Pension Schemes Bill
Baroness Noakes ExcerptsTuesday 3rd February 2026
(6 days, 12 hours ago)
Grand CommitteeRead Full debate Pension Schemes Bill 2024-26 View all Pension Schemes Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 152-VI(a) Amendments for Grand Committee (Supplementary to the Sixth Marshalled List) - (3 Feb 2026)
Baroness Noakes
Member’s explanatory statement
This amendment would allow regulations to encourage new entrants to enter the pension scheme market.
Baroness Noakes (Con)
My Lords, in moving Amendment 168, I shall speak also to Amendments 169 to 171 in my name; I thank my noble friend Lady Neville-Rolfe for adding her name to three of those four amendments.
Last week, I promised the Minister that we would return to the issues of new entrants, competition and innovation. I make no apology for returning to these themes, because they are fundamental to a healthy pension provision market. The Government have decided that they wish to accelerate the consolidation of pension providers into a smaller number of larger players because they believe that this will enhance the returns that pension savers will get. I think that that is arguable, but I am not going to relitigate that case today; some of us tried to make it last week, and I know that we will return to it on Report.
Instead, I want to focus on how that market can be future-proofed so that it will deliver for savers in the long term. The Government should be interested in this because I am fairly sure that they will not want to contemplate a further significant market intervention, such as the one in this Bill, a few years down the line when they find that the performance of the oligopolists they have created starts to disappoint.
I know that the value-for-money regime in the Bill might well deal with the worst performers, but getting rid of poor performers will not be good enough to make the pension provision market develop in a positive direction. For several reasons, the pension provision market is one where customer choice is not a force for significant change, so we have to look elsewhere. Healthy markets are those in which innovation can challenge existing market norms, often by identifying underserved or badly served customers and by using technology to transform cost bases. Competition within established markets is rarely enough to achieve disruption, which is why the focus has to be on new entrants. This is the story of practically every business sector. It certainly encompasses all aspects of financial services, and pension provision is no exception; for example, cloud-native pension platforms are potential current disruptors in the DC pensions space.
We have already had some conversations about new entrants in the context of the new entrant pathway and the transitional pathway. The noble Baroness, Lady Altmann, and I have tried to argue that new entrants are going to struggle to survive because of the rules of the two pathways, because of the timescales involved in getting from innovation to significant size, and because of the interaction between the financing of growth and the requirements of the scale provisions. I still live in hope that we will be able to persuade the Minister about that.
Three amendments in this group are aimed at the provisions in Clause 42, which concern default arrangements. The aim of my amendments is to ensure both that new entrants are encouraged and that competition and innovation can thrive. Clause 42 is, astonishingly, headed “Regulations restricting creation of new non-scale default arrangements”. Unsurprisingly, my Amendment 168 takes aim at this notion of restricting new non-scale default arrangements. It would replace the purpose of the regulation-making power, which is to restrict the ability of a pension scheme provider to begin operating a non-scale default arrangement, with the more neutral “in connection with”. I could have gone further—indeed, I probably should have gone further—and replaced “restricting” with “encouraging”, or at least something more positive.
My central proposition is that new pension providers should be welcomed with open arms and not be assumed to be something to be squashed. It may well be that not all new entrants are successful—the Bill has provisions that will allow them to be consolidated if they are not—but starting with the presumption that they are bad news and need to be controlled and restricted is completely wrong. Amendment 169 would add some words to Clause 42(2)(f) so that the regulations on new non-scale default arrangements can confer a function of encouraging competition on regulators. The wording is almost certainly not quite right but, for the purposes of Committee, I am trying to ensure that the regulators can be given a role in creating and developing competition in the markets in which pension providers operate.
It gets a bit complicated here. As I read it, the Pensions Regulator has no function, power or objective in relation to pension provision markets, including competition. This is in stark contrast to the FCA, which has a strategic objective to ensure that the markets it regulates function well. It also has an operational competition objective and a secondary objective to promote competitiveness and growth. It is quite possible that the FCA’s statutory objectives will, in effect, ensure that they act in a pro-competition way when exercising powers granted under the regulations in Clause 42. I hope the Minister can tell the Committee how the Government see Clause 42 of this Bill interacting with the FCA’s existing statutory framework.
It is, however, clear that TPR operates in a wholly different statutory framework, which is undesirable, as later amendments will explore, and could lead to different outcomes under this Bill in the different pension provision markets that they regulate. I ask the Minister how the Government can justify one regulator having quite clear competition and pro-market powers while the other regulator does not. Will this produce different outcomes in the exercise of the powers?
Amendment 170 would add a new subsection (2A) to Clause 42 so that the regulators
“must have regard to the desirability of encouraging innovation”
in pension provision. While the FCA’s legislation does not specifically reference innovation, as I have explained, it has several references to competition and competitiveness, which are generally interpreted to include innovation as a key driver. TPR’s legislation has nothing about innovation. I believe that, as a minimum, the regulator should have something like a statutory “have regard” duty to innovation to ensure that it keeps that in sharp focus as it carries out its regulatory functions in relation to new providers.
Lastly, Amendment 173 would require the review of non-scale default arrangements, which Clause 43 requires, to consider the extent to which non-scale default arrangements contribute to competition, which I hope is self-explanatory. I hope the Minister can also explain the timetable for the Clause 43 review, since no timing appears in the Bill, which itself is a rather extraordinary way to legislate.
The contrast between the type of regulation that this Bill is trying to create and that in the FCA and Prudential Regulation Authority more widely is stark. For some time, both the PRA and the FCA have had a special focus on fostering start-ups. They have regulatory sandboxes to allow innovative ideas to be tested outside the normal regulatory framework. Just today, they have announced new arrangements to help scale-ups to achieve their potential. This Bill feels positively prehistoric in its approach to squashing new entrants into the market and I hope that the Government will think again. I beg to move.
Viscount Trenchard (Con)
My Lords, I would like to add my voice in support of Amendment 168 and the other amendments to which my noble friend Lady Noakes has spoken.
It seems quite counterproductive for legislation to discourage innovation and the introduction of new types of investment based on different strategies in order to widen the choice available to the trustees of our pension funds. Anything that seeks to restrict new entrants is by definition counter competitive and likely to lead ultimately to worse, not better, outcomes.
Baroness Sherlock (Lab)
We may disagree on some of the approaches to the market, but we want innovation, so I do not disagree with the noble Lord on that. However, we want innovation that serves member outcomes, and that may mean different approaches to understanding what innovation does. We do not want innovation to pull away from scale.
The noble Baroness asked about timescale. The intention is that the review will be carried out in 2029, but it will need to follow the introduction of the VFM framework and contractual override measures for this to work. That was set out in both the final Pensions Investment Review and in the pensions roadmap, which the Government published. Hopefully that is helpful.
Baroness Noakes (Con)
Can the Minister explain why that timescale has not been put in the Bill? I cannot think of another review that has been written into law without a relevant timeframe being attached to it.
Baroness Sherlock (Lab)
I think because it has to happen. It has to follow VFM; the pensions road map has set out the connection and the order in which things will happen. My understanding is that it is because it follows that.
Baroness Noakes (Con)
My Lords, I thank all noble Lords who took part in this interesting debate. The big difference between what I have advocated and what the Minister has set out as the Government’s position is that she is describing what they hope to achieve by consolidation in the current market, but what I was trying to get at was future-proofing that market.
Markets stagnate unless they are subject to the kind of pressures that ensure that they continue to develop. I mentioned that customer choice is one that we can largely discount in the context of this particular marketplace. So we need to look for the other classic ways in which markets improve themselves over time, which is why I look to the role of new entrants and innovation. The Minister seemed to suggest that that could occur between these new larger players that have been created, but I believe that is fundamentally wrong because those players have a lot of investment in systems and infrastructure, and they are not very interested in significant disruption. That is not an absolute rule, but if you look at the experience of the telecoms industry, media and almost any other industry, you get disruptors from outside the marketplace. That is why in financial services we have fintechs disrupting the financial service marketplaces at the moment in many different ways.
Unless we are absolutely clear that we can facilitate that process of market disruption—it is to the long-term benefit of savers, because the markets will deliver those long-term benefits—we need to ensure that those markets stay vibrant. The pension provision market could easily seize up, broadly, with a smaller number of larger players dominating the pension provision market but not being subject to real competitive pressures because of all the hurdles put in the way of organisations that want to enter the market, whether via the new entrant pathway relief or via the regulations under Clause 43, which will squash them.
There is a fundamental difference between us on this side of the Committee and the Government. I am not at this stage challenging whether getting to a smaller number of larger players is the right answer—I accept that for the sake of argument—but I am concerned with making sure that the pension provision market itself has the right incentives within it to ensure that it remains relevant for the purposes of improving and protecting savers’ returns in the long term. I have to say to the Minister that we will return to this in one way or another on Report because it is a really serious issue.
I am absolutely not convinced that TPR’s arrangements—there is no reference to the pension provision marketplace in TPR’s powers and responsibilities—can be set alongside the FCA, which has to operate in a clear pro-competition environment. I do not think that is the right approach either, and I am not convinced about TPR’s approach to innovation, which is again about the existing players in the market rather than how you encourage new players. That has been done pretty successfully in the context of the FCA and the PRA for banking and insurance markets, by positively hand-holding new entrants and helping them through the whole process so that they can operate against the big boys. It is important that we allow little players to come and challenge the big players, because that is what produces the benefits in the long-term for consumers—for savers in this instance. I of course withdraw the amendment but, as I indicated, we have a fair way to go in this area.
Baroness Noakes
Member's explanatory statement
This amendment probes whether the “best interests” test is the correct test to use.
Baroness Noakes (Con)
My Lords, Amendment 175 is a probing amendment about the best interests test, which is a part of the power to make unilateral changes to FCA-regulated pension schemes in Chapter 5 of Part 2 of the Bill. I am grateful to the noble Baroness, Lady Bowles of Berkhamsted, for adding her name to this amendment.
The FCA requires the firms it regulates to comply with a consumer duty, which means that firms must act to deliver good outcomes to retail customers—in this case, those within pension schemes. The duty was introduced after a long period of consultation and is intended to replace a lot of rules-based consumer protection measures. This Bill, on the other hand, goes in the opposite direction by requiring the FCA to layer some specific rules in relation to the best interests test on top of the consumer duty.
My amendment, in effect, asks the simple question of how the best interests test relates to the consumer duty. In what ways does it differ from the consumer duty? If there are differences between the two, the Government need to be clear about what they are. Alternatively, they need to require the FCA to make it clear what the differences are, and the Bill does neither. Can the Minister say why achieving better outcomes for the members affected by the unilateral change is necessary? For example, if members are being transferred to another scheme using the power in new Section 117B, why is it necessary to go beyond good outcomes?
In addition, transferring members who will be better off, while leaving behind those who are no worse off, may mean that over time some groups will be stranded in uneconomic schemes because they are the last man standing. How does the Minister think that this will work if there are several transfers over time and each taken in isolation was better for some but no worse for others, but cumulatively there is a detriment for those left behind? In practical terms, how is this meant to work in practice? I beg to move.
The Deputy Chairman of Committees (Baroness Scott of Needham Market) (LD)
I inform the Committee that if this amendment were to be agreed to, I cannot call Amendment 175A for reasons of pre-emption.
Baroness Sherlock (Lab)
I am happy to reflect on the noble Baroness’s point. If it leads the Government to believe that we have phrased the test badly, then of course we will take appropriate action; if not, then we will say where we are.
Baroness Noakes (Con)
My Lords, I thank noble Lords who have taken part in this short debate. I hope the Minister will look again at the point that the noble Baroness, Lady Bowles, has raised. In fact, that particular issue was raised in the Chamber either yesterday or last Friday—I cannot remember which, as all the days run into each other—in connection with another Bill going through. It very definitely is interpreted as sub-50%, so it is definitely a fairly weak formulation. I am quite surprised if that is what the Government want, so it is worth looking at again.
I do not think I got a satisfactory answer on the difference between the FCA having the consumer duty and what is intended under this Bill, except that the FCA is going to issue more rules about what “best interests” actually means in this context. To me, it seems to be going against the grain of FCA regulation, as I tried to point out earlier, and it could potentially cause problems in understanding.
The Minister did not respond to my point about the last men standing, which was that if you allow groups of members to be transferred because they will be better off and the others are not worse off then, in the long term, you structurally weaken what is left. Does the Minister have any views on whether that is the correct approach? A long-term problem cannot be avoided in that area, which calls into question whether you can leave members behind.
I am still very mystified as to how all this will work in practice, but I will reflect on what the Minister has said and what she has not said before determining whether to come back on Report. I beg leave to withdraw my amendment.
Baroness Noakes (Con)
My Lords, my Amendments 177, 179 and 180 in this group are all probing amendments. Amendment 177 would delete Clause 49(3)(b). Subsection (3) defines “default pension benefit solution”, and paragraph (b) says that it must be
“designed to provide a regular income”
in an individual’s retirement. I wish to probe whether it is right to force all prospective pensioners into a lifetime income solution. There is a problem with “one size fits all”. If a pensioner is going to continue working on a full-time or part-time basis, as many do, they may not need to draw income for at least part of their retirement. But paragraph (b) seems to be a straitjacket requiring an income for all their retirement years, even if the pensioner does not need it. In addition, smaller pots do not lend themselves to lifetime income solutions because they can produce insignificant amounts of income and are also costly to administer. The Bill does not provide for a de minimis exemption.
Furthermore, a prospective pensioner who has significant accumulated debt pre retirement may well benefit more from clearing those debts with a capital sum than having income throughout retirement. I see that Clause 49(6) regulations can make provision about the term
“designed to provide a regular income”,
but that, using normal language, does not appear to be capable of encompassing the payment of lump sums without a lifetime income component within the use of such a power.
Amendments 179 and 180 concern Clause 50, which deals with the people called “transferable members”, who are basically those for whom their pension scheme determines that they do not fit with its scheme for pension default benefit purposes—I paraphrase, but that is the gist of it. The pension scheme determines that these are the members they cannot design a default pension for. Subsections (14) and (15) allow regulations to require certain pension schemes to accept transferable members, while subsection (16) allows regulations to prohibit or limit the charging of fees in respect of transfers. Hence pension scheme A can determine that some of its members are too difficult to devise default retirement solutions for, and then the Government can tell pension scheme B that it must take them and might not even get paid for it. This sounds like quite an extraordinary set of powers, which is why my Amendments 179 and 180 would delete subsections (14) to (16). I would be interested to hear the Minister explain why the Government need such draconian powers and what limits will be placed on them.
Lord Fuller (Con)
My Lords, there are three clauses here and one would have to be pretty churlish to want to reject and disagree with the thrust of what they are trying to achieve. But I am concerned, as is my noble friend Lord Younger, about how we might put in these contractual arrangements. I am concerned that we are going to sleepwalk into a situation where there is unrealistic customisation and we are going to set unrealistic expectations about the ability of schemes—particularly the larger schemes, because we know schemes are going to be much bigger than today—to give personalisation.
We are going to see, if I read these regulations correctly, a huge number of bespoke arrangements. There is going to need to be candour, not just from the schemes themselves but from the members when they are asking questions. What is the duty upon the person to take advice? Normally, at the moment, if you want to change your pension arrangements, you need to take advice and pay for it. Who will pay the fees? Is it the member or the scheme itself?
When I think about candour, it leads me down the path of thinking about what happens to people who are in impaired life situations. Perhaps they have cancer or another terminal disease. I am not going to trespass on the arguments that are made every Friday in your Lordships’ House, but as we have learned from those debates, there is a lack of certainty about people who are in those impaired situations.
That leads on to my noble friend’s point about capacity and capability of trustees to make these judgments—that is difficult. So I am entirely in agreement with the idea that people should be able to have control and a bespoke arrangement just for them, but I am concerned about the practicality of delivering what can be subjective judgments of the trustees. In these large schemes you may have to deal with hundreds or thousands of these applications.
In local government—a parallel world— the EHCP system mandates a personalised regime for children’s special educational needs. I suppose my concern is that it has led to a huge bureaucracy—a cottage industry of a huge amount of appeals, process and, of course, delay. When you have pensions, you cannot have a delay because people are at the end of their lives—are they going to make it?
I want to agree with the thrust of this, and these are probing amendments, but I am interested in the Minister laying out in some detail how these bespoke arrangements might be calculated and defended by trustees with lots of other things to do. I am also very much drawn to the amendments from the noble Baroness, Lady Noakes, about being realistic about the current ways of work, in which people have blended retirements, and about the requirement to have indexation and all those sorts of things. It does seem complicated, and I am interested to hear what the Minister might say about it.
Baroness Noakes
Member’s explanatory statement
This amendment probes the timing of ceasing to have active members.
Baroness Noakes (Con)
My Lords, the noble Lord, Lord Katz, will be pleased to know that this will be my shortest intervention. With my Amendment 181, to which the noble Baroness, Lady Altmann, has added her name, we now move on to superfunds, which are an excellent innovation that allow employers to shed their DB liabilities while also protecting or enhancing members’ interests.
My Amendment 181 is a small, technical amendment designed to address an issue to which I was alerted by Pensions UK. Clause 65(2) sets out the onboarding conditions that must be met for superfund transfers. Superfunds are designed to deal only with non-active members, as is clear in subsection (1); however, for some reason, the time at which this condition is tested is when the application for approval of the transfer is made by virtue of subsection (2)(a). I understand that it is quite possible for arrangements for transfer to a superfund to be made on the basis that members will become deferred—and, therefore, no longer active members—as soon as the transaction has taken place. I am therefore not sure what purpose is served by requiring all of those members to be deferred at the date of the application to the regulator, since that could be many months before the transfer will take place.
I look forward to the Minister’s comments and beg to move.
Baroness Bowles of Berkhamsted (LD)
My Lords, everyone—apart from insurers, perhaps, who prefer buyout and the regulatory cash bonus it brings them—is in favour of superfunds. They should improve member benefit security. They can enhance members’ benefits, as the noble Baroness, Lady Noakes, just said. They can return cash to employers when appropriate, supporting UK businesses. They can also invest more in productive finance than a buyout or a DB scheme can.
However, numerous barriers make it difficult for superfunds and my Amendments 182 and 183 seek to address two of them. Amendment 182 seeks to remove gateway test 1, which is the test that prevents a scheme that can afford a buyout entering a superfund. The policy of pushing everything to buyout is intended to address risk, but it is not always in the members’ best interests; that could be considered more. Discretionary benefits, which can often include things on which expectations are based, may be lost. For example, spouses’ entitlements and increases in pensions are often discretionary; I know that that is the case in parliamentary schemes.
In a buyout, discretionary benefits are likely not to be paid, but a superfund could pay them. There seems to be some underlying assumption that superfunds do not serve risk reduction, but that does not reflect the extremely secure funding position that superfunds are held to by the regulations. Additionally, the test is unstable because funding levels vary. A scheme can start the process unable to afford buyout, and therefore be deemed able to go into a superfund, but if later on it could afford buyout part-way through, it would be required to reverse out and would be forced into a buyout. That can mean a lot of wastage of cost and time, as well as worse-off pensioners. Removing the test would give schemes more flexibility in the course they pursue, and may be better for the economy. If they chose a superfund, it would mean that more schemes could keep money invested in pensions and pay out more generously, rather than that extra money being lost in the insurance companies.
Amendment 183 is about the wind-up trigger and the protected liabilities threshold. This in, in essence, the point at which a superfund’s funding drops to such a level that it must close and enter the PPF. The recent PPF indexation means that the protected liabilities threshold is now above the low-risk trigger—that is, the technical provisions threshold—which is upside-down from the policy design, where the low-risk trigger is intended to be a less critical warning scenario than the wind-up trigger and is the point at which the scheme funds must be boosted by investor money.
This upside-down formulation will make it harder for superfunds to attract investor capital and will probably push pricing up closer to buyout levels, narrowing the slice of the market that superfunds can operate in. That is good if you are shareholders in insurance companies but, again, not for pensioners, who lose benefits. The amendment proposes a “lower of” formulation for the definition of the protected liabilities, which would set it at lower and more reasonable levels.
There could be other ways to fix this or remove the protected liabilities threshold entirely and rely on trustee powers in distressed situations, which is normal practice for regular DB schemes. But staying in the upside-down formulation does not seem right and risks stifling the nascent superfund model. I appreciate that this is a recent development because of the indexation and possibly one that the Government did not originally foresee, but it none the less needs tackling.
Baroness Sherlock (Lab)
My Lords, I am grateful to the noble Baronesses, Lady Noakes and Lady Bowles, for introducing their amendments. I will start with Amendment 181, which would broaden the range of schemes able to apply for a transfer into a superfund by effectively including active schemes.
On the points made by the noble Baroness, Lady Noakes, the responses to the DWP’s initial consultation on DB consolidation noted clear practical difficulties in assessing the future of a scheme. It is not clear how the regulator would conclude that the scheme will have no active members at an unspecified time of transfer. Furthermore, closing DB schemes can be a protracted exercise, where unforeseen complicated issues can arise. This Government, and previous Governments, have been consistent in saying that superfunds should be an option only for closed DB schemes. To avoid such complications for the scheme trustees and the regulator, Clause 65 sets out that closed schemes alone can transfer to a superfund and only where they are unable to secure member benefits with an insurer at the date of application.
Amendment 182 from the noble Baroness, Lady Bowles, would broaden the range of schemes able to apply for a transfer into a superfund by removing the restriction that schemes which can afford insurance buyout cannot transfer to a superfund. By removing this requirement from the Bill, superfunds could compete directly with insurers. That would risk superfunds offering endgame solutions in the same space as insurers, while being held to a lower standard in terms of member security.
The onboarding condition was introduced following industry response to the consultation on superfunds which first identified this risk. There was concern that employers may see superfunds as a way to relinquish their responsibilities at a lower cost than insurance buyout, and that trustees could be pressured to transfer into a superfund when a buyout solution is available. It is important for us to remember that insurers and superfunds operate under very different regimes. Insurers under Solvency UK requirements have stringent capital requirements and their members are fully protected by the FSCS.
Superfunds are built on existing pensions legislation and, as such, the PPF acts as a safety net providing compensation. The PPF provides a great deal of security, but not as much as the FSCS. Superfunds offer a great deal of security, but their capitalisation requirements are not as stringent as insurers as they are not designed to be as secure. That is because superfunds have been designed as a slightly less secure, more affordable endgame solution for schemes that are well funded but cannot afford buyout. They are not intended as a direct competitor for insurance buyout. The onboarding conditions address the risk of regulatory arbitrage, recognising those differences.
Clause 65 therefore provides clarity by ensuring that only appropriately funded schemes can transfer to superfunds. As introduced, it includes the power to substitute another condition if needed. We will consult with industry to assess what, if any, further refinements may be needed to protect scheme members.
Amendment 183 from the noble Baroness, Lady Bowles, would require superfunds to assess their protected liabilities threshold at the lower of a prudent calculation of a scheme’s technical provisions or based on a Section 179 calculation of the buyout price of PPF-level benefits. This amendment, and the noble Baroness, recognise the importance and impact on this threshold of the Chancellor’s Budget announcement that the PPF will provide prospective pre-1997 indexation for members whose schemes provided for this.
The purpose of the protected liabilities threshold is to ensure that in the rare circumstances where a superfund continues to underperform, the scheme is wound up and member benefits are secured at the highest possible level. The threshold is an important part of member protection and has been designed to prevent members’ benefits being reduced to PPF compensation levels should a superfund fail. The threshold also recognises the risk that scheme funding could continue to deteriorate in the time it takes to wind up.
Clause 71 therefore aligns the protected liabilities threshold with the calculation of those protected liabilities. It sets the threshold at a level above the Section 179 calculation, so that members in a failing superfund receive higher-than-PPF benefits. There is the added benefit that PPF-level compensation that is bought out with an insurer protects the PPF itself.
We recognise the impact that changes announced in the Budget have on the superfund protected liabilities threshold, and that it would not be good for members’ outcomes if a superfund is required to wind up prematurely when there is still a strong likelihood that benefits can be paid in full. Any changes to reduce the threshold, however, will require careful consideration and need to ensure that members and the PPF are protected. The level of the protected liabilities threshold will be subject to further consultation with industry as we continue to develop the secondary legislation.
The Committee will also note that for those instances in which technical provisions are lower than the Section 179 valuation of a scheme, Clause 85(4) allows the Secretary of State to provide by regulations that a breach of a threshold has not taken place. These calculations have the potential to converge, and sometimes swap, in very mature schemes and we acknowledge that that occurrence is more likely following the introduction of pre-1997 indexation for prospective PPF benefits.
The use of this power will aim to ensure there are no unintended consequences for well-funded superfunds in those circumstances. It is not our intention to place any additional pressures on superfunds. Providing pre-1997 indexation for PPF benefits is the right thing to do. All members in schemes supported by the PPF benefit from knowing they can count on higher levels of compensation should the worst happen—a fact that should be celebrated. We are committed to working with industry to create, as the noble Baroness, Lady Stedman-Scott, questioned, a viable and secure superfunds market and will consult on issues such as these following Royal Assent to ensure we appropriately balance the metrics of each threshold.
My noble friend Lord Davies asked me to look forward to see what demand there will be for this. That is quite hard to do, but we estimate that around—I am told—130 schemes with £17 billion in assets may take up the option of entering a superfund, but we recognise these figures are highly uncertain. It will depend on how the industry reacts, future economic conditions and competition. The numbers, of course, could be significantly greater if the market grows.
It has been an interesting discussion, but I hope in the light of my remarks, the noble Baronesses feel able not to press their amendments.
Baroness Noakes (Con)
My Lords, at least we are going to please the noble Lord, Lord Katz, this evening. We might even manage to stick within our normal timeframe and not go beyond.
I thank the noble Baroness for setting out the rationale for the time at which schemes have to demonstrate that they are closed. I will consider that carefully. I am sure the noble Baroness, Lady Bowles of Berkhamsted, will consider carefully what the noble Baroness has said in respect of her amendments. I beg leave to withdraw the amendment.
Pension Schemes Bill
Baroness Noakes ExcerptsMonday 26th January 2026
(2 weeks ago)
Grand CommitteeRead Full debate Pension Schemes Bill 2024-26 View all Pension Schemes Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 152-V(a) Amendment for Grand Committee (Supplementary to the Fifth Marshalled List) - (23 Jan 2026)
Baroness Noakes
“(c) able to demonstrate that they deliver investment performance which exceeds that achieved by the average of all Master Trusts which hold an approval under section 28A in respect of a main scale default arrangement.”Member’s explanatory statement
This amendment allows Master Trusts which deliver good investment performance to be excluded from the scale requirements.
Baroness Noakes (Con)
My Lords, I will speak to my Amendments 91 and 95. I thank my noble friend Lady Neville-Rolfe for adding her name to them. Having had a little detour into asset mandation in the last group, we now return to scale. My Amendments 91 and 95 relate to master trusts and group personal pension plans, respectively, returning to the theme of size not being everything. They are intended to exempt from the scale requirements those schemes that deliver investment performance which exceeds that achieved by the average of all master trusts or all group personal pension plans.
We debated the general theme of size not being everything on the last day of Committee. I firmly believe that we should not let an obsession with size squeeze good performers out of the market. The Minister’s arguments on that day, despite protestations to the contrary, show that the Government have an obsession with size that overrides their professed desire for better outcomes for savers. If they really care about outcomes for savers, they should not be fixated on structural issues such as the size of assets under management, because good investment returns are not the exclusive preserve of schemes that reach the magic £25 billion of assets. The evidence for the Government’s policy cited by the Minister last week merely indicates that there is a correlation between size and returns achieved. That evidence, however, categorically does not demonstrate that good returns are obtained only by those which pass a size threshold.
At the heart of this debate is the problem that the Government are trying to use this Bill to force pension schemes to divert investment resources into things that the Government think will improve the UK economy, while at the same time claiming the objective of good outcomes for savers. I remind the Minister of Tinbergen’s rule: if policymakers wish to have multiple policy targets, they must have an equal number of policy instruments under their control. One instrument—mandating the size of pension provider—will not achieve the separate targets of improving savers’ outcomes and increasing UK productive investment without risking policy effectiveness and reduced transparency and accountability. By ignoring Tinbergen’s rule, the Government are actively inviting policy failure in this area.
I also strongly support Amendment 98 in the names of my noble friends Lord Younger and Lady Stedman-Scott. Innovation will not thrive in the pension sector if it has to pass arbitrary size tests. We should do everything that we can in this Bill to promote innovation. I beg to move.
Baroness Altmann (Non-Afl)
My Lords, I, too, have a number of amendments in this group and I will address my remarks mainly to them. Amendments 99 and 106 recommend removing the specific figure of £25 billion from the Bill and replacing it with a figure to be determined by the Government nearer the time, I hope, after detailed consultation.
On the last day in Committee, when we debated Amendment 88 on small pots, in the name of the noble Baroness, Lady Noakes, which proposed a monetary limit of £10,000, the Minister rejected the amendment on the grounds that
“the Government are not persuaded that it is sensible to hardwire the cap in primary legislation”.—[Official Report, 22/1/26; col. GC 188.]
Quite right. The same applies here: my amendment follows exactly that principle. I am concerned about the risks involved in tying primary legislation to a fixed monetary sum.
First, a change in market conditions could render it inappropriate. Secondly, such a large sum risks stymieing the development of newer companies and gives an exceptional competitive advantage to those providers already of the required scale. There is no evidence—I have been searching—to suggest that big is always best and there is certainly no academic proof that £25 billion, £10 billion or any other number is the right dividing line between successful funds and failing funds.
Newer entrants with an interesting approach to member service, digital engagement or innovative investment may well take time to break into the market, but just because they have not reached what the Bill determines is the magic number should not mean that they are forced to close, which is what the Bill would do, in effect.
The Minister said that consolidation and scale will mean
“better outcomes for members … lower investment fees, increased returns and access to diversified investments, as well as better governance and expertise in running schemes”.—[Official Report, 22/1/26; col. GC 202.]
That may well be the case for many, but deliberately disadvantaging innovation and putting up barriers that damage recent or newer entrants, regardless of their merits, runs counter to those intended outcomes over the longer term. Using collective vehicles, for example, run by already established experts such as closed-ended investment companies, can replace the need for in-house expertise at each of the big pension funds. Indeed, that option is already available but is being discouraged by the Bill.
As the noble Baroness, Lady Noakes, said, a correlation is not the same as a causative impact. Putting £25 billion into the Bill creates a big issue with some of the newer companies that will fall into the vacuum between the new entrant pathway, which does not start until a scheme is established after 2030, and the transitional pathway, which requires this fixed £10 billion—I could have tabled amendments on that, but £25 billion is the same principle—if they have not reached that level.
What is worse—I tried to indicate this last week—is that, although I know that the Government want to inject certainty by including these numerical figures, unfortunately they are also blocking the progress and potentially forcing the closure of a number of schemes that have digital-first methodologies right now but have not been established long enough to reach the required scale and to which the market to raise growth capital is currently shut. Who would lend money to a newer company that may or may not reach the scale required by the particular date?
The Government need to think again about the merits of using a fixed number, as the Minister mentioned last week. I would be happy to meet officials or Ministers to go through the rationale that has had this damaging effect in the market. I hope that we will not give a hostage to fortune by specifying a particular number in the Bill that may or may not prove to be right, wrong or damaging. I hope that the Minister will help the Committee to understand whether the Government might consider this principle.
Baroness Noakes (Con)
My Lords, I thank all noble Lords who took part in this debate, which has demonstrated that there is unanimity on this side of the Committee on scale not being the most important thing—in direct contrast to the Government’s dogged attachment to scale.
We will probably return to innovation next week, so the Minister will not escape it, but I do not think the Government yet understand how innovation works and what it takes to scale a business: the timescales involved, the way you need to raise finance during the growth of a business, and the impact that what they have put in the Bill will have on those processes. We will need to explore that in much more detail. The noble Baroness, Lady Altmann, who wished to do so, is absolutely right, because I do not think the Government really understand what is involved in this area.
On “big is best”, which we on this side of the Committee certainly do not subscribe to, the Government said that the primary objective was savers’ outcomes, but a couple of minutes later the Minister said that the objective was consolidation. Is there a hierarchy of objectives in this Bill? It is not clear to me that there is. A few sentences away, she talked about the benefits that derive from scale, but the Government seem to have closed their mind to this: if you can get equivalent benefits without scale, why should you not?
That was immediately followed by the Minister saying that when you are in a £25 billion-plus fund, you put double the money into productive finance. There we are into the real objective of this Bill: to funnel savers’ money into productive investment. I refer the Minister to my comments on each policy objective needing a policy instrument and getting into terrible trouble when you try to get one policy instrument to meet more than one objective. I was reminded of this by one of her Back-Benchers, who kindly pointed out that clear rule, which is well evidenced. I will not disclose his identity, and he is not going to get up and say it, but I really think the Government should look again at how they are using the instruments in this Bill to achieve what are clearly multiple objectives, not disclosed in a hierarchy and not even acknowledged as being potentially in conflict. We will clearly not progress any further in Committee, but the Minister should be in no doubt that this will be a feature of our discussions on Report. I beg leave to withdraw.
Lord Fuller (Con)
My Lords, the noble Lord, Lord Davies, found the Government’s position inexplicable such that these amendments have become necessary. I can understand that. The point is that the Government do not—they do not understand finance. Perhaps they should have had a few more prawn cocktails before the election; they might have got some learning inside them. This group demonstrates that there is ignorance in this Bill about investment, asset classes and asset allocations.
New Section 28C(5) treats private equity as if it is just one class, but it is not. That is why I welcome Amendment 121, specifically proposed new paragraphs (f) and (g), which would lay out the appropriateness of scale-up capital and quoted and unlisted companies.
There is no doubt that you can make a lot of money in private equity. High risk leads to high rewards; the big hitters can and do make money. The early backers of Revolut turned a million into a billion, as the FT reported last week. On that basis, everybody should be having a go. What could go wrong? We all know that, in many cases, companies get loaded with debt and dividends are extracted; we have ended up with serial bankruptcies in the casual dining sector, for example, and Claire’s has gone bust twice in the last four months. I am not exactly sure the Government should be mandating this sort of thing by statute.
Putting that to one side, I have some experience through my membership of the Norfolk Pension Fund in private equity investment. I have been a board member since 2007. There are some big firms in this space; HarbourVest might be a name familiar to noble Lords but others are available, as it says in the adverts.
To participate in this space, you typically enter a 10-year commitment for quite a lot of money as a fund. You provide the fund manager cash certainty. He can go ahead and acquire smaller firms within the fund. You do not pony the money up front necessarily; it just needs to be available when the fund manager calls you to chip in. By and large, the fund manager finds the firms and invests that money, typically over the first four years of the indicative 10-year period. They then grow and nurture those firms until they can be sold for a profit—unless they go bust in the meantime, which many do.
At some point, 10 to a dozen years later, after all the surviving companies have passed on and the fund closes, all the money is returned to the pension fund. It is a well-trodden path and a proper asset class. This is why proposed new paragraph (g) in Amendment 121 is so important. These opportunities should be available to pension funds, but the Bill as currently constructed excludes them. It is madness. This is not what we need as a nation.
We need to go further. We need to be able to step in and help those founder-owned companies, together with local business angels, their families and friends, to get to the stage where HarbourVest can have a nibble. We need to make the small nibbles into larger fish. It is the scale-up issue. The exam question here is to identify good founder-led businesses locally and grow them. I declare an interest; I have been a director of New Anglia Capital Ltd, which was public sector, 100% owned by councils in Norfolk and Suffolk for the purposes of investing in early stage companies, taking them from a glint in the eye to the stage at which private equity might get involved. My goodness, it is hard. We have invested in bright prospects in life sciences, engineering, medical technology and clean energy. It is high risk, and I am told it carries the opportunities to make big returns—not that we have found them yet. But at least it carries that opportunity. As a nation we need to turn those cygnets into swans and those small acorns into mighty oak trees. The Bill should aim to do that, but it does not.
The conflict is with the press release that accompanied the Mansion House announcement. The Government’s own presser boasted:
“More than 50 scale-up businesses have signed a joint letter to the Chancellor welcoming the reforms as a ‘significant milestone in ensuring British institutions back British businesses at the scale required to generate growth, employment and wealth’”.
I feel sorry for the people who signed up that letter, because they were suckered. The Bill does little to scale up businesses and it has taken the noble Baroness, Lady Altmann, to put proposed new paragraph (f) into the amendment so that the Government’s own press release can form part of the law.
Forcing everything to be large, as we have heard, makes it harder to get the boost for start-ups. Amendment 121 would remedy this. We need it not just for those start-up businesses: the founders, their families and friends and all those angels—important though they are. We need it for our provincial cities and market towns. These are the places with the gems that need to grow in pursuance of
“UK growth assets rather than wider overseas assets”,
as it says in the Member’s explanatory statement.
Without this amendment, Mansion House is a mirage. By this Bill the Government have done a confidence trick on those who believed there would be a flow of capital to these businesses. It is not too late to change course. I echo strongly the comments of the noble Baronesses, Lady Bowles and Lady Altmann, and note that we are in Committee. I think this Committee is doing valuable work, because it has set up the conversations we all need to have between now and Report. The Government can reflect on what they are trying to achieve and recognise that it will not be achieved by the Bill as currently constructed. We may then need to have a compromise that will actually do the thing we are here to do, which is to invest in Britain and have better, more secure futures for people who want to invest in pensions, not Lego sets or Star Wars characters.
Baroness Noakes (Con)
My Lords, I am grateful to the noble Baroness, Lady Bowles of Berkhamsted, for her forensic analysis of both the Mansion House Accord and the ways in which there is a significant mismatch between what is in that accord and what is in this Bill. I confess that I was not aware of the extent of that, so that analysis is really important; I look forward to hearing what the Minister has to say.
I would like to comment on whether investments in listed securities should be excluded; here, I will part company with many of my colleagues on this side of the Committee. I understand why they are excluded. It is because buying and selling shares in listed companies is just buying and selling a financial asset. The buying and selling of shares in UK-listed assets does nothing to put money into the UK economy.
However, the way in which this measure is drafted probably goes too far, because it is possible that companies could raise new capital—for the purpose of investing in some of the things where the Government wish to encourage new investors—and that those vehicles could be listed. The way in which the Government have approached this is possibly too extensive, but I certainly do not think that the simple buying and selling of financial assets aligns with getting productive investment into the economy. As the noble Baroness, Lady Altmann, knows, I do not think that is a valid objective for this Bill—certainly not one that should override the need to get good returns for savers.
Baroness Altmann (Non-Afl)
I apologise, but I think that the noble Baroness’s characterisation of the impact of buying and selling, as she said, on listed companies—whether that puts money into the economy, to use her words—does not necessarily apply in the way she believes, particularly with closed-ended investment companies.
One of the problems with which they have had to deal, because of the regulatory constraints that we have been trying to help the Government address over the past two or three years, is that if people are selling these closed-ended investment companies but no one is buying them, they sink to a discount to their net asset value. At that point, they cannot invest in new opportunities; they cannot IPO or raise new capital. That has had a dramatic impact on the economy because these closed-ended companies, which were investing significantly in infrastructure across the country, have been unable to raise new money to invest in new opportunities.
Lord in Waiting/Government Whip (Lord Katz) (Lab)
If this is an intervention, it is quite a long one. I ask that interventions be kept brief; they should just be questions, really.
Baroness Noakes (Con)
The noble Baroness knows that she and I disagree on this subject. I hold to my view that the buying and selling of shares is simply the exchanging of financial assets.
Baroness Bowles of Berkhamsted (LD)
May I intervene so that I do not have to take up time later? I cannot see the difference between the follow-on funding that you get with a listed investment company, if you have an IPO, and the subsequent follow-on funding rounds. With an LTAF, you have initial fundraising and subscriptions. With a listed investment company, you buy and sell on the market. With the open-ended LTAFs, you have redemptions, purchases and flow matching. If you are watching the money, those are equivalent processes.
Baroness Noakes (Con)
If the noble Baroness, Lady Bowles, had listened, she would know that I said I thought what the Government were doing had gone too far, because there were instances where there was a necessary flow between the raising of funds and that flowing into new investment.
A number of noble Lords on this side of the Room have been talking as though this Bill stops pension schemes investing in listed assets or investment companies. It certainly does not; it merely says that they do not qualify if asset mandation is introduced. We ought to be concentrating on whether this is a valid policy objective—the Minister knows that I do not subscribe to that—to get money out of pension funds and into the real economy. We then ought to concentrate on which flows achieve that; certainly not all flows of buying investment trusts or other listed vehicles will achieve that.
Viscount Younger of Leckie (Con)
My Lords, I rise to speak in strong support of a number of carefully drafted amendments tabled by the noble Baroness, Lady Bowles, and once again ably supported by the noble Baroness, Lady Altmann. I will also speak to my Amendment 127.
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.
Baroness Bowles of Berkhamsted (LD)
My Lords, I have several amendments in this group: Amendments 154, 157, 158 and 159, which I will not say much about because I am fishing in the same pond as everybody else. If there is this mandation, we are anxious to know how it works, and we think the review should come earlier—I have put in some of the things that I think it should look at. I will spend more time on my Amendment 131, which is about prior steps that would have to be taken before there was any exercise of the mandation and regulations were made. It is about the prior steps that must be taken before the Secretary of State can exercise the regulation-making power in new Section 28C—what I termed the devil’s clause once before, although we now know that it is the ABI clause.
It is probably worth pausing here to remind ourselves whom the ABI represent: it is the Association of British Insurers and it represents the insurance companies, which are the manufacturers of the LTAFs, as was indicated earlier. It had a meeting in which, as usual, it displayed the slide that says, “We’re not colluding and breaking competition law, but we’re just going to agree that we won’t be investing in the other vehicle that has protected net asset value, and we’ll do a Q&A that says that’s not happening”. Interestingly, the insurers present at that meeting seem to have either forgotten about it or are telling me that they did not agree to anything. However, I leave that hanging.
If the Government wish to enforce a power of this potential scope, which, as has been explained, is much wider than the example in the Bill—a power that could reshape asset allocation across the pension sector—it must be subject to proper safeguards. These prior steps are not obstacles but constructive checks that should support the Government’s own objectives.
Proposed new paragraph (a) would require the Secretary of State to
“review the effect of any voluntary agreements or coordinated commitments relating to asset allocation”.
We have had a lot of policy alignment, pledges and so forth, and we all want the voluntary method to succeed. But if the point comes that regulations are contemplated, it is essential to understand what the voluntary route has already achieved, where the evidence points and why it did not happen.
Proposed new paragraph (b) would require an assessment of
“the impact of any such agreements on asset allocation, pricing and valuations”.
If the Government are concerned about market functioning, they should be equally concerned about how co-ordinated commitments affect pricing signals and valuation discipline. This is simply good policy hygiene because it ultimately affects workers’ pensions.
Proposed new paragraph (c) would require a review of
“the likely effect on returns to pensions savers”.
We all hope for the double benefit: better long-term returns for savers and productive investment that supports the UK economy. But we must analyse whether that is happening in practice, and if not, why not, before moving to a regulatory footing.
Proposed new paragraph (d) would require the Secretary of State to “obtain clearance” from the Competition and Markets Authority, and that is entirely consistent with the CMA’s pro-competition remit and with the competitiveness and growth objectives embedded in FSMA. Any use of this power must reinforce the UK’s competition framework, not bypass it, and where co-ordinated commitments already exist in the market, the Government must be certain that any regulations they bring forward meet a clear public interest justification.
Pension Schemes Bill
Baroness Noakes ExcerptsThursday 22nd January 2026
(2 weeks, 4 days ago)
Grand CommitteeRead Full debate Pension Schemes Bill 2024-26 View all Pension Schemes Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 152-IV(a) Amendment for Grand Committee (Supplementary to the Fourth Marshalled List) - (22 Jan 2026)
Baroness Bowles of Berkhamsted (LD)
My Lords, my Amendment 81 is very small; I hardly need to say anything about it. It came from one of those occasions when you are going through the Bill and you write a little query which you then convert into an amendment. It concerns Clause 22(3)(b), which says that a pension pot can be moved into a consolidator if
“the individual has, subject to any prescribed exceptions, taken no step to confirm or alter the way in which the pension pot is invested”.
There are instances in which a person may want to stay attached to a pension fund they have in a workplace, particularly if they do not necessarily have a long relationship with an employer or have done some intermittent work and then gone off to have a family, because they may have an informal agreement to go back. How do you cater for that? I realise that it might just fall under “any prescribed exceptions”, which you write in a note to deal with, but that is the basis of the amendment. I am sure it will be very simple for the Minister to say, “Yes, that is covered”.
While I am on my feet, I support Amendment 83. I also support Amendment 88 from the noble Baroness, Lady Noakes, because it is worth having some guardrails for things that are doing very well.
Baroness Noakes (Con)
My Lords, my Amendment 88 proposes to limit the power in Clause 34 to increase the size of the pot classified as small so that it is limited to £10,000. I welcome the fact that the power to make regulations under Clause 34 has to be consulted on and that they will be subject to the affirmative procedure, but we know that Parliament has close to zero power to alter the content of regulations, so it is important that the guardrails around the power are sufficiently strong.
There is widespread acceptance in the industry that there should be consolidation of small pots of £1,000 or less. I understand that there are already around 13 million pots of that size, and that is predicted to rise to over 30 million in only a few years’ time, so this is clearly an important issue. There is a concern, however, that the Clause 34 power could be used beyond its core purpose, which is to ensure that multiple small pots do not accumulate within pension providers and that individuals do not lose track of their own pension pots. It is one thing to use the power for sensible tidying up, but it would be quite another if the power were used to drive further consolidation, for example, which would not necessarily be in the interests of either savers or pension providers.
Baroness Noakes (Con)
My Lords, Amendments 134, 137 and 138 in this group are in my name. I thank my noble friend Lady Neville-Rolfe for adding her name to Amendment 137; unfortunately, she needs to be in the Chamber imminently so was unable to stay in the Committee.
I support the other amendments in this group. I am very sorry that the noble Lord, Lord Davies of Brixton, is not in his place; I hope he has not been silenced by his Front Bench. On our first day in Committee, I found myself in near agreement with the noble Lord—that is quite unusual for me—when he said that he was not totally convinced by the Government’s line that big is necessarily beautiful. He said that he was open to that debate, but my position is less nuanced: I am absolutely certain that big is not always beautiful. There are plenty of examples of big being beautiful. The US tech industry is probably a good example of that, at least from a shareholder perspective. On the other hand, there are many examples of where being big is not good. Big can be bureaucratic and low-performing. It can be hampered by groupthink, unresponsive to customer needs and hostile to innovation and competition; we can all name organisations in that category, I am sure.
I buy, as a general proposition, that an investment management scale has many attractions, including efficiency of overhead costs and the ability to diversify into a wider range of asset classes in order to achieve superior investment returns, but I have absolutely no idea whether £25 billion is the right threshold for forcing people into certain kinds of investment. I am absolutely certain that we should not dogmatically force all organisations towards that asset threshold in order to leave the door wide open for new entrants and players who can demonstrate good returns for savers and innovation.
My Amendment 137 would widen the qualification for the new entrant pathway relief so that it can include schemes that will produce above-average performance. If smaller, more agile providers can provide equal or better returns than the big boys, why should they be excluded? If a provider has a winning formula, why must it also demonstrate that it will achieve scale? What benefit is there for pension savers in restricting the market in this way? Noble Lords should also ask themselves why the big providers in the market, in their emails to us, have generally not challenged the scale proposals. The answer is very simple: this Bill acts as a barrier to entry, and large players love barriers to entry. We must not let them get away with it.
Amendment 134 probes why subsection (2)(a) of new Section 28F, which is to be inserted into the Pensions Act 2008 by Clause 40, restricts new entrant pathway relief for schemes that do not have any members. The main scale requirement is to have assets of £25 billion under management by 2030. The transitional pathway is for existing smaller players, provided they have assets of £10 billion under management by 2030 and have a credible plan for meeting £25 billion by 2035. The new entrant pathway relief is available only to completely new schemes—that is, those with new members—and only if they have strong potential to reach £25 billion. This leaves a gap in which new players that have been set up very recently, or will emerge between now and when this bit of the Bill comes into force, will not qualify for new entrant pathway relief and may also not qualify for transitional pathway relief. They may well have strong potential to pass the new entrant test—that is, if they were allowed to because they had no members—but they would not satisfy the regulator that they have a credible plan for transitional pathway eligibility.
Growing a business is not a linear matter. At various points, additional capital will generally be needed, but the Bill will make it difficult to raise funds because of the significant uncertainty about whether a pension provider would satisfy the transitional pathway test; and failing that test would mean that the business could not carry on and would thus be very risky for investors or lenders. Do the Government really intend to drive out of the market new providers that have only recently started or will start between now and the operation of the scale provisions? I am completely mystified by this.
My Amendment 134 deals with the substance of Amendment 136 in the name of the noble Baroness, Lady Altmann, which she has degrouped into a separate group and which will not come up until later. I think they deal with the same issue, but I will wait to see what she has to say on her amendment in due course.
Finally, my Amendment 138 seeks to delete subsection (4) of new Section 28F in order to probe why the Government need a regulation-making power to define “strong potential to grow” and “innovative product design”. The Government are probably the last place I would go to find out about growth or innovation. The regulators that will implement the new entrant pathway are, or ought to be, closer to their markets and therefore will understand in practice how to interpret the terms for the providers they regulate. Why can the Government not simply leave it to them? What value can the Government possibly add to understanding how these terms should be implemented in practice? I look forward to the Minister trying to convince me that the Government know about growth and innovation.
Baroness Altmann (Non-Afl)
My Lords, as the noble Baroness, Lady Noakes, said, my Amendment 136 is in a later group and was degrouped deliberately to explore the issues that she has just raised. If the Committee is comfortable for me to deal with Amendment 136 here today, I do not mind doing so, but that would potentially cause a problem for the Ministers or other Members of the Committee. May I do so? Alternatively, I could speak to it later; whatever the Committee decides is fine with me.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords for introducing their amendments. As this is the first time we are going to debate scale, let me first set out why we think scale matters. I hope to persuade the noble Baroness, Lady Noakes, with my arguments, but she is shaking her head at me already, so my optimism levels are quite low given that I am on sentence two—I do not think I am in with much of a chance.
Scale is central to the Bill. It adds momentum to existing consolidation activity in the workplace pensions sector and will enable better outcomes for members, as well as supporting delivery of other Bill measures. These scale measures will help to deliver lower investment fees, increased returns and access to diversified investments, as well as better governance and expertise in running schemes. All these things will help to deliver better outcomes for the millions of members who are saving into master trusts and group personal pension plans.
Baroness Noakes (Con)
Will the Minister say what the evidence base is for the assertions she just made?
Baroness Sherlock (Lab)
I was going to come on to that, but I am happy to do so now. Our evidence shows that across a range of domestic and international studies, a greater number of benefits can arise from scale of around £25 billion to £50 billion of assets under management, including investment expertise, improved governance and access to a wider range of assets. This is supported by industry analysis, with schemes of this size finding it easier to invest in productive finance. International evidence shows funds in the region of £25 billion invested nearly double the level of private market investment compared to a £1 billion fund. Obviously, we consulted on these matters and we selected the lower band, but there is further evidence that demonstrates the greater the scale, the greater the benefits to members. We did go for the lower end of that.
I turn to the amendments to Clause 40 from the noble Viscount, Lord Younger. This probing of how exemptions might operate, especially in relation to CDC schemes, is helpful. Our intent is clear: to consolidate multi employer workplace provision into fewer, larger, better run schemes. To support this, exemptions will be very limited and grounded in enduring design characteristics; for example, schemes serving protected characteristic groups or certain hybrid schemes that serve a connected employer group. I can confirm that CDC schemes are outside the scope of the scale measures. Parliament has invested considerable effort to establish this innovative market, and we will support its confident development while keeping requirements under review.
I turn to the broader point about why the exemptions are intended for use for schemes for specific characteristics; for example, those that solely serve a protected characteristic or those that serve a closed group of employers and has a DB section—hybrid schemes. I agree with the noble Lord that, if we were to have too many exemptions, it would simply mean the policy had less impact, but we need to have some flexibility and consultation.
Amendment 92 from the noble Baroness, Lady Bowles, proposes that master trusts delivering “exceptional” value under the VFM framework could be exempted from scale and asset allocation requirements. Exemptions listed in new Section 20(1B) relate to scheme design and are intended to be permanent. Introducing a performance based exemption tied to ratings would be inherently unstable for members and would risk blurring two parallel policies. Scale and VFM complement each other, and both support good member outcomes. However, we do not agree that VFM ratings should be used to disapply structural expectations on scale, and we do not wish to dilute either measure.
Baroness Noakes (Con)
I am struggling to understand why the Government are setting their face against good performance. They seem to be obsessively pursuing scale and consolidation of the industry, unable to see that, for pensioners and savers, equally good or better returns can be achieved from sub-scale operators. That is a question of fact. The evidence that the Minister gave earlier merely points to there being a correlation between size and returns; it is not an absolute demonstration that, below a certain scale, you do not achieve good returns for savers. I hope that the Minister can explain why the Government are so obsessed with scale rather than performance for savers.
Baroness Sherlock (Lab)
I feel that we will have to agree to disagree on this point. The Government are not obsessed with scale; the Government believe that the evidence points to scale producing benefits for savers. We find the evidence on that compelling. I understand the noble Baroness’s argument, but the benefits of scale are clear. They will enable access to investment capability and produce the opportunity to improve overall saver outcomes for the longer term.
I cannot remember whether it was this amendment or another one that suggested that a scheme that did well on value for money should be able to avoid the scale requirements; the noble Baroness, Lady Altmann, is nodding to me that it was her amendment. The obvious problem with that is that schemes’ VFM ratings are subject to annual assessment and, therefore, to change. It is therefore not practical to exempt schemes from scale on the benefit of that rating alone.
We are absolutely committed to the belief that scale matters. It is not just that we think big is beautiful—“big is beautiful” has always been a phrase for which I have affection—but I accept that it is not just about scale. It is not so for us, either. We need the other parts of the Bill and the Government’s project as well. We need value for money; we need to make sure that schemes have good investment capability and good governance; and we need to make sure that all parts of the Bill work together. This vision has been set out; it emerged after the pension investment review. The Government have set it out very clearly, and we believe that it is good.
Baroness Sherlock (Lab)
We expect schemes with scale in a future landscape to deliver better outcomes for members. Consolidation is not created by the scale measures. It is already happening in the market, but we expect it to accelerate. Those running schemes are expected to carry out due diligence and act in the interests of their members in any consolidation activity. If there is anything else I can say on that, I will write to the noble Baroness. I am happy to look at it. The core question is whether it is a matter for those running schemes to make those judgments.
Baroness Noakes (Con)
Does the Minister understand that if you are currently a small scheme, unless you have certainty about being able to qualify to go into transitional relief, you will not be able to raise any money to facilitate your growth? It becomes a Catch-22. The Bill is creating uncertainty, which is destroying the businesses of those who might well be able to come through, but will not be able to convince equity or debt providers that they will be a viable business at the end because of the hurdles that the Government are creating in this Bill.
Baroness Sherlock (Lab)
I understand the noble Baroness’s concerns, but I contend that we are doing the opposite. We are creating certainty by being clear about what the intention is, what the opportunities are and where we expect schemes to be able to get to and in creating transition pathways but making it clear that people will have to be able to have a credible plan to do that. We are making that clear now. I have given the reasons why I anticipate that there is a pathway to scale for schemes that are around at the moment, but that is a judgment that schemes will have to make. If they do not believe that they can make scale, they will need to look at alternative futures in a way that is happening in the market already through consolidation. I accept that it may accelerate it, but it is not creating it.
Amendment 134 seeks to remove the no-members requirement entirely, accepting that it would potentially allow any existing DC workplace scheme to claim new entrant status, circumventing the scale policy, which, while contested, is the point of our proposal. Our inclusion of the no-members provisions in Committee in the Commons clarified the original intent and prevented a loophole.
Amendment 137 would mean that existing schemes would be able to access the new entrant pathway if they had stronger investment performance than can be achieved by schemes with scale, which we have touched on. While I understand the intention to reward and maintain strong investment performance, the focus there would be on short-term rather than long-term outcomes. There are various practical problems with doing that in any case, but I am also conscious that there will be occasions where a scheme that depends on its investment performance does not deliver and no longer qualifies on the pathway. That is then not a stable position for employers that use the scheme or its members. At the heart of the requirement is the need to create buying power for schemes to drive lower fees and increase returns. A small scheme simply cannot generate the same buying power, and schemes with scale are expected to deliver better outcomes over the long term.
Amendment 138 would strip the power to define “strong potential to grow” and “innovative product design” in regulations. The Government believe that these are key attributes of a successful new entrant in the market. Like other noble Lords, I know about the importance of ensuring that the measures we implement will be clearly understood and workable in the complex pensions landscape. The form that innovation will take is, by definition, difficult to predict; we would not seek either to define its meaning without input from experts and industry or to fix that meaning in law without retaining some flexibility. Consultation with industry will be important in ensuring that schemes can demonstrate these attributes; to be clear, we will consult on this and other aspects of the new entrant pathway relief first, before regulations determine the meaning of these terms.
Baroness Altmann (Non-Afl)
My Lords, I support all the amendments in this group. I echo the words of noble colleagues in the Committee about the dangers of the Government mandating any particular asset allocation, especially the concerns about mandating what is the highest risk and the highest cost end of the equity spectrum at a time when we are aware that pension schemes have probably been too risk-averse and are trying to row back from that.
What is interesting, in the context of the remarks made by the noble Lord, Lord Vaux, is that I was instrumental in setting up the Myners review in 1999, which reported in 2001, under the then Labour Administration. As Chancellor, Gordon Brown’s particular concern was about why pension funds do not invest much in private equity or venture capital. That was the remit of the review. The conclusions it reached were that we needed to remove the investment barriers, to change legislation, to encourage more asset diversification, to have more transparency and to address the short-term thinking driven by actuarial standards—at the time, it was the minimum funding requirement, which was far weaker than the regime established under the Pensions Regulator in 2004.
So this is not a new issue, but there was no consideration at that time of forcing pension schemes to invest in just this one asset class. The barriers still exist. In an environment where pension schemes have been encouraged, for many years, to think that the right way forward is to invest by reducing or controlling risk and to look for low cost, it is clear that the private equity situation would not fit with those categories. Therefore, I urge the Government to think again about mandating this one area of the investment market, when there are so many other areas that a diversified portfolio could benefit from, leaving the field open for the trustees to decide which area is best for their scheme.
I am particularly concerned that, as has been said in relation to previous groups, private equity and venture capital have had a really good run. We may be driving pension schemes to buy this particular asset class at a time when we know that private equity funds are trying to set up continuation vehicles—or continuation of continuation vehicles—because they cannot sell the underlying investments at reasonable or profitable prices and are desperately looking for pools of assets to support those investments, made some time ago, which would not necessarily be of benefit to members in the long run.
Baroness Noakes (Con)
My Lords, I support all the amendments in this group. When I came to draft my own amendments, I discovered that this area of mandation was a rather crowded marketplace, so I decided not to enter it. I will not speak at length on the subject, but I endorse everything that has been said so far and wish to commit my almost undying belief that mandation must not remain in the Bill.
Viscount Younger of Leckie (Con)
My Lords, my noble friend Lady Stedman-Scott and I have only one amendment in this group: Amendment 109, which would remove the Government’s broad mandation power. That has been very much the theme of this debate, of course. I want to be absolutely clear at the outset that we are also seriously and fundamentally opposed to investment mandation in the Bill, which I sure will come as no surprise to the Minister.
Pension Schemes Bill
Baroness Noakes ExcerptsMonday 19th January 2026
(3 weeks ago)
Grand CommitteeRead Full debate Pension Schemes Bill 2024-26 View all Pension Schemes Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 152-III(b) Amendments for Grand Committee (Supplementary to the Third Marshalled List) - (19 Jan 2026)
Baroness Noakes (Con)
My Lords, I will say a little more in our debate on the next group about how surpluses should be used, but we must recognise that employers in defined benefit schemes underwrite defined benefit scheme finances; they are the ones who have been putting in very large sums of money to keep these schemes going for the past 20-odd years. It is only right that we should recognise the interest that employers have in taking money that is no longer required within a scheme.
We have had so many years of deficits in pension schemes that we have rather forgotten that this was like an everyday happening in the pensions world, if you go back to the 1990s, when surpluses arose. Indeed, pension schemes were not allowed to keep pension surpluses; there were HMRC rules which made that rather difficult to do. These were perfectly ordinary transactions in the pensions world which we have just forgotten about because of the deficits that have existed for the last 20 or 30 years, which employers—not employees—have had to bear the burden of.
On the amendments in the name of the noble Lord, Lord Davies, I understand the technical point about removing assets rather than surplus, but surplus is the language that has always been used in the context of pension schemes; it is in the 1995 Act. The noble Lord’s amendments amend only this Act; as I understand it, they do not go on and amend the earlier Act. It is just language that has been used for a long period; I think people know what it means, and it will be very confusing at this stage to change the language.
Lord Palmer of Childs Hill (LD)
My Lords, I thank the noble Lord, Lord Davies, for putting these amendments down and speaking in detail about them. We also heard good words from the noble Lord, Lord Kirkhope, the noble Viscount, Lord Thurso, and the noble Baroness, Lady Noakes. I almost thought, “Is there any point in getting up and speaking?” but I am a politician.
This group goes to first principles. What is a defined benefits pension surplus and what is it for? For us, DB surplus is not a windfall or an accident, as I think others have said. It is a result of long-term assumptions, member contributions, employer funding decisions and investment outcomes—all those—but above all, it exists within a framework of promises made to members in return for deferred pay. We are therefore concerned about renaming—we keep on coming back to this—“surplus” as simply “assets” available for redistribution.
Language matters here because it shapes both legal interpretation and member confidence. Treating surpluses as inherently extractable risks weakening the fundamental bargain that underpins DB provision. Our position is not that surplus should never be accessed, but that it should be considered only after members’ reasonable expectations have been fully protected. That includes confidence in benefits security, protection against inflation erosion, and trust and accrued rights not being retrospectively interpreted. I have always thought that with DB pensions you need prudence. How far do prudence and good governance go?
Finally, the question for Ministers is whether the Bill maintains the principle that DB schemes exist first and foremost to deliver promised benefits or whether it marks a shift towards viewing schemes as financial reservoirs once minimum funding tests are met. In that case, one has to think, “What is the minimum for the funding tests?” We shall come on to that in an amendment that the noble Lord, Lord Sikka, has put down later in the Bill on where companies fail. It is a question of when those surpluses are available, if they are ever available.
Viscount Thurso (LD)
My Lords, I rise principally to speak to my Amendment 38 in this group and to support my noble friend’s Amendment 44, to which I added my name. I am in broad sympathy with the mover of Amendment 26.
I think we can all agree that we would like to deal, if possible, with inflation eroding the purchasing power of a pensioner. As was said on the last group, there is basically a contract between the employer and the employee in a DB scheme, where the employee expects to receive a certain pension. The case I raise in my amendment stems from the many pension schemes that do not offer an absolute inflationary rise as part of their terms and conditions. Quite a number do, but some say in their terms that there would “normally” be an increase of an inflationary amount, but it is not guaranteed. There are a number of schemes where the literature at the time the person went into the scheme—in the 1980s, 1990s or whenever—indicated that they may reasonably expect to get inflationary increases, but they did not.
In this instance, I am grateful to the BP Pensioner Group, which brought its case to my attention and helped with the drafting of this amendment and my others. Broadly behind its request is the fact that the BP scheme, which is now closed, is an extremely good scheme with quite a large surplus in it. It is very well funded and therefore, as per the last group, may well be something that could go back to the company in part. But it has chosen for a number of years to refuse the request of the trustees to make discretionary increases.
It is worth noting just how pernicious the effect of inflation is on these incomes. I used the Bank of England inflation calculator to see what had happened. Bearing in mind that the statutory amount is 2.5%, if you go back with the inflation calculator to 2005, it is 2.8%—you might say that is not too bad—but inflation from 2015 to 2025 was 3.11% and, from 2020 to 2025, it was 4.35%. In every year there has been a modest but rising and quite large difference between what the statutory cap would allow and what the actual inflation was.
Of course, that compounds every year. So, every year, the loss is compounding up. Today, a pensioner may well be significantly worse off than if they had been getting something. By definition, surpluses comprise funds in excess of those required to meet the totality of members’ entitlements in full; they are, therefore, the resource out of which discretionary payments can be made. As such, any payment of surplus to the employer could prejudice the possibility of a discretionary payment to members. What I am seeking, and what my amendment seeks, is to make sure that that is in balance.
As I mentioned, since 2021, inflation as measured by CPI has been well over 4%, much ahead of the cap of 2.5%. The Pensions and Lifetime Savings Association’s survey indicated that, during the recent period of exceptional inflation, only 12% of UK pension funds made permanent discretionary increases to protect the purchasing power of members. In looking at surplus being distributed in part to employers and in part to members, the economic good if the part of the surplus that goes to the employer is used in investment is obvious, but let us not forget the economic good in increasing the purchasing power of the pensioners. There is an equal economic good on both sides of this argument.
The noble Baroness, Lady Noakes, made the valid point that a great many companies supported their pension schemes during the difficult times of the late 1990s and early 2000s, but I would argue that that was in their contracts because they had contracted to make the payment at the end. We are now in a situation where, through the far better quality of trustees, the training offered by the Pensions Regulator—I have taken it and can attest that it is well worth doing—and the governance rules that have been brought in, we have the ability to make those surpluses available.
What this amendment would do is add to Clause 10 that the regulations to be made by the Secretary of State would include the words on the Marshalled List, which would mean simply that the Secretary of State could regulate to ensure that trustees took inflationary pressures into account. That is pretty modest, on the scale of the amendments that are being put forward, to deal with the surplus. Although the amendment is probing at this stage, if it is not met with some sympathy now, it may become a bit more than probing as we go on.
My noble friend Lord Palmer’s Amendment 44 is along the same lines, although it addresses pre 1997, which my amendment does not specifically do; I will leave my noble friend to argue the case for that. In passing this legislation, we owe it to those pensioners who have been left behind to do something to help them catch up.
Baroness Noakes (Con)
My Lords, I understand the motivation behind the amendments in this group, which call, in one way or another, for inflation protection, in particular for pre-1997 pensions that do not benefit from indexation to have a first call on pension scheme surpluses. I do not, however, support these amendments.
When compulsory indexation was first introduced by statute, it was applied only to pension rights which accrued after April 1997. That was a deliberate policy choice by government at the time. Although the cap and the index have been tinkered with over time, the basic policy choice has remained intact. The 1997 change was itself quite costly for those employers that had not previously included indexation or inflation protection in their pension offer to employees, which was quite common at the time. I am sure that the Government at the time were aware that imposing indexation on all accrued pension rights would have been very expensive for employers and would very likely have accelerated the closure of DB schemes.
The period after 1997 saw the evaporation of the kind of surpluses that used to exist, which, incidentally, vindicated the 1997 decision to exclude the pre-1997 accrued rights, because if they had been included, that would almost certainly have accelerated the emergence of deficits, which led in turn to employers considering how they could cap their liabilities by closing schemes entirely or future accrual. As we know, the period of deficits lasted until the past couple of years; they lasted a very long time.
Alongside this period of deficits emerging, there was a mutual interest among trustees and employers to de-risk pension schemes. That is why they shifted most of the assets into things such as gilts, which, in turn, increased the sensitivity of the defined benefit schemes to gilt yields, as we saw in the LDI crisis, and resulted, when interest rates started to rise again, in the surpluses starting to emerge. It was not the only cause but a very significant cause of the surpluses that we now see. We now have schemes in surplus: DWP figures suggest £160 billion—that figure will probably change daily as interest rates change—but that was only after significant employer support throughout the 1990s and the noughties was required, when significant deficit recovery plans had to be signed up to by employers to keep their defined benefit schemes afloat.
The amendments in this group seem to be predicated on the thought that these surpluses are now available for member benefits, as though employers had nothing whatever to do with funding their emergence. Because DB pension schemes are built on the foundation of the interests of members, it is obvious that the surplus will have to be shared between the two—that was partly covered in the previous debate—but the one thing we must always remember is that they have emerged largely from the huge amount of funding that has had to be put in since 1997 to keep the schemes afloat. That the surpluses have emerged does not mean that they are available for whatever good thing people want to spend them on. I certainly do not think it is right to use surpluses to rewrite history to create rights that deliberately were not created in 1997, for the very good reasons that existed at the time. For that reason, I do not support these amendments.
Lord Willetts (Con)
My Lords, I want briefly to enter this discussion to identify another group not captured in the neat divide of employers and scheme members. When there is £160 billion knocking around, people tend to work out elegant arguments for why some group or another has a claim on that money. I understand the arguments for the pre-1997 claims, but I have to say that what my noble friend Lady Noakes just said is a very accurate account of the history and the thinking at the time. There is indeed an argument that, looking back, there was a fundamental change in the character of the defined benefit pension promise with that legislation then, which probably ended up as the reason for their closure. A with-profits policy became one where you had a set of rights, which were more ambitious and have proved in many cases too onerous for employers.
Baroness Noakes (Con)
I want to comment briefly on Amendment 35, tabled by the noble Lord, Lord Davies of Brixton, where he seemed to characterise the need to have members in the room alongside employers and trustees. He seems to forget that trustees’ responsibility is to act for the members. The members are fully part of the negotiation through the trustees. I personally do not agree with his amendment requiring formal consultation, as with some of the existing listed changes to pension schemes. But there was a good reason why the release of surpluses was not included when that legislation was first drafted, and I have seen no reason to change that.
My Amendment 42 is rather unlike other amendments in this group, which is why I spoke in the previous group and probably should have asked for my amendment to be grouped there. I reiterate my remarks in that group on the importance of the interests of the sponsoring employers, who have for the most part provided the funding which has now led to the surpluses emerging, which is the subject of these clauses in the Bill. My Amendment 42 simply says that regulations made under new subsection (2A) of Section 37 of the 1995 Act may not replace restrictions on employers once surpluses have been paid to them.
The DWP’s post-consultation document on the treatment of surpluses said:
“Employers could use this funding to invest in their business, increase productivity, boost wages, or utilise it for enhanced contributions in their Defined Contribution (DC) schemes”.
The noble Viscount, Lord Thurso, referred to that being used elsewhere as a justification for these new release powers. I agree that they could use it for those things, but there are also other things that they could use it for. For example, they could use it to fund a reduction of prices in the goods and services they sell to gain a competitive advantage in the marketplace.
The thing that concerns me in particular is whether the funds are used to pay dividends or to make a return of capital, because companies have shareholders and that would be a fairly normal use of surplus funds. My key concern is that the Government would use the power in new subsection (2A) to specify that employers could not use the money in the way they chose, and in particular in relation to dividends and share buybacks.
I completely understand the Government’s desire to see more investment, but holding money within the company might be the economically illiterate thing to do. Businesses make investments in assets, productivity or people if they think they have a reasonable prospect of making a return. They do not invest because they happen to have some surplus cash lying around. If they cannot be reasonably sure of making a decent return themselves, the right thing to do is to return the money to the shareholders and let the shareholders recycle that into other investment opportunities which make a reasonable return. That is why low-performing companies are often under pressure to return capital to the shareholders. In the context of the whole economy, that is the sensible thing to do, because it gets capital to the right place in the economy. Therefore, I hope the Minister can reassure me that new subsection (2A) will not be used to restrict what companies do with the surpluses extracted from pension schemes.
The Minister made some quite helpful remarks in the first group about the Government not telling people what to do with the surpluses, but I hope she can be specific in relation to the use of the power in new subsection (2A) that that would not be used to restrict what companies can do.
Lord Fuller (Con)
I support my noble friend Lady Noakes in her assertion that members’ interests are already taken into account on many trustee boards. In fact, all but the very smallest schemes have procedures and requirements to appoint member-nominated trustees. It is almost so obvious that it is hardly worth saying, but it is the truth. It is the job of the member-nominated trustees, not the unions or the members themselves, to represent the interests of that cohort. Even the local government scheme has arrangements whereby the needs of the employers and the employees are balanced, so it is not just a question of the private schemes; all schemes have those balances as a principle, and that is entirely appropriate.
I am disappointed to disagree with the noble Lord, Lord Davies, because I felt we got on so well in the previous two days in Committee, but, on this occasion, I part company with him. I do not think his amendments are needed, because of the existence of that member-nominated trustee class. It is their job, and if the members do not like it, they can get another one.
Lord Sikka (Lab)
Just to recap quickly, I was looking at a scenario where an employer had received a surplus from a pension scheme but soon afterwards became bankrupt. Normally, the PPF will rescue, but that is limited to 90%, which means that employees will face a haircut in their pension rights. So the only possibility to help to protect employee pension rights is to prioritise payment to the pension scheme from the sale of the assets of the bankrupt entity. In other words, pension schemes must be paid before any other creditor.
Deficits on pension schemes of bankrupt companies are not uncommon. I was adviser to the Work and Pensions Committee on the collapse of BHS and Carillion, and we looked at that closely. I also wrote a report on the collapse of Bernard Matthews for the same committee. Basically, they showed all kinds of strategies used by companies to deprive workers of their hard-earned pension rights.
This probing amendment seeks to protect employees by ensuring that pension scheme deficits not met by the PPF are made good by being first in line to receive a distribution from the sale of the assets of the bankrupt company. This applies only where the employer has taken a surplus in the last 10 years. As I indicated earlier, there is nothing sacrosanct about 10 years; if noble Lords wish to support this, it could be changed.
From a risk management perspective, it makes sense to put pension scheme creditors above other creditors. Unlike banks and financial institutions, employees cannot manage their risks through diversification. Their human capital can be invested only in one place. Employer bankruptcy is a tragedy because employees lose jobs and pension rights. For those of your Lordships who are not familiar with portfolio theory, the basic message is that there is a correlation coefficient of plus one, and it multiplies their risks. As human labour cannot be stored, employees will have no time to replenish their pension pots, and as we all get older, our capacity to work is also eroded. So, despite making the required contractual payments, employees will face poverty and insecurity in old age.
I urge the Government to protect workers’ pension rights. They should not be left in a worse position after the extraction of surpluses by employers. I beg to move.
Baroness Noakes (Con)
My Lords, I do not support Amendment 45A, tabled by the noble Lord, Lord Sikka. I am not sure that the kind of regulations envisaged in this amendment could actually create a creditor which has a priority in insolvency where a creditor does not exist at present. At present, a deficit in a pension scheme is generally not as a matter of law a creditor if the sponsoring employer goes bust.
Pension Schemes Bill
Baroness Noakes ExcerptsMonday 12th January 2026
(4 weeks ago)
Grand CommitteeRead Full debate Pension Schemes Bill 2024-26 View all Pension Schemes Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 152-I(b) Amendments for Grand Committee (Supplementary to the Marshalled List) - (12 Jan 2026)
Lord Katz (Lab)
I had better write to the noble Lord. I am afraid I do not have the details of that particular case to hand, but it is our understanding that it was coming from a voluntary perspective. But rather than speculating—I do not have the details here—I am very happy to write to him with more detail.
Baroness Noakes (Con)
I listened carefully to the Minister’s response, but I am not sure that he answered the question about why the Government need to take power to specify the sources of advice that scheme managers must take and whether that would result in a closed list of scheme advisers that had to be used in any event. Not only is that undesirable from a competition standpoint; it also seems likely to work against producing better returns longer term, because you will just ossify the situation as you find it at the point that the Government decide to make that decision.
Lord Katz (Lab)
I thank the noble Baroness for that question. I do not know whether this will give her complete satisfaction, but I understand that requiring funds to take advice from their pool could potentially be a conflict of interest. I would say that, first, asset pool companies will be required to have robust conflict of interest policies and procedures for identifying and managing those areas of conflict. As I said fairly early on in my remarks, integrated models—
Baroness Noakes (Con)
It has nothing to do with conflicts of interest; it is about whether the Government can specify a limited number of sources of advice that can be given to scheme managers, what the purpose of that is and whether that does not in fact work against achieving the best returns for members over time.
Lord Katz (Lab)
I am sorry; I probably misunderstood the direction of the noble Baroness’s questions. I had better write to her to set that out. I think it is fair to say that—this might help a little—in contrast to external advisers, because asset pools are solely owned by old GPS administering authorities, they exist to provide services of their interests and they do not stand to gain financially, even from partner funds taking their advice or providing poor-quality advice. I am not entirely sure that that gets at her question, but the point is that we do not feel that there will be that impact from limiting sources of advice. I will write to her to provide more detail on that point.
Pension Schemes Bill
Baroness Noakes ExcerptsThursday 18th December 2025
(1 month, 3 weeks ago)
Lords ChamberRead Full debate Pension Schemes Bill 2024-26 View all Pension Schemes Bill 2024-26 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 3 December 2025 - large print - (3 Dec 2025)
Baroness Noakes (Con)
My Lords, it is a pleasure to follow the noble Baroness, Lady Bennett of Manor Castle. But, not for the first time, she will find that I disagree with practically everything she has just said.
I have a few problems with the Bill, which has a number of sensible things in it. I will focus on aspects of the Bill that are being sold as supporting UK business investment and hence the Government’s growth mission.
I have big concerns about pension scheme money being seen as available for investment in ways that the Government choose but which conflict with the views of trustees, who have a duty to act in members’ best interests. I am as patriotic as anybody, but I do not think it is right to allow the Government to require investment in the UK. There have been times when investing in the UK was a terrible idea financially. I can remember the 1970s, when the only reason anyone held assets in the UK was the existence of exchange controls—we could not get money out. I say to my noble friend Lady Altmann that forcing or incentivising pension schemes into listed UK assets does absolutely nothing to enhance UK growth. These are existing assets; they have nothing to do with new investment.
The Government’s proper role is to create the economic environment where businesses want to invest. That requires confidence in the economic future, taxes that are predictable and low, and regulatory burdens that are kept in check. Anti-business and anti-growth Budgets, and changes to employment laws, are the main drags on investment in the UK at the moment, and no amount of playing around with pension fund assets will change that. With the exception of scale-up financing, which is a problem in the UK, there is no evidence that funds are not available to back profitable business investment in the UK. The powers in the Bill need to be judged against that background.
The part of the Bill that concerns me most, in line with many other noble Lords who have spoken, is Chapter 3 of Part 2, which deals with scale and asset allocation. These provisions go much too far. I get the benefits of scale, both in terms of cost efficiency and the ability to diversify into alternative asset classes. However, I do not think that there is any conclusive evidence that £25 billion is a magic threshold. I am concerned that the Bill will have the effect, after first having consolidated the market, of ossifying the pensions landscape. As I have said many times in your Lordships’ House, I am a believer in competition and markets.
Large players love regulations that create barriers to entry, because they insulate them from market disrupters. The Bill says that subscale players—new entrants—have to be regulated. Risk-averse regulators are not the best people to judge growth potential or the power of innovation. The Bill should encourage new entrants into the pensions market, even if that means a prolonged period of operating below scale. We need to look at how the long term for pensions investment can be protected and I will want to explore that in Committee.
The real shocker, of course, is asset allocation. Put simply, I believe that mandating asset allocation is wrong in principle and carries a significant risk of moral hazard. Pension trustees have a clear fiduciary duty to act in the best interests of their members. The Government should have no right to say to trustees that they must invest in particular things, especially if that conflicts with trustees’ views. I do not doubt the sincerity of the Government’s desire to get pension schemes to invest in a wider range of investments to improve returns for their members: that is broadly what scale facilitates. The danger comes with eliding that desire to facilitate higher returns for members with wanting to direct the investment into particular things, which may or may not turn out to deliver those higher returns. Legally requiring certain types of investment will inevitably result in calls for the Government to pick up the tab if the returns from those sorts of investments fall short. The moral hazard implications of these provisions for mandation are huge.
I am also disturbed to read proceedings in another place where some MPs wanted to direct pension schemes assets into their pet projects; they talked about social housing, hospitals and net zero. Such investments may well be socially desirable but there is no confidence that they will yield high returns for members of pension schemes. If the Bill does not rule out that kind of mandation, I am sure that it should. At the end of the day, trustees need to seek the best possible returns for their members, because it is investment performance that drives the retirement income of defined contribution members.
The drafting of the mandation clause is also a horror story; I will not weary the House with a commentary on that today, but I give notice that I shall want to examine it in Committee. I am sure that in Committee we will also want to look at capping the percentage which could be mandated—if indeed we wish to keep mandation at all, which I suspect we will not.
The other area that I wanted to talk about today is Clause 9, which creates a welcome ability to extract surpluses from defined benefit schemes. While only a tiny number of private sector DB schemes are still open to new members, very many employers are still burdened with schemes which have been long closed to new members or indeed to future accrual. Gordon Brown’s tax raid in 1997, followed by the prolonged period of low interest rates, meant that for the last 25 years, employers have had to pay large amounts to support the funding status of their defined benefit pension schemes. Recently, the good news is that some of those have swung back into surplus. It is only right that there should be an opportunity for those employers, who have borne this burden for such a long time, to get some of that surplus back. Doubtless, trustees will want to argue for further benefits for members in return for returning surpluses, but I hope that they will be mindful of the fact that the corporate sector has borne significant costs of keeping the defined benefit pension promises intact over many years, and they deserve a major share of those surpluses.
The Government have portrayed this as supporting business investment in the employing company, which it might do if the business environment is right for those companies to invest, but it may also be entirely rational for those companies to return excess money to their shareholders because that would be the best outcome for those shareholders. There is a provision in Clause 10 which allows conditions to be set on making payments. I shall want to ensure in Committee that this power cannot be used to direct what companies do with liberated pension surpluses once it has been agreed that it is safe for those surpluses to be removed from the pension scheme.
The Bill focuses on pension schemes, but it does not deal with many of the other problems that continue to exist in the pensions world. The Pensions Commission will tackle some but not all of those problems. In particular, around £1.3 billion of unfunded public sector pension obligations will weigh very heavily on future generations—that is currently largely hidden from sight at the moment. Into that category I would also put the continuation of the triple lock. This Bill is not the end of the pensions story.
Workers (Economic Affairs Committee Report)
Baroness Noakes Excerpts(2 years ago)
Lords ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Baroness Noakes (Con)
My Lords, I was a member of your Lordships’ Economic Affairs Committee when this report was produced, and I pay tribute to my noble friend Lord Bridges of Headley’s leadership of that committee.
We produced our report in December 2022. It then took about four months for the Government to respond and another nine months for us to get this slot to debate the report. As I have said before in your Lordships’ House, our reports really must be debated on a timely basis. The delay is a particular problem for this debate, not only because the data on which our report was based are out of date but because it is difficult to work out exactly what has happened subsequently, as my noble friend Lord Bridges and others referred to. The Office for National Statistics has paused its Labour Force Survey and is using new, experimental workforce data. We simply do not have a complete picture of what is happening at present.
In October 2022, there were 8.9 million economically inactive 16 to 64 year-olds, some 565,000 more than the pre-Covid era, which had been characterised by falling inactivity numbers. The latest figures published by the ONS, which my noble friend Lord Bridges of Headley referred to, show 9.3 million, reflecting a reweighting by the ONS. Other factors mean that the percentage inactivity increase is somewhat less. Whatever the precise number or percentage, there is clearly a problem and the trend is out of line with international experience.
As other noble Lords have said, the workforce participation rate is key to the growth of our country’s economy. The Office for Budget Responsibility’s 2023 Fiscal Risks and Sustainability report tested scenarios that increased or decreased health-related inactivity by 0.5 million. This moved the participation rate by a little more than 1 percentage point up or down, but the debt to GDP ratio moved by around 3 percentage points by 2027-28. Understanding what drives participation and inactivity rates is one of the most important issues facing economic management.
Behind the headline increases of economic inactivity, we found two key contributors: long-term sickness and inactivity among 51 to 64 year-olds. Most commentators, including the OBR, describe this in terms of the 50-plus age group getting sick and therefore leaving the workforce. Our examination found a different explanation, in that the over-50s became sick after they had decided to leave the workforce.
We really do not know much about the drivers of long-term sickness or early retirement. We were much encouraged during our evidence sessions that the Government were carrying out a workforce participation review. Several of our recommendations were aimed at ensuring that the review addressed many of the grey areas that we had identified. We thought that more work should be done on long Covid and the impact of NHS waiting lists. We wanted the review to focus on whether there had been a secular change in attitudes to work in the 50-plus demographic, and what could encourage them to stay in or return to work. We also recommended further work on the impact of savings and the furlough scheme on inactivity.
It was disappointing that the Government’s response to our report made no reference to the workforce participation review. My noble friend Lord Bridges of Headley then wrote to the Secretary of State for Work and Pensions, who replied saying that the review had resulted in a number of changes in the 2023 Budget. However, there was no sign of the further work that we had suggested. I find it curious that the Government do not want to get to the bottom of the issues impacting workforce participation and inactivity.
The government response, as is typical of government responses, listed lots of initiatives of varying degrees of significance. I do not doubt the Government’s desire to reduce economic inactivity. What I cannot see is a forensic approach to the problem. The initiatives might well produce results, but it is not clear that they are underpinned by a clear understanding of the underlying issues. This does not appear to be the best way to proceed.
I will highlight just one other area dealt with in the report, namely the impact of ageing on the UK’s workforce. This is not a new phenomenon, but in the past the reduction in the workforce due to retirement was masked by other factors, in particular the increased participation in the workforce of women. A simulation by the Bank of England shows that population ageing is increasing, knocking about five percentage points off the workforce each year by about 2032. Other factors are thought to be broadly static, so ageing will start to be a really big factor in the size of the workforce. The implications of this for economic growth are clearly significant.
In addition, successive reports from the OBR have shown how demographic changes contribute to a dramatic increase in the growth of debt as a percentage of GDP. The Government must face some difficult decisions, including about pensions and taxation, pretty soon if a longer-term financial crisis is to be avoided.
The response to our report was described as “the Government’s formal response”, but it came from the Department for Work and Pensions and ignored the broader economic issues of an ageing population. I hope my noble friend the Minister will be able to respond on behalf of the whole of government, including the Treasury, when he winds up.
Pension Schemes Bill [HL]
Baroness Noakes ExcerptsTuesday 30th June 2020
(5 years, 7 months ago)
Lords ChamberRead Full debate Pension Schemes Act 2021 View all Pension Schemes Act 2021 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 104-I Marshalled list for Report - (25 Jun 2020)
Baroness Noakes
(d) the person was—(i) an employer in relation to the scheme, or(ii) a person connected with or an associate of the employer.”Member’s explanatory statement
This amendment confines the criminal offences in Clause 107 to persons connected with the pension scheme employer.
Baroness Noakes (Con)
My Lords, in moving Amendment 46, I shall also speak to Amendments 47 to 49, which are in my name and those of my noble friends Lady Altmann and Lady Neville-Rolfe. There was a wide-ranging debate in Committee on the two new criminal offences and two new financial penalty powers in Clause 107. Unfortunately, I was unable to be present for that debate, but my amendments were moved by my noble friend Lady Neville-Rolfe, and I have read the record in Hansard.
The scope of the offences and penalties is very widely drawn and, while they do not apply if there is a “reasonable excuse”, there is no clarification of that term in the legislation. My noble friend Lord Howe spoke at length and helpfully in Committee, but it remains the case that there is considerable anxiety from pensions professionals and from companies about the impact of these provisions on ordinary commercial transactions. In Committee, the Government resisted attempts to define “reasonable excuse” and preferred to leave this to non-binding guidance from the Pensions Regulator—that may or may not be forthcoming as there is no obligation on the regulator to produce any guidance—and ultimately to the decision of the courts. We therefore have the classic formula for uncertainty for all those who might be affected by Clause 107, and that uncertainty could of course last many years, until enough cases establish the boundaries of the new offences and penalties.
My amendments today take a different approach from that in Committee and seek to limit the offences and penalties in the same way as the contribution notice regime in the Pensions Act 2004—namely, to the employer or to an associate or connected person of the employer. In Committee, my noble friend Lord Howe gave some examples of the people that the Government intended to be covered by Clause 107. On my reading of the scope of the contribution notice regime, all those mentioned by my noble friend would indeed have been covered by the amendment. If the Government think that the contribution notice’s scope is inadequate, I would have expected them to amend that scope in this Bill; after all, the contribution notices are there to make sure that defined benefit schemes are adequately funded. Criminal penalties and financial sanctions might make everyone feel better, but they do nothing directly to protect scheme funding.
I suspect that the Government intend these new provisions to apply to more people than are covered by contribution notices. In that case, it would seem to me essential that the Government set out clearly who they want to be covered by Clause 107. It cannot be right to create criminal offences without such clarity. However, even if the Government will not do that, I hope that the Minister can be clear about who they do not intend to be covered by Clause 107.
I shall concentrate my remarks on two groups—lenders and landlords—but the problem is wider and extends to all commercial counterparties. I should at this stage declare my interests as recorded in the register, including my directorship of the Royal Bank of Scotland.
I start with an employer who has a loan from a bank. That could fall due for repayment, because its term has ended or covenants have been breached. If the bank seeks repayment of a loan or decides not to renew it, that may cause financial difficulties for the employer. At one end of the spectrum, it could impair the employer’s ability to continue to trade as a going concern. In less extreme cases, it could impact, for example, the employer’s ability to meet payments under an agreed deficit repair plan. In either case, the result is material detriment within the terms of Clause 107. A bank should be well aware of this, because lenders have to know basic financial facts about their customers, including their pension commitments. That is clear within the language of Clause 107, but is it what the Government intend? If not, will the Minister say that clearly?
Similarly, a landlord may decline to renew a lease or decide to enforce early termination due to breaches of covenants. This can cause or amplify financial stress in an employer and have a knock-on impact on its ability to support its related defined benefit scheme. Is the landlord within these new offences and penalties or not? In the case of landlords and banks, there is no commercial or other nexus between them and the defined benefit scheme, yet they are drawn within the net of Clause 107 because their actions or conducts could indirectly impact the benefits payable by the scheme.
I remind my noble friend that we have not even begun to see the impacts of the coronavirus pandemic on businesses. The wonderful financial support provided by the Government in these early days of the pandemic will soon come to an end. Many businesses will be facing an uncertain future and are likely to have taken on additional debt. They may need more debt to survive. Many have chosen not to make quarterly rent payments this year. Their pension scheme deficits will almost certainly have worsened, due to extremely low interest rates and weak asset prices—a double whammy. The noble Lord, Lord Hain, referred to this in an earlier group of amendments. Banks and landlords will be making big decisions about enforcing existing loans or leases, as well as making new ones.
The impact could go beyond concerns about particular commercial transactions, with a chilling effect more widely. Defined benefit scheme employers may well become untouchables as counterparties, if there is major uncertainty about the implications for those who deal with them. My preference would have been for the Government to be clear about what counts as a reasonable excuse for the purposes of Clause 107. My Amendments 46 to 49 have instead concentrated on the persons who are intended to be covered by the new offences and penalties in order to invite the Government to provide certainty to third parties about whether they can expect to be covered by Clause 107. I beg to move.
Baroness Noakes
My Lords, I first thank all noble Lords who have taken part in this short debate. I was pleased to get support from my noble friends Lady Neville-Rolfe, Lady Altmann and Lord Trenchard.
I am grateful for what my noble friend the Minister has said, in particular that Clause 107 is not aimed at legitimate business activities conducted in good faith. He went on to say that there were other activities which might harm the defined benefit scheme but that they would be caught only to the extent that there was not a reasonable excuse. We will come back to that being the heart of the problem because there is no real comfort about what is included in “reasonable excuse”. We are invited to rely on future guidance on prosecution issued by the Pensions Regulator and guidance on how the regulator would approach the reasonable excuse.
I say to my noble friend that the pensions advisory industry has not always found guidance issued by the regulator helpful in guiding, as opposed to giving warnings about what the Pensions Regulator does not like. I do not think there is a lot of hope that that guidance will necessarily put an end to the uncertainty—and, at the end of the day, we are left with major uncertainty hanging over business until cases come before the courts and we see what the Pensions Regulator does in practice.
Having said that, as my noble friend knows, I never intended to divide the House and am grateful for what he has been able to say today. I will want to reflect on it further with those who have helpfully provided briefing on this. I know that some parts of the industry may want to stay in dialogue with the Government as the Bill goes forward. We will obviously have Third Reading in your Lordships’ House, but the Bill is a Lords starter and it will be taken in another place. So, while for today I will withdraw my amendment, and while I believe that we have made a lot of progress, we may not have made quite enough in making people comfortable that the range of transactions which could potentially be caught by this will not unintentionally fall within the ambit of Clause 107. With that, I beg leave to withdraw the amendment.
Baroness Noakes
I shall be brief. I indicated that I want to speak on these amendments because I am concerned about the impact that they would have on companies’ ordinary transactions. Part of the problem would be that there is no distinction between ordinary dividends and something that might be regarded as an excessive dividend.
The noble Lord, Lord Vaux, has taken the approach of saying that share buybacks are always less common and always have to be referred to the regulator but other distributions of capital by way of dividend are not. Life is never that simple; if you are sitting in a boardroom deciding on dividend policy, there is clearly an approach to ordinary ongoing dividends. Then there is what you do with surplus capital, which can go by way of either a special dividend or a share buyback. I do not know how this amendment could possibly differentiate between those.
When one gets into the detail of Amendment 51, which tries to set a level at which so-called ordinary dividends would trigger the potential interest of the regulator, we could potentially get into problems. I do not think that it would be healthy to have major uncertainty hanging over companies undertaking their ordinary approach to the distribution of profits alongside what might well already be a well-defined deficit repair plan with contributions already agreed with the pension trustees, and then have something on top be required to go to the Pensions Regulator. The definition of what the regulator should be interested in will end up with a lot of things being notified to the regulator that, frankly, cause no concern at all. I do not think that that is an efficient way to approach life.
Baroness Neville-Rolfe [V]
The noble Lord, Lord Vaux, has adapted his amendments to meet some of the concerns that we all expressed in Committee, for which I thank him, but I am afraid that I am still not happy with the two amendments that he has tabled. For example, nearly all pension schemes are in deficit. Amendment 50 would allow the Pensions Regulator basically to stop all buybacks, which is a matter not for this Bill but for a governance Bill—following proper review and consultation—because buybacks can be justified in some circumstances and we have not had a chance to debate that.
The coronavirus measures, with which a parallel was drawn, are unique and different—that has been made clear in parliamentary agreement to them—so it is better to leave the arrangements to ministerial discretion, as the noble Lord, Lord Vaux, suggested. We have to remember that, however good the regulator is, he or she introduces delay and uncertainty, so we need to make sure that the powers are used with care.
Pension Schemes Bill [HL]
Baroness Noakes ExcerptsTuesday 28th January 2020
(6 years ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Noakes (Con)
My Lords, it is some time since I have spoken on a pensions Bill. Indeed, I think the last occasion may well have been when the noble Lord, Lord McKenzie of Luton, was sitting in the place now occupied by my noble friend the Minister and I was sitting where the noble Lord now sits. I particularly recall many hours late into the night spent debating the powers of the Pensions Regulator in the Pensions Act 2008. I shall return to that when I speak about Part 3 later in my speech.
I shall start with collective defined contribution schemes. These account for more than half the pages in this quite long Bill. We are promised large volumes of delegated legislation to follow. I have no particular objection to CDC schemes, but the plain fact is that this extraordinarily complex legislation is being introduced to accommodate just one employer, namely Royal Mail. Despite a wide-ranging consultation and exposure in the specialist media, there has been absolutely no other corporate interest in CDC schemes. Other private sector companies have transitioned in whole or in part from their DB schemes unaided and it is far from clear to me that this is a good use of government and parliamentary time.
Nevertheless, now that we have the Bill, I would like to raise one question with the Minister. The Government have been clear that they wish to ensure that pension freedoms are available to members of CDC schemes as they are to members of other schemes. At one level, that sounds perfectly okay, but I am concerned about the impact that this might have on the notion of shared risk, which is an intrinsic part of CDC schemes. My particular focus is on longevity risk.
Pension freedoms are not always used wisely, but one clear beneficial use case—it applies even to defined benefit schemes—concerns members whose health status means that they can do better by removing their funds and purchasing an impaired life annuity. If members of CDC schemes in this situation acted rationally and took their share of the assets out of the scheme, that could well disadvantage the remaining members. The average life expectancy of those remaining would increase and, all other things being equal, the benefits payable to them would reduce. Are the Government comfortable with this outcome, in effect allowing selective risk-sharing under this new arrangement? This is a subset of the wider issue of intergenerational fairness, which has been raised by other noble Lords, including the noble Lord, Lord Sharkey.
I now turn to Part 3 and the Pensions Regulator. I thank the Association of Pension Lawyers for its analysis of the new offences, which I know has already been provided to the Minister’s officials. Very briefly, its concerns relate to the scope of the new criminal offences set out in Clause 107, the meaning of “likelihood” and “materiality” in that clause, and the way in which the reasonable excuse defence will work.
When the Government first announced these new offences, they were explained in terms of people running their companies into the ground. It often happens that, when legal draftsmen get to work, an intuitively reasonable proposal ends up being so wide that it can trap the unwary. The issues that have been raised are serious and I hope the Minister will be able to allay the fears expressed. In doing so, I hope that she will not simply fall back on the courts acting reasonably in interpreting the new offences. If we have to wait until we get a body of case law, which could take a decade or more, that will mean major uncertainty for the business community.
I have a separate question for the Minister on Part 3, concerning the new financial penalties of up to £1 million in Clause 115. I support the principle of the Pensions Regulator being able to take swift action, but such powers carry dangers, especially when used against those concerned with the pension funds of smaller companies. I would like to understand what checks and balances exist within the system to ensure that this power is used in a proportionate way. Can a person in receipt of a financial penalty challenge the Pensions Regulator? Will there be an opportunity for an appeal to an independent body? This is particularly important because the invocation of the penalty powers involves several key judgments, including materiality and likelihood, just like the criminal offences, but there is no court to interpret them. The Minister will know that something more accessible than judicial review is needed because in practice that is simply not available for those with limited resources.
My last topic is the pensions dashboard in Part 4. I have to say that this is at best a half-baked policy. We have no idea exactly how this will work. Part 4 is littered with rule-making powers which may well tell us in due course what is involved. The impact assessment has a huge range of potential costs between £0.5 billion and £2 billion over 10 years. My noble friend Lady Neville-Rolfe referred to the figure of £1 billion, but it is over £2 billion if you take the set-up costs and the ongoing costs over the first 10 years. If this were a business proposition, it would be sent away and told not to come back until the costs and precise impacts had been precisely worked up. Furthermore, benefits have not been clearly identified and the impact assessment admits that the behavioural impacts are “highly uncertain”. I do not doubt that having 10 or 11 jobs over a working life means that keeping track of pension entitlements is a problem. But I am far from clear that the dashboard is the answer and we are no further forward in giving people access to advice, as opposed to guidance, on what to do when faced with the information that the dashboard contains.
I have long thought that a more sensible approach would be to facilitate the consolidation of pension pots, which means tackling the cost and bureaucracy involved when people attempt to do that for themselves. Switching bank accounts has been made pain free for consumers but there has been no equivalent for pensions. I completely accept that the issues are far more complex for pensions than for bank accounts; equally, the industry has no real interest in solving this problem. The Government would be doing pension savers a great service if they set their sights a bit higher than this dashboard.
Marriage (Same Sex Couples) Bill
Baroness Noakes Excerpts(12 years, 6 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Lord Bishop of Guildford
My Lords, the noble Lord, Lord Alli, has already spoken of some support from these Benches for his amendment. I will not repeat what I said at an earlier stage, but I wish to support him again, and also, as the noble Lord, Lord Lester, has just said, to support the device of regulation as a practical way forward.
Baroness Noakes
My Lords, my heart is completely with Amendment 84 in the name of the noble Lord, Lord Alli, but I have trouble in my head to completely agree with the amendment, mainly because we are opposing a retrospective burden without any evidence of what that impact might be. I completely understand the case for the individuals who are affected. We do not know where the cost will actually be borne. The cost is low overall, but it is not correct to compare it to the amount of assets under management, as was done in Committee, because the instance might be in very small pension schemes. It might be the instance of a relatively small scheme with a relative small number of members, one highly paid member with a civil partner—or married in a same-sex couple—who is very much younger. That would have a very disproportionate impact on the actuarial valuation of the liabilities in that small scheme, which could be a charity or a small business. I would be much more comfortable if we knew what the impact was. We may still, knowing the impact, go ahead, and that is why I strongly support Amendment 84A but have a little difficulty with Amendment 84.