retirement. At the time, it was estimated that these reforms would save £400 billion over 50 years.

The noble Baroness, Lady Neville-Rolfe, asked about the 25-year guarantee. This does not mean of course that pensions cannot be changed in any way until 2040, nor was a guarantee written in to individual members. But the central elements of the reforms introduced in the PSPA 2013 were designed to last for at least 25 years, and a high barrier was set out in that Act for any proposed changes to the key design elements, including a requirement for consultation with scheme members or their representatives, with a view to reaching agreement to help deliver that stability.

I will look at some of the specifics that have been raised. First, those reforms have been fully bedding in only from April 2022, and their full effects will be seen over the coming years. Following reforms introduced by the noble Baroness’s party, schemes now meet the benchmarks set by the Hutton commission and public service pensions continue to form an important part of overall public sector remuneration, which is taken account in pay setting. That was a key point made by the noble Viscount, Lord Thurso: a pension is part of a pay package and is taken account of by the review bodies in making those judgments on pay.

Much of the information that is called for in this review is already published on a regular basis. The OBR publishes a forecast of in-year balancing payments between the Exchequer and the unfunded public service pension schemes—and projections of long-term spending as a share of GDP—in its fiscal risks and sustainability reports. As I indicated in Committee, these projections show spending falling over the long term from around 1.9% to 1.4% of GDP, indicating that the schemes are expected to become more affordable, not less, for future generations. In addition, valuation reports and the whole of government accounts set out the different accounting treatment of scheme liabilities and how to interpret the headline figures.

[Lord Moynihan of Chelsea (Con)]

Does the Minister acknowledge that in 2012 the Hutton report said that the cost would fall, in an uncanny replication of what she just said, to 1.2%, but that it did not? It remained at around 2%. It says now that it will fall to 1.2% but, as I said, these are people with skin in the game. I hope she will agree that their record in forecasting is not strong.

18:30

[Baroness Sherlock (Lab)]

My Lords, I am going to read Hansard, because I very much hope that the noble Lord has not just accused the OBR of having skin in the game. If it was not the OBR, perhaps he would like to write to tell me whom he was accusing of having skin in the game, because I do not recognise the point that he just made.

The point on the whole of government accounts was raised by the noble Baroness, Lady Neville-Rolfe. The whole of government accounts present the liability in accordance with the international financial reporting standards. There are no plans to change that approach and I do not think that there should be. However, I recognise that members of the PAC asked whether the 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 make it easier for people to understand it. As I said in Committee, the Treasury is exploring options to present pension liabilities on a constant basis. To be clear, that presentation would be supplementary and would not affect the underlying pension liability calculations in any way, or how they are presented in the financial statements, but the Treasury is looking at whether they can be presented in a supplementary way to aid understanding.

Given that the reforms have already been implemented and all the relevant information is already available, a government-commissioned review would largely replicate and collate existing material. On unfunded schemes, it is true that the schemes referenced are unfunded, but unfunded does not equal unaffordable or unsustainable. I set out that costs are projected to fall as a share of GDP. It is also a long-standing government policy not to hold assets against liabilities that sit fully under the control of the Exchequer, as I explained on an earlier group. Moving from unfunded to funded provision on a like-for-like basis would simply require additional borrowing to build up assets and would not improve the overall fiscal position. However, if the noble Lord, Lord Moynihan, wants to recommend cutting the value of public sector pensions, that is a different matter. It is not what we are discussing here today but it could be discussed within the House.

Factors such as longevity were mentioned, which can affect costs over time. Again, the current framework is designed to capture and manage that. Changes in assumptions are reflected through scheme valuations, which affect employer contribution rates—the point flagged up by the noble Viscount, Lord Younger. The cost control mechanism then operates to require adjustments to member benefits if costs move outside the agreed corridor. Therefore, the Government do not accept the amendment. Had the previous Government felt it to be important, having reviewed and reformed the system, they had 14 years to make a decision. They left government less than two years ago and suddenly this must be done on our watch. We do not think that is the appropriate way forward.

Amendment 164 was tabled by the noble Lord, Lord Palmer. He recognises that we had an exchange in Committee but, since others have raised it, I say simply that these rules were a feature of legacy public service pension schemes, as he knows. Those legacy schemes are now closed. Members are accruing benefits in reformed schemes that do not contain these provisions. The Government do not believe it appropriate to improve retrospectively the terms of previously accrued public service pensions, consistent with the approach taken when the reforms were introduced by the coalition Government.

In response to the question from the noble Baroness, Lady Altmann, I think the Civil Service position is similar to that of the police. With the NHS, forfeiture applies to those who left the service before April 2008. If I am wrong I will write to her, but I believe that is the position and I hope that clears that up.

Amendment 158, tabled by the noble Viscount, Lord Younger, seeks to introduce a statutory requirement for the Secretary of State to conduct a review on retirement incomes. I understand the intention behind this amendment but, as I explained in Committee, the Bill contains a range of reforms which will be implemented in phases over the next decade. A review in the next five years will not have allowed many of the reforms any time to take effect. Changes to retirement outcomes can take a long time to have effect as people build savings and then retire, so this is not appropriate.

An updated version of the impact assessment was published when the Bill entered this House. It detailed our monitoring and evaluation plans. The monitoring has already started. Research is under way with employers. The DWP, the Treasury and the regulators are scoping out further data and research plans, developing key metrics across the core aims of the Bill and committing to regularly monitoring and publishing, as well as conducting new research to fill evidence gaps. Furthermore, the measures contained in the Bill will help to build greater and more consistent data, particularly through the value-for-money framework, helping to create a strong evidence base to monitor and analyse trends. Where we consider it is appropriate to keep measures under review, we have included a review clause, such as the new clause

“Review of any exercise of powers under Section 28C”


in Clause 40(13). That is proportionate and tailored to the specific interventions, and it is the appropriate way forward.

As set out in my letter to noble Lords on 4 March, the Pensions Commission has been tasked with making recommendations about pensions adequacy and support for those approaching retirement. It will publish an interim report this spring, setting out the evidence base and a strategic direction for its work, with final recommendations early next year. A separate statutory review would create confusion and overlap, and would not be helpful.

Amendment 159, tabled by the noble Viscount, Lord Younger, seeks another review, this time on the barriers to UK investment. I recognise that the noble Viscount wants assurance that the Government are taking a holistic approach to increasing UK pensions investment. I will not relitigate all the things that he brought up, some of which are relevant to this Bill and some to other Bills. The Government have already completed a detailed review of pension investment. The pensions investment review—the clue is in the name—consulted widely and considered a range of investment barriers. It reported last year, which led directly to many of the measures in the Bill. The review considered not only the questions of scale and asset allocation but the regulatory environment, fee structures and wider factors that affect how pension schemes invest. It was a serious and comprehensive piece of work. The Bill already requires the Government, if they decide to use the reserve power, to consult and publish a report. That would be the time to consider the investment landscape.

Amendment 170A from the noble Viscount, Lord Younger, seeks a review of how members’ views are considered in the effective governance of pension schemes. Pensions are a significant part of workers’ pay and their security in retirement, so it is important that the voice of the member is heard and considered in the governance of pension schemes. That is one of the reasons why we have focused so much on the role of trustees and on their duty to act in the best interests of members. Well-performing pension schemes already take account of members’ views through their governance and engagement processes. This includes member-nominated trustees, as mentioned by my noble friend Lord Davies, regular surveys and consultations, and feedback gathered through helplines, portals and member meetings. That helps trustees by ensuring that decision-making is better informed, more aligned with member needs and more credible.

Occupational pension schemes with 100 or more members are required by regulations to publish a statement of investment principles and an annual implementation statement setting out their investment policies and stewardship approach, including voting and engagement. The regulations also require trustees to disclose the extent to which non-financial matters—such as members’ ethical or personal preferences—are taken into account in investment decisions. These disclosure tools are important for members’ views because they enhance transparency, strengthen accountability and give a structured way for trustees to explain how member-driven considerations have been reflected in their policies. Guidance from the DWP helps trustees articulate better how such views have been considered when they choose to do so. Well-run pension schemes recognise that members have different investment needs and respond to them. Although trustees consider member views, as they must, they ultimately balance them against their fiduciary duty to act in the interests of beneficiaries.

The Government recently concluded a consultation on trusteeship and governance in trust-based schemes. That consultation emphasised the importance of ensuring that members’ voices are better represented in decision-making and sought feedback on how we can ensure that the voices of members are heard in the market.

A lot of reviews have been called for here. I hope that I have explained why the Government are doing a great deal in all these spaces already. I welcome the debate but ask the noble Baroness to withdraw her amendment.

[Baroness Neville-Rolfe (Con)]

My Lords, I thank the Minister for her comments, and all those who have spoken on the wide variety of reviews that have been proposed, some of which I think will be picked up by the Pensions Commission, by action following the Bill and, indeed, by other reviews that may be undertaken in the coming years.

I return briefly to the uncomfortable subject of public service pensions. We face a serious and deteriorating state of public finances, and my subject represents one significant part of that. It is only sensible to examine whether we are on the right path. That is the thrust of the amendment before us because, as the Minister acknowledged, this is not really picked up by any other ongoing review or legislation.

To answer the question about the previous Government, I would say that we are not looking back but looking forward. In fact, I myself carried out an independent review of the state pension age, which alerted me to the problems of pension sustainability, the intergenerational unfairness and the problems we have with greater longevity. That is one of the reasons why I have come forward with this proposal for a review, which I hope the Government will look at positively.

I thank all those who have spoken. I urge the Government to reflect, but I would like to test the opinion of the House.

18:40

Division 3

Amendment 157 agreed.

Ayes: 241

Noes: 175

18:51

Amendments 158 to 160 not moved.

Amendment 161

Moved by

[Viscount Thurso]

161: After Clause 117, insert the following new Clause—
“Review: AEA pension scheme(1) The Secretary of State must, within three months of the day on which this Act is passed, commission an independent review into—(a) the pension losses incurred by former employees of AEA Technology who transferred their accrued pension benefits out of the UK Atomic Energy Authority (UKAEA) public service scheme to AEA Technology (AEAT) on privatisation in 1996;(b) the financial losses suffered when AEA Technology went into administration in 2012 and the pension scheme entered the Pension Protection Fund (PPF). (2) The review must examine—(a) the extent and causes of pension losses incurred by affected individuals,(b) the role of Government policy and representations in the transfer of pensions during the privatisation of AEA Technology,(c) the adequacy of safeguards provided at the time of privatisation,(d) potential mechanisms for redress or compensation, and(e) the estimated financial cost of any such mechanisms.(3) The review must provide adequate mechanisms for redress and compensation for affected individuals and their dependents—(a) in line with the Third Report of Session 2023-2024, of the House of Commons Work and Pensions Committee;(b) in line with the Fifty-Seventh Report of Session 2022-23, of the Committee of Public Accounts; or alternative redress and compensation that may be developed through the process outlined under subsection (2).(4) The review must be—(a) conducted by an independent panel appointed by the Secretary of State, with relevant expertise in pensions, public policy, and administrative justice, and(b) transparent and consultative, including engagement with affected pensioners and their representatives.(5) The panel must report its findings and recommendations to the Secretary of State and lay a copy of its final report before Parliament within three months of its establishment.(6) The Secretary of State must, within three months of the publication of the report under subsection (5), lay before both Houses of Parliament a statement setting out the Secretary of State’s response to the report.”Member’s explanatory statement
This amendment seeks to require the Secretary of State to commission an independent review into the pension losses incurred by former employees of AEA Technology.

[Viscount Thurso (LD)]

My Lords, as I move my Amendment 161, I can hear the Minister saying, “Not another review”. I apologise. I say to her at the outset that I recognise how much the Government have done in many of the areas that we have been pushing. Notwithstanding my ingratitude sometimes, that is greatly appreciated. I also appreciate the talks that she has had with me, although I think I am still in the tea and sympathy department and no further forward.

This amendment seeks to give effect to recommendation 2 of the PAC report of 2023. The PAC wrote:

“The former civil servants who transferred their pensions to AEA Technology … when it was privatised were badly informed by government at the time, with some losing considerable sums”.


Its recommendation was:

“The government should ensure that members’ complaints about the AEAT pension case can be independently reviewed, for example by a relevant ombudsman”.


There is no relevant ombudsman. It would have to be reviewed by somebody else.

When I raised this matter in Committee, the Minister said:

“I will not go into this in detail, but I am advised that the Government Actuary’s Department note offered to members at the time did not imply a guarantee. The GAD note referred specifically to a risk that the AEAT pension scheme could fail and did not seem to compare levels of risk across the different options. The note was not intended as advice and made it clear that the information provided was not intended to suggest that any one course of action was better than another, and it did not take into account people’s individual circumstances. The note indicated that people should seek their own independent advice”.


Since then, I have had the opportunity to get hold of a copy of the GAD note as well as the two brochures that were issued at the time by the UKAEA HR fund. I will go through the points that the Minister made.

First, she said that the note did not imply a guarantee. It is correct that the note did not offer a guarantee but, far more importantly, it made no mention of the material change implied by the loss of the guarantee for anything that was transferred into the new scheme. Every professional I have spoken to has said that this is a material and relevant factor that should have been in the GAD note and its omission is surprising.

The second point the Minister made was that the GAD note referred specifically to a risk that the AEAT pension scheme could fail. I can find no specific reference to failure in that note other than a statement at paragraph 3.2.3 which says:

“The effect of preserving your UKAEA benefits is that your total benefits will be payable from two independent sources. Whilst it is unlikely that the benefit promise made by either UKAEA Scheme or the AEAT Scheme would ever be broken, it is still more unlikely that both promises would be broken, and this could be viewed as a reason to opt for preservation. However, this consideration should not normally outweigh those in relation to salary and inflation”.


I would suggest that no one reading that note would consider that a specific reference to a risk of scheme failure.

Furthermore, the Minister went on to say that the note

“did not seem to compare levels of risk across the different options”. 

The note sets out clearly the pros and cons of every option and in doing so makes it very clear how special the special transfer option was. Further, it makes it clear that the personal pension option would be more costly and risky, and at paragraph 3.1.1 specifically advises that transferring to the new AEAT closed scheme was likely to offer the best financial result. It does so in such strong terms that I feel I must quote them:

“The main advantage of opting for the special transfer terms are that benefits based on transferred service in the AEAT Scheme are likely to be higher than preserved UKAEA Scheme benefits. This is because the former will be based on your earnings at the time you leave the AEAT Scheme, whilst preserved UKAEA Scheme benefits will be based on your final earnings in the UKAEA Scheme, plus cost-of-living increases thereafter. There are two reasons why your earnings at retirement are likely to be greater than your current earnings plus cost-of-living increases. Both of these reasons apply more strongly the further away from retirement age you are currently. The first reason is that, over the long term, as standards of living increase, general pay levels increase faster than price levels. The second reason is that your pay level may increase further still as the result of performance and promotional awards”.


The Minister said that

“the information provided was not intended to suggest that any one course of action was better than another”.—[Official Report, 23/2/26; col. GC 306.]

It is true that that statement is made at paragraph 1.1.3. However, notwithstanding that statement, if we read the note as a whole, we see that it is pretty obvious that the transfer scheme, which was time-limited, would be the way to go.

Finally, the note indicates that people should seek their own independent advice. Again, at paragraph 1.1.3, the note states that

“if you are unsure of the most suitable course of action you should seek Independent Financial Advice which would take into account your particular circumstances”.

But given that the note had been prepared by the Government Actuary’s Department, was verified by the UKAEA and has pretty unambiguous advice regarding the transfer, I would submit that that statement being qualified by “if you are unsure” renders it meaningless.

Having read the documentation, it seems to me that this is a straightforward case of mis-selling. It would not happen today, we know that. The rules have changed—everything has changed. But at the time, insufficient advice was given and people made choices that they are paying for today. The fact that they are paying for those choices is because AEAT went bust, and they should not be treated any differently to everybody else.

The fact is that people transferred their pensions. In one case, as I told the Minister, a doctor who worked at the UKAEA and was transferred out to AEA Technology had previously been in the National Health Service. So assured was she by what she had heard that she took her pension from the NHS and put it into AEA Technology, because it was part of the civil service club and remained in it until, I believe, 2002 or 2003.

19:00

The case that I am making and the reason why a review is necessary, is that the case made at that time by the UKAEA was not accurate. Reassurances were given by the then Minister at the Dispatch Box in this House in 1995. I cannot say I remember him saying these words, but I remember Lord Fraser of Carmyllie very well. He gave an assurance that these pensions would be on the same terms, and I am of the view that they are not.

I seriously ask the Government to look at this. I am not going to press Amendment 161 to a vote, because I have got the message from all around the House that we are not into reviews. However, on Amendment 162, which is consequential to this and is the remedy in part for the wrong, I will want to test the opinion of the House. I hope the Minister can at least say something not too discouraging in respect of Amendment 161. With that, I beg to move.

[Lord Davies of Brixton (Lab)]

I support the amendment from the noble Viscount, Lord Thurso. I think that anyone who looks at the detail, as he has done, will be convinced that somewhere in this series of events there has been a serious injustice. There is no question of that. These people have suffered financially through no fault of their own.

Getting to the bottom of it is difficult. Whatever “a review” means, I think it is appropriate that there should be some form of investigation. The problem they face is that the existing methods of investigation—in particular, the Pensions Ombudsman—just do not work in this case, so a bespoke review is required.

I have to emphasise that nothing I say should be taken as a criticism of professional colleagues and certainly should not be taken as constituting professional advice. But the injustice is clear. Other cases have been quoted by those who have suffered an injustice where the Government have taken action to support members of other, not directly analogous, but similar schemes, and this only increases their sense of injustice.

I urge my noble friend the Minister to indicate in her reply that the Government’s mind is not totally closed on this issue, because there is undoubtedly unfairness involved.

[Baroness Altmann (Non-Afl)]

My Lords, I have added my name to this amendment, and I thank the noble Viscount, Lord Thurso, for the excellent explanation he has given. I agree completely with what the noble Lord, Lord Davies, said. This is clearly an injustice that has gone under the radar for far too long. Indeed, I have spent the last 20 years of my life trying to help people in this kind of position, where their pensions have been taken away from them, reduced or in some way impacted by problems that were not of their own making.

This is probably the worst example I have seen of instances where people were misled into moving their money into something that was totally different from what they were led to believe. For example, the members asked the Government Actuary’s Department, which reassured them before they moved their money that the scheme they were moving it into was pretty much the same as the one they left, without any mention of the risk that they could lose the whole thing. Indeed, in 1996 there was no Pension Protection Fund, and they could have lost the whole of their accrued benefit that was transferred over.

They asked:

“Did the GAD document state anywhere that the AEAT pension fund was at greater risk than the UKAEA pension fund?”—


the private fund that they transferred to. In the written reply, the Government Actuary’s Department said it did not. In the private sector, how many people have paid a fortune for mis-selling for much less lack of risk warning than that? In Parliament, Ministers at the time gave assurances, such as that from Richard Page MP in debate on the Atomic Energy Authority Bill, which did the privatisation. He said:

“I have made it absolutely clear that the Government have no intention whatever of selling employees short. Their terms and conditions and pension rights will be fully protected”.—[Official Report, Commons, 2/5/1995: col. 210.]


That is just not what has happened.

I do not think it was an intentional outcome, but it is a real outcome to the members who are trying to survive on so much less than they should have. The Pensions Ombudsman could not investigate this because the scheme was privatised in 1996 and failed in 2012. The statute of limitations expires after 15 years, but the company did not fail until 16 years later. The Parliamentary Ombudsman office could not investigate because it is involved with public sector pensions, but the ombudsman felt so strongly that this was an injustice that they helped to draft a Private Member’s Bill for the noble Lord, Lord Vaizey—he is not in his place and I had hoped he might make it; I think he is coming later—to try in that way to achieve proper justice for the AEAT members. We are talking about fewer than 1,000 people in the closed section who transferred their entire public sector pension accrual over into this new private scheme with a new company. The amendment tabled by the noble Lord, Lord Palmer, in the first group concerned a lacuna in protection. If this is not a huge lacuna in protection, I am not quite sure what is.

I remind noble Lords that in 2024 the Government allocated £1.5 billion to enhance by 32% the pensions of 112,000 former mineworkers. I am not criticising the Government for doing that. They also, in the last Budget in 2025, allocated £2.3 billion of taxpayers’ money to enhance coal staff pensions, even though that money would have come back to the public purse in 2029. That was given to those mineworkers. Again, I am not criticising the Government for that. However, I cannot help wondering whether the shortfall for 2029 that would arise as a result of this may have driven in some regard the £2,000 national insurance salary sacrifice cap, which will, perhaps coincidentally, kick in in 2029.

What I am saying is that, if this country can afford to enhance those pensions at taxpayers’ expense, how much more worthy and important is it for us as a country to honour the accrued rights of workers who in good faith transferred their pensions on the advice, as we have heard from the noble Viscount, Lord Thurso, of the Government Actuary’s Department? They believed they were doing the right thing and have ended up losing so much as a result.

I hope that the Minister and the Government might think carefully about the speeches that we have heard this evening and give serious consideration to addressing this injustice.

[Baroness Stedman-Scott (Con)]

My Lords, this is a thoughtful amendment from the noble Viscount, Lord Thurso, and the noble Baroness, Lady Altmann, and I am grateful to them for bringing it before the House. Where there is a credible concern that individuals have suffered material pension losses, it is right that those concerns are properly examined. This amendment seeks to ensure that the facts are established, the extent of any losses is understood, the causes are examined, and any lessons for policy, protection or redress are fully considered. That seems to us a measured and sensible approach. If the losses suffered by former employees of AEA Technology are indeed material, it makes sense that this issue should be looked into carefully, independently and transparently.

We will therefore listen closely to the Minister’s response, particularly on whether the Government believe that the existing framework is sufficient to address these concerns, or whether there is merit in undertaking the kind of review proposed in the amendment.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Viscount, Lord Thurso, for moving his Amendment 161, and for the conversations that we have had on this and other things. I have a lot of respect for him and the way that he approaches issues, and it has been a pleasure to talk. As we heard, the noble Viscount’s Amendment 161 would require the Secretary of State to establish an independent review into the pension losses incurred by former employees when AEAT went into administration and its pension scheme went into the Pension Protection Fund. It also seeks to explore mechanisms for redress or compensation.

The Government’s position was set out by me in Committee and subsequently by the Minister for Pensions during an Adjournment Debate in the other place at the end of February. I regret that I am not in a position to accept the noble Viscount’s amendment. I put on record my sympathy for all those who accrued public sector pensions and transferred their benefits into private sector schemes, only to end up, through no fault of their own, experiencing losses and not getting the full value that they were expecting from their pensions as a result.

In this specific case, AEAT has a very long history. It is not straightforward to turn the clock back 30 years and revisit decisions that were made then or look at the conditions that obtained at the time. Since 2013, through revised Fair Deal guidance, employees who are compulsorily transferred from the public sector into the private sector are offered continued access to a public service pension scheme, so the situation that AEAT members found themselves in could not happen now.

The fact is that these issues have spanned many years and Governments of all colours. AEAT was privatised in 1996 under a Conservative Government; the pension scheme entered the PPF in 2012 under the coalition Government; and, following the pension scheme’s entry into the PPF, AEAT members raised complaints to a number of bodies under successive Governments. There have been opportunities over the years for different Governments, and their Ministers, to provide redress or to address the issue, but, due to the impracticality of trying to go back all that time, none have done so.

One of the bodies that the noble Viscount mentioned as having looked into the matter is the Public Accounts Committee. The first recommendation from the committee’s inquiry was that the Government should consider introducing pre-1997 indexation within the PPF. This Government are taking action on that. We have brought forward legislation to introduce annual increases on compensation from the PPF and FAS that relate to pensions built up before 6 April 1997, where schemes provided for this. I am grateful to the noble Viscount for acknowledging that. Sometimes, when one gives something, it is simply banked, and then everything else is asked on top of it, so I really appreciate his grace in having acknowledged that. I also point out that if previous Governments had made that change sooner, it would have made much more of a difference to AEAT members, who would have found their pensions building up over that time. But we are introducing it now through this Bill, and AEAT members with pre-1997 accruals will benefit.

I recognise that I cannot offer everything that noble Lords want on this and other cases that have been brought to me and the Minister for Pensions. We are offering the concrete changes that we can, and that is all that I can offer. For that reason, I hope that the noble Viscount will withdraw his amendment.

[Viscount Thurso (LD)]

My Lords, I am very grateful to all noble Lords who have spoken, particularly the noble Lord, Lord Davies, for his support. As an actuary himself, his words were of great comfort and support. I am also grateful to the noble Baroness, Lady Altmann, who has worked on this case before and knows it through and through, and the noble Baroness, Lady Stedman-Scott, on the Conservative Front Bench. I am also grateful to the Minister for at least hearing me out.

I realise that I am probably asking the wrong ministry. Given that this mis-selling was presumably done by UKAEA in the first instance, I think the sponsor department at that point would have been the DTI—probably with the shareholder executive’s paw prints in it somewhere. The responsibility probably lies somewhere in there. I have listened to the mood of the House and realise that this is not something we should divide on, but I hope that the Government will continue to listen. Maybe, some time in the future, there will be an ability to do something to right the wrong for these poor people. With that, I beg leave to withdraw.

Amendment 161 withdrawn.

Amendment 162

Moved by

[Viscount Thurso]

162: After Clause 117, insert the following new Clause—
“Discharge of liabilities in respect of compensation: commencement(1) The Secretary of State must, within three months of the day on which this Act is passed, make regulations to commence the provisions laid out in section 169(2)(d) of the Pensions Act 2004 (discharge of liabilities in respect of compensation: cash sum).(2) The regulations under this section are subject to the negative procedure.”

[Viscount Thurso (LD)]

I beg to move.

19:15

Division 4

Amendment 162 agreed.

Ayes: 198

Noes: 159

19:26

Amendments 163 to 165 not moved.

Amendment 166 had been withdrawn from the Marshalled List.

Amendment 167

Tabled by

[Baroness Hayman]

167: After Clause 117, insert the following new Clause—
“Clarification of pension scheme investment duties(1) In section 36 of the Pensions Act 1995 (choosing investments), after subsection (9) insert—“(10) In complying with requirements imposed by this section and regulations, a trustee or manager must have regard to guidance prepared from time to time by the Secretary of State.”(2) The Secretary of State must, within six months of the day on which this Act is passed, issue and thereafter maintain statutory guidance for trustees of trust schemes in relation to the discharge of their investment duties.(3) The statutory guidance must set out (amongst other matters) the ways in which trustees may, when investing the assets in the best interests of members and beneficiaries, take into account—(a) the risks and opportunities provided by matters such as climate change, environmental and social factors, and(b) members’ and beneficiaries’ standards of living.(4) The Secretary of State must issue and thereafter maintain corresponding guidance within the same six-month period for the Local Government Pension Scheme.(5) The Financial Conduct Authority must issue and thereafter maintain corresponding guidance within the same six-month period for providers of pension schemes to which Part 7A of the Financial Services and Markets Act 2000 (as inserted by section 48 of this Act) applies.(6) Before publishing the statutory guidance for the first time, the Secretary of State must lay the draft guidance before Parliament.(7) The Secretary of State must withdraw the draft guidance if, before the end of the 40-day period, either House of Parliament resolves not to approve it.”Member’s explanatory statement
This new clause seeks to ensures that statutory guidance, to which trustees must have regard, is issued within six months of Royal Assent to clarify investment duties of occupational pension schemes, including a range of risks and opportunities and beneficiaries’ standards of living. It also requires the FCA and Secretary of State for Housing, Communities and Local Government to issue corresponding guidance for workplace personal pension schemes and the Local Government Pension Scheme.

[Baroness Hayman (CB)]

Tempting though it is to reinitiate the earlier debate, I will not move Amendment 167.

Amendment 167 not moved.

Amendment 168 had been withdrawn from the Marshalled List.

Amendment 169

Moved by

[Baroness Stedman-Scott]

169: After Clause 117, insert the following new Clause—
“Review of pension communications and financial promotion rules(1) The Secretary of State must, within 12 months of the day on which this Act is passed, conduct a review of all legislation, regulation and guidance governing marketing, financial promotion and member communications in relation to occupational and personal pension schemes. (2) The review must consider whether existing rules unduly restrict pension providers from—(a) communicating risks, warnings, and comparative information to scheme members;(b) providing guidance and targeted support on decumulation options, fund choice, consolidation, and value for money;(c) supporting informed member decision-making and actions without constituting regulated financial advice, through either guidance or targeted support.(3) The Secretary of State must lay a report of the review before both Houses of Parliament.”

[Baroness Stedman-Scott (Con)]

I beg to move.

19:27

Division 5

Amendment 169 agreed.

Ayes: 188

Noes: 155

19:37

Amendment 170

Moved by

[Lord Sharkey]

170: After Clause 117, insert the following new Clause—
“Fossil fuels and climate risk(1) The Pensions Act 1995 is amended according to subsections (2) and (3).(2) After section 41B (climate change risk: publication of information), insert—“41BA Climate change risk and occupational pension schemes: Secretary of State duty(1) The Secretary of State must collect information on, or estimates of—(a) the amount, and(b) the change in the amount of, relevant assets held by the trustees of occupational pension schemes. (2) The Secretary of State must prepare and publish an annual report on the information collected under subsection (1).(3) Regulations may require the trustees or managers of an occupational pension scheme of a prescribed description to supply the information in subsection (1).41BB Climate change risk: relevant assets(1) The relevant assets in sections 41BA are issuance by issuers which—(a) derive 10% or more of their annual revenue from the production, transport or combustion of thermal coal,(b) produce more than 10 million tonnes of thermal coal each year,(c) are developing new mines, new power plants or new infrastructure for the extraction or use of thermal coal,(d) derive more than 5GW of power generation capacity from thermal coal, or(e) derive more than 10% of power generation capacity from thermal coal.(2) Within two years of the day on which the Pension Schemes Act 2026 is passed, and every three years thereafter, the Secretary of State must consider whether the definition of relevant assets should be extended to include certain forms of issuance by other issuers deriving a certain proportion or amount of revenue from certain other fossil fuel-related activities.(3) The Secretary of State may, by regulations, give effect to the outcome of the considerations in subsection (2).(4) In this section—“issuance” means all investable assets, including equity and debt;“thermal coal” means coal and lignite used in the generation of electricity and in providing heat for industrial or residential purposes.” (3) In section 41C (compliance) for “section 41A or 41B”, in each place it occurs, substitute “any of sections 41A to 41BB”.(4) The Financial Conduct Authority must make general rules with effects corresponding to the provisions inserted by subsection (2) for providers of pension schemes to which Part 7A of the Financial Services and Markets Act 2000 (inserted by section 48 of this Act) applies.(5) The Secretary of State must by regulations make provision with effects corresponding to the provisions inserted by subsection (2) for the Local Government Pension Scheme.(6) Regulations under this section are subject to the affirmative procedure.”Member’s explanatory statement
This amendment would require pension investments in thermal coal by private sector occupational schemes, workplace personal pension schemes and the LGPS to be annually monitored and reported on. It also requires periodic consideration of whether the range of reported-on assets should be extended.

[Lord Sharkey (LD)]

My Lords, I will speak to Amendment 170 in my name and those of the noble Baronesses, Lady Bennett, Lady Griffin and Lady Hayman. I am grateful for their support and look forward to hearing their contributions. I have reflected carefully on the helpful feedback I received from the Minister in Committee and, as a result, Amendment 170 does not attempt to mandate pension schemes to exit from any investments. It aims to be helpful in addressing the Minister’s acknowledged concerns about thermal coal investment in particular, and in proposing solutions along the lines she identified.

I briefly remind noble Lords of the problems we face. Research by the Finance Innovation Lab, an independent charity jointly established by the Institute of Chartered Accountants and the World Wide Fund for Nature, shows that UK schemes still invest more than £10 billion in companies with significant operations in thermal coal. That is enough to cancel out all the reductions in greenhouse gas emissions achieved by decarbonisation of the grid in the UK since 2019. So, on the one hand, we have the Government phasing out thermal coal at home, cutting off funding by ending export guarantees and encouraging other countries to exit from coal-fired power. On the other hand, we have the Government defaulting savers into pension savings, compelling employers to contribute and providing taxpayer top-ups to pension schemes to invest in thermal coal extraction and coal-fired power in those same countries.

The Minister said that the Government

“recognise that some pension funds could, and should, be doing more”.

She recognised

“the high financial and climate risks associated with thermal coal investment”.

She welcomed

“industry-led reductions in coal exposure”.—[Official Report, 23/2/26; col. GC 290.]

and reiterated that the Government “want to see more” of this. The Minister argued that the right levers were “better governance”, for which there are already quite a few duties in law, as well as “better data” and “better transparency”, of which there is currently very little. Indeed, there is so little that, in their October 2025 responses to Written Questions tabled by my honourable friend Manuela Perteghella in the Commons, the Government showed that they really do not have a good handle on the data.

The same is true of the Pensions Regulator; in its February 2026 responses to the Minister’s honourable friends Dr Simon Opher and Neil Duncan-Jordan, the responses indicated that neither the DWP nor TPR had carried out an assessment of the level of UK expansion investments in thermal coal or other fossil fuels, the expansion of fossil fuel use or the risks of any of those assets becoming stranded. Our amendment reflects on the Government’s ambition and the current level of insight, and seeks to plug the gap.

Subsections (1) to (3) of the proposed new clause focus on the private sector occupational schemes; they make it clear that the proposed duties should be seen in the context of climate risk to savers, not ethics or disapproval. Subsection (2) gives the Secretary of State a duty to collect data or estimates, and publish in an annual report, the amount and change in the amount of relevant assets held by occupational schemes. Proposed new Section 41BB outlines what constitutes a relevant asset.

Importantly, neither proposed new section requires government to draft, consult on or table regulations, but it could do this if it wanted to. An obvious disclosure vehicle would be the annual implementation statement published by most pension funds, but a simpler method, less burdensome for the whole industry, would be for Ministers to write annually to some or all the larger schemes and simply request the data. In fact, DWP Ministers have done this before several times, including under a Conservative Administration, in relation to climate risk.

As things stand, the Government do not know the level of exposure or the level of risk. Not only do they not know how fast it is declining; they do not really know whether it is declining at all. This amendment would allow government to satisfy itself and to satisfy savers, employers and taxpayers that the amount that pension schemes are putting into thermal coal is going down. It also allows government to provide a nudge, especially to the larger schemes which remain invested in thermal coal and will likely be monitored every year to consider their level of exposure and lower it significantly. Government will be able to set an expectation of thermal coal decline and exit if it is not satisfied that this has been substantially achieved, to consult on what further measures might need to be taken.

In the medium term, the issues are not limited to thermal coal, which is why subsection (2) of proposed new Section 41BB gives the Secretary of State a duty to consider whether to expand the range of assets they might request information about, such as hugely destructive and economically marginal activities like tar sands or Arctic drilling, or new issuance by firms expanding or exploring for new fossil fuels.

Subsection (3) of the proposed new Section 41BB gives the Secretary of State the power to make regulations to achieve reporting—again, if they wish, through an addition to the implementation statement, but it does not mandate it. Subsection (4) of proposed new Section 41BB makes it clear that we are talking about thermal coal, not coking or metallurgical coal used in steelmaking. Finally, subsection (3) sets out the appropriate oversight provisions.

Taken as a whole, this amendment relies on governance, better data and transparency, as the Minister said it should. It would not direct pension scheme investments; it would not impose burdens on smaller schemes. It would be necessary to survey only large and well-resourced schemes to get an estimate of relevant assets, because that is where the money is. It would, however, allow the Government to put a marker down to say, “We are concerned about these investments and we want you to tell us how much you’re investing so we can assess whether there is a problem and what might need to be done”.

I know from Committee that the Minister shares my concerns about high-risk investment in thermal coal, and she would like schemes to do more. The amendment identifies a way forward, which I hope meets her tests. It would not prohibit any investments; it would not undermine trustees’ ability to exercise informed judgment or require them to act against the interests of their members; but it would provide the information required to assess the progress, if any, towards the reduction in pension funds’ investments in thermal coal. I look forward to hearing the Minister’s response.

19:45

[Baroness Griffin of Princethorpe (Lab)]

My Lords, I have added my name to Amendment 170 and will speak briefly in support. The noble Lord, Lord Sharkey, has comprehensively set out the amendment and, following very helpful feedback from my noble friend the Minister, I will simply respond to a few points which were made by other Peers in Committee.

It was suggested that the UK is a small player in thermal coal and will not make a difference. We actually have the largest volume of pension assets in Europe and the third largest globally. There is no limitless demand for high-risk assets, so were the UK pension sector to sharply lower its exposure, this would not lead to a rush for companies that everyone knows to have a limited lifespan. As was said:

“It seems absolutely bonkers that new money is going into new coal mines”.—[Official Report, 23/2/26; col. GC 285.]


It does not make sense in terms of protecting the environment, and it does not make sense economically to invest in stranded assets.

These investments are not only in equities but in bonds. The effect of buying equities on the secondary market may not be instant but, over the long term, it is likely to support the reduction in the cost of borrowing or increase the returns on equity funding. This ultimately supports more investment. The Transition Pathway Initiative, established by the LSE, has assessed the decarbonisation plans of the top coalmining firms. After two decades or more of engagement, none is remotely close to being aligned with the Paris agreement and, as was admitted, opportunities for future company-level engagement are strictly limited by the threat of litigation in the US. Indeed, the suggestion that an exit strategy from thermal coal inevitably means exit from tobacco, sugar or energy-using forms is scaremongering. We should judge the amendment on the basis of what it does.

As the noble Lord, Lord Sharkey, said, Amendment 170 does not require an exit from anything. It seeks only to give government the tools to monitor and manage a risk that it has quite rightly admitted that it does not currently have a handle on. Risk management is a core part of fiduciary duty on investments which have been variously judged by my noble friends as carrying high financial and climate risk. Every child deserves to breathe clean air.

I look forward to hearing from my noble friend the Minister. I am extremely grateful for her genuine engagement so far about the Government’s plans for further action in this area.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to join a distinguished cross-party group, signing and speaking to Amendment 170. Like the noble Lord, Lord Sharkey, I want to reflect back to what was said in Committee, when the Minister said that she shared the cross-party concern about pension scheme investment in thermal coal, that she recognised the high financial and climate risks, and that she welcomed some industry-led reductions in exposure. She said that the Government would

“support and challenge the sector in rising to that task”

and that the levers to do that included

“better data and better transparency”.—[Official Report, 23/2/26; col. GC 291.]

That is what this amendment aims to deliver, because the transparency is just not there now.

Transition plans are often cited as a solution to this. These were a manifesto commitment in July 2024, to meet Paris alignment transition plans, but 18 months into this Parliament, there has not been a response to a consultation which took a year to emerge, and more or less asked, “Should we do all of this?” Recently, the Pensions Minister, Torsten Bell, said that transition plans for pension schemes were not a priority, which is reinforced by the fact that the Government are not taking powers in this Bill. There have been suggestions that consolidation will fix all this, but an analysis by Corporate Adviser Intelligence shows that the DC multi-employer schemes most commonly used for automatic enrolment are in fact the largest of them and more invested in thermal coal, and that the mid-sized schemes that would be consolidated are less exposed.

It is also worth stressing that there is a precedent for Ministers writing directly to the largest pension schemes to understand their responsible investment practices and for the Government setting non-statutory expectations about pension schemes’ investment practices. Those on the Front Bench in front of me will probably not thank me for pointing out that when they were in government, they set out a non-statutory expectation in the 2019 green finance strategy that pension schemes and others would disclose climate risks in line with the Task Force on Climate-related Financial Disclosures by 2022. Later, the then Pensions Minister, Guy Opperman, wrote to the 50 largest pension schemes to request their policies and understand their climate investment strategies. That is what the previous Government were doing—surely this Government do not want to be behind that.

It is clear that there is actually a latent appetite to go further. Two-thirds of the audience, mostly representatives of pension funds, at the recent Pensions UK conference debate between Caroline Lucas, my former honourable friend, and the noble Lord, Lord Gove, agreed that pension funds were not now doing enough to tackle the climate change risks. These are, as I said in Committee, financial as well as climate risks. We simply are not taking the steps that are needed. This amendment would provide the way forward that the Minister suggested in Committee that she wanted to see. Here it is, so I hope to hear positive news from the Government on this amendment.

[Baroness Hayman (CB)]

My Lords, I have added my name to this amendment. Given the quality of the speeches that have explained exactly what it would do and its very limited but important purpose—simply to allow the Government to have a proper handle on the data and a proper understanding of the exposure that pension schemes have to thermal coal investment—I think it would be a valuable step forward, one that I hope will get support from all around the House. In Committee, the Minister rightly acknowledged the high financial and climate risks associated with thermal coal investment and indicated that it was the Government’s expectation that industry will do more to reduce levels of coal investment, but we need to understand exactly what those levels are and to monitor them. For that reason, I support the amendment.

[Baroness Stedman-Scott (Con)]

My Lords, I am grateful to the noble Lord, Lord Sharkey, and the noble Baronesses, Lady Hayman, Lady Griffin and Lady Bennett, for this amendment, and I fully recognise the principle that underpins it. However, we have some reservations about the approach taken here. In particular, we are concerned that it would impose an additional compliance burden on schemes, including the Local Government Pension Scheme. The LGPS should be focused on delivering the best possible outcomes for its members, and where there is surplus within the system, that should be directed towards supporting members’ interests, rather than being absorbed by additional reporting requirements.

More broadly, while this amendment is framed around thermal coal, it raises a wider question: introducing a requirement for annual reporting on specific categories of investment risks setting a precedent which could, over time, expand into a much broader set of ESG-related reporting obligations that, in our view, risk creating a cumulative regulatory burden which may not ultimately serve members as well as it intends. So, while we understand and respect the intent behind this amendment, we are not persuaded that this is the right way to proceed.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Lord, Lord Sharkey, for moving his Amendment 170. It is good to have the opportunity to discuss again the climate-related risks with which pension schemes—indeed, all investors—are grappling. While I recognise the intent behind the amendment, the Government believe that the existing framework for responsible investment already enables trustees to identify, assess and manage climate-related financial risks. Introducing further reporting duties at this stage risks additional burdens without clear benefit.

Trustees of occupational trust-based schemes are already required to take account of financial and material considerations, including environmental, social and governance factors. Their statement of investment principles must set out their policy on these matters. Larger schemes are also required to publish annual climate-related financial disclosures, including on total greenhouse gas emissions from their portfolios and carbon footprint metrics. These provide trustees with important information to support investment decision-making. Equivalent disclosure requirements apply to FCA-regulated providers, and the LGPS has its own requirements on explaining how ESG factors influence investment decisions. There is evidence that this framework is delivering real progress.

The noble Lord, Lord Sharkey, cited data from the Finance Innovation Lab showing that more than £10.5 billion of UK pension savings remains invested in companies involved in the extraction or burning of thermal coal overseas. I am sure he is aware that that figure is based on just three pension providers and is not necessarily reflective of what members are invested in. Recent corporate adviser data indicates that around 65% of UK occupational schemes now have a net-zero target, including 18 of the 19 major DC master trusts. DC schemes have reduced the carbon footprint of their investment by nearly 20% in the last year. Many schemes are also taking decisive action on thermal coal. For example, USS, Railpen, and Border to Coast exclude companies with significant revenue from thermal coal, while Nest supplies a 10% revenue cap. While this progress is welcome, the Government agree that further data on exposure to thermal coal and other fossil fuels will be helpful. We expect trustees to continue to strengthen their disclosures, particularly around the actions they are taking to reduce such exposures within the existing responsible investment framework.

Complementing these expectations for stronger disclosures, the Pensions Regulator is deepening its supervisory approach by requesting increasingly granular investment data from schemes. The Government are taking significant steps to enhance sustainability reporting more broadly. DBT has published final UK sustainability reporting standards closely aligned to the International Sustainability Standards Board framework. These are available for voluntary adoption and the Government will consult later this year on potential mandatory use. DWP is also reviewing the Task Force on Climate-related Financial Disclosures reporting obligations through a comprehensive evidence-gathering exercise, with conclusions to be published this year.

Pension schemes are already helped by the UK’s Transition Plan Taskforce, established by the previous Government, having published a gold standard framework to help companies produce credible, consistent and decision-useful climate transition plans aligned with net-zero goals. The task force has also released sector-specific guidance, including for metals and mining, to support pension schemes and the companies in which they invest. Future reforms are designed to modernise the sustainability disclosure regime and equip trustees with clearer, more decision-useful information. This will support better-informed decisions on investment, divestment and exclusions, including, where necessary, in relation to thermal coal.

Finally, at this point, I was going to say that the Government are legislating to bring forward statutory guidance on trustee investment duties as a further opportunity to include clear examples of good practice to help schemes strengthen their management of climate-related risks, including those highlighted by this amendment. But—oh, no—we will not be doing it, because the noble Lord and his party voted against it, so it will not be happening.

The existing disclosure framework is already driving greater transparency around schemes’ climate-related risks, and further reforms are strengthening this approach, so the Government do not believe that this amendment is necessary. However, we recognise that improved data on thermal coal and other fossil fuel investments would be helpful. This is an area we will continue to monitor and keep under active review within the existing reporting regime. I therefore hope that the noble Lord will withdraw his amendment.

[Lord Sharkey (LD)]

I thank the Minister for that response, but that probably means in practice that I thank her for the last sentence. Some of the other stuff I found difficult to agree with. I point out that our proposal was to collect data or produce estimates only for the larger schemes and funds in order to get a reliable picture. I do not think that the issue of the burden on the companies is quite as complicated or as difficult as might have been said. Having said that, I beg leave to withdraw the amendment.

Amendment 170 withdrawn.

Amendment 170A not moved.

The Schedule: Amendments of Pensions Act 2004

Amendment 171

Moved by

[Baroness Sherlock]

171: The Schedule, page 158, leave out lines 18 to 20 and insert—
““(da) sections 20, 26 and 28A to 28I of the Pensions Act 2008 (scale and asset allocation),”;”Member's explanatory statement
This amendment would provide for the Pensions Regulator to issue codes of practice in relation to sections 20, 26 and 28A to 28I of the Pensions Act 2008 (scale and asset allocation).

Amendment 171 agreed.

Clause 120: Regulations: procedure

Amendment 172 had been withdrawn from the Marshalled List.

Clause 121: Extent

Amendment 173

Moved by

[Baroness Sherlock]

173: Clause 121, page 153, line 35, at end insert—
“(2A) Chapter 2A of Part 4 extends to England and Wales, Scotland and Northern Ireland.”Member's explanatory statement
This amendment provides for the new Chapter referred to in the explanatory statement for the amendment in the name of Baroness Sherlock to insert the new clause “Establishment of new public schemes and transfer of rights” to have UK extent (as the AWE Pension Scheme may have members living across the United Kingdom).

Amendment 173 agreed.

Clause 122: Commencement

Amendments 174 and 175

Moved by

[Baroness Sherlock]

174: Clause 122, page 154, line 9, at end insert—
“(za) Chapter 1 comes into force on such day as the Secretary of State may by regulations appoint;”Member's explanatory statement
This amendment would provide for Chapter 1 of Part 2 of the Bill (value for money) to come into force on such day as the Secretary of State may by regulations appoint.

175: Clause 122, page 154, line 10, leave out “Chapters 1 and 2 come” and insert “Chapter 2 comes”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Baroness Sherlock to clause 122 at page 154, line 9.

Amendments 174 and 175 agreed.

Amendment 176

Moved by

[Baroness Bowles of Berkhamsted]

176: Clause 122, page 154, leave out lines 32 and 33

Amendment 176 agreed.

Amendments 177 and 178

Moved by

[Baroness Sherlock]

177: Clause 122, page 155, line 2, at end insert—
“(9A) Chapter 2A of Part 4 comes into force on the day on which this Act is passed (to the extent this is not already the case as a result of subsection (1)).”Member's explanatory statement
This amendment provides for commencement of the new Chapter referred to in the explanatory statement for the amendment in the name of Baroness Sherlock to insert the new clause “Establishment of new public schemes and transfer of rights”.

178: Clause 122, page 155, line 14, at end insert—
“(f) section (Investment principles and choosing investments: guidance) comes into force at the end of the period of two months beginning with the day on which this Act is passed.”Member's explanatory statement
This amendment is consequential on the new Clause in the name of Baroness Sherlock to be inserted after Clause 117 and relating to “Investment principles and choosing investments: guidance”.

Amendments 177 and 178 agreed.