Pension Schemes Bill

Baroness Altmann Excerpts

Consideration of Commons amendments and / or reasons
Tuesday 28th April 2026 Lords Chamber

[Viscount Thurso (LD)]

My Lords, I rise for the last time in your Lordships’ House to congratulate the Minister, to thank her for all the hard work that she has done and to say how much I have appreciated my interaction with her. We have arrived at a perfect compromise in that none of us is entirely satisfied—which has always been the definition of a great compromise. We are in a place where the major concerns that many of us had on the mandate part of this Bill have been, if not removed, modified to the point at which they are liveable with. As the Minister said, it is this House at its best.

When I came into this House in 1995, if your Lordships had said to me, “The last time that you speak will be on the fourth ping-pong of a Pension Schemes Bill”, I would have said, “On your bike—not a chance”. However, I have enjoyed the work of being part of this Bill, and I think that both the Government and the Opposition have done their job well. I hope that when this goes on to the statute book, it will deliver for pensioners.

[Baroness Altmann (Non-Afl)]

My Lords, it is a pleasure to follow the noble Viscount, Lord Thurso. I pay tribute to him. He will be much missed by this House. His work on this Bill and in many other areas has been most welcome and helpful and his demeanour and the manner in which he has co-operated with us and with Ministers has been appreciated by everybody. I declare my interests as far as pensions are concerned. I am an adviser to a master trust and a non-executive director of a pensions administration company.

I will not delay the House too long, but I want to welcome the changes that have been made. I thank the Minister for her patience, her engagement and for listening and working with this House. We have now achieved much safer and better outcomes for members of pension schemes. These will allow trustees and managers to look after the best interests of members so that they do not feel forced to invest in ways that they might not otherwise have chosen to or which are against their best judgment.

There will not be an exclusion of listed investment companies. Again, I thank the Minister and the Government for listening to the serious concerns that were expressed by this House. I also welcome the changes that we have made along the way to the Bill. It is a much better Bill. I thank all colleagues across the House who have co-operated so well.

I must pay tribute to the noble Baroness, Lady Bowles, for all the work that she has put in, and the Front Bench on this side as well, who have worked so hard to make this Bill a better Bill. I wish this Bill well. Hopefully, a lot of pension scheme members will enjoy better retirements in the future—I certainly hope so—as a result of what we are doing now.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I am pleased to have reached this stage, where we are now all back on the same side. We have had some exchanges when we have said, once upon a time, that we were all pointing in the same direction, and then we had a little bit of slippage away from that, but now we are back together. I am still no fan of mandation, but we have now got it suitably under control, if I can put it that way. There are reasonable guardrails to make sure that it does not go wrong, that we, I hope, never use it and that we get the additional investments that we all agree in principle are needed.

I thank all noble Lords who have worked on the Bill, because the work, the meetings and so forth have been harmonious. A lot of late-night working, and some early this morning, has resulted in the solutions that we now have. Like others, I thank everyone and hope we can see the rewards that come from the passage of this Bill.

Pension Schemes Bill

Baroness Altmann Excerpts

Consideration of Commons amendments and / or reasons
Monday 27th April 2026 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I thank the Minister, including for our meeting on Friday. For the record, we suggested a “have regard” framework, requiring trustees to consider private market investment in alignment with the Mansion House Accord and to report to the regulator. That approach would meet the Government’s stated policy aims without overriding fiduciary duty or distorting the market. It was rejected, apparently because it lacked a sufficiently heavy sanction threat. So we continue and, unfortunately, mandation remains.

At the second round of ping-pong, I dealt with the technical and market concerns, and all those concerns remain. Today, I turn to the constitutional issues. First, fiduciary duty is a foundational principle in our common law. Trustees must act solely in the beneficiary’s interests, yet this clause directs them towards particular asset classes without any statutory defence or immunity. Trustees are left in a double bind: comply and risk personal liability or refuse and face deauthorisation.

Secondly, the process has been procedurally defective. There was no consultation on mandation, discrimination between investment vehicles or the sanction. The Commons amendments this time merely add procedural language around the savers’ interest test, due regard and reasons, which public law already requires. Further, there is the coercive effect of the so-called reserve power, which is already being deployed to pressure schemes and trustees into compliance without the consultation, assessment or regulatory discipline that regulations would require. That is constitutionally improper. Policy is being pursued by threat, not by law.

Thirdly, the savers’ interest test itself is unchanged in substance. The insertion of “likely to” is trivial. The test still reverses the logic of fiduciary duty, savers have not consented to the additional risks, and the penalty of deauthorisation remains draconian and disproportionate.

Fourthly, pension savings are members’ property. A coercive statutory scheme backed by deauthorisation is an interference with property rights that requires clear justification and careful design. Neither is present.

For these constitutional, procedural, proportionality and rights-based reasons, the clause remains defective and the Government’s amendments do not cure it. This is legislation that relies on threat rather than clarity and coercion rather than properly framed substance. I therefore will ask the House to insist on our deletion and to disagree with the Government’s amendments. I beg to move.

[Baroness Altmann (Non-Afl)]

I support the noble Baroness, Lady Bowles. I point out to the Minister that the Mansion House Accord had two parts. The second part had government obligations, on the basis of which the industry voluntarily agreed to invest in the private assets that the Government favour. None of the Government’s obligations is enshrined in the Bill; they are hoped for. The Minister assumes that private assets will definitely outperform and that if savers do not invest in them they will be losing out somehow. There is no underpin for the losses and even if the investment experts decide that they disagree and would not normally want to buy them, they will still be forced to. This is not the way to get pension funds to invest successfully or to trust the Government in the future. I hope that the Government will think again.

[Lord Ashcombe (Con)]

My Lords, I declare my interest as an employee of Marsh, whose sister company Mercer is a pension consultancy, master trust provider and, importantly, a signatory to the Mansion House Accord. Firms that signed the Mansion House Accord last year in good faith, believing that fiduciary duty and trustee oversight would be preserved in order to ensure value for money for the individual pensioners whose funds they are responsible for investing, now face the prospect—or, dare I say, the threat—of mandation. This simply cannot be right, and we certainly do not think so.

Pension Schemes Bill

Baroness Altmann Excerpts

Consideration of Commons amendments and / or reasons
Wednesday 22nd April 2026 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I will speak briefly to Motion C because that deals with Amendment 35B, which I moved in the last round of ping-pong. I am delighted with the amendments that the Government have brought forward. I felt, during the process of Committee and Report, that I was banging my head against a brick wall every time I spoke—which was often—about innovation and competition. I did not think I was getting anything other than a headache. I am absolutely delighted, and I completely accept that the broader wording that the Government have put forward in their Amendments 35C and 35D is an improvement on what I had been arguing for, so I thank them.

[Baroness Altmann (Non-Afl)]

My Lords, briefly, I support everything that the noble Baroness, Lady Bowles, said. I also thank the Minister: I recognise that there has been significant movement on the part of the Government on some of the other issues.

Unfortunately, although just constraining the mandatory power in the way the Government have proposed is better than it was before, it is not okay for members. Normally, if there is an expectation of market failure, we would wait until that failure is proven before we pass primary legislation, in case it were to arise. It has not been proven. Indeed, if the schemes that invest in the way the Government want—and in accordance with the voluntary accord we are trying to mimic—perform better, as the Government expect, then others are likely to follow, but forcing them to do so against their better judgment cannot be right. There is no compensation if the investment decisions go wrong. The Government have, as the noble Baroness, Lady Bowles, said, inexplicably excluded listed investment companies, which will potentially hold exactly the investments that the Government wish pension schemes to invest in. Therefore, it does not seem that the Government themselves are the best judge of how to invest.

[Baroness Neville-Rolfe (Con)]

My Lords, I support the noble Baroness, Lady Bowles, in insisting on the omission of mandation in Motion A1. The proposal has made the Government unpopular in the City and, as an ex-businesswoman and ex-pension trustee, I urge Ministers to think more radically and get rid of the power altogether, even in its constrained form.

Moving on, I thank the Minister and the Minister of State, Torsten Bell, for Amendments 85C, 85D and 85E in Motion D, which respond positively to my proposal for a review of public sector pensions. The work promised by the Government Actuary’s Department should provide the transparent analysis of this complex area that I have been calling for, with the support of the Centre for Policy Studies, the economist Neil Record, my noble friends Lady Noakes and Lord Moynihan of Chelsea, and the coverage in the Times and the Telegraph. It was reassuring to know from the Minister that the important complementary work responding to the Public Accounts Committee’s concerns about the whole of government accounts 2023-24 will be published within the one-year timeframe in the amendment.

I have been addressing not just a technical matter but serious problems, such as intergenerational unfairness and the long-term affordability of our important public service pensions. I trust that, as a result of the new work, we will be able to tackle the issues better and in a much more informed way.

Pension Schemes Bill

Baroness Altmann Excerpts

Consideration of Commons amendments and / or reasons
Monday 20th April 2026 Lords Chamber

Moved by

[Baroness Altmann]

At end insert “and do propose Amendment 13B in lieu—

13B: Clause 22, page 24, line 19, leave out “12” and insert “24””

[Baroness Altmann (Non-Afl)]

My Lords, I thank the Minister for her introduction and her helpful remarks relating to Motion D, which is mostly what I will speak to in my remarks.

The Government say that allowing small pots to be moved without member consent after just 12 months is essential because, otherwise, any longer period would be detrimental to scheme members. I do not think that would stand up to market scrutiny. This is about providers not wanting to have to administer small pots, the economics of which they find rather challenging. As to the idea that if people with small pots move somewhere else or are moved somewhere else, that will lead to lower fees being charged by the pension providers, I think the providers simply making higher profits is the far more likely outcome.

It will not particularly be detrimental to most members, but for those whose money is moved, without their consent and potentially without their knowledge, I have concerns that allowing just 12 months and then shipping the money off elsewhere to another scheme, which could be worse and could perform worse but just happens to be an approved scheme under the regulator’s supervision, would be a rather dangerous thing to approve after such a short space of time. Members may have paused their contributions temporarily, and I point out to the Minister that members who have decided to opt out of auto-enrolment, who will then be re-enrolled after three years, may decide not to opt out but the money that they previously put into the scheme will have gone somewhere else. This to me suggests that the policy needs to be reconsidered.

Yes, of course, we need to look at the economics of auto-enrolment but we have to also balance fairness to members who have paused temporarily, whether it is for unpaid carers’ leave—perhaps a relative who is terminally ill and it has gone on for slightly over the one year, but their money may have been moved before they get back to their employer—with the costs to providers of administering small pots. I do not believe 12 months is the right balance. It is too short.

I just ask noble Lords whether they feel we should allow a bank to move somebody’s money in their account to a different bank because they have not got a lot in there and the bank cannot make any profit on keeping that current account. I do not think we would feel the same—that after just 12 months, without member consent, their money could be shipped off to another bank.

I agree that we have to find some way of administering small pots. I hope that, when the noble Baroness points out that there is a minimum of 12 months being provided for in the Bill and that regulations will set the required time period, after further consultation there is a chance that we will perhaps have a longer period than the current 12 months. On that basis, I hope that the situation for small pots will turn out to be better after regulations than it currently would seem. I will not press my amendment tonight.

Very briefly on Motion K1 in the name of noble Viscount, Lord Thurso, I too am extremely concerned about the problem of the AEAT pension scheme members. I feel that there is an obligation in some way on government to look more carefully and to take careful consideration of the findings of the various inquiries that have happened more recently. I hope that, when the meeting takes place, those of us who are particularly interested in the AEAT situation will be able to have a proper discussion with the Ministers on that issue. I beg to move.

[Baroness Neville-Rolfe (Con)]

My Lords, Motion J1 reintroduces my proposal for a review of the long-term affordability, intergenerational unfairness, fiscal sustainability and accounting treatment of public service pension schemes. I am trying to help the Government to fill a lacuna in their important work on pensions, so I was taken aback by the Commons’ reason for rejecting it—namely,

“that it is not necessary to duplicate existing information regarding public sector pension schemes”.

The presentation of the liability represented by public sector pensions is widely seen as inadequate, and the PAC itself has expressed concerns—in particular that pension liabilities are not being presented in a way that allows Parliament properly to understand their real costs in the long term.

I will highlight four reasons why a review is needed. First, the cost is huge. As we have heard repeatedly, unfunded pension liabilities represent the second-largest government liability after gilts. Currently, we commit future taxpayers to about £60 billion of new expenditure every year, in the form of a stream of index-linked new expenditure. According to the OBR, the long-term liability is £1.4 trillion, but it may be more as a lot depends on the assumptions made.

Secondly, it is an unfunded pay-as-you-go scheme. The problem with that is that the current generation of older and former public sector workers are taking money from younger generations of workers already weighed down by trying to finance housing, young families and, in some cases, repaying student loans. This is unfair, and it is why I put intergenerational unfairness at the heart of the review.

Thirdly, the coalition did well to reform some public sector pensions following the Hutton review, as the Minister acknowledged, but the new arrangements have turned out to be more costly than expected. Sadly, growth, which helps to ease things, has been modest. Moreover, substantial increases in the pay and size of the public sector make things look better in the short term, as employer and employee contributions increase. However, this is a mirage, as it stores up even more trouble for the future, as greater payouts on higher salaries will be needed as those people in the system retire.

Fourthly, there are serious accounting issues, as we know from the PAC. The scale of liabilities is not clearly visible from the public accounts. Moreover, as I have learned from my unique experience as a civil servant and a Cabinet Office Minister, the costs of future pensions are not properly taken into account in decision-making across the public sector—for example, on restructuring or adding to the workforce. In conclusion, there is a real need to establish whether the system is fair and sustainable, and whether anything could be done to improve things.

I emphasise that I support the work of public sector workers and that I am not making any recommendations. That is for the experts, who would look at the whole area objectively, and it is for the Government to decide what, if anything, needs to be done.

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[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords for their questions and comments. I spoke at some length at the start, and I think I answered most of the questions pre-emptively—or tried to—so I will not dwell on them.

On a couple of specifics, and to reassure the noble Baroness, Lady Altmann, and the noble Lord, Lord Palmer, as I stressed, the Bill says a minimum of 12 months simply because we want to be able to respond to any changes. If there is evidence that we need to make it longer, we can; if there is evidence we need to extend it later, we can do so in secondary legislation. It is set up to do that, and I can give her that assurance.

I am not going to get into America. For me, as parallels go, whether we have one or two years’ opt-out and who is the ambassador to the United States are probably slightly separate categories of decisions. Noble Lords will forgive me if I do not go there.

In response to the noble Lord, Lord Vaux, the two policies operate independently but the intention is that dashboards will be available before the small pot consolidation. I reassure the noble Lord, with the small pots he has scattered around, that he will be written to and given the opportunity to opt out, so that they will not be consolidated without his knowledge or against his will. I hope he will look out for that in due course and can then make appropriate decisions.

The noble Baroness, Lady Neville-Rolfe, asked about the presentation of information. The Treasury is exploring options to present pension liabilities on a constant basis. It is important to be clear that any such presentation would be supplementary. It would not affect the underlying liability, as the noble Baroness knows well, or the way they are presented in financial statements, but it would help to add an extra level of clarity to those who are reading them. I think I have made all the arguments around affordability and the nature of them.

I have one final word for the noble Viscount, Lord Younger, who feels there is no way for decision-makers to make appropriate judgments about the affordability of pension schemes without a review such as this. I think he should have more confidence. The coalition Government, of which his party was the leading member, reformed almost all the public service pension schemes and created a new system, and that is what we now have. A lot of work was done then and is being done now. The measures of affordability that I have described are such that the schemes have that corrective factor straight in them. The fact that the information is out there and published will, I hope, be enough. I therefore urge noble Lords not to press their Motions.

[Baroness Altmann (Non-Afl)]

My Lords, I thank all noble Lords who have spoken. As I said, I will not press Motion D1 to a Division. I beg leave to withdraw the Motion.

Motion D1 (as an amendment to Motion D) withdrawn.

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[Lord Vaux of Harrowden (CB)]

My Lords, I offer Motion E1, in the name of the noble Baroness, Lady Bowles, my wholehearted support. I also say in passing that I wholeheartedly support Motion G1 in the name of the noble Baroness, Lady Noakes.

The Minister has once again explained that the mandation powers are intended to backstop the voluntary Mansion House agreement. She has tabled an amendment that simply limits the amount of assets the allocation of which may be mandated to no more than 10% by value and 5% in the UK, with the UK to be defined later. The Mansion House agreement is a voluntary agreement. If the Government have a mandation power, they are basically saying, “If you do not do this, we will force you”, which would mean that it is not, in reality, voluntary. The trustees would be forced to act against what they believe is in the best interests of scheme members. Why else would they not want to invest in these apparently fantastic assets?

Under the Bill—and the Minister’s amendment in lieu does not change this—the only exemption to that would be if the trustees could prove that the mandated asset allocation would cause,

“material financial detriment to members of the scheme”,

not just that it would not be in their best interests, but would cause material financial detriment. It cannot be right to force trustees to invest in a way that they would feel would cause any financial detriment, let alone material financial detriment, even if limited to just 10% by value.

The Minister’s amendment still does not put any restrictions around the type of assets or, indeed, specific assets that can be mandated. Here I very much disagree with what she said earlier. It does not limit it to the assets in the Mansion House agreement. Despite the proposed new subsection (5A), which requires the regulations to describe the examples that are listed in subsection (4), these remain just examples. Subsection (5) remains very clear that a qualifying asset does not have to be one of the examples. The Minister’s amendment does not change that in any way. I do not agree that the deletion of subsection (8) has any such effect. The Bill will now just be silent on the allocation of assets within the 10%. There is nothing here that stops mandation in a single asset type or class.

There is nothing here to prevent any future Government mandating any assets they please. While the Minister might point to the report that the Secretary of State must publish under subsection (12), which, among other things, sets out how the financial interests of members would be affected, it is important to note that that applies to only the first set of such regulations under this subsection. Any further future mandation, perhaps under a different Government, is subject to no such safeguard, just the negative process. Such assets could be mandated for any reason they wish to give. As an example, what if Nigel Farage were to find himself in a position of influence? He is a well-known enthusiast for and investor in cryptocurrencies. There is nothing in this Bill that would stop him mandating that the relevant funds should have 10% invested in cryptocurrency. Any Government could use this power to mandate whatever pet project they wanted. Let us be clear that the definition of assets in the Bill is sufficiently wide that it could be mandation into specific assets, specific projects, rather than a class, if that is what they wanted to do.

Even if it is to be used only as a backstop to the Mansion House agreement, is that such a good thing? Let us look at the example assets set out in the Bill. One is private debt. You do not have to be an avid reader of the financial pages to know that there are growing concerns about whether private debt may be the cause of the next big financial crisis. Many investors are trying to get out, which is why many large funds are now restricting redemptions. When someone like Jamie Dimon starts talking about cockroaches, we should take notice. Any sensible pension fund would be treating private credit with huge caution at the moment, but this is specifically one of the asset classes that the Government want to encourage and mandate. Government mandation of asset allocation has no place in the regulation of pensions. The fiduciary duty should remain sacrosanct. I urge all noble Lords to support the noble Baroness, Lady Bowles, in her amendment.

[Baroness Altmann (Non-Afl)]

My Lords, I agree with every word that the noble Lord, Lord Vaux, has just said. I declare my interests as a non-executive director of a pension administration company and a board adviser to a master trust. I support all the amendments in this group, but I shall speak particularly to Motion E1 so ably moved by the noble Baroness, Lady Bowles.

A fiduciary obligation is one of the highest standards of duty in common law, yet this Bill would override the best judgment of trustees. Although the 5% and 10% amendment laid by the Government is welcome, it does not deal with issues such as those outlined by the noble Baroness, Lady Bowles, and the noble Lord, Lord Vaux. If trustees do not believe that the case for, for example, private assets is strong enough, they will still have to buy them or they will not be able to participate in auto-enrolment. This is not incentivisation. Incentivising financially, perhaps via tax reliefs, would change the calculation of the potential outcomes, but mandation does not do that.

The dangers of mistiming are clear. A McKinsey study published in February shows that, for example, private equity is under structural strain with constrained liquidity, valuation uncertainty and returns that have been weaker. As the noble Lord, Lord Vaux, outlined, the same applies to private credit, particularly that held in open-ended fund structures. In infrastructure, we have recently seen the returns offered for solar power degraded from in line with RPI to in line with CPI, which has put international investors off some of the infrastructure opportunities in the UK.

If the Government persist in their idea that closed-end funds, which are much more appropriate and have their own diversified, expertly managed portfolios of qualifying assets cannot qualify, that simply further reinforces the idea that the Government does not know best and that it is not safe for this House to authorise the Government to mandate these investments. Not all pension funds have the in-house capability to manage alternative or illiquid assets. Just being large does not give them instant expertise. Australian and Canadian funds have taken decades to build up this kind of ability. A strict time limit simply does not and cannot fit with the requirements that the Government seek to impose on pension schemes. I hope that noble Lords will stand firm in the resolve to send this back to the other place.

[Lord Remnant (Con)]

My Lords, this is probably the final time that noble Lords will have the dubious pleasure of hearing from me, and I assure the House that I will be brief. I wholeheartedly support Motion E1 in the name of the noble Baroness, Lady Bowles, and all the remarks that have been very supportive of that that noble Lords have made to date for the reason that she has so eloquently expressed. I also very much support her remarks about the unwarranted discrimination in this Bill against investment companies. Suffice it to say that a provision that is wrong in principle is not rectified or remedied by restricting the width of its application in the Government’s amendment.

I would like to venture just one additional observation. As we have heard, the Mansion House Accord is a voluntary agreement specifically targeted at UK assets to drive growth and improve returns. It aims to improve financial outcomes for savers while supporting UK economic growth, one of the Government’s core objectives. It is necessarily a voluntary initiative expressly subject to fiduciary duty and consumer duty, and it is dependent on implementation by the Government and regulators of critical enablers. Yet here is the rub: had the industry’s best intentions towards investing in private markets not been formalised in this way, there would be nothing for us to discuss here today. There would be nothing for this reserve power to backstop, so it would be redundant. Given the Government’s expressed intention never to use a reserve power, they would hardly be putting forward a primary power to compel institutions to invest moneys in ways in which they—the Government—see fit. At the time of the signing of the Mansion House Accord, there was no indication that the agreement would be anything other than voluntary and that the Government were proposing to take the powers of compulsion now proposed. I believe that the signatories entered into this accord with the best of intentions and with every expectation of meeting their commitments, and I believe that they will do so, but there is no certainty that they will not be blown off course, whether through scarcity of available opportunities or otherwise.

Should that happen, this or any future Government could undoubtedly consider the use of the reserve power that the Bill grants them. There is every reason to believe that the industry’s perhaps justifiable reasons for falling short would not find favour with the Government, and that the interpretation of the caveats built into a voluntary accord in terms of fiduciary duty, consumer duty and regulatory and governmental enablers would be disputed and the caveats overridden. All in all, it would be a mess, and City institutions would rue the day they had tried to be helpful towards the Government in playing their part in meeting their growth objectives.

Pension Schemes Bill

Baroness Altmann Excerpts

Report stage
Monday 23rd March 2026 Lords Chamber

[Lord Palmer of Childs Hill (LD)]

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

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

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

[Baroness Altmann (Non-Afl)]

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

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

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

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

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

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

[Baroness Stedman-Scott (Con)]

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

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

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[Baroness Sherlock (Lab)]

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

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

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

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

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

[Baroness Altmann (Non-Afl)]

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

[Baroness Sherlock (Lab)]

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

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

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

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

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

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

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

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

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

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

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[Lord Davies of Brixton (Lab)]

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

[Baroness Altmann (Non-Afl)]

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

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

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

[Viscount Thurso (LD)]

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

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Moved by

[Baroness Altmann]

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

[Baroness Altmann (Non-Afl)]

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

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

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

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

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

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

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

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

[Lord Hain (Lab)]

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

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

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

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[Viscount Younger of Leckie (Con)]

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

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

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

[Baroness Altmann (Non-Afl)]

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

[Viscount Younger of Leckie (Con)]

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

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

[Baroness Altmann (Non-Afl)]

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

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

Amendment 124 withdrawn.

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Moved by

[Baroness Altmann]

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

[Baroness Altmann (Non-Afl)]

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

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[Lord Davies of Brixton (Lab)]

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

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

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

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

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

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

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

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

[Baroness Altmann (Non-Afl)]

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

[Lord Moynihan of Chelsea (Con)]

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

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

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

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[Lord Davies of Brixton (Lab)]

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

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

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

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

[Baroness Altmann (Non-Afl)]

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

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

They asked:

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


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

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


That is just not what has happened.

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

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

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

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

[Baroness Stedman-Scott (Con)]

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

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

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.

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[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.

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[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.

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[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.

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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.

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[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.

Pension Schemes Bill

Baroness Altmann Excerpts

Report stage
Monday 16th March 2026 Lords Chamber

Moved by

[Baroness Altmann]

24: Clause 11, page 14, line 7, at end insert—
“(14) Value for money regulations must include criteria relating to member service quality, including—(a) accuracy of recorded contributions;(b) reliability of valuation data;(c) efficiency of administration;(d) jargon-light communications in plain English;(e) availability of education or guidance for all members;(f) specific support for vulnerable members.”Member’s explanatory statement
This amendment seeks to ensure that value for money assessments consider the quality of member services and communications, as well as data and administrative accuracy.

[Baroness Altmann (Non-Afl)]

My Lords, I will speak to various of my amendments in this group. We have moved on now to value for money. Of course, I fully support the Government’s aim of moving from talking about cost as the only arbiter of whether a scheme is good, and low cost being the measure of good, to looking at a much wider area of benefits for members in terms of value for money.

The particular amendments that I tabled, which I also tabled in Committee, focus on language in particular. I am grateful to the noble Baroness, Lady Bowles, for her support for Amendments 24 and 25. These amendments are trying to outline more clearly what criteria a scheme that is good value for money should be able to fulfil, so that it is much clearer what “value for money” means beyond whether it is low cost, and indeed beyond the aims of just saying whether a scheme has been performing well.

Ultimately, when we are discussing the value of a pension scheme with members, one thing that has in the past not typically factored into the thinking of the industry is the idea that the scheme might encourage members to understand pensions and give them a better idea of what the pension fund does and the benefits it can bring to them. So often in the past, there has been a reliance on member inertia, where they do not have to do anything and the pension is done for them.

The aim of the various requirements I suggest in Amendment 24 is to make the accuracy of contributions important. At the moment, schemes are generally riddled with data errors. I know that the Pensions Regulator has been looking at this recently, but part of the assessment of a good scheme should be whether its administration is capable and competent in managing scheme assets and recording the contributions correctly. I therefore suggest assessment criteria that includes reliability of the valuation data and efficiency of administration. Those are other areas that I hope will form part of the value-for-money judgments, and I hope that a requirement that regulations must include them will be included in the Bill.

I have also included what I call

“jargon-light communications in plain English”.

So often when you get a pension statement, or when anyone talks about pensions, it is in jargon that makes no sense to ordinary human beings. It is pension speak, which everyone in the pensions industry automatically understands, but, unfortunately, when the member gets their information about pensions it is usually something that they ignore, throw away or put in a file for later, rather than looking at what it means.

That leads on to my next point, which is the

“availability of education or guidance for all members”.

Members of the scheme would then have a provider that tries to help them understand what is happening to their pension fund.

Along with that, of course, would be specific “support for vulnerable members”. To some extent, vulnerable members are better taken care of, but I argue that, when we are looking at value for money—I stress that the Government are right to suggest that we need to look at value for money—there are important areas that should be in the regulations. I am trying to highlight them here.

The remainder of the amendments look at the language that will be used to assess value for money, apart from Amendment 32,which I will come back to. The other amendments deal with the Government’s assessment of whether a scheme is good value—which in the Bill is called “fully delivering”, though I am not sure that that is the kind of language that an ordinary person would relate to when thinking a scheme is good value. I am suggesting that rather than “fully delivering”, why not use “good value”? By the same token, when a scheme is judged to be “not delivering”, could we not say that it is “poor value”? That is what the ordinary person would immediately relate to when they look at what a value-for-money assessment says.

I appreciate that the Government and the consultations around this have looked at different red, amber and green ratings—RAG ratings—such as light green, dark green and so on, but I am trying to signal that there are ways in which we could talk about pensions that would resonate much better with the ordinary person. I hope that the Government might consider that.

The pensions industry, of course, loves its jargon and is very wedded to it, but I am not sure that it helps encourage people to want to put more money in pensions, for example—an aim which I believe the Government want. It would be more achievable if pension providers spoke to ordinary people in language that they understand—and their members are ordinary people, such as workers and so on.

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[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords who have spoken this evening. I am grateful to the noble Baroness, Lady Altmann, for her support on the principle of the shift to value for money. Before I move on to the detail of her amendments and others, I say to the noble Lord, Lord Lucas, that I am not going to get in between him and my noble friend Lord Davies in fighting it out on who got us here. Of particular relevance to this debate is that we would probably all agree on the need to move from cost to value—and that is only one of the things that has been going wrong. If we have pension funds competing for business with employers on cost rather than value, we are never going to move to the kind of scale that we want to see, which is a consolidated pensions market with large and better-performing pension schemes, improving the opportunity to invest in a wider range of assets and, I hope, taking us in a direction that would make the noble Lord happy.

I start with Amendment 24. I recognise the consistent commitment of the noble Baroness, Lady Altmann, to improving outcomes for members, particularly through better service quality and clear communications for vulnerable members. The Government entirely share these aims. Where we differ is that we think that the Bill already provides the necessary powers to deliver them. Let me explain why.

Service quality is a core part of the VFM framework. The Bill ensures that these metrics remain central to assessments, while allowing detailed definitions to be set in regulations so they can evolve with member expectations and industry practice. Clause 12 makes it clear that trustees may be required to disclose data on service quality. However, defining a comparable quality of service is complicated, as I am sure the noble Baroness will appreciate. We have consulted with industry on appropriate metrics and how these should be measured to ensure that they represent the nuances involved in determining quality, without inadvertently disadvantaging those arrangements—for example, with a less engaged member demographic.

Defining this through regulations provides us with the scope to develop comparable data in this area in an adaptable, consultative and proportionate way, while still acknowledging the technical nuance required here. For these reasons, while fully supportive of its intent, we cannot accept the amendment as the Bill already provides the powers needed to achieve its aims.

I turn to another matter for the noble Baroness, Lady Altmann, I fear. Her Amendment 32 would limit the Government’s ability to specify the consequences for intermediate ratings unless received for at least three consecutive years. I listened carefully to what the noble Baroness said, but the Government cannot support the amendment. Reducing reporting for such schemes risks missing early warning signals that changes are needed to protect savers. We believe that thorough, regular reporting ensures the long-term health and security of pension schemes for all members.

As the noble Baroness said, Clause 16 gives the Secretary of State discretion to set different consequences for different grades of intermediate rating. As proposed in recent consultations, amber-rated arrangements would face consequences, while light-green arrangements would not. A three-year threshold would mean potential problems going unchecked for too long. Instead, we propose giving schemes up to two VFM cycles to make improvements. We believe that is the right approach, and essential to protecting members.

Turning to Amendment 44 from the noble Baroness, Lady Stedman-Scott, while I appreciate the desire for a statutory timetable, we cannot accept this amendment, as a fixed 12-month deadline risks pre-empting the essential consultation and undermining the co-ordinated regulatory process which is already under way. Our published road map aims for the first data disclosures and assessments in 2028, based on 2027 data. Providing clear powers in the Bill, with the technical detail and timelines set out transparently in secondary legislation, remains the most proportionate approach here. A government amendment, to which I will come later, deals further with this. Industry’s responses to the latest VFM consultation will inform draft regulations and guidance.

Moving on to the group of amendments from the noble Baroness, Lady Altmann, on simplifying language in VFM assessments with a view to making them more intuitive for members to understand, this is another area where we completely agree with the aim but disagree with the proposals. Let me explain. “Fully delivering”, as set out in the Bill, is a more objective term, which is aligned with the structure of the framework. The language in the Bill has to allow regulators to make clear, consistent and, crucially, legally robust determinations, and “fully delivering” gives them the scope they need to apply the framework as intended. By contrast, the term “good value” risks weakening regulatory clarity by introducing a term that is broader, more subjective and less tightly aligned with the evidence-based metrics underpinning VFM assessments. Given what will flow from these assessments, clarity is crucial.

The same argument applies to amendments looking to change the terminology of “not delivering” to “poor value”. Crucially, these statutory terms will not be used in public-facing communications. Instead, members and employers will see the simple and intuitive RAGG ratings—red, amber, light green and dark green. Simplicity and accessibility will be appropriately delivered, without sacrificing the robustness required in the legislation. That is why we cannot accept the amendments.

I turn to the amendments tabled by the Government. As drafted, Clause 122, “Commencement”, provides that the value-for-money measures come into force on the day on which the Bill is passed. Our amendments allow the VFM provisions to be commenced via regulations. This provides the Government with greater flexibility to introduce elements of the VFM framework in stages, following detailed design work and informed by consultation. That brings the VFM clauses in line with other parts of the Bill which are commenced by regulations. The FCA and TPR have recently concluded their consultation on the VFM framework, and we are using the valuable insights and feedback from industry to shape final proposals in order to ensure that the regime is fit for purpose across both the trust-based and contract-based sides of the market.

We recognise that introducing the VFM framework is a significant undertaking for industry that requires adjusting to the administrative and data obligations to which it will be subject. I want to be clear that it is and remains the Government’s strong intention that the first VFM data disclosures and assessment reports will be required in 2028. However, this amendment provides us with the option, if necessary, to stagger the introduction of parts of the framework to allow more time for industry and regulators to adjust to its introduction.

In Committee, we debated amendments from the noble Baroness, Lady Altmann, on reporting requirements for intermediate schemes. The consultation paper from the FCA and TPR sets out our proposed approach, which is to require improvement plans for amber-rated but not light-green-rated arrangements, and action plans for red-rated arrangements. Templates will help keep requirements proportionate. Taking the flexibility to smooth the introduction of different elements of the framework, should that emerge as a pragmatic way forward, enables us to continue working closely with industry to fully understand the potential implications of the VFM measures. I hope that this provides the House with reassurance that we recognise the potential burden for industry. This has informed our approach—to reach a balance between ensuring that members receive the value they deserve, and that industry is in a position to comply with these new requirements.

Lastly, I clarify that government Amendments 36, 37, 38, 39 and 26 to Clauses 18 and 12 are of a minor and technical nature and correct consistency mistakes. In light of all that I have said, I hope that noble Lords will feel able not to press their amendments and to support those in my name.

[Baroness Altmann (Non-Afl)]

My Lords, I thank the Minister for her remarks. I also thank all noble Lords who have spoken in support of my amendments, in particular Amendment 24, which I had hoped the Government might be a little more favourable towards than they seem to have been. I understand that the Minister says that the Government have consulted industry and that has fed into the production of the Bill. I hope that the Government will also consult consumer groups and members because it is they who really need to understand the value-for-money framework. It is those groups that I was addressing with my proposals because from the point of view of industry it looks rather different, perhaps, from how it does from that of the ordinary workers who are having their money put into the pension.

I understand that the Government do not wish to accept Amendment 24 but it will, I hope, still help provide a framework for some further discussions as we develop the value-for-money framework. I beg leave to withdraw the amendment.

Amendment 24 withdrawn.

Pension Schemes Bill

Baroness Altmann Excerpts

Report stage
Monday 16th March 2026 Lords Chamber

[Baroness Altmann (Non-Afl)]

My Lords, I have added my name to Amendments 2, 4 and 5, so I will speak to those. I support the noble Lord, Lord Fuller, in his Amendment 1. The addition of the Pensions Regulator, alongside the FCA, is very important. I must declare my interest as a non-executive director of a pensions administration company and as a board adviser to a pensions DC master trust.

Amendments 2 and 5 are really important in the context of the Local Government Pension Scheme. The LGPS is an unusual type of defined benefit scheme; it is not like any of the others which are funded, because it is underwritten by the Government. It does not pay a levy to the Pension Protection Fund and the Government completely underwrite all liabilities, so of course the trustees are able, perhaps, to feel that they can take more risks than a defined benefit scheme, which is supported only by an employer which may fail and the members end up in the PPF. Having said that, unless the Government wish to change the Local Government Pension Scheme into another unfunded public sector scheme and just take all the assets in—which they could do—surely it is important to ensure that the trustees can make investment decisions that they believe are best, rather than the Government suggesting they know better and telling them what to do.

Amendments 2 and 5 both address restrictions on the ways in which the Local Government Pension Scheme can invest, whereby it has to choose to belong to one asset pool and that is it—it could not participate in another pool, even if it felt that that other pool had attractive attributes. I understand the Government’s intent—they would like pension schemes to support both local and national projects, as would I—but it should not be that you can support only the local projects that happen to be part of the asset pool that you must belong to. That is bound to turn these into discrete pools, rather than diversified pools where the trustees have a much freer choice.

The Government may be muddling the idea of scale with the idea of diversification. Both are important and both can deliver better outcomes for members, but trustees have to be able to choose which managers they believe can do the best for them. Quite frankly, usually it is the case that any one pool cannot be the best at everything. There will always be the need, as the noble Lord, Lord Fuller, said, for specialist expertise to be offered to pension schemes.

Amendment 4 is in the name of the noble Baroness, Lady Noakes, and she excellently explained what she intends it to do. The idea is that the Government should not dictate specific assets that pension schemes can invest in.

Although I have no problem with the Government incentivising particular types of investment, whether by offering better returns or different tax reliefs for investing in the ways the Government might wish—they might encourage a local pension fund to invest in its local area—the idea of mandating it with no option but to follow seems a step too far. I hope the Minister will understand that there is support for the ideas the Government wish to achieve, and which lie behind the stipulations in the Bill. It is just that the powers extend so far that we have no idea what might come next on mandation.

We are not talking about incentivising. We are talking about forcing schemes to invest in ways that Ministers see fit, rather than supporting the economy in general in ways that the trustees and their managers decide would deliver the best outcomes for the scheme.

[Lord Palmer of Childs Hill (LD)]

My Lords, first, I have to declare an interest because after 28 years as a councillor in the London Borough of Barnet, I am in receipt of a modest local government pension. I sometimes forget to declare that and I do so now. We have been lucky to have incisive speeches from the noble Lord, Lord Fuller, the noble Baroness, Lady Noakes, my colleague and noble friend Lady Bowles and the noble Baroness, Lady Altmann. After them, I almost want to ask, “Is there anything else one should say?”, but as a politician, I will do so.

This has been a useful debate on the future governance of the Local Government Pension Scheme, and there is a common theme running through it: the need to protect fiduciary responsibility while ensuring that governance is modern, credible and transparent. The amendments in this group range from consultation requirements to the possibility of participation in more than one asset pool, and to the important question of whether Ministers should be able to steer investments towards particular assets and places. I hope that Amendment 4 will be moved at the end of this debate; I would certainly want to support that amendment, if the noble Baroness decides to move it.

We on these Benches recognise that pooling can bring efficiencies and expertise, and we generally welcome the provisions on the Local Government Pension Scheme in the Bill, but bigger is not always better simply because it is bigger. Flexibility matters: if one pool has genuine expertise in a special asset class, there is an argument for allowing schemes to benefit from that knowledge, rather than being locked into a single route for all purposes. Equally, if powers are to be used over asset pools, proper consultees matter. It is hard to object to hearing from bodies such as the Government Actuary’s Department and the Pensions Regulator before directions are given. These are basic disciplines of good administration; I only hope that the Local Government Pension Scheme uses those provisions.

Our wider concern remains the same one raised repeatedly in Committee: that the Bill is too ready to create broad powers first and to explain the practical boundaries later. On the Local Government Pension Scheme, that is particularly sensitive because we are dealing with very large sums, long-term liabilities and members who expect prudence—that was probably why they went into local government in the beginning—not improvisation. So our test is straightforward: does the provision strengthen scheme governance, preserve proper fiduciary decision-making and protect members from political or poorly evidenced intervention? Where it does, it deserves support; where it does not, Ministers still have work to do.

The amendments in this group are pretty modest. As we go through the Bill, we will come to other amendments that would go further. The Minister and her colleagues should think again about whether these amendments improve the Bill. They are not against the Bill or the Government; they are prudent. They would provide fiduciary powers and the power to use them. I invite Ministers to take a step back and consider giving their support to these early amendments and asking their colleagues in the other House to do so. These are reasonable amendments. As I say, later in this debate there will be other amendments that go further. I would like to hear that Ministers feel there is some credibility in the amendments in this group, particularly Amendment 4.

--- Later in debate ---

[Baroness Altmann (Non-Afl)]

My Lords, I support this amendment. This is an important time to talk about the contribution rates to the Local Government Pension Scheme. When funding has changed so substantially in a very short period of time, having an interim review clearly makes sense, for not only the local authority but the council tax payer.

As we heard in a previous debate, we are seeing councils with significant surpluses continuing to spend council tax income on pension contributions to schemes that do not need them because they are in significant surplus. Further, fixing contribution rates in a three-year cycle underestimates the timeframe that has gone into the setting of those rates, because the valuations on which those rates are based were done more than three years before the third year of the cycle. It takes about a year for the scheme valuation to be done and the contribution rates to be set, so they could easily be four years behind. A lot can happen, and has happened, in that timeframe.

I hope the Government will accept that this principle of allowing councils to be more flexible with the revenue that they receive from council taxes could benefit local authorities and the country. We know that councils have been forced to increase council tax due to their inability to meet their basic spending commitments. If the amount that councils spend on pension contributions could instead be spent on social care, or other local authority needs, they would require less money from local residents—which would improve the local economy, as tax rates would not be so high—and central government. The pressure on public spending could therefore be ameliorated.

I know that there is a principle of trying to achieve what is referred to as stability in contribution rates, so that they do not change too much from one year to the next. However, when there are significant changed circumstances, forcing schemes to fiddle the assumptions on which the scheme funding is based so that local authorities can somehow justify maintaining contributions to a fund that, in the private sector, would not need the money and would normally be having a contribution holiday, strikes me as not serving the best interests of either the local or the national economy. A review of how pension contribution rates are set at local authority level is probably long overdue, given the big changes that we have seen, and could help the Government with some of the funding strains that they have been feeling, and their desire to improve growth.

If a local authority is spending, say, 20% or more of its council tax revenue on putting money into a pension scheme that does not need it, and if that pension scheme is underwritten by the Government anyway, so its members’ benefits are not at risk, you have a very different scenario from that a private sector employer’s trustees might be facing: if the contributions stop and the employer gets into trouble, there is nothing much that can be done to ameliorate the position for members. That risk does not really exist in a local authority pension scheme. As I say, there is no contribution to the Pension Protection Fund and no underwriting; this is guaranteed by taxpayers.

Therefore, if you are raising taxpayer revenue from council tax, why not simply use it where it is needed, rather than putting it where it is not needed for now? You can always come back later and impose contributions when or if the funding position changes, but the scheme is not going to run out of money in any short-term period; that is not how pension schemes work. I therefore hope that the Government will appreciate the logic of this amendment, which was so ably moved by my noble friend on the Front Bench.

[Lord Katz (Lab)]

I thank the noble Viscount, Lord Younger of Leckie, for his amendment, and I share the interest in ensuring that interim valuations are accessible and transparent for all employers in this scheme.

Amendment 12 proposes changes to Regulation 64A of the Local Government Pension Scheme Regulations 2013, which concerns valuations carried out outside of the triennial valuation cycle. In Committee, I committed that the Government will consult on changes to Regulation 64A this year, and we will consider the matters raised as part of that consultation.

I reiterate the point I made in Committee: any changes to regulations need to be properly considered to avoid unforeseen consequences. The views of employers, funds and other sector groups are vital to this process, and amending legislation now would prevent them contributing to the policy design and therefore ensuring our ability to get the best possible outcome. There is clearly value in having a mechanism that allows employers to review contribution rates, especially where employer covenants or liabilities change significantly, but this must remain consistent with the triennial valuation and be workable for all participants across the sector.

Amendment 12 aims for additional transparency, in a similar vein to the other amendments we have discussed this afternoon. The noble Viscount should note that the policy on interim valuation contribution reviews is set out in the funding strategy statement, on which employers are consulted.

The noble Baroness, Lady Altmann, spoke in detail about the time lag of valuations and the impact of events in the financial cycle. As everyone will be aware from geopolitical events, markets can vary from one day to another. Simply requesting a valuation on the basis of a change in the day’s markets would be excessive, and indeed many funding strategy statements state this. The current regulations provide for interim valuations on the basis of changes in liabilities or covenant. The risk of liabilities not being met is that the burden goes up not for the Government but for the council tax payer, as a council that may not be in a good financial position, as the noble Baroness says, needs to increase council tax to cover liabilities. The Government do not underwrite the scheme. Your Lordships’ House should remember that 50% of LGPS employer contributions are not from local authorities, so we are not talking about a situation where it is exclusively local authorities that would cope with the change.

I said in Committee—and I could have said this in response to the previous group as well—that it is marvellous to see the Benches opposite show concern now about the funding of local authorities. We are concerned about it, and we were concerned about it for the previous 14 years when the Benches opposite were in government and had a differing view of imposing austerity on local government. I will say no more, and I apologise to your Lordships’ House—I could not help myself, having been very good on the previous group.

I hope my response demonstrates that the Government have considered the points raised through this amendment carefully. I therefore ask the noble Viscount, Lord Younger of Leckie, to withdraw Amendment 12.

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Moved by

[Baroness Altmann]

13: Clause 9, page 10, line 36, at end insert—
“(6A) Prior to making modifications to scheme rules in line with this section, trustees must commission and consider relevant formal actuarial advice regarding the impact of surplus distribution on scheme funding and future member or employer benefits and must consider alternative approaches for dealing with a surplus that include—(a) running the scheme on without new contributions,(b) transferring to a superfund, and(c) buying annuities.”Member’s explanatory statement
This amendment would require trustees to ensure they have had formal advice about surplus distribution before changing scheme rules, and the impact of alternative ways to deal with scheme funding.

[Baroness Altmann (Non-Afl)]

My Lords, Amendment 13 is in my name. I shall also speak to Amendment 15, which is very similar. I also support the aims of Amendments 14 and 16 to 19, which seek to make sure that members’ interests are taken into account when trustees distribute, or consider distributing, a surplus to employers.

Amendment 13 seeks to build on the important discussions we had in Committee. I thank the Minister for her thoughtful responses to those discussions. I appreciate the Government’s commitment to ensuring that defined benefit pension schemes can contribute to economic growth through the prudent and efficient use of their substantial surpluses. With around £1.2 trillion in private sector defined benefit assets—and that is on prudent measures—the potential for positive impact is huge, given the estimated £240 billion surplus from those 4,500 schemes.

Trustees who have stewardship over these assets on behalf of around 9 million scheme members are now being encouraged to make strategic decisions which could reshape some schemes for the future and deliver broader benefits, potentially both to members and to the economy. The Bill is correct in encouraging that to happen. Of course, trustees have significant responsibilities when they assess a scheme’s surplus and whether to it pay out or to preserve it. As the noble Lord, Lord Davies of Brixton, has so often reminded us, a surplus is merely a reserve—a buffer against future bad markets, perhaps. In some schemes, the extent of that surplus is so significant, with the employer having put in so much money during the past few years, because of the impact that quantitative easing had for so long on pension schemes’ liabilities, that it is perhaps appropriate for trustees to consider whether employers should be able to get some of that money back, especially if they could invest some of it into their business and help grow the strength of the employer behind the scheme.

As trustees have these greater responsibilities, my amendment seeks to ensure that the relevant comparisons are being made before any surplus is distributed, so that the trustees have considered the available options. The current Technical Actuarial Standard 300 would properly inform them. This would include not just paying out a surplus but running the scheme on for the benefit of the members. It could also include possibly finding a new employer sponsor who could manage the scheme with a greater strength behind it and take advantage of the surplus to some degree both to enhance member benefits and to return some money to the employer.

The noble Lord, Lord Davies, may well tell us that these technical actuarial standards and the reports, such as TAS 300, are already in place, so why do we need the amendment? I am informed by significant areas in the pension industry that advise many DB schemes that, although there is a requirement for these reports, trustees do not always take note of them. They are not even always presented to the trustees. This is under the aegis of the Financial Reporting Council, which does not have sufficient resource to enforce the standards that it would, perhaps, otherwise wish to do.

This amendment makes it clear to trustees that they must consider the broader actuarial advice—not just asking whether they should pay out the surplus and how much they should pay out but considering the other options that would be available. Many trustees will consider paying out a surplus alongside a scheme buyout, for example. This actuarial report would help to inform the trustees of the potential benefits and improvements to members that could be achieved by not buying out and by running the scheme on, for example.

At the moment, for each £1 billion of buyout funding that exists in a scheme, if they buy out, approximately £150 million to £250 million then goes to the insurance company in profit because it takes in the money but then rerisks it but invests in higher return assets—so it makes that profit. It is entirely feasible to imagine that a scheme that carries on could itself get that extra profit by running the investment policy in a kind of low-risk way, just as an insurance company would do, but that money could then go to the members or be shared between the members and the sponsor.

--- Later in debate ---

I am grateful for all noble Lords’ contributions. However, for the reasons I have outlined, I hope the noble Baroness feels able to withdraw her amendment and I ask that noble Lords support Amendment 21 in my name.

[Baroness Altmann (Non-Afl)]

My Lords, I thank the Minister for her thoughtful and considered response. I also thank all noble Lords who have supported my amendment, including the noble Lord, Lord Davies, and the noble Viscount, Lord Thurso. I had hoped that the noble Lords on the Opposition Front Bench might be willing to support me if I were to press this to a vote, but it sounds as if that is not the case. I hope that the Government will be successful in ensuring that when pension scheme surpluses are paid out, members are considered carefully. I know that the Minister considered this would be unnecessary bureaucracy. I have to say that it is a requirement, but one that is not always adhered to, and the mechanisms for overseeing it do not seem to have been working.

More particularly, what I had hoped this amendment could help achieve was not only helping the trustees meet member benefits but, in many circumstances, potentially improving member benefits beyond what is currently payable. Yes, they need appropriate advice but, given the state of pension schemes, there is a significant opportunity to improve the amount of money paid to members alongside the decisions to pay out surpluses. Therefore, if the noble Viscount, Lord Thurso, decides to move Amendment 14 and test the opinion of the House, I certainly would be minded to support him. However, I beg leave to withdraw Amendment 13.

Amendment 13 withdrawn.

Pension Schemes: Ministerial Powers

Baroness Altmann Excerpts

Wednesday 11th March 2026 Lords Chamber

Asked by

[Baroness Altmann]

To ask His Majesty’s Government what assessment they have made of the need for Ministers to possess powers (1) to direct specific investment allocations for private sector workers’ pension funds or (2) to make investment in Government directed assets a condition of approval for automatic enrolment pension schemes.

[Baroness Altmann (Non-Afl)]

My Lords, in begging leave to ask a Question of which I have given private notice, I declare my interests as set out in the register.

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

My Lords, the Pension Schemes Bill contains a reserve power on asset allocation, designed as a backstop to the voluntary commitments made by the pensions industry under the Mansion House Accord. The Government do not currently expect to use this power. Were this power ever exercised, schemes that cannot meet the requirements without causing material financial detriment to their members would be able to apply for an exemption under the savers’ interest test. The power is time-limited and subject to consultation, parliamentary approval and robust safeguards.

[Baroness Altmann (Non-Afl)]

My Lords, I thank the Minister for that Answer, but I am afraid that if the Government’s main argument for including these powers is that they do not expect to need to use them, and will use them only if pension schemes themselves decide that they do not believe it is wise to achieve the allocations that the Government want them to, I have even greater concerns about those powers. I urge the Government to think again about overriding trustees’ decisions about what assets to invest in.

In particular, the Government are trying to take unlimited powers in the Bill to prescribe a percentage, but we do not know what that percentage might be, and to invest in assets, but we do not know which assets they will be. Even those who brokered the Mansion House Accord, such as Pensions UK and the ABI, are saying that they wish this to be reconsidered. Do the Government really believe that they know better than the investment industry how pension schemes should invest? Do they not consider that this is an example of the problems that the Government might have in excluding from the Bill some of the ideal vehicles which could be used to invest in the very assets that the Government say they want to support?

[Baroness Sherlock (Lab)]

As the noble Baroness well knows, we have been discussing this matter for some weeks now in Committee and will be discussing it again on Monday, when we come to the matter on Report. Let me give her a brief answer to the points she has made. I know that she agrees with the Government’s objectives, because she herself has advocated previously—indeed, in Committee—that we make pension tax relief contingent on 25% of new investment being allocated to UK assets. I know she wants the same thing that we do.

To be really clear, the power is being taken as a reserve power to back the voluntary, industry-led Mansion House Accord, which said that by 2030, 17 of the largest pension schemes in the private pensions sector would be investing 10% of their relevant default funds into private investment, with half of that in the UK. The expectation is that having done that, the industry will do it. The reason for taking a reserve power is, as the noble Baroness knows very well, that the challenge in the UK is too often schemes compete on cost and not on value. There is always a risk that for some small competitive advantage, somebody may want to try to separate off from that, so the reserve power is signalling clearly to the industry: this is the direction of travel, so let us stay with it. All we are doing is backstopping that.

Pension Schemes Bill

Baroness Altmann Excerpts

Committee stage
Thursday 5th February 2026 Grand Committee

[Lord Wigley (PC)]

My Lords, I support Amendment 203ZB, in the name of the noble Lord, Lord Davies of Brixton. I shall also address the government amendments in this group. I have signed the noble Lord’s Amendment 203, which we will come to later, recognising that he has professional expertise far greater than mine in dealing with these matters and believing that he comes to these issues, as I am certain he does, from a position of recognising that one group of workers in particular—those of Allied Steel and Wire in Cardiff—were extremely badly treated over 20 years ago, about which I spoke earlier in our deliberations.

I listened with interest and concern to the explanation given by the Minister for introducing these amendments, and I am far from certain as to whether, when enacted, the discretion to which she referred will give former employees of Allied Steel and Wire any of the redress which they seek for the pension loss they suffered with regard to their pre-1997 employment. Are we today recognising the fairness of their claim but not providing any vehicle by which it can, in fact, be met? That is my fear.

In Committee in the other place, my Plaid Cymru colleague, Ann Davies MP, introduced two amendments to provide indexation for compensation under FAS and the PPF to cover both pre-1997 and post-1997 service, and to reimburse members for the annual increase they should have received. The Government rejected those amendments, saying they would not work. Ann Davies MP came back on Report proposing a new clause to provide indexation. The Government rejected that clause so, in considering these and possibly later amendments, I ask the Minister whether their combined effect will do anything at all to give the pre-1997 pensions full indexation and not limit them to the 2.5% cap which Ministers supported in the other place? Will they do anything to reimburse those members for the annual increases which they never received?

[Baroness Altmann (Non-Afl)]

My Lords, I support and have added my name to the amendment from the noble Lord, Lord Davies. I support all his remarks, especially on the only excuse for not recognising that people need pre-1997 indexation going forward. There is a wrong that is being corrected; therefore, that wrong probably applies even more to benefits from the past. One of the reasons why I say “even more so” is because the members who have the most pre-1997 accrual are the oldest—by definition, they must be. They have much less time left to live and many of them have, sadly, already passed away. Therefore, to right this wrong by promising people money in future that they may never see, or will see almost none of, does not seem a solid way of righting a wrong.

I understand—I will go through this in more detail in the next group—that the Financial Assistance Scheme, for example, is supposedly funded by public money, while the PPF itself and employer contributions, in the form of the levy, provides the money for PPF compensation, but £2 billion from the scheme was transferred to the public purse. Thankfully, when we were trying to improve the Financial Assistance Scheme in 2005, Andrew Young recommended stopping annuity purchase, which had been happening and, unfortunately, transferred much of the money to insurers rather than putting it towards the Government to pay out over time. Nevertheless, the Financial Assistance Scheme itself represents some of the biggest losers and the ones with the most pre-1997 accrual.

Therefore, I urge the Government to recognise that the cost of the requirements in the amendment from the noble Lord, Lord Davies, are easily affordable from the PPF reserve—£14.5 billion is available. The cost estimate for this retrospective addition to the pre-1997 accruals that were not paid in terms of inflation uplifts could be around £500 million out of the £14.5 billion, depending on how the arrears are paid. I would be grateful to the Minister if she could confirm some of the Government’s estimates for what this would be; I have looked at the PPF’s estimates.

I add that the Financial Assistance Scheme does not only help those who affected by insolvency. The European court case was about insolvency, but the MFR protected employers who just wanted to walk away from their schemes before the law changed. Paying in only the MFR was hopelessly inadequate to afford the pensions. There was a brilliant campaign by the unions that went to the European court, and the Government had a great fear that they would lose that. Prior to that, we had an appeal by the workers of Allied Steel and Wire and many of the other schemes to the Pensions Ombudsman, who found in their favour and against the Government, and to the Public Accounts Select Committee. Then we had to go to the High Court, taking a case against the Government, and we won. We also went to the Court of Appeal, taking a case against the Government, and we won on behalf of those whose schemes had failed, whether the employers were insolvent or not, which means that they are all now included.

Even so, the Financial Assistance Scheme and the PPF have not recognised the pre-1997 inflation losses that have left many of these members with half their pension, or even less in some cases. I hope that the Government will look favourably on the amendment. I welcome it, and I am very grateful to the Minister for the recognition that we need to do something—there may be further consideration of that; we will come back to it in subsequent groups—to recompense for the losses of the past.

[Lord Palmer of Childs Hill (LD)]

My Lords, I wish only to say that I agree with the comments from the noble Baroness, Lady Altmann, and the lengthy exposition from the noble Lord, Lord Davies. I give them my support.

This group deals with technical amendments in the main, but they go to a question of basic fairness for pensioners whose schemes have failed. There are eight amendments in the Minister’s name, which shows that Bills can be amended, because the Government are amending their own Bill. Their amendments are no less important than those proposed on this side of the Room or those proposed by the noble Lord, Lord Davies, on the other.

The Government have accepted the principle of restoring inflation protection for pre-1997 service in the PPF and the FAS. These amendments ensure that the policy operates as intended, covering cases where the schemes technically add indexation rules that did not apply to all pre-1997 service.

The concern here is consistency and completeness. As has been said by other speakers, without these clarifications, some pensions will fall through the cracks due to historic scheme design quirks, rather than any distinction of principle. Any schemes that were and will be proposed will have quirks that are going to be found out in due course. I ask the Minister to confirm that the Government’s intention is to deliver equal treatment for those with equivalent service histories and that no group will be excluded because of technical anomalies.

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Moved by

[Baroness Altmann]

186A: Clause 108, page 119, line 38, at end insert—
“(2A) After paragraph 28, insert—“Lump sum compensation
28A (1) In all cases which qualify for an increase in periodic compensation under paragraph 28(2A) to (2I), the person may also qualify for a lump sum payment or payments, the amount of which must be—(a) related to the loss of inflation protection on pre-1997 pension benefits, and(b) paid by the Pension Protection Fund out of excess reserves,in recognition of the years of pension increases that were unpaid since the failure of the pension scheme.(2) The Secretary of State may issue guidance about lump sum payments under this paragraph.””Member’s explanatory statement
This amendment seeks to make provision for lump sum payments from the Pension Protection Fund to persons who qualify for an increase in periodic compensation for pre-1997 service to compensate for unpaid increases in the years since the failure of the pension scheme.

[Baroness Altmann (Non-Afl)]

My Lords, the amendments in this group are designed to give the Government another way of recognising the injustice that has occurred, which their very welcome amendments recognise for members who have lost their pre-1997 inflation protection. I am trying, through this route, to give the Government a way of increasing the amounts paid to people who have lost out on pre-1997 indexation in the past without the striking costs that the Minister suggested would be involved in retrospection and arrears for everybody in the PPF and the Financial Assistance Scheme.

The method by which this could be achieved is to offer lump-sum payments which do not increase the base cost of the pension but do recognise the losses suffered in the past. I hope that the Minister and her colleagues might be able to look favourably on this suggestion, which is another way in which the Government could put right what they have already recognised is a serious wrong.

If my amendments are accepted, the Pension Protection Fund reserve could be used alongside the Government’s welcome Amendments 186 and so on in the previous group. For anyone who is going to receive the prospective inflation protection in the future, the PPF reserve will or could be used to pay a lump sum to be determined related to the losses that they have suffered. That will be a one-off, or it could be over two or three years if so desired, to recognise the past problem to help the oldest people in a practical way and to ensure that there is some modicum of fairness, particularly for those who have the most pre-1997 accrual, who, as I have said, are the oldest.

My Amendment 203ZA is the same proposal for the Financial Assistance Scheme, but subsection (3) of my proposed new clause would allow specification, in consultation with the Pension Protection Fund, as to how this will be funded. Obviously, there is a significant reserve in the Pension Protection Fund. It has written to members, suggesting that there is affordability, and the ability to pay for some element of retrospection—again, to be determined. By the way, the Minister suggested that people would get what they paid for but, of course, with a 2.5% cap on CPI increases, many of them would have paid 5% going forward. So, it is not full retrospection or prospective protection for pre-1997.

I know that the Minister is proud of what the Government are doing, and I welcome it too, but her words that it does not go as far as some affected members would want are absolutely correct. I would say that it does not go as far as some affected members deserve, in the course of an argument about fairness and justice.

Are there any government estimates for the cost of these lump-sum payments, either one-off or spread over two or three years? It is probably easier administratively to make it a one-off, so that only one payment is required. That would also need to be protected in the same way that the new payment in other schemes is protected in terms of the tax system, so that it is not treated as an income in that particular year. If the Government were minded and able to accept the principle of recognising the past in a different way from the suggestion from the noble Lord, Lord Davies, which I also support if that were possible, it would not add to the long-term costs of running the Pension Protection Fund or the Financial Assistance Scheme. It will be a one-off recognition of the past and the future liabilities would be based on the pension as proposed now.

Do the Government have estimates for any possible size of payment that would be acceptable, so that we could then work backwards to finding a lump sum that could be paid and afforded out of the PPF’s obviously significant reserve? There is far more money than is required; it is just sitting there, whereas these pensioners really need the pensions that they paid for and are getting nowhere near. I hope the Minister might be able to help, or I am happy to meet and see whether we can work through some figures that might be acceptable as a way forward to recognise the past and satisfy a number of the people who are seriously ill and may not live to next April or much beyond it and feel so aggrieved—having campaigned with me for years to help people, get the PPF started and improve the Financial Assistance Scheme—that they are not getting the recognition that younger people who are benefiting from their hard work will get. I beg to move.

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[Viscount Younger of Leckie (Con)]

My Lords, I will speak to Amendments 187A, 188A, 189A and 203ZA tabled by the noble Baroness, Lady Altmann. She has long been a formidable and principled advocate for pension savers and much of the Committee will be sympathetic to the underlying concerns that she raised in her remarks. In particular, her consistent focus on member protection, governance and long-term security has materially shaped the debate on pensions policy over many years—and rightly so.

However—the Committee might expect me to say this—while I share the noble Baroness’s objectives, I am not persuaded that the amendments, as drafted, strike the right balance in this instance. I listened carefully to her remarks and her constructive suggestions as to how such payments could be made in the form of lump sums, whether through several lump sums or another way. As ever, she is constructive and positive, and I accept that. These amendments would use the Pension Protection Fund and the Financial Assistance Scheme to make retrospective lump-sum payments to compensate for unpaid historical indexation. We think that that would represent a significant shift in principle.

I listened carefully, as I always do, to the remarks from the noble Lord, Lord Davies of Brixton, who called retrospection a red herring. I was not absolutely sure what he meant by that. As I see it, retrospection is just that: retrospection. I think that it describes the payments in the way that it is meant to do. However, the PPF was designed as a forward-looking safety net, not as a mechanism for reopening past outcomes or making retrospective compensation payments. The Minister, to be fair to her, made this clear in her closing remarks in previous groups.

Such an approach would raise serious concerns about cost, complexity and consistency. Although we are somewhat clearer about costs from the helpful remarks from the Minister in the previous group, I am still uncertain—as, I think, other Members of the Committee are—about what the overall costs would be and what the impact would be on the levy and on other contributors. That uncertainty makes me cautious about supporting these amendments, which risk turning a clearly defined insurance mechanism into an open-ended compensation scheme. I suspect that the Minister—without wanting to steal her thunder—may take a similar view in her response, judging from her remarks in the previous group.

[Baroness Altmann (Non-Afl)]

The noble Lord just said that this would impact on the levy, but if there is a one-off payment, it would not affect the scheme going forward. Therefore, it should not impact the levy at all; it is a lump-sum payment rather than an increase in the base pension payable going forward.

[Viscount Younger of Leckie (Con)]

As ever, that is a very helpful clarification, but I will leave it up to the Minister to answer that. I stick with my view that we are not persuaded by these amendments. Perhaps there is more debate to be had. I have said all that I need to say; I am afraid that I am unable to support these amendments.

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[Baroness Altmann (Non-Afl)]

My Lords, I thank all noble Lords who have spoken. I thank those who have supported this group, and I hope that I might be able to persuade colleagues on this side to offer their support.

I understand the Minister’s dilemma, but I have to ask: what is the PPF reserve for? It is just money sitting there, way above what is needed for the current liabilities, before you take into account new schemes that themselves will have assets attached, and the vast majority of schemes are in surplus at the moment anyway.

There was talk of the cost, complexity and consistency involved in these proposals. The cost we know, because one can design the lump-sum payments to fit the desired cost envelope. The complexity is actually far lower than the Government’s current proposals because they are a one-off payment related to past losses, which will have to be calculated anyway if one is going to do anything of this nature.

Consistency is particularly important here, otherwise we will be treating members of the Pension Protection Fund or the Financial Assistance Scheme very differently based on their age, in effect. Those who are young will get better protection. Those who are older—and need it most, I argue, because they have lost most—get little or nothing from the Government’s welcome proposals. So, at the same time as the Government are designing their forward-looking acknowledgment of the need for pre-1997 uplifts, I hope that we might be able to persuade them that, alongside that, there is an overwhelming case for some recognition of the past.

[Lord Davies of Brixton (Lab)]

Does the noble Baroness agree that her scheme would work the other way round, because older members will tend to have more pre-1997 service that younger members, whose pre-1997 service will be relatively limited? A scheme along the lines she proposes will have some element of generational fairness.

[Baroness Altmann (Non-Afl)]

I thank the noble Lord. I would certainly say that there is a significant and obvious element of fairness in this proposal for lump sums to be paid. I argue that it would level the playing field, because those who have lost the most at the moment will continue to lose the most, whereas if you recognise the past losses and the forward uplifts are still being paid then you equalise, to some degree, the fairness and the losses between people of different age groups.

I hope that we can come back to this matter on Report and that we might have a meeting to discuss the potential for something of this nature to be introduced in the Bill. In the meantime, I beg leave to withdraw my amendment.

Amendment 186A withdrawn.

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I understand that in this instance there is MoD underwriting for the scheme: could that be confirmed? Does this mean that all discretionary benefits will be honoured equally, as they might have been under the previous scheme? If something is to be at least as good, we must expect that the discretionary benefits will be as good. If in some way the funding base is not as good, then a different kind of discretionary decision might apply. I hope that the Minister can say that “at least as good” means what we think it means in common parlance. If it is not, then we ought to have more time to think about the details of these amendments.

[Baroness Altmann (Non-Afl)]

My Lords, I have Amendment 203ZC in this group, but unfortunately the Committee has not received a copy of my amendment.

[Lord Davies of Brixton (Lab)]

It is on a separate sheet.

[Baroness Altmann (Non-Afl)]

Good. I now have it and I want to check that everyone else has it too. That is my first question dealt with.

In speaking to this amendment, the aim is to enable members of pension schemes that have gone into the PPF after their assessment period to be extracted, with regulations laid that will govern the terms on which they can be extracted. This is particularly relevant to the AEAT scheme: I know that we will come to this in later groups, with a requirement for a review of the situation. My amendment is trying to facilitate a practical resolution to the problems faced by the Atomic Energy Authority scheme. There are parallels with the Atomic Weapons Establishment or AWE scheme: employees originally had a scheme similar to and in fact derived from that of the UK AEA.

The AWE staff and their pensions were transferred to the private sector, and in 2022 the Government granted a Crown guarantee to the private company scheme. However, members of the AEA scheme were told that the scheme that they were encouraged to transfer to in 1996 would be as secure as that provided by the Atomic Energy Authority public sector scheme. This was not the case, though, because it was not offered a Treasury guarantee. It would appear that the Government Actuary’s Department failed to carry out a proper risk assessment of the various options offered to those members in 1996. Indeed, they were apparently specifically told not to worry about the security of the scheme to which they transferred all their accrued benefits. Of course, all these accrued benefits are pre-1997.

What happened after that is that they went into a private sector scheme. It was a closed section of that scheme, only for the members who transferred their public sector rights into it. The public sector rights had full inflation protection for pre-1997 and members paid an extra 30% or so contribution into that private sector scheme in order to conserve the inflation protection. However, as part of that, the pension they were saving for, the base pension, was lower than the one for those members in the open scheme who had joined not from the public sector. They were working on the principle that that their scheme was secure and that they would be getting the uplifts of inflation. When it failed—the private sector company went bust in 2012—and they went into the PPF in 2016, they suddenly discovered that they had paid 30% more for inflation protection, which was gone. And because they had paid 30% more for that protection and were accruing a lower pension, a 180th instead of a 160th scheme, their whole compensation was lower than that of everybody else who had not had any assurances from the Government that transferring their previous rights into a private sector scheme would generate these kinds of losses.

This is probably the worst example I have seen of government reassurance and failed recognition of the risks of transferring from a guaranteed public sector scheme into a private sector scheme. This amendment seeks to require the Government to lay regulations that would transfer members out of the PPF, those members of the closed scheme, if they wish to. I am not forcing anyone to do so within this amendment. You have to offer them the option of going or staying if they are satisfied with the PPF. Also, a sum of money may need to be paid to the PPF, which would take away the liability and thereby reduce PPF liabilities, but also sets up an alternative scheme that could be along the lines of the AWE arrangements, for example. That would potentially be another option. On privatisation, the Government received a substantial sum of money from the sale of that company, the private sector takeover of the commercial arm of the Atomic Energy Authority. That delivered less money than was paid to the private sector scheme to take over the liabilities. Therefore, the Government have money to pay with, which they have never really acknowledged.

I hope that this amendment is a potentially direct way to help the AEAT scheme, if the Government are minded to consider it. It builds on a provision that is already in the Pensions Act 2004, which talks about situations whereby there is a discharge of liabilities in respect of the compensation, which this amendment would be doing. It prescribes the way in which subsection (2)(d) of Section 169 of the Pensions Act 2004 could be used to help the AEAT scheme.

I have also been approached by a private sector employer whose scheme failed and went into the PPF. At the time, the employer did not have sufficient resources to buy out more than the Pension Protection Fund benefits for his staff. He now is in a position to do that and would like to do so but, at the moment, he cannot get his scheme extracted. He is willing to pay an extra premium to do that, in pursuance of a moral duty to try to give his past staff better-than-PPF benefits. That is what this amendment is designed to achieve. It is built on the connection between AEAT and AWE, but could also help other private sector schemes if the employer feels—it would normally involve smaller schemes—that there is a moral obligation that they can now meet, financially, to recompense members at a level better than the PPF, once the assessment period is over and the resources have gone in, and to take it back out again.

[Baroness Stedman-Scott (Con)]

My Lords, this group concerns the proposed transfer of the AWE pension scheme into a new public sector pension arrangement, as set out after Clause 110 in government Amendments 194 to 202, with the associated measures on extent and commencement in government Amendments 223 and 224.

At first glance, these new clauses are presented as technical and perhaps little more than an exercise in administrative tidying up, reflecting the fact that AWE plc is now a wholly government-owned company. However, on closer inspection, several questions come to mind. This represents a material transfer of long-term pension risk and does so in a way that raises serious questions around principle, process and precedent.

On an IAS 19 accounting basis, AWE plc reported a defined benefit pension deficit of £97 million as at 31 March 2025. The company has already made significant one-off contributions: £30 million in March 2024, following an earlier £34.4 million in March 2022. These payments form part of a recovery plan agreed with the trustee and the Ministry of Defence, and the position is subject to ongoing review. This is an active funding challenge, one that should be considered carefully.

The provisions before us establish a bespoke statutory framework for a single named company. They provide for the creation of a new public sector pension scheme, the transfer of assets and liabilities, the protection of accrued rights, specific tax treatment, information-sharing powers, consultation requirements and arrangements for parliamentary scrutiny. All of this is meticulously itemised and carefully drafted.

Yet my concern lies not with the drafting but with the policy and constitutional choice that sit beneath it. We are told repeatedly that members’ rights will be preserved; that phrase carries considerable weight. The question is a simple one: which rights precisely are being preserved? Are we referring solely to rights accrued through past service or does that protection extend to future accrual as well? Does it encompass accrual rates, indexation arrangements, retirement age and survivor benefits or are members’ entitlements merely frozen as a snapshot at the point of transfer? What happens if the rules of the receiving public sector scheme change in future? These questions go to the heart of both member security and parliamentary responsibility. They deserve answers in the Bill, not assurances in principle or reliance on mechanisms that may evolve long after this Committee has given its consent.

There are also practical questions that remain unanswered. How exactly will trustees be formally discharged of their responsibilities? Additionally, does this change relate to DC members? Will each defined contribution pot be automatically converted or will past defined contribution rights be crystallised, with future accrual taking place under a defined benefit structure? For scheme members, these questions go to the very heart of retirement security.

I also question the decision to legislate company by company. This new clause is not objectionable because it concerns pensions; it is objectionable because it concerns one named corporate identity. Primary legislation should set rules of general application.

If the policy rationale here is sound, and if it is right that the pension schemes of wholly owned government companies should be transferred into the public sector on certain terms, that principle should be capable of being expressed generally and should not be hard-coded for AWE alone. Otherwise, we will face an unhappy choice in the future: if AWE’s status changes again, Ministers must either live with an outdated statute on the books or return to Parliament with yet another Bill to amend it. Neither outcome represents good lawmaking.

There are also practical questions that I hope the Minister will address. Will members receive individualised benefits statements, comparing their position before and after the transfer in clear, comprehensible terms? What support will be made available for members who need independent guidance, rather than reassurance from the scheme sponsor itself? Will there be formal consultation with scheme members and recognised unions, and will the responses to that consultation be published?

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[Baroness Sherlock (Lab)]

My Lords, I will start by discussing Amendment 203ZC and then come to the other amendments.

Amendment 203ZC would add new provisions to the Pensions Act, which would mean that, if an alternative sponsor provided a sufficient premium, a cash payment or alternative arrangement could be provided for members of that scheme that secured better benefits than the PPF level of compensation. The amendment seeks in particular to help members of the AEA Technology pension scheme. As we have heard, AEAT was formed in 1989 as the commercial arm of the UK Atomic Energy Authority—UKAEA—and was subsequently privatised in 1996. Employees who were transferred to AEAT joined the company’s new pension scheme, and most of them opted to transfer their accrued UKAEA pension into a closed section of the AEAT pension scheme. In 2012, 16 years later, AEAT went into administration, and the AEAT pension scheme subsequently entered the PPF.

I express my sympathy for all AEAT pension scheme members; I recognise their position. I am pleased to say that on pre-1997 indexation in PPF, which is an issue for AEAT members, we have listened and acted. Those with pre-1997 accruals and whose schemes provided for pre-1997 increases, which includes AEAT members, will benefit from this change.

However, the Government do not support this amendment. The noble Baroness outlined some of the issues around AEAT, but this case has been fully considered. We set this out in our response to the Work and Pensions Select Committee inquiry on DB pensions. These investigations included, but are not limited to, reviews by three relevant ombudsmen, debates in the Commons in 2015 and 2016 and a report by the NAO in 2023. This matter has also been considered by previous Governments in the period since AEAT went into the PPF, all of whom reached the same conclusion.

AEAT members have asserted that upon privatisation, insufficient funds were transferred into the scheme. As I understand it from historic responses, this amount was based on the financial assumptions at the time, and the trustees of the scheme agreed the transfer value. Members have also outlined that, given the amount transferred to the PPF, with investment, they could now be paid their full pension. However, the PPF does not work that way; let me explain why.

When schemes enter PPF assessment, evaluation is generally undertaken to determine whether there are enough assets to secure at least PPF-level benefits. Sufficiently well-funded schemes can come out of the assessment supported by PPF-appointed trustees to secure greater benefits than PPF compensation. Schemes that are funded below this level are transferred into the PPF. The PPF does not permit transfers out because it does not work as a segregated fund where individual scheme contributions are ring-fenced and can later be transferred out. That is due to PPF investment policies because the only grounds on which that might happen would be, for example, if PPF investment policies were such that they then became better funded.

The reason that does not work is that the PPF is a compensation scheme operating in the interests of all its members. It is not a collection of individual pension schemes. Funds transferred in from underfunded schemes and insolvency recoveries, alongside the levy and investment returns, are all brought together. Allowing members of schemes that have entered the PPF to transfer back out would undermine its ability to provide compensation for all its members and for future schemes in the case of employer insolvency.

This amendment changes the purpose of the PPF as a compensation fund and that safety net in case of employer insolvency. Schemes go into the PPF either because an alternative sponsor cannot be found to take on the scheme’s liabilities or because the scheme is unable to secure benefits that correspond to at least PPF compensation levels. We do not expect alternative sponsors will be found to pay a premium for schemes that have transferred into the PPF. Additionally, it would place a different role on the board of the PPF to undertake a member-by-member assessment of whether members would get better benefits through a transfer. We do not underestimate the difficulty of this, given the decades since many schemes, such as the AEAT, entered the PPF. Changing the PPF’s role and how it operates as set out would need to be much more broadly considered, alongside impacts on the PPF and potentially unintended consequences.

[Baroness Altmann (Non-Afl)]

Section 169(2)(d) in the Pensions Act 2004 seems to make provision for this to happen. Therefore, what is the purpose of that clause? I am trying to build on that to specify circumstances in which it could happen. Of course, when a scheme is in the assessment period, it can be extracted. I am trying to say that if it has gone in and can improve the funding of the PPF by paying a premium and give members more than they would have in the PPF, why would there be an objection?

[Baroness Sherlock (Lab)]

The challenge of this is that of course schemes can come out in the assessment period. That is the point of the assessment period: to work out whether there is a sponsor or enough funds, which could, with appropriate support, be able to deliver greater-than-PPF benefits, in which case the scheme may go out again. It goes into the PPF only if that cannot be the case. Once it has gone in, the scheme does not exist anymore. There are no scheme assets because, at that point, the members are not scheme members but members of a compensation scheme. It cannot be the case that, years later, someone should come along and say, “We now want to try to move a group of former members of a particular scheme back out of the PPF”. That simply does not work.

The noble Baroness asked something else. I apologise for being slightly confused earlier on: I thought this was going to be part of the previous group, so I am slightly scrabbling around trying to put my speaking notes in the right place. The noble Baroness is trying to draw a comparison between AWE and this. Although they were both DB pension schemes in the nuclear industry, the two situations are entirely different. AEAT was created in 1989 as the commercial arm of the UKAEA. It became a private company, with no further government involvement in ownership or management.

By contrast, AWE, which is responsible for manufacturing, maintaining and developing the UK’s nuclear warheads, has since the 1950s either been government owned or the Government have held a special share in the company. It became fully owned by HMG again in 2021, when it became an NDPB. As the Government own and fund AWE, they are also responsible for funding its pension scheme responsibilities. That is why the AWE has a Crown guarantee, granted in 2022, shortly after it became a public body of the MoD, having previously been government owned. I hope that explains why the two are differently treated.

[Baroness Altmann (Non-Afl)]

I respectfully ask the Minister to consider the possibility, which is arising, of someone who can come along after the assessment period and pay more than the PPF can provide. As I say, that could help the PPF’s funding. It should not in any way impact on the levy, and it is an option to permit that to happen. So my amendment, building on what is already in the Pensions Act 2004 but which has not yet been used, given that schemes are in surplus, would allow them to do that.

The other thing I will say is that everyone in the closed section of the AEAT with accruals before 1997 was in the public sector. They were members of a public sector scheme, and they were advised by the Government Actuary’s Department that if they transferred they would not need to worry about the security of their pension, but that turned out not to be the case. I therefore hope the Minister can see the parallels. I know she is in a difficult position on this, but I thank her for her consideration.

[Baroness Sherlock (Lab)]

I am not in a difficult position. The Government’s position is clear: these are not comparable schemes. One has a Crown guarantee, for the reasons that I have explained, while the other does not because, for a significant portion of its history, it was a private company. It was privatised, and it subsequently went into administration. Those are not comparable situations. While I have sympathy for the position of individual scheme members, that does not make the two comparable or the Government’s responsibility comparable. I am certainly not aware that someone is out there waiting to sponsor this, although the noble Baroness may be. She is nodding to me, and if she wants to share with the Committee that she has a sponsor ready to do that, I would be glad to hear it, but the idea that this would routinely be a pattern where, for lots of long-dead pension schemes, sponsors are waiting to draw them out just would not be practical for the PPF.

I am also advised that the subsection 2(d) that the noble Baroness mentioned is not in force. That does not make a difference to her argument, but it may make a difference to the nature of this.

I shall try to return now to the issue that we were talking about earlier on, the AWE scheme. On hybridity, I say to the noble Baroness, Lady Neville-Rolfe, that my understanding is that hybrid bills affect the general public but also have a significant impact on the private interests of specified groups. In this case, there is no impact on the general public, only on AWE members. That follows the precedent in Royal Mail and Bradford and Bingley/Northern Rock legislation. This also refers to schemes that were or are to be defunded and replaced with public schemes. I hope that explains why this is not hybrid. I cannot comment on why the clerks did not accept her amendment because I did not quite catch what it was that she was comparing it with.

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[Lord Davies of Brixton (Lab)]

My Lords, I am going to try to put this issue into context. This is the third leg of our discussion, which centres on what we do now in relation to benefits that accrued for pensionable service prior to 1997.

I am going to take the Committee into a little history. The 1997 date was set by the Pensions Act 1995. I was there; although I had long left the TUC, because the TUC’s normal pensions officer had taken leave of absence for a few months, I was, in effect, acting as the TUC’s pensions officer at the time. On the background, in terms of what people understood about pension increases at that time, I will go all the way back to 1971, when the Pensions (Increase) Act was passed. In 1971, it was obviously under a Conservative Government. They linked public service pensions to inflation—initially RPI then subsequently, from 2011, CPI. That was all well and good. It set the standard, quite properly, for the Government of good pension provision, including increases. I make no apology for that. I am sure that we will return to this issue when we have the debate at our next meeting on public service pensions. The Conservative Government set that standard.

Then, in 1981—again, under a Conservative Government —Margaret Thatcher, the Prime Minister, decided, egged on by Aims of Industry, that there should be a review of pensions and pension increases. She took a personal interest—it is all there in the Thatcher archives—and established the Scott inquiry. Chaired by Sir Bernard Scott, a prominent businessperson at the time, it was a five-person inquiry that undertook a detailed study of pension increases, starting with public service pensions. We do not hear much about this inquiry now—there is another more famous Scott inquiry—because it came up with the wrong answer. Despite the committee being hand-picked by the Prime Minister, it came up with the answer she did not want. It said that index-linking was justified—it is worth saying here that, when it says “index-linking”, it is talking about the limited price index, or LPI, so not full indexation in all circumstances but up to a limit—and that there was no case for its removal from public service schemes.

The committee decided that public service pensions were not overly generous overall. It pointed out that the main driver of costs for public service pensions was not index-linking but the final salary benefit structure. Again, as an aside, it is worth noting that, from 2011 onwards, public service schemes moved away from that; they are now all average salary schemes. The committee advocated for parity of pension increases with state pension increases. So this committee, which was set up to tell the world how bad index-linking was, said that everyone should have index-linking. That was in 1981.

There is another stage. Originally, when schemes contracted out, they promised to provide GMPs. Initially, the GMPs were not index-linked but had a flat rate, and the state scheme was left to provide the indexing on the fixed flat-rate private sector schemes. However, by 1986, it was decided that the private sector schemes could provide LPI, initially at 3%. The scheme had to provide GMP, but it provided inflation linking up to 3%, and inflation over that would still come from the state scheme. This is where the contracting out becomes incredibly complicated, of course. That change to the GMP was when a Conservative Government introduced an additional element of index-linking in occupational schemes.

Then we had the Maxwell scandal, the subsequent Goode report and the Pensions Act 1995. There is a theme here. It was a Conservative Government; William Hague was the Secretary of State. From 1997, they introduced LPI index-linking, initially up to 5% and subsequently reduced to 2.5% in 2005—unfortunately, that was a Labour Government, but there you go. So there is this whole consistent move towards limited price indexation in occupational schemes. It became the accepted approach to providing occupational schemes. A scheme that did not provide some element of indexation in retirement was seen as an inferior scheme.

I was there, as I say, so what was my experience? Many schemes, particularly larger schemes, had LPI in the rules pre 1997, following Scott in the early 1980s. Schemes have gradually introduced it more and more; of course, index-linked bonds were introduced specifically as a follow-on from the Scott report. So many schemes, particularly large schemes, had LPI in the rules.

Other schemes said, “We’re going to provide indexation but we’ll do it under discretionary powers”. However, they still expected to provide increases and funded for them. It is my view, having been there, that, pre 1997, the number of schemes making no allowances for LPI increases was vanishingly small. For some, it was in the rules; for others, it was in the funding basis. Practically every member had a reasonable expectation of LPI in retirement in respect of the benefits that they accrued pre 1997. The statutory requirement was introduced to cover all schemes, as recommended by the Goode report; that was absolutely right.

So the suggestion that people are unreasonable in expecting their pre-1997 benefits to be increased is entirely wrong. It was entirely reasonable for them, and that is what people believed at the time, although they may not have a legal entitlement. This does not affect just the PPF or the Financial Assistance Scheme, where we are told that, if the scheme did not have it in the rules, it will not get these increases. It particularly affects active pension schemes—not necessarily those with new entrants, but those with pensioners to whom the scheme is paying money.

Many of the members will have benefits accrued before 1997, and those members have a reasonable expectation of increases. That is why I move Amendment 203 as a basis for discussion at this stage. In the light of what we hear, I may come back to the issue on Report. The law can now move to requiring increases on pensions accrued pre-1997, whatever it said in the rules, because it is a question of not legal but political justification. Politically, people can reasonably expect the Government to provide them with justice, and there is a reasonable moral expectation that they should now get limited price indexation on their benefits accrued prior to 1997.

The issue here is the position in which so many members find themselves. Their trustees—who were perhaps more engaged, years ago, with the operation of the scheme in those days—gave them a reasonable expectation of the benefits. I wrote to many schemes around that time, asking them what their practice was, having got an increase in the rules. Many of them wrote back to me and said, “Yes, we expect to increase these pensions and we are funding the scheme on that basis”.

Trying now, 30 years later, to distinguish between schemes that provided for these increases in the rules and in the funding basis is politically and morally wrong. These people have a reasonable expectation, and we have this opportunity to see that they are treated correctly. I beg to move.

[Baroness Altmann (Non-Afl)]

My Lords, I have every sympathy with the noble Lord’s amendment, and I would love the Government to find themselves able to accept it. I would certainly agree on the moral case and on the historical justification for members having reasonable expectations that their pensions would not suddenly be whittled away to a fraction of what they would previously have had. The Goode report recommended unlimited inflation protection, but it was limited when it came in and it was only from 1997 onwards rather than retrospectively. There are echoes there of what we have just heard about the Pension Protection Fund.

I see that the noble Lord, Lord Brennan, is here; he was instrumental in campaigning for the Allied Steel and Wire members and worked so hard to help them, as the noble Lord, Lord Davies, also did. The noble Lord, Lord Wigley, is no longer here, but this would certainly apply to the Allied Steel and Wire members, and I urge the Government to look at the amendments. I fear that there may be little appetite, given that our previously much more modest suggestions were rejected and bearing in mind that not all schemes are in surplus—there may be an issue. But, if the Government were so minded, there is certainly a good case for considering the amendment that the noble Lord, Lord Davies, so ably moved.

[Viscount Younger of Leckie (Con)]

My Lords, I will speak to Amendment 203 in the name of the noble Lord, Lord Davies of Brixton, and I am grateful to him for his tour d’horizon on the history behind this issue with the uprating, going back through several parties and Parliaments. Like the noble Baroness, Lady Altmann, I fully understand why members find this proposal attractive. The idea that pensions should keep pace with inflation feels intuitively fair, of course, but we think that mandating inflation increases for all pre-1997 service in live defined benefit schemes would be a step too far.

This amendment would dictate in statute how trustees and employers must use scheme resources and any surplus. We believe that this is overly prescriptive and risks being actively anti-business. Many employers are already using DB surpluses constructively, and that includes improving DC contributions for younger workers, supporting intergenerational fairness, and strengthening scheme security through insurance-backed arrangements and special purpose vehicles. We think that these are sensible negotiated outcomes, reflecting the needs of both members and sponsors.

It is also important to remember that employers have carried DB risk for decades. When funding assumptions proved wrong, when markets fell or when longevity rose faster than expected, it was employers who stepped in, often for many years, through additional contributions and balance sheet strain—that might be an understatement. I choose to use a casino analogy, not to make light of a serious subject but to illustrate the basic logic of risk sharing. Here goes.

In a defined benefit scheme, the employer and members effectively walk into a casino together. Trustees place bets on behalf of the scheme on how much risk to take in the investment strategy, what funding assumptions to use, how quickly to de-risk, how to price longevity and inflation exposure. Members benefit if those bets perform well because the scheme is safer and more likely to deliver the promised pension in full. But, crucially, if those bets go wrong—that is, if markets fall, inflation spikes, people live longer than expected or the assumptions prove too optimistic—the bill lands not on members but on the employer. The sponsoring employer is legally on the hook to repair the damage, often through years of additional contributions, cash calls at the worst possible moment and significant strain on the balance sheet. That is what the employer covenant means in practice: it is the backstop when the world does not behave as forecast, which, as we know, it often does not.

So, if we accept that the employer is the party that must cover the losses when the scheme is underwater, surely it cannot be right to argue that, when the scheme comes in above water—when investment returns are strong, funding improves and a surplus emerges—the employer must be barred in principle from any share of that upside. That is not risk sharing; it is risk asymmetry. Heads, the members win; tails, the employer loses. In any rational system, if one party is compelled to underwrite the downside, that party must be permitted—subject, of course, to trustee oversight and member protection—to share in the upside. If we legislate for a system where the sponsor carries all the risk but is denied any benefit when outcomes are good, surely we distort incentives. We make sponsorship less attractive and encourage employers to close schemes faster, de-risk more aggressively or avoid offering good provision in the first place.

This is a crucial point. The fair outcome is not that employers take everything or that members do. It is that surplus is discussed and allocated jointly by trustees and employers, balancing member security, scheme sustainability and the long-term health of the sponsoring employer. That is partnership. Legislation should support that balance but not override it; that is a crucial point.

Mandating automatic inflation uplift would also have wider consequences: higher employer costs; increased insolvency risk, ultimately borne by the PPF; knock-on effects on wages, investment and employment; and, potentially, higher PPF levies. For PPF schemes, uplift is manageable because the employer covenant has gone and Parliament controls the compensation framework. Imposing similar requirements on live schemes, however, risks destabilising otherwise healthy employers. In short, uplift should be an option, not a statutory obligation. As I said earlier, decisions should rest with trustees and employers together and not be compelled by legislation.

That said, focusing on choice does not mean ignoring power imbalances, because in some schemes genuine deadlock leads trustees to sit on surplus and de-risk further. That may be understandable, but I think it is fair to say it is inefficient. Government should be looking at how to enable better use of surplus by agreement, not mandating outcomes. Much more needs to be done on breaking deadlocks, but we believe that Amendment 203 is not the right way to do it.

[Baroness Altmann (Non-Afl)]

May I just correct the record? I believe that the Goode committee may indeed have recommended limited price inflation up to 5%, and I apologise to the Committee.

[Baroness Sherlock (Lab)]

I thank my noble friend Lord Davies for introducing his amendment and for the history lesson. It is living history, but he always has the edge on me because he goes back to 1975, and at that point I was more interested in boys and make-up, so I simply cannot compete, I confess, on that front.

The reality is that this Government have to start in 2026 and where we are now, so we have to address what the right thing to do now is for the DB pension universe and for the schemes in general. I can totally understand why my noble friend has introduced this amendment. Members of some schemes are concerned about the impact of inflation on their retirement incomes, and I am sympathetic. We have been around this in previous groups. This amendment would remove references to 6 April 1997 as the start date for the legal requirement on schemes to pay annual increases on pensions in payment. Obviously, as my noble friend indicated, legislation requires increases on DB pensions in payment to be done only from 6 April 1997. That has been a pretty long-standing framework which reflects the balance that Parliament judged appropriate at the time between member protection and affordability for schemes and employers. These changes are normally not backdated; they are normally brought in prospectively.

Most schemes already provide indexation on pre-1997 pensions, either because it is required under the scheme rules or because they choose to award discretionary increases. The Pensions Regulator has done some analysis and is doing more work on this. The latest analysis indicates that practices differ, but many schemes have a track record of awarding such increases. However, imposing a legal requirement on schemes now to pay indexation on pre-1997 benefits would create costs that schemes and employers may simply not have planned for. These costs may well not have been factored into the original funding assumptions or contribution rates. For some schemes and employers, these additional unplanned costs could be unaffordable and could put the scheme’s long-term security at risk.

Many employers are working towards buyout to secure members’ benefits permanently. Decisions on discretionary increases must be considered carefully between trustees and employers against their endgame objective. The reality is that the rules for DB pension schemes inevitably involve striking a balance between the level and security of members’ benefits and affordability for employers. But minimum requirements have to be appropriate for all DB schemes and their sponsoring employers. A strong, solvent employer is essential for a scheme’s long-term financial stability, and that gives members the best protection that they will receive their promised benefits for life, as the employer is ultimately responsible for funding the scheme. Any change to that statutory minimum indexation has to work across the full range of DB schemes. This amendment would increase liabilities for all schemes, regardless of their funding position or governance arrangements. While some schemes and employers may be able to afford increasing benefits in this way, others will not.

The way DB schemes are managed and funded since the 1995 Act was introduced has changed, but the basic principle remains that we cannot increase scheme costs on previously accrued rights beyond what some schemes might be able to bear or that many employers will be willing to fund, and that remains as true now as it was then. Our view is that schemes’ trustees and the sponsoring employer have a far better understanding than the Government of their scheme’s financial position, their funding requirements, their long-term plans and therefore what they can and cannot afford. They are also best placed to consider the effect of inflation on their members benefits when making decisions about indexation. The regulator has already been clear that trustees should consider the scheme’s history of awarding discretionary increases when making decisions about indexation payments.

We discussed earlier in Committee the Government’s reforms on surplus extraction. They will allow more trustees of well-funded DB schemes to share surplus with employers to deliver better outcomes for members. As part of any agreement to release surplus funds to the employer, trustees will be better placed to negotiate additional benefits for members, which could include discretionary indexation. Although I understand the case my noble friend is making—I regret that I cannot make him and the noble Baroness, Lady Altmann, as happy as they wish—I hope that, for all the reasons I have outlined, he feels able to withdraw his amendment.

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What I am saying is that these proposals are in line with the move to try to make pensions, and the funding of pensions, more rewarding, and then there are consequences for how the PPF may need to react. This is introducing an idea, and obviously we can go further into it on Report. It may need some tweaking, but I certainly see a case to allow a lot more flexibility, even if we may put ranges on it, for example. There is no indication in what I am saying about how it should be constructed, but I think that, with the maturity that the PPF now has, it is the right time to discuss and to enable provisions for change to be made. I beg to move.

[Baroness Altmann (Non-Afl)]

My Lords, I have added my name to these amendments. I very much support the aims of the noble Baroness, Lady Bowles, to ensure there is proper flexibility in the levy paid by companies to the PPF. The PPF can then use its discretion to decide which companies should pay more than others and which companies are more secure than others in terms of their pension schemes. The current requirement is based on circumstances that have fundamentally changed over the past 20 years or so, since the whole system was first thought of.

The PPF is one of our incredible success stories in terms of protecting people’s pensions by successfully investing money that it has taken in. It has worked far better than anyone would have anticipated at the time, and we need to pay tribute to those who have been running the PPF; they have done an extraordinarily good job in the face of sometimes very difficult circumstances. I hope that the Government will think favourably about the possibility of allowing the PPF this kind of flexibility, given that the situation with pension schemes, surpluses and funding levels has changed so fundamentally.

[Baroness Stedman-Scott (Con)]

My Lords, the amendments in this group in the name of the noble Baroness, Lady Bowles, are thoughtful and proportionate. They raise genuinely important questions about how we can future-proof the operation of the Pension Protection Fund.

Clause 113 amends the provisions requiring the PPF board to collect a levy that enables the board to decide whether a levy should be collected at all. It removes the restriction that prevents the board reducing the levy to zero or a low amount and then raising it again within a reasonable timeframe. We welcome this change. It was discussed when the statutory instrument passed through the House, at which point we asked a number of questions and engaged constructively with the Government.

The amendments tabled by the noble Baroness would go further; once again, the arguments she advances are compelling. Amendment 203A in particular seems to offer a sensible way to shape behaviour without micromanaging it—a lesson on which the Government may wish to reflect more broadly, especially in relation to the mandation policy. If schemes know that the levy will always be raised in one rigid way, behaviour adapts, and not always in a good way. In contrast, with greater flexibility, employers retain incentives to keep schemes well funded, trustees are rewarded for reducing risk and the levy system does not quietly encourage reckless behaviour on the assumption that everyone pays anyway.

This amendment matters because it would ensure that, if the PPF needed to raise additional funds, it could do so in the least damaging and fairest way possible at the relevant time. I fully appreciate that the PPF is a complex area but, as the market has changed and is changing, and as the pensions landscape continues to evolve, the PPF must be involved in that journey. These are precisely the kinds of questions that should be examined now, not after rigidity has caused unintended harm.

I turn briefly to Amendment 203C. We are open to finding ways to prevent the levy framework becoming overly rigid, which is precisely why we supported the statutory instrument when it came before the House. Instead of hardwiring an 80% risk-based levy requirement into law, this amendment would place trust in the Pension Protection Fund to raise money in the fairest and least destabilising way, given the conditions of the year. Flexibility may well be the way forward. I have a simple question for the Minister: have the Government considered these proposals? If the answer is yes, why have they chosen not to proceed? If it is no, will they commit to considering these proposals between now and Report? I believe that that would be a constructive and proportionate next step.

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[Lord Pitt-Watson (Lab)]

My Lords, I rise nervously since it has been only one week since I made my maiden speech. I should declare an interest, as I have worked in the field of responsible investment for the past 25 years; I am not paid for any action there but, on occasion, my old employer allows me to use an office in the City when I have a meeting there.

I want to make two observations. One is about this Committee, which I have been sitting in on over the past few days, and one is more about this debate.

My observation on the Committee is that I am so impressed by the standard of the questioning. I am also extraordinarily impressed by the magisterial answers that can be given in pulling together what is a really complicated pensions Bill, much of which I admit not to understand. I have noted that, in our discussions and debates, there is often a great unity of purpose in terms of where we want to get to, but also some questions around how we might want to get there.

With that in mind, I want to address the issues that we are discussing today. I think that where I want to get to is very similar to the places the proposers of these amendments want to get to, but I might caution them a little to think about the ecosystem for which we are writing rules. If you look at a big UK pension fund, its equity portfolio is probably index-tracked, so it is buying entire markets rather than individual companies. It probably holds stakes in 5,000 different companies, or something like that, so we need to think practically about how we are influencing it.

We also have a situation—I find this extraordinary; I know that both the Government and the Committee are concerned about this—where an average British pension fund might have more equity investments in Nvidia and Apple than in the entire UK stock market because of the way in which assets are allocated. The UK pensions system is, therefore, a very small holder in a very large number of companies. I profoundly agree that we need to uphold international law on human rights, but, if we are to do that, do we not need to think about how we can get everyone to work together on that, rather than just a small proportion that might ultimately divest?

I note that Principles for Responsible Investment, which has $130 trillion of assets under management, has promised to be active owners and to incorporate social and environmental issues into its investment and ownership practices. Might there be some way in which we can hold those promises to account? Also, when thinking about how we can address human rights issues such as modern slavery—we have talked to companies about this—the campaigners often tell us, “Don’t have the companies ticking boxes saying that they know nothing about modern slavery. It is everywhere, and we need to be fighting it everywhere. Let us be open about how we do this”.

One initiative that I support, both in an advisory role and financially, is the Business and Human Rights Resource Centre, a network that investigates 1,500 human rights abuses by companies all around the world. It goes back to the companies and says, “You’ve got to fix this”. I have been particularly keen that, if the company does not fix it, the network can then see their shareholders and make sure, at the next shareholder meeting, that those questions are being raised with the companies. I wonder whether that is something we could leverage.

Recognising how difficult this is, I led the finance initiative to persuade British companies to divest from Myanmar 15 years ago, just before Aung San Suu Kyi took over. Of course, things have gone backwards since then. I was at a party before Christmas where someone remonstrated with me about what a terrible decision it was for British companies to withdraw from Myanmar. This is quite complicated stuff. How do we build on what is already there?

I love the passionate support for new asset classes, because it is so important that we move them forward. What we want to do is to get money flowing to social causes. I am not quite sure that there is always one solution. I was very involved in the development of the green bond market, which reached a $1 trillion issuance last year—that is pretty good. We also have to think about the traditional ways we can get this. Housing associations borrow on normal markets, so how do we get more of that? We have Bridges and the LGPS, which the noble Baroness talked about. I wonder whether we should always want things to be pension specific—although I do know that this is a pensions Bill, so perhaps that is part of it.

Then there is the question of knowing the social impact. We need to be careful about what social impact is. I am struck that, if you were to set up a pension system, a lending system or even a saving system in the developing world, you would be praised for the massive social impact you would make. Similarly, Henry Duncan’s trustee savings bank—he was Scottish, like me, as were Wallace and Webster, who set up the first pension fund—had a huge social impact. As we think about the social impact of the pensions and finance industry, I note that both in terms of its liability—what it is giving the public for their savings—and the assets it is holding on their behalf, the industry is thinking about both sides of that social impact.

Going back what I said earlier, I hear quite a lot of consensus about where we want to get to. Whatever happens to these particular clauses, I wonder whether we could work together on this issue—it is a very big one—in the future in some way. Britain is an absolute leader in responsible investment. If we can listen to beneficiaries, talk to sponsors and gather the industry—and if the Government can help set the framework—we can do something that would be really worth while.

[Baroness Altmann (Non-Afl)]

I will speak very briefly to support the amendment tabled by the noble Baroness, Lady Stedman-Scott, and the noble Viscount, Lord Younger. I know how passionate the noble Baroness is about the issue of social impact bonds, so it seems to me that this is a very modest and well-constructed amendment that could have significantly positive impacts on growth and local amenities. It would also specifically say, after Clause 117:

“Nothing in this section … requires trustees to invest in social bonds or any other asset class”.


So it does not in any way require this to happen, but it seeks to facilitate a system set up for pension funds to invest in this way in assets that, potentially, would have a significant social benefit, of which the noble Baroness spoke so passionately, having seen the positive results.

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[Lord Hendy (Lab)]

I am sorry to interrupt the noble Baroness, but I emphasise that this amendment is to propose regulations that will be drafted by the Secretary of State. One would expect the Secretary of State to determine whatever issues there are about international law. By the way, international law itself is quite clear. It is about whether the factual situation on the ground meets the particular requirements of international law, but I think that could all be dealt with in regulation.

[Baroness Altmann (Non-Afl)]

I understand the point that the noble Lord is making. I am just not convinced that one would want to put this type of responsibility on the Government. Of course, judgments in international law change from time to time, and trustees are investing for the very long term. I recall the example of Myanmar given by the noble Lord, Lord Pitt-Watson. There are difficult issues that I understand the Government might regulate for. How pension trustees then build that into their asset allocation is another layer of complexity that I have concerns about, but I certainly have every sympathy with the intentions of the noble Lord, Lord Hendy, and the noble Baroness, Lady Janke. It is a difficult one. I just caution that getting to that level of prescription could be the thin end of the wedge for pension trustees, who already have so many responsibilities upon their shoulders.

[Baroness Bowles of Berkhamsted (LD)]

I welcome the noble Lord, Lord Pitt-Watson, to the Committee. His comments have inspired me to make a very small intervention. It is true that there is a lot of index investment, and inevitably that will capture things inadvertently, but there are now many more indices that will be socially responsible or environmentally responsible, and trustees can choose to use them.

If pension trustees collectively and pension funds made a little more noise and made more approaches to the index providers, we may well get indices that are more pushy in what they do for social and environmental protection. Ultimately, most of the time they are paid to invent an index or they are doing it for their own platforms, but I see an open door there to apply pressure.

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[Baroness Neville-Rolfe (Con)]

My Lords, I support my noble friend Lord Younger of Leckie in proposing a review of pension awareness and saving among young people.

When I had the honour to review the state pension age for the DWP in 2021-22, I was struck by two things that strengthened the case for better policy in this area. First, I found it much more difficult to get young people or their representatives, or indeed middle career workers, to engage in my review. Those who did were keen to keep pension contributions down and they did not believe the state pension would still be universal by the time they reached the retirement age of, say, 70. They were worried about buying a flat, as my noble friend has said, looking after their children and paying back their student loans.

Secondly, the level of financial education was dire. Schools were focusing well on human rights, the environment and ESG, which was discussed under the previous amendment, but not on pensions or financial management. They were not teaching the importance of early saving, the magical impact of compound interest, the value of a pension matched by the employer and the risk of new sources of profit like cryptocurrencies. Much more such education is needed in our schools but the Department of Education was resistant, partly because teachers are also often a little short on financial education. This is an important area and I am sure the Pensions Commission will look at it, but my noble friend is right to highlight what a big job we have to do.

[Baroness Altmann (Non-Afl)]

My Lords, I add my words of support to the concept being promoted by my noble friend Lord Younger. I hope the Government will look into this, as it might well be a good topic to task regulators with in making sure that either they or pension schemes themselves are helping people to understand pension schemes better, how they work and the free money that goes along with a pension contribution in terms of your own money. There is, as I say, extra free money added by, usually, your employer and other taxpayers. I do not think young people always understand just how beneficial saving in a pension can be relative to, let us say, saving in a bank account or an ISA, or indeed the value of investing. It would be in the interests of the regulators and, indeed, the providers to help people to understand that. The Government’s role in guiding that and setting up this kind of review could be very valuable.

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Viscount, Lord Younger, for introducing his amendment and all noble Lords who have spoken.

As we have heard, the amendment would introduce a statutory requirement for the Secretary of State to conduct a review of pension awareness and saving among young people. I agree with the Committee about the incredible importance of this issue, and I understand why the noble Viscount has tabled the amendment, but I hope to persuade him that there is another way forward.

The starting point, inevitably, is that last year the Government revived the Pensions Commission. The original commission did an astonishing job; its legacy under the previous Labour Government in effect lead to the creation of workplace pension saving via automatic enrolment. Since then, with support from both parties, automatic enrolment has transformed participation in workplace pension saving. It has been a particular success for younger people. Our participation for eligible employees aged 22 to 25 has gone up from 28% in 2012 to 85% in 2024.