Pension Schemes Bill

Baroness McIntosh of Pickering Excerpts

Committee stage
Monday 26th January 2026 Grand Committee

[Baroness McIntosh of Pickering (Con)]

My Lords, this is the first time I have been able to speak on the Bill. I am delighted to follow my noble friend, who I still consider the pension tsar and who is so knowledgeable in this field. I apologise for being absent when Amendments 132 and 133 were reached; unfortunately, with all the business in the House, there are inevitable clashes, and we cannot be in two places at one time.

I thank the ABI and others who have briefed me in advance of the Bill proceedings. I have to say, I agree with their conclusions. I believe that they are right when they say that the Government are right that it is not necessary to mandate asset allocation by pension funds.

This amendment is intended as a probing amendment for debating purposes; I am sure that the debate will represent the broad consideration of views in Committee this afternoon. The aim, really, is to provide reassurance to pension providers by capping the mandatory asset allocation at a total of, say, 10%, which is a figure that my noble friend Lady Coffey and I independently happened upon; I also added 5% for geographical locations, such as the UK, as a proportion either of total assets or of a subset of assets.

It is true to say that the industry is generally opposed to mandating asset allocation at all. This amendment would provide some reassurance, which is what I shall seek from the Minister when she comes to respond to this debate, to pension providers of that by capping the mandatory asset allocation to a total of these two figures—10% and 5%—as a proportion either of total assets or of a subset of assets.

There has been much talk of the Mansion House Accord this afternoon. I would like to chip in also and say that this power would align with the accord, which had widespread support across the industry—as well as from government, as it was supported by the Chancellor. I understand that the accord was led jointly by the ABI, Pensions UK and the City of London Corporation. It followed extensive discussion between the industry and the Pensions Minister and had a 17 signatories, who committed

“to the ambition of allocating at least 10% to private markets across all main DC default funds by 2030; and … within that, at least 5%”—

and I have now lost my briefing, so I am completely at sea.

I hope that I have given a little taste of where we are. I am not saying that these are the definitive figures; I am just throwing into the wash that this afternoon would be a good opportunity to give some reassurance to the pension providers in the way I and my noble friend Lady Coffey have sought to do.

[Baroness Penn (Con)]

My Lords, I will speak briefly in support of Amendments 112, 114 and 117 in the names of my noble friends Lady Coffey and Lady McIntosh of Pickering, which aim to set a cap on asset allocation.

In response to our debate on the previous group, the Minister consistently described the mandation power as seeking to achieve a “modest but meaningful” investment in private assets; and said, importantly, that it was designed as a “narrow backstop” to delivering the Mansion House Accord. If that is the case, why is the proportion of assets that can be mandated under this power not capped in line with that accord? Indeed, as I read it, it could be up to 100% of assets. Why is that? The Minister may point to consultation and other measures that will constrain the use of the power but, for something so controversial and which the Government say they do not want to use, I cannot understand why they are not constraining it in primary legislation.

I will touch on timescales in our debate on the next group, but the Minister says that this Government do not want to use this power. However, as things currently stand, it would be open to the next Government to use the power, and the one after that—as well as a couple of Governments in between if we do not go to full Parliaments, as we have not always done in recent years. In those circumstances, it would also be sensible to limit the power to delivering what the Government say they want it to do.

Why do the Government not want a maximum limit in primary legislation? What is their objection to it? The cynic in me wonders whether the power is so widely drawn that, when we remove mandation on Report—I might be getting ahead of myself but that is on the cards—the Government could bring forward a series of concessions at ping-pong to limit the use of the power to what they say they want it to do. I am sure that that is not the case, but it might be better than the position in which the Government think that this power, as it appears in the legislation, has been drawn appropriately. I am really interested in the Minister’s response on this.

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[Baroness Penn (Con)]

My Lords, my noble friend Lord Younger has asked many of the questions that my Amendments 116A and 130A seek to probe on the rationale for the Government’s timescales in the Bill. They are also intended to shorten those timescales and implement an absolute sunset; I want to be clear to the Minister that I do not think that a deadline by which the maximum asset allocation cannot be raised further is a sunset.

I heard what the Minister said in our debate on the previous group about introducing a maximum allocation cap. I am not sure that I really buy into that argument but, if that is the rationale, are the Government really saying that it might take 10 years to work out what the definite figures agreed under the Mansion House Accord are and that that is why they have their timescales in place? Are the Government really saying to those who signed up to the Mansion House Accord—or, indeed, to those who did not—that the figures that could be mandated under this power could go above 10% and 5%? That would make it an even harder power for people to swallow. Further, this could be over by an unlimited amount—not even a variance of maybe up to 15%, but up to any level.

The Government have used the argument for the mandation power that it creates certainty for those pension funds but, the more we discuss it, the more uncertainty there seems to be. The figures of 10% and 5% do not seem to be the figures of 10% or 5% any more. Under the Government’s approach, we will get a cap, but maybe in 10 years’ time, while the assets required to be invested under that cap can still change in perpetuity. I used the example at Second Reading of one Government wishing to mandate investment in net zero and the other wishing to mandate investment in defence assets; both are conceivable things that we might see happen in the longer term. The point is that, the longer this power is in place, the greater the risk that it is used not for this Government’s intention but for something else.

On the guardrails outside of the primary legislation, which the Minister referred to but rightly did not go into in our debate on the other group, I have a question about one: the requirement to consult. At Second Reading, the Minister said that the Government would be required to consult before using these powers for the first time. I want to check whether this means that they will not be required to consult when amending them subsequently or they will be required to consult each time they bring forward regulations under this power. I had thought that it was the former—consulting each time they used the powers—but, if it is not, and it is only the first time when they are used, I would be grateful if the Minister could clarify that point.

[Baroness McIntosh of Pickering (Con)]

My Lords, I am grateful to my noble friend Lord Younger of Leckie for introducing this group and setting the scene so eloquently, and to my noble friend Lady Penn for speaking to her amendment. I shall speak to the amendments in my name and I thank the noble Baroness, Lady Altmann, for lending her support to Amendments 129, 153 and 156. They follow on neatly from the other amendments about which we have heard. The Bill requires the Government to publish a report before the introductory regulations are brought into force to bring in the reserve powers, but it covers only how the financial interests of savers will be affected and the effect of the regulations on economic growth.

The purpose of my Amendment 129 is to set out additional items to be covered in the report, to ensure that the Government properly and comprehensively assess the impacts of any future regulations, such as, for example, the functioning of workplace pensions markets and impacts on the market of assets to be mandated and other requirements. What I am proposing in Amendment 129 is to test whether the Government have done enough to justify using such a drastic power. I am also suggesting, taking up the point of my noble friend Lord Younger, that the first report should be in less than five years: the first report should be after two years, because a lot of damage could be done in the first two years and even more damage could be done if there is no report for five years.

Amendment 156 continues on this theme, looking at a different part of Clause 40 for these purposes. Amendment 153 says that there should be a review, as I have mentioned, which should take place within at least two years, in addition to a review within at least five years. While the review in the Bill allows for mandation to be in place for five years before the Secretary of State must review its impact, I believe that that is too long and that it could potentially allow for negative effects to set in under the regulations under the Bill for affected default schemes. Taken together, Amendments 153 and 156 bring forward the review of regulations to take place within two years after those regulations have been in force, as well as after another three years to stop any further damage being done. We set out here what those reviews should look at

“the functioning of the market for Master Trusts … what effects the measures have had on that market … what effects the measures have had on the markets for qualifying assets”,

and so on, as set out in these amendments.

I hope the Minister will look favourably on these amendments, particularly since there is a mood on this side to coalesce around a review within the first two years.

[Baroness Noakes (Con)]

My Lords, all the amendments in this group raise important issues. I hope that none of them will be necessary, because I hope that we will have got rid of the power from the Bill, so these will become irrelevant details. I have Amendment 130 in this group, which would modify the mandation power by removing new Section 28C(15). This subsection “overrides any provision” of a trustee or scheme rules that conflicts with the mandation power. Thus, if the scheme had been set up with investment parameters that, for example, ruled out investing in private equity, and the Government then specified private equity, the wishes of the employer expressed in the scheme’s governing documents would be completely overwritten. Since there is no requirement in the Bill, as I understand it, for the Government to specify more than one asset class, it is quite possible that the Government could specify a required asset class that conflicted with things that had been deliberately set up when the scheme was set up.

I can understand, of course, why the Government want to encourage pension schemes to consider investing in alternative asset classes. I do not think you will find much resistance to the concept of investing in alternative asset classes. But I simply cannot understand why the Government think they should have a power to force schemes to invest in a particular way, if a conscious decision has already been made not to invest in that asset class. The Government might not agree with that decision, but I hope we do not live in a world where the Government can simply ignore the clearly expressed wishes of those they govern. I hope that we still live in a free society. Subsection (15) seems to me to extend the powers of the state too far, and we ought not to go along with it.

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Moved by

[Baroness McIntosh of Pickering]

140: Clause 40, page 50, line 32, leave out “, for a period specified by the Authority,”
Member's explanatory statement
This amendment seeks to remove the time limit for savers’ interest exemptions to the asset allocation requirements that would be set by the Authority.

[Baroness McIntosh of Pickering (Con)]

My Lords, I hope that this little group is fairly self-explanatory.

In Amendment 141, I am again seeking to provide more certainty in relation to the savers’ interest test for exemptions to the asset allocation requirements and ensure that providers are not required to alter their asset allocation until the authority has made its determination or they have received the outcome of the referral to the Upper Tribunal. This is a probing amendment for debating purposes. I hope that we will get further light from the Minister when she replies.

My noble friend Lady Noakes has just reminded me that I would also like to speak to Amendment 140, the “starter for 10” in this group. Here I am seeking to remove the time limit for savers’ interest exemptions to the asset allocation requirements that would be set by the authority. I thank the Committee for its forbearance in allowing me to speak to Amendment 141 as well.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will speak to Amendments 146 to 150. This group of amendments is all about trustees. Although I submit that nothing in this Bill should unsettle the basic foundation of our trustee law, there remains extensive debate in the courts and academic literature, and among trustees, on how far wider policy objectives and emerging risks can be taken into account. I am trying to address some of those.

Amendment 146 would simply reinforce the obvious: fiduciary duty remains the overriding principle of pension governance and trustees must act in the best financial interests of members. That is the cornerstone of trust law. The courts have been clear for decades that trustees must prioritise members’ financial interests above all else. Yet the combination of the Mansion House rhetoric, promotional language in the Bill and the possibility of future regulations has created real anxiety among trustees about whether they are expected to prioritise government preferences over member outcomes. This amendment aims to remove that ambiguity. It would restate the law, reassuring trustees that their primary duty has not changed.

Amendment 147 follows on from that in seeking to introduce a safe harbour. Trustees are increasingly worried about being second-guessed, not for misconduct but for failing to meet expectations that are not clearly defined. Many are lay trustees. They act in good faith, take professional advice and follow their fiduciary duties. They should not face penalties or adverse consequences because they did not meet a quota or chose a different route to the same underlying assets. A safe harbour is a standard legal mechanism used in other regulatory regimes. It protects trustees who do the right thing, prevents retrospective reinterpretation of policy signals and ensures that trustees can make decisions based on evidence, not fear.

Amendment 148, also tabled by the noble Baroness, Lady Altmann, addresses systemic risk. Trustees already consider systemic risks: climate change, economic resilience, supply chain fragility and other long-term factors that materially affect pension outcomes. The Pensions Regulator already expects trustees to consider these issues, but the statutory framework is uneven and expectations are not always clear, so this amendment would codify best practice. It would ensure that trustees consider systemic risks as part of their fiduciary duties, while making it explicit that this does not mandate investment in any particular vehicle. It is about risk management, not direction of capital. Trustees are careful and sensible people and will observe the policy direction, including on private assets. As I said last week, before we had the devil’s clause, there was broad agreement that it would be far better to trust the trustees.

Amendment 149, again from the noble Baroness, Lady Altmann, addresses structural discrimination. I have already dealt extensively with how the Bill risks creating unequal treatment between different collective investment structures. Trustees should be free to choose the most appropriate structure for their scheme, whether listed or unlisted, based on liquidity, valuation, discipline, governance or member outcomes. The amendment would simply ensure a level playing field. It would prevent distortions, protect competition and ensure that trustees are not nudged away from structures that have served savers well for over a century.

Finally, Amendment 150 deals with herding risk. Regulatory herding is a known danger, which we have seen most recently and dramatically with LDI, where regulation, guidance or professional advice pushes everyone in the same direction at the same time and systemic risk increases, not decreases. The Mansion House agenda, if interpreted too narrowly, risks creating precisely that kind of clustering. This amendment would require the Secretary of State to avoid mandating or promoting investment in a way that induces herding and ensure that any guidance emphasises diversification and risk management. It is a simple “Do no harm” provision which learns from recent history. It is also embedded in the terms of the Mansion House Accord, as spoken to last Thursday by my noble friend Lord Sharkey. Trustees must not be forced to purchase assets that do not exist, do not exist safely or do not exist at a fair price.

None of these amendments would obstruct the Government’s objective. None would prevent investment in productive finance. None would limit trustee discretion. What they would do is ensure that trustees remain protected, that their duties remain clear and that the Bill does not inadvertently distort markets, undermine competition or create new systemic risks. These amendments are modest, sensible and protective. They would strengthen the Bill, support trustees and safeguard the long-term interests of pension savers. It is what we should all be thinking about.