Pension Schemes Bill

Baroness Bowles of Berkhamsted Excerpts

Thursday 19th March 2026 Lords Chamber

Moved by

[Baroness Bowles of Berkhamsted]

52: Clause 40, page 38, line 12, leave out “and Condition 2”

[Baroness Bowles of Berkhamsted (LD)]

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

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

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

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

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

[Baroness Altmann (Non-Afl)]

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

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

--- Later in debate ---

[Baroness Sherlock (Lab)]

This all comes as a package. A lot of attention is focused on this particular reserve power, but in fact it is the combination of all the elements of the Bill that we discussed in some detail in Committee over recent weeks: the question of the investment in scale, the need for the value-for-money framework, the need for the option to consolidate small pots. All these things come together to create the conditions in which this will work. This reserve power is to address a particular question, the risk of collective failure. I fully accept that the noble Lord does not agree with it, but I want at least to have the opportunity to make the argument as to why the Government are proposing to do it in this way.

The Mansion House Accord represents a voluntary commitment by 17 of the UK’s largest DC pension providers to invest 10% of their default funds in private markets, at least half of that in the UK, by 2030. We continue to be encouraged by progress, but the risk of a collective action failure in this market has long been recognised. As I said, individual providers face strong commercial incentives to keep costs low and to defer action until others move first. The reserve power exists as a backstop to ensure that if voluntary progress stalls, the Government have the means to act. Its presence in the Bill sends a clear signal that the commitment to change is underpinned by more than good intentions, and it helps to give each provider confidence that the rest of the market will move too.

At earlier stages we discussed a range of issues around safeguards and other things, which I thought would come up in later groups but that will obviously depend on what happens next. First, the power is time limited. The noble Baroness, Lady Stedman-Scott, thinks this power will outlive us all. I hope it does not, because if it has not been used by the end of 2035 it falls away, so I very much hope that it will not outlive the noble Baroness and me, although obviously we are in the Lord’s hands: should we be called home, what can we do? If it has not been used by 2035, it falls away. If it has been used, any percentage requirements in place cannot be increased beyond that date.

Secondly, the Bill establishes a savers’ interest test. Pension providers will be able to apply for an exemption from the targets where they can show that meeting them would cause material financial detriment to their members. Thirdly, the Government must consult and publish a report on the expected impacts, both on savers and on growth, before exercising the power for the first time, and a post-implementation review must follow within five years. Finally, the regulations implementing any requirements will be subject to the affirmative procedure, so Parliament would have its say.

I will respond to some specific questions. There was a question about how to define UK assets. This would be done in regulations were the power ever to be used. Consideration would have to be given to the characteristics of different asset classes. The Mansion House Accord is accompanied by some high-level guidance on how a UK investment should be identified within each of the different asset classes. That asset class by asset class approach to establishing the location is also the one that the FCA has taken as it consults on the upcoming value-for-money disclosure requirements, which will require firms to provide UK overseas asset allocation split. If the Government ever came to exercise these powers, we would expect similarly to take an asset class by asset class approach.

Questions were raised about a future Government and how this might be used. The noble Baroness, Lady Coffey, prayed in aid the European Convention on Human Rights, and I commend her on that. First, on the question on property rights, this applies to default schemes and people can choose to opt out, but she raises a relevant point. Obviously I hope there will never be one, but if there ever were a Government of a different persuasion, were they to seek to use it in a way beyond what is here, I think they would run into problems. This Government have made it quite clear, in Committee in this House and in the other House, that the purpose of the power is to assure good outcomes for savers and the economy, recognising diversification benefits and the potential for higher returns. It is not an instrument for channelling investment into pet projects or specific companies.

The noble Lord, Lord Vaux, quoted me on this point. It was marvellous—“What he said” is what I would say. That is the Government’s view, and I have spoken about the various safeguards, but even if a future Government wanted to use these powers to do something either much broader or much more specific, of course they would have to abide by established principles of public law, including the requirement for Ministers to act rationally, ensuring procedural fairness and compatibility with ECHR rights when making secondary legislation.

The Government are under no illusions about the significance of this power. It is a substantial intervention and, if we ever found the need to use it, we would have to proceed with great care. I understand the strength of feeling on this. These powers, alongside the scale provisions, the value-for-money framework and the consolidation measures, are a package. Together, they are designed to deliver a step change in outcomes for millions of pension savers. If we remove the reserve power, we remove the mechanism that gives the rest of this framework its teeth when it comes to investment diversification.

For a long time, successive Governments have recognised the need to channel pension capital into productive assets. Auto-enrolment has brought millions more people into saving. We now have a responsibility to ensure that those savings are put to work properly to deliver better long-term returns. But the question before us is whether the Bill should contain the backstop at all. In the Government’s view, the answer is yes. Without it, the voluntary commitments made by the industry would rest on good faith alone. The experience of previous attempts to shift investment patterns in this market suggest that that, on its own, may not be enough. For those reasons, I respectfully ask the noble Baroness not to press her amendment.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I thank all those who have spoken. The overwhelming view is still that this power goes too far. Many of the issues on which the Minister comments are around cost but, as I said, the whole focus on cost has been brought about by regulation. Changing to value for money will, I hope, adjust that, although I have concerns that it will still be too bound up. But the more I listen to the Minister, the more I hear that there is a deliberate intent for market manipulation and control. That really worries me, because it does not seem to be at all market sensitive or prepared to use what is supposed to be one of the strengths of this country—its asset management.

I think this is dangerous and market distorting, even without any legal effect. As has been eloquently said, it is the wrong direction of travel—I thank the noble Lord, Lord Wolfson, for that reminder. I wish to test the opinion of the House.

--- Later in debate ---

Moved by

[Baroness Bowles of Berkhamsted]

53: Clause 40, page 38, leave out lines 24 to 28
Member’s explanatory statement
This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.

--- Later in debate ---

Moved by

[Baroness Bowles of Berkhamsted]

57: Clause 40, page 38, line 38, leave out “or Condition 2”
Member's explanatory statement
This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.

--- Later in debate ---

Moved by

[Baroness Bowles of Berkhamsted]

61: Clause 40, page 40, line 19, leave out “or the conditions for approval under section 28C”
Member's explanatory statement
This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.

--- Later in debate ---

Moved by

[Baroness Bowles of Berkhamsted]

78: Clause 40, page 45, line 32, leave out from beginning to end of line 19 on page 48
Member’s explanatory statement
This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.

--- Later in debate ---

Moved by

[Baroness Bowles of Berkhamsted]

96: Clause 40, page 50, line 28, leave out from beginning to end of line 16 on page 51
Member’s explanatory statement
This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.

--- Later in debate ---

Moved by

[Baroness Bowles of Berkhamsted]

99: Clause 40, page 51, line 24, leave out “or 28C”
Member’s explanatory statement
This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.

--- Later in debate ---

Moved by

[Baroness Bowles of Berkhamsted]

102: Clause 40, page 53, line 19, leave out subsection (13)
Member’s explanatory statement
This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.

--- Later in debate ---

Moved by

[Baroness Bowles of Berkhamsted]

106: Clause 40, page 54, line 17, leave out “(7B),”
Member's explanatory statement
This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.

--- Later in debate ---

Moved by

[Baroness Bowles of Berkhamsted]

108: Clause 40, page 54, line 18, leave out “28C (other than subsection (10)(f))”
Member's explanatory statement
This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.

--- Later in debate ---

Moved by

[Baroness Bowles of Berkhamsted]

110: Clause 41, page 55, line 3, leave out “or the asset allocation requirement in section 28C”
Member's explanatory statement
This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.