Pension Schemes Bill
Baroness Sherlock ExcerptsMonday 26th January 2026
(4 days, 4 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-V(a) Amendment for Grand Committee (Supplementary to the Fifth Marshalled List) - (23 Jan 2026)
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
I am grateful to noble Lords who have introduced and spoken to amendments. Clause 40 delivers the Government’s commitment to ensure that DC workplace pension savers benefit from the advantages that flow from scale and consolidation. It establishes a clear, measurable threshold and a framework centred on a single main scale default arrangement—MSDA—so that governance and investment decisions can be applied consistently across large pools of assets. This approach is integral to securing better member outcomes, improved access to productive investment and stronger in-house capability.
We had a preliminary conversation about all this on Thursday, but I know that not all noble Lords were there so, before I dive into specific points on the amendments, I will pick up a couple of the headlines. In response to the noble Lords, Lord Ashcombe and Lord Palmer, the UK’s workplace pension industry accounts for more than £2 trillion in assets, serving more than 16 million savers who have been automatically enrolled and are not engaged in pension savings. It is particularly important that these assets are working as hard as possible to provide better saver returns and security in retirement and, to do that, scale and provision really matter.
Evidence suggests that there are direct benefits derived from scale; they include better governance and economies of scale, whereby greater size reduces average cost per member and creates the ability to move investment in-house, which reduces investment costs in turn. It also enables access to a wider range of assets, including diversification and the ability to invest directly in assets rather than having to be part of a pooled fund. With improved bargaining power, schemes can negotiate lower investment fees, improving net returns.
There is a lot more that I could say, but I have said quite a lot of this before. I will say just a word just about the level of scale and why it is £25 billion. As I explained last week, our evidence shows that, across a range of domestic and international studies, a greater number of benefits can arise from a 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.
That is supported by industry analysis, showing that schemes of this size find it easier to invest in productive finance. International evidence shows that funds in the region of £25 billion invest nearly double the level of private market investment compared to a £1 billion pound fund. We selected the lower band, but there is further evidence that demonstrates that the greater the scale, the greater the benefits.
I can point to a range of studies. Analysis from Australia’s pensions regulator found that funds with around £25 billion were able to spread costs over their membership, keeping fees lower. Pensions UK reported that schemes with £25 billion to £50 billion of assets have considerable governance capability and find it easier to invest directly. The Conexus Institute again found in favour of funds of £25 billion to £50 billion. We have been transparently reporting the evidence via the impact assessment and the previous publication of Pension Fund Investment and the UK Economy, which outlined the evidence.
The noble Lord, Lord Fuller, will have to forgive me; I am not going back to LGPS. We spent two entire days in Committee on the first 10 pages of the Bill and I am not going back there. We can do it on Report. He is not going to stand up; I have not responded to a word he has said yet. Give me a moment. The noble Lord’s point is about scale. The evidence shows that larger schemes are better placed to invest—
Lord Fuller (Con)
The Minister invites me to stand up. The only reason I mentioned the LGPS is because the LGPS funds have been put into pools of £25 billion to £50 billion. We have a real economy experiment of what might happen if these provisions are enacted on the rest of it. The noble Baroness said that there are lower costs of investment. Then she went on to say, just now, that it is transferred with in-house teams. You will therefore have to substitute an externalised team for an in-house team at a scale of £25 billion. You are trying to compete with Fidelity, which has £900 billion in its team. You are setting these people up to fail; you have got the wrong scheme. You need the ability to go to the largest fund managers with the hugest assets under management, not try to recreate the City in aspic on footprints of £25 billion by duplicating all the procedures, staffing, HR and everything else. You have the B team and, guess what, they are always away on holiday in the first two weeks of August when the last three market crashes have happened and there is no one to answer the phone. That is the problem. You are saving one risk and applying the other.
Baroness Sherlock (Lab)
My Lords, I made these arguments at some length on Thursday. I have made them again now. The noble Lord disagrees with them; I can tell from his tone. He can read Hansard and pick up the relevant bits with me if he would like to.
Let me come back to the amendments. I will start with Amendments 91 and 95 from the noble Baroness, Lady Noakes. I thank her for introducing them with her customary clarity and brevity. These would create an exemption from the scale of requirements for master trusts and GPPs that can demonstrate investment performance exceeding the average of schemes that meet the scale conditions. I recognise the intent to reward strong performance, but obviously I am concerned the proposal would undermine the Government’s objective, which is a market of fewer, larger, better-run schemes, where economies of scale deliver sustained benefits to savers.
I should clarify the point about objectives. The Government’s primary objective is saver outcomes. I want to be clear about that. While I am here, I say to the noble Lord, Lord Palmer, that this is not about administrative simplicity but about member outcomes. At the centre of our policy is the drive for better membership outcomes. That does not mean a simple scheme, but one that has strong governance and is well run, including strong administration, because scale supports the scheme to have the resources and the expertise to do this.
To respond to the noble Baroness, Lady Noakes, in considering scale in the pensions landscape today, we have all shapes and sizes of schemes, in which value for members is important. We know that performance can be delivered across different sizes of scheme, but scale changes the landscape. Schemes that have scale will have the tools to deliver on value and performance in a way that a small scheme will not be able to in this future landscape. That is because scale enables greater expertise, efficiencies and buying power than a small scheme. That is the landscape we need to deliver for members because we want better outcomes for them. In considering the issue, it is therefore important to focus on the future landscape, the market at scale, and not the current landscape. In our view, there is not sufficient evidence that other approaches can deliver the same benefits for members and the economy.
On the specifics of the noble Baroness’s amendment, there are also some concerns around the impact; it could create an unstable landscape if we were to focus on the performance at any point in time. Of course, the intention for any exemption is that it is a permanent feature of the scheme and is not subject to regular assessment. As we all know, past investment performance is not a guarantee of future success. If we went down this road, there would be times when exempted sub-scale schemes found that they were no longer delivering investment performance that exceeds the average of those at scale. That is not stable for members or employers, and does not support their interests.
Amendment 98 proposes an innovation-based exemption from the scale requirement for master trust schemes offering specialist or innovative services. I agree with the noble Baroness, Lady Stedman-Scott, that innovation really matters; that is precisely why the Bill provides for a new entrant pathway so that novel propositions can enter the market and scale responsibly. But creating a parallel innovation pathway as an alternative to scale would dilute the fundamental objective of consolidation and risk maintaining a long tail of small schemes, with fragmented governance and limited access to productive investment.
I should say a few words on competition. Actually, I might come back to that.
Amendments 99 and 106 from the noble Baroness, Lady Altmann, would remove the £25 billion threshold from the Bill. We believe the threshold is a central pillar of the policy architecture. It has been set following consultation with industry and government analysis of the emerging evidence, to which I referred earlier, on the point at which the benefits of scale are realised. We believe that this is a key policy decision that should be in the Bill. We also believe, as the noble Baroness indicated, that it is very important that there is certainty for industry on this threshold at the earliest possible point. Putting the £25 billion on the face of the Bill assures industry that it cannot be changed without full parliamentary engagement.
I know the noble Baroness wants me to reassure her that this matter is open for further discussion. I regret that I will have to disappoint her. The Government are committed to this and have put it in the Bill for the reasons I just explained.
Baroness Altmann (Non-Afl)
If the intention is to maintain these specific limits in the Bill, I hope that consideration will be given to an existing new entrant pathway—rather than only a new entrant pathway from 2030 onwards—and some kind of innovation pathway, as suggested by my noble friends Lord Younger and Lady Stedman-Scott, so that schemes that either are already in existence or will come through over the next few years, if they are able to do so, will not be forced out of business or prevented even beginning.
Baroness Sherlock (Lab)
The noble Baroness makes an important point about innovation. We recognise the importance of a proportionate approach to scale, which is why we created the transition pathway. I know that the noble Baroness thinks the number or scale is not right, but that is the purpose of the transition pathway: to give schemes that can reach scale within a reasonable time the chance to do so.
On innovation, although we want to see a market of fewer, larger pension schemes, the policy still encourages competition through allowing innovative schemes, such as CDCs, to develop and by enabling brand new innovative schemes to enter the market via the new entrant pathway. I know the noble Baroness is not satisfied with that, but that is our answer to her question: the new entrant pathway.
Amendment 102 from the noble Baroness, Lady Stedman-Scott, would delete the regulation-making power on what values can be counted towards the scale threshold in order to probe how assets will be calculated. The market contains varied and complex arrangements. It is both prudent and necessary that affirmative regulations, consulted on with industry, set out the assets that may be included or adjusted when calculating the total value in the MSDA, with a focus on assets where members have not made an active choice.
Let me be clear on that point: the choices that will be made here are the ones that will create the big fat wallet, if you like, which will in turn drive the benefits of scale. The intent is that the regulations will focus on the default arrangement that the vast majority of members will be in. We want to see members of the same age who join the scheme at the same time get the same outcome, but the regulation-making power enables practical realities of how the market operates now—especially at the margins. We know that there is a variety in practice in the market, so engagement and consultation are crucial.
Amendment 104 from the noble Baroness, Lady Stedman-Scott, would remove the regulation-making power to define “common investment strategy” and to set evidentiary requirements for the scale condition. I understand that the aim here is both to probe this power and to require the Government to define “common investment strategy” prior to Royal Assent. A common investment strategy will help to deliver a single approach to maximise the buying power of a scheme in terms of fees and the diversification of its investments. We think that is crucial because allowing, for example, multiple potentially divergent strategies within the MSDA would maintain fragmentation and drive away from the consolidation that we want members to benefit from.
Baroness Stedman-Scott (Con)
My Lords, I wish to speak briefly in support of this group of amendments in the name of my noble friend Lady Altmann. She has once again demonstrated her expertise and the value that she brings to our scrutiny of these important issues. Most importantly, she explained the spirit in which these amendments were tabled.
Throughout our proceedings on this Bill, a consistent theme across the Committee has been the need for proportionality in the steps we are taking on scale and value for money, and for definitions that are sufficiently comprehensive to reflect how the market actually operates in practice. I do not intend to repeat the points already made by the noble Baroness or ask the questions she has posed, but we will listen carefully to the Minister’s response on these issues.
Clause 40, as drafted, risks applying the scale test in an overly narrow and mechanical way by requiring the regulator to assess each default arrangement in isolation without regard to the wider context in which it is offered. That approach is not necessarily proportionate; nor does it reflect the economic reality of how master trust providers operate. This amendment would allow the regulator to take into account the combined assets of several non-scale default arrangements offered by the same provider. In doing so, it would not dilute the principle of scale; rather, it would ensure that scale is assessed in a comprehensive and realistic way, focusing on the resilience, governance and efficiency of the provider as a whole.
That matters because, without this flexibility, we risk forcing consolidation for its own sake and potentially requiring well-run, well-performing defaults to be wound up simply because they fall on the wrong side of an arbitrary threshold—even where the provider clearly operates at scale overall. This amendment therefore speaks directly to the principles that we have already raised in Committee: that regulations should be outcome-focused rather than box-ticking, and that they should avoid unintended consequences that could undermine member confidence rather than enhancing it. For those reasons, I believe this is a sensible and proportionate refinement of Clause 40, and I hope the Minister will give it serious consideration.
Baroness Sherlock (Lab)
My Lords, I am grateful to the noble Baroness, Lady Altmann, for the clarity of the exposition of her amendments, and I thank all noble Lords who have spoken. I will try to explain what the Government are trying to do here and then pick up the specific points that the noble Baroness raised.
To maintain the policy on scale and secure its benefits for pension scheme members, there will need to be centralised decision-making over a large pool of assets. The Bill sets out that this will be delivered by the main scale default arrangement, which is subject to a common investment strategy. I recognise that the noble Baroness has raised concerns about the common investment strategy being able to accommodate different factors, but I will tell the Committee why it is there. A key purpose of the policy is to minimise fragmentation in schemes and to have a single default arrangement at the centre of schemes’ proposition. Fragmentation is an issue, not because it is a piece of government dogmatism but because it is in the interests of members that those who run their schemes have a big wallet at the centre to give the scheme the buying power and expertise they need, because that enables them to deliver on the benefits of scale.
When we consulted, the responses told us that there were schemes with hundreds of default arrangements that have been created over a long period of time and that this is a problem. Members in these arrangements get lower returns and pay higher charges, which some consultation responses also told us. It is important that we deal with that fragmentation and that we improve member outcomes.
However, the Government also recognise that there are circumstances where a different default arrangement is needed to serve specific member needs only—for example, for religious or ethical regions. These will be possible through Chapter 4 but they will not count towards the main scale default arrangement. If the scale measure encompassed multiple default arrangements or combined assets, as these amendments would allow, it would not drive the desired changes or support member outcomes derived from the benefits of scale. Following consultation, there was clear consensus that scale should be set at the arrangement level as that is where key decisions about investments are made. Simply put, centralised scale is the best way to realise benefits across the market for savers.
The pensions industry has told us there are too many default arrangements in some schemes, and that fragmentation—
Baroness Sherlock (Lab)
I am going to answer the point and then come back, if that is okay. Just give me another two minutes.
That fragmentation does not benefit savers but can lead to increased charges and lack of access to newer, higher-performing investments. The Government are committed to addressing this fragmentation, which exists predominantly in DC workplace contract-based schemes.
To prevent further market fragmentation, Clause 42 allows for regulations to be made to restrict the creation of new non-scale default arrangements. To be clear, this is not a ban nor a cap on new default arrangements. There will be circumstances where they will be in saver interests and meet the needs of a cohort of members. As the noble Baroness says, this is not a one-size-fits-all approach.
On the point about choice, auto-enrolment has moved many members to save for the first time. The vast majority enter the default fund and do not engage in their schemes. Those who do can choose their own funds, and these measures do not interfere with that, but they are a minority, and these measures aim to support the millions who do not engage.
The noble Baroness is right that one size of default arrangement does not fit all, but the Bill requires a review to consider the existing fragmentation and why multiple default arrangements exist. That will inform us of which default arrangements should continue and the characteristics they possess that deliver better member outcomes or meet a specific need.
Baroness Altmann (Non-Afl)
The Minister has raised many points that I would like to ask further about, if that is okay. The fragmentation applies to legacy schemes: the contract-based schemes, as she says. These are the old personal pension-type arrangements—SIPPs, GPPs and so on—which were developed a long time ago. Typically, the more modern schemes have just one default, with one investment approach that is meant to suit all members. It is that approach that I hope and expect to be refined as we move forward so that there can be different types of default fund for different types of member. I do not anticipate that they will be people choosing their own. It will be on the basis of information that the provider seeks from its members, using that to send them down a slightly more appropriate investment route for their money. That does not stop the providers having large pools of money that they allocate members to, but it would not be in just the one central fund, as I say. Of course that is easier for the provider, but I think the providers owe members a different duty, which is to try to tailor a little more for those who do not choose, based on wider circumstances than just their chronological age, what is best for their investment and pension outcomes.
Baroness Sherlock (Lab)
I have heard the noble Baroness’s explanation and understand the point she is making. The point about choice was not actually directed at her; it was directed at a colleague who mentioned choice and I was trying to explain that this is not about choice. I accept the point the noble Baroness is making that this is for those who do not engage.
If having a single default fund were simpler for the pension schemes, and that is what drove this, we would not have the number of defaults we have at the moment. We have huge numbers of defaults. I accept that many of those are the product of history, but the key is that we have to consolidate. To be clear, as I have said, we are not banning or capping the new default arrangements, but we want to ensure that any new arrangements meet the needs of members, so any new non-scale default arrangements will have to obtain regulatory approval before they can accept moneys into them. We have said that we are going to consult and we need evidence to look at whether anything else should be included, and that will come up when we consult.
I understand the point that the noble Baroness is making and I am happy to reflect on it, but we need consolidation and we need to consult to make sure that we have allowed for the right things. With that reassurance, I hope she feels able to withdraw her amendment.
Baroness Sherlock
Member’s explanatory statement
This amendment corrects an error.
Baroness Sherlock (Lab)
That was fun. I will have a go at explaining the Government’s narrative on this, which is an alternative to the narrative that has been established so far. I will then try to go through and answer as many of the questions as I can.
Let me start by stating the obvious. The amendments relate largely to the part of Clause 40 that determines which types of investment are deemed as qualifying assets for the purpose of meeting any asset allocation requirements were we to use the power. I stated in my opening reply to the noble Viscount, Lord Younger, that he said “when” mandation comes in, but it is very much “if”; we do not anticipate using this power but, if it were used, we would need to be clear about what happens next.
The most relevant provisions are found in new Section 28C(5). This broadly limits qualifying assets to private assets. The subsection provides by way of example that qualifying assets may include private equity, private debt, venture capital or interests in land—that is, property investments. It also clarifies that qualifying assets may include investments and shares quoted on SME growth markets, such as AIM and Aquis.
In contrast, according to this subsection, qualifying assets may not generally include listed securities, defined as securities listed on a recognised investment exchange. That approach reflects the aim of the power to work as a limited backstop to the commitments that the DC pensions industry has made, which relate to private assets only.
That brings me to the subjects of the amendments from the noble Baronesses, Lady Bowles and Lady Altmann. I start by reminding the Committee of the rationale for this approach, because it stems from the Mansion House Accord. The accord was developed to address a clear structural issue in our pensions market. DC schemes, particularly in their default funds, are heavily concentrated in listed, liquid assets and have very low allocations to private markets. That is in contrast to a number of other leading pension systems internationally, which allocate materially more to unlisted private equity, infrastructure, venture capital and similar assets.
The reason the Government are so supportive of the accord is that it will help to correct that imbalance and bring the UK into line with international practice. A modest but meaningful allocation to private markets can, within a diversified portfolio, improve long-term outcomes for savers and support productive investment in the real economy, including here in the UK.
The reserve power in Clause 40 is designed as a narrow backstop to those voluntary commitments. For that reason, any definition of “qualifying assets” must be clear, tightly focused on the assets we actually want to target and operationally workable for schemes, regulators and government. That is the context on the question of listed investment trusts and other listed investment companies.
I recognise the important role that investment trusts play in UK capital markets and in financing the real economy. Pension schemes—as the noble Baroness, Lady Noakes, pointed out—are, and will remain, free to invest in wherever trustees consider that to be in members’ best interests.
However, the clear intention of this policy has been to focus on unlisted private assets. This is reflected in industry documentation underpinning the accord, which defines private markets as unlisted asset classes, including equities, property, infrastructure and debt, and refers to investments held directly or through unlisted funds. That definition was reached following a number of iterative discussions led by industry, as part of which the Government supported the definition being drawn in this way.
Bringing listed investment funds within the qualifying asset definition would be out of step with the deliberate approach of the accord and its focus on addressing the specific imbalance regarding allocation to private assets. It would also raise implementation challenges, requiring distinctions to be made between the different types of listed companies that make or hold private investments or assets. It would introduce uncertainty about what we expect from DC providers. We might justly be accused of moving the goalposts, having already welcomed the accord, with its current scope, in no uncertain terms.
But the line has to be drawn somewhere. This is not a judgment on the intrinsic qualities or importance of listed investment vehicles, nor does it limit schemes’ ability to invest in them. It is simply about structuring a narrow, targeted power so that it does what it is intended to do: underpin a voluntary agreement aimed at increasing exposure to unlisted private markets in as simple a way as possible and without cutting across schemes’ broader investment freedoms.
The legislation draws a general distinction between listed securities and private assets; it does not single out investment trusts. Any listed security, whether a gilt, main market equity or listed investment company, is treated in the same way for the purposes of this narrow definition.
Crucially, this concerns only a small proportion of portfolios. Under the accord, the remaining 90% of default fund assets can continue to be invested in any listed instrument, including investment trusts, where trustees and scheme managers judge that that would benefit their members.
I am just coming to the answers, but please ask some more questions.
Baroness Altmann (Non-Afl)
I am very grateful to the noble Baroness for giving way. In a situation where trustees do not wish to put more than the prescribed amount in the qualifying assets, and they want to hold those through a listed closed-ended company because they are concerned about the structure of an open-ended fund and do not have the ability to invest directly, why would the Government want to fetter their choice in that way? I thank the Association of Investment Companies, which has helped me to understand some of the things that these companies do.
Baroness Sherlock (Lab)
My Lords, trustees will have to make their own decisions on that. I understand that, were mandation to come in, there would be constraints on this, but let me see whether I will pick up some answers to help with that as we go.
The noble Baroness, Lady Altmann, and, I think, the noble Viscount, Lord Younger, suggested that the Bill explicitly discriminates against listed investment funds. The noble Baroness, Lady Bowles, made this point previously. That concern is perhaps reflected in Amendment 124, which would remove the language that in general serves to exclude listed securities. Nothing in this language refers directly to investment funds or should be construed as a signal of discrimination, but I have listened carefully to the arguments made and I recognise that some people clearly feel otherwise. I am happy to take that away and consider further the arguments about signalling.
A number of noble Lords, starting with the noble Baroness, Lady Bowles, emphasised the issue of underlying investments, pointing out that the Mansion House Accord includes specific language on this. It defines UK private markets as meaning
“where the underlying assets are based in the UK”.
Accordingly, new Section 28C(6) provides the mechanism to reflect this aspect of the accord. Amendment 127 relates to this point, and I will say more when I return to it. I have already recognised that DC funds may invest directly or through funds. That means that, if we ever came to exercise these powers, we would need to implement the regulations under new Section 28C in a way that suitably reflects this. However, we do not consider it necessary to amend the clause to achieve this, since there is sufficient flexibility in new Section 28C to prescribe descriptions of qualifying assets in a way that reflects this, subject to the constraints in new Section 28C(5).
On the matter of competition, the noble Baroness, Lady Bowles, made a more constrained speech than she did last week, and I commend her for that. The question of competition law was raised. For the record, there has been no breach of competition law by the Government, nor are we encouraging a breach of competition law. We strongly welcome the Mansion House Accord; I make that clear for the record.
I turn back to Amendment 127 in the name of the noble Viscount, Lord Younger, because it picks up some of these points. This amendment would remove the provision that allows the Government, if exercising these powers, to specify that a proportion of assets subject to an asset allocation requirement should be invested in the UK. This aspect of the clause was developed with the Mansion House Accord firmly in mind. Under the accord, half of the 10% of default fund assets committed to private markets is intended to be invested in the UK. This provision simply ensures that the powers can operate as a backstop to that commitment. What constitutes a UK investment will vary by asset and will be set out in due course, with new Section 28C(6)(b) making it clear that this can be done through regulations.
Amendment 121, tabled by the noble Baroness, Lady Altmann, also relates to the definition of qualifying assets. Its effect would be to add to the list of examples of private asset classes that may be prescribed as qualifying assets in regulations made under new Section 28C(4). As the noble Baroness is aware, the Government have designed these provisions to mirror closely the asset classes covered by the Mansion House Accord. The clause does not perfectly correspond, word for word, with the drafting of the accord, but the effect is the same. To be clear, I can confirm that UK infrastructure assets, UK scale up capital and UK SME growth market shares, which I assume is what the noble Baroness meant when she referred to quoted companies, are all capable of being designated as qualifying assets, provided that they are not listed on a recognised investment exchange. They are very good examples of the sorts of assets in which these reforms should encourage investment; none the less, it is not necessary to list them individually in the Bill.
I have listened carefully to the many considered points and arguments that have been made in relation to qualifying assets. I recognise that there is not unanimity in the Committee, although it is always interesting when my noble friend Lord Davies agrees with the noble Baroness, Lady Altmann, and, at least in part, the noble Baroness, Lady Noakes, agrees with me; all things are possible, we discover, in Committee in the House of Lords. Given that, and given the arguments that have been made both here and previously, I hope that noble Lords will feel able to withdraw or not press their amendments.
Baroness Bowles of Berkhamsted (LD)
My Lords, I thank all noble Lords who have participated in this debate; I also thank the Minister for, from my perspective, attempting to defend the indefensible.
The Minister mentioned the industry documentation underlying the accord. I would be grateful if that could be forwarded to me, made a matter of public record and, perhaps, placed in the Library. As I said in my opening speech, if noble Lords want to know, I have had some 70% of the people representing the default funds—if you take their turnover—say that they did not think that they have agreed to the exclusion of listed investment companies. So something is going wrong here.
Baroness Sherlock (Lab)
I should have quoted what I was referring to; I meant to do so but forgot, so I apologise. I was referring to the question and answer materials that accompany the accord on the ABI’s pensions website, which I am sure the noble Baroness has read. They say:
“The definitions of both global and UK private markets assets include directly held, or via investment through unlisted funds in property, infrastructure, private credit, private equity and venture capital”.
The Government understand that this reflects the intention of the accord to exclude investment in listed investment funds. I would be happy to send these materials round to noble Lords.
Baroness Bowles of Berkhamsted (LD)
I am not sure that “directly held” applies to an LTAF either. The fact is that you have wrappers and underlying assets. It is discriminatory, and that should be tested. I still do not see how, when you have the public policy laid out by the high-level working group set up to create LTAFs, you can then say, “A private negotiation overrides that”. I stand by that.
I know that the Pensions Minister received a letter from a past lord mayor, Alastair King, who is one of the architects of the Mansion House initiatives, on 22 October last year. He relayed that he had encountered both support for the investment trust market and concerns that the Bill did not acknowledge the potential of the investment company structure. That evidence—one of the architects asking, “What’s going on here?”—also seems to have been ignored.
I come to the same basic point: for me, the Government have not provided a clear, public or specific rationale for this exclusion. I would say that neither has the ABI, but I did not know that it runs the country. All of the evidence points the opposite way to what the Government have done. Officials have confirmed in meetings that no assessment of using listed investment companies has been carried out, despite the clear steer of the policy in the working group to do so. It seems that this Q&A from the ABI overrides a Bank of England/FCA/government working group. That cannot be so. The only explanation ever offered is that there are “suitably targeted guardrails”—a phrase that has never been defined, evidenced or justified. What do you have to guard from in a listed investment company? Competition? Transparency? That is a very strange thing to say; it is an instrument of division and discrimination, protecting secrets.
Let us remind ourselves of what we are dealing with: two collective investment vehicles, each of which is a wrapper holding protected assets of net asset value for the pension scheme. That is where they differ from an ordinary equity. An ordinary equity does not have any protection for the assets; if the company goes bust, it is bust. If the listed investment company goes back to the net asset value, the assets are still there for the pension fund. That is the difference, which is why a collective investment vehicle such as a listed investment company belongs with the LTAF; it does not belong with an equity.
I still do not see why they stick so closely to some Q&A but, whether by design or by accident, they have produced a proposal that I still say is without foundation, without evidence and, frankly, without integrity. It is irrational and procedurally unfair, and it fails to take account of relevant and public considerations, relying instead on things that have not been consulted on and that have been presented through private industry discussions. I have never seen anything like this before. There are simple ways to make it fair in various proposed amendments in the rest of this group, spoken to by the noble Baroness, Lady Altmann—
Viscount Younger of Leckie (Con)
My Lords, briefly, this group again underlines a central point that we have been making: mandation should not be in the Bill. Time and again, we have heard concerns about the risks of picking winners and the unintended consequences that inevitably follow. I raised these issues on the previous group, and the noble Baronesses, Lady Bowles and Lady Altmann, have today and previously put those concerns firmly on record.
However, I am grateful to noble Lords for their thoughtful efforts to limit or mitigate the impact of the mandation power. I thank my friend, the noble Baroness, Lady Altmann, supported by my noble friends Lady McIntosh of Pickering and Lady Penn in particular, for their remarks on these issues. However, our view remains unchanged and, for reasons already rehearsed at length, asset allocation mandates have no place in this legislation. There is no compelling evidence that they are either necessary or effective in increasing productive investment in the UK.
If we are serious about addressing the barriers to UK investment, we must be honest about where those barriers lie. They include governance and regulatory burdens; risk-weighting and capital requirements; liquidity constraints and scheme-specific funding; and maturity considerations. None of these challenges is addressed, let alone solved, by mandation. If, notwithstanding these concerns, the reserve power is to be retained, significantly stronger safeguards are essential: a clear cap on the proportion of assets that may be mandated; more robust reporting and evidential requirements before regulations are made; explicit conditions for access to any transition pathway relief; a strengthened savers’ interest test; and rigorous post-implementation review. The question of when and on what basis the power should be sunsetted is one that we will return to on the next group, but the fundamental point must be clear: mandation is the wrong tool and the Bill risks embedding unjustified and anti-competitive discrimination between equivalent investment vehicles, driven not by evidence or public interest but by a narrow and self-interested approach. I will address those issues in more detail in a later group but, for now, I look forward to hearing the Minister’s response to the specific amendments raised.
However—before she gets up—I wish to turn to Amendment 118 in my name. It probes the power that allows regulations made under new Section 28C to include assets of various classes under the broad heading of private assets and to permit the future inclusion of additional asset classes. I appreciate the support of the noble Baroness, Lady Altmann, on this part.
I touched on this matter in some detail in the previous groups, so I will not repeat those arguments here. However, this amendment once again draws attention to our concern about the specific types of asset that the Government have chosen to list on page 46 of the Bill. It remains an issue about which we are deeply concerned, and one on which we will continue to work closely with other noble Lords though to Report.
Baroness Sherlock (Lab)
My Lords, I apologise to the noble Viscount for jumping up prematurely. These amendments relate to the level of any asset allocation requirements and the potential treatment of investments in private equity and private debt as qualifying assets for the purpose of any asset allocation requirement.
I will start with the with the level of any asset allocation requirement, a question raised by the noble Baroness, Lady McIntosh in her Amendment 114 and the noble Baroness, Lady Altmann, on behalf of the noble Baroness, Lady Coffey, in Amendment 112. Both would cap the percentage of default fund assets that could be required to be invested in qualifying assets. I understand why noble Lords were keen to table these amendments and to look for a cap. I have to say to the noble Baroness, Lady Penn, that I am shocked by such cynicism in one so young. I will explain the—perfectly rational—reason the Government have not done this; I hope that she will find it very satisfying and feel suitably chastened at that point. We do not expect to need to exercise the power, but to do so would be a significant step and, as noble Lords may have picked up by now, the Government’s general approach has been to design the power so that it can be used as a backstop to the commitments used in the Mansion House Accord. I underscore that point.
The aim has been to create a backstop to that rather than to fix a numerical cap in primary legislation. That is what it is designed to do. The accord is not a legal document, and its terms and definitions are not of a kind that could simply be lifted into statute. If the Government were ever to exercise these powers, we would need to define key terms precisely, and it is at least possible that those definitions might have some bearing on the precise percentage levels that are appropriate. We have therefore not taken the step of hard-wiring a fixed cap, although I underline that we have included various other safeguards, which I have repeated more than once, so will not repeat again in the interests of time.
In relation to Amendment 113 in the name of the noble Baroness, Lady Altmann, the Mansion House Accord commitment has informed the design of these powers, including the ability for government to require a proportion of assets to be invested in specified qualifying assets. I understand the point that she was making, but our approach has been deliberately limited, going no further than necessary to support the commitments already made. That caution is important, given that this is a novel—and, I discern, a not entirely uncontroversial—part of the Bill. Although we are aligned on the objectives, I would not want to suggest a change in policy direction where none is intended. Our aim is to give the DC pensions industry reasonable clarity about our expectations.
Amendment 119, tabled by the noble Lord, Lord Vaux, and spoken to by the noble Lord, Lord Palmer, interrogates the inclusion of private equity as an example of a qualifying asset. Its effect would be to remove private equity from the illustrative list in new Section 28C(5). Amendment 120 from my noble friend Lord Sikka would do the same, as well as removing private debt.
Lord Ashcombe (Con)
My Lords, it is a privilege to follow the noble Baroness, Lady Bowles, after that. I support Amendments 115 and 152, in the names of my noble friends Viscount Younger of Leckie and Lady Stedman-Scott, concerning the Government’s draft powers to mandate. The matter before us is not, in essence, a question of technical refinement but one that touches directly upon the principles of parliamentary sovereignty and the standards of scrutiny that this House has long upheld.
As has been evident during the deliberations of this Committee, we are all acutely aware that the pensions industry forms the very foundation of the long-term financial security of millions of people across the United Kingdom. It is therefore essential that any mandates imposed upon this sector are framed with clarity, certainty and due consideration for the practical realities—of which we have heard a lot this afternoon—faced by industry participants and savers alike. The sector quite reasonably seeks early and unambiguous direction so that businesses and individuals may plan prudently and with confidence. Ambiguity serves only to sow uncertainty and to heighten risk; it also almost always reduces the probability of the desired outcome.
Clarity alone, however, is insufficient. The process by which such mandates may be introduced or amended must itself be transparent, accountable and subject to full and proper parliamentary oversight. Under the current provisions, potentially substantial changes to the scope of mandation powers could be affected through negative secondary instruments. Such a mechanism falls short of the constitutional rigour expected in matters of this significance. These instruments, as the Committee well knows, may pass with limited visibility and without the robust debate and testing that both Houses are uniquely equipped to provide.
The amendments before us seek to remedy that shortfall by requiring that any future changes to mandation rules receive the express consent of Parliament, rather than proceeding without a vote. This proposition is not, I emphasise, a question of party-political alignment but a question of sound governance, institutional responsibility and public trust.
We must not lose sight of what is fundamentally at stake. Effective parliamentary scrutiny protects not only the interests of the industry and the Government but, most importantly, the millions of individuals, including myself, who have saved faithfully into the pension system and rely on its long-term stability. I therefore urge the Committee to lend its support to these amendments. In doing so, we would strengthen the clarity and certainty required by the pensions and lifetime savings sector; uphold the enduring principle of parliamentary consent; and ensure that the governance of our pension system reflects the transparency, diligence and integrity that the public rightly expects and deserves.
Baroness Sherlock (Lab)
My Lords, I am grateful to the noble Viscount, Lord Younger, for his introduction to his amendments in this group and all noble Lords who have spoken.
I will start with the sunset provisions. Amendment 115, from the noble Viscount, Lord Younger, would remove one element of these, but I understand that it is obviously tabled for probing purposes. There are two distinct elements to the sunset provision. The first is the element identified in the amendment: the provision in new Section 28C(3), which means that if percentage asset allocation requirements have been brought into effect by the end of 2035, they cannot be increased beyond that date. The second is what I call the “main” sunset provisions, in Clause 122(6), which automatically removes the power from the statute book altogether if it has not been used by the end of 2035. I fully recognise that there is a legitimate debate about where to set those sunset dates. Through her Amendment 116, the Baroness, Lady, Coffey, would prefer it to be shorter. The noble Baroness, Lady Penn, proposes bringing forward to 2030 the date beyond which the requirements cannot be raised. Her Amendment 130A would ensure that not only the enabling powers but any requirements in effect would expire in 2035. This is a significant power that would potentially be at the disposal of different Governments and such restrictions would seek to ensure that it is not on the statute book any longer than required.
The noble Viscount made the point about this being in a subsequent Parliament. In a sense, that is inevitable, because the Mansion House commitments are only to make those commitments by 2030 and, because this is meant as a backstop to the Mansion House Accord, the timeframe is shaped by the timescale within the Mansion House agreement and the Government’s own reform plans. We obviously do not want it on the statute book for longer than it is needed but, on the other hand, the Government do not want—nobody would—to create a situation in which a future Secretary of State felt compelled to use the power prematurely just to avoid it lapsing. It was therefore a genuine judgment about where to land it. In my view, it would not be logical to have the ability to implement a requirement, only for it to expire very shortly afterwards, as Amendment 130A might permit. The Government had to make a judgment between those competing considerations and we came down on 2035. I accept that it is matter of judgment and the Government’s may differ from that of noble Lords, but I hope that explains the competing pressures that made us land in that space.
The Committee has also focused, through a series of amendments, on the requirements for reviewing any asset allocations before and after they are implemented. The Government are acutely aware of the need to both design any regulations with great care and ensure that, if they are every introduced, they work as intended. That is why we have embedded not one but two statutory reporting requirements in Clause 40. The first is the ex ante report, which must be published under new Section 28C(12) before the power is exercised for the first time. In response to the noble Baroness, Lady Penn, her first understanding was correct. The requirement to consult is on first use. This requirement arises from a combination of new Section 28C(12) and (14), but the approach was designed so that the compulsory report and the critical first use of the power are informed by the consultation, and that is why it was put up front.
The second is the post-implementation review, which must be carried out and published under new Section 30A no later than five years after the first regulations come into force. Amendment 154 tabled by noble Baroness, Lady Bowles, would bring forward the mandatory post-implementation review of any asset allocation requirements from five years to three. The noble Baroness, Lady McIntosh, would require an additional review within two years as well as the existing five-year review. The amendment tabled by the noble Viscount, Lord Younger, would remove the time limit altogether.
I understand why noble Lords would want a shorter deadline for the post-implementation review, especially as many have strong reservations about the power in general. Again, the five-year deadline is a matter of judgment, and I accept that we may land at different points, but our concern is to allow enough time for the arrangements to bed in, so that their effects can be properly understood. Markets can take time to adjust. It is possible, for example, that some providers might seek an exemption under the savers’ interest test. Those applications might be granted on a time-limited basis or be subject to an appeal process. That all means that the full impacts of the measure might not be visible after only a short period. On the other hand, by choosing 2035, we have deliberately kept the deadline short enough that it serves as a meaningful check.
I turn now to the content of the pre-implementation and the post-implementation reports. A number of amendments, in the names of the noble Baronesses, Lady McIntosh and Lady Bowles, and others, seek to specify additional matters that the Government should be obliged to review. In the main, I do not demur from the importance of any of the topics that noble Lords have identified; they cover many of the kinds of issues that any responsible Government would want to consider either before or after using a power of this kind. Indeed, it is worth recalling that the Government have already conducted a wide-ranging review of pensions investment that considers many of these topics. The review reported last year and, as noble Lords know, led to many of the measures in the Bill.
However, the Bill already places clear duties on the Secretary of State to look at the key overarching questions: how many measures are expected to affect, and then have actually affected, the financial interests of members in the relevant schemes, and how they affect economic growth in the UK? Both the ex ante and post-implementation reports must cover those core matters, and both are expressly permitted to cover “any other matters” the Secretary of State considers appropriate. That formulation is designed precisely to allow the Government to take account of the kinds of issues included in many of these amendments, but to do so in a way which can be adapted to circumstances at the time, rather than being hard-wired into primary legislation.
I stress that these reporting requirements are not the only safeguards built into the framework. The savers’ interest test provides a route by which providers can apply to the regulator for an exemption, where they consider that complying with the asset allocation requirements would cause material financial detriment to their members. If, for example, the kinds of market distortions or misalignments described in Amendment 155, from the noble Viscount, Lord Younger, were to arise in such a way as to raise material concerns about the impact on savers of meeting the targets, providers might well choose to apply for an exemption.
The issue of transparency was raised by the noble Baroness, Lady Bowles, and implicitly by the noble Viscount, Lord Younger. I absolutely agree that it is good practice to be clear about the evidence and submissions that have informed policy decisions in this area. That has been the Government’s practice to date. In taking forward the pensions investment review, from which these measures have arisen, the Government consulted extensively and then published a 47 page response, including a full list of the 107 organisations that responded. If further formal consultations are carried out to inform the work required under the Bill, they will be conducted in the same spirit of openness. However, I do not think that we need detailed prescriptive publication requirements in primary legislation to achieve that.
Amendment 131 from the noble Baroness, Lady Bowles, would impose a further list of “prior steps” that the Secretary of State must take before using the power. One is a requirement that the Government must obtain clearance from the Competition and Markets Authority prior to exercising the powers. I will not rehearse the debate on investment trusts; we have done that already today. However, I stress again that this mandation clause is neither the work of the devil nor the work of the ABI; it is the work of the Government acting as a backstop to a voluntary Mansion House Accord, which is an industry-led initiative by 17 pension providers, aimed at securing better financial outcomes for DC savers and boosting investment in the UK. It is for the participants of the Mansion House Accord to ensure that they comply with competition law, and I have no reason to believe that they are not doing so. For our part, the Government will of course continue to comply fully with competition law in relation to any actions taken under these powers. I do not think a statutory requirement to seek specific CMA clearance is necessary or justified.
Amendment 130 from the noble Baroness, Lady Noakes, is a probing amendment to understand why we need to override any contrary provisions in scheme trust deeds. New Section 28C(15) simply clarifies that, where there is a conflict between the statutory asset allocation requirements and restrictive provisions in a trust deed, the statutory requirements take precedence. It is designed to give trustees legal certainty, not to dilute their general duties. As I have said, we do not expect to have to use this power but, were it to be exercised, we would want to ensure that there is certainty for trustees that these requirements may be met without inadvertently causing a conflict with a provision in a trust deed or rules.
Obviously, we do not have sight of every set of deeds or rules that schemes operate under, and it may well be that no relevant conflicting provisions exist. The provision is essentially a precaution. It means that it is not necessary for trustees or providers to spend time or money to scrutinise the interaction between the asset allocation provisions and their deeds. It also addresses the risk that a scheme might find itself at risk of closure to new auto-enrolment business due to a trust deed provision that prevents it from complying with the asset allocation requirements, which it may well want to do.
However, I want to draw a clear distinction between any specific provisions within the trust deed and the broader responsibility of trustees to select investments that operate in the best interests of members. That does not change, and trustees would continue to be subject to a duty to invest in savers’ best interests in line with the law.
Pension Schemes Bill
Baroness Sherlock ExcerptsThursday 22nd January 2026
(1 week, 1 day 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 Warwick of Undercliffe (Lab)
My Lords, I am sympathetic to the probing amendments in the names of the noble Baroness, Lady Altmann, and the noble Viscount, Lord Younger—Amendments 47 and 51 respectively—on value for money, which I alluded to at Second Reading. With any Bill or set of regulations, it is important to have clarity on the intentions and in minimising any unintended risk. That is particularly so when looking at the protection of citizens’ lifetime pension savings.
The FCA, the DWP and TPR have just published their consultation on their detailed proposals for the new value-for-money framework for DC schemes. These proposals come with real bite. When introduced, all relevant DC schemes will have to report on the value that they provide to members across a range of metrics. That assessment report will provide the basis for comparing the value that the scheme provides against other schemes. If a given scheme offers poor value, the firms and trustees must deliver improvements or otherwise transfer their members to a scheme that does provide good value. The framework requires an online central database to capture the disclosure of value-for-money data.
The Bill mandates the framework for contract-based schemes regulated by the FCA. The DWP and TPR will consult on draft regulations for the trust-based schemes. The first value-for-money assessments are expected in 2028. The framework provides for consistent measurement and disclosure on investment performance, costs and service quality; objective and consistent comparison against the market; transparency and disclosure; and action to be taken where a scheme is not delivering value. However, there are clearly concerns—we see them expressed in the briefings that noble Lords have received—that the framework could give rise to problems, which I, too, would like to probe.
The VFM framework provides for forward-looking metrics to be considered alongside backward-looking metrics, with the stated aim of allowing for
“a holistic approach to investment to deliver the best possible long-term outcomes”.
There is a risk that the value-for-money framework could result in herding, as others have alluded to, as schemes seek to avoid poor value assessments. There is also a risk of forward-looking metrics being used to game a scheme’s assessment. I ask the Minister: what guardrails are explicitly allowed for in this Bill to control these risks?
On quality of service, the recently published VFM framework takes a more limited approach to quality service and administration metrics. Furthermore, metrics on how members engage with their pensions have not been included in the framework, but they will be important in informing schemes’ responses to changes, such as guided retirement and the targeted support regime.
Looking ahead, how will these concerns be addressed? Poor-performing schemes that are rated “red”—meaning that they cannot be improved—must transfer out members where it is in their best interests. This is stronger than the originally proposed wording to consider a transfer. It is made possible by the Bill’s provision for a contractual override to allow transfers for contract-based arrangements without members’ consent. However, it is worth noting that some members will have safeguarded benefits. My final question to the Minister is: what will happen to those benefits? It is not clear what mitigations this Bill provides to protect members.
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, I am grateful to all noble Lords for introducing their amendments and for the debate that followed. The amendments rightly seek an assurance that the VFM framework is strong and effective and they try to clarify how it will take account of a range of important factors that can affect the value that a scheme provides. I regret that I cannot accept them, but I am going to go through the reasons why, as some interesting issues are being raised. Obviously, if I told the Committee that I was going to accept them, noble Lords would all fall over in shock, but this is a good opportunity to get these issues out there.
Let me say at the outset that the aim of the VFM framework is simple: we want to ensure that all savers are in schemes that deliver the best possible long-term outcomes for their retirement. The framework seeks to raise standards across the DC market by driving transparency, comparability and competition on genuine value rather than just on cost—a point made by the noble Baroness, Lady Stedman-Scott.
Clause 11 is deliberately drafted to provide enabling powers that allow the regulations establishing the VFM framework to be developed in consultation with industry and to be adapted as markets evolve. However, the VFM framework must be able to adapt to future financial market developments and to align with the FCA requirements for contract-based schemes. The risk is that hard-wiring any detailed technical criteria or rigid deadlines into primary legislation takes away the flexibility that is genuinely needed. It could get in the way of effective regulation and risks locking in concepts that could become outdated. However, I accept that there is a question around how Parliament gets to scrutinise the detail.
Clauses 11 and 14 set out key features of the VFM regime and provide enabling powers for the Secretary of State to make regulations on how VFM assessments will operate, including the metrics, the benchmarks and the processes that they will have to follow. The regulations will be subject to formal consultation with industry and regulators before being laid in draft for parliamentary approval under the affirmative procedure. In our view, this strikes the right approach: the Bill has the overarching framework in primary legislation while the technical detail is developed transparently through secondary legislation.
However, the noble Baroness, Lady Coffey, made an important point: Parliament needs to be able to understand what the assessment process will look like. A joint consultation was launched in early January by the FCA and the Pensions Regulator; it will run until 8 March. This consultation is the next step in the process of consultation on the technical-level detail of the framework, which will help to inform development and consultation on draft regulations and draft FCA rules—those are, of course, legal instruments.
I am conscious that some of the amendments were tabled before that consultation was launched. Those noble Lords who are up to their ears in the pensions world will no doubt have read the consultation in detail, but I will make sure that we send any noble Lord who has not done so a summary of, as well as a link to, it. I would be happy to answer any questions, if that would be helpful, but I will unpack the basics of this now.
The consultation sets out updated proposals and detailed draft FCA rules for implementing the VFM framework in the workplace DC pensions market and it reflects stakeholder feedback from the previous FCA consultation. FCA rules will apply to contract-based schemes, whereas regulations made under the powers in the Bill will apply to trust-based schemes. By bringing them together, responses to the consultation will help to inform both the draft DWP regulations and the FCA rules, with the obvious aim of ensuring consistency across trust-based and contract-based schemes. We do not want to end up with any kind of regulatory arbitrage in this or any other area. It is important that we do not pre-empt the outcomes of that process to make sure that we get the details right. Draft regulations will be consulted on.
Baroness Sherlock (Lab)
My Lords, I again thank the noble Baronesses, Lady Altmann and Lady Stedman-Scott, and all noble Lords who have spoken. Let me start with the amendments from the noble Baroness, Lady Altmann. I completely appreciate her desire to make the VFM framework easier for everybody to understand. I recognise there is a need for clarity here and a role for regulators to support member engagement with something as complex as this, but our concern with her proposals is that they would reduce precision and could unintentionally weaken regulatory accountability and undermine comparability across schemes, and those are three pillars on which the VFM framework depends. There is a genuine challenge here, which is to balance technical accuracy with clarity for members. Obviously, the latter will help to overcome the kind of behavioural inertia that we all see and so will ensure that VFM assessments result in meaningful action, not just awareness.
That is distinct from the regulatory precision required for the VFM system, which is why these terms are in the Bill. That current wording of “fully delivering” and “not delivering” is not accidental: it is designed to reflect objective compliance with all the mandated metrics: costs and charges, investment performance, governance and member outcomes. The terms provide clarity for trustees and regulators about whether a scheme meets the required standards. Replacing them with “good value” and “poor value”, even if it sounds attractive on the surface, would introduce subjectivity. Good value is not a regulatory test. It risks creating ambiguity about what triggers action when a scheme falls short.
Members deserve clarity and I absolutely agree that language should be understandable. However, the right place for explaining concepts to members is in disclosures and guidance, not primary legislation. We intend to work with the Pensions Regulator, the FCA and industry to ensure that member-facing communications such as rating notifications to employers and the regulator-supporting guidance, which will be aligned with the implementation of VFM, explain these outcomes in plain English that is suitable for its intended audience. I take the challenge from the noble Baronesses, Lady Altmann and Lady Bowles, about how to make sure that happens. That is something I am really happy to reflect on quite carefully. However, changing the statutory terms dilutes precision, creates inconsistency and risks uncertainty. Our approach preserves enforceable standards while committing to clear, accessible explanations for members.
Amendments 64 and 65 from the noble Baroness, Lady Altmann, would limit the powers the Government have to specify the consequences for pension schemes that have had an intermediate VFM rating for fewer than five years in a row. Let me pause before I answer that to come back to the noble Baroness, Lady Coffey, who always asks clear questions. One of her questions was “How is this going to work, anyway?” Let me give a very quick rundown, subject to time. The consultation sets out updated proposals—they were updated in response to the previous consultation—and draft FCA rules, showing how the VFM framework will work. The paper sets out the proposed metrics for performance, costs, charges and service quality. It outlines how the assessment process will work. It gives more details around the ratings structure and the consequences associated with each rating. Basically, trustees of in-scope DC workplace pension schemes and arrangements will have to publish standardised performance metrics and follow a consistent and comparative assessment of value to assign an overall VFM rating. The regulator will ensure compliance with those obligations and will have the ability to enforce transfer of savers—I will come back to that in a moment—from consistently poorly performing arrangements.
I said that the consultation had changed. There were five key changes from the previous consultation. The most relevant one here proposes, in response to feedback, the adoption of a four-point rating system: red, amber, light green and dark green. There was strong pressure to have more granularity, so that it was not quite as stark. I make it clear that it is only amber that could lead to possible enforced transfer. I hope that is helpful.
A good question is “How will members know what ‘fully delivering’ means?” Obviously, we are not proposing to use the Bill’s terminology when communicating ratings to members. Instead, the schemes will use the four-point RAGG rating. Red corresponds to not delivering, amber and light green to intermediate performance and dark green to fully delivering. It is proposed that this more accessible and granular terminology will be used in the assessment reports published by all schemes at the end of 2028, and the reports will be made publicly available. Guidance will also include plain English explanations and a summary of metrics so that members understand what the outcome means for them.
Baroness Altmann (Non-Afl)
In what the Minister has just described, I do not quite understand how dark green and light green fit with “fully delivering”. Only dark green would be fully delivering, so why is light green not in the intermediate category? To me, this is quite confusing. I understand what the Minister is saying, but I urge her to work with whoever is devising this to iron out this kind of confusion at this stage, rather than running with it, as seems to be the intention here.
Baroness Sherlock (Lab)
We are still consulting on this. We consulted on the initial proposal and the response came back that more granularity was needed. We have to accept that clarity pulls in one direction and precision and granularity pull in the other, so the job of the Government is to support the regulator in making sure that we end up with a framework that does its primary job, which is not just to work out where a scheme is now but what the right consequences are for that scheme and then to make sure that is communicated to those who need to know in ways that are appropriate. On the one hand, the noble Baroness wants clear, strict categories, and on the other she wants to have different consequences for schemes depending on their circumstances. We think it is important to be able to judge appropriately and come up with a scheme. I would be happy to write to point out all the areas and explain more about how this works, but the point is that this needs to be understood by those who will do the assessments and the communication of the results of that has to be in the right language for those who need to understand them. As the noble Baroness knows as well as I do, it is the nature of pensions that the challenge is that marketing simple language does not map neatly onto precise legal language. I hope that at least explains what we are trying to do on that.
Baroness Altmann (Non-Afl)
My worry is we have a term “fully delivering” in this legislation. It does not seem to me that very many schemes are likely to be fully delivering, even in a light green capacity. Therefore, I think we are already sowing the seeds of confusion if we go along this route. That is all.
Baroness Sherlock (Lab)
I am going to explain a little bit about the consequences because the thing that matters most is the consequences. Amber schemes may be required to close to new employers. Red schemes must close to new employers. I am just getting that down for the record, which suggests that I probably did not say that a moment ago. Just to be really clear, amber schemes may close to new employers; red schemes must close to new employers. Much nodding, I hope, from behind me. Great sighs of relief all round. Excellent.
Let me come on to the consequences of this. On Amendments 64 and 65 from the noble Baroness, Lady Altmann, we think that making reporting less comprehensive, even for schemes with intermediate ratings, could reduce the early warning signals on which regulators will rely to protect savers. I fully understand her desire to make this reporting proportionate. The current framework is designed to strike a balance. Powers are designed to enable the Government to ensure that trustees keep sponsor employers informed and that any issues are addressed promptly via the improvement plan without putting unnecessary burden on schemes. The noble Baroness may want to note this bit. The Secretary of State has discretion under Clause 16 on the consequences of an intermediate rating and could require different consequences to flow from different levels of intermediate rating. It is not the intention that a requirement to close the scheme to new employers would necessarily flow from all intermediate ratings. I think that is what she is shooting at, so I hope that helps to reassure her. That enables some flexibility around the consequences for pension schemes that have, for example, received an intermediate rating for fewer than five years, which is the space that she was shooting into just now.
Changing the powers as suggested risks missing the signs that a scheme may be heading into trouble. Early sight of any negative impact on a scheme’s performance and value really matters. I am sure that the Committee agrees that it is better to catch problems sooner rather than later and to put in a plan to remedy things, ensuring that schemes provide value and avoiding harm to members and greater costs in the long run.
The amendment suggests that schemes should face full reporting only if performance issues continue for five years or more, but five years is a long time for problems to go unchecked. I think members deserve better protection than that. We certainly would not want to see situations where savers are left in a poorly rated scheme for many years. That is why we propose to give schemes in the intermediate rating a period of up to two VFM assessment cycles to make the improvements needed to provide value to their savers.
I know that Amendments 60, 61 and 69 from the noble Baroness, Lady Stedman-Scott, are probing amendments that want to challenge and clarify the terms “reasonable period” and “relevant period”. The relevant period is the VFM period, or rather the annual reporting timescale for data collection assessment against VFM metrics, which we expect to run from January to December of the preceding calendar year. We expect to set that out in regulations following consultation. The reasonable period is a period during which the regulator would normally expect the scheme to deliver value for money. Due to the level of detail this will involve, this will all be outlined in regulations. We will, of course, formally consult on draft regulations, and I am more than happy to make sure that we engage with interested noble Lords during the consultation to provide an opportunity to feed thoughts into that. The finer proposals behind the VFM ratings, such as the conditions under which each rating will apply and when they should be used, are outlined in the joint consultation which is currently open and will be provided in full in regulations.
Turning to Clause 18, Amendment 69 seeks to understand the rationale for the maximum penalty levels for non-compliance set out in subsection (5). As pension schemes grow in size, it is vital that the fines we impose on schemes carry real financial weight. This ensures that compliance and enforcement remain effective, safeguard members’ interests and, of course, maintain confidence in the system. These figures represent a significant deterrent against non-compliance while not being overly excessive in the current market landscape. We have worked closely with regulatory bodies and taken care to ensure the penalties align with other powers taken in Part 2 of this Bill. We believe the figures are proportionate to both the current and future scale of schemes.
Baroness Coffey (Con)
I am keen to get a sense of what the Government think the current spread is between the different ratings. For example, what proportion might be red? Is there any sense of this at all?
Baroness Sherlock (Lab)
I am absolutely not going to answer that. If there is answer which is known to me, then I will be happy to share it with her, but it certainly not known to me.
Baroness Altmann (Non-Afl)
My Lords, I thank all noble Lords who have spoken and the Minister for her responses and patience with the comments made, especially by me. I have ongoing reservations but will obviously look carefully at the consultation. I would be grateful if we might have a further discussion before Report, because this is a crucial area, for employers and members. Perhaps we can bring this back in some form to iron out this huge intermediate range that could have a wide variety of implications that might be quite costly—I know how much these reports cost when you try and commission them—to schemes that may be having a bad performance patch for a year or two, but for understandable reasons. I thank the Minister and I beg leave to withdraw the amendment.
Baroness Altmann (Non-Afl)
No. I was just saying, if you transfer assets in, that 2% charge does not apply and will not apply. Otherwise, obviously, it would be uneconomic. But I understand that the idea of NEST is that the transfer in of a pension from another provider does not incur the upfront charge of, I think, 1.8%. So that would not be an issue. It is just a 0.3% flat fee. I hope the Minister will be able to respond on that element. There is a residual risk to government in moving somebody’s long-term assets from one provider to another if the other provider eventually proves not to deliver good value.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords who have spoken on this. I will start by addressing the proposed amendments to Clause 22. I will say at the start that we regard this clause as being a vital measure to tackle the structural inefficiency caused by the ever-greater proliferation of small, dormant pension pots in the auto-enrolment market. It empowers the Secretary of State to make regulations to consolidate these pots into authorised consolidator schemes, improving outcomes for pension savers and reducing unnecessary costs to providers.
Amendments 79 and 80, from the noble Viscount, Lord Younger, seek to extend the dormancy period for a pot to be considered eligible for automatic consolidation from 12 months to 18 months. We concluded that the 12-month period strikes the right balance between legislative clarity and administrative practicality. The timeframe was consulted on extensively with industry in 2023, under the previous Government. I suspect the noble Viscount was the Minister, so he may recall this well. Twelve months represents a supported middle ground: long enough to ensure that pots are genuinely dormant but not so long as to delay consolidation unnecessarily. Extending the period to 18 months would create inefficiencies and higher costs for both savers and providers, and slow progress towards consolidation.
Amendment 80 proposes removing subsection (3)(b) from Clause 22 as a means of probing the circumstances in which a pot should not be treated as dormant. This was picked up, slightly glancingly, by the noble Baroness, Lady Coffey, as well. I make it clear that the scope of the policy is deliberately aimed at unengaged savers in default funds, where fragmentation poses the greatest risk to value for money and retirement outcomes. It is not designed to consolidate pots from those who are engaged and have made active decisions about their pension.
The exceptions provision is designed for cases where investment choices have been made that are driven by factors other than active financial management, such as religious belief. For example, following the consultation in 2023, sharia-compliant funds emerged as a suitable case for this. The aim was to ensure that savers in those funds remain eligible for consolidation and the benefits it brings, because, even though they have made a choice to be in a sharia-compliant fund, Clause 22 would allow schemes to differentiate that choice from other forms of pension engagement which might indicate that the member would not want their pot to be moved. I make it clear that anyone brought into scope under these exceptions will retain the option to opt out, so member autonomy is preserved, and consolidated schemes would need to offer a sharia-compliant option for consolidation to ensure that members’ wishes continued to be recognised and respected.
Although the power allows for wider exceptions in future, proportionality is key. For example, it would not be appropriate to consolidate members in ethical funds into a default fund; nor is it feasible for consolidators to cater to every ethical fund in the market. However, this flexibility would ensure that the framework could evolve if another religious or other fund reached sufficient scale. It balances the inclusion of disengaged savers with the need to limit complexity, cost and operational burden for authorised consolidator schemes; that is crucial to ensure that the automatic consolidation model remains viable.
Again, to be clear, this is not about bringing into scope people who do not want to be consolidated; it is about ensuring that those who are likely disengaged on pension saving are not automatically excluded from consolidation and its benefits simply because of their religious beliefs. For clarity, I note that, similarly, this clause does not allow or compel a pension scheme to move someone who has not selected a sharia-compliant fund into a sharia-compliant fund.
Baroness Sherlock (Lab)
My Lords, I thank the noble Viscount, Lord Younger of Leckie, for introducing his amendments. I should have said at the beginning of the previous group that I thank him for his support for this policy. I recognise that he has tabled his amendments in the spirit of exploring how best to make this work.
Let me start with the proposed amendments to Clause 24, which is a key part of the framework to enable the consolidation of small dormant pension pots. It sets out requirements for transfer notices: communications that inform members when their pot is due to be moved into an authorised consolidator scheme. These notices are an important safeguard, ensuring transparency and giving members the opportunity to opt out if they wish to. Amendment 84 proposes that the transfer notices must be clear, concise, accessible and so on and must be provided in prescribed alternative formats for digitally excluded or visually impaired members.
I fully support this principle, but we think the amendment is not needed because the objectives are already embedded in the Government’s approach. The Bill provides powers to set detailed requirements for transfer notices in secondary legislation, and we have committed to consult to ensure that notices are simple, jargon-free and easy to understand. Moreover, existing regulatory standards and guidance already require schemes to provide communications in accessible formats for vulnerable members, including those who are digitally excluded or visually impaired. We do not think that overlaying additional prescriptive requirements in primary legislation is helpful, but the underlying point is very strong. We need a framework that can evolve as technology and members’ needs change. Locking rigid requirements into the Bill could hinder that process, so we think the right place for these detailed standards is in guidance and regulation, where they can be updated as best practice develops.
Amendment 85 would require the Secretary of State to record and report annually on the number of transfer notices issued and the outcomes arising from them. Again, although I understand the intent, we do not think this amendment is proportionate, given the administrative burden that it would impose. The DWP already has robust mechanisms for monitoring the implementation and effectiveness of pensions policy, including through regular engagement with the Pensions Regulator and industry reporting. We will continue to publish updates on the progress of small pots consolidation as part of our wider reporting on pensions reform. The focus should remain on ensuring that the policy delivers better outcomes for members, reducing fragmentation, improving value for money and supporting a market of fewer, larger schemes. We believe that this can be achieved through existing oversight arrangements and targeted evaluation, rather than setting rigid reporting requirements in primary legislation.
I recognise that the Clause 31 stand part notice has been tabled to probe the extent and scope of the small pots regulations enabled by this clause, with particular focus on the powers conferred on the Pensions Regulator to levy fees. For clarity, Clause 31 does not create new powers beyond those already set out within the small pots measure. Its purpose is to provide clarity and detail on how those powers can be exercised to deliver the small pots consolidation framework effectively. This mirrors the approach taken with the authorisation of master trusts, for example, under the Pension Schemes Act 2017, where fees were introduced to ensure that the costs of regulatory oversight are borne by those seeking authorisation, not by the taxpayer. This is a well-established and proportionate mechanism that supports robust regulation while maintaining fairness.
As already discussed elsewhere, we believe that the clauses within this chapter strike a careful balance. They ensure that key regulations get full parliamentary scrutiny through the affirmative procedure, while allowing the Government to act quickly on minor or technical changes via the negative procedure when necessary.
Clause 31 sets out the circumstances where the use of a Henry VIII power may be required. To be clear, this is about ensuring that the legislation delivers a workable and proportionate framework. The Henry VIII power provides necessary flexibility to apply existing technical and procedural legislation to small pots regulation in order to ensure the effective implementation of the small pots regime. I shall give an example. It may be necessary to make consequential amendments to the Pensions Act 2004 so that the Pensions Regulator’s existing administrative powers can extend appropriately to the small pots framework. An example in the Bill is the amendment to Section 146 of the Pension Schemes Act 1993 to ensure that the remit of the Pensions Ombudsman is broad enough to investigate complaints or disputes in relation to the destination proposer, but this cannot be legislated for before final decisions around the delivery model are made. That is a good example of why this would work. Of course, any regulations made under this power will be subject to the affirmative procedure.
We think that that flexibility is essential for the effective implementation of the small pots regulations. Any regulations made under this power will be affirmative, but it is also worth noting that, given what I have said, removing Clause 31 would reduce the clarity for members and pension schemes on how the power to make small pots regulations may be used.
Finally, I will address the proposed amendments to Clause 32. Clause 32 is essential to maintaining trust and integrity in the small pots consolidation framework. It ensures that the Pensions Regulator can take direct action to uphold compliance with the regulations, protecting members and supporting the volume of transfers required accurately. Amendment 86 seeks to remove subsection (2) as a means of probing the expansion of regulatory powers conferred on the Pensions Regulator. Subsection (2) provides transparency for stakeholders by setting out the types of enforcement tools that may be included in regulations, such as compliance notices, third-party compliance notices and penalty notices. These are not new concepts; they align with the Pensions Regulator’s existing practices and procedures in other areas of pensions regulation. Removing this provision would not prevent enforcement powers being introduced in regulations, but it would remove clarity for schemes and members. Without it, we risk creating ambiguity and undermining confidence in the framework. This clause is not about overreach, but about ensuring that the regulator can act proportionately and effectively where schemes fail to meet their legal duties.
Finally, Amendment 87 seeks to remove Clause 32(4) to probe the rationale behind the maximum penalty limits. Subsection (4) provides clear, proportionate caps on financial penalties: £10,000 for individuals and £100,000 in any other case. These limits have been increased compared to existing frameworks to reflect the importance of compliance in this area. As pension schemes grow in size, it is vital that the fines we impose on schemes carry real financial weight. This ensures that compliance and enforcement remain effective, safeguard members’ interests and maintain confidence in the system. These amounts align with the wider compliance regime across the Bill. Without this subsection, regulations could still introduce penalties, but without any statutory cap. That would create uncertainty for schemes and could lead to disproportionate outcomes. By contrast, the current approach provides transparency and safeguards, ensuring penalties are significant enough to deter non-compliance but not excessive. It also enables appeals to the First-tier or Upper Tribunal, guaranteeing procedural fairness and accountability.
In conclusion, Clause 32 is not about granting unchecked powers; it is about providing clarity, proportionality and effective enforcement to protect members and deliver the outcomes this policy is designed to achieve. Removing this provision would create uncertainty and risk undermining confidence in the system.
The noble Baroness, Lady Altmann, asked me a question that I think related more to the previous group, but let me see what I can do. Why do we need small pot consolidation if we have the pensions dashboard? I think her question was slightly underpinned by the question, why do we need this at all, why can we not just use dashboards? We think they serve different but complementary roles in strengthening the system.
Baroness Altmann (Non-Afl)
Okay. I have not fully prepared for it, but I am happy to do that; it will save us time later on.
The concerns expressed in Amendment 136 and the amendments that the noble Viscount, Lord Younger, mentioned—some of which I added my name to—revolve around schemes that are already established. There is uncertainty about whether the schemes that are currently below the level will be permitted as new entrants or be able to access new business.
I am already being told that advisers are opting to advise employers only to join schemes that are already almost at or above the current £25 billion default fund threshold, which is creating market disruption and preventing schemes currently below the scale threshold from growing, as they cannot access the amount of new business they would otherwise have anticipated. Therefore, the risk is that these schemes will close prematurely but could offer good value to members who would otherwise be able to benefit from a scheme that is potentially on track to enter the transition pathway but will not quite be there.
I will offer the Committee an example. One of the recent new entrants, Penfold, which was established in 2022, will not have the time that other new entrants, established a few years before it, will have—such as Smart Pension, which may well be on track to reach the goal by 2030. Penfold faces a cliff edge because it launched only in 2022, has already surpassed the £1 billion asset-under-management mark and could well quadruple business over the coming few years, which would be an extremely positive achievement, but it will not qualify it not to have to close.
There are other new potential entrants that were planning to enter the market in the next three or four years, but they cannot now do so unless they are able to enter the pathway. That is why Amendment 136 suggests that schemes that have been established for, let us say, less than 10 years—again, that is a probing figure—would be able to enter either the transition or new entrant pathway if there is a demonstrable case that they will be able to grow. However, I am completely aligned with the noble Baroness, Lady Noakes, that big is not necessarily best and that there are risks of an oligopoly developing in this connection, which I hope the Government would not have intended. I am convinced that that would not necessarily be in the interests of the market, innovation or pension savers more generally.
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 Altmann (Non-Afl)
The remarks that the Minister is making are of concern to me—and, I think, to other Members of the Committee—because they are just what the big providers would say. They have the power. I have seen this in the pensions landscape for years: the big players have this incredible advantage and lobbying power and the power to get their way on legislation somehow. That is not always bad for members; I am not saying there is something terribly wrong with the big providers. What I am saying, though—this is an important point—is that there is a real need for innovation, new thinking and new ideas in this space. Huge sums of money are under discussion here. If we are bowing to the existing incumbents and not making provision even for those small businesses that are currently established but will not necessarily reach that scale in time, I am not convinced that we are improving the market overall. I would be grateful for a thought on that, or for the Minister writing to me.
Baroness Sherlock (Lab)
I am going to push back on the premise of the noble Baroness’s comments. I understand that she feels very strongly about this, but the Government are not doing this to benefit large pension schemes. The Government are doing this to benefit savers. The Government established an independent pension investment review, looked carefully at the evidence and reached the view that the best thing for savers is, via these measures, to encourage and increase the consolidation that is already happening in the marketplace. It is our view that that, combined with the other measures in the Bill, will drive a better market for savers and better returns for savers in the long term. That is why we are doing it—not because we want to support any particular players in the market; that is not what we are about.
The noble Baroness mentioned her Amendment 136; I want to respond to that as well as to the noble Baroness, Lady Noakes. There is an issue around whether schemes already in the market have enough time to make scale. From when the Bill was introduced in 2025, schemes have up to 10 years, if we include the transition pathway, to reach scale. We project that schemes with less than £10 billion in assets under management today could still reach the threshold based simply on historical growth rates. For example, a £5 billion fund today, growing at 20% a year, broadly in line with recent growth in the DC market, could reach £25 billion within 10 years—and that does not take account of the impact of consolidation activity, which we expect to see within the single employer market as a result of reforms brought forward in the Bill, such as VFM, which we expect to lead to poorly performing schemes exiting the market.
Baroness Altmann (Non-Afl)
Is there a reason why the Government will not even consider allowing some transitional entry for schemes that are already established, such as the one I mentioned, which may or may not reach that number? This is not a magic number—£10 billion or £25 billion are not magic numbers—but these are businesses that are already established. It will put people off entering the market if suddenly, with no warning, a company that started in 2022 is under pressure. Let us say that there are bad markets or that it takes longer; as I was saying, at the moment, employers are not going to give these companies new business. If the Government could look at some minimum period of establishment that could get new entrants into the 2010 transition, that would be good.
Baroness Sherlock (Lab)
The important thing here is clarity. The noble Baroness mentioned a single scheme. I am not going to comment on individual schemes, for reasons she will appreciate—she would not expect me to do so, I know—but we have to set some clear boundaries. The boundary has to be somewhere. As I said, we have actually gone for the bottom end of what was consulted on. We have created a transition pathway precisely to give schemes the opportunity to grow; they need to be able to persuade us that they have a credible path to do that.
In the case that the noble Baroness mentioned, if there were some particular market conditions that caused problems across a sector, she will be aware that in the Bill there is something called a protected period. There are powers in Sections 20 and 26 of the Pensions Act 2008 that give regulators the ability to delay temporarily the impact of the scale measures. That is to ensure that the consequence of a scheme failing to meet the scale requirement—having to cease accepting any further contributions—is planned and managed. There is a range of reasons why that might happen. It might be about an individual scheme that has been approved as having scale but has failed to meet the threshold or it might be a market crash that affects all schemes. There is flexibility there for the Government.
However, the principle is that we have to set some boundaries around that. The Government have reviewed the evidence carefully, and we have concluded that the point that we have chosen is appropriate. We have created a transition pathway in order to do that, and we have created new entrant pathways in order to accommodate those situations. We believe that that will protect members’ interests.
Baroness Bowles of Berkhamsted (LD)
The Minister has not yet mentioned whether there is any kind of indemnity or legal consequence. What the legislation does is not neutral in the sense that it provides cut offs and reasons not to invest. Is a company doing something wrong by continuing when it should say that it will not be able to make £25 million and it should roll up now? These are issues about which questions have come to me. It has not been looked at in the research. Could the Minister write to me to say whether there are any legal dangers for either side and whether there would be any compensation if the value of the pension becomes less than expected?
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 Sherlock (Lab)
My Lords, the broad, combined effect of these amendments would be to remove from the Bill the ability of the Government to require certain pension schemes to hold a prescribed percentage of their assets in qualifying assets. I confess that, after Second Reading, the reaction of some noble Lords has not been entirely a surprise to me. However, I have to say at the start that, although the provisions divide opinion, they deliver an important element of the pensions investment review that the Government concluded last year.
I will make two headline points. First, as I have said, we do not presently expect to have to use the powers, as we are confident that the industry will deliver voluntarily on its commitments made under the Mansion House Accord. Secondly, the Government would not be proposing these powers if there were not strong evidence that savers’ interests lie in greater investment diversification than we see today in the market. DC pension providers recognise that a small allocation to private markets can improve risk-adjusted returns as part of a diversified portfolio. Despite this, in many cases providers are holding back, not because it is necessarily in savers’ best interests but, among other reasons, because of a lack of scale or because of competitive pressure to keep fees low. That problem, alongside the potential economic benefits of this sort of investment, is why we have made investment diversification such a big focus of these reforms and why we have welcomed the Mansion House Accord. It is also why it is so important that the industry is pulling in the same direction and why it is necessary that the Government have taken reserve asset allocation powers as a backstop to be used only if necessary.
Noble Lords have raised various concerns about the powers, which we will no doubt explore in much more detail on Monday—I look forward to that. However, as an opening point, I emphasise that the Government have taken care to build in appropriate guardrails. First, the power is time limited. It will expire in 2035 if it has not been used, and any percentage headline asset allocation requirements that are in force beyond that date will be capped at their current levels.
Secondly, the Government are required to establish a savers’ interests test, in which pension providers will be granted an exemption from the targets, where they can show that meeting them would cause material financial detriment to savers. The Government will need to consult and publish a report on the impacts of any new requirements on savers and economic growth, both before exercising the power for the first time and within the five years following the power being exercised. The regulations implementing this framework will be subject to parliamentary scrutiny.
A number of points have been raised. I will keep my response fairly high level; I know that some of those points will come up again next week, so I will return to them then, given that we have limited time before the Grand Committee must end. I start with the question of whether this is necessary. The Government are strongly encouraged by the Mansion House Accord, which is an industry-led, voluntary commitment by 17 of the UK’s largest pension providers to invest 10% of their default funds in private markets, with at least half of that in the UK, by 2030. It means that savers will benefit from greater diversification and the potential for better long-term returns. In view of this progress, the Government do not currently expect to need to use these powers.
In response to the noble Viscount, Lord Younger, and the noble Lord, Lord Vaux, I note that there is a continued risk of a failure of collective action here. Individual providers are under competitive pressure to keep costs as low as possible, which can discourage them from investing in the full range of asset classes, even where it may be in savers’ interests to do so. The reserve powers signify to the industry that change is happening across the market, and in that way—together with our other reforms—they support the transition to which the industry has itself committed. That is the top line as to why we are taking the power and the circumstances in which we think we would use it. I will come back to the issue of private markets when we have a debate on private markets next week.
We will have a longer debate on trustees and fiduciary duty, particularly the issues around regulations, when we come back next week, if that is okay with the noble Lord, Lord Sharkey. However, the Government do not accept that this proposal cuts across fiduciary duty. There is widespread recognition of the benefits that a diverse investment portfolio can bring for savers. Indeed, that is exactly why the signatories to the Mansion House Accord are committing to investing in private markets. However, if the reserve powers did come to be used, the Bill provides for a savers’ interest test to ensure that schemes can deviate from any asset allocation requirements where they can demonstrate that savers would suffer material financial detriment. The Minister for Pensions has committed to working with the sector to ensure that guidance gives trustees the confidence they need to invest in the best interests of savers and the UK economy. A stakeholder-wide round table will begin this work early next month, and I will keep noble Lords informed on that.
The noble Lord, Lord Vaux, asked what happens if a scheme makes losses. Trustees continue to be responsible for investing in their savers’ interests. We will come back to this in more detail, but the headline is that this means savers would continue in all circumstances to be protected by the core fiduciary duties of trustees. Trustees would also continue to be subject to a duty to invest in savers’ best interests in line with the law. We would expect that duty certainly to apply to the selection of individual investments in a portfolio, the balance of different asset classes in a portfolio and to any decision to apply for an exemption under the savers’ interest test.
The noble Lord, Lord Vaux, asked about sorting out other barriers first. Last year, we completed a comprehensive review of pensions investment, which identified that greater scale, as well as a greater focus on value rather than cost, has the potential to unlock significant additional investment that benefits both savers and the economy. The measures in the Bill tackle that. However, that does not mean that the work stops on barriers and investment opportunities. For example, the FCA announced last month that it will consult on rolling out to the pension funds it regulates a target exemption from the 0.75% charge cap, to accommodate the sorts of performance-based fee structures often used in private market investment. The signatories to the accord have explicitly called for that.
The noble Lord, Lord Sharkey, asked about enablers and whether there are enough investment opportunities. The answer is yes. We will continue to engage closely with the industry on the steps it is taking and any obstacles it is encountering. At this point, we are encouraged by early signs of progress and are confident that the momentum will continue. On future investment opportunities, I draw the noble Lord’s attention to one example of the role that the Government are playing: the Sterling 20 Group of leading pension providers launched by the Chancellor at the October regional investment summit. That group, convened by the Office for Investment, includes all the Mansion House Accord signatories and has already met twice to discuss specific investment opportunities in venture capital and energy generation.
The noble Lord, Lord Sharkey, asked about the consumer duty. The FCA’s consumer protection objective will continue to apply to FCA-regulated schemes. The FCA will apply it in parallel to any asset allocation requirements: in other words, where it does not believe there is a conflict. Or at least, where we do not believe there is a conflict. Or someone does not believe there is a conflict. Savers’ interests tests will be available for FCA-regulated firms, just as for TPR firms.
Lord Sharkey (LD)
Can the Minister respond to the point I made about statutory guidance?
Baroness Sherlock (Lab)
I will answer that next week, if that is okay, when we discuss the issues of fiduciary duty.
Viscount Younger of Leckie (Con)
I have a couple of points to raise. The Minister mentioned that the reserved power was designed to be a signal, and I would argue that it is a pretty strong signal to put in the Bill. Will she strongly consider whether there are other ways to encourage investments in the UK other than using this, and what might they be? This is one of the things that we will want to press.
Secondly, she did not answer my question about the dangers of a future Government taking up these powers, even though she mentioned the sunset clause of 2035, which is, frankly, some time off.
Baroness Sherlock (Lab)
I am sorry I did not namecheck the noble Viscount in responding to the second point. I intended to respond by pointing to the safeguards and the guardrails that have been built in. That was the nature of the response to that.
In response to the first question, I thought I said that the Government accept that this is not the only issue and that we are addressing the other ways. We have been looking at the other barriers and investment opportunities. We also mentioned that the FCA has looked at examples. It is not the only thing; we are looking at the other things as well. We think there is already significant progress, but we think this reserve power is a way of ensuring that progress goes forward and not backwards on this issue.
Baroness Bowles of Berkhamsted (LD)
My Lords, I will be brief. There is a lot that could be said, but we will have other opportunities later on in this Bill.
This should have been a happy Bill, doing good for ordinary workers and building the economy, looking after the future in two interconnected ways. For the main part, we had cross-party policy consensus and continuity. We had public and industry support, which is just what you need for issues such as pensions and long-term investment, aided by significant and consensual regulatory changes—culminating this week—that should enhance diversity, choice and transparency in investment decisions.
However, at the heart, we got this devil’s clause. The Government have not given development a chance and such a reserve power is a massive intervention. It is a clause that, where there was unity, brings division; where there was trust, brings doubt; where there was confidence, brings concern; and where there was hope, brings despair. No wonder noble Lords oppose it. It ticks every bad box. I urge the Government to think again. They have not given policy and process any due regard and therefore I am sure that many of us will return to this on Report. But, for now, I will withdraw my amendment.
Parental Leave and Pay Review
Baroness Sherlock Excerpts(1 week, 3 days ago)
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The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, the parental leave and pay review launched on 1 July 2025, and we expect it to run for a period of 18 months. The review will conclude in early 2027 with a set of findings in which the Government will outline next steps for taking any reform forward to implementation.
Baroness O'Grady of Upper Holloway (Lab)
My Lords, I thank my noble friend for that Answer, but does she accept that the case for change is urgent? Most forms of parental leave are unpaid or pitifully low paid: £187 a week equates to less than half the national minimum wage, and many mums and dads and partners simply cannot afford to take the pay cut necessary to spend time with their babies and children. The benefits are clear: there is compelling evidence that if, for example, paternity leave were increased to six weeks at 90% of pay, that would improve economic participation and growth and, of course, narrow the gender pay gap. Will my noble friend agree to consider urgently bringing the conclusions of the review forward so that young families can get the start in life they deserve?
Baroness Sherlock (Lab)
My Lords, I pay tribute to the advocacy not only of my noble friend but of her former employer, the TUC. The Government have met with many stakeholders and had many encouragements to act in lots of different directions. My noble friend is absolutely right that the system needs reform. We know that it does not work for everybody at the moment. Having a child is a joyous occasion, but it is a challenge for many parents. We need to get this right. The Government opened a call for evidence, and we had almost 1,500 responses. We need to consider those carefully and find a way forward that provides a proper balance for employers, employees and the Exchequer. We will get this right.
Baroness Penn (Con)
My Lords, the Minister referred to the call for evidence, which closed in August. I appreciate that there were around 1,300 responses, but it has been five months since then, with not a word of an update from the Government. Could we get an update from the Minister now on progress in that last five months and a clear timetable for what the Government will spend the next 12 months doing?
Baroness Sherlock (Lab)
My Lords, we are doing a number of different things. We are engaging in detail with stakeholders. We have already held 12 round tables, and we have engaged with business groups, academics and parent groups, including the CBI, the Federation of Small Businesses, the TUC, The Dad Shift, Mumsnet, and Maternity Action—lots of them. We are working through this with many academics, gathering all the evidence, finding out what we can do and looking at international comparisons. We are simply not doing nothing for the moment. We have already made a significant number of differences. The Government have introduced a range of things, such as neonatal care leave and pay, and we are looking at paternity leave and unpaid parental leave as day one rights, and at new leave for bereaved parents. There are a number of steps happening now, and we will look at whether there are things that can be introduced, and when, but we do have to get this right.
Lord Palmer of Childs Hill (LD)
My Lords, I thank the Minister very much for all the things that are happening, but can she confirm whether this urgent review—the word “urgent” was used—will look specifically at low-paid and self-employed parents, who are often excluded from adequate support? I did not hear the Minister mention them at all.
Baroness Sherlock (Lab)
The noble Lord raises a very important point. I am pleased to say to him that, yes, the review is considering specifically whether the current support available meets the needs of self-employed parents. That is explicitly referred to in the review’s terms of reference. He is right that, currently, self-employed mothers can get maternity allowance but self-employed fathers are not eligible for support. There are some challenges. The bigger challenge is that the scheme goes back to the late 1800s, and a lot of aspects of modern families and the modern workplace are not necessarily reflected in its structure. We are looking at all of that.
Baroness Jones of Whitchurch (Lab)
My noble friend has described all the action being taken already on this issue, which was a very important part of our debate on the Employment Rights Bill. We heard some compelling arguments then about the importance of making progress on this issue. In light of all the meetings my noble friend has described, is she prepared to convene a meeting of Peers on a cross-party basis to update us and make sure that the voices around the Chamber are also heard appropriately?
Baroness Sherlock (Lab)
My Lords, I thank my noble friend for that and pay tribute to all the wonderful work she did on the Employment Rights Bill. The whole country has good reason to be grateful to her. I am sure she still bears the occasional scar, which she may polish occasionally. That is a great idea; we would be happy to have a meeting. I want to manage expectations. We are going to listen to all the evidence and a wide range of voices, but it would be helpful for those voices to come from inside this House as well as outside. I would be very pleased to do that.
Viscount Younger of Leckie (Con)
My Lords, it is anticipated that there will be a chilling factor, with businesses thinking twice about hiring mothers-to-be and fathers-to-be if there are parental rights from day one. Is there not a danger that businesses will find ways of pre-emptively rejecting candidates whom they believe will be in a position to take parental leave immediately or soon after taking up their new roles?
Baroness Sherlock (Lab)
My Lords, leave from day one is about the ability to give notice. For statutory maternity and paternity pay, there is already a significant period of qualification of working for the employer. If the noble Viscount is seriously suggesting that businesses would reject all potential mothers and fathers, that is going to leave them with quite a small pool to choose from when they are selecting. The reality is that many businesses already recognise that there are genuine benefits to be had in enabling people to be productive. If people are worrying about what is happening at home, then they are not able to do that. However, we have to get the balance right, so the review will carefully weigh up the benefits for families against the impact on employers and the Exchequer before Ministers decide on any reforms. On that point he is absolutely right.
Lord Fox (LD)
My Lords, in order for us to plan our workflow over the next couple of years, can the Minister let us know how many other consultations are still under way and how many more reviews will be conducted before the Employment Rights Bill is enacted?
Baroness Sherlock (Lab)
My Lords, the Government will consult with employers and those who are going to be affected to make sure that the implementation of the decisions Parliament has already made is done appropriately. I make no apologies for that, and the House should welcome it.
Baroness Penn (Con)
My Lords, the Minister talked about the evidence needed. When Quebec introduced five weeks of paid paternity leave 20 years ago, not only did it increase the take-up and length of leave taken by dads, but it increased mothers’ labour-market participation by around 7%. Does the Minister accept that, based on the information available to us today and for the last 20 years, six weeks of paid paternity leave is the single biggest policy the Government could implement to close the motherhood pay penalty? There is a good growth case for introducing it and we do not need another 12-month review to reach those conclusions.
Baroness Sherlock (Lab)
Despite discouragement from behind me, I am going to be gentle about this. The noble Baroness makes the important point that there is a lot out there to be learned. We are looking at the international evidence. In Great Britain we tend to be more generous with leave than, for example, other OECD nations, but we do not match up on pay. As part of the review, we have been looking at international comparisons to see what happens, recognising that there are of course differences in labour markets and tax regimes. We must be aware of the impact on our particular context. Certainly, I am hearing a lot of clear voices calling for fathers to have more paternity leave. One of the things we need to be aware of is that when shared parental leave was previously introduced, take-up was very low indeed. We need to make sure the system works well, rather than just diving into making changes.
Lord Watts (Lab)
Does the Minister agree with me that there is no future for Britain unless it gets out this situation of low skills, low pay, poverty wages and poor conditions, with some of the worst employment and pay rates in Europe?
Baroness Sherlock (Lab)
My Lords, I think the noble Lord has been listening to my colleague and noble friend Lady Smith of Malvern. This Government are committed to driving up skills as a way of driving out the growth in unemployment in this country. We must invest in the skills that are out there, making sure our young people get skills, that people have the chance to re-skill, and that we give employers the skills they need. Through our industrial strategy, we are looking at some of the key growth areas, making sure we understand what will drive them, what they need in future staff, and how we invest in them. Better-skilled jobs are good for the economy and good for families. That is the way forward.
Lord Hunt of Wirral (Con)
My Lords, when we dealt with the Employment Rights Bill, just before Royal Assent there was a draft implementation plan, which the noble Lord, Lord Fox, referred to. We were promised that the Government would publish a new, revised implementation plan on or around Royal Assent, but we are still waiting. When is it going to come?
Baroness Sherlock (Lab)
My Lords, I have no idea. I will find out what is happening and, if there is anything out there, I am happy to write to the noble Lord with it. However, I tell him this: we had lots of long battles in this House over the Employment Rights Bill but it is now an Act, and it is surely now time for all of us to make sure that we engage well, listen to employers and take the time to get this right for the benefit of staff and employers everywhere, and of the country.
Pension Schemes Bill
Baroness Sherlock ExcerptsMonday 19th January 2026
(1 week, 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-III(b) Amendments for Grand Committee (Supplementary to the Third Marshalled List) - (19 Jan 2026)
Baroness Stedman-Scott (Con)
My Lords, when I entered the department in July 2019, defined benefit pension schemes did, on occasion, report surpluses. However, those surpluses were neither of the scale nor the character that we are now observing. If one looks back over the past quarter of a century and beyond, it is evident that both the funding position of defined benefit schemes and the methodologies used to assess that funding have changed materially.
The surpluses reported today are not simply large in absolute terms but different in nature. They are measured against significantly more prudent assumptions, particularly in relation to discount rates, longevity and asset valuation, than would have been applied historically. It is therefore right that these emerging surpluses are examined with care and transparency. Bringing them into the open is necessary, and I say at the outset that the Government are right to have raised this issue explicitly in the Bill.
That said, we consider that the Bill does not yet fully reflect a number of the practical and operational issues faced by both trustees and sponsoring employers when seeking to make effective use of those provisions. In that respect, our position is not materially distant from that of the Government. Our concerns are not ones of principle but of application and implementation. We recognise that issues relating to potential deadlock between trustees and sponsors are important, but we are content for those matters to be considered at a later stage in the Committee’s proceedings. Our immediate focus is on understanding how the proposals are intended to operate in practice, how decisions are expected to be taken within existing scheme governance arrangements and how these new powers interact with established trustee fiduciary duties and employer covenant considerations.
This is a busy group, and noble Lords have done a sterling job in setting out their reasoning and rationale. I shall, therefore, not detain the Committee further by relitigating those points but will speak to my Amendment 25 in this group. Like a number of our amendments in this part of the Bill, it is a probing amendment intended to seek clarity. Clause 9 inserts new Section 36B into the Pensions Act 1995. The new section gives trustees of defined benefit trustee schemes the ability by resolution to modify the schemes’ rules so as to confirm a power to pay surplus to the employer or to remove or relax existing restrictions on the exercise of such a power.
The clause contains one explicit limitation on that power. New Section 36B(4) provides that the section does not apply to a scheme that is being wound up. In other words, wind-up is the only circumstance singled out in the Bill in which the new surplus release modification power cannot be used. Amendment 25 would remove that specific exclusion, and I want to be clear that the purpose of doing so is not to argue that surplus should be released during winding-up; rather, it is to test the Government’s reasoning in identifying wind-up as the sole circumstance meriting an explicit prohibition in primary legislation.
By proposing to remove subsection (4), the amendment invites the Minister to explain whether the Government consider wind-up to be genuinely the only situation in which surplus release would be inappropriate or whether there are other circumstances where the use of this power would also be unsuitable. If those other safeguards are already captured elsewhere, it would be helpful for the Committee to have that clearly set out on the record. Equally, if wind-up is used here as a proxy for a broader set of concerns, the Committee would benefit from understanding why those concerns are not addressed more directly.
Surplus release is a sensitive issue. The way in which the boundaries of this new power are framed therefore matters. Where the Bill chooses to draw a line in the legislation, it invites scrutiny as to why that line has been drawn there and only there. This amendment is intended to facilitate that discussion and to elicit reassurance from the Minister about how the Government envisage this power operating in practice and what protections they consider necessary beyond the single case of wind-up. On that basis, I look forward to the Minister’s response and any clarification she can provide to the Committee.
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, I am grateful to my noble friend Lord Davies of Brixton and the noble Baroness, Lady Stedman-Scott, for explaining their amendments, and to all noble Lords, who have spoken so concisely—we positively cantered through that group; may that continue throughout the day.
It is worth saying a word about the Government’s policy intent, but let me start by saying that the DB landscape has changed dramatically, a point made by the noble Baroness, Lady Stedman-Scott. Schemes are currently enjoying high levels of funding. Three in four schemes are running a surplus and there is around £160 billion of surplus funds in the DB universe. Schemes are also now more mature. The vast majority minimise the risk of future volatility with investment strategies that protect against interest rate and inflation movements. In addition, the DB funding code and the underpinning legislation require trustees to aim to maintain a strong funding position so that they can pay members’ future pensions. In response to the noble Lord, Lord Palmer, that is the primary purpose of DB funding schemes: above all, they must be able to pay members’ pensions. That is what is set out quite clearly in the DB funding code and the underpinning legislation. That is overseen by the Pensions Regulator.
Lord Kirkhope of Harrogate (Con)
I am sorry to interrupt the Minister. I raised the question of safeguards. There is a lot of evidence in the industry that there is a lot of pressure. The Minister talks about the driving seat, but the actual installation of the driver into the car is at the behest of employers. It seems to me that there is likely to be some pressure here, perhaps more pressure than before. I just want to be sure that the safeguards are in place—we are perhaps going to be discussing these later—including safeguards for the trustees, who have the basic obligation of doing the best for the beneficiaries of the scheme. To what extent are they going to be protected in circumstances like that?
Baroness Sherlock (Lab)
I am coming on to that, but I am grateful to the noble Lord for pressing me on it. All trustees are bound by duties which will continue to apply when making decisions on sharing surplus. They have to comply with the rules of the scheme and with legal requirements, including a duty to act in the interests of beneficiaries. If trustees breach those requirements, the Pensions Regulator has powers to target individuals who intentionally or knowingly mishandle pension schemes or put workers’ pensions at risk. As the noble Lord knows, that includes powers to issue civil penalties under Section 10 of the Pensions Act 1995 or in some circumstances to prohibit a person from being a trustee.
The key is that the Pensions Regulator will in addition issue guidance on surplus sharing, which will describe how trustees may approach surplus release, and that can be readily updated. That guidance will be developed in consultation with industry, but it will follow the publication of regulations on surplus release and set out matters for trustees to consider around surplus sharing, as well as ways in which members can benefit, including benefit enhancement. That guidance will also be helpful for employers to understand the matters trustees have to take into account in the regulator’s view. I hope that that helps to reassure the noble Lord.
We will come on to some of the detail in later groups around aspects of the way this regulation works, but I hope that, on the first group, that has reassured noble Lords and they feel able not to press their amendments.
Lord Davies of Brixton (Lab)
I thank my noble friend the Minister for her reply and other speakers who have contributed to this debate, which I think was worth having. I am pleased that I raised the issue on terminology. I recognise that it is a lost cause, but I have never been afraid, like St Jude, to support lost causes. It is an important point that we need to understand the vagueness of the concept of surpluses and that it is actual assets that disappear from the fund.
On the substantive point, I am afraid that I did not find my noble friend’s response satisfactory. As she said—I made a note of it—trustees remain the heart of decision-making. That exactly is the point. I am afraid that I do not share the Panglossian view of trustees. Many of them—large numbers of them—do a difficult job well, but it is not true of them all.
It is enough of a problem, as I can attest from my own experience of many years in the pensions industry, that we cannot rely on trustees to deliver in all cases. The balance of power between members and trustees is totally unequal. Members, effectively, are not in a position to question trustees’ discretion and responsibilities, and they cannot take it to the ombudsman, because it falls outside the remit.
When my noble friend says that the Government have been clear, that was exactly my point: they have not been sufficiently clear and have frequently given the members a reasonable expectation that they will share in the release of assets. With those words, I beg leave to withdraw my amendment.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords— that was a very interesting debate. I will come to some of the detail in a moment. I am grateful to the noble Baroness, Lady Altmann, the noble Lord, Lord Palmer of Childs Hill, and the noble Viscount, Lord Thurso, for explaining their amendments.
We do not have a smorgasbord here, as I think the noble Lord, Lord Palmer, observed. Essentially, Amendments 26, 32, 38 and 39 would, in different ways, allow regulations to require member benefit enhancements prior to surplus release, require regulations to do so, and require trustees to consider indexation and the value of members’ pensions before making a surplus payment.
I say at the outset that I understand the concerns of scheme members whose pensions have not kept pace with inflation. They may have made contributions for many years and are understandably upset at seeing inflation erode the value of their retirement income. But I am afraid that I am not able to accept these amendments, for reasons I will explain.
I will give a bit of context first, because it is worth noting that over 80% of members of private sector DB schemes currently get some form of pre-1997 indexation on their benefits. However, as I explained in the previous group, we think the way forward is that our reforms will give trustees greater flexibility to release surplus from well-funded DB schemes and will encourage discussion between employers and trustees on how those funds can be used to benefit members.
In response to the final question from the noble Viscount, Lord Younger, about deadlock-breaking, we do not think it is necessary because, in a sense, it is not a balanced position between employers and trustees. Trustees are in control. Employers cannot access surplus directly. Trustees are the ones who make a decision. If the trustees do not agree to release the surplus, the surplus is not being released. In a sense, it is quite intentional for the power to sit with the trustees, and that is the appropriate way to manage that issue. We think that that way of putting trustees in the driving seat is a better approach than legislating for how surplus should be used. I found that discussion of history, from the noble Baroness, Lady Noakes, the noble Lords, Lord Willetts and Lord Fuller, and others, very helpful.
The DB landscape is a complex situation. It has a varied history and there are variations within it: within schemes, over time, between schemes, across time and across the landscape. Benefit structures have varied, in many cases over the course of a scheme’s history. Although some schemes may not provide pre-1997 indexation, they may have been more generous; they may have been non-contributory or may have provided a higher accrual rate at different points in time. All schemes are different. That is why we do not think it is possible to provide an overall requirement on schemes for indexation. We think it is better that trustees, with their deep understanding of the knowledge of individual schemes, their characteristics and history, remain at the heart of decision-making in accordance with their fiduciary duties. In addition, of course, as I keep saying, they must act in the interests of scheme beneficiaries.
Viscount Thurso (LD)
I am grateful to the noble Baroness for her explanation. However, does she agree that a case where the employer has the right to prevent the trustees making a payment—with some surpluses, the trustees may wish to make a payment but the employer can stop it if it is not going to them—is a special case, which needs to be looked at slightly differently?
Baroness Sherlock (Lab)
I will need to come back to the noble Viscount on that specific point. Obviously, at the moment, a minority of trustees have the power in the scheme rules to release surplus; our changes will broaden that out considerably. If there is a particular subcategory, I will need to come back to the noble Viscount on that. I apologise that I cannot do that now—unless inspiration should hit me in the next few minutes while I am speaking, in which case I will return to the subject when illumination has appeared from somewhere.
It is worth saying a word on trustees because we will keep coming back to this. It was a challenge in the previous group from my noble friend Lord Davies. The starting point is that most trustees are knowledgeable, well equipped and committed to their roles. But there is always room to better support trustees and their capability, especially in a landscape of fewer, larger consolidated pension funds. That is why the Government, on 15 December, issued a consultation on trustees and governance, which, specifically, is asking for feedback on a range of areas to build the evidence base. It wants to look at, for example, how we can get higher technical knowledge and understanding requirements for all trustees; the growth and the use of sole trustees; improving the diversity of trustee boards; how we get members’ voices heard in a world of fewer, bigger schemes; managing conflicts of—
Lord Davies of Brixton (Lab)
Sorry. Corporate trustees are a specific issue. Does the consultation include the particular responsibility of single corporate trustees?
Baroness Sherlock (Lab)
Absolutely. There may be—I am not saying that there are—risks that need to be explored around the use of sole corporate trustees. The consultation will look at that, and at generally improving the quality and standards of administration to improve service quality and so on. That runs until 6 March. My noble friend may wish to contribute to it; I commend it to him.
On safeguards, trustees will need to notify the regulator when they exercise the power to pay surplus. As part of that notification, we anticipate the provision to be made in regulations for trustees to explain how, if at all, members have benefited because that will help the regulator monitor how the new powers are being used.
In response to the noble Viscount, Lord Thurso, the Pensions Regulator has already set out that trustees should consider the situation of those members who would benefit from a discretionary increase and whether the scheme has a history of making such increases. Following this legislation—and as I may have said in the previous group—TPR will publish further guidance for trustees and advisers, noting factors to consider when releasing surplus and ways in which trustees can ensure members and employers can benefit.
On that broader point, we feel that it must be a negotiation, because increasing indexation would increase employer liabilities, so it is right that it ends up being a negotiation. All the safeguards are already there. My noble friend Lord Davies asked what advice trustees should take. We expect trustees to take appropriate professional advice when evaluating a potential surplus release and making a payment. As well as actuarial advice, this should also include legal advice and covenant advice to enable trustees to discharge their duties properly. Let us not forget that a strong covenant is the best guarantee a scheme has; not undermining the covenant, or the employer that stands behind it, is crucial to this.
Amendment 44 would require the Secretary of State to publish a report on whether trustees’ duties should be changed to enable trustees to pay discretionary increases on pre-1997 accrued rights. It is not clear to us why this would be needed as the scope of trustee fiduciary duties do not prevent trustees paying discretionary increases, where scheme rules allow them to do so. We expect trustees to consult their professional advisers, including lawyers, on their duties if they are not sure.
Amendment 41 from the noble Lord, Lord Palmer, highlights the importance of ensuring that members have access to good quality pensions advice. Although we understand the intention, we remain clear that we will not be mandating the use of surplus released from schemes. My noble friend Lord Davies made the good point that, in some ways, the greatest need for support is on the DC side rather than the DB side. DB scheme members expect to receive a lifelong retirement income, which trustees must regularly and clearly communicate to members. This is typically based on salary and length of service, offering strong financial security. For DB, the benefits they will receive on retirement are generally known.
The Government recognise the importance of robust guidance, however, and we already ensure that everyone has access to free, impartial pensions guidance through the Money and Pensions Service, helping people to make informed financial decisions at the right time. The MoneyHelper service offers broad and flexible pensions guidance that supports people throughout their financial journey.
A couple of other questions were asked, including what employers will use the surplus for. The Pensions Regulator published a survey last year, Defined benefit trust-based pension schemes research. In a sample of interviews, it found around 8% of schemes with a funding surplus reported having released a surplus in the last year. That equates to nine schemes. Of those nine, seven schemes used the surplus to enhance member benefits. One used it to provide a contribution holiday for future DB accrual and one to make a payment to a DC section established in the same trust. None of the nine schemes stated that the surplus was released to the employer.
In answer to the noble Lord, Lord Willetts, and my noble friend Lord Davies, it was always the case that it depends on the scheme rules. I want to make sure I get this right. I had a note somewhere about it, but I am having to wing it now so I will inevitably end up writing and correcting it. If there is a DB and a DC section in the same trust, it could be possible, depending on the scheme rules, for trustees to make a decision to release funds from one to the other. But trustees may not be able to agree to that; it would obviously depend on the circumstances. However, as I understand it, there is nothing to stop an employer releasing funds—surplus released from a DB scheme back to an employer. The employer could then choose to put that money in, for example, a DC scheme. I understand the tax treatment would be such that the tax payable on one can be offset as a business expense on the other, making it a tax neutral proposal. In any case, as noble Lords may have noted, the tax treatment of surplus rate has dropped from 35% to 25%. A decision has been made to make that drop down. If by winging it I have got that wrong, I will clarify that when I write the inevitable letter of correction.
My noble friend Lord Davies asked about tax treatment. I will read this out, as it is from the Treasury, and I will be killed if I get it wrong. Amendments to tax law are required to ensure these payments—one-off payments—qualify as authorised member payments and are taxed as intended. The necessary changes to tax legislation will have effect from 6 April 2027. Changes to tax legislation are implemented through finance Bills and statutory instruments made under finance Acts. There will be consequential changes to pensions legislation where necessary, which will be dealt with through regulations. I hope that satisfies my noble friend. If it does not, I will write to him at a later point.
I hope I have covered all the questions. I am really grateful for that contribution; it is one of the ways in which this Committee illuminates these matters. But I hope, having heard that, the noble Baroness feels able to withdraw her amendment.
Baroness Altmann (Non-Afl)
I thank the Minister for her explanation. Although it is rather disappointing, I understand where she is coming from. I also thank all noble Lords who have participated in this group. There is a general feeling across the party divides—but obviously not unanimity—that lack of inflation protection is an issue. How or whether it is dealt with is the big question. I hope that maybe we can all meet and discuss this and how it could best be brought back on Report, if it is going to be brought back. With that, I beg leave to withdraw the amendment.
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.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords who have spoken on these amendments to Clause 10. Having previously set out the Government’s policy intent and the context in which these reforms are being brought forward, I start with the clause stand part notice tabled by the noble Viscount, Lord Younger. As he has made clear, it seeks to remove Clause 10 from the Bill as a means of probing the rationale for setting out the conditions attached to surplus release in regulations rather than in the Bill. It is a helpful opportunity to explain the scope and conditions of the powers and why Clause 10 is structured as it is.
The powers in the Bill provide a framework that we think strikes the right balance between scrutiny and practicality, enabling Parliament to oversee policy development while allowing essential regulations to be made in a timely and appropriate way. It clearly sets out the policy decisions and parameters within which the delegated powers must operate. As the noble Viscount has acknowledged, pensions legislation is inherently technical, and much of the practical delivery sits outside government, with schemes, trustees, providers and regulators applying the rules in the real-world conditions. In pensions legislation, it has long been regarded as good lawmaking practice to set clear policy directions and statutory boundaries in primary legislation, while leaving detailed operational rules to regulations, particularly those that can be updated as markets and economic conditions change and scheme structures evolve, so that the system continues to work effectively over time.
In particular, Clause 10 broadly retains the approach taken by the Pensions Act 1995, which sets out overarching conditions for surplus payments in primary legislation while leaving detailed requirements to regulations. New subsection (2B) sets out the requirements that serve to protect members that must be set out in regulations before trustees can pay a surplus to the employer—namely, before a trustee can agree to release surplus, they will be required to receive actuarial certification that the scheme meets a prudent funding threshold, and members must be notified before surplus is released. The funding threshold will be set out in regulations, which we will consult on. We have set out our intention and we have said that we are minded that surplus release will be permitted only where a scheme is fully funded at low dependency. That is a robust and prudent threshold which aligns with the existing rules for scheme funding and aims to ensure that, by the time the scheme is in significant maturity, it is largely independent of the employer.
New subsection (2C) then provides the ability to introduce additional regulations aimed at further enhancing member protection when considered appropriate. Specifically, new subsection (2C)(a) allows flexibility for regulations to be made to introduce further conditions that must be met before making surplus payments. That is intended, for example, if new circumstances arise from unforeseen market conditions. Crucially, as I have said, the Bill ensures that member protection is at the heart of our reforms. Decisions to release surplus remain subject to trustee discretion, taking into account the specific circumstances of the scheme and its employer. Superfunds will be subject to their own regime for profit extraction.
Amendment 37, tabled by the noble Viscount, Lord Thurso, seeks to retain a statutory requirement that any surplus release be in the interests of members. I am glad to have the opportunity to explain our proposed change in this respect. We have heard from a cross-section of industry, including trustees and advisers, that the current legislation, at Section 37(3)(d) of the Pensions Act 1995, requiring that the release of surplus be in the interests of members, is perceived by trustees as a barrier because they are not certain how that test is reconciled with their existing fiduciary duties. We believe that retaining the status quo in the new environment could hamper trustee decision-making. By amending this section, we want to put it beyond doubt for trustees that they are not subject to any additional tests beyond their existing clear duties of acting in the interests of scheme beneficiaries.
I turn to Amendments 31 and 43, which seek to clarify why the power to make regulations governing the release of surplus is affirmative only on first use. As the Committee may know, currently, only the negative procedure applies to the making of surplus regulations. However, in this Bill, the power to make the initial surplus release regulations is affirmative, giving Parliament the opportunity to review and scrutinise the draft regulations before they are made. We believe that this strikes the appropriate balance. The new regime set out in Clause 10 contains new provisions for the core safeguards of the existing statutory regime; these are aligned with the existing legislation while providing greater flexibility to amend the regime in response to changing market, and other, conditions.
Amendments 35 and 36 seek both to prescribe the ways in which members are notified around surplus release and to require that trade unions representing members also be notified. I regret to say that I am about to disappoint my noble friend Lord Davies again, for which I apologise. The Government have been clear: we will maintain a requirement for trustees to notify members of surplus release as a condition of any payment to the employer. We are confident that the current requirement for three months’ notification to members of the intent to release surplus works well.
However, there are different ways in which surplus will be released to employers and members. Stakeholder feedback indicates that some sponsoring employers would be interested in receiving scheme surplus as a one-off lump sum, but others might be interested in receiving surplus in instalments—once a year for 10 years, say. We want to make sure that the requirements in legislation around the notification of members before surplus release work for all types of surplus release. We would want to consider the relative merits of trustees notifying their members of each payment from the scheme, for example, versus trustees notifying their members of a planned schedule of payments from the scheme over several years. Placing the conditions around notification in regulations will provide an opportunity for the Government to consult and take industry feedback into account, to ensure the right balance between protection for members and flexibility for employers.
I understand the reason behind my noble friend Lord Davies’s amendment, which would require representative trade unions to be notified. They can play an important role in helping members to understand pension changes. However, we are not persuaded of the benefit of an additional requirement on schemes. Members—and, indeed, employers—may well engage with trade unions in relation to surplus payments; we just do not feel that a legislative requirement to do so is warranted. The points about the role of trustees, in relation to acting in the interests of members in these decisions, were well made.
Amendment 34 would require member consultation before surplus is released. I understand the desire of the noble Viscount, Lord Thurso, to ensure that members are protected. The Government’s view is that members absolutely need to be notified in advance, but the key to member protection lies in the duty on scheme trustees to act in their interests. Since trustees must take those interests into account when considering surplus release, we do not think that a legislative requirement to consult is proportionate.
Lord Davies of Brixton (Lab)
Just to be absolutely clear, the three-month notification period relates to the notice of implementation; it is not three months’ notice of the decision being made.
Baroness Sherlock (Lab)
I believe so; if that is not correct, I shall write to my noble friend to correct it. Coming back to his point, the underlying fact is that we believe that the way to protect the interests of members is via the trustees and the statutory protections around trustee decision-making.
I apologise to the noble Viscount, Lord Thurso, as I misunderstood his question in our debate on the previous group. I am really grateful to him for clarifying it; clearly, he could tell that I had misunderstood it. At the moment, when a scheme provides discretionary benefits, the scheme rules will stipulate who makes those decisions. In many cases, that involves both the trustees and the sponsoring employer, as may be the case in what the noble Viscount described.
When considering those discretionary increases, trustees and sponsoring employers have to carefully assess the effect of inflation on members’ benefits. But, as the noble Viscount describes, if it is not agreed, the employer may effectively in some circumstances veto that. We think the big game-changer here is that these changes will give trustees an extra card, because they will then be in a position to be able to put on the table the possibility for surplus being released not to the member via a discretionary increase but to the employer. However, they are the ones who get to decide if that happens, and therefore they are in a position where they suddenly have a card to play. I cannot believe I am following the noble Viscount, Lord Thurso, in using the casino as a metaphor for pensions, which I was determined not to do; I am not sure that that takes us to a good place. But it gives them an extra tool in their toolbox to be able to negotiate with employers, because they are the ones who hold the veto on surplus release. If they do not agree to it, it ain’t going anywhere. So that is what helps in those circumstances.
Viscount Younger of Leckie (Con)
My Lords, we understand that these amendments are doing something that is really quite straightforward and, in our view, sensible. The amendments in the name of the noble Baroness, Lady Altmann, would ensure that, before any surplus is extracted, the relevant actuary has confirmed that the work required under the Financial Reporting Council’s technical actuarial standards of risk transfer has been completed. In other words, they would ensure that trustees and sponsors have properly considered the scheme’s credible endgame options, whether that is bulk transfer, run-on or another long-term strategy, rather than looking at surplus in isolation.
I was pleased to listen to this interesting debate, commenced by the noble Baroness, Lady Altmann, with her strong reference to the TAS 300 exercise and the link to insurance. She mentioned the reinsurance market and the subsequent debate, as well as the amount of money potentially in play—£200 million, I think. Surplus extraction ought to sit within a wider assessment of the scheme’s long-term direction, the securities of members’ benefits and the financial implications for both the scheme and the sponsor. Requiring confirmation that this work has been done would help anchor surplus decisions in that broader context.
This has been a very brief speech from me. We see these amendments as a proportionate safeguard, reinforcing good governance and ensuring that surplus payments are considered alongside—not divorced from—the scheme’s long-term endgame strategy. I look forward to the response from the Minister.
Baroness Sherlock (Lab)
My Lords, I am grateful to the noble Baroness, Lady Altmann, for setting out her amendments. I am also grateful to all noble Lords who have spoken. I must admit that I have learned more about actuaries in the past week than I ever knew hitherto, but it is a blessing.
Three different issues have come up. I would like to try to go through them before I come back to what I have to say on this group. In essence, the noble Baroness, Lady Altmann, has us looking at, first, actuaries: what is their role, what are the standards and how do they do the job? Secondly, what are the right endgame choices—that is, what is out there at the moment? Finally, what should be in the surplus extraction regime? We have ended up with all three issues, although the amendments only really deal with the last of those; they deal with the others by implication. Let me say a few words on each of them, then say why I do not think that they are the right way forward.
We have just finished hearing from the noble Lord, Lord Fuller. Obviously, we are talking about the position now. DB schemes are maturing and, as such, are now prioritising payments to members. Given this context, they are naturally more risk-averse, as they are now seeking funding to match their liabilities. Since the increases in interest rates over the past five years, scheme funding positions have—the noble Lord knows this all too well—improved significantly in line with their corresponding reductions and liabilities.
However, when setting an investment strategy, trustees must consider among other things the suitability of different asset classes to meet future liabilities, the risks involved in different types of investment and the possible returns that may be achieved. The 2024 funding code is scheme-specific and flexible. Even at significant maturity, schemes can still invest in a significant proportion of return-seeking assets, provided that the risk can be supported.
On actuaries, actuarial work is clearly an important part of the process. It helps set out the picture, as well as highlighting the risks, the assumptions and the available options, but it does not determine the outcome. My noble friend Lord Davies is absolutely right on this point. Decisions on how a scheme uses the funds are, and will remain, matters of trustee judgment. The role of the actuary is to support the judgment, not replace it. Trustees are the decision-makers, and they remain accountable for the choices that they make on behalf of their members.
Of course, in providing any certification, actuaries will continue to comply with the TAS standards set by the Financial Reporting Council. I am not going to get into the weeds of exactly how the standards work but, on the broader points made by the noble Baroness, Lady Altmann, we agree that the requirements and the regulations must work together. As my noble friend said, after the funding regime code was laid, the FRC consulted on revisions to TAS 300 covering developments; it has now published the revised TAS. These are complex decisions. Regulators need to work together. We will come back to this issue later on in the Bill, following an amendment from the noble Baroness, Lady Coffey.
In terms of the endgame choices, the independent Pensions Regulator has responsibility for making sure that employers and those running pension schemes comply with their legal duties. Obviously, the Government are aware of the recent transaction that resulted in Aberdeen Asset Management taking over responsibility for the Stagecoach scheme; we are monitoring market developments closely. Although we support innovation, we also need to ensure that members are protected. Following the introduction of TPR’s interim superfund regime and the measures in this Pension Schemes Bill, we understand that new and innovative endgame solutions are looking to enter the DB market and offer employers new ways to manage their DB liabilities. I assure the noble Baroness that we continue to keep the regulatory framework under review to ensure that member benefits are appropriately safeguarded.
Then, the question is: what is the right thing to be in the surplus extraction regime? I know that the noble Baroness, Lady Altmann, is concerned that, following these additional flexibilities to trustees around surplus release, trustees continue to consider surplus release in the context of the wider suite of options available to their scheme, including buyout, transfer to a superfund or other options beyond those. Following these changes, trustees will remain subject to their duty to act in the interests of beneficiaries. As such, we are confident that trustees will continue both to think carefully about the most appropriate endgame solution for their scheme and to act accordingly. For many, that will be buyout or transferring to a superfund, rather than running on.
Let me turn to what would happen with these amendments specifically. Amendment 33 would link the operation of the surplus framework to existing standards on risk transfer conditions in TAS. In essence, it seeks to ensure the scheme trustees have considered a potential buyout or other risk transfer solution before surplus can be released. Amendment 33A has a similar purpose; again, it aims for trustees, before they can release surplus, receiving a report from the scheme actuary assessing endgame options and confirming compliance with TAS.
Although I appreciate the noble Baroness’s intention to ensure that trustees select the right endgame for their scheme, these amendments are not needed because trustees are already required, under the funding and investment regulations, to set a long-term strategy for their scheme and review it at least every three years; that strategy might include a risk transfer arrangement. Furthermore, although I know the noble Baroness has tried to minimise this, hardwiring any current provisional standards into the statutory framework could have unintended consequences, including reducing flexibility for trustees and requiring further legislative or regulatory changes to maintain alignment as these standards evolve over time.
We are back to the fact that, in the end, trustees remain in the driving seat with regard to surplus release. As a matter of course, TPR would expect trustees to take professional advice from their actuarial and legal advisers; to assess the sponsor covenant impact when considering surplus release; and to take into account relevant factors and disregard irrelevant factors, in line with their duties. We are working with the Pensions Regulator regarding how schemes are supported in the consideration of surplus-sharing decisions. The new guidance already considers schemes as part of good governance to develop a policy on surplus. TPR will issue further guidance on surplus sharing following the coming into force of the regulations flowing from the Bill, which will describe how trustees may approach surplus release and can be readily updated as required. Alongside the Pensions Regulator, we will work with the FRC to ensure that TAS stays aligned.
I am grateful for the noble Baroness’s contribution and the wider debate, but I hope that she will feel able to withdraw her amendment.
Baroness Altmann (Non-Afl)
I thank the Minister and everybody else who has spoken. I have enormous respect for the noble Lord, Lord Davies, and take what he says seriously. I am most grateful for the support of the noble Lord, Lord Fuller.
I make no apology for the technical nature of these amendments, but I apologise that they had to be shoehorned in; this is such an important issue, though. This environment of higher inflation risk, excessive prudence and hoarding of surpluses is damaging pension adequacy. The de-risking overshoot has sucked innovation, energy and impetus out of the pension system and the economy. Indeed, the chair of the trustees of Stagecoach described to me that he faced what he termed co-ordinated and insidious behind-the-scenes lobbying against the trustees’ aim to try to obtain better pensions for their members; he also said that the lobbying was in favour of annuitisation as the best option for the scheme.
There is no lobbying for either improving member benefits or giving a lot more money back to employers at the moment. If we were able to get an amendment such as this one into the Bill, so that everybody must consider the range of available options plus innovative strategies, I would hope that the outcome of the Bill would be much better, more productive use—which is the aim of the Government: the Minister, Torsten Bell, has rightly talked about using surpluses in a productive manner.
The FSCS backs annuities. It has no government guarantee. I hope that, on Report, we may come back to the spurious safety of the current recommended future for this enormous amount of assets and find ways in which the Bill might be able to accommodate the need for a mindset change in this connection. For the moment, I beg leave to withdraw the amendment.
Baroness Stedman-Scott (Con)
My Lords, we are broadly supportive of the purpose behind this amendment. It raises an important set of questions about whether members of defined benefit schemes have been given clear, timely and accessible information about state deduction or clawback provisions, and whether the rationale for those provisions has been properly explained to them over time.
Of course, individuals must take responsibility for managing their own finances and retirement planning. But that responsibility can only be exercised meaningfully if people are properly informed in advance about what will happen to their pension, when it will happen and why. When changes or reductions are triggered at state pension age, members need adequate notice so that they can make sensible and informed financial decisions. In that context, a review of the adequacy of member communications, the transparency of the original rationale and the accessibility of this information is welcome. While we may not necessarily agree with some of the more precise parameters and timetables set out in the amendment, as a way of posing the question and prompting scrutiny, it is a reasonable approach.
That said, we have spoken to someone who has intimate, working knowledge of the Midland Bank pension scheme and has experience of the workings of the scheme. They confirmed to us that they were fully aware of this provision, because it was in all the literature they were sent when they were enrolled. Given this, can the noble Lord give some more insight into why he thinks some members of this scheme were aware, and others not, and how could this be addressed?
I would be interested to hear from the Minister whether she has any initial views on the issues this amendment raises. In particular, how accessible is this information to members in practice today, and what steps, if any, would the Government or Department for Work and Pensions take if it became clear that these arrangements are not well understood?
Baroness Sherlock (Lab)
My Lords, I am grateful to the noble Lord, Lord Palmer, for introducing his amendment and drawing attention to this issue, which is of real importance to some members in integrated schemes. After a lifetime of work, people rightly expect their pension to provide security and stability in retirement. For many, their occupational pension forms a key part of that.
Integrated schemes can feel confusing or unexpected to those affected, particularly when their occupational pension changes at the point when their state pension is paid. These schemes are designed so that the occupational pension is higher before state pension age and then adjusted downwards once the state pension is paid, because the schemes take account of some or all of a state pension when calculating the pension due. However, if it is not clearly explained, the change could come as a surprise. I acknowledge that and the worries some members have expressed. It is important to be clear that members are not losing money at state pension age. The structure of these schemes aims to provide a smoother level of income across retirement by blending occupational and state pension over time.
Concerns have been raised that deductions applied within integrated schemes may represent a higher proportion of income for lower-paid members, many of whom are women. This reflects wider patterns of lower earnings during their working lives, rather than any discriminatory mechanism within the schemes themselves, but I appreciate why this feels unfair to those affected. The rules governing these deductions are set out in scheme rules. Employers and trustees can decide on their scheme’s benefit structure within the legislative framework that all pension schemes must meet. The Government do not intervene in individual benefit structures but do set and enforce the minimum standards that all schemes must comply with.
Although this type of scheme is permitted under legislation, it is essential that members understand how their scheme operates. Therefore, it is extremely important that people have good, clear information about their occupational pension scheme so that they can make informed decisions about their retirement. What matters just as much as the rules is that people understand them. Good, clear information is essential so that members are not taken by surprise when they reach state pension age.
If a member believes that the information they received was unclear or incomplete, they are not without redress. They can make a complaint through their scheme’s internal dispute process or, if needed, escalate their case to the Pensions Ombudsman for an independent determination.
The Government absolutely share the desire for people to have confidence in the pensions they rely on, but, given the protections already in place and the long-established nature of schemes, we do not believe that a review is necessary. For those reasons, I ask the noble Lord to withdraw his amendment.
Lord Palmer of Childs Hill (LD)
I thank the noble Baroness and withdraw the amendment.
Baroness Stedman-Scott (Con)
My Lords, I am grateful to the noble Lord, Lord Sikka, for tabling this amendment, which is clearly motivated by a desire to protect scheme members and guard against the risk that pension surpluses are extracted prematurely, only for employers to fail some years later. I suspect that there is broad sympathy with this objective across the Committee. However, I have a number of questions about how this proposal would operate in practice and whether it strikes the right balance between member protection, regulatory oversight and the wider framework of insolvency law. My noble friend Lady Noakes, the noble Lord, Lord Palmer of Childs Hill, and the noble Baroness, Lady Altmann, have all raised points connected to this amendment. I hope I am not duplicating their questions, but I will ask mine.
First, can the noble Lord say more about how this amendment would interact with the existing hierarchy of creditors under the Insolvency Act 1986? As drafted, it appears to require pension schemes to be paid ahead of all other creditors, including secured creditors and those with statutory preferential status? Does the noble Lord envisage this as a complete reordering of creditor priorities in these cases? If so, what thought has he given to the potential consequences for lending decisions, access to capital or the cost of borrowing for employers that sponsor defined benefit schemes?
Secondly, I would be grateful for further clarity on the choice of a 10-year clawback period, which other noble Lords have raised. As has been said, 10 years is a very long time in corporate and economic terms, and insolvency occurring at that point may bear little or no causal connection to a surplus payment made many years earlier, perhaps in very different market conditions. What is the rationale for that specific timeframe, and how does the noble Lord respond to concerns that this could introduce long-tail uncertainty for employers and their directors when making decisions in good faith?
Thirdly, how does the amendment sit alongside the existing powers of the Pensions Regulator? At present, trustees must be satisfied that member benefits are secure before any surplus is paid, and the regulator already has moral hazard powers to intervene where it believes scheme funding or employer behaviour to be inappropriate. Does the noble Lord consider those tools insufficient and, if so, can he point to evidence of systemic failure that would justify addressing this issue through restructuring insolvency priorities rather than through pension regulations?
I am also interested in the practical operation of this provision. Proposed new subsection (2) would allow amendments to both the Insolvency Act 1986 and the Enterprise Act 2002 to achieve the intended outcome. That is a very broad power, even acknowledging the use of the affirmative procedure. Has any thought been given to how this would operate in complex insolvencies; for example, where surplus has been paid to a parent company, where assets are held across a corporate group or where insolvency proceedings involve cross-border elements?
Finally, although I understand the protective instinct behind this amendment, I wonder whether there is a risk of unintended consequences. Might the creation of a potential super-priority for pension schemes discourage legitimate surplus extraction, even where schemes are demonstrably well funded, trustees are content and regulatory requirements have been met? If that were to occur, could it inadvertently weaken employer covenant strength over time rather than strengthen it?
None of these questions is intended to diminish the importance of member protection or suggest that concerns about surplus extraction are misplaced. Rather, they are offered in the spirit of probing whether this amendment is the most proportionate and effective way of addressing those concerns, or whether there may be alternative approaches, perhaps within the existing regulatory framework, that could achieve similar objectives with fewer systemic risks. I look forward to hearing the noble Lord’s response and the Minister’s comments.
Baroness Sherlock (Lab)
My Lords, I thank my noble friend Lord Sikka for introducing Amendment 45A. For clarity, I will speak to the amendment as if intended to address the power to pay surplus under Section 37, as Section 36B contains the modification power.
I fully recognise the concern that members’ benefits must remain protected when surplus is paid and that trustees take a long-term view of scheme funding and employer covenant. This is why there are strong safeguards, which I have described, as set out in Clause 10. Before the release of any surplus, trustees will need to make sure that the scheme is prudently funded and seek advice and sign-off from the scheme actuary, and other advisors, about the viability of any release and the impact that may have on the long-term health of the scheme.
While trustees perform an essential role in safeguarding members’ benefits, prioritising them above all other creditors in these circumstances risks distorting the already established insolvency regime. It creates uncertainty for businesses, ultimately harming the very members we all seek to protect.
On the points made by the noble Baroness, Lady Noakes, it is our concern that placing trustees ahead of other unsecured creditors could create significant uncertainty, increased borrowing costs and restricted access in future to finance, especially for smaller businesses. In the long term, this could potentially weaken employer support for pension schemes and threaten their sustainability, rather than strengthen it.
It is important to recognise that the current system already provides significant security for pension scheme members. Pension funds in UK occupational schemes are held in trust and are legally ring-fenced from the employer, so they cannot be accessed by creditors in an insolvency. The PPF exists precisely to offer a safety net to members who would otherwise risk losing their pensions when their employer fails.
Following the Chancellor’s announcement at the Budget, this Bill will also introduce annual increases on compensation payments from the PPF and FAS on pensions built up before 6 April 1997.
The insolvency regime is designed to operate alongside the compensation system. The structure of the pension protection levy already reflects the risk of employer failure and spreads that risk fairly across eligible schemes. The PPF assumes the creditor rights of the pension scheme trustees in the event of insolvency of the sponsoring employer and seeks to maximise recoveries from the insolvent employer’s estate.
Pension schemes, backed by a strengthened PPF, are already in a stronger position than many unsecured creditors. Giving trustees priority would leave small suppliers, contractors and even some employees with significantly reduced recoveries, despite having far fewer protections. We should not create a system where small businesses and individual workers bear disproportionate losses because a pension scheme deficit overrides all other obligations. There is also the risk of moral hazard, where trustees could be less prudent when deciding to release surplus, knowing that, under employer insolvency, they would have guaranteed priority above other priorities.
The amendment could affect the employer’s business plans as creditors may be less likely to lend money to the employer. Equally, banks may place conditions on borrowing to prevent surplus release if trustees were given priority. That dynamic could push companies towards insolvency earlier, not later, having a knock-on effect on members.
The only other thing I will add is that there are other tools open to trustees that are concerned about the strength of the employer covenant and the security of benefits. It is open to trustees during funding discussions or other negotiations to seek a fixed or floating charge over the employer’s assets, which would, in effect, elevate the scheme’s position in the insolvency priority order, providing additional protection should the employer become insolvent.
I want to be clear that trustees will have the final decision on whether to release the surplus. Before they can do so, the Bill stipulates statutory safeguards before a surplus can be released. I thank the noble Lord for his concern but for the reasons I have outlined, I ask that he withdraw his amendment.
Lord Sikka (Lab)
I thank all noble Lords for their observations, comments, suggestions and many questions. I will briefly address some. Does this risk distorting insolvency law? It is already distorted. Pension scheme members are unsecured creditors. People who cannot hold a diversified portfolio lose their job, lose some of their pension rights and have no opportunity to rebuild their pension part. It is already distorted and already against them. I am trying to offer something right to, generally, the weakest of the creditors. Sure, banks that are secured creditors may get a little less if you pay pension scheme creditors first, but banks hold diversified portfolios. They are in a better position to manage the risks compared to employees. Creditors are less likely to lend money to companies.
Do we have any evidence to show that, if you change the order and empower some creditors, somebody takes secure charge number one, somebody takes number two and somebody takes number three—the whole hierarchy? That does not seem to persuade creditors to lend less just because there is a new hierarchy; it does not seem to support that. Changing it to five years is a possibility. A pension scheme creditor comes into existence as and when an employer goes into bankruptcy. Therefore, the pension scheme is basically a creditor.
Pension Schemes Bill
Baroness Sherlock ExcerptsMonday 12th 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-I(b) Amendments for Grand Committee (Supplementary to the Marshalled List) - (12 Jan 2026)
Lord Palmer of Childs Hill (LD)
My Lords, I thank everyone for their contributions. I do not intend to go on at length.
It is a novel view, is it not, that a Bill should have a purpose? This ought to be applied to many other Bills to show what their purposes are. This Bill has a wide range of powers affecting consolidation, investment, surplus extraction, defaults and retirement outcomes, but nowhere is a clear statement of purpose listed. I do not think that is symbolic; it is very useful. I have a simple question for the Minister: what is lost by clarity? We are looking here for a piece of clarity that does not undermine the Bill in any way but sets out what people are meant to see and expect from the Bill. It would set a pathway for other Bills to set out their purposes. From these Benches, I support this amendment.
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, I am grateful to the noble Viscount, Lord Younger, for introducing his amendment, and all noble Lords who have spoken. It is a particular delight to hear from so many colleagues so early in Committee.
I should begin by saying two things. First, I am a member of the parliamentary pension scheme, so I thank the noble Viscount, Lord Thurso, for his service and urge him to give the scheme even greater attentiveness in future; I would be very grateful for that. Secondly, I am about to disappoint most Members of the Committee, but I may as well start as I mean to go on. Many of the points made and questions asked will come up in subsequent Committee days—that is what Committee is for—so I hope that noble Lords will forgive me if I do not go into the detail of how surplus operates, how value for money operates or how asset allocation will work; I will come back to all of those. I should probably apologise to the noble Lord, Lord Fuller, because I cannot promise to go back to Star Wars figurines, but I will try to pick up most of the rest of the points at some stage.
The Bill delivers vital reforms to strengthen the UK pensions system, safeguarding the financial future of around 20 million savers while driving long-term economic growth. The Bill focuses on improving value and efficiency for workers’ pension savings, with an average earner potentially gaining up to £29,000 more by retirement. These measures will accelerate the shift towards a pensions landscape with fewer, larger and better-governed schemes that deliver for both members and the wider economy.
To support market consolidation, the Bill introduces superfunds, megafunds and Local Government Pension Scheme pools, creating scale and resilience. The value-for-money framework will ensure that schemes provide the best outcomes for savers, while guided retirement provisions will help members when accessing their savings. Other measures in the Bill will enable pension schemes to operate more effectively by streamlining governance, improving transparency and reducing unnecessary complexity. The reforms delivered through the Bill will create a more efficient, resilient pension landscape; they will also lay the foundation for the Pensions Commission to examine outcomes for pensioners and set out how to develop a fair and sustainable system, ultimately benefiting both individual savers and the UK economy.
To achieve these ambitions, the Bill makes a number of essential changes to the framework of law relating to private pension schemes and the LGPS, rather than pursuing a single overarching objective. To insert a purpose clause could cause legal uncertainty as a court could assume that a provision included in a Bill was intended to have some additional operative effect. The practical effect of the requirement to have regard to the purpose of the Bill, as expressed in this proposed new clause, is unclear.
The purposes of individual provisions are instead made clear through their drafting and the accompanying explanatory material, including the Explanatory Notes and the impact assessment. There is no need for an additional new clause at the start of the Bill setting out the purposes, as this is covered elsewhere more appropriately. This approach is in keeping with established practice; for example, the Financial Services and Markets Act 2023 was twice the size of the Pension Schemes Bill. Like the Bill, it deals with a complex legal landscape and made a number of separate and necessary changes to the law relating to financial services and markets. There is no purpose provision in that Act, just as no overarching purpose clause has been included in the Pension Schemes Bill. We will return to matters related to secondary legislation in the debate on a subsequent group of amendments tabled by the noble Lord, Lord Sharkey.
I will pick up the point made by the noble Viscount, Lord Younger, about this being a framework Bill; he used that as an argument for a purpose clause. I say to the noble Lord, Lord Palmer, that, if he has not seen a purpose clause debate, he has not been in many debates in the Chamber recently, because they have appeared; unfortunately and inadvertently, they mostly resulted in long Second Reading debates at the start of many other pieces of legislation. I stress that that was neither the purpose nor the result here, but many of those debates have happened.
We do not consider this to be a framework Bill. The noble Viscount mentioned the idea of setting legislation now and setting policy later. Manifestly, that is not what is happening. The Bill clearly sets out the policy decisions and the parameters within which delegated powers must operate. It brings together a broad package of reforms in pensions into a single piece of legislation. Many of those reforms build on long-established statutory regimes, where Parliament has historically set the policy in primary legislation and provided for detailed measures that will apply to schemes to be set out in regulations. The policy direction is clearly set out here.
As we all know, the successful implementation of pensions depends heavily on trustees, schemes, providers and regulators, which makes engagement and operational detail essential rather than optional. There has been extensive consultation and there will be further extensive consultation. I do not think that this matter will be solved any further by adding a purpose clause.
Finally, the Long Title of the Financial Services and Markets Act 2023 was also described in neutral terms—
“to make provision about the regulation of financial services and markets”—
rather than providing a practically unworkable narrative explanation of the purpose of that legislation. The same applies here.
While I welcome the comments and look forward to returning to many of them in our debates, I hope that I have made the case not only for the Bill as a whole but as to why it is unnecessary and unhelpful to add a purpose clause. I ask the noble Viscount to withdraw his amendment.
Viscount Younger of Leckie (Con)
My Lords, I thank all noble Lords who have contributed to this relatively short debate. Many of the points raised strongly reinforce the view that my noble friend and I are seeking to advance: that this is indeed a framework Bill, which in its current form would benefit from greater explanation, greater articulation of purpose and more fully developed safeguards. I believe that the debate has drawn out views on some of those listed purposes and that it has been helpful at the outset of Committee.
As my noble friend Lord Trenchard said, it is complicated—that adds to my argument. I was very grateful to have the support of the noble Baroness, Lady Bowles. I am grateful to the Minister for her response and for beginning to provide some additional context around the Government’s intentions. It has been helpful up to a point, but I am not quite sure why she thinks a purpose clause would provide some uncertainty.
I remain of the view that a broader and more holistic articulation of where the Government would like the pensions system to be in five, 10 and 15 years’ time is still lacking. In fairness, that is likely to extend beyond what the Minister can reasonably be expected to provide today; I understand that. I accept her valid point that Committee is for delving into the detail of these matters, which we will be doing.
I will pick up just a few points from the debate. First, my noble friend Lord Fuller is absolutely right that we need a purpose clause to inspire people, particularly young people, to save for the future. That is a very valid point; it levels us, or brings us down to base, in terms of what we are trying to do here with this complicated Bill.
Viscount Younger of Leckie (Con)
My Lords, this group of amendments focuses on scrutiny, clarity and responsibility, and I am grateful to the noble Lord, Lord Sharkey, for setting out the merits of the super-affirmative procedures and their historical context. It was interesting to hear what he had to say.
As the Committee will have seen, the provisions to which these super-affirmative procedures would pertain allow Ministers, through secondary legislation, to impose requirements and prohibitions on scheme managers, to direct participation in asset pool companies, to require withdrawal from them and to impose obligations on those companies themselves. These are significant powers, exercised in an area that is highly technical, operationally sensitive and financially consequential.
This is precisely the sort of context in which unintended consequences can arise, as alluded to by the noble Lord, Lord Sharkey. These clauses are dense, complex and interconnected. They interact with fiduciary duties, local accountability, financial regulation and long-term investment strategy. Small changes in drafting or approach could have material effects on risk, returns, governance or market behaviour.
That is why I am glad that the amendment places particular emphasis on representations. The ability for Parliament, and expert stakeholders, to examine draft regulations, to make these representations, and for those representations to be meaningfully considered before regulations are finalised, is essential to the responsible exercise of these powers.
The super-affirmative procedure would ensure that Parliament is not simply asked to approve a finished product but is given the opportunity to understand the Government’s intent, to hear from those with deep expertise in pensions, asset management and regulation, and to see how concerns raised have been addressed. That is especially important where the primary legislation quite deliberately leaves so much to be filled in by regulation, as I explained earlier in Committee.
I hope the Minister will engage constructively with this point and explain why the Government believe the ordinary affirmative procedure provides sufficient scrutiny in this case, given the scale, complexity and potential impact of the powers being taken. I appreciate the short debate on this matter.
Baroness Sherlock (Lab)
My Lords, I am grateful to the noble Lord, Lord Sharkey, for introducing his amendments, and to all noble Lords who have spoken. This gives us an opportunity to talk about how best to balance the way we structure matters between primary and secondary legislation. However, the proposals from the noble Lord, Lord Sharkey, would significantly expand the way Parliament scrutinises regulations made under the Bill. I understand why he would want to do that, but his proposals would introduce a level of rigidity into the process that is not only unusual in this area but obviously would be markedly more elaborate than the Bill currently provides for.
The super-affirmative procedure is generally reserved for exceptional circumstances, such as legislative reform orders or remedial orders under the Human Rights Act. I am not aware of any examples of it being applied to pensions regulations, but I am very open to being advised on that. In our view, it would be disproportionate to the nature of the powers conferred by the Bill, and I will explain why.
I will look first at Clause 1. The coalition Government introduced the Public Service Pensions Act 2013. Through that, Parliament established the way it would go about governing the making of scheme regulations. It was a comprehensive and well-tested scrutiny framework. It still operates today, including where new powers were created, for example, by the Public Service Pensions and Judicial Offices Act 2022. The framework created by that Act provides extensive safeguards, including mandatory consultation, enhanced consultation if changes have or might have retrospective effect, and Treasury consent. Introducing a substantially more onerous procedure for regulations under Clause 1, as proposed by Amendment 3, would sit uneasily alongside that established approach.
There are also practical considerations. Administering authorities and asset pool companies are preparing for regulations to be introduced shortly after the Bill has passed its parliamentary scrutiny. The Government have already published draft regulations on the LGPS measure. They were open to public consultation, which has recently closed. Adding a 30-day pre-scrutiny stage through the super-affirmative procedure would clearly extend that timetable and risk creating more uncertainty at a critical moment for those involved in implementing this.
Amendment 221 would allow either House to require that any affirmative regulations made under this Bill be subject to the super-affirmative process. That would already represent a significant expansion of parliamentary involvement compared with the long-standing approach to pensions.
Amendment 222 would go further still. It does not simply describe how the super-affirmative procedure would operate in this context; it would create a new statutory scrutiny process, more prescriptive and more inflexible than the mechanisms Parliament has used to date for pension regulations—or indeed most regulations. It would require a fixed 30-day scrutiny period in any case where either House decided to impose the new procedure. It would mandate a committee report, even for minor or technical regulations, and would prevent regulations being laid until Ministers had responded formally to all representations. The result would be a significant departure from the flexible way Parliament normally manages delegated legislation.
I hear the concerns the noble Lord has expressed about the way Parliament deals with secondary legislation, but scrutiny procedures are normally determined by the House through its practices and Standing Orders. Replacing those arrangements with a rigid statutory framework of this kind for this Bill would set a far-reaching precedent for delegated legislation more broadly, extending well beyond the requirements of this Bill.
I would submit that such a process would also make it harder for Parliament to focus scrutiny on the most significant instruments and would slow down the making of regulations in areas where timely and predictable implementation is crucial for funds, administering authorities and scheme members.
A certain amount of this comes down to whether the Committee accepts that the level of delegated powers is appropriate. I fully understand that the noble Lord does not. I disagree and I will tell him why. In answer to the noble Viscount, Lord Younger of Leckie, in the previous group I said that the Government do not regard this as a framework or skeleton Bill, because it sets out clearly the policy decisions and parameters within which the delegated powers must operate. The Bill brings together a broad package of reforms. Many of those reforms build on long-established statutory regimes set out by previous Governments—Governments of all persuasions, as well as previous Labour Governments—in which Parliament has historically set the policy in primary legislation and provided for the detailed measures that will apply to schemes to be set out in regulations.
The noble Baroness, Lady Neville-Rolfe, asked for a full list of delegated powers. My department produced a very detailed delegated powers memorandum, which went through all the delegated powers at some length and in some detail, explaining what they meant. I would be very happy to direct the noble Baroness to that if that would be helpful.
One of the key questions the noble Lord, Lord Sharkey, asked was: why are there so many delegated powers? Our view is that this is not out of kilter with other similar transformative pension Bills. We counted 119 delegated powers covering 11 major topics plus some smaller topics. For example, in the Pension Schemes Act 2021, there were almost 100 delegated powers covering three major topics. In the Pensions Act 1995, which was a transformative Bill, there were approximately 150 delegated powers.
This Bill brings together a number of distinct pensions measures in a single legislative vehicle, many of which amend or build on existing regimes that are already heavily reliant on secondary legislation for their detailed operation. In many areas, we are simply reflecting a similar framework to previous pensions legislation or amending it, so there is continuity rather than a step change.
A crucial point I want to lodge is that pensions policy is not delivered directly by government. Implementation depends on trustees, pension schemes, pension providers, administrators and regulators who have to design systems, processes and administration that work in practice. That level of detailed operational design can begin only once there is sufficient certainty that legislation will proceed. As noble Lords who have worked in or with industry will recognise, before there is sufficient certainty, industry cannot reasonably commit the significant time and resources needed to work through complex delivery arrangements where the legal basis may still change or not materialise. Delegated powers therefore allow the Government to set the policy framework in primary legislation and then work with those responsible for delivery to ensure that the technical detail is workable in practice, rather than attempting to prescribe detailed operational rules in primary legislation. That reflects established pensions practice and good lawmaking in a complex and fast-moving regulatory environment.
Lord Fuller (Con)
I am conscious that this is not the Minister’s area of specialism, because we are talking about the Local Government Pension Scheme, which is under MHCLG, not the DWP, so I do not expect her to be fully up to speed with this part of the Bill. Members of the various pensions committees of the administrating committees—by and large within county councils, but there are some joint arrangements as well—are legally not trustees. I accept that what the Minister said is correct for the generality of private schemes and some other schemes, but I do not believe it is for the LGPS. I do not expect her to respond immediately, but it is important. It is a shame that we do not have an MHCLG Minister here, because this scheme is the closest we have to a national wealth fund and we are transacting this business without the appropriate expertise here. However, clarity on that is important.
Baroness Sherlock (Lab)
I was going to say that I am grateful to the noble Lord, but I am not sure that I am, really. I am sure he has not missed the fact that the amendments put forward by the noble Lord, Lord Sharkey, do not apply simply to the LGPS provisions in the Bill. They would have widespread application throughout the Bill and implications beyond it. I say that they would have all these implications and I am talking about trustees because they would have a significant impact on the way that all those actors in the pension space would be able to engage in future.
In the past, I have heard people around the House criticise Governments for making decisions at the centre without engaging with those in industry and business who have to deliver them. I know that, if the Government had given huge amounts of certainty and left nothing out there, the criticism would simply be the reverse of what we have heard today. We have to find a balance. The Government believe we have found the right balance. Some Members of the Committee will disagree. I have looked carefully into this, and I am defending the balance that the Government have come to, but I accept that if noble Lords disagree, we will have to come back to this in due course.
We think the existing framework already strikes the right balance between scrutiny and practicality, enabling Parliament to oversee policy development while allowing essential regulations to be made in a timely and orderly way. In the light of my comments, particularly about the proportionality of this, its comparability with previous pensions legislation and the degree to which it is in continuity with the way pensions legislation has traditionally been made by successive Governments, I hope the noble Lord will feel able to withdraw his amendment.
Lord Sharkey (LD)
I am grateful to all those who have contributed to this brief debate. The complexity described by the Minister is obviously real and clearly important, but one of the ways of dealing with complexity is to have the instruments to simplify it and discuss it. My response to the scenario painted by the Minister would be to say: let us have super-affirmative procedures and accept that they will take up a bit more time and involve a bit more work, but, as I pointed out, that is their entire point.
Skeleton Bills always limit parliamentary scrutiny, and the Pension Schemes Bill is not an exception to that; in some ways, it is a confirmation of it. I understood the Minister’s case, but the Government’s desire to limit parliamentary scrutiny is a mistake. The SIs generated by this Bill will have real consequences for the real economy. We cannot usefully discuss these consequences until we have the detail. It seems to me as simple as that. Of course, having the detail helps only if we can do something about it, and the super-affirmative procedure provides that opportunity.
Lord Sharkey (LD)
If the noble Lord is asking why it is there, I am afraid I will have to plead the Public Bill Office.
Baroness Sherlock (Lab)
I am advised that Amendment 220 had been withdrawn, not just not debated. We will look into that, and the noble Lord will need to clarify it.
Graduate Jobs
Baroness Sherlock Excerpts(3 weeks, 3 days ago)
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Lord McNicol of West Kilbride
To ask His Majesty’s Government what assessment they have made of the decline in graduate jobs and the extent to which it is a long-term trend that requires intervention.
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, while the employment rate remains higher for graduates than for non-graduates, we recognise that there are challenges faced by young people leaving university. We are delivering for graduates by investing £1 billion in sector skills packages to create hundreds of thousands of jobs, by launching the jobs and careers service so that everyone can access quality careers advice and by delivering the youth guarantee so that 16 to 24 year-olds, including graduates, have the best support to enter work.
Lord McNicol of West Kilbride (Lab)
My Lords, I thank my noble friend the Minister for her Answer and agree with many of the points she has made. For a number of decades now, Governments of all shades have encouraged school leavers to go to university. I did not. I attended one of the old technical colleges, Dundee Institute of Technology, where I got an HND in building management. With the structural changes in employment opportunities for young people that we are now seeing, can we not do more to ensure that careers advice and the likes of technical education are better tailored for the generations of the future and the skills they will need in the new world of work?
Baroness Sherlock (Lab)
My Lords, my noble friend is a tribute to Dundee Institute, and indeed HNDs and the country, so we all have cause to be grateful for its investment in him. My noble friend is right that there are clearly challenges in the graduate market, but I want to say up front on AI that we do not yet see the evidence that this necessarily means a long-term decline in graduate jobs. AI is having a range of impacts; its impact is contested and it is different and it is changing as we go. However, his point is incredibly important, and the Government need to act to ensure that graduates and young people generally have access not just to entry-level jobs but to proper high-quality careers. That means investing in sectors which are producing growth, making sure we have the right skills, and that career services, both within education and in the new jobs and career service, are supporting people to make sure they develop the skills needed to go into the sectors where there are increasing numbers of jobs and those jobs are better paid. I am very optimistic. AI offers opportunities as well for young people. Young people are much more technologically savvy—than me anyway, I hope—and much more optimistic about the impact of AI, so there are real opportunities as well as challenges.
Lord Baker of Dorking (Con)
My Lords, instead of finding jobs for graduates, we should be trying to persuade more 18 year-olds not to go to university. In the colleges that I support, 25% of our leavers become apprentices compared to 4% from an ordinary school. Apprentices can earn as much as £30,000 a year at the age of 18. May I persuade the Minister that what she really ought to be doing is to persuade more schools to produce apprentices?
Baroness Sherlock (Lab)
First, I pay tribute to the work that the noble Lord has done in this important area of technical education, working with employers and looking at how we teach our young people. I am grateful to him, and I am sure the whole House is, for his track record in that area. Secondly, he does not need to persuade us, which is the good news. The Prime Minister has recently made a new ambition for two-thirds of young people not just to go to university but to go to university or to take up one of these gold-standard apprenticeships. That includes targeting at least 10% of young people to go into level 4 or level 5 study. We know that getting people into the right areas with the right skills means they are much more likely to get jobs. Most graduates get jobs, but so do people who come through good apprenticeships and significant numbers end up staying on with the employers who hired them—the noble Lord knows all of this, but I am telling the House. Our job as government is to recognise that there are challenges coming down the track. We need to be the country which sees the opportunities, skills up our young people to take them up, encourages and supports employers to train them correctly, works with those who are doing the teaching and gets growth in the areas that drive jobs. We are going after all of those.
Lord Londesborough (CB)
My Lords, the brutal truth is that the number of graduates in the UK has almost doubled over the last 20 years, far outstripping the supply of graduate jobs, and that was before the decline in the last five years. This gross mismatch in supply and demand has resulted in a mountain of student debt—£270 billion at the last count—much of which will never be repaid. Does the Minister accept that this is a raw deal not just for students but also for taxpayers, and that our universities need fundamental reform, particularly in the area of funding, to face up to economic reality?
Baroness Sherlock (Lab)
My Lords, one thing I want to say to any students or graduates out there is that the evidence shows that graduates are more likely to be in work, to be in higher-skilled work and to earn more. Graduates continue to experience higher lifetime earnings, and they are nearly three times as likely to be in high-skilled employment than non-graduates. Having said that, the most important thing is that young people get appropriate advice to choose the forms of study that suit them. This is not a message to say that people should leave school and go straight into work. We are increasingly going into an era when employers will need skills, especially in a world where AI could automate some activities but it could also augment others. We need people to have the skills, so I am with him about the need to get the right people going into the right kind of education and training. On the question of HE funding, the HE sector clearly needs a secure financial footing to face into the challenges coming down the track. We have therefore acted to increase tuition-fee caps for all HE providers in line with forecast inflation, but future fee uplifts will be conditional on those providers achieving a higher-quality threshold through the Office for Students.
The Lord Bishop of Chester
My Lords, I am grateful for the replies that the Minister has already given and for the work the Government are doing in this area. To pick up on the question of apprenticeships, what are the Government doing to promote graduate internships? In an economy like that of the north-west, which depends on small and medium-sized enterprises, those are a vital way into work. Specifically around healthcare, the noble Baroness will be aware of the Jisc report from November 2025, which says that six out of 10 first- degree employment is in the area of health, social care or education, so how can the limited hiring, particularly of nurses, be addressed?
Baroness Sherlock (Lab)
My Lords, on the question of internships and apprenticeships for those who are going into specialist areas, the DWP has been working to find internships or work experience opportunities for young people. We all know from the number of requests we get from them that it is an awful lot easier to get internships if you have money and connections. One of the challenges for us is to make sure we create opportunities for work experience and internships for those who do not have those things. We are doing a huge amount of work specifically with the one in eight young people who are not in employment, education or training, of whom some will be in the north-west—they are around the country, but they are more likely to be in areas of deprivation. So, we are looking at how we can support that. At the other level, for example for young people who have been on universal credit for 18 months looking for work and not getting it, at the end of that we will give them a guaranteed job for six months to make sure that they have that experience of work.
On the question of professional apprenticeships, the Government are prioritising young people but that includes apprenticeships up to level 7 for those who are under 22 when they begin. The right reverend Prelate mentioned nursing; sometimes they will be post-degree, but they will often be level 6, and there are young people who qualify as solicitors or accountants, for example, through the apprenticeship route. Again, we are interested in where we can grow jobs. I read an interesting World Economic Forum report about the areas that are growing, and one of the growth areas is nursing.
Baroness Garden of Frognal (LD)
My Lords, can the Minster assure us that university undergraduates are not only learning academic skills but skills that will be useful for work? Many years ago, when I graduated from Oxford and told them that I was marrying an RAF officer, I was told that I was unemployable, which was actually pretty accurate. Can the Minister say whether university career guidance is more positive these days than the guidance that I was given?
Baroness Sherlock (Lab)
For someone who was unemployable at the age of 21, the noble Baroness has not done too badly for herself, and I am sure that the RAF has also benefited from the work that she has done over the years. This is incredibly important. University career support has come a long way, as anyone who has had children or known others who have engaged with it will know. There is more and more engagement with local employers, and we on the DWP side are doing huge amounts with employers. Our aim is to try to make sure that, as we develop the skills requirement, we are working in areas of labour demand, and that we work with those who provide both FE and HE apprenticeships to make sure that the right skills are there, that people are going into the areas where there is growth and that they will get jobs. That is quite broad. A good degree takes somebody into lots of areas. Employers want a good range of skills, including creative thinking, analytical thinking and resilience, and those can come from any discipline.
Baroness O'Loan (CB)
My Lords, there is a national shortage of electricians, plumbers, plasterers and people of that nature, yet there does not seem to be any focus on the development of apprenticeships for those young people for whom a university education quite simply is not appropriate. Can the Minister comment on this?
Baroness Sherlock (Lab)
The priority has been on sectors, some of which will include a range of those skills. For example, the £1 billion that we are putting into sector skills will cover AI but also engineering, green energy and all kinds of areas that use a wide range of those skills. If the employers need them, we will support people to train to get those jobs.
Jobs Market: Wider Economic Implications
Baroness Sherlock Excerpts(1 month, 1 week ago)
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Lord Hunt of Wirral
To ask His Majesty’s Government what assessment they have made of the jobs market, and of the implications for the wider economy.
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, there is positive information in the labour market. The claimant count is falling. Over 350,000 more people have moved into work this year. Real wages have risen more since July last year than they did in the first 10 years of the previous Government, and UK growth is forecast to be the second fastest in the G7 after only the United States. However, the latest figures also highlight the challenges and the importance of our Get Britain Working plan, which includes creating a new jobs and careers service, tackling economic inactivity due to ill health and delivering our youth guarantee.
Lord Hunt of Wirral (Con)
The Minister omitted to mention that unemployment has now risen to 1,830,000 and, perhaps most chilling of all, that the number of young people without the dignity of work has risen to 735,000. Do the Government now accept that the triple blow of the jobs tax in last year’s Budget, the increased income tax levels in this year’s Budget and the unemployment Act, which received Royal Assent earlier today, have all contributed to the fact that unemployment is rising to 2 million people? What is she going to do about it?
Baroness Sherlock (Lab)
I will tell the House what we are going to do about it: something the last Government never did, which is to take seriously the challenge of so many young people in our country who are not in employment, education or training. What did the last Government do about that? They did nothing. What are this Government doing? A huge amount: in the Budget, we have put hundreds of millions of pounds into a youth guarantee. We are creating guaranteed jobs for young people who are long-term unemployed on universal credit, and we have the former Health Secretary, Alan Milburn, digging down deep into what the driving reason is for why so many of our young people are not out there in the labour market. We are going to solve the problems we inherited; we are doing something about it.
The Lord Speaker (Lord McFall of Alcluith)
My Lords, I call on the noble Lord, Lord Campbell-Savours, who is participating remotely.
Lord Campbell-Savours (Lab) [V]
With the jobs market hugely influenced by the availability of training, in particular apprenticeship training, should we not positively welcome the £820 million for the youth guarantee scheme, with its emphasis on quality? Is not the lesson that the Government have learned from the YOPs and community programmes of the 1980s that such schemes work only when they incorporate quality, real skills development, and the prospect of long-term employment? Are they not the hallmark of this much expanded and brilliant training programme?
Baroness Sherlock (Lab)
I welcome a particularly fine question from my noble friend. I could almost have said that myself; in fact, maybe I will. He makes a really important point. We need to have support in the investment of skills for young people: skills for today and for tomorrow. Simply putting them on to some kind of make-job scheme does not work. We actually need to invest in them, so my noble friend is quite right. At the Budget, we announced £820 million of investment into the youth guarantee to support young people to earn or learn, but there was another £725 million for the growth and skills levy. We are trying to invest in young people so that they will find ways of getting the skills and be inspired to get out there and make a difference.
We also need to understand those who are not engaging. Alan Milburn issued a call for evidence this week. He is asking two questions: what is stopping more young people participating in employment, education or training, and what would make the biggest difference to support more young people to participate? We want to hear from anyone with knowledge, expertise or lived experience, so I urge noble Lords, with all their connections: let us all together try to get the answer to one of the most pressing questions facing our country.
Baroness Bowles of Berkhamsted (LD)
My Lords, the Bank of England has canvassed for resignations to cut jobs to save £45 million and use more AI, and many other jobs continue to be lost to AI. What strategy have the Government got to ensure that their AI and tech procurements support British jobs? If mandating is okay for pension fund investments, where is it for government?
Baroness Sherlock (Lab)
My Lords, I think I might save the pension fund for the extensive debate we will have later, which is my Christmas present from the Chief Whip. That is all I can conclude. The noble Baroness makes a very important point. One of the things that the Government as a whole are doing is looking across the piece. The truth is that it is still quite early days in working out what, in the medium to long term, will be the impact of AI on the economy. There is evidence that jobs may be displaced in some sectors while in others jobs are created. While we are understanding the full impact, the challenge for us is to make sure we equip people with the skills that enable them to compete in the markets that are to come. There is a lot of work going on in my department, but also in DSIT and across government, to monitor this and develop strategies. In particular, there is work on investing in homegrown tech companies to make sure that we have the opportunities here in which we can invest and our young people can work.
The Earl of Clancarty (CB)
My Lords, further to the points made about skills, will the Minister look at a new report by the Creative Industries Policy and Evidence Centre that finds that arts, culture and heritage sectors are all
“losing skilled employees due to low pay, limited progression and lack of flexibility”.
Although our freelance workers should certainly be better supported, there is concern over the levels of permanent creative staffing, including in theatre. How will the Government address these concerns?
Baroness Sherlock (Lab)
The noble Earl makes an excellent point. He is a fine ambassador for the creative sectors, for which I commend him. The Government are looking sector by sector at how we can support the development of skills. I am aware that we have had to work quite hard to protect some quite specialist skills, because if we lose them we will not get them back, certainly in the heritage sector. I am happy to look at how our sector work can do that, but what we are trying to do in DWP is to work with a wide range of employers to make sure that we know what they want, what skills they need and how we can support them. One thing that has made the biggest difference—I slightly bang on about it—is my noble friend Lady Smith’s welcome joining up of adult skills and the DWP. That can make a real difference, so I will make sure that we look carefully into that.
Viscount Younger of Leckie (Con)
My Lords, I am afraid that I am not yet in the Christmas spirit because, as the Minister herself said, there are huge challenges in the deteriorating jobs market. It is of great concern that jobs in the all-important retail sector have fallen by 74,000, and the chief executive of the BRC has stated that the number of people in work in that sector is at a record low, namely 2.82 million jobs. What are the Government going to do to change the situation, as a matter of urgency, in that sector?
Baroness Sherlock (Lab)
My Lords, the noble Viscount will know that we have a number of what we call sector work programmes to develop skills and support people into many areas of our economy, including hospitality and retail, and many others. I come back to the fact that there are challenges across the globe. The UK unemployment rate is firmly below the EU 27 average. The UK has the third-highest employment rate among the G7—higher than Canada, the USA, France and Italy. I fully accept that these have been challenging times but there has been a reduction in demand across the globe, for a range of reasons. I am confident that things are looking good. We are seeing, for example, that vacancies have stabilised. We are seeing interest rates coming down and businesses getting more certainty, not least from the fact that we now have an Employment Rights Act.
Lord Mohammed of Tinsley (LD)
My Lords, I am more than happy to speak to Alan Milburn, given my long experience of working with NEETs. The question I will ask the Minister is about His Majesty’s Government having two key priorities. One is around net zero and the other is building 1.5 million homes. I want to know: what is the strategy around young people and apprenticeships? I ask this because I spoke to a young person studying at Sheffield College who is doing an electrician course. He is really stressed out that he is unable to get the apprenticeship course he needs to get properly qualified and contribute to the economy, because otherwise he told me that he will look for a job in McDonald’s.
Baroness Sherlock (Lab)
I am not going to diss looking for a job in McDonald’s, but I do not want to see anyone unable to pursue the things that they want to do. The noble Lord is absolutely right. We have invested £600 million in a construction package and are working closely with the industry. We have a strategic relationship team in DWP that works with key sectors to try to make sure, if jobs come on stream, that our people get them. We want young people and people who are not in the labour market to get them—those who are struggling with economic inactivity. I am grateful to him for raising that.
Lord Spellar (Lab)
My Lords, should not the Government look at the incredible difficulty that youngsters have in getting into work, with very bureaucratic HR processes for making applications? Should they also not say to employers who are on contracts to the Government that they need to provide a certain ratio of training places to qualify for being on government contracts?
Baroness Sherlock (Lab)
My Lords, those are two important points. The second quite often happens. I know that the social value element of contracts is something important that we in DWP take especially seriously. On the first point, we must all have had that experience of knowing young people and their heartbreaking experience of sending out application after application, and getting nothing back at all. I understand how tough it is for businesses to manage that, but if any employer is able to do that—to make it as easy as possible to support young people—that is great. One thing we can do in DWP is to support the young people in doing that: to connect them with employers, give them the skills and make sure they are putting in the best possible application in the first place.
Pension Schemes Bill
Baroness Sherlock ExcerptsThursday 18th December 2025
(1 month, 1 week 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 Sherlock
Northern Ireland and Welsh legislative consent sought. Relevant document: 42nd Report from the Delegated Powers and Regulatory Reform Committee
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, it is a privilege to open the Second Reading of the Pension Schemes Bill. I am grateful to noble Lords for the engagement we have already had, and I look forward to working constructively together as the Bill progresses through this House. I also very much look forward to the maiden speech of the noble Baroness, Lady White of Tufnell Park.
Pensions are really important, and the Bill will transform our pensions landscape for the better. It will play its part in delivering growth, as well as helping to raise living standards in every part of the UK. It will assist the pensioners of the future to feel more confident about the economy in general, as well as their own futures.
Pensions are the promise we make to millions of people that their years of hard work will be rewarded with security and dignity in retirement. UK pension schemes invest hundreds of billions of pounds in our country. The reforms outlined in the Bill will make those pounds work harder for pensioners by making schemes more efficient—more money invested, and less on overheads and administration.
The first Pensions Commission laid the groundwork for a new pensions landscape, with a simpler state pension and automatic enrolment into retirement savings. This transformed private pension saving in the UK. The Bill, along with the work of the pensions investment review, moves our private pensions system forward. Bigger, better pension schemes will drive better returns, as well as tackling inefficiencies in our system.
The new Pensions Commission is looking at the issue of adequacy across the state and private pensions systems, with a clear objective of building a strong, fair and sustainable pension system. I look forward to this debate on the Bill, which is all about making every pound saved work harder for members, unlocking investment for our economy and restoring confidence in the promise of a decent retirement.
I will now outline the main measures in the Bill. First, the Bill addresses the fragmentation of the Local Government Pension Scheme, which is currently spread across 87 funds in England and Wales. This fragmentation limits efficiency and scale. Through these reforms, all assets in the Local Government Pension Scheme, or LGPS, will be managed through FCA-regulated investment pools, ensuring professional oversight and better value for money. Administering authorities will set clear targets for local investment, working with strategic authorities to align with regional growth plans.
Of course, LGPS members’ pensions and benefits are protected, as they are guaranteed in statute and are not affected by the performance of investments. These reforms are about the LGPS being well governed and well invested to deliver efficiency and value for money.
Next, the Bill introduces powers to enable more trustees of well-funded defined benefit, or DB, schemes to share some of the £160 billion of surplus funds to benefit sponsoring employers and members. This will enable employers to drive growth through investment and higher purchasing power, but it will be subject to strict safeguards. The measure will allow trustees, working with employers, to decide how surplus can benefit both members and employers, while maintaining security for future pensions.
The defined contribution, or DC, workplace pensions market prioritises competition on cost rather than on the overall value. The Bill introduces a value-for-money framework to enable a shift in focus away from cost towards a longer-term consideration of value. This new framework looks to standardise how value is assessed, in a transparent, consistent and comparable way. It will require schemes to disclose standardised metrics, undertake a holistic assessment of value, and take improvement actions where needed.
Automatic enrolment has been a huge success, ensuring that millions more people are now saving for their retirement. However, frequent job changes mean that individuals are often enrolled into a new pension scheme by each employer, leaving them with multiple small pots over their working life, often with very small amounts saved. This has created a challenge across the workplace pensions market, with current estimates suggesting that within the system there are more than 13 million pots worth less than £1,000 each. This is hugely expensive for pension schemes to administer, with an estimated cost of £240 million a year, ultimately resulting in poorer value for members.
Through the Bill, we are taking powers to introduce automatic consolidation of these dormant small pension pots through a multiple default consolidator model. Opportunity for member choice will be built in; members can choose a consolidator scheme or choose to opt out entirely if they wish. This will simplify the system, reduce costs and support members so they can better track their retirement savings.
There is strong evidence that larger pension schemes mean better outcomes for members through efficiencies of scale, stronger governance and better investment opportunities at lower cost. The Bill will therefore drive scale by accelerating the consolidation of multi-employer DC schemes.
From 2030, schemes used for auto-enrolment must reach at least £25 billion in assets in a single main scale default arrangement, or £10 billion on a transition pathway with a credible plan to reach £25 billion within five years. This is about harnessing the power of scale: larger schemes can negotiate better deals, access more diverse investments and deliver better outcomes for savers.
On asset allocation, earlier this year, the Mansion House Accord was signed by 17 major pension providers, which, between them, manage about 90% of active savers’ DC pensions. This initiative was led by industry, and the signatories pledged to invest 10% of their main default funds in private assets, such as infrastructure, by 2030. The purpose of this voluntary commitment is, as the signatories put it,
“to facilitate access for savers to the higher potential net returns that can arise from investment in private markets as part of a diversified portfolio, as well as boosting investment in the UK”.
The Bill includes a backstop provision that would permit the Government, with Parliament’s approval, to require DC pension providers of auto-enrolment schemes to invest a fixed percentage of their default funds in specific asset classes. The Government do not anticipate exercising the power, unless they consider that the industry has not delivered the change on its own. There are also strong safeguards around it.
All workplace pension schemes are required to have a default arrangement, where contributions are invested if members do not choose an investment option. Most members go into a default arrangement and remain there throughout their scheme membership. There are currently thousands of different default arrangements in pension schemes, creating fragmentation, inefficiency and poorer outcomes for members.
The Bill introduces new requirements to review those default arrangements, with a power to make regulations as needed, following the review, to require default arrangements to be consolidated into a main scale default arrangement. There is also a power to make regulations for new default arrangements to be subject to regulatory approval. That will ensure that savers benefit from economies of scale and improved governance by reducing the fragmentation in the pensions market.
Many pension schemes, especially legacy ones, are not delivering good outcomes for savers. As contract-based schemes rely on individual contracts between firms and members, firms usually need individual members’ consent to make any changes, even when the change would improve outcomes for members. Obtaining this consent is often difficult and costly, especially when members are disengaged, even when a scheme offers poor value. This leaves members stuck in poor-value schemes.
To address that, the Government are introducing the contractual override power in the Bill. It will allow the providers of FCA-regulated DC workplace pensions to transfer members to a different pension arrangement, make a change which would otherwise require consent, or vary the terms of members’ contracts without the need for individual member consent, but only when the legal and regulatory requirements are met. That includes rigorous consumer safeguards such as the best interests test, which must be met and certified by an independent expert before a contractual override can take place.
At retirement, DC scheme savers face complex financial decisions. They need to evaluate the different options to suit their own individual circumstances, assess risks and uncertainty in financial products, and factor in their own estimation of their life expectancy. We know that savers do not always use the support available: only 16% used a regulated source, such as Pension Wise or a professional financial adviser.
The Bill puts new duties on trustees to develop and provide one or more default pension plans at retirement to help members access their savings without these complex decisions. These plans will provide a straightforward income solution for most members, with opt-out rights for those who prefer alternatives. Trustees must design plans based on member needs, communicate options clearly and publish a pension benefits strategy, which will be overseen by the Pensions Regulator. The Bill also requires the FCA to make rules that deliver default pension plans in relation to pension schemes regulated by the FCA, ensuring consistency and better outcomes for savers.
Superfunds are commercial consolidators that offer a new route for employers to secure the legacy liabilities of closed DB schemes that cannot secure an insurance buyout. Building on the current interim regime, the Bill establishes a permanent legislative framework for superfunds. It introduces an authorisation and supervisory regime with robust governance, funding and continuity arrangements, so that members of those schemes can have the confidence that their pensions are properly protected. Superfunds may invest more productively because of their scale, expertise and buying power, so they are good for members, employers and the wider economy.
Part 4 contains a range of important measures. Following the Virgin Media court case, certain DB pension benefit alterations could be treated as void if schemes cannot produce actuarial confirmation that they met the minimum standards in place at the time. This affects schemes that were contracted out between 1997 and 2016. The court judgment has the potential to cause pension schemes significant cost and uncertainty, even where the schemes did, in fact, meet the minimum standards required. To resolve that, the Bill allows schemes to ask their actuary to confirm that past benefit alterations would not have caused the scheme to fall below the relevant minimum standards.
The Chancellor announced in the Budget that the Government will introduce pre-1997 indexation into the Pension Protection Fund and the Financial Assistance Scheme—the PPF and the FAS—to address the long-standing issue faced by members. As noble Lords will be aware, those are the compensation schemes that provide a safety net for members of DB schemes. Currently, payments in respect of service before 1997 are not uprated with inflation, and affected members have seen the real value of their compensation decrease significantly in recent years.
The Bill will pave the way to introduce increases on PPF and FAS payments for pensions built up before 6 April 1997. These will be CPI-linked and capped at 2.5%, and will apply prospectively for members whose former schemes provided for these increases. That will help those members’ pensions keep pace with the cost of living. This is a step change that will make a meaningful difference to over 250,000 members. Incomes will be boosted by an average of around £400 for PPF members and £300 for FAS members after the first five years. Our changes strike an affordable balance of interests for all parties, including eligible members, levy payers, taxpayers and the PPF’s ability to manage future risk. The Bill makes some other changes to the PPF and the FAS that will benefit the members of these schemes and the levy payers supporting the PPF, including around terminal illness and the levies.
Finally, some noble Lords may have seen that the Delegated Powers and Regulatory Reform Committee published its report on the Bill last night. I emphasise that the Government recognise the importance of getting the right balance when taking delegated powers and using them appropriately. The pensions industry is highly technical and rapidly evolving, and there is a complex interaction between legislative requirements, regulatory oversight and changes in practice or innovation. In pensions legislation, it is common for a mix of requirements and principles to be set out in primary legislation, with finer detail, which is liable to frequent development, to be set out in secondary legislation. That allows for a quicker response to developments in the industry, including to protect scheme members. We think we have the right balance in the Bill, but I thank the committee for its report and will respond in due course.
This Bill will initiate systemic changes to the pensions landscape, with the aim of building a pensions system that is fit for the future—one that is strong, fair and sustainable, and that delivers for savers, employers and the economy. At its core, the Bill is about making sure that people’s hard-earned savings work as hard for them as they have worked to save, while galvanising the untapped benefits that private pensions can offer the economy at large. I look forward to our discussions today. I beg to move.
Baroness Sherlock (Lab)
My Lords, I am grateful for the incredible range of thoughtful and constructive contributions we have heard during today’s debate. I should declare that I am a member of the parliamentary pension scheme; otherwise, I have a private pension.
I am so grateful to have heard the maiden speech of the noble Baroness, Lady White. I realise we have quite a bit in common: we are children of migrants, I too have spatial dyspraxia—I have never yet found my way around here—and we both engage with a church. I am afraid that there it ends; no one will ever ask me to chair John Lewis, which may be just as well for anybody who likes shopping there. She may have had an eclectic career but, now that she has joined this House, it will get a lot more eclectic still. It is a joy to have her on board and, if there is more of that to come, I look forward to it.
The range of views around of the House reflects the significance of the Bill for savers, employers and the pensions industry. The level of interest underscores how important pensions are to savers and the UK economy, and we need to help people get the best from their savings. There were some fascinating discussions in the debate today. I could have listened to the noble Lord, Lord Willetts, and my noble friend Lord Wood for a lot longer, and I shall not be able to do justice to what they said. But I shall go back and read it very carefully and I hope that we can continue to have some really interesting conversations.
There were a lot of questions, and I will not be able to respond to all of them. I shall do my very best, but I have only 20 minutes and it may be that noble Lords have to listen back to this at half-speed, if I am not careful.
I will start with adequacy, as that is where the noble Baroness, Lady Stedman-Scott, began. I was grateful to the noble Lord, Lord Willetts, for setting out that this has been very much a cross-party journey that we have been on together, and I hope that we can keep it that way. I am sure that the noble Baroness did not mean to presume that auto-enrolment started with the last Conservative Government, when in fact it was legislated by the previous Labour Government—and there was also the Pensions Commission. I am sure that she did not mean to say that. What we have done is provide some remarkable continuity in the journey, and I hope that we can carry on doing that.
I was delighted by the work done by the last Pensions Commission, on which my noble friend Lady Drake served with such distinction—and I know that she will serve with equal distinction on the next Pensions Commission. That is the place where adequacy will be addressed fully. The Government are committed to that—it is a key priority for us—but it is also important that we get the market into the right shape so that, if savers are saving more, they will get the returns on their money.
I turn to the issue of surplus. I listened very carefully to the noble Baroness, Lady Noakes, and my noble friend Lord Davies, and thought, “I can’t make them both happy on this front”. That is generally true, I think, but it is illustrated particularly on the subject of surplus. I shall say two things. First, to the noble Viscount, Lord Younger, I say that we are very careful about what surplus extraction will do. Schemes are currently enjoying high levels of funding, with three in four in surplus on a low-dependency basis. They are also more mature, with the vast majority having a hedge to minimise the risk of future volatility with investment strategies: they are protected against interest rate and inflation movements. The DB funding code and underpinning legislation introduced in 2024 require trustees to maintain a strong funding position.
The decisions to release surplus are of course subject to trustee discretion and underpinned by strict safeguards, including the requirement for a prudent funding threshold, actuarial certification and member notification. Of course, as part of any agreement to release surplus funds, trustees are in a good position to negotiate, and it will be down to trustees to negotiate with their employers about the way in which surplus is released.
My noble friend Lady Warwick rightly pressed me on the questions of scale. As outlined in the impact assessment for the Bill, there is a range of evidence showing that scale can help deliver better governance, with economies of scale, investment expertise and access to a wider range of assets all helping to improve outcomes. We may not be heading for the sunlit uplands of Aussie megafunds, described by the noble Baroness, Lady White, but we are pushing in that direction. In response to her question, we will ensure that the governance and regulatory requirements needed for these much bigger pension schemes will be robust. We will develop those with the industry going forward.
On the question of whether the scale measures are going to be tougher on smaller schemes, the problem is that our evidence shows, across a range of studies, that scale is what makes the difference. We are asked why there is a magic number of about £25 billion. The evidence from a number of studies shows that a greater number of benefits can arise from a scale of £25 billion to £50 billion of assets under management, including investment expertise and sophistication and the balance sheet to provide a more diverse portfolio to savers. We have not seen sufficient evidence that other approaches will enable the same benefits for savers and the economy, so we do believe that scale is the best way to realise benefits across the market for savers. However, there will be a transition pathway to enable those schemes that are not there now to have a route to scale where they have a credible plan to achieve it in five years, and we will consult the industry on what a credible plan may look like as part of the development of regulations.
A number of noble Lords, including the noble Baronesses, Lady Altmann and Lady Noakes, and the noble Lord, Lord Ashcombe, as well as my noble friend Lord Wood, mentioned the position of new entrants. The potential for future market innovation is really important; we are very conscious that scale requirements could, if not done correctly, prevent this future innovation. So the Government have provided for a new-entrant pathway, designed specifically to provide a route for this future innovation. We will monitor future movement in the market to ensure that the pathway is working as intended. In addition to innovation, these schemes will be required to have the strong potential to grow to scale over time.
I dive in briefly to the reserve power and asset allocation. I am clearly not going to satisfy the House today; we will have plenty of time in Committee to discuss this. But I shall make a few points now about it in general and the interaction with fiduciary duty. Questions were raised by the noble Baronesses, Lady Stedman-Scott, Lady Penn and Lady Noakes, the noble Lords, Lord Sharkey and Lord Vaux, my noble friend Lord Davies, the noble Lords, Lord Bourne of Aberystwyth and Lord Evans—and I am going to stop saying these names now.
There is widespread recognition of the benefits that a diverse investment portfolio can bring for savers. That is exactly why the signatories to the Mansion House Accord are committing to invest in private markets. This reserve power will help to ensure this change happens, but we have built in a number of safeguards. Let me just knock one thing on the head. I say to the noble Lord, Lord Ashcombe, that this asset allocation power does not apply to the LGPS. Following an amendment in the House of Commons, the Bill no longer allows a responsible authority, such as the Secretary of State, to direct asset pool companies to make specific investment decisions. I hope that reassures the noble Lord on that point.
On the wider question, the making of regulations under this power will be subject to a raft of safeguards contained in the Bill. To respond to the noble Viscount, Lord Younger, I say that the Government anticipate that we will not have to use this power if all goes well. Were the Government ever to use it, there are a series of safeguards, and we would have to consult and produce a report. We would at that point look at developing how it would be done. Let me briefly touch on the safeguards: first, the power is time limited, and I say to the noble Baroness, Lady Penn, that it will expire if it has not been used. Any percentage headline asset allocation requirements enforced beyond that date will be capped at their current levels. Secondly, and crucially, the Government are required to establish a savers’ interest test in which pension providers will be granted an exemption from the targets where they can show that meeting them would cause material financial detriment to savers. Finally, the regulations will obviously be subject to parliamentary scrutiny but, before that, the Government will need to consult and publish a report on the impact of any new requirements on savers and economic growth both before exercising any power for the first time and within five years of it being exercised.
I am going to have to rush through. I turn to the points raised by the noble Baronesses, Lady Altmann and Lady Bowles, about qualifying assets and investment trusts. I can see that the noble Baroness, Lady Bowles, feels very strongly about this—I listened carefully to the points that she and the noble Baroness, Lady Altmann, made. I say to the noble Baroness, Lady Bowles, in particular that the Government recognise the role that investment trusts play in the UK economy and in supporting the Government’s growth agenda, and we are committed to supporting this important sector. We put that on the record very clearly. However, when it comes to qualifying assets in a reserve power, we have aimed to stick closely to the scope of the Mansion House Accord, which itself is limited to investments made by unlisted funds. That is consistent with our general approach to this part of the Bill, where we deliberately ensure that the powers are suitably targeted and contain guardrails. In other words, they are not intended to be open-ended but should be capable of serving as a backstop to the commitments that pension providers have voluntarily made.
There were a number of points made by my noble friend Lord Davies about consumer protections. I reassure him that consumer protection is a priority for the Government, and ensuring that there are strong consumer safeguards is something we take very seriously. That is why the Bill introduces a number of robust consumer protections, including in the contractual override process, in small pots and in DB surplus. I look forward to discussing these in more detail with him and others in Committee.
My noble friend Lady Warwick raised the question of VFM. I am grateful to the noble Baroness, Lady Coffey, for welcoming that; my noble friend Lord Davies raised it as well. The noble Viscount, Lord Younger, asked about the interaction in different parts of the scheme. The pensions road map, which I am sure he has had the opportunity to read, shows very clearly how the different measures that we are proposing connect and how they are all necessary. They are all key parts of a machine necessary to achieving the Government’s objective of moving the pensions landscape forward. I can tell him that the next step will be a joint consultation by the FCA and the Pensions Regulator, which will be published early next year. This will then inform our draft regulations on value for money, which we intend to consult on during 2026. We expect the VFM framework to be implemented in 2028, with the first set of VFM metrics published in March 2028. The first VFM assessment reports and ratings will then be published in October 2028. On that basis, we would expect to see poor performing schemes starting to exit the market from November 2028.
On the pre-1927 indexation in the Pension Protection Fund and FAS, I listened very carefully to the comments that have been made by my noble friend Lady Warwick, the noble Lord, Lord Bourne of Aberystwyth—I thank him for his thoughtful reflection—and many other colleagues. We are laying the groundwork for the first major step forward in this area, and I think that some credit should be given to the Government for doing that. However, I understand that this will not go as far as many had hoped.
We need to recognise that the PPF maintains a substantial financial reserve. It is not a surplus; it is a financial reserve to protect against future risks. The cost of retrospection and arrears is significant and would greatly reduce that reserve. Any change that reduces the PPF’s reserves will, by definition, reduce the vital security the PPF provides to its current and future members. The PPF has very successfully navigated the past 20 years. It is well regarded as a prudent fiduciary acting in the best interests of pension savers, and we need to ensure that it can continue to do so.
I am going to disappoint my noble friend Lord Davies on the matter of pre-1997 indexation in wider DB schemes. I need to tell him clearly that the Government have no plans to change the rules on pre-1997 indexation for DB schemes. These rules ensure consistency across all schemes, and changing them would increase liabilities and costs. Over three-quarters of schemes pay some pre-1997 indexation because of scheme rules or as a discretionary benefit, but reforms in the Bill, as we have mentioned, will enable more trustees of well-funded DB pension schemes to share surplus with employers and deliver better outcomes for members, which may include discretionary indexation.
I turn to the questions on fiduciary duty, raised by many noble Lords, including the noble Baronesses, Lady Hayman, Lady Bowles and Lady Penn, the noble Lords, Lord Sharkey and Lord Bourne of Aberystwyth, and my noble friend Lady Warwick. It is often said that fiduciary duty is the cornerstone of trust-based pension schemes and that trustees should invest in the best interests of their members. That principle remains fundamental. The Government believe that the current legal framework gives trustees flexibility to adapt and protect savers’ interests. However, at the same time, we acknowledge the calls for more clarity on considering systemic factors, such as climate risk and members’ living standards, when making investment decisions.
My colleague the Minister for Pensions set out in the Commons that we intend to develop guidance for the trust-based private pension sector to provide this clarification. I know that he plans to come forward shortly with more details on what the guidance will look to cover. He has already confirmed how he intends to start engaging with a wide range of stakeholders in producing the guidance, starting with a series of industry round tables early in the new year.
Through guidance, the Government are trying to address a barrier that some trustees say they face when investing in savers’ best interests. Guidance has the potential to support climate and sustainability goals, and our wider goal to improve saver outcomes and unlock pension investment in UK growth. We are still in the early stages of undertaking consultation and exploring options on this, and we will provide further updates in due course.
The noble Lord, Lord Bourne, and the noble Baroness, Lady Penn, asked why we do not just change the primary legislation. It is the Government’s view that introducing statutory changes to refine investment duties could risk creating rigid and complex obligations, which would reduce the ability of trustees to respond to changing investment landscapes and circumstances. On the questions of how and when, we are exploring possible options for taking this forward if and when parliamentary time allows.
The noble Baronesses, Lady Bowles and Lady Coffey, raised the position of trustees, and others also alluded to it. Successful implementation of the Bill’s reforms will rely on highly skilled trustees operating independently, applying good governance and focusing on delivering the best outcomes for savers. That is why we launched a consultation on stronger trusteeship and governance earlier this week. It aims to bring all schemes up to the required standard and explore what changes might be needed to raise the bar for all trustees. The industry has welcomed the consultation and there seems to be a consensus that high-quality trusteeship and governance is vital to ensuring good outcomes for pension scheme members. I encourage anyone with an interest in this area to respond to the consultation.
A number of other points were raised. The noble Baroness, Lady Coffey, talked about the need for a single regulator. I say simply that the Government recognise the importance of clarity and co-ordination in the regulation of workplace pensions. The FCA and the Pensions Regulator work effectively together, including through joint working groups and consultations. They have shared strategies and guidance, and regular joint engagement with stakeholders. The Government keep the regulatory system under review.
The noble Lord, Lord Ashcombe, made some interesting points. The Government are committed to appropriate regulation, and to do that we need to engage regularly with stakeholders and industry to make sure that we get it right. There are some genuine questions, which we will go on to debate in Committee, about getting the balance right between primary legislation, secondary legislation, regulation, supervision, governance and guidance. We need space to be able to engage with industry, because any regulations we produce have to work and the details of the scheme will have to be worked through. That will inevitably mean that there will be times when the House will want more detail than we are able to give. One of the challenges is that it should not be possible both to criticise the Government while they are trying to make their mind up on everything at the same time in some areas and to criticise them for not being open to consultation. We will see how it goes and continue to consult extensively with industry and other stakeholders as we move through this.
A few more points were raised. The noble Lord, Lord Kirkhope of Harrogate, asked about the Pensions Ombudsman. It is important to clarify that the measure on the Pensions Ombudsman neither increases nor widens their powers, nor that of the TPO, beyond what was originally intended. This is reinstating the original intent of the ombudsman’s powers in pension overpayment dispute cases, which were debated in Parliament when the ombudsman was established in 1991. There was a High Court ruling; we are amending the existing legislation because that ruling stated that the TPO is not a competent court in pensions overpayment cases. The aim is to reinstate the original policy intent and reaffirm the government view and that of the pensions industry. I hope that reassures the noble Lord. It restores the original policy intent—that is all. It is not designed to try to widen it. I hope that is an encouragement to him.
On the question of small pots, the noble Lord, Lord Vaux of Harrowden, and the noble Viscount, Lord Trenchard, queried the pot limit. We had to choose somewhere. The initial pot limit of £1,000 will address 13 million stock of small pots, which we think strikes the right balance between achieving meaningful levels of pot consolidation and reducing administration costs for pension providers without distorting the market. However, the Secretary of State will keep the threshold under review to ensure that it remains appropriate as the market continues to develop following the reforms made in the Bill.
A number of noble Lords asked about the position on pensions dashboards. The Government have committed to regular updates to the House—we will be doing another one of those—but let me put some headlines on the record for now. The House will be glad to know that good progress has been made with the pensions dashboards. The first pension provider successfully completed connection to the pensions dashboards ecosystem on 17 April this year, forming a crucial step towards making dashboards a reality. More than 700 of the largest pension providers and schemes are now connected to the dashboards ecosystem; over 60 million records are now integrated into dashboards, representing around three-quarters of the records in scope.
Further, state pension data is now accessible, representing tens of millions of additional records. The pensions dashboards programme is confident that pension providers and schemes in scope will connect by the regulatory deadline of 31 October 2026. When we have assurances that the service is safe, secure and thoroughly user tested, the Secretary of State will provide the industry with six months’ notice ahead of the launch of the Money Helper pensions dashboard.
A number of noble Lords mentioned the gender pensions gap, including the noble Lord, Lord Vaux, and the noble Baroness, Lady Bennett. Auto-enrolment has delivered substantial progress in increasing pension participation among women, which has meant, as the noble Baroness said, that workplace pension participation rates between eligible men and women in the private sector have now equalised. However, it is absolutely right that gaps remain in pension participation and wealth, reflecting wider structural inequalities in the labour market. A gender pay gap leads to a gender pensions gap. Women now approaching retirement still have, on average, half the private pension wealth of men. The Pensions Commission will consider further steps to improve pension outcomes for all, especially women and groups identified as being at greater risk of undersaving for retirement.
That is probably about as far as I can go. I am really grateful to be part of a House with so much interest and knowledge in a subject that not everybody—noble Lords will be shocked to hear—finds as interesting as those of us here today do. However, we do, and I look forward to lots of really interesting discussions in Committee. This Bill marks a decisive step in modernising the pensions system, strengthening security for members, driving better value and enabling innovation across the sector. It combines ambition with safeguards, ensuring schemes can deliver improved outcomes while maintaining confidence and trust. I look forward to working with noble Lords—after they have had a very happy Christmas—and to continuing constructive engagement. I commend the Bill to the House.
Baroness Penn (Con)
The Minister has made a valiant attempt to answer all questions. Can she commit to writing to the noble Lords in this debate on the questions she did not reach, and to that letter reaching us before we start Committee?
Baroness Sherlock (Lab)
This is the last sitting day before we finish. I will look at what I can put in writing before we get to Committee. I have never been asked so many questions in such a short period—and I have talked to church youth groups. I will see what we can do on that front.
Baroness Sherlock
That the bill be committed to a Grand Committee, and that it be an instruction to the Grand Committee that they consider the bill in the following order:
Clauses 1 to 118, the Schedule, Clauses 119 to 123, Title.
Employment Gap for Blind and Sight-impaired People
Baroness Sherlock Excerpts(1 month, 1 week ago)
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Lord Holmes of Richmond
To ask His Majesty’s Government what plans they have to close the employment gap for blind and sight-impaired people, and by when.
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, this Government are committed to providing high-quality support to disabled people, including those who are blind or visually impaired. This group will be supported to enter and stay in work through our pathways to work guarantee and our connect to work supported employment programme. Our progress is monitored through the Get Britain Working outcome metrics, which include indicators such as the health-related economic inactivity rate and the disability employment gap.
Lord Holmes of Richmond (Con)
My Lords, if you are blind or sight impaired, in the UK currently the employment rate is just 27%. If you are not disabled, it is 83%. Therefore, if you are sight impaired you have only around a one in four chance of being in work. This cannot continue. Will the Minister strongly consider establishing a taskforce to look at the issues and identify scalable solutions to close this pernicious gap that blights individual lives and scars our economy and society? To be clear: this is not a party-political point. No Government have gripped it. Will this one? Here is the rub: currently, if you are blind or sight impaired in the UK, talent is everywhere, opportunity is not.
Baroness Sherlock (Lab)
My Lords, I thank the noble Lord for that question and agree that it is not political. I know that his approach to this is not. I am grateful for how he approaches these issues. There are different views on the statistics. We can have a conversation elsewhere. A lot depends on how the definitions are made but, either way, the disability employment gap is far too big and needs tackling. As the noble Lord will know only too well, things got worse during the pandemic and have not really recovered.
This Government have made a real commitment to engaging, investing significant additional sums of money in supporting people with a range of disabilities and health conditions, including blind or visually impaired people, back to work; lots more tailored support; investment in supported employment programmes; and making sure that there are specialist disability employment advisers and coaches who understand how they can help people. We are also working with employers. I can talk more about that if it is helpful.
I am not in a position to announce a taskforce today, but we have announced the Independent Disability Advisory Panel. The membership will be announced shortly. The Government are taking very seriously the need to listen to the voices of disabled people, including blind and visually impaired people, as well as talking to the organisations that support them. I would welcome having further conversations with the noble Lord about how we can get this right.
Baroness Kramer (LD)
My Lords, the Minister acknowledges the sight-loss employment gap. How many full-time equivalent disability employment advisers are employed by the DWP—and do all DEAs have specific sight-loss training? Do access to work assessors and jobcentre staff have sight-loss training and, if they do not, will the Government seek to remedy this?
Baroness Sherlock (Lab)
I am not sure we have any published statistics, but my best understanding at the moment is that there are more than 800 disability employment advisers and DEA leaders. The Government’s aim and commitment is that every work coach will have access to a specialist disability employment adviser. The DWP provides particular learning for those who come into that DEA role, and that includes specific content relating to blindness and visual impairment. It is intended to give awareness of the challenges that people with sight loss who come to us may face, highlights the support we can offer, and explains what the DWP’s responsibilities are. As an organisation, we are looking specifically to improve that. The Government have recognised that we need to be investing more. We are going to put more money in over the rest of this decade, investing more money in hiring, improving the quality and the quantity of support providing help to disabled customers. We aim for it to be tailored to each individual circumstance, and that is what we ought to do. The answer is yes, we are investing in training as well as in having people on the ground who can help.
Baroness Prosser (Lab)
My Lords, I have been registered as partially sighted since December 2020. While I absolutely agree with the point of the Question regarding the need for employers to be more alert and more open to doing things differently—artificial intelligence plays a major part in helping blind and partially sighted people to see and proceed—I wonder whether the Minister will take away the point I wish to make, which is that there is a great deal of room for improvement in this House itself. There are many people who are very helpful but, overall, the system is completely dysfunctional. I thank the Lord Speaker for the work he has done in trying to bring this to the attention of leaders of various departments in the House, but there is no overall programme; there is in all the Civil Service departments but not in the political wings of our work. I hope the Minister will take that message away with her.
Baroness Sherlock (Lab)
I am grateful to my noble friend for raising that and for bringing her personal experience to the fore here. My department is responsible for disability in government, and we work very hard to be as accessible as possible. We have significant numbers of staff and colleagues who themselves have a range of disabilities, including sight impairment, and we work constantly to improve what we do and what we offer in that space. On Parliament, I think she makes a good challenge. The fact that Parliament is not subject in the same way as other employers to some of the legislative requirements does not mean that we should not do just as good a job as other people and try to make it better. I am very happy to talk to the House authorities on her behalf about how we continue to make progress in that area.
Lord Forsyth of Drumlean (Con)
My Lords, is the issue here not that the Equality Act applies to the staff in this House but not to the Members? Should that not be sorted so that Members are given the kind of support that we see in other parliaments—such as, dare I say, the European Parliament—where they are given the support to carry out their activities?
Baroness Sherlock (Lab)
I have always known the noble Lord as a good European—I am glad to hear him speaking up for the European Parliament today. To be honest, I am not sure we can use that as an excuse. We do not have to be made to do something to do it, and the House should look at it.
Baroness Watkins of Tavistock (CB)
My Lords, I had an aunt who was blind from birth, was funded to train as a physiotherapist—that was on careers advice at school—and worked for 43 years full-time. Is consideration being given to ensure that young people who have long-term permanent sight problems get the right career advice?
Baroness Sherlock (Lab)
I am grateful to the noble Baroness. Like her, I have had the benefit of a physio- therapist who is herself blind and is very good indeed. The noble Baroness makes an important point. We have been working really hard with our colleagues who work with the young people who come in. The reason we try to have tailored advice is to work out what works for that person. Just because it worked for the noble Baroness’s aunt, it might not work for her next-door neighbour in the same circumstances. It is about trying to find out what somebody is able to do, wants to do and has a passion for, and how we can give them skills and support.
One of the great joys of having my noble friend Lady Smith join us as Minister for Skills in the DWP as well as the DfE, getting the remit for adult skills, is that it is helpful to join up what we are doing to try to find opportunities for and support individuals, with them having the skills to enable them to follow through on that.
Lord Watts (Lab)
My Lords, the Conservative and Liberal coalition Government did away with Remploy. At the time that they abandoned Remploy, many of us said that it would leave the disabled exposed. Is it not the case that they did not make any provision for those people who were previously employed through Remploy?
Baroness Sherlock (Lab)
My Lords, I cannot speak to exactly what happened at the time that was abolished. What I can say is that this Government are absolutely committed to supporting people. I talk to brilliant, inspiring disability advocates in my organisation—advisers who have customers who come in and start out thinking there are not things that they can do and end up having jobs found for them and being supported into them. I want to do two things: enable people to get all the help they can, and persuade employers, many of whom want to hire disabled people but do not know how, that they can hire them and that they can thrive and be a real asset to the organisation. We should all get behind that.
Baroness Buscombe (Con)
My Lords, to the Minister’s point about employers, I remember that in government we offered all employers up to £52,500 per year for every person with disabilities to be supported into work. What has happened to that offer?
Baroness Sherlock (Lab)
I am not sure what the noble Baroness is referring to but, if I can find out, I will be very happy to write to her. We now have something called the support with employee health and disability service, which was developed with input from smaller businesses and disability organisations. It gives employers tailored step-by-step guidance as to how they can support employees in common workplace scenarios involving health and disability. It helps employers to understand their legal obligations and what reasonable adjustments may look like, and it even goes down to helping them feel confident having sometimes tricky conversations, either with a new member of staff or somebody whose health or disability may be changing. We know that lots of employers want to do the right thing; our job is to help them to do it well.
Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025
Baroness Sherlock Excerpts(1 month, 2 weeks ago)
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Baroness Sherlock
That the draft Regulations laid before the House on 23 October be approved.
Relevant document: 40th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 8 December.