Pension Schemes Bill
Baroness Sherlock Excerpts(1 day, 10 hours ago)
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Baroness Sherlock
That this House do not insist on its Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88, and do agree with the Commons in their Amendments 88C, 88E to 88P, 88R, 88S, 88W and 88Y to 88Z8 to the words restored to the Bill by the Commons disagreement to Lords Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88.
“(4) In this section “qualifying asset” means an asset of a prescribed description that is held in a main default fund of a relevant Master Trust or group personal pension scheme.
(5) A description of asset may be prescribed under subsection (4) only if it represents a direct or indirect holding in any of the following asset classes—
(a) private equity;
(b) venture capital;
(c) private credit;
(d) interests in land;
(e) infrastructure;
(f) unlisted equity securities not falling within paragraphs (a) to (e).
In this subsection “unlisted equity securities” means equity securities not listed on a recognised stock exchange within the meaning of the Income Tax Acts (see section 1005 of the Income Tax Act 2007) (including equity securities admitted to trading that are not listed on such an exchange).”
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
Noble Lords will be aware that we have one outstanding issue on this Bill still in play. Unsurprisingly, it is the reserve power on asset allocation. As this is the fourth time the House has been asked to consider the question, I will spare noble Lords a detailed exposition of the merits of this policy. Let me simply say that the Government’s underlying position has not changed, reflecting our policy intent to ensure that savers’ best interests are secured by bigger and better pension schemes investing in a wide range of assets.
Today, the Government return to their previous amendments, all of which the elected House endorsed. These spell out the intended purpose of the reserve power to underpin the industry’s commitments in the Mansion House Accord and rule out other uses, such as a focus on any specific asset or asset class. Today, we are also bringing forward a final set of changes that aim to respond to points made in this House and the other place, while retaining the policy intent I have set out. These have three elements.
First, there is a new requirement on regulators, in this case the TPR and the FCA, to make an assessment of the extent to which there is evidence for the collective action problem that we have discussed in debates on this Bill. There will be a requirement for this assessment to be incorporated into the production of the ex-ante report that the Bill requires to be published before any use of the reserve power. Our amendments today would also place a duty on the Government to have regard to this regulatory assessment before any use of the power. It was always the Government’s intent to evaluate progress against the Mansion House Accord commitments in terms of the broad direction of travel over a substantial period of time rather than shorter-term movements in private asset exposure. To reinforce this, we also propose to add to the Bill that the power cannot be exercised any earlier than 2028.
Our second set of changes builds on the savers’ interest test to reinforce the central role of trustees and providers. Our amendment in lieu would change the bar required to engage the savers’ interest test. Rather than having to demonstrate that meeting the asset allocation requirements would be likely to cause material financial detriment, a scheme would instead have to show that meeting the requirement is likely not to be in the best interests of members. This reflects language regularly used when considering trustee duties. In addition, we have more tightly specified the regulator’s role, confining it to ensuring that the trustees’ or providers’ assessment of what is in the best interests of members is reasonable, rather than replacing that assessment with its own.
Thirdly, our amendments address worries about differential treatment of particular investment vehicles by allowing for consideration of direct or indirect holdings in the six asset classes named in the Mansion House Accord.
This Bill has its roots in much work that has been under way for some time in government but also in Labour’s commitment to ensure that workplace pension schemes take advantage of scale and invest in a wider range of productive assets. That was why one of the first things the Government did on taking office was to launch a comprehensive review of pensions investment. That review found clear evidence that the DC pensions market is operating with an excessively narrow focus on cost, to the detriment of saver outcomes. That is where the reserve power comes from. It exists because the review found, and the industry itself has told us publicly and privately, that the competitive pressure focused on cost minimisation is the single biggest barrier to diversifying in savers’ long-term interests.
Of course, things can change over time, and a range of other factors may come into play; the changes that we propose today address that worry and others. They require regulators to assess whether these competitive pressures remain a material barrier to more diverse private asset investment before any use of the power. They put trustees’ or providers’ assessments of savers’ best interests centre stage.
I am grateful for engagement across the House with this Bill and for the engagement with the opposition parties particularly in recent times. This House has done its job in revising this Bill, and I commend the government amendments to the House. I beg to move.
Viscount Thurso (LD)
My Lords, I rise for the last time in your Lordships’ House to congratulate the Minister, to thank her for all the hard work that she has done and to say how much I have appreciated my interaction with her. We have arrived at a perfect compromise in that none of us is entirely satisfied—which has always been the definition of a great compromise. We are in a place where the major concerns that many of us had on the mandate part of this Bill have been, if not removed, modified to the point at which they are liveable with. As the Minister said, it is this House at its best.
When I came into this House in 1995, if your Lordships had said to me, “The last time that you speak will be on the fourth ping-pong of a Pension Schemes Bill”, I would have said, “On your bike—not a chance”. However, I have enjoyed the work of being part of this Bill, and I think that both the Government and the Opposition have done their job well. I hope that when this goes on to the statute book, it will deliver for pensioners.
Baroness Sherlock (Lab)
My Lords, I am very grateful to noble Lords for their remarks. I will not detain the House for long. I want to say just a couple of things.
One is that this Bill is about so much more than the reserve power. We should take a moment to think about what we have done. We have done some really significant work which will help to reshape the pensions landscape, to help get better returns for savers, as the noble Baroness, Lady Altmann, said. We have addressed questions of value for money, scale, lost pots, guided retirement, a superfund regime, and an uprating for PPF members. A huge amount has gone into this, and more besides. I am so grateful to the House for its detailed scrutiny. Bills such as this show the value of this House, when we get the time to crawl all over them. I like the characterisation given by the noble Viscount, Lord Thurso, which I think will outlive him: that when we are all a bit unhappy, we may well have landed in a place that we can live with.
I say thank you again to all noble Lords—I will not name them all because there are too many, but obviously they include the noble Baronesses, Lady Bowles, Lady Stedman-Scott and Lady Altmann—for their work on this and their engagement in recent times. I thank the noble Viscount, Lord Thurso, for his kind words about me—and I hope he took from the warmth of the House’s response how much his work is appreciated and how much he will be missed—and for all his years of public service.
Finally, I say to the noble Viscount, Lord Younger, on behalf of the House, that after 15 years on the Front Bench he deserves a break. There is a life outside here—said once more with feeling, as someone who is not far off that. I thank him for all those years of public service, his years as a Minister and his years on the Front Bench, for his courtesy, kindness and engagement, and for all the work that he has done. We wish him a very happy time outside this House. When he discovers the joys to be found beyond here, he may write back and tell us and we will just be very jealous.
In the meantime, with thanks to everybody, I beg to move.
Pension Schemes Bill
Baroness Sherlock ExcerptsMonday 27th April 2026
(2 days, 10 hours ago)
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Baroness Sherlock
That this House do not insist on its Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88, and do agree with the Commons in their Amendments 88A, 88C, 88E to 88P and 88R to 88W to the words restored to the Bill by the Commons disagreement to Lords Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88.
“(ca) must require the Authority to provide reasons for any determination not to approve an application;”
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, the other place has once again considered this House’s amendments and has once again disagreed with them, tabling further amendments in lieu. I will set out in a moment what those amendments contain, but I want first to say something about where we now find ourselves.
The elected House has now voted on the reserve power three times. On each occasion it has supported the Government’s position, by large majorities. This House has every right to scrutinise what is before it, and the quality of that scrutiny has improved the Bill. But we need to be clear about the context in which we are operating: these exchanges have gone on for some time, and the Government have moved a considerable distance.
Let me trace that distance briefly. In the first round, the Government wrote the Mansion House Accord targets into primary legislation—the 10% and 5% caps—and introduced the asset class neutrality requirement. In the second round, we went further: the sunset was brought forward to 2032; the power was restricted to a single use; the application was limited to main default funds; and we provided for the full repeal of the entire asset allocation framework at the end of 2035. This was not just the enabling power, but every associated provision—the approval requirements, the penalty regime, the review obligation, and any requirements that had been brought into force—removed from the statute book entirely.
Today, the other place agreed a third set of amendments. These address the savers’ interest test—the mechanism at Section 28G by which schemes can apply for an exemption from any asset allocation requirement. I know that the operation of this test has been a source of concern in this House, touching as it does on issues around trustees’ fiduciary responsibilities to savers. The Government have listened carefully to what has been said, while explaining the reason for their own position, which is, in essence, that these fiduciary duties have not to date been sufficient to overcome the distortion of asset allocation decisions by commercial pressures.
When we debated things last Wednesday, the noble Baronesses, Lady Altmann and Lady Bowles, described our position as believing a market failure to exist, and that is a fair characterisation. The Opposition argue that decisive government action to correct this market failure is not justified. We simply disagree. We believe that it is the Government’s duty to take the steps needed to further savers’ interests.
Our first new amendment, Amendment 88U, lowers the threshold for an exemption. The Bill, as drafted, would have allowed regulations to require a scheme to demonstrate that compliance would cause material financial detriment. That language attracted close scrutiny in this House. The noble Baroness, Lady Bowles, among others, questioned whether it set the bar too high, requiring proof of certainty. The threshold is now would “be likely to” cause. A scheme will need to show that detriment is the probable consequence of compliance, not that it is certain.
The second amendment, Amendment 88T, confirms in the Bill that where the threshold is met, the regulator must grant the exemption. The Government always intended the test to work that way. The Bill now states it clearly.
The third amendment, Amendment 88V, expressly requires the regulator to have due regard to the scheme’s own assessment of why compliance will be likely to cause material financial detriment. Schemes applying for an exemption must set out their reasoning, and the regulator will be under a statutory obligation to engage with it properly.
Noble Lords have argued that trustees and scheme managers are best placed to understand the circumstances of their members and that the regulator should give proper weight to their analysis. “Due regard” is established statutory language. It carries real legal weight, and it means the regulator cannot receive a scheme’s assessment and pass over it without proper consideration. I am aware that this type of language finds favour in a number of places in the House. I hope that noble Lords will recognise that the Government have engaged with the substance of what has been asked for.
The fourth amendment, Amendment 88W, requires the regulator to provide reasons for any decision to refuse an application. The Bill already provides for a right of appeal to the Upper Tribunal. This ensures that schemes have what they need to exercise that right—a right that is meaningful only if applicants know why they were turned down.
Let me set out what the reserve power now looks like, taken as a whole. It is capped at the accord targets. Regulations cannot concentrate requirements in a single asset class. The power applies only to main default funds. The percentage can be set only once. The power lapses if not used by the end of 2032. Even if used, the whole framework is repealed at the end of 2035. It remains subject to the affirmative procedure and to statutory reporting requirements before and after any use. The savers’ interest test now provides a lower threshold, certainty that an exemption will be granted where it is met, a statutory requirement for the regulator to give due regard to the scheme’s own reasoning and transparency about decisions if the application fails.
I understand the position of noble Lords who believe that this power should not exist at all. I have listened to those arguments with care throughout the passage of the Bill, but the Government’s view remains that the risk of inaction, of allowing the collective action problem to persist while pension savers bear the cost, is the greater risk. The Government have now brought forward three successive rounds of concessions, each responding to arguments made in this House, each written into primary legislation. The power that is now before noble Lords bears the imprint of this House’s scrutiny at every turn. Given all that, I ask noble Lords not to insist on their amendments and to agree the amendments proposed by the other place in lieu. I beg to move.
Baroness Sherlock (Lab)
My Lords, my speech says, “I would like to thank all noble Lords who have spoken in today’s debate”—but that will not take long.
I will not hold us here for a long time, tempting though it is to go over the arguments in considerable detail, but I will say a couple of things. We need to remember that the whole purpose of the Pension Schemes Bill is to improve outcomes for savers. Where are savers in all of this? It is their interests that are there. The reason the Government are doing this is that the evidence is clear internationally that pension funds which have a small holding in private assets as part of a diversified portfolio bring better returns.
If there were a situation where that would not be in the interests of a particular scheme, that is the point of the savers’ interest test. This does not cut across fiduciary duty because, in fact, nothing in the Bill overrides that core principle of fiduciary duty. If trustees believe it not to be in their interests, not only can they make an application for an exemption under the savers’ interest test but we would expect their fiduciary duty to guide them to make that application. That really is the beginning and end of it.
I will simply say this. The whole point of the Bill is to make pensions better. This whole Bill will transform our pensions landscape. Pensions are the promise we make to millions of people that years of hard work will be rewarded with security and dignity in retirement. Bigger, better pension schemes will drive better returns, as well as tackling inefficiencies. We need to find a way to get the Bill agreed. Industry wants to get on with implementing the reforms and our pensioners want to start benefiting. The other place has expressed its view clearly, repeatedly and by substantial margins. I hope that noble Lords will reflect on whether it is right to ask the elected House to vote for a fourth time on a question to which it has given the same answer on every occasion. I ask noble Lords not to insist on their amendments and to agree the amendments proposed in lieu in the other place.
Baroness Bowles of Berkhamsted (LD)
My Lords, the arguments have been well rehearsed. I am not convinced that this coercion is as innocent as has been made out and I therefore wish to test the opinion of the House.
Chemicals (Health and Safety) (Amendment, Consequential and Transitional Provision) Regulations 2026
Baroness Sherlock Excerpts(2 days, 10 hours ago)
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Baroness Sherlock
That the draft Regulations laid before the House on 24 February be approved.
Relevant document: 55th Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, I will come to the amendment from the noble Baroness, Lady Bennett, in a moment, but first, let me introduce the regulations. The measures in this instrument form an important part of the Government’s programme to ensure that Great Britain’s post-EU exit chemical supply regime is robust, proportionate and fit for the long term.
The regulations amend three pieces of assimilated EU chemicals legislation, rectifying issues that could not be addressed at the point of EU exit due to the limited powers available under the European Union (Withdrawal) Act 2018. I am satisfied that these regulations are compatible with the European Convention on Human Rights. They reflect the Government’s commitment to maintaining high standards of protection for human health and the environment, while ensuring that regulatory systems work efficiently for businesses and support sustainable economic growth.
In combination with the commitment from the Health and Safety Executive—HSE—to remain aligned with EU regulatory decisions other than in exceptional circumstances, the regulations create a framework by which EU chemical hazard classifications can be adopted more quickly in Great Britain. This supports the objective shared across chemical stakeholder groups to remain as aligned as possible with the EU to facilitate trade and to ensure that we maintain the high standards of protection we inherited from our closest trading partners.
The measures strike an important balance. They will introduce more certainty, flexibility and proportionality for suppliers of chemicals and the regulator while upholding a system that protects our natural environment from the risk of chemical pollution; protect those who use and work with hazardous chemical substances; and ensure that society can continue to benefit from the use of important biocides, such as those used to provide clean drinking water across Great Britain.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords for their thoughtful contributions. Although we are having this debate in the Chamber rather than in Grand Committee, it is always good to have the opportunity to scrutinise things. The noble Baroness, Lady Grender, made an important point. These things should not go through without any consideration. They are too important for that, and the chance to have the conversation is welcome.
The regulations introduce necessary changes to a highly technical set of regulatory regimes, but the changes preserve the high standards of protection we inherited from our time in the EU and ensure we can continue to recognise decisions made by the European Chemicals Agency, which remains highly respected. I will try to go through the points raised. I will not get to them all and I will have to write, for which I apologise. I will start with the list from the noble Baroness, Lady Bennett, as she tabled the amendment.
First, the noble Baroness asked about adding the EU’s SVHCs to our list. The Government intend to make secondary legislation by June 2027, providing for the incorporation of the six EU hazard classes in GB CLP. The noble Baroness, Lady Grender, also asked about that. The work on developing that is already under way, and the HSE is currently engaging with stakeholders to understand the potential impacts of aligning with the EU on CLP measures, including its hazard classes. It has issued a stakeholder impact survey for exactly that purpose.
The work has been progressed separately from the SI, as I explained, due to constraints in the REUL Act that prevent an overall increase in regulatory burdens. The Government have made it clear that reaching a negotiated SPS agreement with the EU is a key priority. Negotiations are ongoing but we are committed to reaching an agreement by the end of this year. Broadly, it is expected that the areas in scope will dynamically align with the relevant EU legislation. I hope that reassures noble Lords on that front.
To be clear, we will continue engaging with the EU and other international partners at the UN GHS to consider the scientific basis for the six EU hazard classes. As the noble Baroness, Lady Bennett, knows, discussions at the UN GHS have not yet concluded, so the outcomes of those discussions have not been determined. The UK will take into account the EU’s intended action in response to the outcomes of the UN GHS work when formulating our own position on the conclusions of the UN GHS consideration. I underscore that we intend to make legislation by June 2027 that provides for the incorporation of the six EU hazard classes in GB CLP, and that is being done separately for reasons I have just explained.
The noble Baronesses, Lady Stedman-Scott and Lady Bennett, raised questions about the resourcing of the HSE and its size. The HSE’s funding and its priorities and progress are monitored by the Government. DWP is the sponsor department for the HSE, and a delight it is. It is important work, much of which is at the centre of what we do. To be clear, the fundamental scientific judgments are not changing as part of our changing the regime here. The HSE’s business plan for this year confirms its continued commitment to concentrating on the most serious risks and to targeting industries with the greatest hazards and sectors with the worst risk management record.
In response to the noble Baroness, Lady Stedman-Scott, I note that the HSE significantly increased its resources to deal with the extra workload after leaving the EU. For example, on 1 January 2021 there were 262 technical staff in the HSE’s chemicals regulation division, working across the six chemical supply and use regimes. Today that division has approximately 440 staff—so where it is necessary to respond, additional resource is put into those areas.
The noble Baroness, Lady Bennett, raised the issue of the regulatory approach and the noble Lord, Lord Redwood, pulled it from the opposite direction. The HSE’s regulatory approach is aligned with the requirements of the growth duty, but its job is to achieve the right regulatory balance between supporting safe business practice and protecting workers and the public. Proportionate health and safety regulations facilitate economic growth, but the key is that they have to be proportionate. The noble Lord, Lord Redwood, is quite right. This is not about taking risks or cutting corners on safety; it is about making appropriate, proportionate decisions. There is no point in leaving regulatory requirements in place if they serve no purpose and do nothing to make anybody safer but simply make things more difficult for business.
I should make a correction. Apparently, when I was talking about how biocides actually have a useful role in controlling harmful organisms, I said, “harmful organisations”. If I did, I was not dissing anyone’s organisation, just the organisms, so apologies for that.
The noble Baroness, Lady Bennett, asked about the jurisdiction question. We can already consider a jurisdiction from anywhere—this is about speeding it up—but I reassure the noble Baroness that qualification for the fast-track evaluation process has to be subject to the criteria set out in the SI. The only jurisdiction that meets them now is the EU; no other jurisdiction adopts GHS in the same way as the UK, apart from the EU, and no other jurisdiction apart from the EU has an open and transparent classification system based on public consultation, as we do. Other jurisdictions can submit proposals, but they will be part of the normal-track evaluation process, and any proposals to add jurisdictions which are considered to meet the criteria will be included in the HSE work plan, subject to consultation as part of the work plan, and decisions are taken by Ministers. However, the bottom line is that they have to meet the criteria—that is the safety net.
The noble Baroness, Lady Bennett, asked about removing the special reference identification number. She mentioned cutting red tape. Cutting red tape can sometimes be good. Special reference identification numbers are not a requirement of the Rotterdam convention. They were introduced for use in an EU IT system to which we no longer have any access, so they serve no useful purpose. Therefore, removing the requirement of the companies to obtain a special reference identification number for small quantities of chemicals being exported solely for research or analysis removes a completely unnecessary burden on businesses and on the HSE as the PIC-designated authority. They simply do not have a function.
The noble Baroness asked about the disbanding of the Defra stakeholder event. Regular stakeholder engagement is really important in this area, as in others, but it can take many forms. I am advised that Defra will continue to engage closely with a range of stakeholders to gather their input, harness their expertise and share Defra’s thinking. It does not plan to organise any further CSF meetings but its engagement remains strong through its monthly chemicals NGO forum and the industry chemicals policy communication forum, as well as through relevant events. With regard to any HSE materials that were discussed in that context, I want to say really clearly that the HSE is happy to engage and consult with stakeholders at any time. If there are concerns about the HSE, I encourage the noble Baroness to get in touch with me and we can take that forward from there.
The noble Lord, Lord Teverson, asked about the exceptional circumstances. Just to be clear, these reforms do not allow exceptional circumstances to be used to weaken protections. Divergence will occur only in exceptional circumstances and only on scientific and technical grounds, not on economic grounds. Government priorities explicitly emphasise maintaining high standards of health and environmental protection, and leaning into alignment with EU decisions unless scientifically justified otherwise. That could, for example, be the fact that more information may have come to light after an EU opinion had been issued, but it is scientific.
I am assured that the HSE’s commitment to align with EU discussions has been welcomed across all chemical stakeholder groups—although, I acknowledge, possibly not by the noble Lord, Lord Redwood. That reflects a strong commitment across a number of priorities, including reducing trade barriers that arise from divergent standards, which will support trading goods with our biggest trading partner, and protecting the UK internal market by ensuring that different regulatory requirements do not apply in Northern Ireland, significantly reducing the risk of supplies of chemical products no longer supporting the market in Northern Ireland.
I say to the noble Lord, Lord Redwood, that this process is not about banning other products in Northern Ireland. One of the things that closely aligning where possible does is to protect Northern Ireland’s supply chain by making sure that the company will still be able to supply and will want to supply. The extent of agreement or divergence with EU classification proposals or decisions will be identified and reported in the HSE work plan. I hope that answers the question he asked about that.
I think somebody asked whether extending expiry dates would reduce risk protection. Just to be clear, these are substances that have previously been evaluated under the GB BPR, meaning that the risks are understood and they have already been approved for use. Postponing the expiry dates allows the HSE’s regulatory resources to be focused on higher priority evaluations, including first-time approvals where the risk is less well understood, and a limited number of high hazard renewals. I hope that makes a difference. It will mean that critical biocides remain on the GP market that in themselves would cause issues if they were not available. Nothing in the regulations allows new biocidal products which are not already on the market—rather, the purpose is continuity to ensure that essential products, such as those critical for aviation safety and safe drinking water, are not lost.
The noble Baroness, Lady Stedman-Scott, raised the GB CLP notification database. In the absence of that, GB CLP suppliers can use other resources, such as the European Chemicals Agency’s analogous database, which may encourage agreement between EU and GB suppliers on hazard classifications of their chemicals, otherwise known as self-classifications. Duty holders also still have a legal obligation to self-classify. Substances that pose higher risks are already regulated under frameworks such as REACH, the GB BPR and the GB Plant Protection Products Regulations, or other downstream legislation such as the UK cosmetics regulation or the Control of Substances Hazardous to Health Regulations. This ensures ongoing oversight of relevant hazards and associated risks.
I may be running out of things I can usefully say. I hope I have answered the things that are critical to today’s vote. I can assure the House that I will look carefully at Hansard and write to noble Lords with questions that I have not been able to answer.
Although I am grateful for the scrutiny, I stand by the case I have set out for these regulations. This instrument is practical, proportionate and urgent. It keeps essential biocides available, safeguarding public health and critical infrastructure, while preserving the ability to respond quickly to emerging risks. It speeds up our regulatory decision-making so that it is more transparent and better targeted to GB needs, enabling us to align more quickly with EU classification decisions and prioritise chemical hazard evaluations of greatest importance to the GB market, and it simplifies export requirements under GB PIC while ensuring that we continue to meet our international obligations. These are measured improvements to ensure that the system works for Great Britain as intended, supports our chemicals industry, protects people and the environment, and allows the HSE to regulate where it delivers the greatest value.
I hope that the noble Baroness, Lady Bennett, has been reassured and will not push her amendment to decline these regulations. If she does, I urge the House not to vote for it.
Baroness Bennett of Manor Castle (GP)
My Lords, I thank all noble Lords who have taken part in this quite short but important debate—perhaps shorter than we expected due to the absence of our Northern Ireland colleagues.
I particularly thank the Minister for a comprehensive, careful and clear response. I think there will be significant reassurance in what she said to the campaigners with whom I have been working. For all noble Lords who might be thinking about their dinner, I give advance notice that I am not intending to put this to a vote, having heard the debate.
However, I will say a couple of things. I particularly thank the noble Baroness, Lady Grender, for a very clear explanation of the importance of this debate and for the important point that relaxing time limits is not a mere detail but potentially a matter of great safety and health concerns.
In responding to the noble Lord, Lord Redwood, I have to say first that he spoke with some glee about strong disinfectants killing germs. I would love to have a chat with him about antimicrobial resistance and where that interacts with what he said. I also think he suggested that this is some kind of Brexit freedom. I point to the fact that, on substances of very high concern, zero for us and 44 for the EU is not some kind of freedom—I do not think anyone could reasonably call it that.
I was pleased to hear from the noble Baroness, Lady Stedman-Scott—indeed, from the Tory Front Bench—about the concerns about HSE capacity. The Minister pointed out that additional resources were being put into chemical regulation. Of course, unless the overall resources increase, that means that resources are being taken away from other places. I note in passing silicosis, which I have done a lot of work on and which is associated with machine worktops, and the issues around that.
I may have misunderstood the Minister’s introduction, which is undoubtedly my fault. I was pleased to hear about the EU’s six classes and that the Government intend to lay a statutory instrument on that by June 2027. I think I misunderstood that, thinking that that was talking about primary legislation in 2027. I therefore ask the Minister to write to me about what the Government’s framework is for primary legislation, because both the Secondary Legislation Scrutiny Committee and the HSE itself say that primary legislation is absolutely necessary to enable us to keep up to date with the secondary legislation.
I will conclude with one final thought on what kind of chemicals we are talking about here. There is a class of chemicals known as second generation anticoagulant rodenticides. Many Members of your Lordships’ House and of the other place have been asking the Government questions about this, including my honourable friend Ellie Chowns. She was told that the Government were considering monitoring residues of these very dangerous chemicals in red kites, buzzards, sparrowhawks, peregrine falcons, red foxes, otters and hedgehogs. That gives a sense of the way in which we are contaminating our environment, our natural world, with some very dangerous substances. That is something I urge your Lordships’ House to keep a very close eye on. However, in the meantime, I beg leave to withdraw my amendment.
Pension Schemes Bill
Baroness Sherlock ExcerptsWednesday 22nd April 2026
(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: Commons Consideration of Lords Message as at 22 April 2026 - large print - (22 Apr 2026)
Baroness Sherlock
That the Commons amendments now be considered forthwith.
Baroness Sherlock
That this House do not insist on its Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88, and do agree with the Commons in their Amendments 88A, 88C and 88E to 88P to the words restored to the Bill by the Commons disagreement to Lords Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88.
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, I do not get to say “forthwith” often enough. That is a great start to the day. I thank all noble Lords for their continued scrutiny of this important Bill. We are now looking today at the remaining areas of disagreement.
Let me start with the reserve power. Amendment 15 and those connected with it sought to remove the reserve power on asset allocation from the Bill. Noble Lords will be aware—indeed, we just heard—that the other place has considered this House’s amendments and has once again disagreed with the amendments that would remove the reserve power from the Bill. In doing so it has tabled further amendments in lieu, and I will come to those in a moment. However, I want first to acknowledge the level of interest in the House on this issue.
Noble Lords have engaged with these provisions with great care, and I am genuinely grateful for the quality of scrutiny that has been brought to bear at every stage from Committee through Report and to our exchanges between the two Houses. I know that many noble Lords remain concerned about the reserve power and I do not dismiss those concerns out of hand, but I must also be candid with the House about where we stand. The elected House has now considered the case for the reserve power on two occasions, and on both occasions it has concluded that the power should remain in the Bill. However, the Government have not simply dug in; they have responded to the concerns raised in this House with substantive changes to the legislation. In a moment, I will set out what those changes now amount to, because the cumulative picture is important.
I will briefly restate the case. There is a well-evidenced collective action problem in the defined contribution market. The industry itself has been clear that a key barrier to delivering on its commitments are market dynamics that continue to focus on minimising cost rather than maximising long-term value for savers. The industry wants to diversify in its savers’ interests but risks being undercut by competitors which see a commercial opportunity. The reserve power exists to address that problem, and that problem alone.
In the first round of these exchanges, the Government tabled three amendments in lieu, delivering two concessions that responded directly to arguments made in this House. The first, which had been pressed by the noble Viscount, Lord Younger of Leckie, and the noble Baronesses, Lady Stedman-Scott and Lady McIntosh of Pickering, was the statutory cap. Regulations may not require more than 10% of default fund assets to be qualifying assets or more than 5% to be of a UK-specific description. That writes the Mansion House Accord targets into primary legislation so that no future Government can use the power to go further.
The second, responding to the type of concern raised by the noble Baroness, Lady Bowles, and other noble Lords about the breadth of the power, was the asset class neutrality requirement, which ensures that regulations must cover each of the named private market categories and cannot concentrate requirements in any one class. Those amendments represent meaningful constraints on the reserve power, of a kind for which this House has previously signalled strong support. I stand by them.
Today, the Government, with the support of the other place, propose to go further, in three ways. First, we have tabled an amendment to bring forward the existing sunset date for the reserve power from 2035 to 2032. The Mansion House Accord commits the industry to reaching its targets by 2030. Bringing the sunset forward aligns the power more closely with that timeline. If the power has not been exercised by the end of 2032, it falls away entirely, and if it has been exercised, the percentage requirements set under it may not be raised after that date.
The second amendment ensures that the power to set the headline percentage may be exercised only once. Combined with the statutory caps, this means that any future Government have at most a single opportunity to set the asset allocation requirement, and only up to the levels to which the industry itself has committed under the accord.
Thirdly—I ask the House to consider carefully the significance of this step—the other place has agreed an amendment providing for the full repeal of the asset allocation regime at the end of 2035. I want to be precise about what that means, because it goes beyond the sunset of the enabling power. Even if the power has been exercised and requirements are in force, the entire framework—the approval requirements under Section 28C, the savers’ interest test, the associated penalty and review provisions and any asset allocation requirements which have been brought into effect—is repealed from the statute book at the end of 2035. I therefore hope that noble Lords who have expressed objections to this power being a permanent feature of our pensions legislation will recognise that the Government have listened to them.
I will set out what the reserve power now looks like taken in the round. It is capped at the accord targets; it cannot be used to compel investment in a single hand-picked asset class; the headline percentage can be set only once; the power lapses in 2032 if not used; and, if it were ever used, the entire regime is repealed at the end of 2035—every element of it removed from the statute book.
On top of all that, it remains subject to the savers’ interest test, statutory reporting requirements both before and after any regulations are made, and the affirmative procedure. This power has been meaningfully altered and constrained by the scrutiny of this House, and I hope noble Lords will recognise the collective significance of those safeguards. Industry has welcomed our amendments to constrain the power. By way of one example, this morning, Aviva said:
“We welcome the government’s amendments to constrain the reserve mandation power so that it can only be used to support delivery of the Mansion House Accord … We hope this is enough to build the consensus needed for the Bill to be passed in this Parliamentary session”.
I understand the position of those who believe the power should not exist at all. The noble Baroness, Lady Bowles, has made that case with clarity and rigour, and I respect it. But the Government’s view is that the risk of inaction, of allowing the collective action problem to persist to the detriment of pension savers, is the greater risk. The power as it now stands is a carefully circumscribed instrument, designed for a single purpose and limited in every dimension.
This House has done its job as a revising Chamber. The Government have engaged in good faith with the concerns raised and responded with changes to primary legislation—not undertakings, not assurances, but amendments to the Bill. I hope this demonstrates the seriousness with which we have taken this House’s scrutiny and I ask noble Lords not to insist on their amendments and to agree the amendments proposed by the other place in lieu.
I turn now to Lords Amendment 35B, which would require the Secretary of State when making regulations across the scale measures and those for default arrangements to
“have regard to the benefits of competition among providers of pension schemes”.
The Government absolutely support a competitive market; that is evident through all the scale measures. However, we believe that in designing regulations, a range of factors must be taken into account. Our focus always has to be on delivering the best outcomes for members.
Noble Lords have stressed the importance of competition as the market moves towards scale. The Government agree: we have always considered it to have a central role in the policy. The new entrant pathway is designed to drive this, as is the freedom schemes will have to open new default arrangements which will support competition. However, we have listened carefully to the arguments that have been made during debates, especially by the noble Baroness, Lady Noakes, and we recognise the desire to see that commitment feature in the Bill. We have therefore tabled amendments in lieu to set out that regulations, both those in respect of the scale measures and those relating to default arrangements, must have regard to the importance of competition and innovation.
However, under the Government’s Amendments 35C and 35D, regulations will also need to have regard to additional factors: the importance of scale, improving member outcomes and effective governance. It is clearly right that we place members at the heart of this policy—I am sure there can be no disagreement that their needs are just as important as those of the market that serves them. Members’ interests come first and this amendment recognises that.
The noble Baroness, Lady Noakes, has asked me to confirm two matters in relation to this amendment: first, how the Government will meet the new duty in relation to the different factors set out. Under our amendments, when making regulations, the Government will need to have regard not just to the need to reach an appropriate scale but to the importance of competition and innovation in the design and operation of schemes, to effective governance and to the vital objective of improving outcomes for members. This amendment captures the basic but important principle that the Government’s approach to making regulations must be holistic, taking account of many relevant factors. The Explanatory Notes will also make this clear.
Secondly, the noble Baroness asked me to confirm why new Section 28J does not appear in the list of provisions in this amendment, and I am very happy to do so. This is because new Section 28J will allow the Treasury to make regulations that switch on the FCA’s enforcement powers in relation to Chapter 3. This is primarily a question of whether these powers should be available to the FCA, so the matters listed in the amendment are therefore not applicable to that question in the same way they are to the powers that allow the Government to construct key elements of the scale framework. I hope that explains things to her satisfaction.
Lords Amendments 37B and 37C set out the ability for a regulator to exempt a scheme on the basis of an innovative offering or where consolidation may not improve member outcomes. We debated this amendment this week and I will not restate the arguments in the interests of time. The Government have long been clear about our intention to adopt reforms to ensure that workplace pension schemes take advantage of consolidation and scale to deliver better returns for UK savers, and that is what we are doing in the Bill.
While I recognise that this policy may have an effect on some schemes in the market, we must prioritise the need to deliver on this commitment to members. Our priority is to serve those who have begun to save through auto-enrolment and who work hard to save for retirement: we want to ensure that they are saving into schemes that deliver better outcomes. However, we have heard concerns expressed, in this House and in the other place, that the benefits that innovation can bring should not be lost in the process of consolidation. We agree. We have therefore tabled Amendments 37D and 37E in lieu to require the Secretary of State, in conjunction with the regulators, to publish a report about the effects of pension scheme consolidation, and the extent to which innovative product designs are adopted or maintained following consolidation activity, as well as any barriers that may exist to preserving these features. This report will be published within 12 months of the Bill becoming an Act. The timing of the report will ensure that the Government are then able to take action, as needed, in advance of the scale measures being commenced in 2030.
Baroness Stedman-Scott (Con)
My Lords, since we have only one group of Motions today, I shall address our three key areas—scale and competition, public sector pensions and mandation—together.
First, on scale and competition, I am grateful to the Minister for bringing forward these amendments in lieu. The government response does two important things. First, it places a clear duty on the Secretary of State, when making regulations under key pension powers, to have regard to a set of core principles: innovation in scheme design and operation, competition between providers, the need to improve outcomes for members, the achievement of appropriate scale and effective governance. Secondly, it applies a similar discipline to the appropriate authority when making regulations under Clauses 42 and 44 requiring regard to innovation, competition, member outcomes and governance. Together, therefore, this amendment establishes a statutory framework that must guide the making of these regulations. It ensures that scale is pursued not at all costs but alongside innovation, competition and, above all, better outcomes for savers.
We also welcome the amendment in lieu from the Government, which would require the Secretary of State to publish a report into the effects of consolidation on innovation in the design and operation of relevant master trusts. These are welcome changes to the Bill following our long-fought Conservative campaign. They reflect in a meaningful way the concerns we have consistently raised about the balance between scale and innovation. On that basis, we are content to accept these amendments, and I thank the Minister for her constructive engagement in bringing this forward. This is the change in emphasis that we wanted to see, and we are glad that the Government have moved on this.
Turning to public sector pensions, I pay tribute to my noble friend Lady Neville-Rolfe for her sterling work in pressing this important issue. This is a fundamentally important matter. We are talking about vast sums of public money—indeed, one of the largest government liabilities behind gilts. I am pleased that the Government have recognised the important point that my noble friend has been making and have brought forward this amendment in lieu. We shall of course await publication by the Government to ensure that it receives full and proper scrutiny once it is released, but we thank them for their recognition of this point.
Finally, I come to mandation. We have had some small movement from the Government in their amendments in lieu, which is welcome to some extent, but the Government should not have this power at all—a view that we share with both industry and the public.
The Government want greater investment in private markets. The reason why that is not happening as fast as they would want has many causes—which could in turn have many solutions, not limited to increasing consumer visibility, strengthening employer-side incentives, addressing the role of intermediaries and promoting co-ordination through voluntary alignment. Indeed, we already have several in motion, such as the Mansion House Accord, a voluntary, industry-led framework that was agreed less than a year ago and designed to address precisely these issues through alignment, not coercion.
Yet before the approach has even had time to take root, the Government are reaching for the most extreme lever available: the power to direct private investment into assets of their choosing. That was, contrary to some claims, not in the Government’s manifesto. The noble Baroness, Lady Bowles, is right to oppose this in the strongest possible terms.
Mandation is a profound mistake. It cuts across the fundamental principle of fiduciary duty and the obligation to act in the best interests of savers, not Ministers. It sets the deeply troubling precedent that, where markets do not move quickly enough in the Government’s opinion, the Government will simply override them. The Government are trading partnership for pressure and replacing trust with the threat of intervention. This is not how you build a strong, dynamic investment market; it is precisely how you undermine it.
This power is not just unnecessary: it is dangerous and it should not stand. We entirely support the Motion from the noble Baroness, Lady Bowles, to insist on her amendment and we will support her if she chooses to test the opinion of the House on this question.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords who have spoken. I thank them for being very constructive in their engagements—possibly more so offstage than onstage, but I am always grateful for and will take whatever I can find. I thank in particular the noble Baronesses, Lady Neville-Rolfe and Lady Noakes. I am glad that the noble Baroness, Lady Noakes, knows now that I really was listening all the way through Committee and Report, even if there may have been times when—I am sorry—it looked like I was not; I shall work better on my nodding in future. I am really glad that she and the noble Baroness, Lady Neville-Rolfe, are happy with where we have got to.
I will try to pick up on a few points. We have gone over them many times in debate, so I will not hold the House back in order to redo them all over again, tempting though that is. I turn first to the noble Lord, Lord Vaux. I think the problem is that we have started in the middle of the argument. The diversification of portfolios is critical to reducing risk. There is clear international evidence that a small investment in productive finance, in the context of a diversified portfolio, brings better returns. That is demonstrable. We have to admit that most mass-market DC schemes have little or no private markets in their default funds, and that is very much in contrast to the position in many other countries. So the starting point is that it is reasonable to assume, as the evidence would suggest, that it is better for savers for that to happen.
However, we do want safeguards around this, and what the noble Lord described is one of the safeguards. If this power were ever to be used—it is a reserve power, so the Government do not expect it to be used—a report would have to be commissioned to look at the impact of doing so on savers as well as the broader economy, to establish what would happen. Then, despite all that, if trustees believed, knowing their savers and membership, that it would not be in their interests because of some reason—for example, even if it might broadly be in their interests but it would not be in their savers’ interests—not only can they make an application for an exemption under the savers’ interest test but we would expect the fiduciary duty to drive them to do so. The test is designed to be capable of being passed, not just failed. I understand the noble Lord’s position, but that is the Government’s position.
The noble Baroness, Lady Bowles, asked about the timing: why should it not stop in this Parliament? We have talked about the power stopping in 2032, but the Mansion House Accord has until 2030 to happen, and this Parliament, I am sorry to say, is due to finish before that. Would that it could continue—no, I will not go in that direction; it will get badly reported. We think, that if the power were ever used, there would have to be enough time to see its impact before bringing it to an end. The sunset date of 2032 seems a reasonable starting point and that, I hope, is something that she can appreciate.
A question was asked about collective action, which we have been around several times. The Government have set out the arguments that the view on collective action failure in the market is not just ours; the industry has made this really clear. When the Mansion House compact—the predecessor to the Mansion House Accord—published its collective assessment of progress two years into its assessment, it identified this dynamic of competitive pressure focusing the market on minimising cost as the single biggest barrier to delivering on its own commitments. We have been here before; it has been tried on a voluntary measure and failed, and industry identified this as the single biggest barrier. That is why we are addressing this and that is the reason for doing it.
I can reassure my noble friend Lord Davies that the OBR will continue to produce long-term forecasts of the economy, which will provide a context for the figures that are being made. I am grateful to him for asking about it.
Finally, to describe the changes the Government have made as small is unreasonable. I remind the House what this now is: this provision, the reserve power, is now capped at the same rate as the accord. It cannot be used to compel investment in a single, hand-picked asset class. The headline percentage can be set only once. The power lapses in 2032 if not used and, if it were ever used, the entire regime is repealed at the end of 2035—every element is taken off the statute book. Those are significant movements. The Government have listened. The Commons has twice sent this back; it wants this in the Bill, so we should give it to the Commons. I urge the House to agree.
Baroness Bowles of Berkhamsted (LD)
My Lords, I thank all those who have contributed. As the Minister said, we have been around the arguments many times, so I will be brief. This was sold as a backstop to the accord, so it is not a case for celebration when something that bit off a lot more than the accord is brought a bit more closely into alignment with it. The fact is that the reserve power is coercive—that is what it is there for and what it is meant to do. It is not without effect, yet it was not consulted on. It was sprung on us suddenly and snuck into the Bill, and we have had to deal with it.
I was interested in the tax advantage point raised by the noble Lord, Lord Davies, but these are the least well-off pensioners who are going to be asked to put more into risky assets. Should they not get an extra slice of tax relief, then? All the people who are in safe, defined benefit schemes and those kinds of things where they are not at risk get a tax advantage too. It is not a runner.
I come back to the basic point, which relates to fiduciary duty and the best interests of pensioners in what is their money. Bear in mind that the point has been raised—I am not sure whether it has ever been answered—about the human rights aspect of diverting some of the pensions. We could go on a lot longer— I hope we do not—but I regret that I must test the opinion of the House.
Baroness Sherlock
That this House do not insist on its Amendments 37B and 37C, and do agree with the Commons in their Amendments 37D and 37E in lieu.
“28K Report about effects of pension scheme consolidation
(1) The Secretary of State must prepare and publish a report about the effects of consolidation on innovation in the design and operation of relevant Master Trusts and group personal pension schemes.
(2) The report may in particular include information about—
(a) the extent to which consolidated schemes adopt or maintain innovative product designs of constituent schemes;
(b) barriers to consolidated schemes adopting or maintaining such innovative product designs.
(3) The Pensions Regulator and the FCA must provide such information and assistance as the Secretary of State may require for the purposes of the report.
(4) The report under this section must be published before the end of the period of 12 months beginning with the day on which this section comes into force.
(5) In this section “consolidation” means the consolidation of a relevant Master Trust or group personal pension scheme with one or more other schemes.”
(i) section 40, in respect of the insertion of section 28K of the Pensions Act 2008 (report about effects of pension scheme consolidation), comes into force on the day on which this Act is passed;
(ii) the remaining provisions of Chapter 3 come into force on such day as the Secretary of State may by regulations appoint;”
Baroness Sherlock (Lab)
My Lords, I have already spoken to Motions B to D. I beg to move.
Baroness Sherlock
That this House do not insist on its Amendment 35B, and do agree with the Commons in their Amendments 35C and 35D in lieu.
“28K Regulations about quality requirements
In making regulations under section 20(1A) or (1C), 26(7A), 28A, 28B, 28E or 28F, the Secretary of State must have regard to the importance of—
(a) innovation in the design and operation of relevant Master Trusts and group personal pension schemes;
(b) competition among relevant Master Trusts and group personal pension schemes;
(c) improving outcomes for members of relevant Master Trusts and group personal pension schemes;
(d) relevant Master Trusts and group personal pension schemes achieving an appropriate scale;
(e) relevant Master Trusts and group personal pension schemes having effective governance.”
Baroness Sherlock
That this House do not insist on its Amendments 77 and 85, and do agree with the Commons in their Amendments 85C to 85E in lieu.
“Public service pension schemes
(1) The Government Actuary must, before the end of the period of 12 months beginning with the day on which this section comes into force—
(a) prepare and publish a document setting out cash flow projections for each of the next 50 years that cover the public service pension schemes within subsection (4);
(b) provide the document to the Treasury and the Office for Budget Responsibility.
(2) The Treasury must lay the document before Parliament.
(3) For the purposes of this section “cash flow” means—
(a) expenditure on benefits, and
(b) income from member contributions.
(4) The following public service pension schemes are within this subsection—
(a) any scheme under section 1 of the Public Service Pensions Act 2013 (schemes for persons in public service) which—
(i) is a defined benefits scheme (within the meaning of that Act), and
(ii) is not a scheme for local government workers (within the meaning of that Act);
(b) any scheme under section 1 of the Public Service Pensions Act (Northern Ireland) 2014 (schemes for persons in public service) which—
(i) is a defined benefits scheme (within the meaning of that Act), and
(ii) is not a scheme for local government workers (within the meaning of that Act).”
Pension Schemes Bill
Baroness Sherlock ExcerptsMonday 20th April 2026
(1 week, 2 days 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: HL Bill 187–I Marshalled list for Consideration of Commons Reasons and Amendments - (17 Apr 2026)
Lord Katz
That this House do not insist on its Amendment 5, to which the Commons have disagreed for their Reason 5A.
Baroness Sherlock
That this House do not insist on its Amendment 13, to which the Commons have disagreed for their Reason 13A.
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, I shall speak also to Motions J, J1, K, K1 and L.
As I have previously outlined, we cannot accept Lords Amendment 13 on small pots or Amendment 13B within Motion D1, tabled by the noble Baroness, Lady Altmann, which would extend the dormancy period for automatic consolidation from 12 months to 36 months or 24 months respectively. Extending the threshold would materially lengthen the period for which a pot remained dormant. This would be detrimental both to individual members, who would incur multiple sets of charges for longer, and to the wider scheme membership, which, in effect, subsidises the small deferred pots, which are uneconomic for schemes to administer. We estimate that extending the dormancy period from 12 to 24 months would generate additional industry costs of around £25 million a year, which would most likely simply be passed on to members.
The Government did not invent this scheme. The 12-month timeframe formed part of the proposal that was consulted on in 2023 with stakeholders across the pension industry and consumer representative bodies, and it reflects a supported middle ground. The previous Government concluded that a period of 12 months struck the appropriate balance, allowing eligible pots to be identified for consolidation while seeking to avoid certain situations; for example, where individuals who, for a range of reasons, may have temporarily ceased pension contributions but remain with their existing employer and are likely to return to pension saving. The 12-month figure was not plucked out of thin air; it was a judgment underpinned by consultation and evidence, not speculation. It is supported by a strong set of safeguards, most notably the individual’s right to opt out of consolidation.
Throughout the development of this policy, my department has engaged with a range of stakeholders, including consumer representative bodies. For example, Which? was part of our small pots delivery group, and it welcomed the safeguards that we have put in place, which it agrees are sufficient.
I understand from previous debates that noble Lords, including the noble Baroness, Lady Altmann, have concerns that 12 months might be too short for certain individuals, particularly those who take career breaks, say, for maternity leave or caring responsibilities, and experience fluctuating earnings. But the 12 month dormancy period is triggered only where no contributions have been made for a full year. Periods of paid maternity leave, for example, would see contributions continue, and a pot would become dormant only after 12 months of unpaid leave.
Currently, only pots worth £1,000 or less will be eligible for consolidation. For context, a full-time worker on the national living wage would typically exceed that threshold after nine months of saving. That means that individuals with longer periods of continuous employment are unlikely to have pots that fall into scope. It cannot be a common occurrence that someone who has saved less than £1,000 and then had no contributions for at least 12 months would recommence saving with the same employer once it had entered dormancy. Nevertheless, we recognise that such circumstances could occur. That is why we have built strong safeguards into the policy. Most importantly, every member will receive a transfer notice ahead of any consolidation, giving them a clear opportunity to opt out if they judge that consolidation is not in their best interests.
Finally and crucially, the Bill already requires regulations to set a minimum 12 month period for a pot to be classified as dormant. That threshold could be set at a longer period or extended in future through secondary legislation if the evidence justified such a change.
I think we all agree on the need to consolidate small pots to protect savers and all other members from multiple years of charges on multiple pots eating away at their savings. I hope that the noble Baroness, Lady Altmann, can see that extending the dormancy period would harm the vast majority of members in a known and avoidable way to add further protection for a very small number of hypothetical cases. The best way to protect those cases is through building full and proper safeguards into the policy, which is what this Bill does. After that compelling argument, I hope that she will be willing not to press her amendment, when we come to that point.
Lords Amendment 77 would require the Secretary of State for Work and Pensions to conduct and publish a review of the long-term affordability of public service pension schemes. The Government cannot accept the amendment as it is unnecessary and technically defective. It is unnecessary, as detailed information about the cost of the unfunded public service pension schemes is already publicly available. The OBR undertakes analysis of both the near-term and long-term cost of the schemes, including the Treasury’s central measure of affordability: 50-year projections of pension payments as a proportion of GDP. Contrary to suggestions made in Committee and on Report, the cost of the schemes is forecasted to fall under this measure, from 1.9% to 1.4% of GDP.
On Report, we heard suggestions that savings arising from the Hutton reforms had not and would not materialise. That is simply incorrect. The coalition Government forecasted savings of around £400 billion by 2065 as a result of the substantial reforms made to the schemes in 2014-15, but implementation of the reforms was, in effect, set back because the courts found that the way in which the coalition Government had introduced them was discriminatory on grounds of age. That incurred costs of around £17 billion, but crucially, it will not impact the savings going forward. Those are the key drivers behind the fall in costs over the long-term.
Every four years, detailed actuarial valuations of each of the schemes are undertaken and published. They set out the cost of providing benefits to current staff and the cost of meeting all accrued liabilities. The valuations test the cost of the schemes against the cost control mechanism, introduced by the coalition Government as part of the Hutton reforms, and they provide for benefits to be adjusted if those have deviated from target levels. Pension costs are also set out in the financial accounts for each of the schemes and collectively in the whole of government accounts. This information is produced in accordance with international accounting standards.
The amendment is not necessary because the risks arising from changes to longevity are already managed in the design of the schemes. This came up on Report. The retirement age in the schemes, except those for police, firefighters and the Armed Forces, is the state pension age. In any case, the cost control mechanism would be triggered if costs rose due to longevity improvements that were not managed by changes to state pension age.
The suggestion made on Report was that the fact that some of the public service schemes are operated on a pay-as-you-go basis means that they must be unaffordable, but “unfunded” does not mean “unaffordable”. In general, the Government do not pre-fund future liabilities by holding assets at all. Details of the Government’s policy on whether to hold assets in relation to specific liabilities is set out clearly in Annex 4.16 of Managing Public Money, should anyone want to look it up.
There is clearly an opportunity cost to holding assets in a fund, which are invested with the sole objective of having enough returns to meet future liabilities. Holding funds can create technically allocative inefficiencies across the public sector. The liability can clearly be more efficiently managed in the round with other unfunded liabilities, met out of general taxation as they fall due.
The amendment would not work, because it would require the Secretary of State for Work and Pensions to undertake a review on a matter that does not fall within their responsibilities and for which statutory responsibility sits elsewhere, including with the devolved Administrations.
Comprehensive information is already available, published and regularly updated on the cost of public service pensions. There is demonstrably already transparency on all the points raised by noble Lords during the debates, and the amendment is, in the Government’s view, therefore unnecessary. We will continue to ensure that public service pensions are properly costed, transparently reported and kept under review through existing mechanisms. So, I hope that the noble Baroness will not press her amendment.
I turn to Amendments 78 and 86. These amendments engage Commons financial privilege. The House of Commons has therefore disagreed with the amendment and has not offered any further reason. As noble Lords will know, it is a long-standing convention that this House does not insist on amendments which the other place has rejected on grounds of financial privilege. But I will briefly explain why the Government do not agree with the policy intent. These amendments would not do what I suspect the movers hoped they would, which is to enable the PPF to pay lump sum payments to its members on top of the periodic compensation it provides.
Viscount Younger of Leckie (Con)
My Lords, I thank the noble Baroness, Lady Altmann, my noble friend Lady Neville-Rolfe and the noble Viscount, Lord Thurso, for their Motions in this group. In the interest of brevity, I shall focus my remarks only on Motion J1.
My noble friend Lady Neville-Rolfe is fundamentally asking the important question of whether we are being sufficiently clear about the long-term sustainability and transparency of the system as it currently stands. The central concern is this: unlike funded schemes, these pensions are not backed by accumulated assets. They are paid out of current taxation, and that means that the cost is not contained within a fund but passed forward, year by year, to future taxpayers. As the number of public sector employees grows, and as people live longer, those obligations grow with them.
There is also a question of incentives. Decisions about expanding the public sector workforce or adjusting pay inevitably carry pension implications that stretch decades into the future, yet those costs are often diffuse, uncertain and ultimately borne by the Exchequer. Without a clear and accessible understanding of the long-term consequences, it is difficult, if not impossible, for decision-makers to weigh those trade-offs properly. A review would allow us to bring together the evidence, to test the assumptions and to ensure that policy is being made on the basis of a clear and realistic understanding of the facts.
For those reasons, including the four key reasons outlined by my noble friend, I believe that there is a strong case for the review proposed, and I am very pleased to support this Motion.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords for their questions and comments. I spoke at some length at the start, and I think I answered most of the questions pre-emptively—or tried to—so I will not dwell on them.
On a couple of specifics, and to reassure the noble Baroness, Lady Altmann, and the noble Lord, Lord Palmer, as I stressed, the Bill says a minimum of 12 months simply because we want to be able to respond to any changes. If there is evidence that we need to make it longer, we can; if there is evidence we need to extend it later, we can do so in secondary legislation. It is set up to do that, and I can give her that assurance.
I am not going to get into America. For me, as parallels go, whether we have one or two years’ opt-out and who is the ambassador to the United States are probably slightly separate categories of decisions. Noble Lords will forgive me if I do not go there.
In response to the noble Lord, Lord Vaux, the two policies operate independently but the intention is that dashboards will be available before the small pot consolidation. I reassure the noble Lord, with the small pots he has scattered around, that he will be written to and given the opportunity to opt out, so that they will not be consolidated without his knowledge or against his will. I hope he will look out for that in due course and can then make appropriate decisions.
The noble Baroness, Lady Neville-Rolfe, asked about the presentation of information. The Treasury is exploring options to present pension liabilities on a constant basis. It is important to be clear that any such presentation would be supplementary. It would not affect the underlying liability, as the noble Baroness knows well, or the way they are presented in financial statements, but it would help to add an extra level of clarity to those who are reading them. I think I have made all the arguments around affordability and the nature of them.
I have one final word for the noble Viscount, Lord Younger, who feels there is no way for decision-makers to make appropriate judgments about the affordability of pension schemes without a review such as this. I think he should have more confidence. The coalition Government, of which his party was the leading member, reformed almost all the public service pension schemes and created a new system, and that is what we now have. A lot of work was done then and is being done now. The measures of affordability that I have described are such that the schemes have that corrective factor straight in them. The fact that the information is out there and published will, I hope, be enough. I therefore urge noble Lords not to press their Motions.
Baroness Altmann (Non-Afl)
My Lords, I thank all noble Lords who have spoken. As I said, I will not press Motion D1 to a Division. I beg leave to withdraw the Motion.
Baroness Sherlock
That this House do not insist on its Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88, and do agree with the Commons in their Amendments 88A to 88C to the words restored to the Bill by the Commons disagreement to Lords Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88.
“(5A) Regulations under subsection (4) must secure that a description of asset is prescribed under that subsection in respect of each example mentioned in subsection (5)(a) to (d).”
Baroness Sherlock (Lab)
My Lords, in moving Motion E, that this House do not insist on its Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88 and do agree with the Commons in its Amendments 88A to 88C, I will speak also to Motions F, F1, G, G1 and H.
Motion E deals with Amendment 15 and those connected with it, which sought to remove the reserve power on asset allocation from the Bill. The case for removing the power was pressed firmly in Committee and on Report, led by the noble Baroness, Lady Bowles, and supported by a number of other noble Lords. The Government have always taken those arguments seriously, and I hope our response demonstrates that. However, the Government continue to believe that the reserve power is necessary.
The collective action problem in the defined contribution market, where competitive pressure on costs discourages providers from diversifying even when they recognise it would benefit their members, is well-evidenced and has been acknowledged by the industry itself. The Mansion House Accord represents a welcome voluntary commitment, but the risk is real that individual providers defer action until others move first. The reserve power exists to underpin those commitments, giving each provider confidence that the rest of the market will move too.
This collective action problem is not simply a theoretical concern or a government preoccupation. Last autumn, signatories to the Mansion House compact—a predecessor agreement on private markets investment, negotiated under the previous Government—published their own progress update. What was the single biggest barrier to delivering on their commitments? In their words,
“market dynamics continue to focus on minimising cost instead of maximising long-term value”,
and that without intervention to shift that culture,
“‘too much focus on cost’ remains the key barrier”.
That is the collective action problem in a nutshell: providers recognise that greater diversification can benefit their members but competitive dynamics hold them back from acting on it.
However, I gave undertakings during the passage of the Bill to reflect on the concerns raised by noble Lords, and I have done so. The amendments in lieu before the House today respond directly to those concerns in two important respects. First, the Government have placed a cap in the Bill so that regulations may require not more than 10% of default fund assets to be held in qualifying assets overall or more than 5% to be of a UK-specific description. This is a significant step. The Government have always been clear that the power is a backstop to the Mansion House Accord, which applies those specific targets to DC providers’ main default funds and no more.
I heard the argument—pressed particularly by the noble Viscount, Lord Younger of Leckie, and the noble Baroness, Lady Stedman-Scott, in amendments that they tabled, with the support of others—that that commitment should be written into primary legislation rather than resting on ministerial assurance alone. This amendment does exactly that. It gives the industry and savers alike the confidence that no Government can use these powers to go beyond the accord’s percentage commitments.
Secondly, the Government have established a principle of neutrality between asset classes. These amendments remove the ability for regulations, should they try to do so, to weight the requirement towards any single category of private asset, and require that qualifying asset descriptions are prescribed across each of the private market categories set out in the Bill—so the Government could not, for example, concentrate the entire requirement in infrastructure, still less direct it into a particular sector or company. This responds to a type of concern expressed by noble Lords during the Bill’s passage about the breadth of the power and the risk that a future Government might use it for purposes unrelated to the accord. The neutrality requirement, taken together with the established principles of public law to which any secondary legislation must conform, provides a robust constraint against such misuse.
Lord Lucas (Con)
My Lords, it is utterly ridiculous that only 5% of UK pension funds are invested in the UK. The figure was 50% when I was a pension fund manager. The difference is entirely down to us as politicians. The solution is not to compel financial managers to do things; it is to understand what we did to make this happen and undo at least some of it. If the Government want quick access to priorities, they should turn to the members. The members believe in this country. Their interest is in it being a prosperous country, with lots of investment coming into it. Give them more influence over what pension funds do. They should not go for this government mandation; it is a dead end and, at its heart, poisonous.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords for their comments. Having spoken at some length at the start, I will not respond at length. I shall just pick up a few points.
On the question on fiduciary duty, nothing in the Bill disapplies trustees’ existing duties of loyalty, prudence and acting in members’ best interests. Those continue to apply in full. Were this power ever to be used—I repeat, the Government do not expect to use it—and the asset allocation requirements were in place, the savers’ interest test allows a scheme to seek an exemption if it can show that compliance would cause material financial detriment to members. Not only would they be enabled to do that but we would expect the fiduciary duty to require the trustees to make such an application to the regulator. Trustees are not directed to invest in any specific asset or project, and if they believe that the requirements are not in the members’ best interests, again, they should apply for an exemption.
The neutrality amendments provide a meaningful constraint. The Government must prescribe qualifying asset descriptions across each of the private market categories in the Bill, so they could not load an entire requirement into a single asset class, let alone a pet project or specific investment. Any future Government who attempted to define qualifying assets in a way designed to serve their own policies or a pet project, rather than savers’ interests, would clearly be vulnerable to legal challenge on rationality grounds.
I am not going to debate this at length since the noble Lords have made clear their intention to test the opinion of the House irrespective of whatever I say. I have just two other comments, on scale. I take the point made by the noble Baroness, Lady Stedman-Scott, that the Government should be pragmatic. I completely agree. My problem with her amendment is that it is not practical, so I cannot be pragmatic in trying to apply an amendment that is really clear in the matter of scale but would simply be too difficult to apply, because it is not clear what the nature of the test would be and it would end up getting bogged down in the courts for years, giving the regulator an impossible job. That simply does not work.
I have made the point about competition in our previous, long debate, and I do not doubt we will return to it again should the Bill not all disappear tonight. In the light of that, I hope that noble Lords feel able not to press their amendments.
Baroness Bowles of Berkhamsted (LD)
My Lords, we have heard continued disagreement with mandation and coercion from across the House. As the Minister has said, we do not need to re-rehearse all the things that we have already said, but something that stuck in my mind from a previous stage was when the Minister said that if we did not have mandation, it would rest on good faith alone. That is the whole point: I think there is good faith in the City to deliver on this, and not to trust it, exactly as the noble Lord, Lord Remnant, has said, damages relationships and any good faith and trust in government. This is therefore doubly, trebly and quadruply a bad thing for the Government to have suggested, and I hope they will have a change of mind. I wish to test the opinion of the House.
Baroness Sherlock
That this House do not insist on its Amendments 26 and 37, to which the Commons have disagreed for their Reason 37A.
Baroness Sherlock
That this House do not insist on its Amendment 35, to which the Commons have disagreed for their Reason 35A.
Baroness Sherlock (Lab)
I beg to move Motion G.
Motion G1 (as an amendment to Motion G)
Baroness Sherlock
That this House do not insist on its Amendment 43, to which the Commons have disagreed for their Reason 43A.
Baroness Sherlock
That this House do not insist on its Amendments 77 and 85, to which the Commons have disagreed for their Reason 85A.
Baroness Sherlock (Lab)
My Lords, I have already spoken to Motion J. I beg to move.
Motion J1 (as an amendment to Motion J)
Baroness Sherlock
That this House do not insist on its Amendments 78 and 86, to which the Commons have disagreed for their Reason 86A.
Baroness Sherlock
That this House do not insist on its Amendments 79 and 87, to which the Commons have disagreed for their Reason 87A.
National Employment Savings Trust (Amendment) Order 2026
Baroness Sherlock Excerpts(1 week, 6 days ago)
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Baroness Sherlock
That the draft Order laid before the House on 26 February be approved.
Relevant document: 54th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 13 April.
National Employment Savings Trust (Amendment) Order 2026
Baroness Sherlock Excerpts(2 weeks, 2 days ago)
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Baroness Sherlock
That the Grand Committee do consider the National Employment Savings Trust (Amendment) Order 2026.
Relevant document: 54th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, this statutory instrument was laid before the House on 26 February. Automatic enrolment has been widely recognised as a major policy success, significantly increasing participation in workplace pension saving. The National Employment Savings Trust—Nest—has been central to that achievement and will continue to play a key role in supporting the system. Nest now serves nearly 14 million members, around one-third of the working-age population, providing a low-cost, accessible pension scheme for employers and workers across the UK.
Subject to parliamentary approval, this instrument will amend the Nest order 2010, which provides the legislative framework under which Nest operates. The instrument will enable Nest to extend its suite of retirement options to include flexi-access drawdown, a retirement income option that allows individuals with a defined contribution, or DC, pension to withdraw any amount from their pension pot while keeping the remaining funds invested. The instrument will also enable Nest to offer a scheme pension—an income payable to a member either directly by the scheme administrator or through an insurance company appointed by the administrator. This provision allows Nest the flexibility to offer the same range of benefits which can be provided by other comparable pension schemes.
In addition, the instrument will provide Nest with the authority, in the event of a member’s death, to enable the trustee to offer either a dependants’ scheme pension or a drawdown pension to eligible individuals including dependants, nominees or successors. This provision will ensure flexibility in benefit options after death and again aligns Nest with broader industry practice and capabilities.
Overall, this amendment will allow Nest to expand the retirement offer for its members, aligning it to the same range of benefits that other pensions schemes can offer and supporting it to comply with the guided retirement requirements recently debated during the passage of the Pension Schemes Bill.
We know that retirement today is not a linear experience and that circumstances change over retirement. Life events—including decisions to work part-time, health conditions and bereavement—all factor in and have an impact on household incomes. Gathering insight and feedback from members is crucial to designing well-structured and flexible pension plans. These changes reflect the needs and preferences of Nest members. This instrument will support the important role Nest plays in the pensions market by enabling it to provide appropriate retirement solutions for Nest members.
Automatic enrolment has encouraged more people to save for their retirement and has made saving normal for most people in work. But getting people saving is just the start and, as we know, people need support when they come to use their savings to provide an income in retirement. Currently, Nest members can use their pension savings to buy an annuity, make use of the uncrystallised funds pensions lump sum facility, take the savings as cash or transfer out to another scheme. However, since Nest’s inception, retirement options have expanded across the pensions market, particularly following the introduction of the pension freedoms in 2015. These flexibilities are not fully available to Nest, which remains constrained by the terms of its original order.
As noble Lords will know, the Pension Schemes Bill contains specific measures around guided retirement. A consultation document, Helping Savers Understand Their Pension Choices: Supporting Individuals at the Point of Access, was published in July 2023 under the previous Government. This asked a specific question about whether Nest should provide default pensions to its members. There was broad support from the 46 industry and member groups that responded, recognising Nest’s unique role and the importance of ensuring fair treatment in line with other schemes, while being clear that Nest should not gain any commercial advantage.
Since that consultation, the Government have continued to engage extensively with Nest and the pensions industry to ensure that that principle of fairness, both to Nest members and to the wider market, has been upheld. Industry players have been active in developing solutions ahead of the guided retirement requirements. For example, in June 2022, the PLSA, now Pensions UK, published Retirement Choices: the Evolution of Products and Support, which set out its framework to support complex decision-making.
Without this change, Nest, the largest master trust, will not be able to offer flexi-access drawdown, nor will it be able to meet fully the expectations of guided retirement—to provide savers with the option of a simple, dependable default income in later life—and Nest savers would therefore miss out on a secure default pension option. With cost of living pressures rising, I am sure the Committee can agree that having a dependable retirement choice is more important than ever. I commend this statutory instrument to the Committee.
Lord Davies of Brixton (Lab)
I welcome the Government’s decision to bring in this draft order. As my noble friend the Minister has made clear, it builds on the clear success of automatic enrolment and Nest as the public service vehicle for automatic enrolment contributions. It is a crucial element in achieving the Government’s aim, set out in the pensions road map, of ensuring that people get as much out of their savings as possible. In other words, structure is as important as adequacy. Enabling Nest to offer flexi-access drawdown and a scheme pension to its members is an important step, and it brings Nest in line with what other occupational defined contribution schemes have been able to offer.
I want to explore what the order does not necessarily make clear and ask the Minister whether the Government have considered whether more might be done. I will focus on the potential role for Nest in providing collective defined contribution pension schemes. Put simply, as noble Lords know, CDC arrangements pool the risks involved in providing pensions rather than leaving each individual to manage that risk alone. The issue I wish to raise is whether Nest, under the powers conferred by this order, would be legally enabled to offer CDC-type benefits as part of its retirement income proposition.
The order amends Article 32 of the National Employment Savings Trust Order 2010, so that in addition to lump sums and lifetime annuities, the trustee may pay drawdown pensions and scheme pensions. The term “Scheme pension” is defined by reference to paragraph 2 of Schedule 28 to the Finance Act 2004. That definition is broad. It encompasses a pension payable by the scheme administrator directly, without the interposition of an insurance company. That is significant. A CDC scheme under which the trustee pays a pension directly to members from a pooled fund, applying mortality credits as members of the pool die and their share is redistributed to survivors, would appear to fall within the concept of a scheme pension as defined in the regulations and the Act. I ask the Minister to confirm that interpretation.
This is not a fanciful proposition; Nest contemplated precisely such an arrangement in its 2015 blueprint document, The Future of Retirement. That document set out a three-phase retirement income strategy. The third phase, for members aged 85 and beyond, was to be funded through what the document called a
“later life protected income building block”.
Crucially, the document explicitly considered the operation of this building block through a collective uninsured mortality pool—members pooling their longevity risk with the trustee distributing income proportional to the premiums paid in, supported by mortality credits as the cohort reduces. This is, in effect, a collective defined contribution scheme for decumulation. In other words, Nest was ahead of the curve in 2015. The question is whether this order now places the legal architecture beneath those ambitions.
Concurrent with these regulations, Nest is undertaking a consultation of the changes to its rules it will be able to make in line with the order. That consultation focuses principally on the mechanics of flexi-access drawdown, the drawdown account and the relationship between the pension account and drawdown account, the transfer provisions and the death benefit arrangements. That is all necessary and commendable work, but the consultation is candid on the fact that there are no immediate plans to offer a scheme pension. The relevant rule amendment provides only that
“if and to the extent that the Trustee determines to provide the option”,
a scheme pension may be made available.
Viscount Younger of Leckie (Con)
My Lords, the Opposition broadly welcome this order. I thank the Minister for her clear outlining of the measures and the detail that she put forward.
This seems a straightforward and genuinely important modernisation of Nest; we are glad to see it being brought forward. Allowing Nest members to access drawdown pensions and scheme pensions—as well as extending broader and more flexible death benefit options to their dependants, nominees and successors—has to be a good thing. However, it also marks a significant shift in responsibility from the system to the individual, which makes the questions of guidance and support all the more important.
At the heart of this change is a principle that we support: people should have genuine control over how they access and use their own money. The pension freedoms introduced in 2015 were built on exactly that principle. Members should not be forced into products that do not suit their circumstances. They should be able to keep their funds invested, draw income at a pace that works for them and pass on what remains to those whom they love. Nest members deserve no less than that, so this order rightly brings them into line with the wider market—so far, so good. However, regardless of that, we have some questions for the Minister; she has touched on some of them.
It is clear to me that greater choice is genuinely valuable only if people are equipped to exercise it wisely. Drawdown is more complex as a product than annuity. It requires members to make judgments on investment risk, longevity and income sustainability—judgments that are not straightforward and which have real, lasting consequences if they go wrong. The introduction of these options for Nest members brings with it, therefore, a serious obligation on the part of the Government.
First, on financial education and support, Nest serves a membership that is, by design, composed largely of lower and moderate earners—people who were auto-enrolled, often for the first time, and who may have had little prior engagement with pension saving. These, in the main, are not members who have financial advisers; the Minister will know that, of course. They are precisely the people for whom the difference between a well-informed and a poorly informed decision at retirement is the most consequential. The Minister covered a number of my queries in her opening remarks, but can she tell us what specific steps the Government are taking to ensure that Nest members are properly supported in understanding these new options? That is more a question of communication. What guidance will Nest itself be required to provide? How will Pension Wise and MoneyHelper be resourced and promoted to reach this membership? What assessment have the Government made of the adequacy of the current financial guidance provision for those who are approaching retirement through auto-enrolment schemes?
Secondly, I know that the Minister spent some time on dependants in her opening remarks, but I want to say this: although the extension of drawdown and flexible death benefit options to dependants, nominees and successors is welcome, it creates its own complexities. A surviving spouse or dependant who suddenly becomes responsible for managing an inherited drawdown pot is in a very different position to someone who has spent years building up their own retirement savings. They may be grieving; they may have little or no experience of investment decisions. Can the Minister give some further information on what support will be available to those who inherit benefits under Nest in these circumstances? What obligations will Nest have to contact, inform and guide beneficiaries at the point when they come into an inherited pension? As the Minister will know, this is not a small matter; for many families, this will represent one of the most significant financial decisions that they have ever had to make.
Thirdly—I make no apology for raising this—this order does not exist in isolation. It has been made against the backdrop of the Pension Schemes Bill currently before the House and the two must therefore be read together. The principle that runs through this order is one of member choice and autonomy. People should be able to access their money in the way that best suits them. We agree with that principle unreservedly, but it is directly and fundamentally in conflict with the mandation provisions that the Government are seeking to introduce in the Pension Schemes Bill. We have made this point in Committee and on Report, and we make it again today.
You cannot, on one hand, expand member choice through instruments such as this and, on the other hand, propose to compel members through mandation into investment in particular outcomes or products not of their own choosing. The two positions are inconsistent. If the Government genuinely believe, as this order suggests, that members should be empowered to make decisions about their own retirement savings, they must abandon the mandation provisions in the Pension Schemes Bill. We will continue to press that case.
I close by raising a point that was highlighted by the Secondary Legislation Scrutiny Committee in respect of this order, which is that a call for evidence was announced in 2022 around these measures. However, they have only just been laid before Parliament. Can the Minister please confirm that she is confident that the evidence submitted is still relevant to the instrument that we are discussing today? Has any additional evidence been sought on this particular question since?
It is right that Nest members have the same freedoms that others in the market have long enjoyed. We are glad to see that that parity is being extended. However, the value of that freedom depends entirely on the quality of support and guidance that surrounds it and on the Government applying the same principle of member autonomy consistently across their wider pensions policy.
We look forward to the Minister’s response on all the points that I have raised. I have also noted all the points that the noble Lord, Lord Davies, raised on CDCs, which were interesting. We will be watching the progress of the Pension Schemes Bill with close attention, with Commons consideration of Lords amendments on Wednesday; I know that the noble Baroness herself will be doing the same.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords for their questions and I will try to answer most of them if I can. I will respond first to my noble friend Lord Davies and thank him for his support for this order and its aims. In relation to CDC, this order is obviously focused on certain benefits that Nest will be able to offer; principally, that is flexi-access drawdown. However, the Government are exploring how retirement CDC schemes could broaden options available to trustees and managers of pension schemes when developing default pension plans. It would be the responsibility of Nest trustees, like other schemes, to consider the needs of their members and to provide appropriate default plans. For Nest to offer CDC, the scheme would of course need to meet the relevant authorisation.
More broadly, we have been clear that CDC or retirement CDC could be used by schemes to meet their guided retirement duties but, again, it would be for the scheme trustees to consider the needs of their membership to determine appropriate retirement solutions, including the option of CDC. I may come back to my noble friend if anything else occurs to me.
The noble Viscount, Lord Younger, asked an important question about the particular composition of the Nest saver population. Many of these are low-income savers who would not otherwise have previously been involved in saving. Of course, one great advantage of these changes is that Nest is able to offer a wider range of choice and, crucially, through that, to meet its requirements under guided retirement. As he knows from our debates on the Pension Schemes Bill, guided retirement is the means by which the Government can make sure that schemes offer a default option to people, without them having to make complex decisions, which has an income element into retirement. That is the greatest source of the protection there.
It is also a protection against people simply making the choice to take cash, which may not be the right thing for them to do. Nest set out its blueprint about what its default option would look like, which was in different sections. There were the options of different pots: a drawdown pot, a cash pot and an income in later life. That is therefore the direction in which one would expect them to move. I do not think that there is anything else I can say at this stage, but I will go through Hansard and, if there is anything specific that I have not responded to, I would be very happy to do so.
The amendment that this instrument makes to the Nest order is crucial to the Government’s wider ambition to strengthen and modernise the pensions system, making it simpler and more attuned to the needs of today’s workforce. Obviously, I completely reject the case made by the noble Viscount, Lord Younger, that anything the Government are doing here contradicts anything in the Pension Schemes Bill, but since we have had many conversations about that subject and many more joyfully beckon to us, I may leave that for another day if he will permit me to do so.
Before I wind up entirely, another thought occurs to me. I was asked whether the Government have engaged with Nest. The Government hold regular meetings with Nest in relation to guided retirement and CDC provision. As with other workplace trust-based schemes, in terms of offering CDC it would be for the trustees to determine suitable retirement options for members, consistent with guided retirement. As I said, the Government are exploring how retirement CDC schemes can broaden the options available to trustees. If I have anything further on the timing of the regulations that would be needed in that direction for deaccumulation-only CDC schemes, I will come back to my noble friend.
By delivering this instrument, the Government are ensuring that 14 million people, many of them lower-income workers, can access an enhanced range of products to support them in retirement, giving them greater confidence and a clearer pathway towards financial security in later life. I commend this instrument to the Committee and I beg to move.
Pension Schemes Bill
Baroness Sherlock ExcerptsThursday 26th March 2026
(1 month ago)
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Viscount Thurso (LD)
My Lords, my Amendment 6 is entirely consequential on the amendment your Lordships agreed to. I am very grateful to the Public Bill Office for its advice in helping me to correct this, and I will move it formally when the moment comes.
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, the amendments here are minor and technical following Report, and the Government will not oppose them today. Amendment 4 in my name is also minor and technical. This amendment was tabled to correct an error concerning Amendment 178, which was moved by mistake on Report on Monday 23 March. As the noble Baroness, Lady Hayman, said, that amendment relates to the commencement of Amendment 156 on investment duties guidance, which was disagreed by the House. The amendment now removes the commencement clause to honour the usual channels’ agreement on the package, as it was a missed consequential amendment.
In response to the questions from the noble Baroness, Lady Hayman—I commend her on her work on this important issue—the Government introduced their amendments to this House to honour the commitment given by my honourable friend the Minister for Pensions in the other place. Since the House disagreed with those amendments, obviously that cannot proceed. They were removed from the Bill in this House. Therefore, the other place will not get to consider them again. However, she is right that the need for guidance and clarity does not go away.
The Government remain committed to improving clarity around trustees’ existing investment duties, including how schemes consider long-term and financially material factors such as climate and systemic risks, while maintaining their core duty to act in members’ best interests. We will press ahead with this important work. We are currently reviewing next step options to ensure this objective continues to be progressed in the most important way in the light of the decision of the House on this matter.
The technical working group, which was discussed at some length in our proceedings, bringing together legal, actuarial and investment experts, will continue to play a central role in helping government develop high-quality guidance and ensuring it is workable, proportionate and valuable to schemes. Further updates will be provided in due course. I hope that gives enough information; it is all I am able to say at the moment. In the meantime, Amendment 4 is a necessary step, and I hope the House will support it.
Baroness Sherlock
Member’s explanatory statement
This amendment corrects a mistake.
Baroness Sherlock (Lab)
My Lords, I am grateful to the House for its scrutiny of the Pension Schemes Bill. The Bill will make a real difference for people saving for their retirement. It will help their money to work harder by improving how pension schemes operate, reducing unnecessary costs and enabling larger, better-governed schemes to secure stronger long-term returns. It will also make pensions easier to follow by tackling the growth of small dormant pots, and it will give people clearer and more dependable support when they come to draw their pension so they can make choices that meet their needs. For those in defined benefit schemes, the Bill strengthens long-term security through a well-regulated superfund regime. It brings clarity to areas that have caused uncertainty for savers, including historic scheme alterations and support for those facing a terminal illness.
Taken together, these reforms help build a system that is easier to navigate, better run and more supportive of people as they move towards retirement. During the passage of the Bill, the House voted for amendments that the Government did not support. I can assure the House that we will reflect carefully on these as the Bill moves to the other place.
I thank noble Lords who have contributed to the debates. I thank the noble Baroness, Lady Stedman-Scott, the noble Viscount, Lord Younger, and the noble Lord, Lord Palmer, for their engagement throughout proceedings. I thank my noble friend Lord Katz, my Whip, for doing so much work on the Bill and being such a great source of support.
I am also grateful to all those who worked so hard on the legislation, including the excellent Bill managers, Jo and Amanda, for advice, encouragement and the provision of excellent cupcakes; our officials, Sam, Rob and Anna, and their brilliant teams; and my private office, especially Hussein and Ollie, who have worked incredibly hard and kept me upright, well briefed and organised as time has gone on. I beg to move.
Lord Davies of Brixton (Lab)
I am pleased that the Bill is to pass. It is a good and welcome Bill because it deals with administrative and bureaucratic complexities in the present system. I have to admit that it is not quite as good as it would have been if it had adopted some of the amendments I tabled in relation to people who were denied pre-1997 pension increases, and the release of surplus, but we have to accept that. I am therefore pleased that on Report my noble friend the Minister gave an assurance that the Government will closely monitor how the powers of surplus release will be used and will keep that very much under review. This was reinforced in the House of Commons Adjournment debate last Thursday, when the Minister for Pensions made clear the extent to which they will closely monitor how the Bill will be operated in the context of surplus release.
Youth Unemployment
Baroness Sherlock Excerpts(1 month ago)
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Lord Palmer of Childs Hill (LD)
My Lords, I thank the Minister very much—she did not repeat the Statement, but we have read it—and the noble Baroness, Lady Stedman-Scott, for raising so many questions the answers to which I look forward to hearing.
We have 739,000 young people aged 16 to 24—nearly 100,000 more than last year—unemployed and sitting on benefits of £338 per month. I make no apologies for repeating this figure, but I give it in numbers and not as a percentage, because percentages are misleading and you cannot really understand what they mean. These unemployed 16 to 24 year-olds are, on average, searching and applying over five months for hundreds of roles, with less than 1% success—so they give up entirely. Yet employers report millions of vacancies remaining unfilled. This is not a shortage of jobs but a failure of matching: the right opportunities for the right candidates remain unsurfaced and undiscovered.
Given that the DWP is already piloting matching technologies at some jobcentres, for which I congratulate it—I know about the one in Leicester—can the Minister set out the department’s timeline for scaling these tools nationally across all jobcentres? Critically, what measurable improvement in time to employment does the department expect from this rollout? Additionally, can the Government explain why they are removing the funding for apprenticeships for management? Will they rethink the impact of the national insurance contribution hike on hospitality, retail and tourism? If we dealt with that, it could substantially help with youth unemployment. This is a big problem and I hope the Minister can answer the few questions I have raised and those raised by the noble Baroness, Lady Stedman-Scott.
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, I am grateful for the questions from both noble Lords. I will come to them in a moment, but I think it is worth reiterating why we are expanding our support for young people now. While the UK’s overall employment levels are historically high, it has been a tough picture for young people in the labour market for some years. I am sure the noble Baroness, Lady Stedman-Scott, remembers that, in the three years running up to the election, the number of young people not in education, employment or training rose by 250,000, up to almost 1 million. This has not been helped by the 40% decline in youth apprenticeship starts in the space of a decade. The trends we have seen with young people in the labour market are long-term, deep-rooted and worrying. They did not start on 4 July 2024 and they are not confined to the UK, but we all have to address them.
As the noble Baroness said, and knows very well from her experience, if young people start their adult lives on the wrong foot, it has consequences for decades to come, both for them and for our country as a whole. Sir Charlie Mayfield highlighted in Keep Britain Working that, if a young person goes on to benefits in their 20s, they could lose out on £1 million of lifetime earnings and it could cost the state £1 million to support them. Tackling these trends is in all our interests and there should be good cross-party support for this, especially at the moment. At a time of rapid technological change, young people need our support.
We have already set out our reforms to refocus the apprenticeship system back on young people. I say to the noble Lord, Lord Palmer, that we have made some difficult decisions to focus apprenticeships on the young people who need this start early in their life, so we have focused our priority in that space. We had already announced a youth guarantee to help the young unemployed, including 300,000 work experience and training places and a jobs guarantee of subsidised work for 18 to 21 year-olds who have been long-term unemployed. Last week, my honourable friend the Secretary of State set out how we will go even further.
The noble Lord, Lord Palmer, asked about the timing. From this summer, we will introduce hiring bonuses of £3,000 if a business hires a young person who has been on universal credit for six months and there will be bonuses of £2,000 for small and medium-sized businesses hiring young apprentices. These bonuses can be combined if the young person hired has been out of work for six months. On top of that, we are introducing new foundation apprenticeships in retail and hospitality, as well as new short courses in AI, electrical vehicle charging point installation, electrical fitting and assembly, mechanical fitting and assembly and solar PV installation welding. We are also extending the jobs guarantee to those aged 22 to 24. Altogether, this will create 200,000 job and apprenticeship opportunities over the next three years. This represents £1 billion of new investment on top of the funding announced at the Budget, so our package of support for young people now comes to around £2.5 billion.
I am proud of the efforts we are making to ensure that young people can flourish. The noble Baroness must have got mixed up between this policy and something else, because there is no compulsion here. We are not making employers take on young people, but offering incentives for them to do so. We are offering subsidies for jobs. We are doing all the things to help make sure that the young people who are struggling most have a chance to get those jobs out there. That is not compulsion or controlling outcomes: it is giving young people opportunity, and I am proud that we are doing it.
The noble Baroness, Lady Stedman-Scott, pointed to some of the policy choices this Government have made. As I pointed out, youth unemployment has been rising since 2022 and the OBR predicts that overall unemployment will peak this year and fall in every year of the forecast. She mentioned tax rises, I am guessing in reference to national insurance contributions. She will remember that employers are exempt from paying employers’ national insurance contributions for workers under 21 and apprentices under 25, unless they are earning over £50,000 a year. She mentioned the Employment Rights Act and the reaction of employers. The problems young people are facing in the labour market go back rather further than that. They are not new. What is new is this package of support, which has been welcomed by large businesses such as Amazon, PwC and the Kier Group, and the Federation of Small Businesses, which called it a game-changer. In terms of hospitality, the chef and businessperson Tom Kerridge said that
“these incentives will give our industry a great boost”.
The noble Lord, Lord Palmer, made the important point that there are vacancies in the economy. There are 700,000, including 50,000 in manufacturing. There are jobs out there. Our job is to help young people get the support, skills, training and experience to get them and—I completely agree with him—we need to match the young people with them. He made a really important point. That is why we are setting out this package today and why it matters so much.
We have already started to reform the system, but we have to do all the things that will make the difference to help them get those jobs. The noble Lord asked about timing. The £2,000 apprenticeship incentive for small and medium-sized enterprises will take effect for those starting apprenticeships from 1 October, as long as they have joined their employer within the last three months. The £3,000 hiring incentive, the youth jobs grant, will be delivered from June this year. The expansion of the jobs guarantee to include 22 to 24 year-olds will be from this autumn, and the first set of new short apprenticeship units is launching from next month. We are not hanging around; we are getting out there to do the work.
I was really grateful to the noble Lord for acknowledging what jobcentres can do in supporting young people. We all know there are young people out there who want these jobs, but they often need the help. They may not have the skills or the work experience.
In response to the noble Baroness, Lady Stedman-Scott, different things are obviously open to different people. What I think she was asking was what would happen after somebody was put specifically into a guaranteed job. If they have been out there looking for work for 18 months and they have not got a job, we will guarantee them six months of a job. We would hope that, by the end of that, the employer would see their potential, with all the support they had getting up to that point, and would want to keep them on. If for any reason they did not keep them on, such as if it is not a good fit, or if they did not feel they had the right skills, then all the support will be there from jobcentres and the range of our youth offer, to make sure that, with their new work experience, we can get them out there and get them a new job. Or maybe they would want an apprenticeship to acquire more skills so they can build a career.
Lord Palmer of Childs Hill (LD)
I am sorry to interrupt the Minister, but perhaps at this point she could tackle the point I raised, which she touched upon, which is the matching of vacancies with jobs. I gave the example of the Leicester jobcentre, which is doing this. My question, which I hope she answers, is: how are we going to spread that out?
Baroness Sherlock (Lab)
This is already happening in lots of different places and in lots of different ways. Jobcentres are doing it. For example, we are setting up youth hubs in 360 locations across the country, where we can bring together employers and young people, as well as lots of other services, so they can meet them. We also have jobs fairs, which my colleagues have been visiting, where employers are brought in to meet with potential jobseekers. This is the everyday work of jobcentres, of going out there and matching people together. But I would be very interested to talk to the noble Lord about what he saw in Leicester and what he found particularly helpful about that, because it is really good to learn what is out there.
I have very little time left, but I will just say two other things very quickly. First, even though there are jobs out there, the challenge is always going to be that the young people who are farthest from the labour market are going to find it hard to get them. That is why we have to give particular support to them. I know these are tough times generally, but we have to try to do all we can to give those young people a chance to get those jobs. If they can get the experience at this crucial moment, it could be transformative down the line.
Secondly, we will evaluate this very carefully. We are already evaluating what is out there and we are using the evidence base. The noble Baroness, Lady Stedman-Scott, pushed me on wage subsidies, for example. We have looked at the evidence from Kickstart, introduced by her Government, and from the future jobs fund, introduced by our Government, and the evidence is really quite strong. In trying to shape incentives, we are working on what we know works. The development of the youth guarantee was underpinned by that kind of evaluation and evidence. A DWP evaluation of work experience shows its high impact on employment prospects. For example, we have assessed the sector-based work programmes, which were found to be a really effective intervention.
Finally, we are evaluating the eight youth guarantee trailblazers and will use the learning from the different things happening around the country in different mayoral authorities to work out and inform the design of the youth guarantee as it goes forward. We are using evidence from the past, evidence we are gathering now and all that we are learning to make this the best it can be. This should be a national mission, and I am proud that we are doing something for it.
Lord Reid of Cardowan (Lab)
My Lords, I first welcome this Statement. It is not only important but long overdue in the face of the facts the Minister gave, including the fact she confirmed that take-up of apprenticeships has fallen by 40% over the last decade. If we are going to address that issue, I urge her to avoid what has been suggested is a binary choice between government assistance and the market. A modern economy requires both. Yes, they have to be balanced, but it is a nonsense to argue that somehow, if we left everything up to the market, then that would solve the problems. That is patently not true; there is about 300 years of evidence to disprove it. I therefore ask the Minister to expand on how the assistance to small and medium-sized enterprises will help them to employ people and thus address the problem of NEETs—young people not in education, employment or training—because that is the kernel of the issue that the country faces.
Baroness Sherlock (Lab)
I am very grateful to my noble friend; he makes a really important point. It just is not helpful to anyone if we start getting caught in false binaries. We need to work with the grain of what employers need and support them in doing it. They want to hire whoever is best for the job. Our job as a Government in this sort of setting is to work out what it will take to help those young people who most need the help to be the person the employer needs, by getting them the skills they need, getting them in the right place and getting them work experience.
The reason why we have the particular incentive of £2,000 for SMEs to take on 16 to 24 year-old apprentices as new employees is because we know they face additional barriers and costs. We also know that the sector is likely to take on young apprentices. Apprenticeships have spread very wide, and many are prone to taking on young apprentices. We want to lean into the grain of what they naturally do anyway, take away some of the barriers they face in doing that and support them in doing what they want to do anyway, which is good for them, good for the young person and good for the economy.
The Lord Bishop of Chester
My Lords, like other noble Peers, I warmly welcome this Statement. I notice an emphasis on technical skills in the Written Statement and the Statement the Minister has made. I declare an interest: I have been married to somebody who has been a professional social worker all her life. I am interested in what we are doing to encourage young people into the caring professions, be that youth work, nursing, educative support, or social care, because it seems to me that this serves not only their good but also the good of our society.
Baroness Sherlock (Lab)
The right reverend Prelate makes a very important point. The Government have done quite a bit of work in different sectors. As I have said at the Dispatch Box before, we have done quite a bit of work in social care, looking at how we develop schemes, skills and sector-based work programmes to make sure young people can both be given the skills and also encouraged to go into the sector. This can be a really rich and rewarding career, as his wife has found out, and as I know from people who work in the sector. Initially, people may not immediately see it as an opportunity. Once they get in there, if it is a good fit and if it is right for them, it is astonishingly rewarding. They transform lives. To be given the opportunity not just to change their own life, but in doing so, to change the lives of other people, is wonderful. I therefore assure him that the Government will carry on supporting that.
Baroness Bottomley of Nettlestone (Con)
The right reverend Prelate’s wife will definitely know that being without education, employment or training has a devastating effect on young people. The consequences for social stability and the fabric of society are incredibly important, and I know the Minister is aware of that. To get a job, individuals need skills, confidence and motivation, and we expect young people to use AI and social media tools to get jobs, apprenticeships and training. But I would like the Minister to look at today’s report from Policy Exchange, which talks about “sickfluencers”: those on social media coaching people on how to make successful claims for disability benefits, mental health, neurodiversity and PIP. A quarter of the population is now classified as disabled, and there is three times the increase in those claiming disability benefits, as the Minister will know. The time has come to work with the health department to make it more stringent to assess whether people really have ADHD, autism and all the other manifold diagnoses people are taking on. There are times when a more bracing message encouraging young people into education, training or employment would be much more constructive —and I do not wish that to sound harsh.
Baroness Sherlock (Lab)
I have never regarded the noble Baroness as being harsh in the way she mentions. She has hit on the underlying question, which is a really important one. The question sometimes, when somebody encounters the state for the first time, is to look at what are the benefits to which they are entitled. That may be very important, but a much more important question is: what would it take to help change your life? What kind of support do you need to change your life? What that will be will depend on the young person’s circumstances. That is really hard, because it is a broader question, but it is a question we have to answer, and my department is on a journey towards looking at what it means to help young people. Of course, if they struggle, anyone who genuinely cannot work needs to get help. I am aware of the “sickfluencers”. This is not new; there have been different ways of doing this for some time. The department is very much focused on that and on making sure our assessment processes are robust.
We also need to get the incentives in the right place. This Government changed the incentives so that, in future, people coming on to the universal credit health journey will not get extra money for that, because we do not want to put people in a position where they have an incentive to persuade us that they can never work. It is why we are making sure that the Timms review looks carefully at PIP to see what has happened, because it has not really been reviewed since it was introduced. We have to get the incentives right and support people who need them, while also making sure that we give people a vision of what life could be in all its fullness.
Baroness Smith of Llanfaes (PC)
My Lords, the Minister referred to evidence that has been looked at to shape this new initiative. What evidence has been taken from the scheme that has existed in Wales for the last decade—the young person’s guarantee in Wales? What lessons have been learned about what did and did not work well with that? In the context of AI, what consideration have the Government given to how AI will or will not affect the graduate job market, particularly entry-level jobs in the services industry?
Baroness Sherlock (Lab)
They are all excellent questions. We have worked very closely with the Government in Wales to see what they have done—they did not need a youth guarantee because they already had one. We have looked at all the evidence, and we have worked very closely with the devolved Administrations and will carry on doing so. Most aspects of the programmes I have described are GB-wide because apprenticeships are devolved, and so we are working closely to create a localised offer. We are also working with mayoral authorities to make sure that, where appropriate, things are tailored to local areas and the local economy, because what works in Middlesbrough may not be the same as what works in Truro. We are trying to do that as well as working with devolved Administrations.
The noble Baroness asked a very important question about AI. It is already changing the world of work. To stay ahead of the changes, the Government have launched an AI and future of work unit, which is a cross-government function dedicated to ensuring that AI delivers positive outcomes for the economy, jobs and workers. It is designed to help prepare the UK for an AI-driven labour market by looking at what is driving it and what has happened to labour market practices. A key part of that involves recognising that there are lots of different kinds of AI, but, put simply, there is AI that is replacing jobs but, increasingly, there are also jobs that are working with AI. We therefore need to give young people the skills to enable them to go into jobs where they will be expected to use AI and to look at how AI enhances their job rather than simply supplanting it. That will apply to young people as a whole but also specifically to graduates. Graduates will come out with one set of skills, but graduates of the right age are in the same position as anyone else and we are really happy to help them too.
Baroness Paul of Shepherd's Bush (Lab)
My Lords, like others, I warmly welcome the Government’s ambitious new youth employment programme. Can my noble friend the Minister say what targeted measures she will take to address the acute challenges faced by boys? They are significantly more likely to be NEET, to underperform at school and to struggle with the transition into employment. How will these proposals ensure that boys, who are at the greatest risk of long-term worklessness, are effectively reached and supported in the transition to work?
Baroness Sherlock (Lab)
I thank my noble friend for an excellent question. We have to tailor this to where an individual is at. One of the real challenges is that different young people have different barriers on the way. There is an issue with boys in some parts of the country and in some communities, about either higher barriers to work, lower levels of skills or, simply, lower levels of work experience. We are aiming to make this available to every young person in this situation. If a young person is in this situation—they have been looking for work and not getting it—we will expect them to engage and we will challenge and support them. We will not simply challenge them; we will give them the help that they need. We will work with them until they get that. Some of them will want to start with motivation, skills and creating a vision of what is possible. Others will need skills—maybe school did not work for them and maybe they will need a foundation apprenticeship or a short apprenticeship course before going into a full apprenticeship. Maybe they will want an employer willing to take a risk on them—and an employer could do that with this support. I thank my noble friend for raising a very important point; I would be very willing to discuss it more with her at some point.
Lord Young of Cookham (Con)
My Lords, I welcome the foundation apprenticeships in hospitality and retail. These sectors of the economy traditionally provided the first job for young people, but they have been hard hit by changes to the minimum wage and national insurance, and so this is a welcome counterbalance. On 18 November, one of your Lordships’ Select Committees produced a report that focused on youth unemployment. We went to Blackpool and made a number of recommendations. We should have had a government response by 18 January, but four months later, we have still not had one. I know it is not the Minister’s responsibility, but I suggest that it is a discourtesy to the House. One of our recommendations was that there should be a target for reducing the number of young people who are unemployed. There is a target in the post-education and skills White Paper. If there is a target for them, why can we not have a target for NEETs?
Baroness Sherlock (Lab)
My Lords, although it may not be my responsibility, it is the Government’s responsibility, and I take responsibility for the failure to respond. I apologise on behalf of my department, and I will look into what has happened. The department is aware of the report, and I am certainly very grateful for it. I often think that we do not make enough use of the excellent reports that come out of this House, and this Government are determined to use all evidence, including the work that is already there.
We have not set specific targets, but we have set very clear measurements of the impact of what we do—that is how we will measure ourselves and hold ourselves to account. Our trailblazers are looking at localised approaches to support, including sharing information on and tracking NEET young people, which was picked up in the report. I am very happy to look at that and will take the noble Lord’s message back to my department.
Lord Rook (Lab)
My Lords, I declare an interest as a father of two young adults—an interest I have in common with people across these Houses and homes across the country, as well as a desire to see them get into work. First, will this offer arise only for those already on benefits? Secondly, while we all hope that our children will find a first job, we also hope that they will find themselves in a future of sustainable work. How might this package enable young people to find that kind of flourishing future, as well as that first step into the workplace?
Baroness Sherlock (Lab)
On the first question, we are not working only with those who are on benefits. Some of the specific elements of the programme are for those who are on universal credit, either for six months or 18 months, and looking for work. However, we are really concerned about those young people who are not in education, employment or training, who are not appearing in the benefits system and who are not on the radar—they are sometimes called “hidden NEETs”. They may not be in the system and may be living with parents or elsewhere—none the less, they are out there. The youth guarantee is about reaching all NEETs, including those not on benefits. That was a key element of the youth guarantee trailblazers, backed by £90 million-worth of funding, which sought to find innovative ways to reach young people outside the benefits system whom we do not already have on our radar. Mayoral strategic authorities are looking into ways that work in their locality. We are trying to make sure that we reach those people too.
The point about the future is very important: nobody wants to be the person who takes an apprenticeship in gas lights just at the point when electricity comes to town. We need to find a way to make sure that young people go into jobs with a future. While one can never be sure, we are developing new apprenticeship units that are aligned specifically with the priorities of the industrial strategy, and we hope that that will help. That includes AI, construction and engineering, and we will develop future units as it goes forward by going with the grain—to echo my noble friend Lord Reid’s comment—of where the economy is going and what employers need. We have to create a future for young people.
Viscount Younger of Leckie (Con)
My Lords, preparing young people for work should start within the school system—that was touched on in questions from the Benches opposite. Can the Minister say what efforts are being made, working with the DfE, to include career management and education? Surely the earlier the young are set on the right path, the better.
Baroness Sherlock (Lab)
The noble Viscount makes a very important point. We have the great advantage now that my noble friend Lady Smith is the Minister for Skills both in the Department for Education and in the Department for Work and Pensions. That synergy is already proving very helpful, and so we are able to have very good conversations with our colleagues in the DfE. As he knows, in the DWP, by creating the new jobs and careers service, we are trying to make sure that we bring these things together at the outset so that we help people to get not just a single job but the opportunity to develop a career that will carry them forward. He makes an important point, and we will keep looking at this.
Baroness Lister of Burtersett (Lab)
My Lords, I am glad that my noble friend the Minister talked about those who are not “sitting on benefits”—to quote the noble Lord, Lord Palmer—because the assumption is that all those young people are just sitting on benefits. In fact, I was shocked to find that 44% of the young people we are talking about are not on universal credit or even the health element of universal credit. Can my noble friend say a bit more about what the Government can do to reach these “hidden NEETs”, as she called them? I suspect they do not have contact with job centres, and it is important that we know more about their circumstances and that we can help them in the way that she said.
Baroness Sherlock (Lab)
I am very grateful—that is a really great question. One of the challenges across government is that if we carry on doing things in silos, we will engage only with those who are already engaged with us, and that does not solve the problem here. We are doing a couple of things. Earlier on I mentioned the work that is going on in the youth trailblazers, working with local mayoral authorities to find innovative ways of identifying such people locally. We are also trying to strengthen early identification through better data sharing and better monitoring of attendance at further education; and a range of new “risk of NEET” tools—a terrible technical term—have been developed to try to identify those who may be at risk of becoming NEET before they get to that point. So we are working with that, trying to spot disengagement earlier and target support before young people become long-term NEET.
One of the other things we are doing, for example, is creating youth hubs—360 across the country—where we can work with partners in community spaces and bring together different kinds of support in a way that will not feel like it is simply engaging with the benefits system or a jobcentre. A jobcentre may be great for some but not for others, so by trying to find innovative ways of reaching people, identifying them before they become long-term NEET, and through good collaboration when people reach it, we hope that will make a difference.
Lord Kempsell (Con)
My Lords, what a disaster it is that under this Government we have 1 million young people in Britain who are not in education, employment or training—one in eight who cannot access the life opportunities which we in this Chamber all enjoyed. Will the Minister acknowledge this reality about that generation: that they want to work and to participate in education, employment and training? The Government need to think through this problem from that starting point. It is a generation full of promise—the one most conversant with the kind of technology we have been talking about in this debate.
Secondly, does the Minister acknowledge that with this intervention, which is effectively a state subsidy to employers to try to incentivise entry-level job creation, all the Government are really doing is trying to rebalance the negative effects of the harmful policies they have introduced, be it national insurance contributions for employers, the national living wage, or other measures that have depressed entry-level job creation? That is the change that has happened in the past two years.
Baroness Sherlock (Lab)
My Lords, I can only assume the noble Lord did not hear what I said in my opening speech. If he wants to talk about having a million people who are NEET, I point out again that in the three years running up to the last election, the number of young people not in education, employment or training rose by 250,000, up to almost a million.
I am not trying to make this anybody else’s problem; I am trying to make this a problem for us as a country. We were the people who stood up and said, “This is not acceptable”. One in eight is not acceptable; it is not in the interests of our country. Where I absolutely agree with the noble Lord is that young people want a future. Our job is to persuade them that they can have it, to show them that they can have it, to give them the skills to get it, and to give them the chance to get the jobs that will give them a foot in the door to go out there and do it. This Government are investing in that because we believe in and care about our young people. Even if the country did not—and we really do—the country needs them. We are an ageing society, and we need our young people. Without their gifts, talents and future, we all suffer. So we are doing this for them and for the country, and I am proud that we are.
Pension Schemes Bill
Baroness Sherlock ExcerptsMonday 23rd March 2026
(1 month 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: HL Bill 169-III(a) Amendment for Report (Supplementary to the Third Marshalled List) - (20 Mar 2026)
Lord Davies of Brixton (Lab)
Is the noble Lord, Lord Palmer of Childs Hill, going to contribute to this debate?
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
He has spoken already.
Lord Davies of Brixton (Lab)
Okay. This demonstrates the clear fact that I am still suffering from my cold, which is so bad that it kept me from attending the second day of Report.
There is an important issue that needs to be highlighted, and that is addressed in Amendment 165. I want to say a word on behalf of the members of a number of different schemes—NatWest is one, but there are others—who feel aggrieved because they were not properly informed of their rights under their scheme. Their major complaint is that when they reach state pension age, they suffer a diminution in their benefits. These rules were introduced in all good faith, and I participated in such negotiations myself, but it is the failure of the employer to ensure adequate information for members that has led to the complaint.
Do I have a different grouping from everyone else? I am speaking to Amendment 165, which is in the first group—is that correct?
Lord Davies of Brixton (Lab)
Okay; good. As I say, I am still suffering from my cold, and I hope the House will indulge me. But I think it is important to make the point on those members’ behalf.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords who spoke. I think the noble Lord, Lord Palmer, decided not to dwell on a number of his amendments because there is more to come, I suspect, in later groups. I had a nice long speech written in response to all these, but I may spare the House parts of that and concentrate on the issues raised during the debate.
Briefly, on consolidation, I think in general we all agree on the importance of understanding and monitoring the impact of the reforms presaged in this Bill. The Government have already taken steps to do this. A comprehensive, green-rated impact assessment was produced and an updated version was published as the Bill entered this House, with details of our monitoring and evaluation plans, including critical success factors and collaboration across regulators and departments. We have published a pensions road map, setting out clearly when each measure will come in. So the kind of review envisaged in the first amendment would not be helpful.
Amendment 160 from the noble Baroness, Lady Altmann, would give new powers to the Secretary of State to require employers and pension providers to undertake regular data accuracy checks in relation to contributions paid into workplace pension schemes. I completely agree about the importance of ensuring that members get the contributions they are due. However, I do not agree that the additional requirements proposed are necessary or proportionate, given the robustness of the current regulatory framework. Compliance with automatic enrolment duties remains high. The Pensions Regulator—TPR—runs a proportionate and effective compliance regime, underpinned by detailed guidance.
As I explained in Committee, employers, together with the trustees or managers of pension schemes, are already required to keep certain records. That includes details of both employer contributions and deductions from members’ earnings for each relevant pay reference period. Employers have to keep payment schedules and contribution records for six years and opt-out information for at least four. TPR has issued codes of practice setting out clearly how trustees of DC schemes and managers of personal pension schemes should monitor the payment of contributions. These also cover the provision of information to scheme members, enabling them to check that their contributions are made correctly, and they establish clear expectations around the reporting of material payment failures.
There is already a requirement for scheme providers to have sufficient monitoring processes in place, which includes a risk-based approach to monitor employers, who should have appropriate internal controls to ensure correct and timely payment of contributions. If a trustee—
Baroness Altmann (Non-Afl)
Can the Minister confirm for the House whether there are any checks or reporting on accuracy of the contributions? There is a requirement, but is anybody actually checking whether the amounts are correct?
Baroness Sherlock (Lab)
I invite the noble Baroness to come back in at the end if she feels I have not answered that. I would say two things to her. One is that the duty is on the trustees or managers. If they become aware that the appropriate things are not being done by employers, or that an employer does not appear to be taking adequate steps to remedy a situation where things have gone wrong—for example, if there are repetitive or regular payment failures—they have a duty to report it to the regulator.
But crucially, the proposed value-for-money framework introduces an assessment of quality-of-service metrics, which directly addresses the accuracy and promptness of core administrative functions, including the secure, timely and accurate processing of contributions. Metrics related to saver engagement will be phased in at a later date, but schemes will be required to disclose how often they review and correct both common and scheme-specific data as well as the proportion of members with complete and accurate records. They also will have to report on the timeliness and accuracy of core financial transactions, such as paying in contributions.
We are currently considering the feedback received from industry on the latest VFM consultation in order to make sure that we develop a VFM regime that will drive greater transparency and higher standards around data quality and contribution accuracy. I hope that is exactly what the noble Baroness wants, and that that has encouraged her. These measures demonstrate that there is a well-established and effective framework that, together with the VFM measures, will make all the things she wants come into place.
I will not dwell on Amendment 163 from the noble Lord, Lord Palmer, about universal pension advice; we gave that a fair outing in Committee. I simply say that we completely share the view that we want to make sure that people get the appropriate advice at the time they need it. But there is already a very large amount of support out there. Being realistic, the option proposed in his amendment would probably, at the best guess on first estimates, cost around £2 billion and require us to double the size of the financial advice sector. I know he is not pushing that, but he is pushing the important underlying point: to make sure that people have access to the support they need. We believe that, between what is available at the moment and what is coming on stream—Pension Wise, stronger nudge and guidance, and targeted support and guided retirement—there is a lot out there that will do that job.
I turn to Amendment 169 from the noble Baroness, Lady Stedman-Scott. It is always faintly dispiriting when someone announces at the start that they will listen to you but they are going to vote on it anyway. But let me do my best, notwithstanding that challenge, and maybe I can persuade the noble Baroness and she will change her mind—one never knows.
This amendment relates to pension communications. I understand that its aim is to ensure that pension providers can communicate effectively with their members so that they can navigate their choices with confidence. We share that aim, which is why we are acting to reduce complexity and strengthen the support available to pension members. The Government have heard extensive feedback from firms on how targeted support may interact with the direct marketing rules contained in the privacy and electronic communications regulations.
Having considered this feedback, the Government have committed to take forward secondary legislation to amend those regulations. This change will enable workplace pension providers to send targeted support recommendations, which amount to direct marketing, to members who have not opted out of receiving it. That reflects the fact that workplace pension providers have fewer opportunities to obtain consent for direct marketing, limiting the level of engagement they have with their members. We aim to deliver this legislative change quickly to ensure that targeted support can reach as many pension members as possible, while maintaining robust protections from unwanted marketing. We will continue to engage with stakeholders and regulators throughout to ensure that we get the right balance.
In Committee, concerns were also raised around communications that may be required under guided retirement. The Government have examined this carefully in developing the policy, including engaging with the sector and the Information Commissioner’s Office. We will seek further stakeholder views through a public consultation, expected later in the year; this will cover proposed requirements on the information and communications journey for pension members, including the extent to which trustees can intervene to provide support, but that is the best way in which to consider any such interactions in a timely manner. Running a separate review to a different timescale would make it difficult to incorporate any findings in the design and implementation of the policy, but I hope that reassures the noble Baroness that the Government are taking action, and she will not feel the need to test the opinion of the House.
Finally, Amendment 165 is from the noble Lord, Lord Palmer, although he did not speak to it—my noble friend Lord Davies did. I do not want to dwell on any particular scheme but say simply that the Government recognise the importance of pension security in retirement and protections for those saving into pension schemes, and those concerns are at the heart of the Bill. We are also acting where previous Governments have not; for example, by introducing annual increases on compensation payments from the PPF and FAS relating to pensions built up before 6 April 1997, when the scheme provided for this. There are clear and established routes for members to raise concerns or complaints about their scheme when they feel that things have gone wrong. The Pensions Ombudsman provides an independent and impartial service to resolve pension-related complaints that cannot be resolved through a scheme’s internal dispute resolution process; that gives a route to settle issues fairly and ensure that members’ rights are upheld.
This has been a good chance to have a canter across the waterfront of pensions, but I hope, in the light of my responses, the noble Lord feels able to withdraw his amendment.
Lord Palmer of Childs Hill (LD)
My Lords, I thank the Minister for her reply—and she got to the crux of the matter. We are trying to make sure that there is information and advice for people who do not have easy access to that information and advice. I take her reassurances that the Government are looking to give that information and advice by whatever means available. These Benches will look at and keep abreast of what advice and information are given, and whether they are sufficient. I hope that we can come back to the Minister, even if informally, if we feel that they are not and to see whether they are what we want. I think that we are after the same thing—we are just looking at it in a different way. I kept my words brief because I want to get through things today, as much as we can, so I did not concentrate on some of those matters.
The problem with the how we deal with things in your Lordships’ House is that Amendment 169 happens to be a very high number—the highest-numbered amendment is around 170, I think, so the Division will come right at the end of the day, and that is very much in our minds when we think about it. My feeling from these Benches is that, if there is anybody left in the House, we will support it if the noble Baroness puts it to a vote. It is not at the top of my wish list, but I think it does make a point, and if it was an earlier amendment than Amendment 169 it would get a lot more support—but the practicalities mean that it will not.
In the light of all that, I beg leave to withdraw the amendment.
Baroness Sherlock
Member’s explanatory statement
This amendment makes clear that sub-paragraph (2B) (and not sub-paragraph (2A)) of paragraph 28 of Schedule 7 to the Pensions Act 2004 (inserted by this clause) applies to a case where pension scheme rules required pre-1997 indexation only for the purposes of removing inequalities as between men and women arising from the provision of guaranteed minimum pensions.
Baroness Sherlock (Lab)
My Lords, in moving Amendment 121 in my name, I will speak also to the other government amendments. We have already debated our reforms introducing prospective increases in compensation payments from the Pension Protection Fund, PPF, and the Financial Assistance Scheme, FAS, on pensions built up before 6 April 1997. These will be CPI-linked, capped at 2.5% and applied prospectively to payments going forward for members whose former schemes provided for these increases. I have tabled two groups of minor and technical amendments to ensure that the measures operate as intended.
Viscount Younger of Leckie (Con)
My Lords, I start by referring to the reference the noble Lord, Lord Davies, made to “Mastermind”; I am tempted to say that I have started so I will finish. I thank the Government for bringing forward these technical amendments, which seek to protect schemes from unintended consequences arising from the Bill; to ensure that GMP equalisation is properly treated as a narrow legal correction rather than as full indexation; and to provide greater technical clarity and consistency across the relevant legislative framework. These seem very sensible and constructive changes, and I thank the Minister for her clarifications and the detail she gave.
I thank the noble Baroness, Lady Altmann, and the noble Viscount, Lord Thurso, for the points they succinctly raised on their amendments. As we have heard, Amendment 162 would require the Secretary of State to bring into force the currently uncommenced power in the Pensions Act 2004, allowing the PPF to discharge certain compensation liabilities by paying a cash lump sum. Activating this long-dormant paragraph would add a pragmatic fourth option alongside insurance policies, annuity contracts or transfers. As the noble Baroness, Lady Altmann, said, it would not cost any money to do so.
We therefore support the amendment because it would widen the PPF’s toolkit to act in the best interest of members, giving flexibility to settle appropriate cases efficiently where regulations specify the safeguards and calculation method while retaining parliamentary oversight under the negative procedure and the PPF’s core purpose of protecting members of failed schemes. I therefore say to the noble Viscount, Lord Thurso, and the House that, should he wish to seek the opinion of the House on Amendment 162, we will be minded to support him.
Baroness Sherlock (Lab)
My Lords, I am grateful to the noble Lords for introducing their amendments. The amendments in the names of the noble Baroness, Lady Altmann, and the noble Viscount, Lord Thurso, would commence the regulation-making power in Section 169(2)(d) of the Pensions Act 2004 to allow the PPF board to discharge its liabilities through a lump sum. As we have heard, Amendment 155 would have the additional effect of enabling PPF members to transfer out of the PPF to an arrangement that offers benefits higher than PPF compensation, where an alternative sponsor can be found.
The PPF is designed to discharge its liabilities by making regular payments to its members. That enables investment returns, plus levy payments, to make good the funding of schemes that transfer to the PPF and to build a buffer against future risk. This model has put the PPF in a strong financial position, but allowing transfers out would undermine its operation. Before the PPF board takes responsibility for a scheme, there is an assessment period, the aim of which is to ensure that the scheme does not go into the PPF until it is clear that no linked employer will rescue the scheme. Given that nobody took up the option originally for schemes that have transferred into the PPF, it is hard to see related employers who would do so many years later.
However, Amendment 155 opens up this possibility, including from non-related entities. It could therefore require a fundamental restructuring of the PPF’s funding and investment strategy to reflect transfers out. This is not a minor option which costs nobody any money; in practice, it raises range of complex issues to be addressed. Importantly, these include how to safeguard members by ensuring that their destination is appropriately secure. The complexity could be significant.
Enabling transfers out of the PPF would require a fundamental rethink of how it operates, its compensation structure and how the compensation system more broadly is managed. At this time, if any willing sponsors were identified, there is no framework to assess how adequate their funding would have to be to minimise the risk of returning to the PPF. If the sponsor were to fail subsequently, the scheme could end up transferring back to the PPF, and members could receive benefits at PPF levels even lower than they had been before they were taken out in the first place. The Government cannot agree to commence a regulation-making power which would enable lump sums to be paid in this way. The provisions in Section 169 were meant to be used only in exceptional circumstances, which have not yet come to pass. To open it up more widely would not be wise when the potential costs and risks of the PPF are unclear.
Lord Palmer of Childs Hill (LD)
I accept the Minister’s answer.
Baroness Sherlock (Lab)
I am grateful to the noble Lord for his gracious response. In light of what I have said, I hope that the House feels able to support the government amendments and that the noble Viscount, Lord Thurso, and the noble Baroness, Lady Altmann, will not press theirs.
Baroness Sherlock
“(c) sub-paragraph (2A) does not apply.”Member's explanatory statement
This amendment is consequential on the amendment to this clause in my name at page 116, line 5.
Viscount Younger of Leckie (Con)
The noble Baroness asks a fair question. Can the Minister clarify that? We have looked into this in some depth and come to our own conclusion, and I am afraid we will have to stick to that: but I do take the noble Baroness’s point.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords who have spoken and thank the noble Baroness, Lady Altmann, for introducing her amendments. I understand her concerns. We did discuss this in Committee at some length.
Amendments 124, 128, 132 and 136 would require the payment of arrears to members of the PPF whose original scheme provided for increases on pensions built up before 6 April 1997. The amendments would also enable members to receive a one-off lump sum payment from the PPF reserve. Amendment 154 would require the Secretary of State to determine how these lump sum payments are to be funded in the financial assistance scheme. I fully understand that many affected PPF and FAS members are having to adjust to a level of income less than they were expecting at retirement, after their employers became insolvent and the pension schemes wound up being underfunded. I understand the distress that has caused to many of them.
Regarding the comments made by my noble friend Lord Hain and the noble Lord, Lord Wigley, about Allied Steel and Wire, my honourable friend the Minister for Pensions has met with a range of members, including former Allied Steel and Wire workers whose scheme qualified for the financial assistance scheme, and he has heard their cases.
These amendments go much wider than that. This Government have acted to address this issue through measures in the Bill which address prospective pre-1997 indexation to eligible PPF and FAS members. However, I understand that this does not go as far as some affected members and some Members of the House would have wanted. None the less, these reforms represent a step change that will significantly strengthen the protection offered by the two compensation schemes. We have taken action and now want to implement it.
Baroness Sherlock
Member's explanatory statement
This amendment makes clear that sub-paragraph (2B) (and not sub-paragraph (2A)) of paragraph 17 of Schedule 5 to the Pensions Act 2008 (inserted by this clause) applies to a case where pension scheme rules required pre-1997 indexation only for the purposes of removing inequalities as between men and women arising from the provision of guaranteed minimum pensions.
Baroness Sherlock
Member's explanatory statement
This amendment makes clear that sub-paragraph (2B) (and not sub-paragraph (2A)) of paragraph 28 of Schedule 6 to the Pensions (Northern Ireland) Order 2005 (inserted by this clause) applies to a case where pension scheme rules required pre-1997 indexation only for the purposes of removing inequalities as between men and women arising from the provision of guaranteed minimum pensions.
Baroness Sherlock
Member's explanatory statement
This amendment makes clear that sub-paragraph (2B) (and not sub-paragraph (2A)) of paragraph 17 of Schedule 4 to the Pensions (No.2) Act (Northern Ireland) 2008 (inserted by this clause) applies to a case where pension scheme rules required pre-1997 indexation only for the purposes of removing inequalities as between men and women arising from the provision of guaranteed minimum pensions.
Baroness Sherlock
Member's explanatory statement
This amendment makes clear that sub-paragraph (2B) (and not sub-paragraph (2A)) of paragraph 9 of Schedule 2 to the Financial Assistance Scheme Regulations 2005 (inserted by this clause) applies to a case where pension scheme rules required pre-1997 indexation only for the purposes of removing inequalities as between men and women arising from the provision of guaranteed minimum pensions.
Baroness Sherlock
“Chapter 2AAWE pension schemeNew public pension schemes
Establishment of new public schemes and transfer of rights(1) The Secretary of State may by regulations establish one or more schemes (“new public schemes”) which provide for pensions or other benefits to be payable to or in respect of persons who are or have been members of the AWE pension scheme (“qualifying persons”).(2) The Secretary of State may by regulations make provision for the transfer of qualifying accrued rights to a new public scheme (without the need for any approval or consent of the trustee company or AWE PLC, or any other person, to the transfer). (3) Regulations under subsection (2) may include provision for the discharge of liabilities in respect of qualifying accrued rights that are transferred.(4) In this Chapter—“qualifying accrued rights ” means— (a) any right to future benefits under the AWE pension scheme which, at the qualifying time, has accrued to or in respect of a qualifying person,(b) any entitlement under the AWE pension scheme to the present payment of a pension or other benefit which a qualifying person has at the qualifying time, or(c) any entitlement to benefits, or right to future benefits, under the AWE pension scheme which a survivor of a qualifying person has at the qualifying time in respect of the qualifying person;“the qualifying time ” means the time immediately before the date specified or described in regulations.(5) For the purposes of the definition of “qualifying accrued rights”—(a) references to pensions or other benefits (including future benefits) includes money purchase benefits, and(b) references to a right include a pension credit right.(6) Regulations under subsection (4) specifying or describing a date for the purposes of the definition of “the qualifying time” may make provision for the purposes of transfers of qualifying accrued rights generally, transfers of a particular description or a particular transfer.”Member’s explanatory statement
This new clause provides for the pension scheme of AWE PLC (a wholly owned government company) to be transferred to a new public sector pension scheme, while preserving existing rights of scheme members. It will be the first clause of a new Chapter in Part 4 of the Bill.
Baroness Sherlock (Lab)
My Lords, I shall speak also to the other government amendments in this group. I start with the context for these amendments. The AWE pension scheme is a trust-based defined benefit—DB—pension scheme for employees and former employees of AWE plc, the Atomic Weapons Establishment. Since 2021, AWE plc has been wholly owned by the Ministry of Defence, and the pension scheme is backed by a Crown guarantee.
The new clauses will allow the Government to defund the existing scheme and establish a new central government pension scheme for its members. They apply only to the DB pension scheme; AWE’s DC contract-based scheme is not affected.
The assets held by the scheme will be sold and proceeds transferred to the Treasury. This measure was announced by the Chancellor in her 2025 Budget, but the principle was announced by the previous Government in a Written Ministerial Statement on 6 July 2022. The new scheme will be a public pension scheme. This is in accordance with wider government policy that when a financial risk sits wholly with government, as it does here, it should not hold assets to cover that liability. The taxpayer is already exposed to the risks, and the liability can be managed more efficiently in the round along with other unfunded liabilities met out of general taxation.
This measure will help to ensure that liabilities are funded in the most efficient way while ensuring the long-term security of members’ benefits. This will also support the Government’s fiscal strategy by reducing near-term borrowing, as it will reduce the amount to be raised in debt markets.
I assure the House that the amendments in this group explicitly protect the accrued rights of all members at the point of transfer. The new public scheme must make provision that is, in all material respects, at least as good as that under the AWE pension scheme. This includes any rights to discretionary benefits that may exist under that scheme at the point of transfer.
The new statutory scheme will be based on the existing rules, and the discretions exercised under the existing rules by the trustee, AWE plc and, indeed, by the Secretary of State for Defence will be codified into the rules of the new statutory scheme. The rules of the new scheme will be drafted in consultation with the trustee of the present scheme. The Government will work with the trustees and future administrator of the scheme to ensure transparency and clarity at the point of transfer. AWE will also work with the current trustee and the future administration to ensure members receive all the information they need at that time.
The new clauses in Amendments 145 and 146 provide that the new scheme should be established by regulations and set out the kind of provision that may be made by these regulations and any amending regulations. Although they are fairly standard for public schemes, I assure the House that the Government have considered carefully how they may be relevant to this scheme.
The new clause in Amendment 148 ensures that scheme rules cannot be amended unless prescribed procedures have been followed. In most cases, the requirement is to consult. However, if the proposed amendment might adversely affect members’ rights, the regulations must prescribe additional procedures to protect the interests of members, including obtaining the consent of interested persons or their representatives. This will include the employer, the members and their representatives.
AWE has already engaged with both its recognised trade unions—Unite and Prospect—and will continue to have regular contact with the unions about future changes.
The new clause in Amendment 149 will enable the Government to direct the disposal of the assets currently held by the pension scheme for the benefit of the Exchequer. We expect the bulk of the assets to be sold before the new scheme is established. Regulations under this clause must ensure that trustees’ liabilities following the sale of assets will be met by public funds, thus ensuring that pensions in payment and any other trustee expenses will not be affected.
Regulations under this clause will also ensure that the trustee and AWE plc are protected against any liability that might otherwise arise because they have complied with the Government’s direction to sell assets. This clause includes a Henry VIII power to disapply or modify specified statutory provisions. To be clear, these powers can be used only in relation to regulations made under this clause and are intended to enable protection for the trustee. For example, we expect that we will need to disapply the scheme funding regime in relation to the scheme once the sale of assets begins.
The new clause in Amendment 150 will allow the Treasury to amend tax legislation to ensure that the transfer of the AWE pension scheme to a new public scheme will be tax-neutral, meaning no additional or unexpected tax liabilities will arise for those affected by the changes. The Treasury will use these powers to modify the application of relevant tax law where it is needed, following the precedent set when the Royal Mail pension scheme was defunded. Indeed, this clause is based closely on that legislation.
The new clause in Amendment 151 provides a legal gateway to permit the sharing of information between named parties to facilitate the establishment and administration of the new scheme. It also gives the Government the power to make regulations requiring individuals or organisations to provide the information needed to establish and administer the new public scheme and transfer the accrued rights. This should not be needed, as the Government are collaborating with the relevant parties. The provision will be required only in the unlikely case that a party does not provide the necessary information upon request.
The proposed new clause in Amendment 152 ensures proper consultation and parliamentary scrutiny for regulations made under this part of the Bill, particularly those affecting the establishment and operation of the new public pension scheme and the transfer of assets. The Government are required to consult the trustee of the AWE pension scheme before making regulations to establish the new public scheme, to transfer accrued rights, or to transfer assets and liabilities. That will ensure that the interests of scheme members will be fully considered before these regulations are made.
In addition, any regulations that could adversely affect existing rights that have retrospective effect or that set financial penalties are subject to the affirmative procedure. That will ensure that significant changes are subject to parliamentary approval and scrutiny. Other regulations under this part of the Bill are subject to the negative procedure, although I note that the taxation regulations are subject only to annulment in pursuance of a resolution in the other place, as is usual for such legislation. I beg to move.
Lord Palmer of Childs Hill (LD)
My Lords, what can I do but say that I welcome these amendments? They are overdue and I hope they will pass with no dissension.
Viscount Younger of Leckie (Con)
My Lords, in the spirit of consensus, we had some initial concerns with the Government’s approach, which we raised in Committee, specifically whether these provisions might render the Bill hybrid. That would be a serious procedural issue, and one we felt was important to explore fully. Since then, we have engaged constructively with the Government and the Public Bill Office on this question. As the Minister will know, there were a good number of meetings and exchanges. I am grateful to both for their time and careful consideration. We have been reassured that these provisions do not, in fact, make the Bill hybrid and we are content to proceed on that basis. I place on record our thanks for that engagement.
I turn briefly to the substance of the amendments, which set out a comprehensive framework for the transfer of the AWE pension scheme into a new public sector arrangement, while seeking to preserve the accrued rights of members, ensure appropriate handling of assets and liabilities, and provide for the necessary technical matters, including tax treatment, information sharing and parliamentary oversight. I thank the Minister for setting out her approach with such detail. Given the reassurances we have received on the procedural point, we are content with the approach set out in this group.
Baroness Sherlock (Lab)
My Lords, I am thrilled and grateful to both noble Lords for this outbreak of consensus; long may it continue. I have some other lovely amendments coming next, so I encourage them to support those as well. I thank the noble Viscount and to the noble Lord, Lord Palmer, very much.
A concern was raised in Committee that these amendments might make the Bill hybrid, so we were very happy not to move them until everybody was happy that they would not. We never thought they were hybrid, but I am really grateful that the noble Viscount has taken the time to satisfy himself of that too. Given that and the lack of opposition, I beg to move.
Baroness Sherlock
“New public schemes: further provision(1) A new public scheme may include provision—(a) for pensions or other benefits to be payable to or in respect of some or all persons described in section (Establishment of new public schemes and transfer of rights)(1);(b) for the provision of money purchase benefits or benefits that are not money purchase benefits (or both);(c) for increasing in particular circumstances the amounts payable in respect of qualifying accrued rights;(d) for the payment or receipt of transfer values or other lump sum payments for the purpose of creating rights to benefits under a new public scheme or otherwise;(e) in relation to any persons who are active members of the AWE Pension Scheme which differs from the provision made in relation to persons who are deferred members of the AWE Pension Scheme, other than provision in relation to qualifying accrued rights.(2) Regulations under section (Establishment of new public schemes and transfer of rights)(1) may—(a) provide for a new public scheme to be treated as an occupational pension scheme, a previously contracted-out scheme or another type of occupational pension scheme for the purposes of an enactment specified or described in the regulations; (b) provide for the enactment to apply in relation to a new public scheme subject to modifications specified in the regulations.(3) Regulations under section (Establishment of new public schemes and transfer of rights)(1) amending a new public scheme may make retrospective provision.(4) Regulations under section (Establishment of new public schemes and transfer of rights)(1) may—(a) confer functions on the Secretary of State or another person; (b) provide for a person to exercise a discretion in dealing with a matter.(5) The Secretary of State may—(a) make arrangements for a new public scheme to be administered by any person;(b) delegate to any person a function exercisable by the Secretary of State under a new public scheme.(6) In this section, a “previously contracted-out scheme” means a scheme that before 6 April 2016 was a salary related contracted-out scheme within the meaning of Part 3 of the Pension Schemes Act 1993.”Member's explanatory statement
This new clause contains further provision about the transfer of the AWE Pension Scheme. It will be the second clause of the new Chapter referred to in the explanatory statement for the amendment in the name of Baroness Sherlock to insert the new clause “Establishment of new public schemes and transfer of rights”.
Baroness Sherlock
“Investment principles and choosing investments: guidanceIn Part 1 of the Pensions Act 1995 (occupational pensions), after section 36 insert—“36ZA Investment principles and choosing investments: guidance(1) The Secretary of State must issue guidance explaining such aspects of the law contained in regulations made under section 35(4) (statement of investment principles) and section 36(1) (choosing investments) as the Secretary of State considers appropriate.(2) Guidance issued under this section may, in particular—(a) explain the meaning of any expression relevant to that law; (b) include examples to illustrate how that law applies to particular scenarios.(3) The trustees of a trust scheme, and any fund manager to whom any discretion has been delegated under section 34 (power of investment and delegation), must have regard to guidance issued under this section.(4) The Secretary of State—(a) must from time to time review any guidance issued under this section; (b) may from time to time revise and re-issue guidance under this section.(5) Before issuing guidance under this section, the Secretary of State must consult such persons as the Secretary of State considers appropriate.(6) The requirement to consult those persons may be satisfied by consultation carried out before this section comes into force.(7) The Secretary of State must—(a) lay guidance issued under this section before Parliament, and(b) publish such guidance in such manner as the Secretary of State considers appropriate.(8) The first guidance issued under this section must be laid before Parliament, and published, before the end of the period of 12 months beginning with the day on which this section comes into force.””Member’s explanatory statement
This amendment would require the Secretary of State to issue guidance explaining aspects of the law contained in certain pensions regulations. The guidance may in particular explain the meaning of expressions in those regulations, such as “financially material considerations” (including “environmental, social and governance considerations”) and “best interests of members”.
Baroness Sherlock (Lab)
My Lords, I will speak to government Amendments 156 and 178 in my name. I am delighted to bring forward an important amendment to this Bill, delivering on a commitment made by my honourable friend the Minister for Pensions in the other place to provide greater clarity and support for trustees exercising their existing investment duties.
Trustees and others tell us that, although their duties are well established in law, they lack practical tools to apply them in today’s complex investment environment. These amendments respond to that need by requiring the Secretary of State to issue statutory guidance explaining how these duties operate within the existing legal framework. For the first time, there will be a statutory obligation to provide accessible and authoritative guidance on the meaning and application of key legal concepts contained in regulations made under Sections 35 and 36 of the Pensions Act 1995, including the statement of investment principles and the provisions governing the choosing of investments.
Let me be clear: these amendments do not change trustees’ duties or prescribe outcomes. What the amendments provide is guidance that clarifies how the law works in practice. Across DB, DC and hybrid schemes, trustees and advisers have asked for concise, practical and legally grounded guidance. They want confidence that the law gives them the room to take proper account of long-term, financially material risks, such as climate change, biodiversity loss and evolving economic conditions when determining how best to invest in members’ interests.
At a recent round table chaired by the Pensions Minister, stakeholders stressed the need for guidance that distils existing law into simple usable terms supported by real-world examples. They were equally clear that the guidance must remain flexible and able to evolve as investment practice develops. The Government’s view is that fast-moving concepts such as standards of living, member views and complex system-level risks should not be hard-wired into primary legislation because they risk creating rigidity and could quickly become outdated. By contrast, statutory guidance offers a pragmatic responsive approach that can evolve alongside the global investment environment, stewardship expectations and emerging environmental, social and governance data.
Under these amendments, the Secretary of State will issue guidance explaining such aspects of the law as they consider appropriate. This includes clarifying key expressions, such as “financially material considerations” and the “best interests of members”, covered in existing regulations. The guidance will also use examples and case studies to illustrate how these concepts should be interpreted—something that trustees and advisers have repeatedly said would be of real value.
To ensure that the guidance is genuinely useful, DWP has convened a technical working group chaired by Sir Robin Knowles, a serving High Court judge whose leadership of the Financial Markets Law Committee’s work on fiduciary duties and sustainability brings deep expertise to this task. The group brings together experienced DB, DC and LGPS trustees, actuaries, investment practitioners, stewardship specialists, civil society representatives and senior pensions lawyers. The group has already met and agreed terms of reference. Its objectives include supporting DWP in developing statutory guidance that provides clarity and confidence to trustees without imposing undue prescription, translating existing law into practical expectations supported by real-world examples—for instance, showing how trustees might assess long-term financial risks linked to climate change, biodiversity loss, supply chain exposures, nature-related dependencies and stewardship escalation, as well as financially material social risks and other forms, drawing on good practice from schemes such as Nest, Brunel and People’s Partnership. The guidance will outline reasonable sources of evidence, data, member views and professional advice on which trustees may rely.
The group will look to recognise in guidance the differing capacities of schemes, with case studies showing how schemes of various sizes can meet the same principles in different ways. It will also identify appropriate areas of alignment with LGPS and FCA guidance to promote coherence across the pensions landscape. I know this will be of particular interest to the noble Baroness, Lady Hayman, who has asked about the interaction of this guidance with other pension schemes. I pay tribute to her for her work in this area and for the amendment she tabled, which, along with similar work in the other place, has prompted the Government to respond in the way they have.
As we have indicated previously, this guidance is intended only for occupational trust-based schemes, where questions of legal clarity arise most acutely. FCA-regulated providers operate under the consumer duty, and the LGPS already has its own guidance to LGPS administering authorities, setting out that they must include preferences on financially material ESG factors in their investment strategies. However, I can assure the House that the FCA, the Pensions Regulator and the MHCLG for the LGPS are fully engaged in the statutory guidance work to help to support alignment and share best practice.
Baroness Stedman-Scott (Con)
My Lords, we have significant concerns about the direction of travel shown by the Government with their amendments in this group. These amendments risk opening the door to mandation by the backdoor, and that is something we cannot support.
The Government’s Amendment 156 would require the Secretary of State to issue guidance explaining key aspects of pension law, including fundamental concepts such as “financially material considerations” and, crucially, what constitutes the “best interests of members”. If the Government are given the power to define what is in the members’ best interest, what is to prevent that definition shifting over time to reflect political priorities? What is to stop a future Secretary of State asserting that particular forms of investment—perhaps in UK assets of their choosing—are, by definition, in members’ best interests? If that becomes the case, have we not simply created mandation in another form?
Throughout the passage of the Bill, we have been clear that decisions about investment must remain with trustees acting in the interest of their members, and not be directed implicitly or explicitly from the centre. These amendments risk undermining that principle by centralising significant interpretive power in the hands of the Government. When the Government issue guidance to schools, the health service or other areas in their purview, the effect can be to clarify and support operations in a practical sense. The sort of guidance the Government propose to issue on this point goes precisely the wrong way and can serve only to limit the options open for trustees to act in their members’ best interest.
For these reasons, we believe that these amendments represent a step in the wrong direction. They risk politicising what should remain independent fiduciary judgments. Accordingly, I put the House on notice that we will oppose these government amendments when they are called.
Baroness Sherlock (Lab)
My Lords, I will start where we just finished. I can only assume that the noble Baroness, Lady Stedman-Scott, did not listen to the words of the noble and learned Lord, Lord Thomas; I hope she would take it from him if not from me. He made it clear that this guidance does not change the law; it simply seeks to explain how the law can be applied. As he pointed out, were any Government—this Government or a subsequent one—to try to make the guidance represent something that the law is not, the courts would very quickly set it aside. Frankly, I find the objections risible. They do not stack up at all.
To be really clear, the amendments require the Secretary of State to issue guidance that explains existing law. The guidance would not instruct trustees how to invest. It would not give Ministers any power to set investment policies or require trustees to invest in any assets. Trustees must consider the guidance, but they can depart from it if they have rational grounds for doing so. Trustees retain full discretion and independent judgment. The amendment does not change trustees’ duties or prescribe investment outcomes. It simply clarifies how the existing duties operate.
The aim of the guidance is to clarify, not control. Trustees and industry stakeholders have asked for clearer, practical explanations of legal concepts, and that is what the guidance will provide. There will be a technical working group, as the noble and learned Lord pointed out. I certainly have no intention of expecting the kind of people in that group to bow to the wishes of this or any other Government, and we will not be disappointed in that respect.
To be really clear: guidance cannot override the law. Trustees must still make investment decisions based solely on what they judge to be in members’ best financial interests. They can depart from the guidance if they explain their reasoning and set it out. Nothing in the guidance allows Ministers to mandate their investment choices.
I regret that I cannot agree to my noble friend Lord Hendy’s request to expand the guidance in the way he described. I clarify that the amendment does not apply to the Local Government Pension Scheme, as I think I made clear in previous stages.
I was disappointed that no one from the Lib Dem Front Bench got up to explain the decision they have taken. I was as surprised as the noble Baroness, Lady Hayman, to find that they did not propose to support what we had all thought was a proper consensus. I pay tribute to the noble Baroness, Lady Hayman, as I think she has done a really good job in putting forward the case of trying to make sure that trustees who want to take appropriate account of long-term factors, such as climate risk, are enabled to do that.
That is what this Government have brought forward. If the House votes it down then so be it, but it would be a major mistake.
Viscount Younger of Leckie (Con)
My Lords, I begin by welcoming the amendment in the name of my noble friend Lady Neville-Rolfe, because it addresses a matter of real and enduring importance: the long-term affordability, intergenerational fairness, fiscal sustainability and accounting treatment of public service pension schemes. We heard a powerful speech from her in Committee and another from my noble friend Lord Moynihan, and they gave two further powerful speeches just now.
Fundamentally, this amendment asks the Government to examine how very large sums of public money are being managed, how liabilities are being accounted for, and what this means for the sustainability of public spending over the long term. These schemes represent a significant and growing commitment, and it is entirely right that Parliament should have a clear and transparent understanding of their implications, both for today’s taxpayers and for future generations.
The figures seem to be stark, as set out by the movers of the amendment, and some strong arguments have been put, backed up by evidence, but I very much noted the remarks from the noble Viscount, Lord Thurso, and perhaps some further debate and discussion should go on about the veracity of the figures after this debate.
Indeed, when the Government are choosing to place additional burdens on private pension saving through measures such as the national insurance changes and restrictions on salary sacrifice, in part to sustain these very substantial public sector commitments, the question of balance, fairness and sustainability becomes more and more pressing. For these reasons, we strongly support my noble friend’s amendment and we will support her should she seek to divide the House on it when it is called.
The other amendments in this group, including those in our names, seek to address two further fundamental issues: first, the question of pensions adequacy, ensuring that reforms are judged by their real-world impact on the retirement incomes of individuals, and, secondly, the question of why pension funds are not investing more in the United Kingdom. This is a critical issue, which was covered in Committee, not least by the noble Lord, Lord Vaux. If the Government wish to see greater domestic investment, the answer surely is not to reach instinctively for the levers of mandation but to understand and to address the underlying barriers, whether regulatory, tax-related or rooted in fiduciary duties. This point was made when we discussed the issue only last week, after which, I am glad to say, we voted to remove this dangerous power from the Bill. The point was repeated today by the noble Lord, Lord Lucas.
This is essential work that needs to be done. The Government are planning to intervene in the system without first properly understanding why it is behaving as it is. There is a risk that they are seeking to correct the symptoms of a problem that they have not even diagnosed, rather than addressing its causes. We have been clear from the beginning that the Government must not mandate investment, but we have also been clear that we should understand why we are not seeing the investment we need in our country. Our amendment allows the Government to do that work and then take the responsible and necessary steps to start promoting investment in a responsible way.
I close by speaking to Amendment 170A in my name and that of my noble friend Lady Stedman-Scott. I am grateful to the noble Lord, Lord Lucas, for his work on this amendment, as well as grateful for the—perhaps unusual—support from the noble Lord, Lord Davies of Brixton, for having a review, which is our wish, on member engagement on rights in pension schemes. Amendment 170A raises a fundamental question of agency: namely, the extent to which members of pension schemes are able to influence the governance and decision-making of the schemes to which they belong. We believe this is an important issue, and it invites the Government to reflect on whether pensions savers truly have a meaningful voice in shaping their financial futures. It is right that we consider not only the existence of engagement mechanisms but whether they operate effectively in practice, particularly in relation to investment decisions and scheme governance. I will therefore listen very carefully to the Minister’s response on these points.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords for introducing their varied amendments calling for a series of reviews. I have been trying to keep track and I think we are now up to 23 reviews called for in Committee and up to 14 amendments on Report calling for reviews. I know that the party opposite would like to have fewer civil servants; if noble Lords pursue all the amendments, half the civil servants left will be doing reviews.
I will at least try to work through what we have here. Amendment 157 from the noble Baroness, Lady Neville-Rolfe, proposes a review of public service pension schemes. As we discussed in Committee, a major review took place through the Independent Public Service Pensions Commission of the noble Lord, Lord Hutton. That happened under the coalition Government and the reformed schemes were introduced from April 2015. I will just remind the House of the changes that were made then to make the schemes more affordable.
The scheme design changed from final salary to career average. Pension ages were increased to state pension age for most schemes and to 60 for the police, firefighters and Armed Forces. Member contribution rates were increased across the scheme, except the non-contributory Armed Forces Pension Scheme, and other aspects of scheme design were modernised: for example, supporting more flexible retirement. At the time, it was estimated that these reforms would save £400 billion over 50 years.
The noble Baroness, Lady Neville-Rolfe, asked about the 25-year guarantee. This does not mean of course that pensions cannot be changed in any way until 2040, nor was a guarantee written in to individual members. But the central elements of the reforms introduced in the PSPA 2013 were designed to last for at least 25 years, and a high barrier was set out in that Act for any proposed changes to the key design elements, including a requirement for consultation with scheme members or their representatives, with a view to reaching agreement to help deliver that stability.
I will look at some of the specifics that have been raised. First, those reforms have been fully bedding in only from April 2022, and their full effects will be seen over the coming years. Following reforms introduced by the noble Baroness’s party, schemes now meet the benchmarks set by the Hutton commission and public service pensions continue to form an important part of overall public sector remuneration, which is taken account in pay setting. That was a key point made by the noble Viscount, Lord Thurso: a pension is part of a pay package and is taken account of by the review bodies in making those judgments on pay.
Much of the information that is called for in this review is already published on a regular basis. The OBR publishes a forecast of in-year balancing payments between the Exchequer and the unfunded public service pension schemes—and projections of long-term spending as a share of GDP—in its fiscal risks and sustainability reports. As I indicated in Committee, these projections show spending falling over the long term from around 1.9% to 1.4% of GDP, indicating that the schemes are expected to become more affordable, not less, for future generations. In addition, valuation reports and the whole of government accounts set out the different accounting treatment of scheme liabilities and how to interpret the headline figures.
Lord Moynihan of Chelsea (Con)
Does the Minister acknowledge that in 2012 the Hutton report said that the cost would fall, in an uncanny replication of what she just said, to 1.2%, but that it did not? It remained at around 2%. It says now that it will fall to 1.2% but, as I said, these are people with skin in the game. I hope she will agree that their record in forecasting is not strong.
Baroness Sherlock (Lab)
My Lords, I am going to read Hansard, because I very much hope that the noble Lord has not just accused the OBR of having skin in the game. If it was not the OBR, perhaps he would like to write to tell me whom he was accusing of having skin in the game, because I do not recognise the point that he just made.
The point on the whole of government accounts was raised by the noble Baroness, Lady Neville-Rolfe. The whole of government accounts present the liability in accordance with the international financial reporting standards. There are no plans to change that approach and I do not think that there should be. However, I recognise that members of the PAC asked whether the liability could be presented on a more permanent basis to show how it would change in the absence of changes to the discount rate, to make it easier for people to understand it. As I said in Committee, the Treasury is exploring options to present pension liabilities on a constant basis. To be clear, that presentation would be supplementary and would not affect the underlying pension liability calculations in any way, or how they are presented in the financial statements, but the Treasury is looking at whether they can be presented in a supplementary way to aid understanding.
Given that the reforms have already been implemented and all the relevant information is already available, a government-commissioned review would largely replicate and collate existing material. On unfunded schemes, it is true that the schemes referenced are unfunded, but unfunded does not equal unaffordable or unsustainable. I set out that costs are projected to fall as a share of GDP. It is also a long-standing government policy not to hold assets against liabilities that sit fully under the control of the Exchequer, as I explained on an earlier group. Moving from unfunded to funded provision on a like-for-like basis would simply require additional borrowing to build up assets and would not improve the overall fiscal position. However, if the noble Lord, Lord Moynihan, wants to recommend cutting the value of public sector pensions, that is a different matter. It is not what we are discussing here today but it could be discussed within the House.
Factors such as longevity were mentioned, which can affect costs over time. Again, the current framework is designed to capture and manage that. Changes in assumptions are reflected through scheme valuations, which affect employer contribution rates—the point flagged up by the noble Viscount, Lord Younger. The cost control mechanism then operates to require adjustments to member benefits if costs move outside the agreed corridor. Therefore, the Government do not accept the amendment. Had the previous Government felt it to be important, having reviewed and reformed the system, they had 14 years to make a decision. They left government less than two years ago and suddenly this must be done on our watch. We do not think that is the appropriate way forward.
Amendment 164 was tabled by the noble Lord, Lord Palmer. He recognises that we had an exchange in Committee but, since others have raised it, I say simply that these rules were a feature of legacy public service pension schemes, as he knows. Those legacy schemes are now closed. Members are accruing benefits in reformed schemes that do not contain these provisions. The Government do not believe it appropriate to improve retrospectively the terms of previously accrued public service pensions, consistent with the approach taken when the reforms were introduced by the coalition Government.
In response to the question from the noble Baroness, Lady Altmann, I think the Civil Service position is similar to that of the police. With the NHS, forfeiture applies to those who left the service before April 2008. If I am wrong I will write to her, but I believe that is the position and I hope that clears that up.
Amendment 158, tabled by the noble Viscount, Lord Younger, seeks to introduce a statutory requirement for the Secretary of State to conduct a review on retirement incomes. I understand the intention behind this amendment but, as I explained in Committee, the Bill contains a range of reforms which will be implemented in phases over the next decade. A review in the next five years will not have allowed many of the reforms any time to take effect. Changes to retirement outcomes can take a long time to have effect as people build savings and then retire, so this is not appropriate.
An updated version of the impact assessment was published when the Bill entered this House. It detailed our monitoring and evaluation plans. The monitoring has already started. Research is under way with employers. The DWP, the Treasury and the regulators are scoping out further data and research plans, developing key metrics across the core aims of the Bill and committing to regularly monitoring and publishing, as well as conducting new research to fill evidence gaps. Furthermore, the measures contained in the Bill will help to build greater and more consistent data, particularly through the value-for-money framework, helping to create a strong evidence base to monitor and analyse trends. Where we consider it is appropriate to keep measures under review, we have included a review clause, such as the new clause
“Review of any exercise of powers under Section 28C”
in Clause 40(13). That is proportionate and tailored to the specific interventions, and it is the appropriate way forward.
As set out in my letter to noble Lords on 4 March, the Pensions Commission has been tasked with making recommendations about pensions adequacy and support for those approaching retirement. It will publish an interim report this spring, setting out the evidence base and a strategic direction for its work, with final recommendations early next year. A separate statutory review would create confusion and overlap, and would not be helpful.
Amendment 159, tabled by the noble Viscount, Lord Younger, seeks another review, this time on the barriers to UK investment. I recognise that the noble Viscount wants assurance that the Government are taking a holistic approach to increasing UK pensions investment. I will not relitigate all the things that he brought up, some of which are relevant to this Bill and some to other Bills. The Government have already completed a detailed review of pension investment. The pensions investment review—the clue is in the name—consulted widely and considered a range of investment barriers. It reported last year, which led directly to many of the measures in the Bill. The review considered not only the questions of scale and asset allocation but the regulatory environment, fee structures and wider factors that affect how pension schemes invest. It was a serious and comprehensive piece of work. The Bill already requires the Government, if they decide to use the reserve power, to consult and publish a report. That would be the time to consider the investment landscape.
Amendment 170A from the noble Viscount, Lord Younger, seeks a review of how members’ views are considered in the effective governance of pension schemes. Pensions are a significant part of workers’ pay and their security in retirement, so it is important that the voice of the member is heard and considered in the governance of pension schemes. That is one of the reasons why we have focused so much on the role of trustees and on their duty to act in the best interests of members. Well-performing pension schemes already take account of members’ views through their governance and engagement processes. This includes member-nominated trustees, as mentioned by my noble friend Lord Davies, regular surveys and consultations, and feedback gathered through helplines, portals and member meetings. That helps trustees by ensuring that decision-making is better informed, more aligned with member needs and more credible.
Occupational pension schemes with 100 or more members are required by regulations to publish a statement of investment principles and an annual implementation statement setting out their investment policies and stewardship approach, including voting and engagement. The regulations also require trustees to disclose the extent to which non-financial matters—such as members’ ethical or personal preferences—are taken into account in investment decisions. These disclosure tools are important for members’ views because they enhance transparency, strengthen accountability and give a structured way for trustees to explain how member-driven considerations have been reflected in their policies. Guidance from the DWP helps trustees articulate better how such views have been considered when they choose to do so. Well-run pension schemes recognise that members have different investment needs and respond to them. Although trustees consider member views, as they must, they ultimately balance them against their fiduciary duty to act in the interests of beneficiaries.
The Government recently concluded a consultation on trusteeship and governance in trust-based schemes. That consultation emphasised the importance of ensuring that members’ voices are better represented in decision-making and sought feedback on how we can ensure that the voices of members are heard in the market.
A lot of reviews have been called for here. I hope that I have explained why the Government are doing a great deal in all these spaces already. I welcome the debate but ask the noble Baroness to withdraw her amendment.
Baroness Neville-Rolfe (Con)
My Lords, I thank the Minister for her comments, and all those who have spoken on the wide variety of reviews that have been proposed, some of which I think will be picked up by the Pensions Commission, by action following the Bill and, indeed, by other reviews that may be undertaken in the coming years.
I return briefly to the uncomfortable subject of public service pensions. We face a serious and deteriorating state of public finances, and my subject represents one significant part of that. It is only sensible to examine whether we are on the right path. That is the thrust of the amendment before us because, as the Minister acknowledged, this is not really picked up by any other ongoing review or legislation.
To answer the question about the previous Government, I would say that we are not looking back but looking forward. In fact, I myself carried out an independent review of the state pension age, which alerted me to the problems of pension sustainability, the intergenerational unfairness and the problems we have with greater longevity. That is one of the reasons why I have come forward with this proposal for a review, which I hope the Government will look at positively.
I thank all those who have spoken. I urge the Government to reflect, but I would like to test the opinion of the House.
Baroness Stedman-Scott (Con)
My Lords, this is a thoughtful amendment from the noble Viscount, Lord Thurso, and the noble Baroness, Lady Altmann, and I am grateful to them for bringing it before the House. Where there is a credible concern that individuals have suffered material pension losses, it is right that those concerns are properly examined. This amendment seeks to ensure that the facts are established, the extent of any losses is understood, the causes are examined, and any lessons for policy, protection or redress are fully considered. That seems to us a measured and sensible approach. If the losses suffered by former employees of AEA Technology are indeed material, it makes sense that this issue should be looked into carefully, independently and transparently.
We will therefore listen closely to the Minister’s response, particularly on whether the Government believe that the existing framework is sufficient to address these concerns, or whether there is merit in undertaking the kind of review proposed in the amendment.
Baroness Sherlock (Lab)
My Lords, I am grateful to the noble Viscount, Lord Thurso, for moving his Amendment 161, and for the conversations that we have had on this and other things. I have a lot of respect for him and the way that he approaches issues, and it has been a pleasure to talk. As we heard, the noble Viscount’s Amendment 161 would require the Secretary of State to establish an independent review into the pension losses incurred by former employees when AEAT went into administration and its pension scheme went into the Pension Protection Fund. It also seeks to explore mechanisms for redress or compensation.
The Government’s position was set out by me in Committee and subsequently by the Minister for Pensions during an Adjournment Debate in the other place at the end of February. I regret that I am not in a position to accept the noble Viscount’s amendment. I put on record my sympathy for all those who accrued public sector pensions and transferred their benefits into private sector schemes, only to end up, through no fault of their own, experiencing losses and not getting the full value that they were expecting from their pensions as a result.
In this specific case, AEAT has a very long history. It is not straightforward to turn the clock back 30 years and revisit decisions that were made then or look at the conditions that obtained at the time. Since 2013, through revised Fair Deal guidance, employees who are compulsorily transferred from the public sector into the private sector are offered continued access to a public service pension scheme, so the situation that AEAT members found themselves in could not happen now.
The fact is that these issues have spanned many years and Governments of all colours. AEAT was privatised in 1996 under a Conservative Government; the pension scheme entered the PPF in 2012 under the coalition Government; and, following the pension scheme’s entry into the PPF, AEAT members raised complaints to a number of bodies under successive Governments. There have been opportunities over the years for different Governments, and their Ministers, to provide redress or to address the issue, but, due to the impracticality of trying to go back all that time, none have done so.
One of the bodies that the noble Viscount mentioned as having looked into the matter is the Public Accounts Committee. The first recommendation from the committee’s inquiry was that the Government should consider introducing pre-1997 indexation within the PPF. This Government are taking action on that. We have brought forward legislation to introduce annual increases on compensation from the PPF and FAS that relate to pensions built up before 6 April 1997, where schemes provided for this. I am grateful to the noble Viscount for acknowledging that. Sometimes, when one gives something, it is simply banked, and then everything else is asked on top of it, so I really appreciate his grace in having acknowledged that. I also point out that if previous Governments had made that change sooner, it would have made much more of a difference to AEAT members, who would have found their pensions building up over that time. But we are introducing it now through this Bill, and AEAT members with pre-1997 accruals will benefit.
I recognise that I cannot offer everything that noble Lords want on this and other cases that have been brought to me and the Minister for Pensions. We are offering the concrete changes that we can, and that is all that I can offer. For that reason, I hope that the noble Viscount will withdraw his amendment.
Viscount Thurso (LD)
My Lords, I am very grateful to all noble Lords who have spoken, particularly the noble Lord, Lord Davies, for his support. As an actuary himself, his words were of great comfort and support. I am also grateful to the noble Baroness, Lady Altmann, who has worked on this case before and knows it through and through, and the noble Baroness, Lady Stedman-Scott, on the Conservative Front Bench. I am also grateful to the Minister for at least hearing me out.
I realise that I am probably asking the wrong ministry. Given that this mis-selling was presumably done by UKAEA in the first instance, I think the sponsor department at that point would have been the DTI—probably with the shareholder executive’s paw prints in it somewhere. The responsibility probably lies somewhere in there. I have listened to the mood of the House and realise that this is not something we should divide on, but I hope that the Government will continue to listen. Maybe, some time in the future, there will be an ability to do something to right the wrong for these poor people. With that, I beg leave to withdraw.
Baroness Stedman-Scott (Con)
My Lords, I am grateful to the noble Lord, Lord Sharkey, and the noble Baronesses, Lady Hayman, Lady Griffin and Lady Bennett, for this amendment, and I fully recognise the principle that underpins it. However, we have some reservations about the approach taken here. In particular, we are concerned that it would impose an additional compliance burden on schemes, including the Local Government Pension Scheme. The LGPS should be focused on delivering the best possible outcomes for its members, and where there is surplus within the system, that should be directed towards supporting members’ interests, rather than being absorbed by additional reporting requirements.
More broadly, while this amendment is framed around thermal coal, it raises a wider question: introducing a requirement for annual reporting on specific categories of investment risks setting a precedent which could, over time, expand into a much broader set of ESG-related reporting obligations that, in our view, risk creating a cumulative regulatory burden which may not ultimately serve members as well as it intends. So, while we understand and respect the intent behind this amendment, we are not persuaded that this is the right way to proceed.
Baroness Sherlock (Lab)
My Lords, I am grateful to the noble Lord, Lord Sharkey, for moving his Amendment 170. It is good to have the opportunity to discuss again the climate-related risks with which pension schemes—indeed, all investors—are grappling. While I recognise the intent behind the amendment, the Government believe that the existing framework for responsible investment already enables trustees to identify, assess and manage climate-related financial risks. Introducing further reporting duties at this stage risks additional burdens without clear benefit.
Trustees of occupational trust-based schemes are already required to take account of financial and material considerations, including environmental, social and governance factors. Their statement of investment principles must set out their policy on these matters. Larger schemes are also required to publish annual climate-related financial disclosures, including on total greenhouse gas emissions from their portfolios and carbon footprint metrics. These provide trustees with important information to support investment decision-making. Equivalent disclosure requirements apply to FCA-regulated providers, and the LGPS has its own requirements on explaining how ESG factors influence investment decisions. There is evidence that this framework is delivering real progress.
The noble Lord, Lord Sharkey, cited data from the Finance Innovation Lab showing that more than £10.5 billion of UK pension savings remains invested in companies involved in the extraction or burning of thermal coal overseas. I am sure he is aware that that figure is based on just three pension providers and is not necessarily reflective of what members are invested in. Recent corporate adviser data indicates that around 65% of UK occupational schemes now have a net-zero target, including 18 of the 19 major DC master trusts. DC schemes have reduced the carbon footprint of their investment by nearly 20% in the last year. Many schemes are also taking decisive action on thermal coal. For example, USS, Railpen, and Border to Coast exclude companies with significant revenue from thermal coal, while Nest supplies a 10% revenue cap. While this progress is welcome, the Government agree that further data on exposure to thermal coal and other fossil fuels will be helpful. We expect trustees to continue to strengthen their disclosures, particularly around the actions they are taking to reduce such exposures within the existing responsible investment framework.
Complementing these expectations for stronger disclosures, the Pensions Regulator is deepening its supervisory approach by requesting increasingly granular investment data from schemes. The Government are taking significant steps to enhance sustainability reporting more broadly. DBT has published final UK sustainability reporting standards closely aligned to the International Sustainability Standards Board framework. These are available for voluntary adoption and the Government will consult later this year on potential mandatory use. DWP is also reviewing the Task Force on Climate-related Financial Disclosures reporting obligations through a comprehensive evidence-gathering exercise, with conclusions to be published this year.
Pension schemes are already helped by the UK’s Transition Plan Taskforce, established by the previous Government, having published a gold standard framework to help companies produce credible, consistent and decision-useful climate transition plans aligned with net-zero goals. The task force has also released sector-specific guidance, including for metals and mining, to support pension schemes and the companies in which they invest. Future reforms are designed to modernise the sustainability disclosure regime and equip trustees with clearer, more decision-useful information. This will support better-informed decisions on investment, divestment and exclusions, including, where necessary, in relation to thermal coal.
Finally, at this point, I was going to say that the Government are legislating to bring forward statutory guidance on trustee investment duties as a further opportunity to include clear examples of good practice to help schemes strengthen their management of climate-related risks, including those highlighted by this amendment. But—oh, no—we will not be doing it, because the noble Lord and his party voted against it, so it will not be happening.
The existing disclosure framework is already driving greater transparency around schemes’ climate-related risks, and further reforms are strengthening this approach, so the Government do not believe that this amendment is necessary. However, we recognise that improved data on thermal coal and other fossil fuel investments would be helpful. This is an area we will continue to monitor and keep under active review within the existing reporting regime. I therefore hope that the noble Lord will withdraw his amendment.
Lord Sharkey (LD)
I thank the Minister for that response, but that probably means in practice that I thank her for the last sentence. Some of the other stuff I found difficult to agree with. I point out that our proposal was to collect data or produce estimates only for the larger schemes and funds in order to get a reliable picture. I do not think that the issue of the burden on the companies is quite as complicated or as difficult as might have been said. Having said that, I beg leave to withdraw the amendment.
Baroness Sherlock
““(da) sections 20, 26 and 28A to 28I of the Pensions Act 2008 (scale and asset allocation),”;”Member's explanatory statement
This amendment would provide for the Pensions Regulator to issue codes of practice in relation to sections 20, 26 and 28A to 28I of the Pensions Act 2008 (scale and asset allocation).
Baroness Sherlock
“(2A) Chapter 2A of Part 4 extends to England and Wales, Scotland and Northern Ireland.”Member's explanatory statement
This amendment provides for the new Chapter referred to in the explanatory statement for the amendment in the name of Baroness Sherlock to insert the new clause “Establishment of new public schemes and transfer of rights” to have UK extent (as the AWE Pension Scheme may have members living across the United Kingdom).
Baroness Sherlock
“(za) Chapter 1 comes into force on such day as the Secretary of State may by regulations appoint;”Member's explanatory statement
This amendment would provide for Chapter 1 of Part 2 of the Bill (value for money) to come into force on such day as the Secretary of State may by regulations appoint.
Baroness Sherlock
“(9A) Chapter 2A of Part 4 comes into force on the day on which this Act is passed (to the extent this is not already the case as a result of subsection (1)).”Member's explanatory statement
This amendment provides for commencement of the new Chapter referred to in the explanatory statement for the amendment in the name of Baroness Sherlock to insert the new clause “Establishment of new public schemes and transfer of rights”.