Lords Chamber

Thursday 18th December 2025

(began 1 month, 3 weeks ago)

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None Portrait Oral questions: Defence implications of balloon incursions into Lithuania for British forces stationed in the Baltic states
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Oral question Baroness Rawlings.
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Lord Kennedy of Southwark Portrait Lord Kennedy of Southwark (Labour)
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As we head towards the Christmas recess, as we as we to 2025 draws recess, as we as we to 2025 draws to an end, it is nice to have a moment to reflect on the excellent work of the House and the teams work of the House and the teams that support us. I hope noble Lords will find this more jolly than my usual reminders about short questions and references to the companion, before turning to companion, before turning to individual tributes, I want to start by thanking the work of all the staff across the house.

A team of 700 strong. I will not attempt to name all teams through fear and missing some that are equally as important, but the house simply would not function but work. Each and every one of the people who support us and our vital scrutiny could not be done. I know I speak for the whole house when I say thank you, your heart for your hard work. We appreciate everything you do for us. We all have examples of staff going the extra mile in service of the house and shown us a unique kindness.

I now turn to some individual members of staff who have retired from the House this year. I will name a few and my usual channels colleagues will also name when they speak. Firstly, my Lords, I pay tribute to Carol Roberts, a valued member of the housekeeping team who retired in April. Carol worked in the team for just under 20 years and was involved in managing some high profile and important areas, including the second floor galleries above the chamber. Carol also looked after a much loved and used by noble Lords.

The library has retired to a more time relaxing with family and friends, including much overseas travel. We wish her well. Secondly, following the library theme, I give thanks to Christine Martin, a senior library assistant who retired in July after 23 years. Christine started in 2002 looking after the main Palace Library suite, keeping its ship shape and tidy for members and ensuring they had newspapers to read no mean feat when navigating the height of those library ladders. In 2007, Christine was promoted to Senior Library Assistant and became the library's quartermaster.

Christine had left a lasting impression on all colleagues with a calm demeanour, sense of humour, teamwork and kind counsel, always ready to lend a hand in a crisis. Her help was invaluable when the library had a major flood in 2008 and during Covid, when she was instrumental in keeping the library running. We wish her a well deserved and enjoyable retirement, attending to her garden and putting her feet up next. My Lords, I pay tribute to Gordon Rock, a senior doorkeeper who is due to leave us on the 31st of December.

Gordon started work as a precision engineer in toolmaker. In 1977. He joined the Royal Marines in 1986 and served his country until 2008. He joined as a doorkeeper in 2012. Since his promotion to senior doorkeeper, he has enjoyed keeping everybody in step, including during the importance of visits for President Macron, Prime Minister Trudeau and President Zelensky. Although not related to Baroness Rock and I have checked, she's very happy to me to mention this. They have huge respect for each other.

I am told by the doorkeeper team that he does refer to her as Auntie. A few years ago I did the Armed Forces parliamentary scheme and Gordon came up to me and said, I understand you're going to a particular Army base at the weekend. I said, yes, I was. He said, I've, I've locked your friends down there and I've, I've given them a briefing and they're all waiting for you. I'm pleased to report I'm very relieved that I had a wonderful time.

And I wish Gordon a very restful and long retirement. Yeah. Finally, my Lords, I must pay a special thanks to Fiona Channon, who worked in the heart of government and Parliament for over 30 years, first in the civil service and finally since 2019, as a much loved and admired and respected Deputy Yeoman Usher. I know throughout her roles in the Civil service, Fiona worked with a number of colleagues, including my noble friends Baroness Harman and Baroness Jay of Paddington, alongside other noble Lords, Fiona went from the civil service to lead a number of important functions in the House of Commons, including as Director of Accommodation and Logistics, a good training ground for the ceremonial ceremonial wonders of our Lordships' House.

Fiona had exceptional eye for detail and was instrumental in the delivery of a number of critical events, including the funeral of the late Majesty Queen Elizabeth and the coronation of His Majesty King Charles. I'm told that Fiona was able to enjoy over 1000 sitting days and at a time in the House of Lords, and is well known for never ending patience and calm manner in the face of a crisis and a long day. Whilst Fiona was well acquainted with the building, I'm also told the building was equally wanted to give something back to Fiona when she was attacked by a decapitated pigeon in state court near the Guy Fawkes plaque, colleagues were able to rush to rescue a lender a shirt to enable her to continue her duties that day.

I hope she enjoyed a slightly slower pace and a well deserved actual rest without any pigeons. In addition to individual members of staff, I want to thank all colleagues across the House for their good humour and support. I love the House very much and I'm very privileged to be the Government Chief Whip and the captain of the Honourable Corps of Gentlemen at Arms. I do my best to be accessible to everyone and be able to handle issues as they arise, and I thank all members across the House for their friendly games with me all throughout the year.

I really, really appreciate that the House has reviewed 70 bills this year alone, and we are always and we always manage to debate topics, even the most difficult topics, with kindness and respect. This extends especially, of course, to my usual channel colleagues, because while sometimes we have difficult conversations throughout the year, and I'm sure we've got many more to look forward to next year, I appreciate the continued support and frank discussions. I have huge respect for the noble Lady Baroness Williams of Trafford, the noble Lord Lord Stoneham of Droxford and the noble Lady Earl of Kinnoull.

We can usually smile and laugh in between more difficult conversations, and I've got each of them as good friends. I hope we can continue to make progress together in guiding the House through its important work. Finally, my Lords, it seems a shame to waste opportunity not to announce another recess date, as I fear colleagues are already getting anxious to begin their Christmas holidays in 2026, perhaps even as a present for a loved one. I therefore pleased to tell the House the subject of the usual but not very festive caveat.

It is subject to the progress of business and house. I intend for the House to rise for the Christmas recess next year, on Thursday, the 17th of December 2026, and return on Tuesday the 5th of January 2027. I hope colleagues will consider this a well-deserved Christmas gift, as I think it important that noble Lords and staff have time to plan for activities with family and friends outside the house. I wish everyone across the house and all teams so expertise supporting us.

A very Merry Christmas and merry, merry, Merry Christmas and restful recess. A very happy New Year. I look forward to seeing all back on the 5th of January for a three line whip. Hey!
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Baroness Williams of Trafford Portrait Baroness Williams of Trafford (Conservative)
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Hey hey.

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Sometimes in this house it feels like our years should be measured in dog years, particularly when in dog years, particularly when you're in opposition. But as this year draws to a close, it is a pleasure to follow the Government pleasure to follow the Government Chief Whip in paying tribute to those who make the work of this House possible, but who will now be House possible, but who will now be leaving us for pastures new. All staff members play a crucial role not only in the operation of this House, but their kindness and courtesy make for a welcoming place for all of us.

Xiao DeFreitas, more affectionately known as Alberto, began his career just before the turn of this century in the dining room. He soon became a familiar face, successfully going on to manage events in the Chumley Room and the terrace. Since 2018, he's been bar manager for the Woolsack, where he's been keeping morale high on the parliamentary estate throughout his time here. He was very well liked by his colleagues and regulars at the Woolsack. My Lords, he would be much missed and we wish him and his family very well for the future.

Yes, Neil Baverstock will be leaving Black Rod office this Christmas. For the past 12 years, he's been known for his unfailing dependability as the 23rd Yeoman Usher, the longest serving my Lords for 65 years. His sense of public duty from when he trained at Sandhurst until now is one from which we can all take inspiration. He has been a model of high standards, with a very cool head in challenging moments, and I am told that his buzz phrases are now a permanent part of parliamentary folklore.

My favourite has to be my Lords. I'm going to run through the plan. I must be clear this is a plan, not a must be clear this is a plan, not a discussion document. He has certainly left his mark being trusted with the Palace's arrangement for the late Queen Elizabeth II lying in state and Operation Marquis. My Lords, we know that behind every good man is a good woman. And his wife, Alison. We must thank for her support.

This is a legacy of which they should both be proud, and they leave with

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our sincere gratitude. Yeah. I also pay tribute to Sally

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I also pay tribute to Sally Carter, who's been with us for 36 years working for Lords Hansard and seen by all as a wonderful seen by all as a wonderful colleague. In that time, she has worked with no fewer than five editors, providing a steady hand editors, providing a steady hand and no doubt a calming and knowledgeable presence throughout knowledgeable presence throughout the occasional IT crises as a screen corrector. And we've seen many things corrected. Proof reader. We've seen many things smoothed out in the reading personal assistant and finally, gatekeeper for written answers and questions.

She was known to be efficient and effective in these important roles. The Lords Hansard team won't be the same without her, but we hope she enjoys a very happy and well-deserved retirement. Finally, my Lords, I come to Andrew McCaw, who joined the House in 1984 and who is now leaving us after 40 years, 42 years of exceptional service. Over the course of his career, he has served as the clerk to the Science and Technology Committee, private Secretary to the Leader of the House and Government Chief Whip, clerk to the journals, Principal Clerk of Select Committees, Finance Director and Clerk of Legislation.

In his role as Clerk of Legislation in particular, he oversaw the handling of an unprecedented number of amendments during the UK's exit from the European Union at a time when procedural matters. Matters could be said as challenging. His dedication and professionalism certainly shone through those difficult years and we have him to thank for members explanatory statements, accompanying amendments, as well as several other innovations we can now imagine not working with working without. He is known for going over and above the call of duty and outside of the house, supporting children in his local church, volunteering to help the homeless, and as a school governor.

Moreover, I understand, my Lords, that he and his family were family were hosts under the homes for Ukraine scheme. For this and for all he has done for this House, I thank him and I know that we are all waiting anticipation as

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to what he does next. Yeah. Finally, my Lords, may I join

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Finally, my Lords, may I join the noble Lord, the Government Chief Whip, in in paying tribute to the usual channels. We do a the usual channels. We do a contrary to. Sometimes appearances work very well together. I did mention at this despatch box last mention at this despatch box last year that the government Chief Whip lack of biscuit provision in lack of biscuit provision in meetings that has continued. It has it has done nothing for my waistline but something for my waistline, but nothing to denote the usual operation of the usual channels.

So my wish all staff and noble Lords, a very happy Christmas and look forward to working with everyone in the New Year!
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Lord Stoneham of Droxford Portrait Lord Stoneham of Droxford (Liberal Democrat)
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Yay! >> Yay! >> My Lords, in continuing these staff tributes from the Liberal staff tributes from the Liberal Democrat benches, I want to talk about three Pacific individuals. Firstly, Ola Dyer, who was a valued member of the housekeeping team. Ola spent just 20 years as an early housekeeper, starting in Millbank House with the cleaning contractors and then later transferring to the in-house team, cleaning high profile areas of the House of Lords, including the first floor offices of the West Front and covering duties in the chamber and the Royal Gallery.

Housekeepers are vital to the functioning of the house and the house. Thanks Ola for her hard work over two decades. She retired in September to spend more time

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with her family overseas. We wish her all health and happiness. Amen.

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Amen. Secondly, I want to talk about Nicholas Beech, who retired as deputy counsel to the Chairman of committees in the House of Lords at the end of October. After a the end of October. After a remarkable 40 year career as a lawyer in Whitehall and Westminster, lawyer in Whitehall and Westminster, Nick joined the Counsel's Office in the House of Lords in 2010. With 25 years experience as a government lawyer in the Treasury Solicitor's Department, the Department of Education, the Ministry of Defence and the Department of Culture, Media and Sport, he came to us with a well-deserved reputation as a public law expert, with an enviable reputation as a draughter of Statutory Instruments.

This expertise has been put to very effective use over the last 15 years, particularly in the House's scrutiny of delegated powers in bills and in its scrutiny of Statutory Instruments. The burden of scrutinising secondary legislation grew considerably during the Brexit and pandemic years. Nick rose admirably through the challenge with quiet professionalism of the highest order, combined with his trademark patience and cool and good humour. Nick also spent many years advising on the legal aspects of the restoration and renewal.

He assisted with the transfer of the Parliamentary Archives to the National Archives at Kew, and he advised the archives on the loan to Parliament in 2015. Of the four original copies of Magna Carta, Nick could always be relied upon to keep cool in a crisis, and this ability will be put to good use in Nick's retirement. He hopes to become an expert ice cream maker as well as a cake baker. We wish him

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all the best in these ventures and retirement. Yeah.

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Yeah. Finally, Amanda McGrath is retiring on the 31st September retiring on the 31st September after 13 years as a committee assistant and later a committee operations officer in the Lords Committee office. During her career in the Lords, Amanda developed a in the Lords, Amanda developed a specialism working for several subcommittees of the former European Union Select Committee, including the Home Affairs Subcommittee, the Justice Committee, and the Security and Justice Subcommittee. She's been a committee operations officer for the Justice and Home Affairs Committee since it was established in 2021, guiding it through several high profile inquiries and handling a high volume of sensitive evidence.

She has organised many committee visits, including the Justice and Home Affairs Committee visits to His Majesty's Prisons, Belmarsh and ISIS, and getting them out again. The Port of Dover, Eurotunnel and Eurostar terminal at St Pancras. Before joining the committee office, Amanda was a civil service in the Ministry of Defence. She is planning a number of projects in retirement and will spend more time travelling at the theatre. We wish her all the very best and all health and happiness again.

May I join in the tributes to my colleagues in the usual channels and to the House as large and as we near the Christmas recess. Can I take this opportunity from these benches to wish everyone, members and staff, a very happy Christmas? A good rest over the two and a half weeks and all the very best for the new year. new year.
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Earl of Kinnoull Portrait The Earl of Kinnoull (Crossbench)
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My Lord. Sir, can I begin by associating myself.

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My other fellow usual channels where the staff of the House are concerned, and say again of the concerned, and say again of the kindness and of the courtesy, and the huge help that those staff provide to crossbench and all provide to crossbench and all members, and I'm very grateful before I begin to pay tribute to four very special colleagues, I four very special colleagues, I would particularly reflect on the moment in March of the confetti in moment in March of the confetti in the chamber where protesters interrupted our proceedings by throwing leaflets from the gallery.

Our doorkeepers ushered them away, clutching as they were leaflets that called for aristocrats out, nurses in my noble friend Baroness Watkins, I felt, came very close to declaring a conflict, and that particular time. But thanks to the skill of the Doorkeepers and we were back up and running in just four minutes. And I do feel that we owe a great debt and give great thanks to our doorkeepers and their head doorkeeper, John Ingram. And I, for one, am very, very grateful for them.

My first tribute is to David Pryor. David worked in the parliamentary archives, joining in April 1992 as the assistant clerk of the records, a role latterly not so Snappily renamed Head of Public Services and Outreach, he has transformed the way that our archives are presented to the public through many exhibitions, both large and small. He oversaw loans such as the Stamp Act 1765, which went to the USA, and this was the legislation which gave rise to the cry no taxation without representation and great succour to the independence movement.

Over there he arranged for the Articles of Union between England and Scotland, and the 1707 Act of Union, to be displayed at the Scottish Parliament in 2007, which was the bicentenary, and most remarkably, David arranged for the four inward loans for the four surviving Magna carta's that were displayed in the Robing Room in February 2015, a task that others observed was more complex than organising a Western Balkans conference. I've not mentioned his technological thrust in bringing the archive to our public, for which I hope you'll forgive me, but I thank him for all 33 years and wish him well going forward.

The Mary Nottingham and Mandy Marks retired as senior internal auditors in September. Mary and Mandy actually met when working for the Ministry of Defence Internal Audit department, and while Mary moved to the House sometime before Mandy, the role they took on when Mandy arrived was quickly adapted so that they were a job share. They brought great audit experience to the Lords team with humour and professionalism and no hint of sinister purpose, an approach that was much appreciated by all that they worked with during their parliamentary careers.

They were consummate team players. That is not to say they didn't have strong opinions as their colleagues recall, their head of section observed that they were masters of upwards management, always done with such charming subtlety that to this day he was never entirely sure whether he was managing them or they were managing him. I think we know the answer. Anyway. Mary and Mandy will take their opinions on that question into a long and very well earned retirement, which I understand will include visits to Cyprus, where they both used to own homes.

They were wonderful colleagues and respected professionals, and were all very grateful to them for their contribution to the House Army. Finally, I pay tribute to one of our greatest generals in our longest running war. I speak, of course, of the war against moth and mouse. Maureen Schultz. She led the early morning sorties on the front line of the principal floor corridor for 27 years before retiring in November. She started as a housekeeper, was promoted to a team leader and latterly had a team of 15 housekeepers.

Her particular personal theatre of battle was the bit of the principal floor corridor that included the crossbench offices. Well, we try to lock away our admittedly plentiful rations of crumbly shortbread. We have been guilty of providing sustenance for the energy, but despite this, and at the early hour, when I tended to run across her, she always greeted me. And indeed all of our staff and all those who met her with a smile and a kind word, and she will now spend more time with her children, Ben and Wayne, and her grandchildren, Finlay and Fiona.

And we wish her all the best and we will all keep fighting the Great War on her behalf. It only remains for me to thank my fellow usual channels. I can't tell you how generous they are constantly to the crossbench in all sorts of little ways, and I and the crossbench are all very grateful to them. And I have to say that it is very good fun in the usual channels. I would take issue about the biscuits because there was a metre long, a lot of biscuits with the Chief Whip, one metre long lot of Jaffa cakes, and at one point and we're hoping to get more of those, I think, in there.

But but it is, it is in a great spirit that we try and make sure that things work in the house. And I pay tribute to to them very much. And with that said, the only remaining thing is on on behalf of our benches can I wish everybody, members and staff, a very happy Christmas here.
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12:17
None Portrait Business of the House
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Lords, I beg to move the motion from the Procedure and Privileges Committee be agreed to. This report follows an invitation from the Conduct Committee to the Procedure and Privileges Committee to review the application of the rotation rule to peer members of the Conduct Committee. The report before your Lordships House recommends that peer members of the Conduct Committee should be appointed for up to three years in the first instance, with the option to extend their appointment annually up to a maximum of six years in total.

The Committee of Selection should review the membership of the Conduct Committee annually, with the input of the committee's chair, to ensure a balance of skills and experience on the committee as a whole. The report proposes no formal change to the terms of appointment of external members, who will continue to be appointed for three years. In the first instance, an extension thereafter up to a maximum of a further three years will be subject to regular review by the chair of the Conduct Committee.

In summary. My Lords. If this report is agreed, the terms of appointment for peer and external members will, as far as practicable, be aligned. I commend the report to your Lordships and Lords. I beg to move the first motion standing in my name on the Order Paper.

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The question is that this motion

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The question is that this motion be agreed to. The question is that this motion be agreed to. As many this motion be agreed to. As many of that opinion will take contrary. Not content. The contents have it. Retirement and Participation

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Retirement and Participation Committee. Appointment. Motion. The senior deputy Speaker. My Lords, I beg to move the

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My Lords, I beg to move the second motion standing in my name on the Order Paper. The question is that the motion in the name of the Senior Deputy Speaker be agreed to. The question

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is that the motion in the name of the Senior Deputy Speaker be agreed to. As many of that opinion will say. Content. Content.

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Content. The contrary, not content. The contents have it Sentencing Bill

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order of consideration. Lord Lemos. My Lords, I beg to move the commitment motion standing in my

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name on the Order Paper. The question is that this motion be agreed to. As many of that be agreed to. As many of that opinion will say. Content. Contrary, not content. The contents have it. Questions on an answer to an urgent question asked in the House of Commons yesterday on the pathways puberty blockers trial.
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Baroness Merron Portrait Baroness Merron, The Parliamentary Under-Secretary for Health and Social Care (Labour)
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My Lords, I'm grateful to the noble Lord for acknowledging the sensitive language. This is indeed a very sensitive issue. And let me just say, for all what I know, there is division and divided opinion. There is a determination. I'm sure it's across the House that we get this right. The clinical trial is just part of the pathway study. With regard to the clinical trial, it is extremely unlikely that anyone under the age of 11 will qualify as a potential participant, and it runs up to the age of the 16th birthday.

So I hope that that will be helpful. I, on the other, would the noble Lord

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mind reminding me of the second question? Thank you. Answers can be given to any.

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Answers can be given to any. Anything developed under these trials are not are irreversible, are irreversible. Yes.

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Thank you. I think the noble Lord before there is before participants enter the trial. And I have to say it's an extremely high bar, as it should be for this trial. And there will be at least 226 participants required. But let me say, this isn't a target and there will be no drive to get up to that target. But certainly any possible impact, such as the ones the noble Lord describes, will be fully discussed and mitigations explained and made available, particularly in terms of fertility.

So I absolutely take the point the noble Lord is raising.
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Earl of Courtown Portrait The Earl of Courtown (Conservative)
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My Lords, there is little doubt across the House that the opportunity to live, study and work abroad can bring real benefits for young people. It enables them to young people. It enables them to experience different cultures, encounter new ways of thinking, build confidence and form build confidence and form relationships and friendships that can last a lifetime. Those objectives are in themselves entirely laudable. However, my Lords, good intentions are not enough. If this arrangement is to command confidence, it must be fair, accessible and genuinely mutually beneficial.

It is therefore right, my Lords, that we we scrutinise carefully both the financial and practical implications of what His Majesty's Government have agreed. One of the most immediate questions raised by this announcement is whether it will represent genuine value for money for the British taxpayer. It is concerning that the government have been unable to define any cap on the number of EU students who may come to the United Kingdom under this arrangement, nor have they ruled out a wider youth mobility scheme that could further increase the inflow of young people from the EU.

Under the proposed deal, European students will be able to study in the UK for up to a year while continuing to pay tuition fees to their home institutions. My Lords, when this scheme last operated, the imbalance was stark. In 2018, almost 32,000 young people came to UK through Erasmus, compared with around 17,000 UK students travelling in the opposite direction. The result was an estimated net cost, the UK taxpayer of more than £200 million per year. The media reported this morning that the total cost to the British taxpayer from this new scheme could be as high as be £8.75 billion, at a time when young people in this country are already facing rising living costs, spiralling unemployment and diminished opportunities to buy homes and to save and invest their money.

Problems largely stemming from this government's own policy choices. We must be extremely careful about entering into an arrangement that risk British taxpayers subsidising European students to study here. I might also add, my Lords, that whether or not a taxpayer's own child benefits from this scheme, the cost is borne by everyone. If parents across the country are being asked to help fund opportunities for other people's children to study abroad, we must be confident and able to demonstrate that this delivers benefits not just for the individual participant, but for the country as a whole.

I therefore ask the noble Baroness Stern Minister what assurances can she give the House that this will not again become an asymmetrical arrangement? Can she guarantee that participation in Erasmus+ from 2027 will not result in a net cost to the British taxpayer of the kind we saw previously? And can the noble Baroness Minister, please tell us how the value for money to the taxpayer will be assessed and communicated? My Lords, closely linked to this, my Lords, is the question of equitable access.

It is easy to predict who is most likely to benefit from schemes of this nature. Those who studied languages at school, who travelled abroad with their families, and whose educational and social backgrounds already equip them to take advantage of international opportunities. Without careful design, Erasmus risks becoming little more than a publicly subsidised gap year for young people who already enjoy significant privilege. While the government have said that financial support will be available for disadvantaged students, funding alone is insufficient if those disadvantaged students are unaware of the scheme, if they are unaware of the scheme, lack institutional encouragement or do not see it as something for people like them, can the noble Baroness and Minister set out how the government will ensure that this scheme is actively promoted and supported in schools, colleges and universities serving disadvantaged communities? What concrete steps will be taken to ensure that those who would benefit most from international mobility are not, once again, the least likely to access it? My Lords, I would also welcome the government's response on how the new arrangement will sit alongside existing UK mobility programmes.

The United Kingdom currently operates a Turing Scheme, which was designed to expand opportunities for students to study and work abroad well beyond the European Union. Against that background, it would be helpful for the House to understand what the future holds for the Turing Scheme. Once association with Erasmus+ begins in 2027. I therefore hope, my Lords, that the noble Baroness can tell us in choosing to re-associate with the rest. How does the government intend to preserve the broader international reach that Turing was specifically designed to support? Will opportunities for global mobility beyond Europe be maintained at their current level, or does the government envisage a narrowing of focus back towards the EU alone? My Lords, as I indicated earlier, this scheme must be able not only to deliver benefits, but to demonstrate clearly that it represents value for money for the taxpayer.

While the government have outlined the initial costs of association. Experience tells us that such programmes can become significantly more expensive over time, particularly where participation is uneven or demand exceeds expectations. It would therefore be reassuring to hear what safeguards are in place to prevent costs from escalating in the years ahead. My Lords, the government has said that the rejoining Erasmus would cost £570 million in 2027 for a one year membership, but declined to say what the future costs would be.

Can the noble Baroness, the Minister, now tell us what these future costs will be? It is being reported that Brussels plans to increase funding for the scheme by more than 50%, from around 26 billion to 41 billion from 2028. This plus extra costs associated with joining EU programmes after Brexit, means the bloc could charge Britain 1.25 billion a year between 2028 and 2034. Can the noble Baroness May Minister confirm whether these numbers are correct? Can the noble Mariners also confirm if participation once again becomes markedly unbalanced, with substantially more students coming to the UK than travelling abroad? What mechanisms will exist to address that? And will the government be able to renegotiate the terms of participation, adjust financial contributions or take corrective actions to ensure that the UK is not locked into a persistently disadvantageous position? My Lords, and can the noble Baroness Minister tell us what project, what projected cost this programme will have to universities who may lose out on international student fees as a result of this policy? My Lords.

My Lords, there will be understandably be concerned both in this House and beyond that, this EU reset could amount to a gradual reversal of the settlement reached when the United Kingdom left the European Union. What protections are in place to ensure that the UK is not drawn into open ended financial commitments? Regulatory alignment or governance structures over which it has limited control and, crucially, what clear mechanisms exist for the UK to withdraw from or adjust its participation should this arrangement cease to serve our national interests? My Lords, there is broad consensus across this House that international mobility can be a powerful force for good, but goodwill must be matched by responsibility.

If this scheme is to succeed, it must deliver value for money, widen opportunity rather than entrenched privilege, and sit comfortably within a UK EU relationship based on cooperation without dependency. My Lords, I look forward to the noble Baroness Nye Minister's response on these points, and to greater clarity on how the government intend to ensure that this agreement works not just in theory, but in practice for young people across the whole of statement.
12:40
Lord Wallace of Saltaire Portrait Lord Wallace of Saltaire (Liberal Democrat)
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And welcome the.

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So slowly. I'm. I note that this means that we differ considerably from the conservative frontbench, from the conservative frontbench, although I was a little relieved that the words we had heard from the conservative frontbench a the conservative frontbench a little less hysterical than the front pages of the Telegraph and the mail today. Can I say to the Minister that if we are going to pursue the reset further, as my party strongly accepts, and to move towards dynamic alignment across the board, and therefore closer association with the customs union, which will have to come next, the government needs to change its language and spend more time discussing the benefits as against the costs, which my conservative colleague and the Telegraph and the mail have stressed so heavily this morning.

I declare an interest. I taught many students from other European Union countries in my last two jobs in universities, one of whom is the extremely active president of his country. Active on European security, a number of others are now in leading positions in public life in their countries and good friends of the United Kingdom. That's one of the benefits we get from exchanges. And in terms of the imbalance we had last time, an active scheme to encourage British students to spend time in other countries is of enormous benefit to this country.

It leads to people who understand other countries can do business in other countries, understand their politics, and then can enter public service here or elsewhere to the mutual benefit. Can I say to the Minister, I regret the language of this statement? It's defensive and wrong. Therefore we talk. It talks about only in the national interest and sovereignty. I'm sure the Minister will agree with me that the only country in the world that is fully sovereign is North Korea and other countries.

Sovereignty has to be compromised by international cooperation. And as the reform in effect makes clear, the alternative to membership of the European Union is not full sovereignty, but is actually dependence on the United States. And that is not an easy thing to see as the alternative at the present time. Can I suggest that the government should be talking about shared interests and common security, and the benefits which come as against the costs and the fact that our contributions are help to save this country money in many ways.

When the conservative government took us out of the European Union, we had to set up separate agencies for which we had to recruit additional public servants. We lost the European Medical Medical Agency in London, which was a great boon to our pharmaceutical industry. And there were a number of other things which we have lost. So the benefits absolutely need to be stressed. And I encourage the Minister, therefore, to say to her colleagues that and in particular to Nick Thomas-symonds, that the sort of language they're using is not the sort which will persuade the bulk of the British public that we need to be closer to the European Union.

We now know on very strong evidence that we have lost a lot of economic growth since we left. That means we have also lost tax revenue. We also know that in terms of goods and services, we need to go back into closer relations. And I encourage the Minister to go further.
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Baroness Anderson of Stoke-on-Trent Portrait Baroness Anderson of Stoke-on-Trent (Labour)
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Yeah. >> Lord Jordan. >> Well, my Lords, maybe this wasn't the statement to bring together some Christmas goodwill and cheer and unanimous unanimity across your Lordships' House. Well, my Lord, it's a good thing that my language, I hope, will be both positive for the noble Lord, Lord Wallace, and maybe slightly more circumspect for the Earl of Courtown. I'd like to thank both noble Lords. My Lords, we will be rehearsing these arguments, as we have for many years, both since the referendum, and we will continue to do so as we seek to undertake our reset.

There have been a number of important issues raised which I wish to address in some detail. I will obviously also reflect on Hansard to see which questions I have missed, either intentionally or by accident, and will right in due course. Never intentionally. As I'm being reminded. My Lords, I'd like to engage this in a spirit of goodwill. This is a positive thing that we are doing. It's a £500 million additional investment in our young people in one year. It is something to be celebrated at a time when, and so I will engage in the promise of positivity at this time of year.

I will view this as my own Hanukkah miracle with regards to. But I want to touch on some of the issues that have been raised with regard to the the UK EU summit. Our manifesto promised to reset our relationships with our European partners in order to improve our diplomatic, economic and security cooperation following Brexit. Earlier this year, we hosted the first annual UK EU summit, where both the Prime Minister and the European Commission President welcomed our new strategic partnership and a landmark deal that is good for bills, good for borders and good for jobs.

And that's what we're seeking to deliver a partnership that enables us to tackle the shared challenges we face to boost the prosperity, safety and security of both our peoples and to help strengthen European wide defences. With regard to the core of the announcement today, my Lords, we have made good progress on talks with you since the summit, working to implement the joint commitments we made in May. I am therefore pleased to inform the House that yesterday the UK and European Commission concluded negotiations for the UK Association to Erasmus+ from 2027 for one year, £500 million of investment.

As I said, in our young people, our association in the programme will open up opportunities for learners, educators, youth workers, sports sector professionals and communities of all ages in our education, training, sport and youth sectors, both for the professionals that work in these sectors and crucially, our young people too. Participants can travel to any European Union member state and to several countries outside the European Union, opening doors for tens of thousands of people from across the UK, renewing our people to people ties with Europe and beyond.

At the summit, we also agreed to work towards participation in Erasmus+ on the basis that we're fair balance between our financial contribution and the number of UK participants receiving funding. We are pleased that the EU has agreed financial terms a 30% discount in 2027, compared to the default terms in the Trade and Cooperation Agreement, a fair balance between our contribution and the benefits of the programme. It has also been agreed that the UK's participation in the programme will be reviewed ten months after our association, which would include data on the demand for funding in the UK.

Any continued participation will be informed by our experience of association in 2027. The government will now work quickly to ensure that there is maximum take up across all sectors and groups, so that the benefits of our association to Erasmus+ can be felt on the specifics of what noble Lords have raised. Noble Lord, noble Lord Grocott have raised a very, very important issue, which is about people's awareness of the scheme and especially given where I live in Stoke on Trent, making sure that we have people from up and down the country at being able to access these schemes.

And it is not what historically could be considered to be a boost for middle class children, but that it is accessible to everyone. My Lords, there are many members of your Lordships' House who have association with further education facilities who also are associated with schools up and down the country. There is a responsibility on each and every one of us to make sure that people are aware of this scheme. I would urge all noble Lords to reach out to their communities.

Their funding streams open in October 26th. We have time to make sure that people can access this. And one of the things I was most delighted to see yesterday was a quote from the Association of College Leaders, who were delighted about this scheme with regard to the Turing Scheme. My Lords, the since we left Erasmus, it now has wider international reach. So the so is not the scheme that we left, but we are obviously and I want to reassure noble Lords to the Turing scheme will be operating as normal next year and we will continue to learn lessons from that scheme in any future.

Decisions on Turing will be brought forward to your Lordships House in due course. In terms of international fees to the EU, I'm not sure that's something that I recognise, my Lords, but I will reflect on the exact question from the from the noble and and come back in terms of I've done the global programme in terms of the today's coverage in the Mail and Telegraph. It won't surprise noble Lords that I may have been anticipating such a question. The reality is, my Lords, the European Union have not yet determined any costings for the next for the next scheme.

So nobody recognises the numbers that were in the papers today, because there is no such scheme that has been rolled out with any such budget. We have been clear to commit to 2027, we will see and make sure that it works and proves to be good value for money for the United Kingdom, and that it is of huge value to our young people. And then we will continue to negotiate with the European Union on next steps with regard to the Youth Experience scheme raised by the noble Earl.

In terms of the scheme, as I've made clear during other debates in your Lordships' House, the government recognises the value of such schemes, and one of the things I find exceptionally difficult when we're discussing youth mobility schemes. The previous government signed a youth mobility scheme with Uruguay. I do not understand why Youth mobility scheme with the European Union would be so contrary to our values that we would not want one, if we can have one with 13 other countries, I think we can have one with the European Union.

In terms of the Labour Party's red lines on the on our manifesto and what we should do and and. Well, I hate to disappoint the noble Lords. We have been very clear we are not rejoining the customs union. Our manifesto set out exactly what we were prepared to do in terms of our negotiations. All of our negotiations are through the prisms of our red lines, and we will not be returning to the single market, the customs union or freedom of movement in terms of whether the UK is becoming a rule taker.

My Lords, we have made a choice to align in some areas where it makes sense to do so in our national interest. The EU has accepted that there will be need to be a number of areas where we need to retain our own rules as we make alignment going forward. The details of these are all subject to negotiation. We will be involved in forming the regulations that apply to the UK at every stage, and your Lords and members of your Lordships House will have appropriate scrutiny.

Arrangements in place, and I'd like to finish on a positive. My Lords, the expected financial benefits for our economy by having a closer relationship with the European Union are hugely significant. The SPS and carbon pricing agreements, which we are currently negotiating, will add nearly £9 billion a year to the UK economy by 2040. The carbon pricing deal also avoids the risk of UK businesses paying tax on the UK to the EU. US paying taxes to the EU on £7 billion worth of trade.

My Lords, we are seeking to reset our relationship based on what is best in our national interests as a sovereign country. But we're seeking to do so because the European Union is our biggest trade partner. It's the biggest source of economic growth for this country, and we continue to work closely with them in a spirit of goodwill at this time of year.
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Lord Howell of Guildford Portrait Lord Howell of Guildford (Conservative)
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My Lord. >> Can I. >> Focus for a moment on the comments in the statement on Electricity Corporation trading with the European Union? Obviously, there are millions of families in this country who are wondering still how on earth to keep their house warm and feed their children during the Christmas period and indeed in any period. And that is not as it should be, and we should be much more concerned than we are about this totally unacceptable situation. The report says claims that it will drive down the new cooperation plan, which has been discussed, will drive down energy costs and protect consumers, and it will drive up investment in the North Sea and strengthen energy security.

Can we have an assurance from the Minister and from her colleagues that that really is going to happen? First of all, that it's driving down the price, not from from what it is now and not from the much higher price it's likely to be. This is a sort of trick of statistics. It's being used by the government, which I don't like at all, and I think they should be much more straightforward. Is it going to make cheaper electricity for families and industry than we have now? I very much doubt it.

And secondly, the question of of investment in the North Sea. Obviously we want more investment. At the moment we are paying owners of wind farms billions of pounds, literally billions not to produce electricity. So the system there is wrong and must be changed, and I hope it will, with the cooperation of the European market. Those are the things on which we want some reassurance because the present they are not desirable. It is incredible. We're not producing competitively produced energy in this country of all countries.

We have a North Sea is a huge asset. We're not using it properly. Indeed, we're paying to the government to try to slow it down, and it is a time that we face paste in another direction in this whole area, and I'd like to hear more about it.
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None Portrait Legislation: Pensions Schemes Bill - second reading
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Good.
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Baroness Sherlock Portrait Baroness Sherlock, The Minister of State, Department for Work and Pensions (Labour)
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Well, it's a privilege to open the Second Reading of the Pension Schemes Bill. I am grateful to noble Lords for the engagement that we've already had, and I look forward to working constructively together as the bill progresses through this House. I also look forward very much to the maiden speech of the noble Lady Baroness White of Tufnell Park. My Lords, pensions are really important and this bill will transform our pensions landscape for the better. It will play its part in delivering growth, as well as helping to raise living standards in every part of the UK.

It will assist the pensioners of the future to feel more confident about the economy in general, as well as their own futures. Pensions are the promise we make to millions of people that their years of hard work will be rewarded with security and dignity in retirement. UK pension schemes invest hundreds of billions of pounds in our country. The reforms outlined in this bill will make those pounds work harder for pensioners by making schemes more efficient, more money invested, less on overheads and administration.

The Pensions Commission laid the groundwork for a new pensions landscape, with a simpler state pension and automatic enrolment into retirement savings. This transformed private pension saving in the UK. This bill, along with the work of the Pensions Investment Review, moves our private pension system forward. Bigger, better pension schemes will drive better returns as well as tackling inefficiencies in our system. The new Pensions Commission is looking at the issue of adequacy across the state and private pension systems, with a clear objective of building a strong, fair and sustainable pension system.

I look forward to the debate on this bill, which is all about making every pound saved work harder for members, unlocking investment for our economy, and restoring confidence in the promise of a decent retirement. Let me now outline the main measures in the bill. First, the bill addresses the fragmentation of the local Government pension scheme, currently spread across 87 funds in England and Wales. This fragmentation limits efficiency and scale. Through these reforms, all assets in the Local Government Pension Scheme, or LGPS, will be managed through FCA regulated investment pools, ensuring professional oversight and better value for money.

Administering authorities will set clear targets for local investment, working with strategic authorities to align with regional growth plans. Of course, my Lords LGPS members pensions and benefits are protected as they are guaranteed in statute and are not affected by the performance of investments. These reforms are about the LGPS being well governed and well invested to deliver, deliver efficiency and value for money. Next, the Bill introduces powers to enable more trustees of well funded defined benefit or DB schemes to share some of the £160 billion of surplus funds to benefit sponsoring employers and members.

This will enable employers to drive growth through investment and higher purchasing power. But, my Lords, it will be subject to strict safeguards. The measure will allow trustees working with employers to decide how surplus can benefit both members and employers, while maintaining security for future pensions. The defined contribution or DC workplace pensions market currently prioritises competition on cost rather than on overall value. The bill introduces a value for money framework to enable a shift in focus away from cost, towards a longer term consideration of value.

This new framework looks to standardise how value is assessed in a transparent, consistent and comparable way. It will require schemes to disclose standardised metrics and to take a holistic assessment of value and take improvement actions where needed. Automatic enrolment has been a huge success, ensuring that millions more people are now saving for their retirement. However, frequent job changes mean individuals are often enrolled into a new pension scheme by each employer, leaving them with multiple small pots over their working life, often with very small amounts saved.

This has created a challenge across the workplace pensions market, with current estimates suggesting that within the system there are more than 13 million pots worth less than £1,000 each. This is hugely expensive for pension schemes to administer, with an estimated cost of some £240 million a year, ultimately resulting in poorer value for members. Through this bill, we are taking powers to introduce automatic consolidation of these dormant small pension pots through a multiple default consolidator model. Opportunity for member choice will be built in.

Members can choose a consolidated scheme or choose to opt out entirely if they wish. This will simplify the system, reduce costs, and support members so they can better track their retirement savings. There is strong evidence that larger pension schemes mean better outcomes for members through efficiencies of scale, stronger governance and better investment opportunities at lower cost. The bill will therefore drive scale by accelerating the consolidation of Multi-employer DC schemes from 2030. Schemes used for auto enrolment must reach at least £25 billion in assets in a single main scale default arrangement, or £10 billion on a transition pathway, with a credible plan to reach 25 billion within five years.

This is about harnessing the power of scale. Larger schemes can negotiate better deals, access more diverse investments and deliver better outcomes for savers on asset allocation. Earlier this year, the Mansion House Accord was signed by 17 major pension providers who between them manage about 90% of active savers DC pensions. This was an initiative led by industry, and the signatories pledged to invest 10% of their main default funds in private assets, such as infrastructure, by 2030. The purpose of this voluntary commitment is, as the signatories put it, to facilitate access for savers to the higher potential net returns that can arise from investment in private markets as part of a diversified portfolio.

As well as boosting investment in the UK, the bill includes a backstop provision which would permit the government, with Parliament's approval, to require DC pension providers of auto enrolment schemes, to invest a fixed percentage of their default funds in specific asset classes. The government does not, I should say, anticipate exercising this power unless it considers the industry has not delivered the change on its own, and there are strong safeguards around it. All workplace pension schemes are required to have a default arrangement where contributions are invested.

If members do not choose an investment option. Most members go into a default arrangement and remain there throughout their scheme. Membership. There are currently thousands of different default arrangements in pension schemes, creating fragmentation and inefficiency and poor outcomes for members. The bill introduces new requirements to review these default arrangements, with the power to make regulations as needed, following the review to require default arrangements to be consolidated into a main default arrangement. There is also a power to make regulations for new default arrangements to be subject to regulatory approval.

This will ensure savers benefit from economies of scale and improved governance by reducing the fragmentation in the pensions market. Many pension schemes, especially legacy ones, are not delivering good outcomes for savers as contract based schemes rely on individual contracts between firms and members. Firms usually need individual members consent to make any changes, even when the change would improve outcomes for members. Obtaining this consent is often difficult and costly, especially where members are disengaged. Even when a scheme offers poor value, this leaves members stuck in poor value schemes.

To address this, the government is introducing the contractual override power in the bill. This will allow the providers of FCA regulated DC workplace pensions to transfer members to a different pension arrangement to make a change which would otherwise require consent, or to vary the terms of members contracts without the need for individual member consent, but only when the legal and regulatory requirements are met. This includes rigorous consumer safeguards, such as the best interest test, which must be met and certified by an independent expert before a contractual override can take place.

Lord Dannatt retirement DC scheme DC scheme savers face complex financial decisions. They need to evaluate the different options to suit their own individual circumstances, assess risks and uncertainty in financial products, and factor in their own estimation of their life expectancy. We know savers don't always use the support available. Only 16% use a regulated source, such as pension wise or a professional financial adviser. The bill puts new duties on trustees to develop and provide one or more default pension plans at retirement to help members access their savings without these complex decisions.

These plans will provide a straightforward income solution for most members with opt out rights for those who prefer alternatives. Trustees must design plans based on member needs, communicate options clearly, and publish a pension benefit strategy, which will be overseen by the Pensions Regulator. The bill also requires the FCA to make rules that deliver default pension plans in relation to pension schemes regulated by the FCA, ensuring consistency and better outcomes for savers. But Superfunds are commercial consolidators that offer a new route for employers to secure the legacy liabilities of closed DB schemes, which cannot secure an insurance buyout.

Building on the current interim regime, the bill establishes a permanent legislative framework for Superfunds. It introduces an authorisation and supervisory regime with robust governance, funding and continuity arrangements so that members of these schemes can have confidence their pensions are properly protected. Superfunds may invest more productively because of their scale, expertise and buying power, so they are good for members, good for employers and good for the wider economy. Part four of the bill contains a range of important measures.

Following the Virgin Media Court case, Sir Brian DB pension benefit alterations could be treated as void if schemes cannot produce actuarial confirmation that they met the minimum standards in place at the time. This affects schemes who were contracted out between 1997 and 2016. The court judgement has the potential to cause pension schemes, significant cost and uncertainty, even where the schemes did in fact meet the minimum standards required to resolve this. The bill allows schemes to ask their actuary to confirm that past benefit alterations would not have caused the scheme to fall below the relevant minimum standards.

But as the Chancellor announced in the budget that the government will introduce p197 indexation into the Pension Protection Fund, the PPF and the Financial Assistance Scheme FAS to address the long standing issue faced by members. As noble Lords will be aware, these are the compensation schemes that provide a safety net for members of DB schemes. Currently, payments in respect of service before 1997 are not uprated with inflation, and effective members have seen the real value of their compensation decrease significantly in recent years.

This bill will pave the way to introduce increases on PPF and FAS payments for pensions built up before the 6th of April 1997. These will be CPI linked, capped at 2.5% and apply prospectively for members whose former schemes provided for these increases. This will help those members pensions keep pace with the cost of living. This is a step change going forward that will make a meaningful difference to over 250,000 members. Incomes will be boosted by an average of around £400 for PPF members and £300 for FA members after the first five years.

Our changes strike an affordable balance of interests for all parties, including eligible members, levy payers, taxpayers and the PPF. Ability to manage future risk. The bill makes some other changes to the PPF and FAS, which will benefit the members of these schemes and the levy payers that support the PPF, including around terminal illness and the levies. Finally, some noble Lords may have seen that the Delegated Powers and Regulatory Reform Committee published their report on the bill last night. I want to emphasise the government recognises the importance of getting the right balance when it comes to taking delegated powers and using them appropriately.

The pensions industry is highly technical and rapidly evolving, and there is a complex interaction between legislative requirements, regulatory oversight and changes in practice or innovation. It is common in pensions legislation for there to be a mix of requirements and principles set out in primary legislation, with fine detail, liable to frequent development set out in secondary legislation. This allows for a quicker response to developments in the industry, including to protect scheme members. We think we have the right balance in this bill, but I thank the committee for their report and will respond in due course.

My Lords, this bill will initiate systemic changes to the pensions landscape with the aim of building a pension system that is fit for the future, one that is strong, fair and sustainable and delivers for savers, for employers and the economy. At its core, this bill is about making sure that people's hard earned savings work as hard for them as they have worked to save, while galvanising the untapped benefits that private pensions can offer the economy at large. I look forward to our discussions today.

My Lords, I beg to move.
13:28
Baroness Stedman-Scott Portrait Baroness Stedman-Scott (Conservative)
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The question is that this bill be now read a second time. >> My Lords, I too look forward to the maiden speech of the noble Baroness White. I have every Baroness White. I have every confidence that the noble Baroness will make a great contribution. And to the work of the House generally, and having had some interface with her at the DWP, I'm very confident this will happen. My Lords, while this bill is not perfect, I hope the noble Baroness, the Minister, will take comfort from the broad cross-party consensus that exists around many of its core measures.

Across your Lordships House. We share a common ambition a pension system that delivers strong returns for those it serves. In 2010, we inherited from the previous Labour government a private pension scheme that wasn't fit for purpose. The shift from defined benefit to defined contribution had left millions behind, and in 2011, just 42% of people were saving into a workplace pension. The cornerstone of reform was auto enrolment. Enrolment, a conservative innovation and an undeniable success. Today, around 88% of eligible employees are saving for retirement, with most opt outs made on the basis of sound financial advice.

My Lords, workers deserve dignity in retirement, not merely a safety net. And that is why, before the last election, the government rightly focussed on two enduring challenges value for money and pensions adequacy. My Lords, let me begin by acknowledging what this bill gets right. We welcome progress on the pensions Dashboard, which will help savers access their information more easily and plan for retirement. We also support the bill's emphasis on consolidation, including larger pension funds, the consolidation of the Local Government Pension scheme and the long overdue merging of small stranded pots, all of which have the potential to improve efficiency and value for money provided risks are properly managed.

Finally, we welcome the humane and necessary measures to improve access to pensions for those facing terminal illness. Taken together, these provisions represent steps in the right directions. However, my Lords, while there is much to commend, there are also areas where we believe the Bill falls short and fall short in ways that matter deeply to the millions dependent on it. My Lords, the most striking omission in this Bill is the absence of any meaningful progress on pension adequacy. The uncomfortable truth is that too many people are simply not saving enough to secure a decent standard of living in retirement, a situation made all the more difficult in the current economic circumstances.

Auto enrolment was never intended to be the finished article. It was a foundation, not the building itself. Yet this bill proceeds as though the task were complete. The central question whether current levels are sufficient is not yet confronted, but deferred, pushed into the second stage of the review. My Lords, this is not reform. It is a holding space, a space in which difficult but necessary decisions risk being postponed rather than resolved. Adequacy should have been the organising principle of this legislation.

Instead, it's been quietly parked for another day. In its place, the government has focussed on taxing pension contributions, increasing the cost of employment and layering additional regulation onto the terms and conditions of work. We are regulating, taxing and constraining the very mechanisms through which retirement savings are generated. Yet we failed to address the most basic and consequential question of all are people saving enough to retire with security and dignity? A further missed opportunity is the failure to support the the failure to support the self-employed with new and innovative ways to save affordably for their retirement.

More than 4 million people who drive our economy create jobs and take risks. Yet too often face retirement with no provision at all. Only around 1 in 5 self-employed workers earning over £10,000 a year currently save into a pension. This is not a marginal problem. It's a structural gap in our pension system. We need practical and pioneering solutions to support this growing group, and this bill should have set that direction. My Lords, we've spoken directly to the self-employed in preparation for this legislation and at Committee stage.

We stand ready to assist the noble Baroness, the Minister, by bringing that engagement and evidence to bear. Our wider engagement also brought into sharper focus the bill's treatment of public sector pensions. My Lords, this bill is, in our view, decidedly LGPS light. We will therefore be tabling amendments to address that omission, ensuring the scheme operates with greater clarity, greater flexibility and greater accountability. At the heart of our concern is the need for a more transparent, simpler and reformed approach to reviewing employer contributions rates for local authorities.

This is not about loosening discipline or weakening the scheme. It is about prudent financial management and giving councils the tools they need to govern responsibility. This is what local authorities deserve and it is good financial governance. The bill shows no enthusiasm for addressing excessive prudence and the record surpluses within the local government pension scheme. We are not naive enough to suggest that the LGPS surpluses can be extracted or treated in the same way as those of private defined benefit schemes, but under the Chancellor's revised fiscal rules, those surpluses are now treated as assets of offsetting public debt.

That may be fiscally convenient, but it represents a missed opportunity to enhance councils resilience in appropriate circumstances. Those surpluses could and should be used to support reduction in employer contribution rates. However, too often overly cautious actuarial methodologies, excessive prudence and a lack of transparency have locked councils into contribution rates that are simply too high. My Lords, proportionality and openness in how assumptions are set and decisions are reached are pivotal. Without transparency, those assumptions cannot be properly challenged through due diligence, and section 151 officers cannot fully discharge their statutory duties.

We must therefore ensure that interim review of employer contributions are more accessible, transparent and accountable through clearer statutory trigger conditions. Published policies, improved transparency and strengthened statutory guidance. Kensington and Chelsea have demonstrated precisely this approach in the aftermath of the Grenfell tragedy. Yet across the country, councils are still forced into an exhausting and uncertain process to navigate the existing regulatory framework simply to secure interim contribution reductions after a formal valuation. We look forward to engaging constructively with the government to ensure councils are properly supported in delivering services, while fully meeting their obligations.

Finally, I turn to what I regard as the most troubling element of the bill the proposed reserve power to mandate pension fund investment strategies within master trust and group personal pension schemes used for automatic enrolment. Mandation. My Lords, is not a neutral tool. It is the quiet nationalisation. Nationalisation of Pension Investment strategy. It is a fundamental shift into who ultimately controls investment decisions. Automatic enrolment has succeeded because it's trusted. Mandation threatens that trust. Trusted by employers, trusted by industry and above all, trusted by millions of ordinary savers who have neither the time nor the confidence to manage complex financial decisions themselves.

It is therefore deeply concerning that this power is targeted specifically at automatic enrolment. Default funds. These are the schemes used disproportionately by those with the least means and the least financial confidence. The very people who rely most heavily on the integrity and independence and independence of the system we've built over decades. And this is where the injustice bites those with the least means and the least financial confidence are the ones Labour's mandation would attract. The savviest can opt out.

The poorest get locked in. That, in my Lords, is the injustice of mandation. This those savers need our protection, not the situation in which their pension outcomes become indirectly shaped by ministerial preferences. However well intentioned, my Lords, conservatives built automatic enrolment, Labour now stand the chance of threatening it. We built automatic enrolment on a simple settlement. The state sets the framework, but trustees make the investment decisions. This bill risks blurring that line. At stake here is trustee independence and fiduciary duty, my Lords, principles that sit at the very heart of pensions policy.

Trustees abound, both legally and morally, to act in the best financial interests of their beneficiaries. Pension schemes exist to serve savers, not to serve the shift in political priorities of the day. In this context, my Lords, I'm I'm reminded of the warning offered by the respected pensions expert Tom McPhail, who invoked Chekhov's famous dramatic device, the gun on the wall. If the gun is hung on the backdrop of the stage in the first act, it will be fired by the third.

Once a government arms itself with a power, no matter how benignly it is presented. History suggests that it will eventually be used. My Lords, if the government do not intend to use the power, why then is it in the Bill, my Lords, rather relying on the logic of Mandation as a backstop? I urge the noble Baroness, the Minister and her team to step back and address the underlying reasons why pension funds are not investing more in the UK in the first place.

Low domestic investment is not simply a collective action problem, as the government suggests. It reflects real structural barriers and the government should compile the relevant evidence and report back on how those obstacles might be removed. And can I ask the noble Baroness, will you ensure, as the Minister, that you undertake to do this, there are better and far less constitutionally troubling ways to unlock long term investment? I'll offer the noble Baroness just one example. Currently, solvency rules continue to constrain insurers from investing in productive UK assets that offer stable, long term returns.

Reforming those outdated rules could, according to Aviva, unlock billions of pounds over the next decade. That is how we should be driving growth by removing barriers to investment, not by inserting the state into decisions that properly belong to independent trustees acting solely in the interests of savers. It is therefore striking that the government has chosen to expend so much political capital capital on a mandation policy that commands little support beyond the DWP and lacks a wider consensus across the industry.

Can the government provide assurances that savers into auto enrolment pension schemes will not subsequently discover that their pension providers have been instructed to invest in specific entities, such as Thames Water? My Lords, I will close by reaffirming our commitment to work constructively with the government. Stability and confidence in the pensions market are paramount, and it is in that spirit that we approach this bill where improvements can be made. We will bring forward amendments, and we will engage in good faith to ensure that the detail is right and the framework ultimately serves.

Safer schemes and the wider economy. We broadly support the direction of travel that the government are pursuing. However, as today's debate has made clear, there remain important questions around the detail the intent of forthcoming regulations and indeed, what has been omitted from the bill. In closing today's debate, my noble friend Viscount Younger of Leckie will expand on these points, set out further concerns, and put several direct questions to the noble Baroness, the Minister. We hope the government will reflect carefully on those issues as the Bill progresses.

I honestly look forward to working with the noble Baroness, the Minister, in the weeks and months ahead and continuing this constructive, robust dialogue as we seek to

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strengthen the legislation here. My Lords, I join the Minister

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My Lords, I join the Minister and Baroness Stedman-Scott in saying how much I look forward to the maiden speech of Baroness White, the maiden speech of Baroness White, especially since I also live in especially since I also live in Tufnell Park. It's a pleasure, as always, to follow the Minister, and
13:43
Lord Sharkey Portrait Lord Sharkey (Liberal Democrat)
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we welcome what is clearly an important set of proposals for reform. We would support many of these proposals, but there are several that merit serious examination and probing at committee. And as things stand, I think I should say up front, we cannot support the proposals in the bill, and I do hope that we may be able to constructively modify these proposals in the course of the bill's passage through the House. My Lords, the Minister will know that stakeholders have expressed significant concerns about risk to member security, trustee independence and long term outcomes that may be contained in the bill's proposals.

And, for example, there are worries that easing access to DB surpluses of employers could undermine member benefits. Phoenix has noted that surplus reduced thresholds will be set in secondary legislation, and they believe that a post-release funding level is essential to protect members and to limit covenant risks. They oppose that lowering the threshold to low dependency, and believe that surplus should only be released above buyout affordability. And I note that some MPs in the Abi have called for stricter oversight, including retention of the three gateway tests to prioritise buyouts over superfunds.

The ACA also recommends that trustees have a formal role in assessing and agreeing any rule changes, and in determining any actual refund of surplus to an employer. The CEO of the TPR, Nausicaa Belfast, whose name I googled and it turns out to mean Burner of Ships, is on record as saying where schemes are fully funded and there are protections in place for members. We support efforts to help trustees and employers consider how to safely release surplus if it can improve member benefits or unlock investment in the wider economy.

It's not entirely clear how those two outcomes may be traded off, and I'd be grateful if the Minister could say more about government thinking on member protection in release and distribution of surplus. And I know that my noble friend Viscount Thurso, who cannot be here today because he's undergoing a medical procedure in Inverness, will also wish to test the government's thinking in this area at Committee stage. And then there is the critically important question of mandated asset allocation.

This bill is, everybody knows, contains a reserve power to authorise DC master trusts and group personal pensions used for automatic enrolment to invest a minimum proportion of assets in an. I say this in inverted commas. Productive investments, including UK assets. On the face of it, this cuts directly across trustees, fiduciary duties and members best interest tests. It risks political direction of asset allocation. And does anybody really believe that the government would be better at allocating funding than the market? This medication may well create significant market distorting effects.

If, for example, the demand for such in quotes productive assets outpaces their availability. There is also the risk that such a power may be extended over time to influence allocation on an even larger scale than might be currently envisaged. And it is worrying that the governor of the Bank of England has been reported as saying he does not favour Mendation. The Institute and Faculty of Actuaries has said in written submission the criteria for master trust authorisation were intended to produce a safe and reliable savings environment and we do not believe the concept of qualifying assets belongs there.

This power, they told me that the power to mandate introduces a commercial conflict between pension providers and trustees over asset allocation, weakening the fiduciary accountability of trustees. It's also premature to give the government a sweeping power it does not expect to make use of, although and this is the institute talking, we note the percentage of mandated assets cannot be increased after 2035, but that might encourage a government to use it or lose it. We would urge parliamentarians to consider the implications of a future government of any configuration, having a power to define qualifying assets as any project that the government of the day can meaningfully define.

Charging the capital costs to the auto enrolled pension saving of the nation. Should mandating schemes to invest in accordance with the government direction proceed. It needs to be made clear what the respective responsibilities of government and trustees are, as the finances work themselves through. I'd be very grateful if the Minister who set out for us how it is that mandates and fiduciary duty can be reconciled without complicating or diluting the proper exercise of fiduciary duty, and perhaps a definition of productive would be a useful start.

My noble friend Baroness Kramer, who is attending a funeral this afternoon, had intended to speak to this point, and I know she wanted to ask her detail and risk profile of assets that would qualify as productive. Most people contribute to auto enrolment into default funds. They have few resources and should not be in high risk investments, certainly not without their permission. Ministers have promised statutory guidance to help resolve the issue of potential conflict between mendation and fiduciary duty.

In his remarks at report in the Commons, Torsten Bell said I intend to bring forward legislation that will allow the government to develop statutory guidance for the trust based private pension sector. He did not specify what kind of legislation or when, and the Minister has told us that this guidance will not amount to direction and will have the usual force or lack of force present in the many existing have regards that exist in the financial services arena. She has also told us that this draft guidance will not be available before Committee stage begins, and that is surely not ideal.

Can the Minister reassure us that, at the very least, this draft guidance will be available before the end of Committee stage? We need to be able to discuss the details of the guidance before we agree to legislation, and that is especially the case if the government intends to rely on the use of Sis, which would, of course, deprive Parliament of any effective means of scrutiny at all. Could I ask her to take another look at the timing, so that we may be able to take guidance properly into account in our discussions of mandation? And perhaps she could also explain why the Mandation currently has sunset provisions for expiry in 2035, with no regulations are in fact made.

Why not use, for example, the Mansion House targets to generate a significantly earlier cut off? Then there are questions of value for money and consolidations that have been discussed already. And the Abi, as I'm sure the Minister knows, pushes for regulatory mechanisms to force consolidation only when it clearly benefits customers. And I heard the Minister endorse that approach. But I think the key word here is clearly what what does this mean? What will be the test for clearly and who will be doing the testing? And as important as any of these things is the question of pensions adequacy or inadequacy.

And it is very disappointing that the bill does nothing to tackle such things as no contribution rates, self-employed exclusion and early savings barriers. The question of are the people saving enough is probably easy enough to answer, but what to do about it is entirely absent from the bill, and we want to discuss this further. And finally, there is no substantive mention of climate issues in the bill and no reference to, for example, the Paris Agreement. And there is an obvious asymmetry here.

This bill provides for increasing investment in to be into, to be defined productive assets. It says nothing about which assets should be avoided or minimised. Industry analysts caution that if the Mendation favours domestic growth sectors without or who do not have strong climate screening schemes could be nudged into assets misaligned with the 1.5 to 2 degrees pathway. And that would certainly conflict with the spirit, if not with the letter of the Paris Agreement. And it would damage everybody and every enterprise.

The amendment was brought forward at Third Reading in the Commons by my hon. Friend Manuela Portugal addresses this issue, and this new clause not voted on would have required the government in the FCA to make regulations and rules restricting exposure of some occupational and workplace pension schemes to thermal coal investments, and to regularly review whether the restriction should be extended to other fossil fuels. We will bring forward a similar amendment at committee. My Lords, this is a very important bill with some obviously welcome proposals, but also with some deep causes for concern, especially as regards mendation and the failure to address pension inadequacy.

We look forward to a constructive discussion with the government and to detailed examination of the bill.

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My Lords. It's about. Five years since we last saw a pension schemes bill in this House, pension schemes bill in this House, and it's good to see so many familiar faces, albeit sitting in different places of the chamber. different places of the chamber. But it's also good to be welcoming some new faces to our small band of pension enthusiasts, and I'm pension enthusiasts, and I'm particularly looking forward to hearing the main speech of my noble friend Baroness White of Tufnell friend Baroness White of Tufnell Park.

This is a big bill, and there's a lot in it, and much of which is to be welcomed and not particularly controversial. And I'm going to restrict my comments to two areas of the bill, one of which
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Lord Vaux of Harrowden Portrait Lord Vaux of Harrowden (Crossbench)
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I think we're going to hear quite a lot of. Firstly, I understand and agree with the reasons for the agree with the reasons for the desire to consolidate small, dormant pension pots, but I do have some concerns about the details of some concerns about the details of this. We're all aware of the problem of lost pensions, where a person has forgotten about a person has forgotten about a pension, perhaps from a long ago short period of employment. This is one of the problems that the much delayed pensions dashboard is designed to solve.

Compulsorily moving a small pot from one provider to another risks increasing that problem. It'll be much more difficult to track down a pension that you dimly remember if it's been moved, perhaps with any correspondence having been sent to an out-of-date address. The definition of dormant is also slightly concerning. A pension pot will be considered dormant if no contributions have been made into the pot during the last 12 months, and the individual has taken no steps to confirm or alter the way the pension pot is invested.

I have a couple of pension pots that would be considered dormant under that definition, but that's simply because I'm happy with the choices that I made in the past. I wouldn't consider them to be dormant in the opposite direction. £1,000 actually seems a rather low definition of small, although I see it can be changed by regulation. I'm not clear when the Secretary of State intends to make the relevant regulations, but in order to avoid making the problem of lost pensions worse, I would suggest that it shouldn't be done until the first pensions dashboard is fully operational and accessible to the public.

As I understand it, that won't be until late 2027. Perhaps the Minister could provide a brief update on that. And also, there should be a clear requirement that any such transfer carried out in a situation where no response has been received from the individual should be very clearly flagged on the dashboard to help people track them down. The second issue I want to raise is more important, and here I fear a trend is beginning to emerge already, and also that I'm most unusually going to find myself in disagreement with the noble Baroness, Lady Altmann.

This is the power for the government to mandate the asset allocation of a master trust or gross group. Personal personal pension scheme. Pension schemes should be managed for the benefit of the beneficiaries. The trustees have a fiduciary duty to that effect. The government mandating that a proportion and there is no limit to this in the bill should be directed into types of assets and locations chosen by the government. Rides a coach and horses through that principle, who will be liable if such investments are not suitable or go badly wrong? I don't see any indemnification of trustees here.

What makes the government think it knows better than a professional, qualified pension manager as to what is best for scheme members? The track record of government investing is not stellar, to say the least. Of course, the reason for this push is the reason for this is to push more pension funds into UK assets, often described as productive assets. And like the noble Lord Lord Sharkey, I have that in inverted commas here, but even that makes little sense in this respect. Let's look at the sort of assets that the bill refers to.

The first one is private equity. Now, private equity may be a good place for a pension fund to put some of its money. Over time, returns have generally exceeded public markets and bonds, primarily because of the use of leverage. But I'd love to understand why the government thinks this would be a good thing for the country. What private equity does is buy existing assets, then leverages them up with high levels of debt, thereby gearing up the possible returns that can be made on normal levels of growth.

That reduces the corporation tax payable by the company because debt interest is tax deductible deductible, and the debt is often located in overseas. Low tax jurisdictions. Typically, then overheads and costs are reduced as far as they can be to make the company appear more profitable for sale after 3 to 5 years, and that often has the effect of reducing investment in the company and often leads to job reductions. So where is the benefit to the country from this? If you don't believe me? Well, I give you Thames Water Underinvested and indebted left underinvested and indebted by Macquarie, who took out billions in the process, or Debenhams, where the three private equity owners collected 1.2 billion of dividends financed by debt and property sales.

That left the company to go bust. Others we could mention would be Southern Cross care homes, silent nights where, ironically, pensioners also lost out. And we have the current anti-competitive situation with veterinary practices. Of course, this is a generalisation and there are exceptions, but the idea that PE generates growth is doubtful at best. Venture capital development capital. Growth capital yes. PE not so much. Why does the government think it would be a good idea to force pension funds to invest in private equity? Amazingly, the bill doesn't actually set out that allocations must be made into UK assets.

The wording is drafted so widely that the only assets globally that can't be prescribed are assets listed on a recognised exchange, nor does it set any time limits as to what percentage, any limits as to what percentage should be allocated into assets government prescribes. In theory, 100% could be could be allocated. The only safeguard in the bill and contrary to the noble Lady, the Minister's comment that there are many safeguards. The only safeguard in the Bill is that the Secretary of State must review the effects of any such regulation within five years of the regulations coming into force.

Note this is not an independent review. It's a review by the Secretary of State, the very person who made the regulations. That doesn't fill me with huge confidence. And anyway, if things have gone wrong after five years, what can be done? Is the Secretary of State to be liable for the losses that scheme members have incurred because of government overriding the fiduciary duty? My Lords, we are an outlier in terms of our pension funds investing in their own country's productive assets, especially when compared with countries such as Canada and Australia.

So I understand why the government wishes to change that. But the way to achieve that is first to understand why it's not actually happening now. I'd be interested to hear from the noble Lady, the Minister, why she thinks that is. I suspect it's down to a number of issues, including demographic issues, the attractiveness, attractiveness of our markets versus others, regulation, taxation. Gordon Brown's dividend stealth tax has a lot to answer for, and I'm sure others. The better solution, surely, is to identify and deal with the barriers that exist to make UK productive assets a more attractive investment prospect.

Not to take the frankly lazy and inefficient route of mandating, without addressing the underlying reasons. Neither are Canada or Australia mandates. Rather, they promote domestic investment in infrastructure and projects through collaboration, not by forcing specific allocations. We should learn from those examples. Now, the noble Lady, the Minister, has been quite clear that the government doesn't expect to use this power. And this raises a wider point of principle, one that the noble Lady, the Minister and I have debated in other contexts in the past, which is that government should not give itself powers that it doesn't intend to use.

As the noble Lady Baroness Stedman-Scott said, there is a tendency to use them regardless at some point, even if it's another government that uses them. This is becoming a bit of a trend, and one I feel should be strongly resisted. There are two potential solutions to this part of the bill. Either we need to clarify the whole fiduciary duty principle and improve safeguards, or we should remove the power altogether. And I must say I favour the latter. But with that, I look forward to working with members from all around the House as ever.

And the noble Lady, the Minister on this bill. And in the meantime, I wish

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everyone a very happy Christmas. Thank you.

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Thank you. My Lords. It is a pleasure to follow the noble Lord. Lord Vaux, and also to take part

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Lord Vaux, and also to take part in this bill, which is a historic. An historic measure proposed by the An historic measure proposed by the government with noble intentions. Firstly, I do need to declare my Firstly, I do need to declare my interest as an adviser to cushion and a non-executive director of Capital Solutions. I too look forward to the maiden speech of the noble Lady Baroness White, who has so much success and experience to offer to the House.

May I also thank the Pension Protection Fund, city UK, pensions UK, the Institute and Faculty of Actuaries, the
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Baroness Altmann Portrait Baroness Altmann (Non-affiliated)
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Pensions Action Group, for their helpful briefings and information helpful briefings and information for this speech. This bill reforms for this speech. This bill reforms the introduces reforms which aim to improve pension outcomes for improve pension outcomes for members of defined benefit schemes. Defined contribution schemes, local Defined contribution schemes, local government schemes and also to increase investment in UK productive assets via the route of consolidation into a few larger asset pools, or ensuring default arrangements.

Direct pension funds in a way that the government will mandate. Now, I certainly support the aim of increasing UK investment by UK pension funds and the aim of improving pension outcomes. I warmly welcome many of the bill's provisions, but I do believe that some of the assumptions underlying these reforms could prove dangerously false, and there is a real risk that there will be a lack of future innovation as smaller, newer providers either drop out or do not even start.

While the government could and should be bolder in encouraging pension schemes to support UK growth, then the measures in this bill provide for using both unlisted and also listed investment seems to me to make far more sense than just requiring a specific exposure to private, unlisted assets. And I hate to disappoint the noble Lord Lord Vaux, but I think we are on similar pages in terms of the government's specific proposals. Many of our listed companies are selling very attractive ratings or discounts to their real asset value.

There are many aspects to this bill, which my remarks today could cover, but I will have to try to concentrate on a few and leave the rest for committee. The aim of increasing UK pension fund support for UK growth is absolutely right and long overdue. Much more could be done, however, with this bill. According to the government's Workplace Pensions Roadmap, the. The UK has the second largest pension system in the world and it is clearly the largest potential source of domestic long term investment capital.

Taxpayers provide £80 billion a year of reliefs to add to individual employer contributions, and the individual and employer contributions, but most of this money helps other countries, not ours. I'm not convinced that taxpayers would if they were presented with the question, would you like £80 billion of your money to build roads and fill potholes in other countries, rather than keeping it here in Britain? That they would answer in the positive? UK pension funds have stopped supporting British companies, large and small, and I believe that the future of British business can be successful.

I believe in Britain, but it seems like our own pension funds do not. Even the parliamentary pension scheme has about 2.8% of its equity exposure in the UK. This bill does not address that, as the government focuses on DC and local government schemes, and one of the proposals that I would like to put to the government is whether there are ways in which, instead of mandating specific areas, that the government wants pension funds to invest in, which happen to be, in my view, some of the most risky areas they could support, the government should require, let's say, at least 25% of all new contributions into pension schemes to be put into UK assets listed or unlisted.

The UK listed markets have become exceptionally undervalued in a global context because our pension funds no longer support our markets. We used to have a reliable source of long term domestic investment capital. If schemes want taxpayers to put huge sums each year into their pension funds, and if managers and providers wish to continue to receive such sums, is it so unreasonable to ask that they put, as I say, maybe just a quarter of those contributions into the UK? It can include unlisted assets, listed assets, infrastructure that will be up to trustees to decide and if they want to put more than 75% overseas, go ahead, but don't expect taxpayers to give you money to do so.

That seems to me not to be mandation. It is a proper incentivisation using the incentive mechanism that we already have of tax relief, which doesn't have to support Britain at all, especially with this, with the constrained fiscal circumstances that we find ourselves in. It does seem to me that the fact that New Financial recently showed that each, each bit of the UK pension system has lower allocations to domestic equities as a percentage of assets, as a percentage of their equity allocation, and relative to the size of the local market than other countries.

What is wrong with Britain? I believe in Britain, and I think that there are reasons to expect that pension schemes, after all, 25% of the pension is tax free, should do far more now to protect and boost our growth. It doesn't have to wait until 2030 either. This could happen immediately. I do also want to just if I may, cover the question of relying on consolidation as the answer to driving better returns and what that might do to the marketplace defined contribution workplace schemes and and the LGPS are supposed to somehow automatically generate better long term returns by being bigger.

Well, there is a case for that. And there are some studies that would support that. But the figure of 25 billion that must be reached by default funds and the 10 billion by 2030 that is being required is totally arbitrary. There's no rationale that says that is the right number. And yet we are putting it in primary legislation. I think that is most unwise, my Lords. What if there's a market crash between now and 2030, for example? What's magic about that number? I would ask the noble Lady, the Minister, what evidence there is.

That scale is a reliable future predictor of returns, and also what consideration the government has given to the damage to new entrants by favouring these large scale incumbent funds, the risk of schemes herding and doing all the same thing with such large pools of capital, especially in global passive funds, could distort markets. What consideration has been given to that, and what level of confidence is attached to the predictions that the government has made for its improvements in outcomes? My Lords, I have heard from new entrants to the market, such as Penfold, who say they are now unable to get new business because they are growing fast, but they may not reach the 10 billion by 2030.

And of course, people can't recommend that employers now invest in them. This company has got Innovative financial methodologies, and it is offering a new way of reaching out to pension scheme members as our cushion and smart, who may be further down the line in reaching the limit of the target. But I do have concerns that the bill will stop new competition coming in, stop new entrants coming in, and an oligopoly is not normally the best way for a market to succeed.

I am particularly puzzled also by the explicit exclusion of closed ended listed companies within this bill. Part two says that none of those investment trusts that have invested in precisely the types of investment that we need, and that the government wants to encourage to boost the UK economy, are excluded from the Bill. My Lords, I do not understand why the government would be doing this. I know that they want to encourage long term asset funds, which are open ended structures, but there are enormous reasons and benefits for having closed ended structures when holding such illiquid assets and long term growth assets.

And these are proven companies that have produced very good returns in net asset value, but have shrunk to discounts due partly to macro factors, but also to regulatory overkill, which needs urgently to be reviewed. Investment in just UK infrastructure and renewables by this investment company sector has exceeded £18 billion, and overall, in the kind of assets that the government wants to encourage funding solar and wind projects, energy efficiency initiatives, social housing, biotech property and private equity.

These companies have put more than 60 billion to work, but they are now struggling to survive, having to buy back their shares rather than invest in the kind of growth assets that they could otherwise be selling and managing for pension funds in this country. So I do hope that the noble Lady, the Minister, will help us understand whether the government is going to reverse this particular exclusion and recognise the benefits of this long standing, world leading investment sector, because it can be part of the answer.

Unquestionably, in in this scenario. I would urge the government to also clarify what fiduciary duty means. I know there have been lots of calls for that to be put into statutory guidance, and I would support that. Finally, my Lords, as regards the Pension Protection Fund and Financial Assistance Scheme, I welcome the flexibility that is being put to allow the levy to be changed. I welcome the change in the terminal benefits. I welcome the acknowledgement of the injustice of the pre 1997 frozen payments with the oldest people in both Pension Protection Fund and particularly the Financial Assistance scheme suffering most.

I also welcome the flexibility that will mean that where a scheme is unsure whether the previous rules would have granted increases on the pre 97 benefits, it will be assumed that they will. The terminal illness increase from 6 to 12 months. Again, very welcome, but I would urge the government to look carefully at how we can recognise the injustice to the pre 1997 members like Terry Monk, Alan Mans, Richard Nicoll, John Benson who gave years of their lives to achieve better outcomes in the Financial Assistance Scheme and promote the PPF, which has been such a success.

I've also heard from Carillion workers who were in the civil service pension scheme and have ended up in the PPF and lost their pre 97 benefits. This injustice hurts my Lords and especially in light of the government's generosity to mine workers and the British Coal Scheme, who have been given a 30 to 40% publicly funded. Effectively increase to their pensions. I hope the government will think again on potentially one off increases or some other way of helping the pre

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97 benefit. And my Lords, I welcome many.

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And my Lords, I welcome many. Features and proposals in this substantial and significant bill. It does, of course, draw on the work of the previous government and work of the previous government and indeed continues progress on pensions that has long been conducted on a cross-party basis. I conducted on a cross-party basis. I think back to my time as shadow Work and Pensions secretary 20 years ago and working with the then Pensions Minister, James Purnell, as he investigated auto enrolment and then serving in the coalition Cabinet with Sir Steve Webb, implementing these proposals.

I do remember also many years of debating with my noble friend Baroness Altman, and I agree with a
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Lord Willetts Portrait Lord Willetts (Conservative)
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lot of what she has just said. I look forward to the maiden contribution from Baroness White, contribution from Baroness White, and I rather suspect that in her time in the number ten policy Unit, time in the number ten policy Unit, she may herself have also been engaged in some of these debates. engaged in some of these debates. The the bill comes before the proposals from the re-established proposals from the re-established Pensions Commission, and I hope it will have the flexibility to implement, to make it possible to implement ideas that emerge from the Pensions Commission.

The still a crucial question hanging over the original Pensions Commission work, and it is great to see the noble Baroness Drake in her place, and she knows I do agonise whether there was a scenario where defined benefit pension schemes could have been saved 20 years ago, whether they they had become very onerous over decades, successive governments had added to the regulations to make the defined benefit promise more and more generous, more and more cast iron. And eventually they had become so onerous that companies closed them for new members.

So what had always been intended to be an intergenerational contract was made so generous it became a once off special offer for the members of those schemes when they closed. It is possible that a significant reduction in the burdens on employers might have enabled some version of those schemes to survive, and that is relevant to today's debate on measures such as collective DC, which is an attempt to recreate some of those strengths, because instead we went to pure DC and younger employees have not been able to enjoy anything like the pension promise of older members of company schemes.

In fact, we did some work on this at the Resolution Foundation back in 2023. I can't remember what's happened to the chief executive at the time, but perhaps I can quote some figures from our intergenerational intergenerational audit in 2023, we estimated that millennials born in the early 1980s will reach the age of 60, with on average £45,000 lesser pension assets than boomers born 20 years earlier when they reached the age of 60. That is the challenge of boosting the pension savings of the younger generation, which I hope is the cross-party basis for this legislation.

A particularly acute example of how this can this generational unfairness can work, is some of those defined benefit schemes closed to new members were then in deficit. So the company plugs the deficit gap by using revenues generated by all of its workers, including the younger workers generating revenues which it put into the defined benefit scheme only available to the some of the workers. In order to plug the deficit. We now have some very interesting examples of what happens when these schemes find themselves.

Now, thank heavens, in surplus, the recent stagecoach deal is a very interesting example, and it's been widely welcomed in the media. In many ways it's good news. However, the Stagecoach pension scheme closed to new members in 2017 and the subsequent and after that the younger workers were not had no opportunity of joining the scheme. There's now going to be a distribution of this surplus, and I hope the Minister might comment on the feasibility of some uses for that surplus, which are not in the current provisions.

First of all, and we heard from my noble friend Baroness Stedman-Scott about the importance of pension adequacy. Would it be acceptable for the one use of the surplus be to pay increased auto enrolled employer contributions into employees, into the pension schemes of employees of Stagecoach who joined post 2017 and were therefore not in the earlier scheme because some of their work would have generated the revenues that created the surplus. Wouldn't helping them through the successful auto enrolment model be one way forward, and another use which is being talked about is funding a collective DC pension arrangement, a use of surplus being to help get those schemes going.

And I very much hope we will move beyond the single CDC we have at the moment with the Royal Mail. Pensions UK have got an interesting proposal for some tax waivers for extra contributions going into CDC, especially out of pension surpluses. And again, I hope the Minister might be able to give that a welcome. The closure of DB schemes and the creation of pure DC was the background to some of the big shifts. We've already been talking about a massive shift from equities into bonds, and also a massive shift away from UK assets into assets held abroad.

We're talking about this as if it's just sort of rational capitalism working and trustees exercising their discretion. But I have a lot of sympathy with the points that my noble friend Baroness Altmann made, because the British model is a very, very unusual model, and I believe it is largely to be explained not by some high economic rationality, but by the strange features of the closure of DB and moving to pure DC. It means that the percentage invested in UK equity fell from 50% 20 years ago to 5% now.

That is makes us a complete outlier across the OECD for the willingness of our pension funds to invest in UK assets. And it's not what the pension fund members and contributors expect. As we know from recent polling in published by the London Stock Exchange, the when you do a survey of 1000 members, current members of workplace pension schemes and ask them how much they think of their pension contributions going into British business, their estimate is 41%, nearly ten times larger than what's actually happening.

If you ask them if they think that their pension scheme should invest more in British industry, they even if this would involve some sacrifice in their future pensions, 61% say yes, most pensions are most pension schemes funded pension schemes in other advanced Western countries are much more deeply rooted in their own national economy and realise that part of what they're trying to do is to create the environment in which their national pensioners thrive in a healthy economy, in a generation's time.

It is absolutely right to have this debate now in Britain and for me, having been involved and still involved in different ways in the science space and research, it is deeply frustrating that we have one of the world's great research bases, and we have one of the world's great financial centres, and have totally failed to link the research base with the commercial investors in the city. That needs to change now. Successive Chancellors have been trying to do this, and of course we've had the Mansion House Compact.

We've now got the Mansion House Accord. There is now a fraught debate about Mandation. I realise all the delicacies about it. I personally think the recent proposal from the London Stock Exchange is a very interesting way forward, not specifying the asset allocation by type of asset, but saying whatever asset allocation has been decided upon, 25% should go into UK assets and also falling not absolutely not full mandation, but expecting this as a provision for UK DC default funds.

So I hope that the Minister will undertake that. The government is considering this proposal from the London Stock Exchange, now backed by 250 founders and chief executives of UK companies, and also assure the House that if that proposal were to go forward, this bill would provide the necessary legislative framework, which I am assured is not an ambitious set of changes, so that are things that can be done in order to secure a far greater understanding of the value of investing in British industry and other British assets than we have seen over the last few years.

Perhaps I might just very briefly raise one other issue involving the other Pensions Commission, the pension, the investigation of pension age. And I hope the Minister may be able to say something about this, because the clock is ticking. There was a half hearted partial announcement of a decision that the pension age should go up further, which is not been under the previous government, which has not been followed up. My view is that that debate has got totally trapped in a preoccupation with life expectancy and using life expectancy and projected life expectancy as the only metric, what I call R.I.P.

minus x as the formula that has to be used. How much, what what, what pension age you set is not simply a mechanical calculation around life expectancy. It's an important fiscal decision. And like all other decisions, other factors, including long term public expenditure costs and the likely income of pensions from other sources are also a factor. And I hope, therefore, that we will not find that in the future. We're looking back on this debate and say, why did we miss another opportunity to prepare the ground and properly consider whether, given the fiscal constraints that any government

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faces, we should also be considering increases in pension age. My Lords.

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My Lords. I too look forward to the maiden speech of the noble Lady Baroness White of Tufnell Park. I was delighted to discover that we're both honorary graduate honorary both honorary graduate honorary alumni of the University of Bradford. My Lords, an adequate Bradford. My Lords, an adequate pension must be the goal for everyone to ensure a happy and secure retirement. This bill aims to achieve higher returns for pension savers, as many millions more people are now in pension
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Baroness Warwick of Undercliffe Portrait Baroness Warwick of Undercliffe (Labour)
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schemes through automatic enrolment, it's imperative we ensure they get good value for the money they're good value for the money they're saving from their hard earned incomes. At the same time, those savings must provide the best savings must provide the best possible support in their retirement. If we are to achieve the growth our country needs, both the growth our country needs, both the previous and current governments recognise that domestic markets must be stimulated to markets must be stimulated to invest in the UK, and this inevitably led to a review of the pension system.

The pension sector is a major allocator of capital, which has a direct impact on the efficiency of the wholesale financial markets in driving innovation and investment in our economy. The pension systems in most other advanced economies invest significantly more in their domestic economies than the UK has already been said. Where pension savings should remind ourselves, are also supported by tax relief of over £70 billion per annum. The UK has deep savings pools, yet we've seen a reduction in domestic investment in the UK.

The UK has one of the largest pension systems in the world. As the parliamentary Under-Secretary of state for Work and Pensions reminded us in another place it is our largest source of domestic capital, underpinning not just retirement of millions of people, but the investment on which the country's future prosperity depends. My Lords, it makes so much sense to seek better, to harness that capital, to invest in a more diverse range of assets that would benefit the UK economy, but also not place savers at risk.

This bill is a serious and most welcome attempt to address both issues of concern. Domestic capital investment in the UK and improving the outcomes for millions of workers saving for their retirements. My Lords, the pension sector's role as a major allocator of capital will come increasingly from defined contribution schemes. There is momentum behind the need to focus on the DC pension sector's ability to deliver good value for pension savers in addressing these twin challenges of improving the outcomes for pension savers and achieving sustainable economic growth, there is general agreement that we need market consolidation to see fewer pension providers operating at scale and deliver higher returns to savers, and greater investment in UK productive assets.

The bill introduces the enabling powers to achieve that structural reform and greater consolidation in the market. But that raises major issues in respect of regulation and the governance standards required in both the management and administration of those schemes, and the oversight of them by those with the fiduciary duty to protect the scheme members. The case for consolidation is compelling, but can I ask the Minister if the government will be giving further consideration to the governance and regulatory requirements that need to be placed on those fewer, fewer scale pension providers managing billions, even trillions of assets over time so that downside risks are controlled and the desired outcome is achieved.

On the specific issue of trustees in these consolidated schemes. In another place, Liam Byrne MP called out the risk that in creating scale through fewer and bigger pension funds, they still fail to deliver desired levels of investment in the UK. He called for greater legal clarity on trustees fiduciary duties and their ability to consider systemic factors and their impact on members pension savings when taking investment decisions. The Minister, Torsten Bell, advised that the government will bring forward legislation to clarify that trustees can take systemic factors into account.

So can I ask the Minister if she can advise the House as to the timescale for bringing forward that legislation? The bill aims to improve the returns which workers receive on their retirement savings. We know the DWP, the regulator and FCA are working together to create a disclosure framework for assessing value for money to apply across the whole DC market, enabling consistent and comparable assessments of workplace pension schemes. To fully implement that framework, however, will require primary legislation in addition to the provisions in this in this bill.

So can I ask the Minister when the government anticipates fully rolling out a new framework for assessing value for money? My Lords, I want to turn to another point accessing pension savings on retirement in a DC world. UK savers are not well supported at retirement in making the complex decisions they face. They must manage their own longevity, inflation and investment risk and many struggle which quite rightly points out that these decisions may have severe consequences and can mean that an individual outlives their savings.

So it is good news that the bill requires trustees of pension schemes to provide their scheme members with default retirement solutions that are relevant to their needs, and help them manage the risks they face when they move into retirement. But we have to ensure that those solutions are fit for purpose. Can I ask the Minister, is the government actively considering additional guidance and regulation on the assessment of the value and benefit for members of those default retirement solutions to be provided by the schemes? There are now many millions of small pension pots as workers move from employer to employer and the numbers are increasing.

It's a major inefficiency in the pension system. As the Minister herself pointed out, the welcome advent of the pensions dashboard will help savers to take action to consolidate their pension pots. But characteristically, inertia means many will not. The bill provides for very small pots to be automatically transferred into qualifying and consolidator schemes, which should reduce administration costs and deliver better returns for consumers through lower costs and charges. Can I ask the Minister what's the current government's thinking on the timetable for implementing the necessary regulation to allow this to happen? My Lords, there are several other important changes in the Bill which other noble Lords have have already raised.

But I want to finish by highlighting one of the changes to the PPF, the Pension Protection Fund compensation. The decision to introduce legislation to enable prospective annual increases on p97 compensation to PPF and FAS members is welcome. It could benefit more than a quarter of a million PPF and FAS members, but I am concerned that it will leave an unfairness because there is no retrospective increases applied to P97 accrued pension. The prospective increases won't apply to those members whose schemes do not didn't increase provide increases to p97 pensions prior to entering the PPF, and there is no recognition in any form of the major past loss loss of pension value, particularly given the incidence of high inflation and the acute financial impact on those affected.

In the foreword, a recent PPF levy policy document concludes the likelihood of the PPF encountering significant funding problems in the future is low and is expected to continue to reduce over time. If funding problems did arise, these could be resolved over a multi-year period, with our investment returns likely to be the most significant contributor. My Lords, I go back to the points made by my noble friend Baroness Drake on the 23rd of April when she raised this issue, taking into account that confidence in funding level and investment returns is so considerable that 32.2 billion of assets, £19 billion in liabilities and reserves of £13.2 billion held by the PPF.

The reduction in the levy to zero. Taking all these factors into account, the level of fairness set in the striking of the balance between levy payer and PPF. FAS member does not appear right. Not only has the levy in quantum declined hugely, the levy has also declined as a proportion of the PPF funding mix. Roughly one third of the funding comes from the assets transferred to PPF from those members pension schemes. Similarly, another third comes from the investment returns on assets and 11% comes from assets recovered by PPF on behalf of those schemes, less than a quarter, 23% of the funding comes from the levy and that's going to fall.

So finally, can I ask the Minister if she would take back to the government consideration of an ad hoc payment to those members of the PPF with pre 97 service in recognition of the of the considerable real loss of pension. They have experienced, such a payment should be well within the funding levels of the PPF and payment of the prospective increases to pre 1997 pensions accrued to those whose original scheme may not have been not have

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made provision for such increases. Also, there's a lot of this bill. Some of it is to be welcomed.

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Some of it is to be welcomed. There's quite a few crackers in there. But there's also a large. Elements of this. Feel like a, dare I say, at this time of Christmas, a little bit of a turkey. It's such a skeleton bill. It's more appropriate for Halloween than more appropriate for Halloween than the time in which we find ourselves. And I'm not the only person who believes that here. I have to say, the report from the DRC is one of the most damning I have seen on a
14:39
Baroness Coffey Portrait Baroness Coffey (Conservative)
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piece of primary legislation coming. For that, your Lordships House. Indeed, they say, we found it exceedingly difficult to provide any meaningful comment on the bill any meaningful comment on the bill because it is so skeletal. And this extends of the amount of delegated powers. There are nearly more delegated powers than there are clauses, and that does not feel clauses, and that does not feel like the right place to be. And of course, I know that actually trying to be within the sorry to try and work within the pensions industry and see the scope of what is trying to achieve a bit of flexibility may be needed, but it is important that we don't just candidly hand over to almost a ministerial diktat, which I'm afraid parts of this bill do, my Lord.

Some our Secretary of State for the last act was passed in Parliament, and my noble friend Baroness Stedman-Scott took it through this house. It actually started, I think, in this House. And it did build on and this bill continues to build on where consensus comes together. We can actually get a very good product. And indeed that continuity of thought is important not just for the pensions industry, but for the pensioners current and future that we seek to serve. In terms of thinking of some of the consultations that have gone through, it's been useful to see that a variety since I think even going back to 2015 or indeed actions of when consolidation started to happen, of whether it was about local government funds.

Indeed, other aspects of small pot consolidation. That consultation was in 2022, a variety of things, and in particular, probably the clause I welcome them most will be about value for money. I think that's really important to make sure that we do address these issues, and in particular, the power to effectively shut down underperforming funds, I think is good, because we do need to try and make sure that regardless of how little or how much people put in, there are many people who are putting into their pensions all the time, but don't necessarily realise quite how little is going to come out at the end of it.

So in terms of communication, we'll see more of that when the Pensions Task Board. But I think the value for money framework is going to be a critical part of that. There's been quite a lot of talk about trustees, and I know that a number of bodies have been trying to see if we can almost move to having solely professional trustees, and I think that would be a mistake. My Lords, in that regard, I'd appreciate that's not what the Bill is calling for.

But I think one of the things that really what we're getting to is that one of the challenges is that particularly driven by a certain type of asset advisor, but trustees have been attracted by low cost pension schemes but often and low risk. But often that has led to much to low return. And that's why so much of the gradual changes that we have, and indeed starting, will start to come through in response to some of this legislation will be able to provide.

And I think it's vital that and I will support the measures that achieve that. But I think there's an underlying issue here about the Mandation clause. Now, my experience in government was I remember a particular meeting in Downing Street with a bunch of pension providers. It was mainly driven by insurers, and people had been told that they could not raise the issue of solvency two being a problem. 1 or 2 were brave, did it then chastised later by Treasury officials.

But nevertheless, it was important that they did. And I do understand the frustration of government Ministers at the very top of government that it's all well and good people saying we need investment. Well, why don't you put some more of your money in that? And I include the local government pension scheme into that. But ultimately, because of our traditional approach on state pensions and not being particularly generous, but actually trying to incentivise people to put into the private pension market or indeed what was happening historically with defined benefit industry.

That is why we do have the system that we have, and it has grown to the extent that it that it that that it has so far, so much so as has been recognised, the trillion pounds or trillions of assets which could be deployed to greater use, but it still has to be for the benefit of the pensioners current future and indeed deferred. Now, my Lords, I think there are some going further. One of the issues I think is also a missed opportunity from this bill.

And for me, having two different regulators for pensions is really a wasted opportunity. Now, I know that the two bodies, the FCA and the TPR, have been working on joint strategies, but we still have fundamentally some significantly different rules on what can or cannot happen with pension funds, depending on how they are regulated. And for me, this that just does not make sense. This is the moment to try and change that. It is the moment. I mean, the FCA frankly has got enough to do, but the different rules just allow something that seems like a very similar product.

FCA allows a sorry, TPR allows a particular investment. The FCA doesn't, and it's that sort of element of complexity that we should take the opportunity, not for delegation powers to solve this, but to actually fix it in this bill, because that will need primary legislation. And I hope that the Minister will may not welcome it as especially when I'm trying to get it all out of Treasury in the FCA. They certainly won't welcome it. But to try and get into one regulator to really make a difference for, as I say, the prosperity of our pensioners.

Now, my Lords, I'm also very conscious. This is a missed opportunity on how pensions can help our planet. I very strongly promoted the whole concept of planet prosperity and people. These are mutually beneficial, and there's no doubt that investment by the industry can play a part. And that's why we brought into place, I'd say, well, world leading, world pioneering regulations, making the link to Tcfd and the net zero. But crucially, it didn't mandate how investments were to be made or withdrawing from a variety of assets, but basically putting on a much greater level in terms of a duty and transparency.

What was happening in their long term. My Lords, I think the same needs to happen with nature and TNF, and that's I'll be exploring that during the Committee stage in terms of thinking through what we want to achieve out of this. I think the outcomes this your Lordships will share with the government of having a good, robust, fully functioning pensions industry that is, I'd say, is generating prosperity. But let's not go down this tricky route of Mandation.

In particular, the DRC singles out the fact that Ministers keep saying, well, we don't intend to use it. Well, in that case, if we don't, if we don't intend to use it, let's not legislate for it. Let's make sure that we keep that blunt instrument away and continue to have a productive pension industry. I have to say Nesta, which was originally provided for in previous legislation prior to 2010, came into effect within the last decade or so, has been a fantastic source of making sure that we have private asset allocations and being driven in that regard.

Let's celebrate that. Let's work out why that works so well. And as has been, as I've already suggested, make sure that we get rid of the stuff that is massively underperforming when prospective pensioners don't realise that at all. My Lords, I think it's going to be an interesting time in grand committee. I'm afraid there are going to be a lot of amendments. It's not the only bill I'm tabling amendments to, but I hope that the themes that we get into, I hope that the government will think again, if there are a lot of this is just about getting investment in Britain, the government will need to answer, why did they scrap the British Isa? That was a ready made model, and it's almost because it wasn't invented here.

Well, fortunately on the pensions journey, normally actually there's good cross-party consensus. I fear that the Mandation thing has blown that out of the blown that out of the water. But nevertheless, let's see if we

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can try and fix it. My Lords, it's a pleasure to follow the noble Lady Baroness Coffey, and to hear a nature Coffey, and to hear a nature positive sentiments from the conservative benches. We are hearing a wide range of hearing a wide range of perspectives in that space, and I'm very glad to hear those. I should perhaps declare my position as a vice President of the Local Government Association and the National Association of Local National Association of Local Councils, and I join the noble Lord Vaux of Harrowden in enjoying seeing so many familiar faces on the pensions trail.

My first ever committee bill was on the pension scheme bill some six years ago, and it's also nice to welcome new faces like the noble Lady Baroness White of Tufnell Park, who I'm very much looking forward to the noble Lady
14:49
Baroness Bennett of Manor Castle Portrait Baroness Bennett of Manor Castle (Green Party)
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speech. As someone who stays when in London, just across the border in London, just across the border in Kentish Town. And in terms of the contribution from the noble Lord Lord Vaux, I join in his expressions of concern about private equity, and for any forced private equity, and for any forced investment in private equity. It is an extractivist exploitative model an extractivist exploitative model which benefits a few at the cost of the many, and doesn't have the kind of long term perspective that surely what we need when we're talking about pensions.

But I want to start really by looking at the context of this. And of course, we're starting from when the Chancellor initiated a pensions review in August 2024, led by the DWP and HMIP, aimed at bolstering investment in the UK and dealing with pension adequacy or rather, the significant levels of pension inadequacy that so many people are now suffering from. And here I pick up the point about pension age raised by the noble Lord Lord Willetts, although from a rather opposite perspective.

And I note that when the state pension age rose from 65 to 66 between December 2018 and October 2020, the percentage of 65 year olds in income poverty more than doubled from 10 to 24%, a quarter of a million more 60 to 64 year olds are now in poverty, compared to 2010, when the state pension age began rising. And this is all from a report from the standards standard Life Centre for Future of Retirement, the poverty rate for 60 to 64 year olds has increased from 16% to 22% from 2009 to 2024, according to the research, and there are now 8 million people in the UK in their 60s, up from 6.7 million in 2010.

And that's expected to peak at 8.7 million in 2031. Now, many of those now are pensioners, but they are very soon going to be pensioners. Some of them are pinchers already and we have a huge poverty problem there. Now. The noble Lord Willetts said that this has to be a fiscal consideration. I'm afraid we have to look much more broadly at that and consider the state of public health in the UK, and whether many of those people are indeed fit to to work.

And the huge inequality that operates across different communities, different social groups of the health that people are in at age 60, 65 or 70. And we also have to acknowledge that there are now 2.8 million pensioners living in households below the minimum income standard. And I note that the House of Commons Work and Pensions Committee in July said that no older person should be unable to have a minimum dignified, socially acceptable standard of living. I absolutely, and the Green Party absolutely concurs with that.

And of course, and I know the noble Lady, the Minister will be interested in this. Women make up 67% of those pensioners in poverty. There has been some improvement in this situation with the new state pension. But as the committee in July noted, there are blind spots in policy making. The reality of women's lives is still insufficiently recognised. Now, I can't really see anything in this bill that deals with that, but I'd be interested if the noble Lady can can offer any contributions on that now, I think, again, still keeping in the context, I think it's important we think about where we are before we get to the detail.

Now we have 44% of adults aged 16 and over actively contributing to a pension pot. That's ONS data that compares to 34% a decade earlier. Obviously, auto enrolment is a really important factor there. But according to the recent Scottish Widows 2025 retirement report, 39% of working age adults are not on track to achieve what the Pensions and Lifetime Savings Association deems a minimum lifestyle in retirement, and that's actually a 1% increase since 2024. So we are headed in the wrong direction.

And I think it's really important. The noble Lady, the Minister said this is all about security and dignity in retirement. Before we start talking about private pensions, we have to acknowledge that the financial sector, private pensions, are not going to meet everybody's needs and that there are great risks with the financial sector in this age of shocks. And we have to acknowledge that the state pension has to be the anchor of security, of certainty, of freedom from fear for everybody in our society.

Now, picking up the point made by the noble Lady Baroness Coffey, the our Delegated Powers and Regulatory Reform Committee report just a couple of extra facts from that report that I think are telling and concerning the Bills Delegated Powers memorandum at 149 pages, is nearly as long as the bill itself, which is 161 pages. And the number of delegated powers in the Bill 119 nearly exceeds the number of clauses 123. So I've spent quite a bit of time on context, because I think it's really important.

But just to come to a couple of points that I'm expecting to raise at Committee stage and possibly later, one of those is the term fiduciary duty. And lots of people have been asking me, oh, what are you doing in the last week before Christmas? And I've said, I'm going to be talking about fiduciary duty for pension schemes. And I have then got lots of really blank looks. But actually, this is something that I've long been familiar with as a green, as we have been struggling over many years to seek to ensure that particularly local pension schemes are able to avoid investing, say, in the merchants of death, Big Tobacco, because that's bad for their their pensioners in the broader context, saying they should avoid investing in fossil fuels both because of the health and environmental impacts, but also of the financial risks of the carbon bubble.

So these are things that that it just rolls off my tongue so easily. Fiduciary duties. And of course, noble Lords will know that this was something that was debated very strongly in the Commons. And in some ways they've left us with a they've started the work, but they've left us with an unfinished piece of work. In responding to the amendment in the Commons that was supported by 34 MPs, including all four green MPs, the pension Minister has now committed to legislate to bring forward statutory guidance.

The statutory guidance again on fiduciary duty. However, as I understand it, and I'm happy to be corrected by the noble Lady, the statutory guidance provided by the government would not apply to the whole range of pension schemes, and would not provide the legal clarity that schemes would need to wish to act on these issues, and any statutory guidance, of course, need not be followed and is at risk from potential future governments. And although this sounds technical, it is of course, terribly important.

I note that Liam Byrne in the other place, said that there's currently confusion now, and what the government is proposing really does not seem to deal with that. Confusion. With confusion comes caution. And then we see trustees understandably following the safe path rather than the one that they can actually see is the right path. Now, just a very briefly pick up, the noble Lady Baroness Coffey has really covered a lot of what I was going to say about nature, so I won't repeat that, but is worth looking for my my perspective of six years in this place.

And I'm delighted to see the noble Lady Baroness Hayman in her place, because she has. The noble Lady has been a leader in getting the government finally, successive governments to put climate and nature into bills. And that's become almost a standard part of the role of your Lordships' House is to get the climate and nature bit in, because the government left it out initially. And that's something I'm sure that we will be returning to. Just one final point to make on the bill, which is the Financial Conduct Authority.

It has, I think, perhaps to be charitable, a checkered regulatory history. And I was listening to as I was listening to the noble Lady Minister saying the FCA will have this extra responsibility, the FCA will have that extra responsibility. That does become deeply concerning. And I'm interested in the suggestions from the noble Lady Baroness Coffey about how we might look at that regulation. I don't have a view on that yet, but I'll be interested in the debate. But I note that a year ago, the all party parliamentary group on investment Fraud and Fairer Financial Services.

I declare I'm a member, did a report on the effectiveness or not of the FCA and blamed it for doing too little, too late, and doing nothing to to prevent or punish alleged wrongdoing. Errors are all too common, and given that, we're really giving them over from some significantly increased powers for trustees, that where trustees won't be referring back to to the members of the scheme, I think that's really important. But finally, I come to the fun bit, which is given this is the last contribution from a member of the green group for this session before Christmas.

I really, sincerely want to thank all of the staff, the doorkeepers, the clerks, the library, the catering, the security and the cleaning staff for the so many hours that they had laboured for us all to often hours very late in the evening. If I'm going to offer a wish for all of them and for all of us, my hope for 2026 is that we might see more sensible working hours for your

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Lordships House and for all of our staff. My Lords, it's a pleasure to

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My Lords, it's a pleasure to follow the noble Baroness Bennett of Manor Castle, but not for the first time. I think she will find first time. I think she will find that I disagree with practically everything that she has just said. My Lords, I have a few problems with this bill, which has a number of sensible things in it. I want to of sensible things in it. I want to focus on aspects of the bill which are being sold as supporting UK business investment, and hence the government's growth mission.

I have big concerns about pension scheme money being seen as available for investment in ways that the government choose, but conflict with the views of trustees, which have a duty to act in members best
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Baroness Noakes Portrait Baroness Noakes (Conservative)
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interests. I must practice. I'm as patriotic as anybody, but I do not patriotic as anybody, but I do not think it is right to allow the government to require investment in the UK. There have been times when investing in the UK was a terrible idea. In financial terms. I can remember the 1970s when the only reason that anyone held assets in reason that anyone held assets in the UK was because of the existence of exchange controls. We couldn't get money out.

And I have to say to my noble friend Lady Altmann that forcing or indeed incentivising pension schemes into listed UK assets does absolutely nothing to enhance UK growth. These are existing assets. There are nothing to do with new investment. Now, my Lords, the government's proper role is to create the economic environment where businesses want to invest. That requires confidence in the economic future, requires taxes which are predictable and low, and requires regulatory burdens which are kept in check.

Anti-business and anti-growth budgets and changes to employment laws are the main drags on investment in the UK at the moment, and no amount of playing around with pension fund assets will change that. With the exception of scale up financing, which is a problem in the UK, there is no evidence that funds are not available to back profitable business investment in the UK. The powers in this bill need to be judged against that background. Now, the part of the bill which concerns me most, in line with many other noble Lords have already spoken, is chapter three of part one, which deals with both scale and asset allocation.

These provisions go much too far. I get the benefits of scale, both in terms of cost efficiency and the ability to diversify into alternative asset classes. I do not, however, think that there is any conclusive evidence that £25 billion is a magic threshold, and I am concerned that this bill will have the effect of first having consolidated the market. It will then ossify the pensions landscape. I'm, as I've said many times in your Lordships' House, a believer in competition and in markets.

Large players love regulations which create barriers to entry because it insulates them from market disrupters. This bill says that subscale players or new entrants have to be regulated. Risk averse regulators are not the best people to judge growth potential or the power of innovation. This bill should be encouraging new entrants into the pensions market, even if that means a prolonged period of operating below scale, because I think we need to look at how the long term for pension investment can be protected, and I will want to explore that in committee.

The real shocker, though, of course, is asset allocation. Put simply, my Lords, I believe that mandating asset allocation is wrong in principle and carries a significant risk of moral hazard. Pension trustees have a clear fiduciary duty to act in the best interests of their members. The government should have no say in, or no right to say to trustees that they must invest in particular things, especially if that conflicts with trustees views to the contrary. Now, I do not doubt the sincerity of the government's desire to get pension schemes, to invest in a wider range of investments in order to improve returns for their members.

That is broadly what scale facilitates. The danger comes with eliding that desire to facilitate higher returns for members with wanting to direct the investment into particular things, which may or may not turn out to deliver those higher returns. Now, legally requiring certain types of investment will inevitably result in calls for the government to pick up the tab. If the returns from those sorts of investments fall short. The moral hazard implications of these provisions for mandation are huge.

I'm also disturbed to read proceedings in another place where some MPs wanted to direct pension schemes assets into their pet projects, they talked about social housing, they talked about hospitals, they talked about net zero. These investments may well be socially desirable, but there is no confidence that they will yield high returns for members of pension schemes. And if this bill does not rule out that kind of mandation, I'm sure that it should. At the end of the day, trustees need to seek the best possible returns for their members because its investment performance that drives the retirement income of a defined contribution.

Members. The drafting of the mandation clause is also a horror story, and I will not weary the House with a commentary on that today. But I do give notice that I shall want to examine that in committee, and I'm sure that in committee we will also want to look at capping the percentage which could be mandated if indeed we wish to keep mandation at all, which I suspect we will not. The other area that I wanted to talk about today is clause nine, which creates a welcome ability to extract surpluses from defined benefit schemes.

While there's only a tiny number of private sector DB schemes now are still open to new members. Very many employers are still burdened with schemes which have been long closed to new members, or indeed future accrual. Now, Gordon Brown's tax rate in 1997, followed by the prolonged period of low interest rates, meant that the last 25 years employers have had to pay large amounts to support the funding status of their defined benefit pension schemes. And recently, the good news is that some of those have swung back into surplus.

It is only right that there should be an opportunity for those employers who borne this burden for such a long time to get some of that surplus back. Now, doubtless, trustees will want to argue for further benefits for members in return for returning surpluses, but I hope that they will be mindful of the fact that the corporate sector has borne very, very significant costs of keeping the defined benefit pension promises intact over many years, and they deserve a major share of those surpluses.

Now, the government have portrayed this as supporting business investment in the employing company, which it might do if the business environment is right for that, for those companies to actually invest. But it may also be entirely rational for those companies to return excess money to their shareholders, because that would be the best outcome for those shareholders. Now there is a provision in clause ten which allows conditions to be set payments ensure in committee that this be used to direct what companies do with liberated pension surpluses, once it has been agreed that it is safe for those services to be removed from the pension scheme.

My Lords, this bill focuses on pension schemes, but it does not deal with many of the other problems that continue to exist in the pensions world. The Pensions Commission will tackle some, but not all of those problems. In particular, the around £1.3 billion of unfunded public sector pension obligations will will weigh very heavily on future generations. This is currently largely hidden from sight at the moment and into that category. I would also put the continuation of the triple lock.

This bill, my Lords, is not the end of the pension story.
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Lord Davies of Brixton Portrait Lord Davies of Brixton (Labour)
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It's always a pleasure to follow the the the noble Lady Baroness Noakes. I still worry on those occasions when I find myself agreeing with what she says. No doubt we'll have interesting debates in committee now. It's a real pleasure to take part in this debate. It's a perfect start to the festive season. I have to declare my interest, as recorded in the Register, as a fellow of the Institute of Actuaries. I look forward to the maiden speech of the noble Baroness, Lady White of Tufnell Park.

I must first thank all the individuals and organisations that have written to me about the Bill. They have raised too many points, issues to deal with them all today, but I will be speaking along with others to raise them as we go through the Committee stage. Now, I do welcome this bill. It's the first leg of the route to better pensions set out in the government's pensions roadmap. It seeks to make existing provision work more effectively, and to ensure that people derive the maximum benefit from their pension savings savings.

These objectives are to be welcomed. The second leg of this journey will be the outcome of the Pensions Commission Part two, which will address the adequacy of retirement incomes and the fairness of the system that currently contains persistent inequalities. And I welcome my noble friend, the Minister's repeat of the fact that it will be looking at state as well as private pensions. Now, it's worth pointing out, particularly given the welcome presence of the noble Lord Lord Willetts, that this marks this bill effectively marks the effective end of personal pensions.

Instead, it sets out how we can move to a better system of collective provision, leading to improved, fairer and appropriate outcomes for members. I should have said he's not in his place, I didn't check. Taking the various proposals in turn, the bill takes important steps to remove inefficiencies in the current system. They include the consolidation of small dormant pension pots, contractual overrides for FCA regulated schemes, and the resolution of the issues that have arisen from the Virgin Judgement through the validation of certain amendments.

Now, each of these changes affect individuals member rights. Without their active involvement, and therefore must be handled with care supported by appropriate regulation and professional oversight. These measures will require careful scrutiny in the committee. Next, the bill requires defined contribution schemes to offer default retirement arrangements for members. I welcome this initiative and consider it potentially the most significant part of the bill. I say potentially, as at this stage it is still unclear how these arrangements will operate in practice.

The bill provides broad regulating, regulation making powers, and we've now had the helpful report from the delegated Powers and Regulatory Regulatory Reform Committee. But the detail, as they emphasise, will depend on what's in the regulations. I therefore hope that we will be able to explore these issues in committee and perhaps identify the main parameters that will apply to these default arrangements. Turning to the value for money proposals, I do have some reservations about what they can achieve.

Greater and clearer disclosure based on defined parameters is undoubtedly desirable. However, value for money is not a simple or uniform concept. It varies significantly from individual to individual, reflecting different circumstances, attitudes to risk, and personal needs. The problem is, there is no simple metric that can adequately capture this diversity. So while charges are relatively straightforward to identify and compare, investment returns are inherently uncertain and can only be assessed by reference to the past.

Beyond these factors, value for money is also shaped by the quality of the scheme. Administration. The level of service provided to members, and the effectiveness of communication and support. Crucially, it also depends on how benefits are adopted and delivered and whether they meet differing members needs. Bringing these factors together, deciding how to weight them, and reaching meaningful conclusions of value to members is highly complex. So while everyone is in favour of the concept of value for money, no one favours its opposite.

Its practical delivery is far more challenging than the Bill appears to acknowledge. The fear is that the process will simply end as a justification for making higher charges, and hence lower benefits. Now, as a number of previous speakers have explained, the bill contains provisions relating to pension scheme investments, which the government consider as a central element of the Bill. Other noble Lords have and will address this in some detail, but I just want to make a couple of points on Mandation.

I have no objection in principle. Unlike other speakers, however, I think it's very important that the government understands the implications of directing how member's money is invested. Doing so carries responsibilities, and this is where I found myself agreeing with the with the noble Lady. And I don't think that aspect has been sufficiently recognised by the government. I am also concerned, as other members have mentioned, about the provisions inserted into the Pensions Act 2008 by clause 40 of this bill that referred to participants that refer to specific classes of investment that will be the subject of mandation.

I do not believe that this belongs on the face of the bill. I have a general concern about the government, in effect providing investment guidance. So much can go wrong. But my particular concern is the appearance in that clause of private equity. Private equity has a mixed performance record and presents significant liquidity and transparency challenges for pension provision. Where where members have pension rights. Illiquidity raises a question about who ultimately carries the risk that's inevitably involved.

Is the member is it the scheme or is it other members? And I think the point was made by the noble Lord, Lord Harrington. These other issues, there are, of course, other issues that require careful consideration alongside broader concerns such as climate, climate and systemic risk. And I'm sure these will be touched on by other members. I now turn to my two principal concerns about the provisions in the bill. Firstly, the provisions relating to the release of surplus and secondly, the provision for pension increases where no statutory guarantee currently exists on the release of surplus.

Ministerial statements have suggested clearly that members are intended to share where surplus is released. And I've got a series of quotes, but I'm running out of time. If that is the case, if members are intended to share in the release of surplus, this objective should be set out clearly in the bill. This is particularly important as under the existing legislation, there is a requirement that the release of surplus should be for members benefits, and that's being removed. And the government justified this on the grounds that trustees responsibility to members is sufficient.

But I'm afraid my experience in the industry tells me that it's not correct. It needs to be in the bill. If that's the government's intention. Also, where employers are involved in the process of releasing service, I think it's absolutely right that it should involve the are the independent, recognised trade unions that represent the employees that are affected. This is established practice elsewhere in pensions legislation where unions must be notified and in some cases consulted before decisions are taken.

This should clearly apply if it applies to benefit and changes, it should apply in the case of surplus release. Turning to my other area of concern pension increases, it is important to understand the context. Prior to 1997, there was no general statutory requirement for increases in payment other than those associated with contracting out. However, by the mid 1990s, particularly after the Scott and the good reports, it had become standard practice for pensions in payment to be increased annually by at least a minimum amount.

In some schemes this was set out in the rules. In others it depended on trustee discretion. Which approach was adopted was largely a matter of chance. Either way, these increases were funded. Members paid for them during their working lifetime as part of their pension contributions, and they had a reasonable expectation that they would receive increases when they retired. Now, since. Although scheme finances have fluctuated since then, schemes in general now have sufficient resources in order to pay increases, and it is reasonable, therefore, to expect them to provide those increases wherever guaranteed or discretionary.

This reflects the reasonable expectation members acquired when they accrued benefits in those years and the 80s and the 90s. Now, this applies in two overlapping contexts. The first applies to benefits provided by the Pension Protection Fund and the Financial Assistance Scheme, where the original legislation in both cases excluded any allowance for pre 97 increases, regardless of rules or practice. The second aspect is members of active schemes scheme is still continuing, but they're no longer receiving the discretionary benefits to which they have a reasonable explanation expectation.

Given their service in the 1990s and 80s. Now, in relation to the PPF. FAS I welcome the provisions in the bill. They're clearly a response to the current financial state of the PPF, and without a surpluses in the PPF, I doubt that these measures would have come forward. So they're welcome. But as I've explained, making a distinction between those where the rules say they're going to get increases and where the practice was of making discussion increases, making that distinction is invidious.

All affected members should receive the same increases. The benefits from these schemes have never been or intended to be an exact copy of the benefits that were provided by the schemes that were lost. They were always a broad brush approach to what is fair to provide and given the current financial circumstances, it is absolutely fair that members should benefit from those surpluses. All members of benefit services. The bill actually provides for the employers to share in those surpluses by the by the suspension of the PPF levy.

Employers are sharing in the surplus. Members should also share in the surplus. Whatever the precise details of their entitlement to past increases. And secondly, this is crucially important. None of these members are getting any younger, and many, sadly but inevitably will only benefit from the government's proposals for a limited period. So for 28 years, they've suffered a loss and they've now going to benefit from the change in policy. But for many of them, it will be far too short a period.

Finally, I turn to the circumstances of defined benefit schemes that are continuing to run on, many of which are in a healthy financial state, but they are failing to provide discretionary increases for members, benefits that were accrued before the statutory requirement was introduced in 1997. I believe it's now reasonable to expect schemes in general to provide these members with discretionary increases, and in committee we need to investigate ways in which we can make sure that will happen.

I look forward to hearing the response of my noble friend to these and the other points which have been made in

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debate. Lord Brennan. Thank you. My Lords. I, like other noble

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My Lords. I, like other noble Lords very much, look forward to the maiden speech of the noble Lady Baroness White of Tufnell Park. My Lords, I also declare an interest as an employee of Marsh, a sister as an employee of Marsh, a sister organisation to Mercer, a pension and investment advisory and management company. I welcome many parts of this bill. The government's ambition to reduce
15:24
Lord Ashcombe Portrait Lord Ashcombe (Conservative)
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fragmentation, lower costs and secure better outcomes for savers is clear, and I'm sure members is clear, and I'm sure members across the House share, share the desire for a system that functions desire for a system that functions more effectively. Some measures in the bill will undoubtedly support that aim. However, in discussion that aim. However, in discussion with those in the industry, there are substantial concerns about elements of the bill. The central purpose of this bill, as I see it, is to create scale that unlocks access to a broader range of asset classes, including private markets and UK based investments.

Scale is not an end in itself. It's a mechanism to strengthen negotiating power, secure better pricing and deliver improved outcomes for savers. Equally important, it is the potential for operational efficiencies that reduces costs and complexity across the system. It is crucial, however, that the bill does not become entangled in prescribing or favouring any particular business model. The pensions market is dynamic and diverse, with multiple viable routes to achieving the government's objectives. Flexibility is essential if innovation and competition are to flourish, allowing the best solutions to emerge in a live market environment.

I welcome the amendments made at Third Reading in the other place, which remove detailed structures concerning the relationships between product lines and their contribution to the main scale. Default arrangement msda. From the face of the bill, this is a positive step. These issues are complex and better addressed through secondary legislation, where they can be explored with the nuance they require and which are difficult to be fully captured in primary legislation. However, these future regulations will have a profound impact on the efficiency, pace of change and cost across the pension system.

It is therefore essential that the government commits to the full and transparent to a full and transparent consultation, and I invite the noble Lady, the Minister, to assure the House that examples included in the bill will not become exclusionary and that the regulatory framework will be developed in a way that supports, rather than hinders, the delivery of the policy's core objectives. The policy in the evolving legislation must engage constructively with market realities and good industry practice. If this engagement does not occur, the result could be inefficiencies and additional costs that bring no tangible benefit to savers.

We must avoid creating a system that is overly rigid or prescriptive, which risks stifling innovation, increasing administrative burdens, and potentially causing some large funds to lose auto enrolment eligibility through no fault of their own. In practice, many pension providers operate multiple product lines such as group personal pensions and master trusts, while making investment decisions and negotiating prices at an overreaching, overarching level across these products. This is not fragmentation. It is a sensible and efficient approach that leverages scale and expertise to benefit of savers.

The regulatory framework must recognise and support this reality. For that reason, I urge the noble Lady, the Minister, to confirm that the approach to regulation will be principles based. The Msda and Common Investment Strategy tests must avoid creating unnecessary fails or imposing constraints that do not deliver real value. For savers, a principles based approach will provide the flexibility needed to accommodate different business models and market practices, while ensuring that the policies objectives are met. Turning to the Local Government Pension Scheme LGPS, I note the concern the significant reserve powers delegated to the responsible authority.

While these powers are intended to provide flexibility, there is a risk that political motivations could influence the management of LGPS assets. I therefore ask the noble Lady, the Minister, what protections will be in place to ensure that these reserve powers cannot be used or threatened to pursue political objectives regarding LGPS investment decisions, alongside the introduction of governance reforms? It's a paradox. It is paradoxical that the draft secondary legislation and guidance appear to control and limit external scrutiny and challenge of the enlarged pools.

Independent external challenge is vital, is a vital component of robust governance, ensuring transparency and accountability. Another area of concern is the balance between rules based and principle based legislation. While clarity is important again, the current draft secondary legislation appears overly prescriptive and directive. My Lords, almost all all noble Lords have hit the point of mandation. Many in the industry, including Mercer, signed the Mansion House Accord. But the government should be aware that voluntary support for the Mansion House Accord does not equate to support for Mandation, which I know this industry strongly believes poses a conflict with fiduciary duty.

I do hope that the noble Lady, the Minister, understands that and will consider this as the Bill moves forward. In closing, it is vital that secondary legislation governing group personal pensions, the LGPS and the wider bill remains flexible and not overly prescriptive. Multiple models and approaches can effectively achieve the policy aims. I hope the government recognises these market realities and ensures that regulations support innovation, efficiency and practical implementation while delivering the intended outcomes. Striking this balance is essential to avoid unnecessary burdens and to secure the possible.

The best possible results for savers across all

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pension schemes. My Lords, we've had a wide range

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My Lords, we've had a wide range of expertise speak today, although I suspect the noble Lord Lord Davies of Brixton might be the only one of us who couldn't think of a better Christmas present than a pensions bill. And I'm also pensions bill. And I'm also conscious my remarks, Dan, between the House and the much anticipated maiden speech from the noble Lady Baroness White of Tufnell Park, to which I am also looking forward. So
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Baroness Penn Portrait Baroness Penn (Conservative)
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I will try and be brief and focussed. And I want to touch on three areas. But first, I should say, like many others, that I welcome many aspects of this bill, including on consolidation and including on consolidation and value for money. Although there are important areas of detail that the government need to provide for us to understand how they will better work, and in particular around the work, and in particular around the requirements on scale and value for money and what they mean for competition and market dynamism.

As my noble friends Baroness Altmann and Baroness Noakes have spoken to, and also, my Lords, the risk that at some point scale no longer promotes investment in innovation and scale ups, as those businesses would no longer be able to meet the minimum investment thresholds for very large sized funds. But my Lords, the first area I wanted to really focus on, and it may be no surprise, is on Mandation. And as others have said, and I won't repeat those arguments, I'm not convinced about the decision to include a mandation power in this bill.

But my Lords, if I was convinced of the case for Mandation, I would not be convinced of how it is being legislated for in this bill. As it stands, we're told that it has a sunset clause, but that is not the case. The 2035 deadline is only for increasing the maximum allocations set out by regulation. And before this sunset moment, my Lords, as I read it, there is no maximum limit on what proportion of investments can be mandated. So can I ask the noble Lady, the Minister? Why not? If the government wants to use the existence of this power to drive delivery against the Mansion House Accords, why not set a maximum level of Mandation in line with those commitments made in the Accords? There is also absolutely no clarity on what assets may be mandated for investment, only that they are not listed assets, and in doing so, the government has excluded potentially an important class of productive asset as raised by my noble friend Baroness Altman.

And I'm sure to be raised by the noble Lady Baroness Bowles. So I would also like to hear from the noble Lady, the Minister, whether the government intends to change course here as to what can be included within Mandation, the answer appears to be absolutely anything else. There are examples, of course, as to what the government wants to do, but no legal limits whatsoever. And the prescribed assets can be altered at any time by regulation, in perpetuity. My Lords, normally the argument for such an approach is to maintain flexibility, but given this is a power that the government themselves say that they don't want to use, surely the case for constraining it to the limits of what the government intends could not be stronger than in this case.

And if a future government wanted to go further than this, it would also seem reasonable to put forward further primary legislation in order to do so. Because, my Lords, it's important not to think about the use case one might agree with, but the one that one might disagree with. My Lords, I can think of credible cases being put forward for mandating proportions of assets significantly above 5 or 10% for investment in net zero or defence. To think of two examples, and I make no judgement on the values of these, but I rather ask that even if noble Lords might support one of those use cases or scenarios, would they support the other? And in explaining the need for the power that the government does not expect to use, the Pensions Minister has said its existence will provide clarity to industry.

But, my Lords, for clarity, we need more detail than is included in the bill. The definition of a qualifying asset and the percentage required. So to provide that clarity to me, I think you would need to provide draft regulations. And is that the intention of the government, and will we see them during the course of this bill? And could the noble Lady set out a timeline for us? And if the government doesn't wish to use Mandation, can I ask the noble Lady, the Minister, what feedback she's had from pension providers on the barriers to investing in the UK economy, and what action the government is taking to address those, both to increase the pipeline of investment opportunities, but also specifically regulatory barriers that have been raised by providers? And is the government committed to looking at those also, and over what timeline can I also ask the noble Lady, the Minister, what happens if valuations change over time or in response to a specific shock? I think there is a lot to be looked at, at the detail of how the Mandation powers work, as well as the principle of them.

My Lords, the second area I wanted to touch on is fiduciary duty. It's something that noble Lords discussed in some detail during the passage of the Financial Services and Markets Act, during which I committed to this House, that the government would consider the work of the Financial Markets Law Committee and host its own roundtables to consider whether further action was needed. My Lords, one of those roundtables did take place, but I'm afraid fathers didn't. But the Financial Markets Law Committee did report in 2024 and made it clear that, in its view, it is proper for pension fund trustees to consider climate change, along with other factors, when discharging their fiduciary duties.

But as the pensions Minister conceded in the Commons, more clarity about the ability of trustees to take into account such factors would help the Minister committed to bringing forward legislation that will provide statutory guidance in this area. So could the noble Lady, the Minister, confirm whether that legislation will be this bill, and, if so, when? We both could expect to see those amendments and also the timescale for the statutory guidance to be produced itself. And given that there will continue to be different interpretations of the underlying law in this area, can I ask the noble Lady, the Minister, why an amendment in primary legislation would not be preferable to address this issue? And finally, my Lords, in the same discussions around fiduciary duty during the Financial Services and Markets Bill, the issue of deforestation linked finance, including in relation to pensions funds, was discussed.

So could the noble Lady, the Minister update the House on its plans to bring forward regulations under schedule 17 of the Environment Act 2021 to ban the import of forest risk commodities and conduct the subsequent review to assess if the financial regulatory framework is adequate for the purpose of eliminating financing of illegal deforestation, and to consider what changes to the regulatory framework may be appropriate. In this context, the EU's framework on deforestation linked finance is coming into force this month, so it would be a timely moment for the government to set out their plan in this area.

Finally, my Lords, the Bill does nothing to address pension adequacy, as we have heard, and my noble friend Baroness Stedman-Scott and the noble Lord Lord Sharkey have highlighted in particular the issue of self-employed people and pensions adequacy. My Lords, I'll be focusing in particular on the women's pension gap, which remains at over 30%. And my understanding is that there's been little progress on narrowing that gap over the years. And what progress has been made is as a result of men's contributions falling, rather than any particular improvement in contributions from women.

And I don't think that's quite right, the right way to be narrowing that gap. My Lords, we're storing up huge inequalities in retirement unless further action is taken. So finally, could the noble Lady, the Minister, reassure me and this House on what action the government is planning to take in this area, both through potentially the Commission, but also alongside and in advance of its work?
15:40
Baroness White of Tufnell Park Portrait Baroness White of Tufnell Park (Crossbench)
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I rise to address your Lordships House for the first time, and I want to start by saying a little bit about myself. I'm the child of bit about myself. I'm the child of the Windrush generation. My mother came from Jamaica to London, aged 19. In fact, my grandfather sold a field to fund her passage. My father arrived as a 26 year old and they met and married here in London. And in fact, I spent most of my childhood in Leyton, east London, and it was something of a dilemma as to whether to take the name of the place I grew up, or the name of the place that I have chosen to live with my husband and two boys, Tufnell Park.

And you'll see, I chose the latter. At a time when the national discourse is so full of division, I hope that the successful integration of the West Indian community into the UK also serves as a reminder of those close common bonds that tie together so many communities. Many of the previous British Empire, thanks to this country, I was able to get a free education at Cambridge and then in London, an education that my parents were not.

My mother left school as a ten year old. My father is a 15 year old, and it's enabled me to enjoy what I think is sort of charitably described as a rather eclectic career between the public and the private sectors. I have a rather wide range of interests across public policy, across economics and across business, and I hope Lordships will be tolerant of those over the coming over the coming years. I am both humbled and privileged to be making my maiden speech as part of the pension bills debate.

For me, pensions are both personal as well as professional. Personal. They creep ever closely towards pension age myself, but personal also because I'm scarred by my father's experience. Probably the the probably the single worst financial decision he made in leaving the British Rail defined benefit pension scheme and joining the little known SERPs many years into his working career, professional and as my noble Lord Willetts has already mentioned, I spent quite a lot of my career working on pensions, and I was trying to remember the first time and it was the good report.

So the the aftermath of the Maxwell pension scandal, the equalisation of state pension age when I was at the Treasury, reform of SERPs, when I was at number ten. And today, currently advising one of the big Canadian pension schemes, as we've heard already in the debate, the country desperately needs to increase its productivity and its growth. It's the only way sustainably to raise living standards in this country across communities, living standards, which extraordinarily haven't budged in real terms since the great financial crisis of 2008.

And it is well known we lose too many companies to the US, where growth capital is more plentiful. And I think, again, my noble Lord Willetts has already said this is no accident. It's in fact the rooted in past regulation, well intentioned, but which aimed to de-risk defined benefit schemes. And as I say, though well intentioned, it's had the result, as we've heard already, of dramatically reducing the proportion of pension assets going into UK equities from around 50% to, broadly speaking, 5%.

Today, plans put forward by this government and championed by the former government to require UK pension funds to invest more of their funds in the domestic economy and within domestic businesses are, in my view, a positive and important step. We've heard already that several UK funds have voluntarily made commitments through the so-called Mansion House accord, and it's welcome that the bill provides a legislative backstop to ensure that what is promised is actually delivered. And I note the the controversy that this particular set of legislative recommendations has, has raised already in the House and look forward to being part of the debate in future future times.

In similar vein, the consolidation of the myriad diffuse local government schemes should improve efficiency and efficiency, not just for its own sake, but to release more funds to invest in the UK. However, the move does fall short of the creation of the sort of megafunds in Australia in Canada that have driven a more wholesale move of public sector pensions into into private funds. So may I thank your Lordships. Joining the House is one of the privileges of my life, and I'm looking forward over the coming months to listening and learning and over time, in some small way, contributing like others.

Today, it's also a moment to thank the many members of the House of Lords and their staff. I am spatially dyspraxic, so finding my way around the last few months has not been without its challenges, and the team has been incredibly kind and patient and generous.

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Thank you. My Lords. It's a pleasure and an

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My Lords. It's a pleasure and an honour to follow the noble Lady Baroness White, after her excellent maiden speech to congratulate her maiden speech to congratulate her on her appointment and her debut outing here in the chamber, and to outing here in the chamber, and to say how much all of us look forward to her future contributions. I'm sure her family, not for the first time, is extremely proud of her time, is extremely proud of her today. On the subject of which, my Lords, if you ever worry about the limited breadth of your professional experience, I advise you not to look at the noble Lady
15:47
Lord Wood of Anfield Portrait Lord Wood of Anfield (Labour)
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Baroness White's CV in her extraordinary career so far she has and strap in for a minute. Studied at Cambridge University and at Cambridge University and University College London. Worked at Her Majesty's Treasury twice, the British Embassy in Washington, the British Embassy in Washington, a senior official at Downing Street, the world Bank, the Department for International Development, the Ministry of Justice, the department. Ministry of Justice, the department. I haven't finished yet the Department of Work and Pensions before becoming the third chief executive of Ofcom and then the sixth chair of the John Lewis Partnership, before becoming the chair of the Frontier Frontier Economics and a senior managing director at a Canadian pension fund.

It's exhausting just to read, I think, on writing, saying. However, her first job after studying was in a church in Birmingham and she spoken publicly and movingly. I think about the importance of faith to her and her family. If you talk to former colleagues of Baroness Wyld, some of whom are here today, you will find universal agreement that she is someone who faces professional challenges in her career with calmness, with humanity to those around her, sound judgement, expertise and a warm, inviting intelligence that most of us can only admire, she once told the interviewer.

You often learn more from things that did not quite go to plan than things that did, which, as a former adviser to Gordon Brown for many years, alongside my noble friend, the Minister, I can only endorse as the wisest of words. We are truly fortunate to have Baroness Burt in our midst, and this House is work. Will, I'm sure everyone agrees, be the richer for her wide range experience, wide ranging experience, expertise and generosity. Yeah, like the noble Lady, I strongly welcome aspects of this bill.

Most of this bill in my case, and strongly welcome the way in which it has been welcomed across the political divide almost. It is a bill that I think will make a positive difference to savers, increasing the value of their savings through pot consolidation and driving greater scale, improving the range of guided retirement products and strengthening the value for money framework. All issues on which other noble Lords have spoken with much greater expertise than I can, I want to focus my comments on the ambition in this bill to make UK pension funds a greater driver of investment in UK infrastructure companies and communities, as the noble Baroness, Lady White also commented on.

I think there's a wide consensus, whatever your view on measures in this bill, that we have a big problem in this country with the interface between pension funds as value generators for their clients and their investment contribution to the UK's real economy. The statistics been quoted a number of times. 25 years ago, UK pension funds allocated half of their assets to UK equities. That figure is now under 5%. This alarming fall is not for want of scale or size. As many colleagues have mentioned the UK has.

As noble Lady Baroness Altmann remarked, the second largest pool of pension capital in the world. Indeed, UK DC pension assets are set to grow from around 500,000,000,000 in 20 21 to 1 trillion by 2030. That's a 100% increase in under a decade, with growth predicted to accelerate further after that date. Yet DC pension funds only have 9% of their overall equity allocation. In the UK, the global average is 30%, and across all types of domestic pension funds equity portfolios, UK equities make up 15% of the total.

In Australia, that figure for domestic equities is 52%. In Japan it is 50. It is 48%. Now we know a lot about why we have become such a worrying outlier in this respect. The 1.5 trillion corporate DB sector has been de-risking for some time as they've approached meeting their liabilities. And at the same time, DB schemes have pivoted for reasons of value generation from a UK biased equity approach 30 years ago or so to a global market cap approach in the past 20 years.

Now, one of the side effects of this is that the proportion of overseas investors in UK equities has risen to well over 50% and because of scarce domestic capital, UK companies have therefore become more reliant on debt for financing expansion, and this combination of a growing reliance on debt, finance and foreign capital is a matter of concern. As the noble Lady again Baroness Altmann has written about before, it's a matter of concern from the point of view of national economic security.

There is no simple response to this, but I think that this bill takes some first important steps to reconfiguring the structure of the industry, the regulatory environment, fund managers face, and the incentives that confront them. One of the key challenges, of course, is to create larger, more powerful, more strategic investment capacity. And the last government made welcome progress on this and the current Chancellor's Mansion House Accord, as many colleagues have said, has built further on that. This bill, I think, builds on that accord by gripping the issue of generating scale and simplicity where there is currently too much fragmentation.

And like other noble Lords, I welcome the LGPS consolidation, strengthening and asset pooling and improving administering authorities governance structures. I also welcome the requirement for master trusts to reach a minimum size of 25 billion. But I share the noble Lady Baroness Altmann concern and I guess I share the question. She asked the Minister to assure us that this threshold will not be to the detriment of innovation and new entrants, and how these noble Lady Baroness Penn also mentioned this, how these two objectives we all share can be reconciled.

Now, lastly, there is the issue of pension mandation undoubtedly, undoubtedly the most contentious issue, which raises, of course, issues about the tension between government policy, regulation and fiduciary duties. Again, whatever your view on Mandation, our starting point has to be we have a real problem on our hands here and the public, agrees. The noble Lord Lord Willetts mentioned some data from a survey on this that two thirds of all UK savers think pension funds should increase investment in UK companies, even if even if returns are lower, why don't we listen to them? The government in this bill is, of course, taking a power to mandate a reserve power to mandate investment, pension fund investment, but accompanying it with ministerial protestations that it doesn't intend to use that power.

Now, at the very least, I'd like to thank the government for giving me an excellent case study. When I teach my students in the real world use of game theory that I can present for the coming years more seriously, I think. I think I understand the logic of taking the power to do something. You have no intention of using the spectre of big Stick locked away in a cupboard but still on view, is designed to have an incentivising effect on fund managers to reorient their strategies to start to take UK investment much more seriously.

Now, critics might say you can't have your big stick and eat it to mix my metaphors that you can't have a power and then credibly say it will never be used, or to flip it the other way round. You can't hope that taking the power will have a chastening effect on the industry, while also saying that you will never use it. My own explanation for what the government is doing here, and I'm sure that my friend the Minister, is going to have a better explanation, is that it's a strategy based on sequencing the necessary changes.

So firstly, the fund industry needs to be defragmented, consolidated and which primarily about. Secondly, collective UK pension fund industry is incentivised through these reforms, but also the accompanying reserve power. And thirdly, alongside this, alongside the strategic capacity that's being built up, the government knows it has work to do to make investment in UK equities and non-listed destinations more attractive, which involves lots of measures. And, by the way, one down payment on these measures that's to be warmly welcomed is the Chancellor's decision, the budget to introduce a three year stamp duty holiday for new listings on the on the stock exchange, so we will see whether this works.

For my own part, I am a subscriber to the noble Lady Baroness Altmann's view that 25% of new contributions should be invested in UK public markets, but this bill is a building block in the attempt to make progress through what you might think of as pressured voluntarism, rather than through straightforward compulsion. And I welcome that very much. But we need to be clear that this is a change from a UK plc point of view, and a public finances and public services point of view has to

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happen one way or the other. My Lords, before I make my few

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My Lords, before I make my few remarks, I would also like to wish to wish to congratulate the noble Lady White on her most excellent Lady White on her most excellent maiden speech. My Lords, I declare my interest. Having been a trustee my interest. Having been a trustee and a director of pension funds for a number of years, and I acknowledge that this bill is in acknowledge that this bill is in general a good idea. However, as has been, I think, said by many people, I hate to repeat it again.

A complex, multifaceted set of proposals. The devil is in the details. And as I said, I've read this almost in every report so far. At this stage of the bill, to most working people, their pensions are prospectively there simply to support them when they retire. Good employers, whether in the public or private sectors, know that pension provision is often measured carefully when job opportunities are considered, whether a defined benefit plan or a defined contribution plan is quite often a matter of good luck rather than good management, and often determined as a result of historic tradition in the particular industry or business.

In this legislation, the government has the good general intentions of assisting members in DC schemes, including the enhancement of opportunities to get better returns through increasing the size of schemes and returning surpluses to employers. They also want to encourage schemes to invest in UK asset classes, thus hoping to help the economy, which I'm sure is a laudable aim, particularly at present. Well, all well so far, but let me, at this early stage of our deliberations, just put down 1 or 2 markers for later debate, increasing DC schemes to £25 billion An arbitrary figure has some real downsides.

I suspect this will reduce competition due to consolidation, leaving less choice and barring entry for new schemes, and increases the vulnerability, especially to cyber attack. DC schemes have been the preferred formula now for over 20 years. Master trusts were only about ten years, and of those, only a handful have achieved that magic £25 billion Well, next, the question of surpluses in DB funds. When interest rates were low, many employers put billions into schemes to repair a large number of deficits.

They became less competitive than than employers who did not have any DB schemes. I would therefore hope that in the bill's changes, we might find ways in which some of these surpluses could be returned to be utilised to fund capital expenditure, and I hope the Minister might be able to agree to that. There are examples of surplus sharing. And in that context, I would like to mention the Aberdeen Group's adoption of the Stagecoach pension scheme less than two weeks ago, maybe already mentioned by noble Lords members there will get two thirds of future surpluses and Aberdeen one third.

I have no doubt this will give great pleasure to bus drivers all over the UK, my Lords, but like so many other aspects of pensions, there must be safeguards. It is the trustees that must always decide to distribute surpluses, and they must act independently of employers. Remembering that the basic principle is always to act in the best interest of the members. The intentions in the bill for the allocation of surpluses and DB schemes seem to extend quite widely, and to include enhancement of contributions in DC schemes.

This crossover needs some care and further explanation on superfunds. My Lords Superfunds should be respected as an alternative destination, but advisory costs can be enormous. Also, actuaries must follow their obligations under Technical Actuarial Standard 300 and giving advice on alternatives when consideration is taking place to transfer pension scheme obligations to insurers under buy out contracts. Improving the Superfund regime is all well and good, but the government must deal with the barriers around adviser intransigence and those potentially enormous costs.

Without that attention, the idea of growing superfunds is a non-starter, as is evidenced by there only being one such fund in the UK at present. Next, I talk of encouragement to invest in UK assets, but I also retain great reservations on Mandation foundation powers. As I said at the beginning, in theory it's a good idea. There should be greater priority to investing in helping the UK, but I remain concerned at the conflict of interest that might arise. This very issue was raised by my right hon.

Friend Mark Garnier during the Second Reading. In the other place, I go back to the strict obligation on trustees to always perform their role in the best interests of beneficiaries. That might suggest a new concentration on UK investment, but not necessarily. I think we need some more help to trustees for this responsibility. The Minister, in response in the other place, suggested an opt out if there were to be material detriment to the members in taking such preferential decisions, I would suggest that that would not satisfy the need for trustees to consider a wide list of things in determining those best interests of members.

Powers for the Ombudsman, I really think we need to delve further into the intentions of the government moving the Ombudsman to a form of court or tribunal changes to some extent, the nature of its work, the relationships between regulator trustees and the ombudsman is currently very clear. I think we need a better explanation of their future respective roles and powers. My experience is that whilst the Pensions Regulator imposes and controls duties and reminds pension trustees of their obligations, it is always, of course, ultimately up to the trustees themselves to decide what they believe is a proper course, putting the regulator or the Ombudsman into an enhanced role will not only diminish the absolute responsibility of trustees, but could also put those bodies into invidious situations of decision making between themselves.

And no doubt there are substantial resource issues as well to consider. And lastly, can I just mention to the Minister the Pensions dashboard, and no doubt it's been referred to a progress report would be welcome, as would an assurance that, as was clearly stated by the Minister at
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Baroness Bowles of Berkhamsted Portrait Baroness Bowles of Berkhamsted (Liberal Democrat)
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My Lords, I declare my interests as a director of the London Stock Exchange and of Loop Holdings Exchange and of Loop Holdings Limited, and I also have experience engaging with local authorities and engaging with local authorities and their pension funds, both in relation to funding proposals and relation to funding proposals and policy. And I also congratulate the noble Baroness White of Tufnell Park. She's no longer in her seat on her excellent maiden speech, and welcome her to this House and to her future contributions.

Like other noble Lords, I welcome much of this bill and my reflections are directed at what is missing or where small but significant adjustments could deliver real benefits for for scheme members. Some examples when engaging with local authority fund managers on social impact investing, I found that while they valued local options, they also wanted diversity through investing in similar localised assets but beyond their immediate region. So an amendment to reflect that flexibility, perhaps in clause two concerning local and localised investments, may be worth considering on scale tests and value for money.

Should there not be some kind of linkage. Presently, some of the best performers in the DC markets have assets under 10 billion. If such schemes deliver outstanding benefit for members as demonstrated in value for money assessments, should they not be allowed to continue. Other issues in this space include whether the definition of hybrid is wide enough, and whether the focus on forward looking metrics risks dismissing past performance, which surely still has relevance. I also hope that some solution can be found for the many schemes in the charity and social housing sector that are disallowed from using retrospective confirmation measures due to an ongoing legal review.

Concerns also remain about the recent pre 97 increases in the wind up trigger for DB superfunds, which create issues for funding levels and viability. Additionally, the gateway test one that if a scheme is funded to buy out level, it cannot enter a Superfund, seems to prevent schemes from augmenting member benefits via a Superfund. Is that fair? I now turn to trustees fiduciary duty. It's undeniable that the government has opened Pandora's Box by taking the power of mandation, even if intended as a reserve power.

Now, I happen to think it's about time Pandora's box was opened, emptied, and hope allowed to get out. At least about interpretation of fiduciary duty. But it's essential that this is done in primary legislation. Regulatory guidance is not enough, nor, in my view, is an see, we are already seeing banks stung for compensation on car loans when lenders followed flawed guidance from the FCA, systemic issues such as resilience of the UK economy or ESG are not abstract considerations.

They directly affect pension scheme members long term retirement outcomes, climate breakdown, financial crises and economic instability all have influence on the value of investments and the type of investments that need to be made in future, and the returns available to members over time. They also determine how far pensions will stretch when drawn. These factors should already be integral to fiduciary considerations, requiring trustees to balance risk mitigation with support for long term stability. Yet trustees remain concerned about how to demonstrate alignment with member outcomes, even though investment results of any kind can never be guaranteed.

Clarifying in this bill that systemic factors are legitimate concerns would help. Now, at the same time, by naming and favouring certain vehicles, this bill risks going too far and putting trustees in jeopardy. It potentially causes herding, market distortions and valuation bubbles, and discriminates between comparable structures whilst failing to provide a safe harbour for trustees regarding financial benefit. In fact, the only way to achieve definite financial benefit would be through tax penalties for failing to meet mandated allocations.

As noted as a possibility by Baroness Altmann, we have already seen the dangers of herding in both DB and DC schemes driven by regulatory and advisory consensus advice focussed on global indices, coupled with regulatory encouragement, led to a retreat from UK equities and overreliance on gilts and the use of nested leverage through repo borrowing, culminating in the LDI crisis, and the only accepted defence that trustees have is that they take advice. Advice from unregulated adviser.

Now when, while many are excellent, some were noticeably reticent when this House's industry and regulators committee investigated LDI, and we found it striking that such influential advice was not regulated, unlike advice to individuals. This should be addressed, perhaps by making it a designated activity under Fisma. I'll now turn to the discrimination against listing. The government mandates investment into private assets, but excludes that investment from being via listed entities, despite their ability to provide super superior liquidity.

Now, all listed entities don't operate in the same way, and I'm going to have to explain that later. But let's first acknowledge that it's actually been openly acknowledged that the Mansion House provisions reflected in this bill are tailored to the new long term asset funds, ltas themselves a variation on the EU's long term investment funds Ltfs developed during my time as chair of the EU's Econ committee. At that time, the UK rejected implementing Ltfs, with the Treasury assuring me that we did not need them because we had listed investment funds, also known as investment companies and trusts, which were better yet, under this bill they are explicitly excluded even when investing in the prescribed assets, as the alts sector does.

This exclusion is extraordinary. Before the mistaken and now nearly corrected regulatory cost disclosure and cost cut debacle, listed investment funds were favoured by local authority pension funds precisely because they financed local UK infrastructure such as schools, hospitals and renewables, and provided venture capital to growth companies. Those local authority pension funds were major investors at IPO and follow on stages, often said often for the local infrastructure that they were subscribing to, and many retail investors hold listed investment funds in their portfolios for similar reasons.

Now, I have recently been told that somewhere in the Treasury there is a belief that listing and then trading shares is not new money. And interestingly, Baroness Noakes, noble Lady, I very much respect and often find myself on common cause also made that point. Now that is not actually the proper story. If you're looking at a listed investment fund listing is what keeps the underlying investment funding in place so that it's not sold out for redemptions, as happens with open ended funds like Ltfs.

And in fact, the way in which money is raised and then put into investments is a similar procedure to that of an Ltap or any other open ended fund. The only difference is the clever trick that instead of having to sell off the investments, if somebody wants to get liquidity and withdraw their their shares, the shares can be traded on the market and there isn't damage to the underlying investment. And that just does not seem to have been recognised in the provisions in this bill.

Now, it's interesting that even some of the L. Taff providers have contemplated listing investing in listed investment companies because they want the liquidity, and that will enable them to stay listed in productive assets for longer, whilst still having the safety of being able to trade and get their money. If they need more money for paying pensions. So why discriminate against them? The fact is they are complementary investments. They are often going to be smaller and local sized as against massive.

They can be used in combination with ltfs and it is a very, I think, foolish and stupid thing to exclude them. And I will certainly be making an amendment to try and adjust that. But overall, it is about time that the government's discrimination and denigration of listed investment companies must end. And I say denigration because there is damage done to these companies by the fact that this wording is in the bill. And how many times does this House talk about having to improve the state of our stock exchange for both listed companies of the operating variety, and also for listed funds? And what do we do at every turn? The government, the Treasury doesn't understand, and here seems to be undoing a lot of the good work that they have tried to do in all of the listing reviews.

Now, my Lords, this bill contains important reforms, but it must not undermine fiduciary duty, encourage herding, or exclude proven vehicles that deliver value with constructive amendments. I think we can ensure it strengthens pensions while saving members long term outcomes and delivering for the UK economy.
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Lord Bourne of Aberystwyth Portrait Lord Bourne of Aberystwyth (Conservative)
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My Lords. great experience and knowledge, and I certainly very much agree with the point she's making on fiduciary duties and the need for clarity on duties and the need for clarity on them. My Lords, can I congratulate the noble Lady Baroness White of Tufnell Park, who's not in her place at present on a maiden speech of great humour and informed with important principles and pointers to what we should be seeking in this legislation. We will certainly look forward to her future contributions in your Lordships' House.

My Lords, I want to make some generalised points about the Pension Schemes Bill before us echoes, inevitably, of what's been said previously at this stage in the debate. But I would also like to focus on three specific areas for specific areas. First, mandation of investment. Secondly, fiduciary duties. Thirdly, addressing the wrongs suffered by pensioners of the former Allied Steel and Wire company. And fourthly, the Delegated Powers and Regulatory Reform report, which I thought that the noble Lady of the Minister, whom I greatly respect, did refer to this in opening, but perhaps some dismissed it somewhat breezily, I thought, I mean, I think there are some, and possibly not.

Maybe I'm being unfair, but there are some important concerns there, I think, which we do have to have to address. My Lords, the Pension Schemes Bill proposes many sensible reforms. It's a largely good piece of legislation, the creation of megafunds, delivering lower cost, diversified investments and better returns. Sound and sensible. The consolidation of the Local Government pension scheme also very sensible. There is much to welcome in this legislation. My fundamental concern, along with many others who've spoken from around the House almost universally, I think, is the objection to defined contribution schemes and the government's backstop power to mandate investment.

And this really concerns me. It is potentially in conflict with the fiduciary duties of pension trustees. And I'd like to know what the government is proposing in terms of that potential conflict. In the minister's response, my Lords, government dictated investment risks undermining trustees fiduciary duty and risks distorting markets. In my view, far preferable, surely, is the voluntary approach that we have in the Mansion House Accord reforms of July 2023, built on later again, but based on the approach of my right hon.

Friend, the then Chancellor, Sir Jeremy Hunt, MP a voluntary agreement of 17 of the UK's largest workplace pension schemes, signing up and committing to at least 10% of their default funds to private markets by 2030, with a minimum of 5% in UK private assets. That is surely the preferred approach. It may well be the government's preferred approach, but I do have real concerns about the backdrop about the backstop approach that is also in in this legislation. The approach in the in the Mansion House Accord is expected to unlock up to £50 billion for high growth UK companies and major infrastructure.

That seems to me to be the sensible way forward, and it's based on the approach of Australia, for example, and and other other states as well. Another area I wanted to touch on, and again, one that has been touched on by the noble Lady Baroness Bowles as well, is the fiduciary duties and the need for clarity here. These duties are, of course, many in many ways similar to the duties of company directors and the duties that they owe to their companies.

The fiduciary company directors are in many ways based on case law. But there is, of course, a statutory framework as well, since the Companies Act 2006, which is very, very important to underpin that case law, that that is also vital in interpreting the duties. It seems to me sensible to have a statement of duties on which the case law then elaborates and on which it rests. There is a need to set the duties of pensions trustees in a broader context, I would argue, how do they take account, for example, of the impact of climate change of the local community, of the views of pension savers? The government, I know talks of guidance, but my Lords, is there is a very strong case, in my view, for the introduction of a statutory framework, as we have in company law.

My Lords are also I wanted to raise the case of the wrongs suffered by pensioners of the former Allied Steel and Wire Company, and indeed others who have lost out because of the pre 1997 pension compensation not being index linked. My Lords Allied steel and wire company, largely based in at the time in Cardiff, went into liquidation in 2002, affecting around 1000 workers, as I say in Cardiff, but also Belfast and Sheerness. A Pensions Action group was set up in 2003 after the collapse by those who had lost not just their jobs but also their occupational pensions.

These workers pensions are not protected by the Pensions Act 2004, which helped members of defined benefit schemes which went into liquidation. But after the 6th of April 2005. So obviously it preceded that a government scheme. In fairness, the financial Assistance scheme was set up and helped to provide some relief for these pensioners up to 90%. But it wasn't inflation proofed. This led to the erosion of their value over time, and as the pensions built up before April 1997 were not linked to rising prices, that failure for index linking meant that they have suffered massively and continue to suffer.

I know the incoming government did promise to re-examine the situation, but the noble Lady, the Minister, I think will realise that there is still real hurt amongst these pensioners that that hasn't been recognised in terms of proper compensation. These pensioners played by the rules they deserve, the pensions they invested for. And it seems that the Pension Protection Fund has a considerable surplus which could be used to right this very wrong. And I hope that the government will take this unfinished business on board.

If I could lastly, come to the delegated reform, delegated powers and regulatory reform report, which, as other members of my noble friend Baroness Coffey, the the noble Lady. Also Baroness Bennett of Manor Castle referred to it does outline some very serious concerns. There are almost as many delegated powers, 119 as there are clauses in the act 123 that is serious. It is a pretty damning report. I have to say. It refers to a licence for the Minister to make subordinate legislation.

So I feel that is something that we're going to have to return to as we inevitably, as we go through committee and report. And I'd be interested very much in hearing what the Minister has, has to say on that. But with that, I do otherwise welcome the legislation. I think there's a lot, lot to be welcomed in the legislation. It is good legislation. But I do have

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those reservations. I declare my interests as a past

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I declare my interests as a past chair and present director of peers chair and present director of peers for the planet. It's a great pleasure to follow the noble Lord pleasure to follow the noble Lord in what he's just said. We've worked together on these issues before, and I feel somehow on the before, and I feel somehow on the issue of which to which I'll return of fiduciary duty, we have the very good beginnings of a cross-party amendment with the noble Baroness Baroness Bowles, with him, with myself, and I hope we'll recruit from the Labour benches as well.

The noble Lord Lord Sharkey some hours ago. Mentioned not long hours, interesting hours, mentioned the absence in this bill of of any reference to the Paris Agreement and the Climate Change Act. The noble Baroness, Lady Green, noble Baroness, Lady Green, Baroness. Mentioned Lady Bennett, mentioned the previous pension schemes Bill six years ago, in which we both participated. That bill, thanks to a multi cross-party amendment and to great support, I must say, from the noble Baroness Baroness Stedman-Scott, who was the Minister at the time, did in fact include references to the Paris Agreement and the Climate Change Bill act.

It was the first piece of pensions legislation, I am assured, in the world that mentioned those things, and it has been followed by many pensions legislations in many jurisdictions since then. So I am hopeful that we may actually make some progress on this, because as the Pensions Regulator has said, pension schemes are uniquely placed to understand that short termism in the face of systemic risk is not the right approach for pension savers, and successive governments have recognised that the UK's long term prosperity will depend on our ability to lead the transition to a greener financial system.

Yet financial experts such as the Faculty of Actuaries and the Pensions Regulator, warn that many schemes continue to dramatically underestimate climate and environmental risks. Pensions Regulator has stressed that climate change and nature loss are not abstract concerns, and that awareness of and managing systemic
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Baroness Hayman Portrait Baroness Hayman (Crossbench)
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risks are a core part of effective trusteeship. The Chancellor have recognised the centrality of the recognised the centrality of the issue in her mansion House speech last year, and in letters to the Bank of England and financial Bank of England and financial regulators, she said the climate and nature crisis is the greatest long term global challenge that we long term global challenge that we face, and recommended that they consider how these risks could consider how these risks could impact financial stability over the near and longer term.

And she also reaffirmed her commitment to make the UK a global leader in sustainable finance. And my Lords, there are clear benefits in placing the UK at the centre of global financial flows that will drive the economy of the future, creating high quality jobs and enabling the investment we so urgently need in the face of ongoing economic and cost of living pressures. And the pension sector has to be central to this endeavour. With the third largest stock of pension assets in the world, the UK has the capacity to set a global benchmark for responsible investment.

The £3,000,000,000,000 trillion, 3 million, £3 trillion held in UK pensions represents an enormous opportunity to align long term investment with long term risks and long term economic stability. But significant exposure to environmental and supply chain risks and fossil fuels leave savers at risk of holding stranded assets or seeing significant reductions to their pension pots in the years ahead. This is not in members interests and it is not in our national interest. So, my Lords, I will be very interested in the discussions that take place on this bill, on the issues relating to how pension schemes investments can align with our climate and nature goals.

As the bill stands, it remains silent on how the major pension reforms it contains will support delivery of our nature and net zero targets, despite the risk that institutions such as the International Energy Agency and the Climate Change Committee in this country have highlighted both to savers and our economic prospects. Prosperity. UK Sif has estimated that approximately £88 billion worth of UK pensions are directly invested in fossil fuel assets, and that even if the limited decarbonisation pledges which have been made so far by countries are fulfilled by 2040, £15 billion of UK pensions are at risk of loss due to stranded assets.

The pension bill offers a practical, incremental opportunity to put in place a direction of travel in statute on the need to move away from investment in carbon intensive assets in a managed and orderly way. It could send us clear signal about the long term risks we face, and help pension schemes to prepare for the transition in a considered way. My Lords, one of the measures we could take and something that I will certainly be focusing on. As I said, as we go through the remaining stages of the bill, is the clarification of fiduciary duty.

For too long, many pension schemes trustees have reported confusion about what they should take into account when making investment decisions, particularly when those decisions involve long term structural risks such as climate change, nature loss and other systemic factors. This can lead to unnecessary and unjustified caution and reinforce a bias towards short term financial returns, even when the long term risks are clear. My Lords, I think we all absolutely understand and agree that trustees of pensions have a fundamental responsibility to act in their members financial interests.

But the clarity clarification of fiduciary duties in legislation, far from detracting from that responsibility, would enable trustees to fulfil it more effectively. So while I welcome the commitment made at Report stage, in the other place for guidance on this issue to be brought forward, guidance alone falls short of providing the legal certainty that is needed. As noble Baroness Lady Bowles said. So clearly guidance can be challenged, it can be ignored and it can be reversed. Without primary legislation.

The legal ambiguity to which trustees are currently exposed will still remain, even if in a slightly lesser degree. If there is only guidance on which to rely. Legislative clarification would dispel that uncertainty and future proof the system to ensure that pension schemes are better able to recognise and to manage the systemic risks of climate change and nature loss. It would support trustees to act in the long term interests of all beneficiaries and address issues of intergenerational fairness that are becoming of increasing importance as a longer term consequence of the climate and nature, crisis becomes clearer, and it could also lead to better returns and increased new investment in the areas we need to future proof our economy clean energy, clean transport, green infrastructure and, crucially, to unlock the economic opportunity of investing in nature positive solutions.

So I very much look forward to pursuing those issues as the bill proceeds through your

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Lordships' House. My Lords. I too wish to congratulate the noble Baroness, Lady White of Tufnell Park, who is not in her place on her excellent and place on her excellent and well-informed contribution. It's a great pleasure to follow the noble great pleasure to follow the noble Baroness, Lady Hayman, who has just made a most interesting and
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Viscount Trenchard Portrait Viscount Trenchard (Conservative)
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made a most interesting and informative speech. I thank the noble Baroness, the Minister, for introducing this Bill today. I think that reforms to the structure of the pension schemes market, introduced over the last 14 years, have been generally beneficial. In particular, I am sure the Minister will agree that introduction of auto enrolment into a pension scheme is the principal reason why the number of people saving into such a scheme has increased from 42% of the workforce back in 2011 to 88% today.

That is a huge change, and one of which the last government can feel proud. Of course, the 8% of income invested into these schemes is not enough, but it is a start on which we can build. Whilst current economic conditions necessitate a review of the triple lock, it has been successful in restoring the relative position of pensioners in our society and has lifted 200,000 pensioners out of poverty. As my right hon. Friend Mark Garnier said at Second Reading. In another place, the previous government had turned their attention to two central issues first, getting the best value for money out of our pension schemes and secondly, pensions adequacy.

There are some positive measures in this bill, which I welcome, but first, I want to remind the House that it was a Labour government which did enormous damage to our defined benefit pension system, which was previously a jewel in our financial services crown and the envy of the world. Shortly after his appointment as Chancellor in 1997, Gordon Brown launched a stealth tax raid on our pensions by abolishing dividend tax credits. The removal of the dividend tax credit has been estimated to cost occupational pension schemes over £3 billion annually at that time.

This led to increased contributions required from both employers and employees to maintain pension levels. The consequences of the change were. First reduced investment in UK companies following the abolition. Pension funds have been less incentivised to invest in British companies with their ownership of UK quoted shares dropping from about 50% in 1997 to just 4% in recent years. This shift is one of the main reasons for the failure of the London Stock Exchange, either to value new listed companies competitively or to provide the necessary investment to support economic growth.

Secondly, the abolition of the dividend tax credit resulted in double taxation of corporate earnings. Since dividends are paid out of post-tax income, whereas loan interest is deductible from corporate tax, this harmful move effectively destroyed many final salary linked pension schemes by making them too expensive for companies to run. It has been estimated that the tax raid destroyed around £200 billion of the value of the nation's pensions. Besides the abolition of the dividend tax credit, which was a fatal blow to DB pensions, the continuing restriction of the tax free allowance for dividends provides an additional disincentive to investment in equities.

The dividend allowance was £5,000 per annum in 20 1617, but was reduced to only £500 in 20 2425. Besides that, the income tax rate applied to dividend income has been increased by 2%. A higher rate taxpayer now pays 35.75%. Take the example of an entrepreneur who has established a successful small business. He does not take a salary, but pays himself through dividends when his company can afford it. The company has paid 20% corporation tax and the 35.75% dividend tax means that the income the business owner takes out of his business he is built on, he is built, is now taxed at a rate of 55.75%, leaving the entrepreneur aside.

For years, dividend tax has been a second tier concern, something that many mainly affected company directors and high net worth investors. That is no longer the case. Dividend tax is now a mainstream issue and hits ordinary people with modest portfolios who have never thought of themselves as investors in the past. If you hold shares outside an Isa, receive dividends from your own company, or invest through funds and ETFs, dividend tax now matters. There have been ongoing discussions about the potential reinstatement of the dividend tax credit to stimulate investment by pension funds into listed equities that would encourage more domestic investment and help to restore London's previous status as the best stock market for innovative new technology and other companies to list on in Australia.

As I am sure that the noble Baroness, the Minister is aware, dividend tax credits have been reintroduced as part of the dividend imputation system. This is designed to prevent double taxation of company profits. Does the Minister not recognise that it is a missed opportunity not to introduce a measure which would be warmly welcomed by the city, and would certainly help the London Stock Exchange recover its lost position? Could the Minister tell your Lordships if the government has considered reintroducing dividend tax relief, and if not, why not? Surely this kind of radical measure is exactly what our financial services industry needs.

Reintroducing tax credits on dividend payments and cutting stamp duty on UK share purchases are among the ten recommendations. The Pensions and Lifetime Savings Association has made for using investment and fiscal incentives to encourage pension schemes to allocate more of the nation's savings to British assets. I welcome the measures in the bill, which seek to consolidate and build on auto enrolment and the encouraging progress towards the Pensions Dashboard, which will greatly assist people's access to their pension information and help them plan more effectively for their financial future.

As the noble Baroness said, larger schemes generally perform better than smaller ones. I believe the measures enabling the consolidation of small pots, the creation of super funds are sensible, although regulations must ensure that protection for scheme members is not weakened. The Association of British Insurers and the Society of Pensions Professionals and other industry groups in the main support many of the measures contained in the bill, including the value for money framework. Will the Minister introduce a requirement that it will be regularly, regularly reviewed to ensure that it operates as intended? My Lords, the I would suggest that the definition of small pots just referring to the consolidation of small pots point should be revised from 5 to £5000 rather than £1,000, because £1,000 i too small.

The biggest problem with this bill as well explained by my noble friend Lady Stedman-scott and others, is the proposal to empower the government to mandate asset allocation within large multi-employer defined contribution schemes. I am not aware that the government is a well qualified fund manager with a spectacular track record, and it is absolutely not right to interfere with trustees fiduciary duties. It is all the more unacceptable because it applies only to those very large schemes and will therefore only affect pensioners of relatively modest means.

This is very unfair. This government, my Lords, is pickpocketing the pensions of the poorer people, fund managers and the trustees who appoint them are under legal duty to prioritise the financial well-being of savers. Their job is not to obey political whims, but to invest prudently, grow pension pots and uphold the trust played in, placed in them by millions of ordinary people. Whilst I hold the noble Lord Lord Wood of Anfield in the highest regard, I am afraid I do not agree with his view on this matter.

It may be that many pensioners would like to invest in UK assets, even if the returns are low, but they should take action separately to achieve that end, the fiduciary duty is not a technicality. It is the bedrock of confidence that the entire pension system rests on. Rather than impose new regulations and take powers to do things that it is not qualified to do, I would like to see the government free up insurers from solvency rules, which prevent them from owning equity in productive assets.

Indeed, following the Mansion House Accord, the pensions sector is already moving towards greater investment in productive assets. 17 of our largest workplace pension providers have already committed to invest 10% of their main default funds in private assets by 2030. Mandation is not required to achieve this trajectory. To attempt to define and enforce allocation thresholds. Risks concentrating activity too narrowly crowding investment into specific asset classes, and inadvertently restricting investment in broader activities. The government seeks to take a power that is unnecessary.

Its possible intervention in the market creates operational ambiguity. How schemes and pension providers will prove compliance with requirements lacks clear thresholds and enforcement logic. It creates reputational risk for pension schemes, the clause offering opt out in cases of material financial detriment is too vague. The best solution to the problem is for the government to drop this reserve power from the bill entirely. If the Minister will agree today to do this, it will save us all a lot of time and trouble.

I look forward to hearing what the noble Baroness has to say about this. Lastly, no, my Lords, concerning local government pension schemes, I welcome the proposal to consolidate the pensions of 86 different authorities, which should also contribute to enhance performance. But as my noble friend, Lady Stedman-scott explained, surpluses should be used to reduce the burden of contributions going forward, particularly as councils are faced to go through deeply damaging and expensive real reorganisation.

Lastly, I would say that I'm happy that the bill attempts to find a solution to the problem of defined benefit surpluses. As drafted, the bill doesn't provide sufficient safeguards, and in this area and others, I look forward to working with other noble Lords to improve it in the months ahead. I would say I entirely agree with what my noble friend Lady Noakes had to say on this matter. I look forward especially to hearing the minister's winding up speech.
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Lord Evans of Guisborough Portrait Lord Evans of Guisborough (Conservative)
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My Lords, I think I should >> My Lords, I think I should preface my remarks by declaring an interest that I'm a member of the interest that I'm a member of the Local Government Pension scheme. I am, of course, much too young to be drawing any benefits from from that scheme as yet. It's a great pleasure to follow my noble friend Viscount Trenchard, who gave us a good detailed critique of the bill and made a number of very constructive suggestions.

I felt indeed, it's even more of a pleasure to be following. Well, well, everybody really, because it appears that the noble Lady, the Minister, pointed out the generosity of the whips this morning. And when I looked at the list, I discovered they've been even more generous and given me basically the last slot of the last debate of the new year, at least from the backbenches. The front benches can can follow up afterwards, and bearing that in mind, I'm going to keep my remarks mercifully brief and just focus on a couple of the contributions that people have made during this extremely informative and interesting debate that we have had this afternoon.

First of all, I'd like to congratulate and thank the noble Baroness, Lady White of Tufnell Park, for her excellent maiden speech. It was really interesting and inspiring, I think, to people who who will see that clip from outside this place, I know that she will bring a great deal of expertise to us here, and I look forward to her contributions in future. Second, I'd like to thank my noble friend Baroness Noakes, who raised the spectre of the dead hand of regulation, as it's been referred to at times in the past, and the concern that if we regulate schemes too much, we will actually discourage or even make it impossible for new schemes to open up and to operate.

And that will harm competition. Now, we've already seen this in recent years with the situation that tends to challenge our banks in the UK, because a lot of the financial rules that were set up after the market crash made it very difficult for new banks and new financial institutions to gather the capital and to put in place the the administration they needed to start up. And I note, I believe that the Treasury has relaxed some of those rules recently to enable more people to take part in the financial market, and I hope that the government will reflect on that and not repeat mistakes that have been made in the past.

I'd also like to refer briefly to the contribution from my noble friend Baroness Altman, who gave us a very informed and very compassionate plea to encourage pension providers to invest more of the money they have in UK assets, and I was quite persuaded by that. But of course, it's a very different thing to say to investors. We'd like you to invest a percentage of your assets and you get to decide with all your expertise and knowledge and experience, what you invest them in, and being asked to give the Minister permission to make a much more detailed investment decision on their behalf with what in effect, of course, is other people's money.

And I think that is what we are being asked to do in the bill. So I hope we will revisit the whole mandate issue and help to moderate it or even remove it from the bill altogether. And I would say I would go out on a limb and say I would trust the Minister to make investment decisions on on my behalf, but that doesn't mean that I would trust future Ministers and future governments to do it. And that isn't even about the sort of people with the sort of ideas who might occupy those posts in future.

It's also about the sort of challenges that government may face in the future, and the sort of temptations that this legislation may lay open to them in a time which is which is looking difficult in future years and unpredictable. So, my Lords, mostly, I reckon, I welcome what is in this bill. It's been a tendency today to focus on the things we don't like about it. That's the job of of scrutiny. Back in the 90s, I worked for a very visionary entrepreneur, and he used to say that in the future there will be no such thing as as security of employment, but there will be security of employability.

Now, he was was running a training company, so he can maybe understand why he said that. And I think we have moved a long way towards embracing the new jobs market since then. But I think the pensions market needs to catch up. And a lot of the measures in this bill will

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help us to do that. My Lords, yes, we are getting

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My Lords, yes, we are getting towards the end. Thanks to all noble Lords who have who have spoken. Thank you. And my spoken. Thank you. And my particular thanks and congratulations to the noble Baroness White of Tufnell Park, who has made a marvellous first speech, which I'm sure will be one one of which I'm sure will be one one of many. And my Lords, there is much to welcome in this Bill, and let's start positively, my noble friend Baroness Kramer, who, as you know, cannot participate today because she's at a funeral, but she's seeking detail and the risk profile of the assets that will qualify under the Mansion House Contract Compact.

Most people contributing through auto enrolment into default funds have few resources and should not be in high risk investments, and certainly not without their permission. My noble friend Baroness Bowles, with great expertise, emphasised that fiduciary duty must remain the overriding principle of pension governance. She warned that mandating specific investment vehicles risks undermining trustees discretion, encouraging herding and discriminating against proven structures such as listed investment funds. Drawing on lessons from the LDI crisis, she argued that statutory preference cannot guarantee financial benefit and may expose pension members to unnecessary risk.

She further highlighted the bill's unjustified exclusion of listed investment companies and trusts, despite their track record in financing UK infrastructure and growth businesses. The noble Baroness Bowles also cautioned that lobbying pressures appear to have shaped the preference for long term asset funds, and urge that legislation should not be dictated by sectoral interests. Her message was clear fiduciary duty must not be subordinated to lobbying or legislative preference, because it is pension members who will ultimately bear the cost.

My noble friend Lord Sharkey raised many important matters matters, many of which I will mention today include emendation, DB, SOPCs, DC, master trusts, and much more. My noble friend Viscount Thurso, who cannot be present. He's up in Inverness, was particularly keen to ensure proper guidelines and governance in relation to DB surplus release, mandation and adherence to Stewardship code, as well as seeking to improve the lot of pre 97 pensioners who have not benefited from inflation uplifts and will pursue these matters.

You can see, therefore, a lot of amendments lining up. My Lords, we will need to consider any action in this Bill to remedy pre 1997 pension erosion. The absence of
16:53
Lord Palmer of Childs Hill Portrait Lord Palmer of Childs Hill (Liberal Democrat)
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discretionary increases for pre 1997 pensioners has clearly 1997 pensioners has clearly resulted in an erosion in real value of their pensions. But this is not the only injustice which has is not the only injustice which has impacted on many pensioners. I would also like to draw attention would also like to draw attention to the pension campaigns work fighting for pensioners who were misinformed by the government and ended up losing out as a result, as recognised by the Committee of Public Accounts in its June 2023 report on this issue.

Whilst this is not only what, this is not the only example of injustice in our pension system, it does illustrate the challenges many pensioners have faced and uniquely and therefore we will be looking to to scrutinise these elements of the Bill in detail. My Lords, legislation to formalise the framework framework around defined benefit super funds is long overdue and is in this bill. A main question is how the gateway test of DB funds. In other words, that which DB schemes are allowed to enter them compares with other options such as a buyout.

I hope the Minister can elaborate when she speaks on when a new option is created, that what what might be considered the appropriate schemes to use it and the wrong schemes do not use it. The bill provides for master trusts to have a default retirement solution. So having built up a pension, pension pot schemes need to assist in managing it and so could the Minister provide details of how the new advice guidance will work in practice? A point the noble Baroness Stedman-Scott made when she spoke.

Broadly speaking, making extraction of surplus funds from DB schemes, if in surplus it is is is mostly paid in by the employer at present difficult to assess the surplus. Could the Minister elaborate, perhaps estimate whether these new powers will be taken up, or will they just be there to be looked at and creating defined contribution? Megafunds sounds okay, but could the noble Lady, the Minister, elaborate on schemes being too big to fall, and whether new entrants will struggle to enter the market? My Lords, we need to have value for money.

Framework elaborated on in Australia, where there are where there are league tables, there is evidence, as we mentioned, in another context, of an investment holding where everyone invests in the same way, which is hardly a dynamic competitive market, which is what seems to be one of the purposes of this bill. My Lords, we will discuss Mandation at length. I'm sure Mandation is a reserve power to force pension schemes to invest at the whims of the government. But I state very clearly that I oppose this as it crosses a dangerous line.

It is fine saying the government does not plan to use the power, but we have to provide for actions of future governments. For instance, a government that doesn't believe in climate change, a point made by the noble Lady Stedman-scott and the noble Lady Hayman, the big. The bill's idea of auto consolidating small pots of less than £1,000 seems to me like a sounds a good idea, but it's a big effort resulting in very little change, much and not much happening to, I think, 2030 perhaps I've got that wrong with it.

It's a point raised very clearly by Lord Vaux and I just wanted to emphasise it yet again. My Lords, the pension system is evolving. We see what's happening and what we're trying to do is let it evolve in a way which will be the correct way forward. I don't think there are many easy solutions and as has been mentioned by by other noble Lords, the there's going to be a lot of scope for amendments to this bill to make it absolutely right.

And I hope we can work collaboratively right around the House in improving the bill, so that it is something that can be built on and relied upon by pensioners, pension funds and everybody else.

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My Lords, it's a pleasure to follow the noble Lord, Lord Palmer, who, like me, has become a regular who, like me, has become a regular on the pensions circuit here. As this debate draws to a close, I this debate draws to a close, I would like to thank all noble Lords who have contributed with such seriousness and expertise this afternoon and I, for my part, will try to touch on the key themes try to touch on the key themes raised.

But before I do, I would like to pay my own tribute to the noble Baroness, Lady White of Tufnell Park, because she gave an assured, a charming and exceptional
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Viscount Younger of Leckie Portrait Viscount Younger of Leckie (Conservative)
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speech. And she comes with a distinguished career record, and I have no doubt that we will be have no doubt that we will be hearing much from her here in the future. That seriousness of this future. That seriousness of this debate was exemplified by my noble friend Baroness Stedman-Scott, who set out with great clarity our set out with great clarity our central concerns raised with the bill. Those concerns do, however, bill. Those concerns do, however, point to a wider issue with the legislation itself.

My Lords, this is a framework bill, light on detail and heavy on intention, which has left your Lordships debating concepts and hypotheticals rather than the government's concrete plans. And I believe that that is not only unsatisfactory, but it's also disappointing. And these points were made by my noble friend Baroness Coffey, because certainty in legislation comes from detail on the face of the bill, when that detail is repeatedly altered, deferred and subject to numerous government amendments. And by the way, my Lords, there are over 50.

Even the limited certainty we believed we had is further diminished. So first of all, I do look forward to the noble Baroness. The Minister's response, not just on the preparation of the bill or perhaps lack of it, but also, as has been raised on the report from the delegated powers and regulatory body. Nowhere is the lack of certainty more evident, my Lords, than in the proposed value for money framework. And this was one of the first themes raised, not least by the noble Baroness, Lady Warwick, the noble Lord Lord Davies of Brixton and my noble friend Lady Pen.

This element of the bill is thin, almost skeletal, and yet it is pivotal. And again, my noble friend Baroness Coffey spoke about this in practice, much of what this legislation seeks to achieve will stand or fall on how the value for money framework is designed and applied, if it is to drive genuine improvement rather than box ticking, its methodology must be transparent, robust and genuinely comparable across schemes. Cost alone cannot be allowed to dominate decision making at the expense of outcomes.

A scheme that is cheap but delivers persistently poor returns is not offering value to savers, however attractive its headline fees may appear. Against that background, I have two specific questions for the noble Baroness the Minister. Does the government envisage the value for money framework operating through a standardised pro forma, which clearly defined and comparable metrics covering costs, net investment performance and cost to return ratios applied consistently across schemes? Secondly, how will the government ensure meaningful comparability between very different types of schemes? In particular, what steps will be taken where schemes meet fee thresholds but nevertheless deliver consistently weak investment outcomes? And my noble friend Viscount Trenchard touched on this.

My Lords, this feeds into a wider concern about the order of priorities in this Bill. Rather than committing to the notion of the reserve power, so-called mandate, which I'll touch on later, the government should have concentrated first on getting value for money, right? That should have been the central driver, I believe, of this legislation. If value for money is properly defined, transparently measured and rigorously applied, it can strengthen outcomes for savers without trampling on the fiduciary duties of trustees. And my Lords, we have heard quite a bit about that this afternoon, as the Minister for pensions himself has said, trustees must remain free and indeed obliged to act in the best financial interests of their members.

But I say that this is guided by evidence and judgement rather than direction by mandate. We should be confident enough to demonstrate the benefits and drawbacks of widely used default strategies, such as global passive equities, which underpinned many DC schemes. Investment approaches. That case should be made openly and empirically, and yet the government has, in my view, underplayed the extent to which a robust value for money framework could drive improvement without compulsion. If value is genuinely improved and transparently measured, much else should follow.

My noble friend Baroness Stedman-Scott has already set out the opposition's wider concerns about Mandation, clearly, so I will not repeat them at length. But of course, the subject was raised by a number of noble Lords this afternoon. My friend Lord Ashcombe, the noble Lord Lord Vaux noble, my noble friend Baroness Noakes, and others. I do, however, wish to raise one further point that reflects a broader theme running through today's debate the need to strike the right balance between flexibility and discipline.

And my noble friend Lord Ashcombe spoke on this. Beyond the constitutional and fiduciary issues already raised, there is also a practical market risk that should not be overlooked. And this matter was raised by the noble Lord Lord Sharkey, the noble Baroness, Lady Bowles, about as the noble Lord Lord Sharkey put it. Market distorting effects mandate risks inflating asset prices if multiple funds are required to allocate to the same asset classes at the same time. And I believe the noble Baroness, Lady Altmann, raised this matter to markets may also interpret government direction as an implicit signal of future price support, potentially amplifying distortions rather than improving capital allocation.

So against that background, I've got two specific questions for the Minister. First, has the government assessed the risk that mandated investment could lead to asset price inflation or wider market distortion? And if so, what conclusions has she reached? Secondly, how does the government intend to ensure that mandated allocations remain aligned with changing economic conditions, particularly in cases where schemes may reach a mandated threshold only after the relevant asset class is no longer aligned with economic need, or indeed the Treasury's broader objectives.

And there are just a few further questions on this important subject. And the noble Lord, Lord Davis, asked this if if after mandation or in the case of Mandation, if the investments underperform or indeed fail, who does take responsibility? The government or trustees? And my noble friend Lady Penn asked how the qualifying assets will be defined, and I think other peers may have asked that too. And finally, my noble, the noble Baroness, lady Bowles asked an important questions in this sphere, so I'm looking forward to the response from the noble Baroness, the Minister.

I also should say that I noted the constructive advice and ideas from the noble Baroness, Lady Altmann, on how the government could better encourage pension funds to invest in the UK short of introducing the reserve power. And there were also some suggestions from my noble friend Viscount Trenchard. Next, my Lords, let me touch on the treatment of surpluses in defined benefit schemes. Surpluses, I agree, can present opportunities, but they are not windfalls. They exist to absorb future shocks, to manage demographic risk, and to ensure that promises made to members are promises kept, flexibility in how surpluses are treated is sensible, but only if it is underpinned by robust safeguards.

None of us wishes to see surpluses eroded by ill judged extraction, or quietly diverted into activities that weaken long term scheme resilience. And in that context, the forthcoming guidance from the Pensions Regulator will be pivotal. So can the noble Baroness Minister confirm when that guidance will be published, whether it will be subject to consultation and how Parliament will be able to scrutinise the balance? It strikes between prudence, flexibility and long term security. Now, much of today's debate has also rightly returned to auto enrolment, and the question of paucity of pensions adequacy has been highlighted by the noble highlighted by the noble Lord Lord Sharkey and the noble Lord Lord Davies of Brixton and my noble friend Lady Penn.

Introduced by conservative government, it has been one of the quiet successes of the past decade, and I just would like to remind the House that the operational aspects of this were progressed and tested going back as far as 2012, participation among eligible employees now stands at around 88%. So it is, I would argue, a remarkable achievement. But success should not breed complacency because upwards of 8.5 million people remain under savers and the question of adequacy remains unresolved. There is still work to be done as a noble Baroness, Lady Bennett said.

Crucially, auto enrolment is highly sensitive to labour market conditions. Every percentage point increase in unemployment pushes more people out of workplace pension saving altogether. Against that backdrop, the recent benefits budget is concerning. Unemployment is rising and with it, the number of people falling out of pension saving. I therefore ask the Minister whether the government have undertaken updated modelling on the impact of higher employment on future pension adequacy, whether those projections differ from earlier assumptions and whether they will be published so that Parliament can properly understand the long term consequences of the government's policy choices.

As many noble Lords have noted, pension engagement remains the missing leg of the stool, millions of saving, but fewer than half have checked the value of their pension in the past year. And this is not simply apathy. It reflects a system that has become increasingly complex and opaque to ordinary savers. The pensions Dashboard, which has been mentioned this afternoon, is therefore not a technical adjutant. It is central to enabling informed decision making, and various questions I know have been raised about that.

Can the noble Baroness Minister confirm when the revised staging timeline will be published? Whether clear delivery milestones will be set out, and how Parliament will be able to track progress so that savers can have confidence that this long delayed reform will finally be realised. Engagement, however, is also constrained by the current regulatory environment. In consultation with industry, we heard compelling evidence that FCA and the TPR regulation makes genuine member education extraordinarily difficult to design. The boundary between advice and marketing has become so blurred that most communications fall into a grey area, leaving schemes with very few compliant touchpoints for meaningful engagement.

So if we're serious about improving outcomes, government must enable better education and clearer communication. So perhaps the Minister could comment on this and what work is underway to review, to review these constraints and how the Bill supports, rather than frustrates, the goal of informing saving, I now turn to salary sacrifice because this decision strikes at the heart of pensions adequacy, individual engagement and ultimately trust in the system itself. And the recent disappointing budget has taken a sledgehammer to a mechanism that has for many years made pension saving both affordable for workers and sustainable for employers.

For millions of people saving at or near the minimum auto enrolment rate, salary sacrifice is not a perk. It is a difference between saving and not saving at all. Removing this relief will mean lower take home pay, lower pension contributions and over time, materially smaller pension pots. And this is a short sighted political choice, one that appears designed to plug immediate fiscal pressures pressures while storing up greater dependency on the state in retirement. So the impact on employers is equally concerning.

By reimposing employer national Insurance on previously sacrificed earnings, the government are increasing the cost of labour at precisely the wrong moment. For many medium sized firms, this will translate into tens of thousands of pounds in additional annual costs, money that could otherwise have supported wages, investment or workforce expansion. The decision to charge both employer and employee national insurance on salary sacrificed contributions above £2,000 introduces a sharp and, I believe, irrational, cliff edge, and the OBR estimates that 76% of the burden will fall on employees once again.

Private sector workers bear the cost, while public sector employees in defined benefit schemes remain largely insulated. And, my Lords, the figures are stark. An employee earning £45,000 and saving 5% through salary sacrifice will be £58 worse off in the first year and more than £15,000 worse off over the course of a working lifetime. So in the light of this, can the Minister confirm whether the government have undertaken a sector by sector distributional analysis of these changes, whether they will publish an assessment of the long term impact on pension adequacy and future welfare expenditure, and whether she accepts that this measure operates in effect as a tax on work and on responsible long term saving, some noble Lords have rightly raised the broader macroeconomic implications of pension reform.

UK pension funds and insurers together hold around 30% of the gilt market, and I think this point was made earlier. If mature, defined pension benefit schemes are nudged away from gilt into equities, the consequences for debt management, interest rates and mortgage markets could be profound, and it would therefore be reassuring to hear from the Minister whether the Debt Management Office and the Bank of England have been consulted on these potential effects, and whether their views will be made available to Parliament.

Now I realise that time is marching on, and I do hope that the government will reflect carefully on all the concerns that have been raised across your Lordships House today, and respond with the assurances that savers and schemes alike are entitled to expect, and we owe them nothing else. However, in the spirit of Christmas, and as this is the season of goodwill, and I'm feeling more crisply now than I did before, the question this afternoon, may I say to the noble Baroness, the Minister, that despite everything that I have said, and in a rare outbreak of festive generosity, there are parts of the Bill which we do agree with, such as the PPF changes and the terminal illness time extension.

And we will, as others have said, work constructively with the government in the weeks and months ahead. And finally, I look forward to the Minister's response and wish peers

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and staff in the House a very happy Christmas. Lord German. My Lords, I'm grateful for.

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grateful for. The for the incredible range of thoughtful and constructive contributions we've heard during contributions we've heard during today's debate. I probably should say at the start, I don't know whether I'm a member of the parliamentary pension scheme. I should perhaps declare that should perhaps declare that otherwise it's a private pension. I don't have any other, but I should maybe put that on the record. Can I
17:14
Baroness Sherlock Portrait Baroness Sherlock (Labour)
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maybe put that on the record. Can I just say start? Firstly, I'm so grateful to have heard the maiden speech of the noble Baroness, Lady White. I realise we have quite a bit in common. Children of migrants. I too have spatial dyspraxia. I've never yet some way around here. And also engaging with church. I'm afraid. There it ends. No one's ever going to ask me to chair John Lewis, and that may be just as well for anybody who likes shopping there. But she may have had an eclectic career.

Now she's joined this house. My Lords, it's going to get a lot more eclectic still. But it's a it's a joy to have her on board and that that there's more of that to come. I look forward to it. Lords the range of views expressed around the House reflects the significance of the bill for savers, but also for employers and for the pensions industry. And I think the level of interest underscores how important pensions are both to savers and the UK economy. And we need to help people get the best from their savings.

Now, there were some fascinating debates, discussions today. I could listen to the noble Lord Lord Willetts, my noble friend Lord wood for a lot longer, and I won't be able to begin to do justice to what they said. But I'm going to go back and read it really carefully and hope we can continue to have some really interesting conversations. I also, well, there'll be a lot of questions I can't begin to respond to. I'll do my very best, but I've only got 20 minutes. And it may be that people need to listen to this back on half speed if I'm not a bit careful.

But my Lords, let me start by saying, let me start with with adequacy, because that's where the noble Baroness Stedman-Scott began. I was grateful to the noble Lord Lord Willetts for setting out. This has been very much a cross-party journey that we've been on together, and I hope we can keep it that way. I'm sure she didn't mean to presume that auto enrolment started with the last conservative government, when in fact it was legislated by the previous Labour government. The Pensions Commission had been out there, and so I'm sure she didn't mean to say that.

And I want to just make sure that I think we've done there's been a remarkable continuity of a journey going on, and I hope we can carry on doing that. I was delighted with the work done by the Pensions Commission, in which my noble friend, Lady Drake, served with such distinction, and I know she'll serve with equal distinction on the Pensions Commission. And that's the place that adequacy will be addressed fully. What the government is very committed to that. It's a key priority for us.

But it is also important that we get the market into the right shape. So if savers are saving more, they're getting the returns for their money. Let me talk about surplus, my Lords. I listened very carefully to the noble Lady Baroness Noakes and then my noble friend Lord Davis, and thought, I can't make them both happy on this front. Without doubt that's generally true, I think, but probably particularly illustrated on surplus. Can I just say two things? Firstly, to the noble Viscount Viscount Younger, we are very careful about what surplus extraction will do.

Scheme schemes are currently enjoying high levels of funding. Three and four are in surplus on low dependency basis. There are also more mature, but the vast majority are hedged to minimise the risk of future volatility, with investment strategies that protect against interest rates and inflation movements. And the DB funding code and underpinning legislation introduced in 2024 require trustees aim to maintain a strong funding position. But the decisions to release surplus, of course, are subject to trustee discretion and underpinned by strict safeguards, including that requirement for a prudent funding threshold, actuarial certification and member notification, and, of course, as part of any agreement to release surplus funds, trustees are in a good position to negotiate, and it will be down to trustees to negotiate with their employers about the way in which surplus is released.

My noble friend, Lady Warwick, rightly pressed me on the questions of scale. First off, on scale, as outlined in the impact assessment for the bill, there is a range of evidence showing scale can help deliver better governance, economies of scale, investment expertise and access to a wider range of assets, all helping to improve outcomes. We maybe aren't heading for the sunlit uplands of ozone, megafunds described by the noble Baroness, Lady White. But my Lords, we are pushing in that direction and we will, in response to her question, be ensuring that the governance and regulatory requirements needed for these much bigger pension schemes will be robust, will be developing those with the industry going forward.

In terms of the question about whether the scale measures are going to be tougher on smaller schemes, my Lords, the problem is our evidence shows that across a range of studies, the scale is what makes the difference now, whereas why is there a magic number about 25 billion? Well, as the evidence shows, we looked at a number of studies that shows that a greater number of benefits can arise from a scale of 25 to 50 billion of assets under management, including the investment expertise, the sophistication and the balance sheet to provide a more diverse portfolio to their savers.

We have not seen sufficient evidence. Other approaches will enable the same benefits for savers and the economy. We do believe scale is the best way to realise benefits across the market for savers, but there will be a transition pathway to enable those schemes who are not there now, to have a route to scale where they have a credible plan to achieve it within five years, and will consult with the industry on what a credible plan may look like as part of the development of regulations.

A number of noble Lords, including the noble Baroness Brady Altmann, the noble Baroness Brady Noakes and noble Lord Lord Ashcombe, as well as as well as my noble friend Lord Wood mentioned. I think, the position of new entrants and the potential for future market innovation is really important, and we are very conscious that scale requirements could not incorrectly prevent this future innovation. So the government has provided for a new entrant pathway designed specifically to provide a route for this future innovation.

We will monitor future movement in the market to ensure the pathway is working as intended. And in addition to innovation, these schemes will be required to have the strong potential to grow to scale over time. Let me dive in briefly to the reserve power on asset allocation. I am clearly not going to satisfy the House today. We will have plenty of time in committee to discuss this, but let me make a few points now about it in general and the interaction with fiduciary duty and the questions raised by all by noble Lady Stedman-scott, the Baroness Penn, the noble Lord Lord Sharkey, and the Lord Lord Vaux, the noble Lord, the noble Lady Baroness Noakes, my friend Lord Davis, Lord Bourne of Aberystwyth, Lord Evans.

And I'm going to stop saying these names now. But, Lord, let me just say at the start there is widespread recognition of the benefits that a diverse investment portfolio can bring for savers. That is exactly why the signatories to the Mansion House Accord are committing to invest in private markets. This reserve power will help ensure this change happens, but we have built in a number of safeguards. Let me just knock one thing on the head the noble Lord Lord Ashcombe. Can I say this asset allocation power does not apply to the LGPS.

Following an amendment in the House of Commons, the bill no longer allows a responsible authority, such as the Secretary of State, to direct asset pool companies to make specific investment decisions, so I hope that reassures him on that point. On the broader question, the making of regulations under this power is going to be subject to a raft of safeguards contained in the bill. But in response to the noble Viscount Viscount Younger, since the government does not propose to use this power, it would be anticipated we won't have to.

If all goes well, will the government ever to use it? There are a series of safeguards, and we would have to consult and would produce a report. We would at that point look at developing how it would be done. But let me briefly touch on the safeguards. First of all, the power is time limited. And to the Baroness Brady, I would say it will expire if it hasn't been used. And any percentage headline asset allocation requirements enforced beyond that date will be capped at their current levels.

Secondly, crucially, the government is required to establish a savers Interest test in which pension providers will be granted an exemption from the targets, where they can show that meeting them would cause material financial detriment to savers. And finally, my Lords, obviously the regulations will be subject to parliamentary scrutiny, but before that, the government will need to consult and publish a report on the impacts of any new requirements on savers and economic growth, both before exercising any power for the first time and within five years following it being exercised.

I'm going to have to rush through. Let me turn to the points raised by the noble Baroness, Lady Altmann and the noble Lady Baroness Bowles, about qualifying assets and investment trusts, and I can see that the noble Lady feels very strongly about this, and I listened carefully to the points that she made and those made by the noble Baroness, Lady Altmann. Let me say to Baroness Bowles in particular, the government recognises the role investment trusts play in the UK economy and in supporting the government's growth agenda, and is committed to supporting this important sector.

And we put that on the record very clearly. However, when it comes to qualifying assets in a reserve power, we have aimed to stick closely to the scope of the Mansion House Accord, which itself is limited to investments made via unlisted funds. That's consistent with our general approach to this part of the bill, where we deliberately ensure the powers are suitably targeted and contain guardrails. In other words, they're not intended to be open ended, but should be capable of serving as a backstop to the commitments that pension providers themselves have voluntarily made.

There was a number of points made by my noble friend Lord Davis about consumer protections. I'd like to reassure him that consumer protection is a priority for the government, and the importance of ensuring there are strong consumer safeguards is something we take very seriously. And that is why the bill introduces a number of robust consumer protections, including the contractual override process in small pots and in DB surplus. But I look forward to discussing these in more detail with him and others in committee.

My Lords, I, my noble friend Lady Warwick, raised the question of VfM. I was grateful to the noble Lady Baroness Coffey for welcoming that. My friend Lord Davis raised it as well. Can I, a noble Viscount Viscount Younger, asked about the interaction in different parts of the scheme. And I think the pensions roadmap, which I'm sure he's had the opportunity to read, shows, I think very clearly how the different measures we are proposing connect and what then how they are all necessary. They are all key parts of a machine that are necessary to achieve the objective the government has of moving the pensions landscape forward.

But the next step, I can tell him, will be a joint consultation by the FCA and the Pensions Regulator, which will be published early next year. This will then inform our draft regulations on value for money, which we intend to consult on during 2026. We expect the VfM framework will be implemented in 2028, with the first set of VfM metrics published in March 2028, and the first VfM assessment reports and ratings will then be published in October 2028, so that on the basis of that, we would expect to see poor performing schemes starting to exit the market from November 2028.

My Lords P197 Indexation in Pension Protection Fund and FAS and I. This is clear. I've listened very carefully to the comments that have been made here, both by my noble friend, Lady Warwick, the noble Lord Lord Bourne of Aberystwyth, and I thank him for a thoughtful reflection and and many, many other, many other colleagues, Lords, the the we are laying the groundwork for the first major step forward in this area, and I think some credit should be given to the government for doing that.

However, I do understand this will not go as far as many have hoped. But my Lords, I think we need to be recognised. The PPF maintains a substantial financial reserve. It's not a surplus, it is a financial reserve to protect against future risks. The cost of retrospection and arrears is significant and would greatly reduce that. PPF reserve. Any change that reduces the PPF reserves will, by definition, reduce the vital security of the PPF provides to its current and future members. The PPF has very successfully navigated the past 20 years.

It's well regarded as a prudent fiduciary, acting in the best interests of pension savers, and we do need to ensure it can continue to do that, I have to say, I'm going to disappoint my noble friend Lord Davis. He on on the matter of pre 9 to 7 indexation in wider DB schemes. I'm sorry, I need to tell him really clearly. The government has no plans to change the rules on pre 1997 indexation for DB schemes. These rules ensure consistency across all schemes and changing them would increase liabilities and costs.

Over three quarters of schemes pay some pre 97 indexation because of scheme rules or as a discretionary benefit. But reforms in the bill, as we've mentioned, will enable more trustees of well funded DB pension schemes to share surplus with employers and deliver better outcomes for members, which may include discretionary indexation. Let me turn to the questions of fiduciary duty raised by many noble Lords, including Baroness Lady Hayman, the noble Lord Lord Sharkey and Lord Barber, Baroness Sater, Baroness Bowles and Pen, my noble friend Lady Warwick and noble Lord Lord Bourne and many others.

I mean, I think it's often said that fiduciary duty is the cornerstone of trust based pension schemes, and the trustees should invest in the best interests of their members. And that principle remains fundamental. The government believes the current legal framework gives trustees flexibility to adapt and protect savers interests. However, at the same time, we acknowledge the calls for more clarity on considering systemic factors such as climate risk and members living standards when making investment decisions. And my colleague, the Minister for pensions, set out in the Commons that we intend to develop guidance for the trust based private pension sector to provide this clarification.

Now, I know my colleague, the Minister of Pensions, plans to come forward shortly with more details on what the guidance will look to cover. He's already confirmed how he intends to start engaging with a wide range of stakeholders in producing the guidance, starting with a series of industry roundtables in the early New Year. But my Lords, through guidance, the government is trying to address a barrier that some trustees say they face when investing in savers best interests. Guidance has the potential to support climate and sustainability goals, and our wider goal to improve saver outcomes and unlock pension investment in UK growth.

Now, we're still in the early stages of undertaking consultation and exploring options on this, and we will provide further updates in due course. I think the noble Lord Lord Bourne the noble Baroness Suttie pen asked why not just change the primary legislation? It's the government's view that introducing statutory changes to refine investment duties could risk creating rigid and complex obligations, which would actually reduce the ability of trustees to respond to changing investment, landscapes and circumstances. And in terms of how and when we are exploring possible options for taking this forward.

If and when parliamentary time allows. On the question of trustees, I think it's worth saying the noble Baroness Suttie Coffey and the noble Baroness Lady Bowles, raised the trustees and others have alluded to it as well. Successful implementation of this bill's reforms will rely on highly skilled trustees operating independently, applying good governance and focus on delivering the best outcomes for savers. But that's why earlier this week, we launched a consultation on stronger trusteeship and governance. It aims to bring all schemes up to the required standard, and explores what changes might be needed to raise the bar for all trustees.

The industry has welcomed the consultation, and there does seem to be a consensus that high quality trusteeship and governance is vital to ensuring good outcomes for pension scheme members, and I would encourage anyone with an interest in this area to respond to the consultation. My Lords, there were a number of other points that were raised. The noble Baroness Coffey talked about the need for a single regulator. I think I would simply say the government recognises the importance of clarity and coordination in the regulation of workplace pensions.

The FCA and the TPR do work effectively together, including through joint working groups and consultations. They have shared strategies and guidance and regular joint engagement with stakeholders. But I would simply say the government keeps the regulatory system under review. And there were some interesting points made by the noble Lord Lord Ashcombe. I mean, the the government is committed to appropriate regulation, and that does to do that, we need to engage regularly with stakeholders and with industry to make sure we get that right.

There are some genuine questions which will go on to debate in committee about getting the balance right between primary legislation, secondary legislation, regulation, supervision, governance and guidance. And we need the space to be able to engage with industry because any regulation we produce have to work, and the detail of the scheme will have to be worked through. That will inevitably mean that there are times when the House would want more detail than we're able to give. But I think one of the challenges is it's not possible both to criticise the government, trying to make its mind up on everything at the same time in the primary in some areas, and then also criticise it for not being open to consultation.

So we'll see how that goes. But we will continue to consult extensively with industry and other stakeholders as, as we as we move through this. Lords, a few other points were raised. Lord Coaker of Harrogate raised the questions about the Pensions Ombudsman. I think it's probably important I clarify this now. The measure on the Pensions Ombudsman here neither increases nor widens the Pension Ombudsman's powers, nor that of TPO beyond what was originally intended. What this is doing is reinstating the original intent of the Ombudsman's powers in pension overpayment dispute cases, which were debated in Parliament when the Ombudsman was established in 1991.

But there was, of course, a High Court ruling. And when we're amending the existing legislation, because the High Court ruling stated that TPO is not a competent court in pensions overpayment cases. So the aim is to reinstate the original policy intent and reaffirm the government view and that of the pensions industry. I hope that reassures him so it the original restores policy intent, that's all. It's not designed to try to widen it. So I hope that's an encouragement to him. On the question of small pots, the noble Lord Lord Vaux of Harrowden the Viscount Trenchard asked about the queried the pot limit.

My Lords, we had to choose somewhere. The initial pot limit of £1,000 will address 13 million stock of small pots, and we think that strikes the right balance between achieving meaningful levels of pot consolidation and reducing administration costs for pension providers without distorting the market. The Secretary of State will keep the threshold under review to ensure it remains appropriate as the market continues to develop. Following the reforms made in the bill, a number of noble Lords have asked about the position on pensions dashboards.

The government has committed to regular updates for the House, and we will be doing another one of those. But let me put some headlines on the record for now. Good progress is being made with pensions dashboards. The House will be glad to know the first pension provider successfully completed connection to the pensions Dashboards ecosystem on the 17th of April this year, forming a crucial step towards making dashboards a reality. Over 700 of the largest pension providers and schemes are now connected to the dashboards ecosystem.

Over 60 million records are now integrated into dashboards. This represents around three quarters of records in scope. Further, state pension data are now accessible, representing tens of millions of additional records. The Pension Dashboards programme is confident pension providers and schemes in scope will connect by the regulatory deadline of 31st October 2026 and Lord Stone. We have assurance of services safe, secure and thoroughly used, attested. The Secretary of State will provide industry with six months notice ahead of the launch of the Money Helper Pensions Dashboard.

A number of noble Lords mentioned the question of the gender pensions gap. I think the Baroness Brady and I can't remember who. I apologise and whoever did, can I just say that auto enrolment has delivered substantial progress in increasing pension participation amongst women? Which has meant it was Bennett. I've just remembered. I'm sorry. Apologies. And this has meant that workplace pension participation rates between eligible men and women in the private sector have now equalised. But it's absolutely right. The gaps still remain in terms of pension participation and pension wealth, reflecting, of course, wider structural inequalities in the labour market.

A gender gender pay gap leads to a gender gender pensions gap and women now approaching retirement still have, on average, half the private pension wealth of men. The Pensions Commission will consider further steps to improve pension outcomes for all, especially women, and those groups have identified at greater risk of saving for retirement. Lord Sewell. I think that's probably about as far as I can go, but can I just say I'm really grateful to be part of a house that has so much interest and knowledge in a subject that not everybody.

I'm sorry. I'm shocked. You may be shocked to hear not everybody finds it as interesting as those of us here today do. However we do, and I look forward to lots of really interesting discussions in committee. This bill marks a decisive step in modernising the pension system, strengthening security for members, driving better value and enabling innovation across the sector. It combines ambition with safeguards, ensuring schemes can deliver improved outcomes while maintaining confidence and trust. I look forward to working with noble Lords after they've had a very, very happy Christmas and a continuing constructive engagement.

My Lords, I beg to move.

**** Possible New Speaker ****

He sits down. She's made a valiant attempt to answer all questions. Could she commit to writing to noble Lords who have writing to noble Lords who have been in this debate on the question she didn't reach, and that letter could reach us before we start?

**** Possible New Speaker ****

Committee Lords, there are, of course, only two sitting. Well, we'll come next week. There are hardly any sitting days the last 13 hardly any sitting days the last 13 days before we finish. I will I will have a look at what I can put in writing before we get to committee an awful lot. I've never been asked so many questions in such a short period, and I've talked to church youth group, so it really is. So I will, I will do, I will see what we can do on that front.

We possibly can. Thank. The question is that this bill be now read a second time, as many of that opinion shall say content. Contrary, not content. The contents have it. So I beg to move the commitment motion standing in my name on the Order Paper question is that this motion be agreed to, as many of that opinion shall say content. Contrary, not content. The

**** Possible New Speaker ****

contents have it. My Lords, I beg to move the House do now adjourn. And in doing House do now adjourn. And in doing so wish everyone in the House and all working in the House hugs and a very happy Christmas, a very restful break and a happy New Year. restful break and a happy New Year.
10:30
None Portrait Royal Assent: Dogs (Protection of Livestock) (Amendment) Bill; Mental Health Bill; Planning and Infrastructure Bill; Space Industry (Indemnities) Bill; Employment Rights Bill
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