Pension Schemes Bill

Baroness Bowles of Berkhamsted Excerpts

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

Motion E1 (as an amendment to Motion E)

[Baroness Bowles of Berkhamsted]

Moved by

As an amendment to Motion E, leave out from “House” to end and insert “do insist on its Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88, and do disagree with the Commons in their Amendments 88A to 88C to the words restored to the Bill by the Commons disagreement to Lords Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88.”

[Baroness Bowles of Berkhamsted (LD)]

My Lords, the Commons has asked us to accept a clause that reintroduces strict mandation of pension scheme asset allocation, traducing trustee fiduciary duty. There are two problems with the clause: the mandation itself and the discriminatory definition of investment vehicles that excludes listed investment companies—one of the two vehicles explicitly endorsed by the productive finance working group, composed of regulators, HMT and the wider investment industry.

Both defects are fundamental. Until this clause appeared, there was broad political and industry alignment on the direction of travel, supporting trustees to consider a wider range of assets and ensuring that the Government play their part through the enablers set out in the Mansion House Accord. Nothing in that shared approach required coercion.

Further, the Government’s own consultation evidence contradicts the justification for mandation. Ministers say that employers choose schemes based on cost and that private asset investment is too expensive. But the DWP’s own data, quoted in the consultation document, shows that investment charges are not in the “top three factors” for employer decisions. The top factors are convenience, professional advice and employer fees.

Most schemes are already priced well below the charge cap and only 5% of employees ever switch schemes at all. The consultation stated that investment charges are not likely to feature heavily in employers’ decision-making. If that is so, the rationale for strict mandation simply does not stand, although I can see how the allegation helps to escape competition policy concerns about strategy co-ordination. But do not forget that value for money is meant to solve the focus on cost.

There can be perfectly good reasons why a scheme has not invested in a particular asset or asset class—reasons recognised explicitly in the Mansion House Accord itself. Ministers say that this clause is just a back-up to the accord, but it does not reflect the accord’s own terms: its dependence on government actions and the critical enablers. Instead, the clause is a doubling down, not a codification. The Government admit that it is intended to be and will be coercive merely as a reserve power.

Ministers have also spoken often about crowding in investment and using pension capital to give confidence to the wider market, but coercion does the opposite. If investment has to be compelled, the signal to the wider market is not confidence but doubt—crowding out, not in. Wider market effects have consistently been overlooked in the drafting of this clause, but it is not something that this House should ignore.

The overriding principle is that government must not undermine fiduciary duty, whether by mandation or coercion. Therefore, we should continue to insist on our amendment and disagree with the Commons. I intend to test the opinion of the House at the appropriate time. I beg to move.

[Baroness Stedman-Scott (Con)]

My Lords, it is beyond doubt that mandation is, rightly, the most serious and contentious issue in the Bill. We have made our views on this very clear, as have many other noble Lords. The state should not be directing the investment of assets held by private funds. The power that the Government are setting out in the Bill directly undermines the principle of fiduciary duty on which the entire pensions system relies. It must by now be plainly obvious to the Government and the Minister that any investment that has to be forced by the Government is not in the interest of savers.

We are absolutely opposed to this power, in principle and in practice. We have met with many representatives from industry, including signatories to the Mansion House Accord, to which the Minister claims this power is designed to be a backstop. They have been crystal clear that this power crosses a line and must not proceed. We will support the noble Baroness, Lady Bowles, if she seeks the opinion of the House on this Motion.

On Motion F1, the argument for scale exemptions is now well rehearsed and I will not repeat it today. Our amendment would preserve the policy intent and provide two clear and targeted routes through which a scheme may qualify—both tightly drawn and firmly anchored in member outcomes—that introduces a rigorous evidential threshold and places the responsibility firmly with the regulator, who must be satisfied not only that the conditions are met but that any claimed benefits are material and demonstrably in the interest of members. The Government committed through the Mansion House Accord to taking a pragmatic approach to scale. This amendment gives effect to that commitment. I put on notice that I will seek to test the opinion of the House on this Motion when it is called.

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords for their comments. Having spoken at some length at the start, I will not respond at length. I shall just pick up a few points.

On the question on fiduciary duty, nothing in the Bill disapplies trustees’ existing duties of loyalty, prudence and acting in members’ best interests. Those continue to apply in full. Were this power ever to be used—I repeat, the Government do not expect to use it—and the asset allocation requirements were in place, the savers’ interest test allows a scheme to seek an exemption if it can show that compliance would cause material financial detriment to members. Not only would they be enabled to do that but we would expect the fiduciary duty to require the trustees to make such an application to the regulator. Trustees are not directed to invest in any specific asset or project, and if they believe that the requirements are not in the members’ best interests, again, they should apply for an exemption.

The neutrality amendments provide a meaningful constraint. The Government must prescribe qualifying asset descriptions across each of the private market categories in the Bill, so they could not load an entire requirement into a single asset class, let alone a pet project or specific investment. Any future Government who attempted to define qualifying assets in a way designed to serve their own policies or a pet project, rather than savers’ interests, would clearly be vulnerable to legal challenge on rationality grounds.

I am not going to debate this at length since the noble Lords have made clear their intention to test the opinion of the House irrespective of whatever I say. I have just two other comments, on scale. I take the point made by the noble Baroness, Lady Stedman-Scott, that the Government should be pragmatic. I completely agree. My problem with her amendment is that it is not practical, so I cannot be pragmatic in trying to apply an amendment that is really clear in the matter of scale but would simply be too difficult to apply, because it is not clear what the nature of the test would be and it would end up getting bogged down in the courts for years, giving the regulator an impossible job. That simply does not work.

I have made the point about competition in our previous, long debate, and I do not doubt we will return to it again should the Bill not all disappear tonight. In the light of that, I hope that noble Lords feel able not to press their amendments.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, we have heard continued disagreement with mandation and coercion from across the House. As the Minister has said, we do not need to re-rehearse all the things that we have already said, but something that stuck in my mind from a previous stage was when the Minister said that if we did not have mandation, it would rest on good faith alone. That is the whole point: I think there is good faith in the City to deliver on this, and not to trust it, exactly as the noble Lord, Lord Remnant, has said, damages relationships and any good faith and trust in government. This is therefore doubly, trebly and quadruply a bad thing for the Government to have suggested, and I hope they will have a change of mind. I wish to test the opinion of the House.