Pension Schemes Bill

Baroness Altmann Excerpts

Report stage
Thursday 19th March 2026 Lords Chamber

Moved by

[Baroness Altmann]

49: Clause 22, page 24, line 19, leave out “12” and insert “36”
Member's explanatory statement
This amendment would only classify an unused pension pot as “dormant” if it had been left alone for at least three years, not just after one year.

[Baroness Altmann (Non-Afl)]

My Lords, I will not detain the House too long on this amendment. It is a small amendment, but it is very important for members of pension schemes in auto-enrolment, particularly women.

The proposal in the Bill is to move small pots, under £1,000, which are considered dormant—in other words, they have had no contributions paid in and no contact from the member with the provider for 12 months—to a consolidator scheme without member consent. My argument is simple: 12 months is simply not long enough to consider that a scheme that has not had contributions paid into it is dormant and that that member has no interest in the scheme. Imagine a woman, for example, who stops work for a period to care for loved ones or elderly parents, partners or children. They may stop contributions for quite a while longer than a year, but their pension could be moved if the provider had not been able to contact them, and their money would be put into a consolidator scheme approved by the regulator over which they had no control.

Amendment 49 would extend the period before which somebody’s pot could just be taken away from one year to three years; and Amendment 50 would extend it to two years. This would give time for the Government’s correct aim of improving data accuracy to take place. We know that most pension schemes have huge errors in their data and do not always know even how to contact a member. It would also allow time for providers and trustees to trace members and for the pensions dashboard to start and members to be able to find their pots themselves.

I understand that pension providers do not want these small pots and they may make a loss on them, but they should not just be able to get rid of them with such unseemly haste. I hope the Government may accept the spirit in which this amendment is meant, which is to protect members while obviously still allowing the pots to be moved once it is beyond doubt that they are indeed dormant. I beg to move.

[Lord Fuller (Con)]

My Lords, once again, we have another policy designed by civil servants sipping lattés in that rather agreeable ground-floor coffee shop at 1 Horse Guards Road, safe in the knowledge that that regular monthly salary, their generous taxpayer-funded pension and their ability to work from home a couple of days a week provide that comfortable lens through which they view the world outside.

But outside, in the real world, there are whole armies of people who do not do the nine to five; they live by their wits, self-employ and undertake seasonal work or term-time employment—the men or women for whom the Labour Party was established and who salt money away for their retirement when they can.

Many of them work hard and ask their accountant to do the books at the end of the year. It might take some time. Neither the worker nor the accountant work to strict 12-month timescales. It might take three months to finalise the numbers in one year, nine months in the next. That is the untidy way in which the real world works.

To legislate to confiscate someone’s pension after 12 months, as if it was fly-tipped by the side of the road to be swept into the dumpster of some poorly performing default scheme, amounts to theft and an abuse of trust that undermines confidence in the pension system.

I totally endorse Amendment 49 in the name of my noble friend Lady Altmann for another reason as well: throughout the canon of pensions legislation, we have a three-year carryback, where people can make up their pension deficit over three years. This amendment is entirely consistent with that. Consistency, simplicity and understandability are the watchwords with which we should proceed.

--- Later in debate ---

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

My Lords, I thank noble Lords—at least, most noble Lords—for their contributions to that little debate. It is probably worth saying at the outset what this is about. Anyone who listened to the noble Lord, Lord Fuller, would assume, first, that theft was involved; secondly, that pots were being taken away from people; and, thirdly, that they were being taken away from hard-working, self-employed businesspeople. None of those things is true. These are pots where people have had a series of jobs, they have moved on and they have left small-value pots scattered around in different places, on which they are paying often quite significant charges, and the value of those pots is diminishing.

The policy was consulted on not by civil servants sitting in Horse Guards Parade but by the previous Government in 2023. This is the proposal that was consulted on by the previous Government and I happen to think that they got this right. So too did the range of opinion that was consulted, and I will say more about that in a moment.

The intention behind the policy is to capture the rights-dormant small pots and have them transferred to a consolidator, which will be clearly classified by the regulator as being one that has been classed as having value for money, and only to such a pot. The intention is to capture the right small pots that are genuinely dormant while avoiding transferring pots belonging to members who remain actively involved with their pension saving. Of course, no eligibility test will operate perfectly in every circumstance, but we believe the current 12-month period provides the right balance between effective consolidation and member protection. I shall explain why in a moment.

The noble Baroness, Lady Altmann, wants to extend the period to 24 or 36 months. That would significantly extend the period during which a pot remains dormant. This is not about industry; it is about risking detriment, both to individual members, who would continue to face charges for longer, and to the wider scheme membership, who, in practice, subsidise these small deferred pots. Either of those extensions would delay the consolidation of genuinely dormant small pots, leaving inefficiencies in the system for longer, resulting in—

[Baroness Altmann (Non-Afl)]

My Lords—

[Baroness Sherlock (Lab)]

Go on. It is going to be a long day.

[Baroness Altmann (Non-Afl)]

If a pot has been forgotten about for many years, this problem will not exist even with my amendment because it will have been dormant for over three years, if it was left behind from a long time ago. I am concerned about the people who are working at the moment who may take some time off, and to give them a better chance.

[Baroness Sherlock (Lab)]

If the noble Baroness could have just a bit of patience, I am just coming to that. I ask her to bear with me for a moment.

Either of the noble Baroness’s proposals to extend the period of dormancy would delay the consolidation of genuinely dormant small pots, leaving inefficiencies in the system for longer, resulting in higher costs for schemes and for members through higher charges.

Where someone holds several small pension pots across multiple schemes, they will find themselves subject to multiple sets of charges over a number of years. The longer the dormancy period, the longer that members will face those charges. It is well recognised that many schemes apply a flat-fee charge structure, particularly those most affected by the proliferation of small pots, and that can compound the issue. For example, a saver with three separate small pots held across three schemes, each applying its own annual flat-fee charge, could see those charges accumulate over an extended dormancy period. If the period were lengthened to 36 months, they could face four more annual charges. Given the relatively low value of many small pots, such cumulative charges represent a significant risk of detriment to the member.

On the point about people taking a career break with the intention of returning to work, in the majority of cases such members will be adequately protected by the 12-month dormancy window. The noble Baroness, Lady Stedman-Scott, mentioned maternity leave. This was looked at carefully during the consultation. Where someone is on paid maternity leave, employers should carry on paying pension contributions. Where contributions are being made, the pots are not dormant, so any period of dormancy would not start until no contributions were paid, and those pots would not be subject to dormancy criteria and would not be consolidated.

Anyone taking an unpaid break that lasts longer than 12 months would find that the system included various safeguards. First, every member will get a transfer notice before consolidation takes place, giving them a clear opportunity to opt out if they judge that consolidation is not in their best interests. As we develop the delivery design, we will look to explore different forms of communication to understand how they can best support members’ engagement with the process.

Secondly, under Clause 115, the Government are taking a power to require employers to provide updated information to schemes periodically. We will consult on how that should operate, but if subsequent evidence shows that career breaks present a genuine issue, we could simply require employers to notify schemes where a break was planned or under way. Where appropriate, that would allow such pots to be made exempt from consolidation under regulations made under Clause 25.

However, the current evidence does not indicate that this is expected to be a widespread problem. As I said earlier, the 12-month timeframe formed part of the proposal consulted on with stakeholders across the pensions industry and consumer representative bodies in 2023 and represents a supported middle ground—long enough to ensure that pots are genuinely dormant, but not so long as to delay consolidation unnecessarily. It is essential that the policy maintains the right balance between operational efficiency and member protection. Just to be clear, the Bill currently requires the regulations to set a minimum of 12 months for a pot to be classified as dormant. That means that if evidence suggests that extending the period is necessary, that period could be set at a higher level or it could be extended subsequently through secondary legislation.

We all want to avoid negatively impacting individuals who take periods of unpaid leave, but if we think about it, applying a blanket extension to the dormancy criteria cannot be the right way to provide that protection. A more appropriate approach is to design the policy framework with the necessary safeguards built in from the outset, and that is what we have done. Introducing a universal increase to the dormancy period would exacerbate the risk of detriment for everybody involved.

Finally, government Amendment 51 is a minor and technical change. It replaces “specified” with “prescribed” in Clause 23 to ensure consistent terminology throughout the Bill. The amendment improves clarity and brings the clause into alignment with the drafting used elsewhere in the measure. In the light of what I have said, I hope that the noble Baroness will withdraw her amendment and that the House will support government Amendment 51.

[Baroness Altmann (Non-Afl)]

My Lords, I thank the Minister for her reply. What she describes sounds very good in theory. My amendment is designed to address the issue that that theory does not work in practice in the kind of pensions world that we have right now. There will be improvements, but they are not in place yet. There is no compensation for a member whose pot is moved away to a worse scheme. They may have higher fees or they may have lower fees. They may get better performance, they may get worse performance. It should be incumbent upon all of us to make sure that there is as much protection as possible. If somebody has not paid in for years, the three-year limit will be fine because they will have exceeded it. Therefore, I wish to test the opinion of the House on Amendment 49.

--- Later in debate ---

[Baroness Bowles of Berkhamsted (LD)]

My Lords, we debated Clause 40 and the new FSMA Section 28C issues thoroughly in Committee. I am grateful to all noble Lords who contributed and to those who have spoken to me since. The amendments in this group would remove the reserve power that would allow the Government to mandate asset allocations for workplace pension savers. We will vote on Amendment 52, which is a consequential amendment, but it carries with it the business amendments—the thing that it is really about. These are Amendment 78, which would delete Section 28C, and Amendment 96, which would delete the now redundant savers’ interest test and all associated references.

My objection here is one of principle. Why should government override trustees? We all know that UK pension funds have invested too little in UK assets and private markets, but we also know why: regulatory interventions, the charge cap and pressure into low-cost indices and gilts have made it difficult to invest in anything that requires governance or research. The track record of intervention is not good, yet this clause proposes more intervention. It is described as a back-up to the Mansion House Accord, to be used if industry does not deliver. But if industry does not deliver it will not be out of obstinacy; it will be because the opportunities are not there at the right price or at the right risk. Mandation does not solve that; it simply overrides fiduciary and professional judgment. Even the threat of mandation is intended to do the same.

If regulated for, this clause would reverse the burden of proof and raise the evidential bar for trustees. Trustees, who already must act in members’ best interests, would additionally have to show the regulator that the mandated allocation would cause material detriment to be exempted from allocation. That is a very high bar, flying under the guise of a savers’ interest test. We would be placing trustees under a new adjudicator of fiduciary duty that has no fiduciary responsibility itself, and a Government with an inherent conflict of interest—and, if I may say, no technical or regulatory qualification. Spending workers’ pensions instead of raising taxes is not fiscal discipline; it is concealment.

The power itself is extraordinarily broad. There is no time limit, no percentage, no end date, and a rather dodgy exemplary asset list—available to any future fancy. Nothing prevents a Government from choosing their preferred assets, including those that no one else will touch, and compelling 22 million savers to invest in them. That is not the route to pension security.

For all these reasons, the only responsible course is to remove this power, and I intend to test the opinion of the House. I beg to move.

[Baroness Altmann (Non-Afl)]

My Lords, I fully support everything that the noble Baroness, Lady Bowles, said. I am very sad to be in the position of needing to do so, because I support the Government’s aim of helping pension schemes to put more money into UK investments and growth. However, the way in which it is being done is the issue here, with unlimited powers and not incentives but diktats. If you threaten a pension scheme that, unless it does what you want, it cannot auto-enrol workers in this country then clearly that is not any kind of carrot; it is just a big stick. Incentivisation is normally what we do to encourage pension investments, and it is what we should be doing. One of my amendments would achieve that, but if the noble Baroness, Lady Bowles, is successful with Amendment 52, we will not need to go into those details.

I hope that the Government, even at this late hour, will rethink their approach to have a two-step approach: to have a voluntary agreement and commit to do certain things, but then the second step would be, if the voluntary agreement was not stuck to or if schemes did not do any of the things that they said that they were going to do, that they would force schemes to do what they wanted anyway. That is not the way to make the best of people’s pensions, and I hope that the Government will think again.

--- Later in debate ---

[The Lord Bishop of Hereford]

My Lords, I speak in favour of Amendment 55, in the name of the noble Baroness, Lady Noakes. There is a questionable theory of change in the Bill—that bigger pension schemes are necessarily better, suggesting the minimum scale of £25 billion. While scale certainly creates advantages, Australian experience suggests that funds can be run at less than this size and still provide value and good outcomes for members. However, concentrating the market into a few megafunds introduces a new system of risk, of schemes that become too big to fail and so are effectively the state’s problem.

Also, megafunds are unlikely to allow for nuance and specialism, such as faith-based funds. Unfortunately, the understanding of faith-based funds in the commentary on the Bill seems to be limited to Sharia-compliant funds and exclusions. The understanding of and engagement with the nuances of faith-based investing in the Bill commentary are superficial at best. There may be perfectly good arrangements with faith-based or ethical distinctiveness; such arrangements may perform well for members in financial and non-financial terms and be significantly smaller than the threshold envisaged. The distinctiveness that they offer might easily be lost in generic megafunds. This amendment makes the important point that absolute size and performance for members need not be correlated.

[Baroness Altmann (Non-Afl)]

Obviously, I support Amendment 55 and a number of the other amendments in this group, but I urge the Minister to consider the dangers of trying to engineer a few large schemes while at the same time knocking out new entrants and competition. From now to 2030, if a scheme is not yet at the £25 billion scale requirement, it will find—and it is finding, such as in the case of Penfold—that it cannot get new business. The employer cannot be confident that it will reach the £25 billion in time, and knows that it could potentially have to change provider. This requirement is undermining innovation and competition in the market right now, and may continue to do so. I hope that the Minister will recognise the dangers.

I apologise to the House, as I should have declared my interests. As stated in the register, I am a non-executive director of a pensions company and an adviser to a pension master trust.

[Lord Palmer of Childs Hill (LD)]

My Lords, I think that everybody in your Lordships’ House wants good investment, whichever side of the House we are on. If you are investing, with apologies, sometimes faith is not enough—you have to see what happens in the market. It is about the choices that are made.

These amendments would allow pension schemes to demonstrate a strong investment performance or innovation in members’ services and administration to be exempt from the scale requirements set out in the Bill, and would introduce greater flexibility on how scale is assessed, including recognising assets held across multiple arrangements.

The amendments reflect concerns that the Bill places disproportionate emphasis on size rather than outcomes, risks disadvantaging smaller or newer entrants and may reduce competition and innovation in the pensions market without clear evidence that larger schemes consistently deliver better returns for members. Amendment 77 would allow exemptions to scale requirements if the regulator deemed that there was no evidence of improved outcomes for members in the case of a proposed merger to meet the scale requirements. This would make sure that members’ interests are protected. On these Benches, we support Amendment 77, and if it comes to a vote, we will support it.

--- Later in debate ---

Moved by

[Baroness Altmann]

112: Clause 42, page 56, line 24, leave out “a non-scale default arrangement” and insert “several non-scale regular arrangements”
Member's explanatory statement
This amendment, and another in the name of Baroness Altmann, seeks to ensure pension schemes are not excluded from the market for going beyond ‘one-size-fits-all’ approaches and can design arrangements for different cohorts of membership. It also seeks to clarify the language used in relation to these arrangements.

[Baroness Altmann (Non-Afl)]

My Lords, Amendments 112 and 113, which I shall not press to a vote, are designed to ensure that we try to keep the needs of pension scheme members at the heart of all the policy changes that we make. For me, pensions have always been about people; they are not just about money.

In relation to the clause that concerns restricting the creation of new non-scale default arrangements, these amendments seek to permit default arrangements below scale—for example, where a company seeks to identify different types of member and put together a default arrangement that is specifically suited more to that type of member than to the traditional one-size-fits-all policy that pension schemes so often seem to be based on, and that certainly do not suit many of the members who are put into them.

I hope that the Minister will help me understand why the Government want to have just one default arrangement—potentially with just one common investment strategy—rather than encouraging more of a pension market that can serve individual groups of members with different needs. That could include those who are in poor health and who might need a different approach, or those who may not know when they are going to retire and therefore a life-styling fund that takes them out of higher return investments would not be appropriate for them.

The idea of pension companies asking members about themselves, beyond just looking at their chronological age, seems to be rather alien. However, I hope it could become much more common, given the digital enabling that is available to pension companies. That would allow them to ask two or three relevant questions, including about someone’s health or whether they have a final salary pension alongside this scheme that they could rely on instead. That is the intention behind these amendments, and I look forward to the Minister’s response.

[Viscount Younger of Leckie (Con)]

My Lords, this amendment speak to a principle that we on these Benches have returned to throughout our consideration of the Bill: the framework we are putting in place must reflect the reality of outcomes, not simply a rigid set of predetermined requirements. This amendment recognises that many schemes quite properly design different default arrangements for different cohorts of members. That is not a weakness; it is a strength. It reflects an understanding that savers are not all the same, and that good outcomes often require a degree of tailoring.

Where such schemes are performing well and delivering strong outcomes for their members, they should not be penalised simply because they do not conform to a single uniform model. In that sense, this amendment is important. It does not undermine the objective of improving scale where that is beneficial, but it ensures that we do not lose sight of the ultimate goal, which is—returning the same theme—better outcomes for savers.

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Baroness, Lady Altmann, for introducing her amendments. I covered quite a bit of this ground in my response to the previous group, which was quite long, so I will not repeat that—I hope that the noble Baroness will not mind.

As I set out in the previous group, Chapter 4 of the Bill relates to default arrangements and the fragmentation in schemes that are in the market. To reiterate, the measures in this chapter do not cap or limit the number of default arrangements, nor do they impact on the ability of a new entrant to enter the market. I previously mentioned innovation, which features in the new entrant pathway, but what we want to see is default arrangements being created to meet member needs. That is why we are introducing a range of measures for them to need regulatory approval before they begin to operate.

On Amendment 112, I understand that the intent is to allow a scheme to have

“several non-scale regular arrangements”.

However, it is not clear what is meant by a “regular” arrangement in the description, as it is not defined.

[Baroness Altmann (Non-Afl)]

I did not go into detail for reasons of time. However, my intention with the word “regular” was to get away from the standard industry jargon of “default fund”, which has quite negative connotations for an ordinary member. Therefore, having the word “regular”—or “standard”, or whatever we want to call it—would be much better for the pensions industry than the negative term “default”. Most people would ask, “Why would I want to default on my money? I want to do something good with it”.

[Baroness Sherlock (Lab)]

The noble Baroness should not worry about time—it is only 3.45 pm. We have all the time in the world, so I am very happy to carry on debating this.

--- Later in debate ---

I understand the point the noble Baroness made, and I think we share the overall objectives, but I hope that she can see that the Bill, as defined, accommodates the intent behind her amendment and that she can withdraw it.

[Baroness Altmann (Non-Afl)]

I thank the Minister for her response, and I beg leave to withdraw the amendment.

Amendment 112 withdrawn.

--- Later in debate ---

[Baroness Altmann (Non-Afl)]

My Lords, I have the pleasure of supporting these amendments. I am very pleased that the Government have made the decision to improve flexibility and help the working of these new superfunds. We do not yet know quite how they will go, so I thank the Government and fully support the amendments.

[Viscount Younger of Leckie (Con)]

My Lords, I shall speak briefly to this group of amendments. At the outset, I recognise that a number of these amendments are either technical or consequential. It is entirely right that the Bill should be internally consistent and operable in practice.

However, Amendment 117 raises a more substantive issue on which I would be grateful for some clarification from the Minister. This amendment alters the way in which the protected liabilities threshold for superfunds is determined, moving to a model in which the threshold is defined as a percentage set out in regulations. I know that we are on the cusp of closing proceedings on the Bill today, but I am afraid that I have a number of questions on this.

First, will the Minister set out clearly what problem this amendment seeks to address? What deficiency has been identified in the current approach? Secondly, what assurance can the Minister give that this change will not weaken the level of protection afforded to members? Is there any scenario in which this more flexible, percentage-based approach could permit lower funding levels than would otherwise have been required? Thirdly, how does the Secretary of State intend to determine the appropriate percentage? Will there be a minimum floor or is this entirely to be left to future regulations? Finally, given the importance of this safeguard, can the Minister explain why it is not being set out in the Bill and what level of parliamentary scrutiny will apply to the regulations that determine it?

Flexibility can be valuable, but when it comes to member protection it must be accompanied by clarity and by robust safeguards. I look forward to the Minister’s response.