Pension Schemes Bill

Debate between Baroness Sherlock and Baroness Altmann

Report stage
Monday 23rd March 2026 Lords Chamber

[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.

Pension Schemes Bill

Debate between Baroness Sherlock and Baroness Altmann

Report stage
Thursday 19th March 2026 Lords Chamber

[The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, I thank noble Lords—at least, most noble Lords—for their contributions to that little debate. It is probably worth saying at the outset what this is about. Anyone who listened to the noble Lord, Lord Fuller, would assume, first, that theft was involved; secondly, that pots were being taken away from people; and, thirdly, that they were being taken away from hard-working, self-employed businesspeople. None of those things is true. These are pots where people have had a series of jobs, they have moved on and they have left small-value pots scattered around in different places, on which they are paying often quite significant charges, and the value of those pots is diminishing.

The policy was consulted on not by civil servants sitting in Horse Guards Parade but by the previous Government in 2023. This is the proposal that was consulted on by the previous Government and I happen to think that they got this right. So too did the range of opinion that was consulted, and I will say more about that in a moment.

The intention behind the policy is to capture the rights-dormant small pots and have them transferred to a consolidator, which will be clearly classified by the regulator as being one that has been classed as having value for money, and only to such a pot. The intention is to capture the right small pots that are genuinely dormant while avoiding transferring pots belonging to members who remain actively involved with their pension saving. Of course, no eligibility test will operate perfectly in every circumstance, but we believe the current 12-month period provides the right balance between effective consolidation and member protection. I shall explain why in a moment.

The noble Baroness, Lady Altmann, wants to extend the period to 24 or 36 months. That would significantly extend the period during which a pot remains dormant. This is not about industry; it is about risking detriment, both to individual members, who would continue to face charges for longer, and to the wider scheme membership, who, in practice, subsidise these small deferred pots. Either of those extensions would delay the consolidation of genuinely dormant small pots, leaving inefficiencies in the system for longer, resulting in—

[Baroness Altmann (Non-Afl)]

My Lords—

[Baroness Sherlock (Lab)]

Go on. It is going to be a long day.

[Baroness Altmann (Non-Afl)]

If a pot has been forgotten about for many years, this problem will not exist even with my amendment because it will have been dormant for over three years, if it was left behind from a long time ago. I am concerned about the people who are working at the moment who may take some time off, and to give them a better chance.

[Baroness Sherlock (Lab)]

If the noble Baroness could have just a bit of patience, I am just coming to that. I ask her to bear with me for a moment.

Either of the noble Baroness’s proposals to extend the period of dormancy would delay the consolidation of genuinely dormant small pots, leaving inefficiencies in the system for longer, resulting in higher costs for schemes and for members through higher charges.

Where someone holds several small pension pots across multiple schemes, they will find themselves subject to multiple sets of charges over a number of years. The longer the dormancy period, the longer that members will face those charges. It is well recognised that many schemes apply a flat-fee charge structure, particularly those most affected by the proliferation of small pots, and that can compound the issue. For example, a saver with three separate small pots held across three schemes, each applying its own annual flat-fee charge, could see those charges accumulate over an extended dormancy period. If the period were lengthened to 36 months, they could face four more annual charges. Given the relatively low value of many small pots, such cumulative charges represent a significant risk of detriment to the member.

On the point about people taking a career break with the intention of returning to work, in the majority of cases such members will be adequately protected by the 12-month dormancy window. The noble Baroness, Lady Stedman-Scott, mentioned maternity leave. This was looked at carefully during the consultation. Where someone is on paid maternity leave, employers should carry on paying pension contributions. Where contributions are being made, the pots are not dormant, so any period of dormancy would not start until no contributions were paid, and those pots would not be subject to dormancy criteria and would not be consolidated.

Anyone taking an unpaid break that lasts longer than 12 months would find that the system included various safeguards. First, every member will get a transfer notice before consolidation takes place, giving them a clear opportunity to opt out if they judge that consolidation is not in their best interests. As we develop the delivery design, we will look to explore different forms of communication to understand how they can best support members’ engagement with the process.

Secondly, under Clause 115, the Government are taking a power to require employers to provide updated information to schemes periodically. We will consult on how that should operate, but if subsequent evidence shows that career breaks present a genuine issue, we could simply require employers to notify schemes where a break was planned or under way. Where appropriate, that would allow such pots to be made exempt from consolidation under regulations made under Clause 25.

However, the current evidence does not indicate that this is expected to be a widespread problem. As I said earlier, the 12-month timeframe formed part of the proposal consulted on with stakeholders across the pensions industry and consumer representative bodies in 2023 and represents a supported middle ground—long enough to ensure that pots are genuinely dormant, but not so long as to delay consolidation unnecessarily. It is essential that the policy maintains the right balance between operational efficiency and member protection. Just to be clear, the Bill currently requires the regulations to set a minimum of 12 months for a pot to be classified as dormant. That means that if evidence suggests that extending the period is necessary, that period could be set at a higher level or it could be extended subsequently through secondary legislation.

We all want to avoid negatively impacting individuals who take periods of unpaid leave, but if we think about it, applying a blanket extension to the dormancy criteria cannot be the right way to provide that protection. A more appropriate approach is to design the policy framework with the necessary safeguards built in from the outset, and that is what we have done. Introducing a universal increase to the dormancy period would exacerbate the risk of detriment for everybody involved.

Finally, government Amendment 51 is a minor and technical change. It replaces “specified” with “prescribed” in Clause 23 to ensure consistent terminology throughout the Bill. The amendment improves clarity and brings the clause into alignment with the drafting used elsewhere in the measure. In the light of what I have said, I hope that the noble Baroness will withdraw her amendment and that the House will support government Amendment 51.

[Baroness Altmann (Non-Afl)]

My Lords, I thank the Minister for her reply. What she describes sounds very good in theory. My amendment is designed to address the issue that that theory does not work in practice in the kind of pensions world that we have right now. There will be improvements, but they are not in place yet. There is no compensation for a member whose pot is moved away to a worse scheme. They may have higher fees or they may have lower fees. They may get better performance, they may get worse performance. It should be incumbent upon all of us to make sure that there is as much protection as possible. If somebody has not paid in for years, the three-year limit will be fine because they will have exceeded it. Therefore, I wish to test the opinion of the House on Amendment 49.

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Baroness, Lady Altmann, for introducing her amendments. I covered quite a bit of this ground in my response to the previous group, which was quite long, so I will not repeat that—I hope that the noble Baroness will not mind.

As I set out in the previous group, Chapter 4 of the Bill relates to default arrangements and the fragmentation in schemes that are in the market. To reiterate, the measures in this chapter do not cap or limit the number of default arrangements, nor do they impact on the ability of a new entrant to enter the market. I previously mentioned innovation, which features in the new entrant pathway, but what we want to see is default arrangements being created to meet member needs. That is why we are introducing a range of measures for them to need regulatory approval before they begin to operate.

On Amendment 112, I understand that the intent is to allow a scheme to have

“several non-scale regular arrangements”.

However, it is not clear what is meant by a “regular” arrangement in the description, as it is not defined.

[Baroness Altmann (Non-Afl)]

I did not go into detail for reasons of time. However, my intention with the word “regular” was to get away from the standard industry jargon of “default fund”, which has quite negative connotations for an ordinary member. Therefore, having the word “regular”—or “standard”, or whatever we want to call it—would be much better for the pensions industry than the negative term “default”. Most people would ask, “Why would I want to default on my money? I want to do something good with it”.

[Baroness Sherlock (Lab)]

The noble Baroness should not worry about time—it is only 3.45 pm. We have all the time in the world, so I am very happy to carry on debating this.

Pension Schemes Bill

Debate between Baroness Sherlock and Baroness Altmann

Report stage
Monday 16th March 2026 Lords Chamber

[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords who have spoken this evening. I am grateful to the noble Baroness, Lady Altmann, for her support on the principle of the shift to value for money. Before I move on to the detail of her amendments and others, I say to the noble Lord, Lord Lucas, that I am not going to get in between him and my noble friend Lord Davies in fighting it out on who got us here. Of particular relevance to this debate is that we would probably all agree on the need to move from cost to value—and that is only one of the things that has been going wrong. If we have pension funds competing for business with employers on cost rather than value, we are never going to move to the kind of scale that we want to see, which is a consolidated pensions market with large and better-performing pension schemes, improving the opportunity to invest in a wider range of assets and, I hope, taking us in a direction that would make the noble Lord happy.

I start with Amendment 24. I recognise the consistent commitment of the noble Baroness, Lady Altmann, to improving outcomes for members, particularly through better service quality and clear communications for vulnerable members. The Government entirely share these aims. Where we differ is that we think that the Bill already provides the necessary powers to deliver them. Let me explain why.

Service quality is a core part of the VFM framework. The Bill ensures that these metrics remain central to assessments, while allowing detailed definitions to be set in regulations so they can evolve with member expectations and industry practice. Clause 12 makes it clear that trustees may be required to disclose data on service quality. However, defining a comparable quality of service is complicated, as I am sure the noble Baroness will appreciate. We have consulted with industry on appropriate metrics and how these should be measured to ensure that they represent the nuances involved in determining quality, without inadvertently disadvantaging those arrangements—for example, with a less engaged member demographic.

Defining this through regulations provides us with the scope to develop comparable data in this area in an adaptable, consultative and proportionate way, while still acknowledging the technical nuance required here. For these reasons, while fully supportive of its intent, we cannot accept the amendment as the Bill already provides the powers needed to achieve its aims.

I turn to another matter for the noble Baroness, Lady Altmann, I fear. Her Amendment 32 would limit the Government’s ability to specify the consequences for intermediate ratings unless received for at least three consecutive years. I listened carefully to what the noble Baroness said, but the Government cannot support the amendment. Reducing reporting for such schemes risks missing early warning signals that changes are needed to protect savers. We believe that thorough, regular reporting ensures the long-term health and security of pension schemes for all members.

As the noble Baroness said, Clause 16 gives the Secretary of State discretion to set different consequences for different grades of intermediate rating. As proposed in recent consultations, amber-rated arrangements would face consequences, while light-green arrangements would not. A three-year threshold would mean potential problems going unchecked for too long. Instead, we propose giving schemes up to two VFM cycles to make improvements. We believe that is the right approach, and essential to protecting members.

Turning to Amendment 44 from the noble Baroness, Lady Stedman-Scott, while I appreciate the desire for a statutory timetable, we cannot accept this amendment, as a fixed 12-month deadline risks pre-empting the essential consultation and undermining the co-ordinated regulatory process which is already under way. Our published road map aims for the first data disclosures and assessments in 2028, based on 2027 data. Providing clear powers in the Bill, with the technical detail and timelines set out transparently in secondary legislation, remains the most proportionate approach here. A government amendment, to which I will come later, deals further with this. Industry’s responses to the latest VFM consultation will inform draft regulations and guidance.

Moving on to the group of amendments from the noble Baroness, Lady Altmann, on simplifying language in VFM assessments with a view to making them more intuitive for members to understand, this is another area where we completely agree with the aim but disagree with the proposals. Let me explain. “Fully delivering”, as set out in the Bill, is a more objective term, which is aligned with the structure of the framework. The language in the Bill has to allow regulators to make clear, consistent and, crucially, legally robust determinations, and “fully delivering” gives them the scope they need to apply the framework as intended. By contrast, the term “good value” risks weakening regulatory clarity by introducing a term that is broader, more subjective and less tightly aligned with the evidence-based metrics underpinning VFM assessments. Given what will flow from these assessments, clarity is crucial.

The same argument applies to amendments looking to change the terminology of “not delivering” to “poor value”. Crucially, these statutory terms will not be used in public-facing communications. Instead, members and employers will see the simple and intuitive RAGG ratings—red, amber, light green and dark green. Simplicity and accessibility will be appropriately delivered, without sacrificing the robustness required in the legislation. That is why we cannot accept the amendments.

I turn to the amendments tabled by the Government. As drafted, Clause 122, “Commencement”, provides that the value-for-money measures come into force on the day on which the Bill is passed. Our amendments allow the VFM provisions to be commenced via regulations. This provides the Government with greater flexibility to introduce elements of the VFM framework in stages, following detailed design work and informed by consultation. That brings the VFM clauses in line with other parts of the Bill which are commenced by regulations. The FCA and TPR have recently concluded their consultation on the VFM framework, and we are using the valuable insights and feedback from industry to shape final proposals in order to ensure that the regime is fit for purpose across both the trust-based and contract-based sides of the market.

We recognise that introducing the VFM framework is a significant undertaking for industry that requires adjusting to the administrative and data obligations to which it will be subject. I want to be clear that it is and remains the Government’s strong intention that the first VFM data disclosures and assessment reports will be required in 2028. However, this amendment provides us with the option, if necessary, to stagger the introduction of parts of the framework to allow more time for industry and regulators to adjust to its introduction.

In Committee, we debated amendments from the noble Baroness, Lady Altmann, on reporting requirements for intermediate schemes. The consultation paper from the FCA and TPR sets out our proposed approach, which is to require improvement plans for amber-rated but not light-green-rated arrangements, and action plans for red-rated arrangements. Templates will help keep requirements proportionate. Taking the flexibility to smooth the introduction of different elements of the framework, should that emerge as a pragmatic way forward, enables us to continue working closely with industry to fully understand the potential implications of the VFM measures. I hope that this provides the House with reassurance that we recognise the potential burden for industry. This has informed our approach—to reach a balance between ensuring that members receive the value they deserve, and that industry is in a position to comply with these new requirements.

Lastly, I clarify that government Amendments 36, 37, 38, 39 and 26 to Clauses 18 and 12 are of a minor and technical nature and correct consistency mistakes. In light of all that I have said, I hope that noble Lords will feel able not to press their amendments and to support those in my name.

[Baroness Altmann (Non-Afl)]

My Lords, I thank the Minister for her remarks. I also thank all noble Lords who have spoken in support of my amendments, in particular Amendment 24, which I had hoped the Government might be a little more favourable towards than they seem to have been. I understand that the Minister says that the Government have consulted industry and that has fed into the production of the Bill. I hope that the Government will also consult consumer groups and members because it is they who really need to understand the value-for-money framework. It is those groups that I was addressing with my proposals because from the point of view of industry it looks rather different, perhaps, from how it does from that of the ordinary workers who are having their money put into the pension.

I understand that the Government do not wish to accept Amendment 24 but it will, I hope, still help provide a framework for some further discussions as we develop the value-for-money framework. I beg leave to withdraw the amendment.

Pension Schemes: Ministerial Powers

Debate between Baroness Sherlock and Baroness Altmann

Wednesday 11th March 2026 Lords Chamber

[Baroness Altmann (Non-Afl)]

My Lords, in begging leave to ask a Question of which I have given private notice, I declare my interests as set out in the register.

[The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, the Pension Schemes Bill contains a reserve power on asset allocation, designed as a backstop to the voluntary commitments made by the pensions industry under the Mansion House Accord. The Government do not currently expect to use this power. Were this power ever exercised, schemes that cannot meet the requirements without causing material financial detriment to their members would be able to apply for an exemption under the savers’ interest test. The power is time-limited and subject to consultation, parliamentary approval and robust safeguards.

[Baroness Altmann (Non-Afl)]

My Lords, I thank the Minister for that Answer, but I am afraid that if the Government’s main argument for including these powers is that they do not expect to need to use them, and will use them only if pension schemes themselves decide that they do not believe it is wise to achieve the allocations that the Government want them to, I have even greater concerns about those powers. I urge the Government to think again about overriding trustees’ decisions about what assets to invest in.

In particular, the Government are trying to take unlimited powers in the Bill to prescribe a percentage, but we do not know what that percentage might be, and to invest in assets, but we do not know which assets they will be. Even those who brokered the Mansion House Accord, such as Pensions UK and the ABI, are saying that they wish this to be reconsidered. Do the Government really believe that they know better than the investment industry how pension schemes should invest? Do they not consider that this is an example of the problems that the Government might have in excluding from the Bill some of the ideal vehicles which could be used to invest in the very assets that the Government say they want to support?

[Baroness Sherlock (Lab)]

As the noble Baroness well knows, we have been discussing this matter for some weeks now in Committee and will be discussing it again on Monday, when we come to the matter on Report. Let me give her a brief answer to the points she has made. I know that she agrees with the Government’s objectives, because she herself has advocated previously—indeed, in Committee—that we make pension tax relief contingent on 25% of new investment being allocated to UK assets. I know she wants the same thing that we do.

To be really clear, the power is being taken as a reserve power to back the voluntary, industry-led Mansion House Accord, which said that by 2030, 17 of the largest pension schemes in the private pensions sector would be investing 10% of their relevant default funds into private investment, with half of that in the UK. The expectation is that having done that, the industry will do it. The reason for taking a reserve power is, as the noble Baroness knows very well, that the challenge in the UK is too often schemes compete on cost and not on value. There is always a risk that for some small competitive advantage, somebody may want to try to separate off from that, so the reserve power is signalling clearly to the industry: this is the direction of travel, so let us stay with it. All we are doing is backstopping that.

Pension Schemes Bill

Debate between Baroness Sherlock and Baroness Altmann

Committee stage
Thursday 5th February 2026 Grand Committee

[Baroness Sherlock (Lab)]

My Lords, I will start by discussing Amendment 203ZC and then come to the other amendments.

Amendment 203ZC would add new provisions to the Pensions Act, which would mean that, if an alternative sponsor provided a sufficient premium, a cash payment or alternative arrangement could be provided for members of that scheme that secured better benefits than the PPF level of compensation. The amendment seeks in particular to help members of the AEA Technology pension scheme. As we have heard, AEAT was formed in 1989 as the commercial arm of the UK Atomic Energy Authority—UKAEA—and was subsequently privatised in 1996. Employees who were transferred to AEAT joined the company’s new pension scheme, and most of them opted to transfer their accrued UKAEA pension into a closed section of the AEAT pension scheme. In 2012, 16 years later, AEAT went into administration, and the AEAT pension scheme subsequently entered the PPF.

I express my sympathy for all AEAT pension scheme members; I recognise their position. I am pleased to say that on pre-1997 indexation in PPF, which is an issue for AEAT members, we have listened and acted. Those with pre-1997 accruals and whose schemes provided for pre-1997 increases, which includes AEAT members, will benefit from this change.

However, the Government do not support this amendment. The noble Baroness outlined some of the issues around AEAT, but this case has been fully considered. We set this out in our response to the Work and Pensions Select Committee inquiry on DB pensions. These investigations included, but are not limited to, reviews by three relevant ombudsmen, debates in the Commons in 2015 and 2016 and a report by the NAO in 2023. This matter has also been considered by previous Governments in the period since AEAT went into the PPF, all of whom reached the same conclusion.

AEAT members have asserted that upon privatisation, insufficient funds were transferred into the scheme. As I understand it from historic responses, this amount was based on the financial assumptions at the time, and the trustees of the scheme agreed the transfer value. Members have also outlined that, given the amount transferred to the PPF, with investment, they could now be paid their full pension. However, the PPF does not work that way; let me explain why.

When schemes enter PPF assessment, evaluation is generally undertaken to determine whether there are enough assets to secure at least PPF-level benefits. Sufficiently well-funded schemes can come out of the assessment supported by PPF-appointed trustees to secure greater benefits than PPF compensation. Schemes that are funded below this level are transferred into the PPF. The PPF does not permit transfers out because it does not work as a segregated fund where individual scheme contributions are ring-fenced and can later be transferred out. That is due to PPF investment policies because the only grounds on which that might happen would be, for example, if PPF investment policies were such that they then became better funded.

The reason that does not work is that the PPF is a compensation scheme operating in the interests of all its members. It is not a collection of individual pension schemes. Funds transferred in from underfunded schemes and insolvency recoveries, alongside the levy and investment returns, are all brought together. Allowing members of schemes that have entered the PPF to transfer back out would undermine its ability to provide compensation for all its members and for future schemes in the case of employer insolvency.

This amendment changes the purpose of the PPF as a compensation fund and that safety net in case of employer insolvency. Schemes go into the PPF either because an alternative sponsor cannot be found to take on the scheme’s liabilities or because the scheme is unable to secure benefits that correspond to at least PPF compensation levels. We do not expect alternative sponsors will be found to pay a premium for schemes that have transferred into the PPF. Additionally, it would place a different role on the board of the PPF to undertake a member-by-member assessment of whether members would get better benefits through a transfer. We do not underestimate the difficulty of this, given the decades since many schemes, such as the AEAT, entered the PPF. Changing the PPF’s role and how it operates as set out would need to be much more broadly considered, alongside impacts on the PPF and potentially unintended consequences.

[Baroness Altmann (Non-Afl)]

Section 169(2)(d) in the Pensions Act 2004 seems to make provision for this to happen. Therefore, what is the purpose of that clause? I am trying to build on that to specify circumstances in which it could happen. Of course, when a scheme is in the assessment period, it can be extracted. I am trying to say that if it has gone in and can improve the funding of the PPF by paying a premium and give members more than they would have in the PPF, why would there be an objection?

[Baroness Sherlock (Lab)]

The challenge of this is that of course schemes can come out in the assessment period. That is the point of the assessment period: to work out whether there is a sponsor or enough funds, which could, with appropriate support, be able to deliver greater-than-PPF benefits, in which case the scheme may go out again. It goes into the PPF only if that cannot be the case. Once it has gone in, the scheme does not exist anymore. There are no scheme assets because, at that point, the members are not scheme members but members of a compensation scheme. It cannot be the case that, years later, someone should come along and say, “We now want to try to move a group of former members of a particular scheme back out of the PPF”. That simply does not work.

The noble Baroness asked something else. I apologise for being slightly confused earlier on: I thought this was going to be part of the previous group, so I am slightly scrabbling around trying to put my speaking notes in the right place. The noble Baroness is trying to draw a comparison between AWE and this. Although they were both DB pension schemes in the nuclear industry, the two situations are entirely different. AEAT was created in 1989 as the commercial arm of the UKAEA. It became a private company, with no further government involvement in ownership or management.

By contrast, AWE, which is responsible for manufacturing, maintaining and developing the UK’s nuclear warheads, has since the 1950s either been government owned or the Government have held a special share in the company. It became fully owned by HMG again in 2021, when it became an NDPB. As the Government own and fund AWE, they are also responsible for funding its pension scheme responsibilities. That is why the AWE has a Crown guarantee, granted in 2022, shortly after it became a public body of the MoD, having previously been government owned. I hope that explains why the two are differently treated.

[Baroness Altmann (Non-Afl)]

I respectfully ask the Minister to consider the possibility, which is arising, of someone who can come along after the assessment period and pay more than the PPF can provide. As I say, that could help the PPF’s funding. It should not in any way impact on the levy, and it is an option to permit that to happen. So my amendment, building on what is already in the Pensions Act 2004 but which has not yet been used, given that schemes are in surplus, would allow them to do that.

The other thing I will say is that everyone in the closed section of the AEAT with accruals before 1997 was in the public sector. They were members of a public sector scheme, and they were advised by the Government Actuary’s Department that if they transferred they would not need to worry about the security of their pension, but that turned out not to be the case. I therefore hope the Minister can see the parallels. I know she is in a difficult position on this, but I thank her for her consideration.

[Baroness Sherlock (Lab)]

I am not in a difficult position. The Government’s position is clear: these are not comparable schemes. One has a Crown guarantee, for the reasons that I have explained, while the other does not because, for a significant portion of its history, it was a private company. It was privatised, and it subsequently went into administration. Those are not comparable situations. While I have sympathy for the position of individual scheme members, that does not make the two comparable or the Government’s responsibility comparable. I am certainly not aware that someone is out there waiting to sponsor this, although the noble Baroness may be. She is nodding to me, and if she wants to share with the Committee that she has a sponsor ready to do that, I would be glad to hear it, but the idea that this would routinely be a pattern where, for lots of long-dead pension schemes, sponsors are waiting to draw them out just would not be practical for the PPF.

I am also advised that the subsection 2(d) that the noble Baroness mentioned is not in force. That does not make a difference to her argument, but it may make a difference to the nature of this.

I shall try to return now to the issue that we were talking about earlier on, the AWE scheme. On hybridity, I say to the noble Baroness, Lady Neville-Rolfe, that my understanding is that hybrid bills affect the general public but also have a significant impact on the private interests of specified groups. In this case, there is no impact on the general public, only on AWE members. That follows the precedent in Royal Mail and Bradford and Bingley/Northern Rock legislation. This also refers to schemes that were or are to be defunded and replaced with public schemes. I hope that explains why this is not hybrid. I cannot comment on why the clerks did not accept her amendment because I did not quite catch what it was that she was comparing it with.

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[Baroness Altmann (Non-Afl)]

May I just correct the record? I believe that the Goode committee may indeed have recommended limited price inflation up to 5%, and I apologise to the Committee.

[Baroness Sherlock (Lab)]

I thank my noble friend Lord Davies for introducing his amendment and for the history lesson. It is living history, but he always has the edge on me because he goes back to 1975, and at that point I was more interested in boys and make-up, so I simply cannot compete, I confess, on that front.

The reality is that this Government have to start in 2026 and where we are now, so we have to address what the right thing to do now is for the DB pension universe and for the schemes in general. I can totally understand why my noble friend has introduced this amendment. Members of some schemes are concerned about the impact of inflation on their retirement incomes, and I am sympathetic. We have been around this in previous groups. This amendment would remove references to 6 April 1997 as the start date for the legal requirement on schemes to pay annual increases on pensions in payment. Obviously, as my noble friend indicated, legislation requires increases on DB pensions in payment to be done only from 6 April 1997. That has been a pretty long-standing framework which reflects the balance that Parliament judged appropriate at the time between member protection and affordability for schemes and employers. These changes are normally not backdated; they are normally brought in prospectively.

Most schemes already provide indexation on pre-1997 pensions, either because it is required under the scheme rules or because they choose to award discretionary increases. The Pensions Regulator has done some analysis and is doing more work on this. The latest analysis indicates that practices differ, but many schemes have a track record of awarding such increases. However, imposing a legal requirement on schemes now to pay indexation on pre-1997 benefits would create costs that schemes and employers may simply not have planned for. These costs may well not have been factored into the original funding assumptions or contribution rates. For some schemes and employers, these additional unplanned costs could be unaffordable and could put the scheme’s long-term security at risk.

Many employers are working towards buyout to secure members’ benefits permanently. Decisions on discretionary increases must be considered carefully between trustees and employers against their endgame objective. The reality is that the rules for DB pension schemes inevitably involve striking a balance between the level and security of members’ benefits and affordability for employers. But minimum requirements have to be appropriate for all DB schemes and their sponsoring employers. A strong, solvent employer is essential for a scheme’s long-term financial stability, and that gives members the best protection that they will receive their promised benefits for life, as the employer is ultimately responsible for funding the scheme. Any change to that statutory minimum indexation has to work across the full range of DB schemes. This amendment would increase liabilities for all schemes, regardless of their funding position or governance arrangements. While some schemes and employers may be able to afford increasing benefits in this way, others will not.

The way DB schemes are managed and funded since the 1995 Act was introduced has changed, but the basic principle remains that we cannot increase scheme costs on previously accrued rights beyond what some schemes might be able to bear or that many employers will be willing to fund, and that remains as true now as it was then. Our view is that schemes’ trustees and the sponsoring employer have a far better understanding than the Government of their scheme’s financial position, their funding requirements, their long-term plans and therefore what they can and cannot afford. They are also best placed to consider the effect of inflation on their members benefits when making decisions about indexation. The regulator has already been clear that trustees should consider the scheme’s history of awarding discretionary increases when making decisions about indexation payments.

We discussed earlier in Committee the Government’s reforms on surplus extraction. They will allow more trustees of well-funded DB schemes to share surplus with employers to deliver better outcomes for members. As part of any agreement to release surplus funds to the employer, trustees will be better placed to negotiate additional benefits for members, which could include discretionary indexation. Although I understand the case my noble friend is making—I regret that I cannot make him and the noble Baroness, Lady Altmann, as happy as they wish—I hope that, for all the reasons I have outlined, he feels able to withdraw his amendment.

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[Baroness Altmann (Non-Afl)]

My Lords, I add my words of support to the concept being promoted by my noble friend Lord Younger. I hope the Government will look into this, as it might well be a good topic to task regulators with in making sure that either they or pension schemes themselves are helping people to understand pension schemes better, how they work and the free money that goes along with a pension contribution in terms of your own money. There is, as I say, extra free money added by, usually, your employer and other taxpayers. I do not think young people always understand just how beneficial saving in a pension can be relative to, let us say, saving in a bank account or an ISA, or indeed the value of investing. It would be in the interests of the regulators and, indeed, the providers to help people to understand that. The Government’s role in guiding that and setting up this kind of review could be very valuable.

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Viscount, Lord Younger, for introducing his amendment and all noble Lords who have spoken.

As we have heard, the amendment would introduce a statutory requirement for the Secretary of State to conduct a review of pension awareness and saving among young people. I agree with the Committee about the incredible importance of this issue, and I understand why the noble Viscount has tabled the amendment, but I hope to persuade him that there is another way forward.

The starting point, inevitably, is that last year the Government revived the Pensions Commission. The original commission did an astonishing job; its legacy under the previous Labour Government in effect lead to the creation of workplace pension saving via automatic enrolment. Since then, with support from both parties, automatic enrolment has transformed participation in workplace pension saving. It has been a particular success for younger people. Our participation for eligible employees aged 22 to 25 has gone up from 28% in 2012 to 85% in 2024.

Pension Schemes Bill

Debate between Baroness Sherlock and Baroness Altmann

Committee stage
Monday 26th January 2026 Grand Committee

[Baroness Sherlock (Lab)]

My Lords, I made these arguments at some length on Thursday. I have made them again now. The noble Lord disagrees with them; I can tell from his tone. He can read Hansard and pick up the relevant bits with me if he would like to.

Let me come back to the amendments. I will start with Amendments 91 and 95 from the noble Baroness, Lady Noakes. I thank her for introducing them with her customary clarity and brevity. These would create an exemption from the scale of requirements for master trusts and GPPs that can demonstrate investment performance exceeding the average of schemes that meet the scale conditions. I recognise the intent to reward strong performance, but obviously I am concerned the proposal would undermine the Government’s objective, which is a market of fewer, larger, better-run schemes, where economies of scale deliver sustained benefits to savers.

I should clarify the point about objectives. The Government’s primary objective is saver outcomes. I want to be clear about that. While I am here, I say to the noble Lord, Lord Palmer, that this is not about administrative simplicity but about member outcomes. At the centre of our policy is the drive for better membership outcomes. That does not mean a simple scheme, but one that has strong governance and is well run, including strong administration, because scale supports the scheme to have the resources and the expertise to do this.

To respond to the noble Baroness, Lady Noakes, in considering scale in the pensions landscape today, we have all shapes and sizes of schemes, in which value for members is important. We know that performance can be delivered across different sizes of scheme, but scale changes the landscape. Schemes that have scale will have the tools to deliver on value and performance in a way that a small scheme will not be able to in this future landscape. That is because scale enables greater expertise, efficiencies and buying power than a small scheme. That is the landscape we need to deliver for members because we want better outcomes for them. In considering the issue, it is therefore important to focus on the future landscape, the market at scale, and not the current landscape. In our view, there is not sufficient evidence that other approaches can deliver the same benefits for members and the economy.

On the specifics of the noble Baroness’s amendment, there are also some concerns around the impact; it could create an unstable landscape if we were to focus on the performance at any point in time. Of course, the intention for any exemption is that it is a permanent feature of the scheme and is not subject to regular assessment. As we all know, past investment performance is not a guarantee of future success. If we went down this road, there would be times when exempted sub-scale schemes found that they were no longer delivering investment performance that exceeds the average of those at scale. That is not stable for members or employers, and does not support their interests.

Amendment 98 proposes an innovation-based exemption from the scale requirement for master trust schemes offering specialist or innovative services. I agree with the noble Baroness, Lady Stedman-Scott, that innovation really matters; that is precisely why the Bill provides for a new entrant pathway so that novel propositions can enter the market and scale responsibly. But creating a parallel innovation pathway as an alternative to scale would dilute the fundamental objective of consolidation and risk maintaining a long tail of small schemes, with fragmented governance and limited access to productive investment.

I should say a few words on competition. Actually, I might come back to that.

Amendments 99 and 106 from the noble Baroness, Lady Altmann, would remove the £25 billion threshold from the Bill. We believe the threshold is a central pillar of the policy architecture. It has been set following consultation with industry and government analysis of the emerging evidence, to which I referred earlier, on the point at which the benefits of scale are realised. We believe that this is a key policy decision that should be in the Bill. We also believe, as the noble Baroness indicated, that it is very important that there is certainty for industry on this threshold at the earliest possible point. Putting the £25 billion on the face of the Bill assures industry that it cannot be changed without full parliamentary engagement.

I know the noble Baroness wants me to reassure her that this matter is open for further discussion. I regret that I will have to disappoint her. The Government are committed to this and have put it in the Bill for the reasons I just explained.

[Baroness Altmann (Non-Afl)]

If the intention is to maintain these specific limits in the Bill, I hope that consideration will be given to an existing new entrant pathway—rather than only a new entrant pathway from 2030 onwards—and some kind of innovation pathway, as suggested by my noble friends Lord Younger and Lady Stedman-Scott, so that schemes that either are already in existence or will come through over the next few years, if they are able to do so, will not be forced out of business or prevented even beginning.

[Baroness Sherlock (Lab)]

The noble Baroness makes an important point about innovation. We recognise the importance of a proportionate approach to scale, which is why we created the transition pathway. I know that the noble Baroness thinks the number or scale is not right, but that is the purpose of the transition pathway: to give schemes that can reach scale within a reasonable time the chance to do so.

On innovation, although we want to see a market of fewer, larger pension schemes, the policy still encourages competition through allowing innovative schemes, such as CDCs, to develop and by enabling brand new innovative schemes to enter the market via the new entrant pathway. I know the noble Baroness is not satisfied with that, but that is our answer to her question: the new entrant pathway.

Amendment 102 from the noble Baroness, Lady Stedman-Scott, would delete the regulation-making power on what values can be counted towards the scale threshold in order to probe how assets will be calculated. The market contains varied and complex arrangements. It is both prudent and necessary that affirmative regulations, consulted on with industry, set out the assets that may be included or adjusted when calculating the total value in the MSDA, with a focus on assets where members have not made an active choice.

Let me be clear on that point: the choices that will be made here are the ones that will create the big fat wallet, if you like, which will in turn drive the benefits of scale. The intent is that the regulations will focus on the default arrangement that the vast majority of members will be in. We want to see members of the same age who join the scheme at the same time get the same outcome, but the regulation-making power enables practical realities of how the market operates now—especially at the margins. We know that there is a variety in practice in the market, so engagement and consultation are crucial.

Amendment 104 from the noble Baroness, Lady Stedman-Scott, would remove the regulation-making power to define “common investment strategy” and to set evidentiary requirements for the scale condition. I understand that the aim here is both to probe this power and to require the Government to define “common investment strategy” prior to Royal Assent. A common investment strategy will help to deliver a single approach to maximise the buying power of a scheme in terms of fees and the diversification of its investments. We think that is crucial because allowing, for example, multiple potentially divergent strategies within the MSDA would maintain fragmentation and drive away from the consolidation that we want members to benefit from.

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[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Altmann, for the clarity of the exposition of her amendments, and I thank all noble Lords who have spoken. I will try to explain what the Government are trying to do here and then pick up the specific points that the noble Baroness raised.

To maintain the policy on scale and secure its benefits for pension scheme members, there will need to be centralised decision-making over a large pool of assets. The Bill sets out that this will be delivered by the main scale default arrangement, which is subject to a common investment strategy. I recognise that the noble Baroness has raised concerns about the common investment strategy being able to accommodate different factors, but I will tell the Committee why it is there. A key purpose of the policy is to minimise fragmentation in schemes and to have a single default arrangement at the centre of schemes’ proposition. Fragmentation is an issue, not because it is a piece of government dogmatism but because it is in the interests of members that those who run their schemes have a big wallet at the centre to give the scheme the buying power and expertise they need, because that enables them to deliver on the benefits of scale.

When we consulted, the responses told us that there were schemes with hundreds of default arrangements that have been created over a long period of time and that this is a problem. Members in these arrangements get lower returns and pay higher charges, which some consultation responses also told us. It is important that we deal with that fragmentation and that we improve member outcomes.

However, the Government also recognise that there are circumstances where a different default arrangement is needed to serve specific member needs only—for example, for religious or ethical regions. These will be possible through Chapter 4 but they will not count towards the main scale default arrangement. If the scale measure encompassed multiple default arrangements or combined assets, as these amendments would allow, it would not drive the desired changes or support member outcomes derived from the benefits of scale. Following consultation, there was clear consensus that scale should be set at the arrangement level as that is where key decisions about investments are made. Simply put, centralised scale is the best way to realise benefits across the market for savers.

The pensions industry has told us there are too many default arrangements in some schemes, and that fragmentation—

[Baroness Altmann (Non-Afl)]

My Lords—

[Baroness Sherlock (Lab)]

I am going to answer the point and then come back, if that is okay. Just give me another two minutes.

That fragmentation does not benefit savers but can lead to increased charges and lack of access to newer, higher-performing investments. The Government are committed to addressing this fragmentation, which exists predominantly in DC workplace contract-based schemes.

To prevent further market fragmentation, Clause 42 allows for regulations to be made to restrict the creation of new non-scale default arrangements. To be clear, this is not a ban nor a cap on new default arrangements. There will be circumstances where they will be in saver interests and meet the needs of a cohort of members. As the noble Baroness says, this is not a one-size-fits-all approach.

On the point about choice, auto-enrolment has moved many members to save for the first time. The vast majority enter the default fund and do not engage in their schemes. Those who do can choose their own funds, and these measures do not interfere with that, but they are a minority, and these measures aim to support the millions who do not engage.

The noble Baroness is right that one size of default arrangement does not fit all, but the Bill requires a review to consider the existing fragmentation and why multiple default arrangements exist. That will inform us of which default arrangements should continue and the characteristics they possess that deliver better member outcomes or meet a specific need.

[Baroness Altmann (Non-Afl)]

The Minister has raised many points that I would like to ask further about, if that is okay. The fragmentation applies to legacy schemes: the contract-based schemes, as she says. These are the old personal pension-type arrangements—SIPPs, GPPs and so on—which were developed a long time ago. Typically, the more modern schemes have just one default, with one investment approach that is meant to suit all members. It is that approach that I hope and expect to be refined as we move forward so that there can be different types of default fund for different types of member. I do not anticipate that they will be people choosing their own. It will be on the basis of information that the provider seeks from its members, using that to send them down a slightly more appropriate investment route for their money. That does not stop the providers having large pools of money that they allocate members to, but it would not be in just the one central fund, as I say. Of course that is easier for the provider, but I think the providers owe members a different duty, which is to try to tailor a little more for those who do not choose, based on wider circumstances than just their chronological age, what is best for their investment and pension outcomes.

[Baroness Sherlock (Lab)]

I have heard the noble Baroness’s explanation and understand the point she is making. The point about choice was not actually directed at her; it was directed at a colleague who mentioned choice and I was trying to explain that this is not about choice. I accept the point the noble Baroness is making that this is for those who do not engage.

If having a single default fund were simpler for the pension schemes, and that is what drove this, we would not have the number of defaults we have at the moment. We have huge numbers of defaults. I accept that many of those are the product of history, but the key is that we have to consolidate. To be clear, as I have said, we are not banning or capping the new default arrangements, but we want to ensure that any new arrangements meet the needs of members, so any new non-scale default arrangements will have to obtain regulatory approval before they can accept moneys into them. We have said that we are going to consult and we need evidence to look at whether anything else should be included, and that will come up when we consult.

I understand the point that the noble Baroness is making and I am happy to reflect on it, but we need consolidation and we need to consult to make sure that we have allowed for the right things. With that reassurance, I hope she feels able to withdraw her amendment.

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[Baroness Sherlock (Lab)]

That was fun. I will have a go at explaining the Government’s narrative on this, which is an alternative to the narrative that has been established so far. I will then try to go through and answer as many of the questions as I can.

Let me start by stating the obvious. The amendments relate largely to the part of Clause 40 that determines which types of investment are deemed as qualifying assets for the purpose of meeting any asset allocation requirements were we to use the power. I stated in my opening reply to the noble Viscount, Lord Younger, that he said “when” mandation comes in, but it is very much “if”; we do not anticipate using this power but, if it were used, we would need to be clear about what happens next.

The most relevant provisions are found in new Section 28C(5). This broadly limits qualifying assets to private assets. The subsection provides by way of example that qualifying assets may include private equity, private debt, venture capital or interests in land—that is, property investments. It also clarifies that qualifying assets may include investments and shares quoted on SME growth markets, such as AIM and Aquis.

In contrast, according to this subsection, qualifying assets may not generally include listed securities, defined as securities listed on a recognised investment exchange. That approach reflects the aim of the power to work as a limited backstop to the commitments that the DC pensions industry has made, which relate to private assets only.

That brings me to the subjects of the amendments from the noble Baronesses, Lady Bowles and Lady Altmann. I start by reminding the Committee of the rationale for this approach, because it stems from the Mansion House Accord. The accord was developed to address a clear structural issue in our pensions market. DC schemes, particularly in their default funds, are heavily concentrated in listed, liquid assets and have very low allocations to private markets. That is in contrast to a number of other leading pension systems internationally, which allocate materially more to unlisted private equity, infrastructure, venture capital and similar assets.

The reason the Government are so supportive of the accord is that it will help to correct that imbalance and bring the UK into line with international practice. A modest but meaningful allocation to private markets can, within a diversified portfolio, improve long-term outcomes for savers and support productive investment in the real economy, including here in the UK.

The reserve power in Clause 40 is designed as a narrow backstop to those voluntary commitments. For that reason, any definition of “qualifying assets” must be clear, tightly focused on the assets we actually want to target and operationally workable for schemes, regulators and government. That is the context on the question of listed investment trusts and other listed investment companies.

I recognise the important role that investment trusts play in UK capital markets and in financing the real economy. Pension schemes—as the noble Baroness, Lady Noakes, pointed out—are, and will remain, free to invest in wherever trustees consider that to be in members’ best interests.

However, the clear intention of this policy has been to focus on unlisted private assets. This is reflected in industry documentation underpinning the accord, which defines private markets as unlisted asset classes, including equities, property, infrastructure and debt, and refers to investments held directly or through unlisted funds. That definition was reached following a number of iterative discussions led by industry, as part of which the Government supported the definition being drawn in this way.

Bringing listed investment funds within the qualifying asset definition would be out of step with the deliberate approach of the accord and its focus on addressing the specific imbalance regarding allocation to private assets. It would also raise implementation challenges, requiring distinctions to be made between the different types of listed companies that make or hold private investments or assets. It would introduce uncertainty about what we expect from DC providers. We might justly be accused of moving the goalposts, having already welcomed the accord, with its current scope, in no uncertain terms.

But the line has to be drawn somewhere. This is not a judgment on the intrinsic qualities or importance of listed investment vehicles, nor does it limit schemes’ ability to invest in them. It is simply about structuring a narrow, targeted power so that it does what it is intended to do: underpin a voluntary agreement aimed at increasing exposure to unlisted private markets in as simple a way as possible and without cutting across schemes’ broader investment freedoms.

The legislation draws a general distinction between listed securities and private assets; it does not single out investment trusts. Any listed security, whether a gilt, main market equity or listed investment company, is treated in the same way for the purposes of this narrow definition.

Crucially, this concerns only a small proportion of portfolios. Under the accord, the remaining 90% of default fund assets can continue to be invested in any listed instrument, including investment trusts, where trustees and scheme managers judge that that would benefit their members.

I am just coming to the answers, but please ask some more questions.

[Baroness Altmann (Non-Afl)]

I am very grateful to the noble Baroness for giving way. In a situation where trustees do not wish to put more than the prescribed amount in the qualifying assets, and they want to hold those through a listed closed-ended company because they are concerned about the structure of an open-ended fund and do not have the ability to invest directly, why would the Government want to fetter their choice in that way? I thank the Association of Investment Companies, which has helped me to understand some of the things that these companies do.

Pension Schemes Bill

Debate between Baroness Sherlock and Baroness Altmann

Committee stage
Thursday 22nd January 2026 Grand Committee

[Baroness Sherlock (Lab)]

My Lords, I again thank the noble Baronesses, Lady Altmann and Lady Stedman-Scott, and all noble Lords who have spoken. Let me start with the amendments from the noble Baroness, Lady Altmann. I completely appreciate her desire to make the VFM framework easier for everybody to understand. I recognise there is a need for clarity here and a role for regulators to support member engagement with something as complex as this, but our concern with her proposals is that they would reduce precision and could unintentionally weaken regulatory accountability and undermine comparability across schemes, and those are three pillars on which the VFM framework depends. There is a genuine challenge here, which is to balance technical accuracy with clarity for members. Obviously, the latter will help to overcome the kind of behavioural inertia that we all see and so will ensure that VFM assessments result in meaningful action, not just awareness.

That is distinct from the regulatory precision required for the VFM system, which is why these terms are in the Bill. That current wording of “fully delivering” and “not delivering” is not accidental: it is designed to reflect objective compliance with all the mandated metrics: costs and charges, investment performance, governance and member outcomes. The terms provide clarity for trustees and regulators about whether a scheme meets the required standards. Replacing them with “good value” and “poor value”, even if it sounds attractive on the surface, would introduce subjectivity. Good value is not a regulatory test. It risks creating ambiguity about what triggers action when a scheme falls short.

Members deserve clarity and I absolutely agree that language should be understandable. However, the right place for explaining concepts to members is in disclosures and guidance, not primary legislation. We intend to work with the Pensions Regulator, the FCA and industry to ensure that member-facing communications such as rating notifications to employers and the regulator-supporting guidance, which will be aligned with the implementation of VFM, explain these outcomes in plain English that is suitable for its intended audience. I take the challenge from the noble Baronesses, Lady Altmann and Lady Bowles, about how to make sure that happens. That is something I am really happy to reflect on quite carefully. However, changing the statutory terms dilutes precision, creates inconsistency and risks uncertainty. Our approach preserves enforceable standards while committing to clear, accessible explanations for members.

Amendments 64 and 65 from the noble Baroness, Lady Altmann, would limit the powers the Government have to specify the consequences for pension schemes that have had an intermediate VFM rating for fewer than five years in a row. Let me pause before I answer that to come back to the noble Baroness, Lady Coffey, who always asks clear questions. One of her questions was “How is this going to work, anyway?” Let me give a very quick rundown, subject to time. The consultation sets out updated proposals—they were updated in response to the previous consultation—and draft FCA rules, showing how the VFM framework will work. The paper sets out the proposed metrics for performance, costs, charges and service quality. It outlines how the assessment process will work. It gives more details around the ratings structure and the consequences associated with each rating. Basically, trustees of in-scope DC workplace pension schemes and arrangements will have to publish standardised performance metrics and follow a consistent and comparative assessment of value to assign an overall VFM rating. The regulator will ensure compliance with those obligations and will have the ability to enforce transfer of savers—I will come back to that in a moment—from consistently poorly performing arrangements.

I said that the consultation had changed. There were five key changes from the previous consultation. The most relevant one here proposes, in response to feedback, the adoption of a four-point rating system: red, amber, light green and dark green. There was strong pressure to have more granularity, so that it was not quite as stark. I make it clear that it is only amber that could lead to possible enforced transfer. I hope that is helpful.

A good question is “How will members know what ‘fully delivering’ means?” Obviously, we are not proposing to use the Bill’s terminology when communicating ratings to members. Instead, the schemes will use the four-point RAGG rating. Red corresponds to not delivering, amber and light green to intermediate performance and dark green to fully delivering. It is proposed that this more accessible and granular terminology will be used in the assessment reports published by all schemes at the end of 2028, and the reports will be made publicly available. Guidance will also include plain English explanations and a summary of metrics so that members understand what the outcome means for them.

[Baroness Altmann (Non-Afl)]

In what the Minister has just described, I do not quite understand how dark green and light green fit with “fully delivering”. Only dark green would be fully delivering, so why is light green not in the intermediate category? To me, this is quite confusing. I understand what the Minister is saying, but I urge her to work with whoever is devising this to iron out this kind of confusion at this stage, rather than running with it, as seems to be the intention here.

[Baroness Sherlock (Lab)]

We are still consulting on this. We consulted on the initial proposal and the response came back that more granularity was needed. We have to accept that clarity pulls in one direction and precision and granularity pull in the other, so the job of the Government is to support the regulator in making sure that we end up with a framework that does its primary job, which is not just to work out where a scheme is now but what the right consequences are for that scheme and then to make sure that is communicated to those who need to know in ways that are appropriate. On the one hand, the noble Baroness wants clear, strict categories, and on the other she wants to have different consequences for schemes depending on their circumstances. We think it is important to be able to judge appropriately and come up with a scheme. I would be happy to write to point out all the areas and explain more about how this works, but the point is that this needs to be understood by those who will do the assessments and the communication of the results of that has to be in the right language for those who need to understand them. As the noble Baroness knows as well as I do, it is the nature of pensions that the challenge is that marketing simple language does not map neatly onto precise legal language. I hope that at least explains what we are trying to do on that.

[Baroness Altmann (Non-Afl)]

My worry is we have a term “fully delivering” in this legislation. It does not seem to me that very many schemes are likely to be fully delivering, even in a light green capacity. Therefore, I think we are already sowing the seeds of confusion if we go along this route. That is all.

[Baroness Sherlock (Lab)]

I am going to explain a little bit about the consequences because the thing that matters most is the consequences. Amber schemes may be required to close to new employers. Red schemes must close to new employers. I am just getting that down for the record, which suggests that I probably did not say that a moment ago. Just to be really clear, amber schemes may close to new employers; red schemes must close to new employers. Much nodding, I hope, from behind me. Great sighs of relief all round. Excellent.

Let me come on to the consequences of this. On Amendments 64 and 65 from the noble Baroness, Lady Altmann, we think that making reporting less comprehensive, even for schemes with intermediate ratings, could reduce the early warning signals on which regulators will rely to protect savers. I fully understand her desire to make this reporting proportionate. The current framework is designed to strike a balance. Powers are designed to enable the Government to ensure that trustees keep sponsor employers informed and that any issues are addressed promptly via the improvement plan without putting unnecessary burden on schemes. The noble Baroness may want to note this bit. The Secretary of State has discretion under Clause 16 on the consequences of an intermediate rating and could require different consequences to flow from different levels of intermediate rating. It is not the intention that a requirement to close the scheme to new employers would necessarily flow from all intermediate ratings. I think that is what she is shooting at, so I hope that helps to reassure her. That enables some flexibility around the consequences for pension schemes that have, for example, received an intermediate rating for fewer than five years, which is the space that she was shooting into just now.

Changing the powers as suggested risks missing the signs that a scheme may be heading into trouble. Early sight of any negative impact on a scheme’s performance and value really matters. I am sure that the Committee agrees that it is better to catch problems sooner rather than later and to put in a plan to remedy things, ensuring that schemes provide value and avoiding harm to members and greater costs in the long run.

The amendment suggests that schemes should face full reporting only if performance issues continue for five years or more, but five years is a long time for problems to go unchecked. I think members deserve better protection than that. We certainly would not want to see situations where savers are left in a poorly rated scheme for many years. That is why we propose to give schemes in the intermediate rating a period of up to two VFM assessment cycles to make the improvements needed to provide value to their savers.

I know that Amendments 60, 61 and 69 from the noble Baroness, Lady Stedman-Scott, are probing amendments that want to challenge and clarify the terms “reasonable period” and “relevant period”. The relevant period is the VFM period, or rather the annual reporting timescale for data collection assessment against VFM metrics, which we expect to run from January to December of the preceding calendar year. We expect to set that out in regulations following consultation. The reasonable period is a period during which the regulator would normally expect the scheme to deliver value for money. Due to the level of detail this will involve, this will all be outlined in regulations. We will, of course, formally consult on draft regulations, and I am more than happy to make sure that we engage with interested noble Lords during the consultation to provide an opportunity to feed thoughts into that. The finer proposals behind the VFM ratings, such as the conditions under which each rating will apply and when they should be used, are outlined in the joint consultation which is currently open and will be provided in full in regulations.

Turning to Clause 18, Amendment 69 seeks to understand the rationale for the maximum penalty levels for non-compliance set out in subsection (5). As pension schemes grow in size, it is vital that the fines we impose on schemes carry real financial weight. This ensures that compliance and enforcement remain effective, safeguard members’ interests and, of course, maintain confidence in the system. These figures represent a significant deterrent against non-compliance while not being overly excessive in the current market landscape. We have worked closely with regulatory bodies and taken care to ensure the penalties align with other powers taken in Part 2 of this Bill. We believe the figures are proportionate to both the current and future scale of schemes.

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[Baroness Sherlock (Lab)]

I am absolutely not going to answer that. If there is answer which is known to me, then I will be happy to share it with her, but it certainly not known to me.

[Baroness Altmann (Non-Afl)]

My Lords, I thank all noble Lords who have spoken and the Minister for her responses and patience with the comments made, especially by me. I have ongoing reservations but will obviously look carefully at the consultation. I would be grateful if we might have a further discussion before Report, because this is a crucial area, for employers and members. Perhaps we can bring this back in some form to iron out this huge intermediate range that could have a wide variety of implications that might be quite costly—I know how much these reports cost when you try and commission them—to schemes that may be having a bad performance patch for a year or two, but for understandable reasons. I thank the Minister and I beg leave to withdraw the amendment.

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[Baroness Altmann (Non-Afl)]

No. I was just saying, if you transfer assets in, that 2% charge does not apply and will not apply. Otherwise, obviously, it would be uneconomic. But I understand that the idea of NEST is that the transfer in of a pension from another provider does not incur the upfront charge of, I think, 1.8%. So that would not be an issue. It is just a 0.3% flat fee. I hope the Minister will be able to respond on that element. There is a residual risk to government in moving somebody’s long-term assets from one provider to another if the other provider eventually proves not to deliver good value.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords who have spoken on this. I will start by addressing the proposed amendments to Clause 22. I will say at the start that we regard this clause as being a vital measure to tackle the structural inefficiency caused by the ever-greater proliferation of small, dormant pension pots in the auto-enrolment market. It empowers the Secretary of State to make regulations to consolidate these pots into authorised consolidator schemes, improving outcomes for pension savers and reducing unnecessary costs to providers.

Amendments 79 and 80, from the noble Viscount, Lord Younger, seek to extend the dormancy period for a pot to be considered eligible for automatic consolidation from 12 months to 18 months. We concluded that the 12-month period strikes the right balance between legislative clarity and administrative practicality. The timeframe was consulted on extensively with industry in 2023, under the previous Government. I suspect the noble Viscount was the Minister, so he may recall this well. Twelve months represents a supported middle ground: long enough to ensure that pots are genuinely dormant but not so long as to delay consolidation unnecessarily. Extending the period to 18 months would create inefficiencies and higher costs for both savers and providers, and slow progress towards consolidation.

Amendment 80 proposes removing subsection (3)(b) from Clause 22 as a means of probing the circumstances in which a pot should not be treated as dormant. This was picked up, slightly glancingly, by the noble Baroness, Lady Coffey, as well. I make it clear that the scope of the policy is deliberately aimed at unengaged savers in default funds, where fragmentation poses the greatest risk to value for money and retirement outcomes. It is not designed to consolidate pots from those who are engaged and have made active decisions about their pension.

The exceptions provision is designed for cases where investment choices have been made that are driven by factors other than active financial management, such as religious belief. For example, following the consultation in 2023, sharia-compliant funds emerged as a suitable case for this. The aim was to ensure that savers in those funds remain eligible for consolidation and the benefits it brings, because, even though they have made a choice to be in a sharia-compliant fund, Clause 22 would allow schemes to differentiate that choice from other forms of pension engagement which might indicate that the member would not want their pot to be moved. I make it clear that anyone brought into scope under these exceptions will retain the option to opt out, so member autonomy is preserved, and consolidated schemes would need to offer a sharia-compliant option for consolidation to ensure that members’ wishes continued to be recognised and respected.

Although the power allows for wider exceptions in future, proportionality is key. For example, it would not be appropriate to consolidate members in ethical funds into a default fund; nor is it feasible for consolidators to cater to every ethical fund in the market. However, this flexibility would ensure that the framework could evolve if another religious or other fund reached sufficient scale. It balances the inclusion of disengaged savers with the need to limit complexity, cost and operational burden for authorised consolidator schemes; that is crucial to ensure that the automatic consolidation model remains viable.

Again, to be clear, this is not about bringing into scope people who do not want to be consolidated; it is about ensuring that those who are likely disengaged on pension saving are not automatically excluded from consolidation and its benefits simply because of their religious beliefs. For clarity, I note that, similarly, this clause does not allow or compel a pension scheme to move someone who has not selected a sharia-compliant fund into a sharia-compliant fund.

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[Baroness Sherlock (Lab)]

The noble Baroness may do whichever she prefers.

[Baroness Altmann (Non-Afl)]

Okay. I have not fully prepared for it, but I am happy to do that; it will save us time later on.

The concerns expressed in Amendment 136 and the amendments that the noble Viscount, Lord Younger, mentioned—some of which I added my name to—revolve around schemes that are already established. There is uncertainty about whether the schemes that are currently below the level will be permitted as new entrants or be able to access new business.

I am already being told that advisers are opting to advise employers only to join schemes that are already almost at or above the current £25 billion default fund threshold, which is creating market disruption and preventing schemes currently below the scale threshold from growing, as they cannot access the amount of new business they would otherwise have anticipated. Therefore, the risk is that these schemes will close prematurely but could offer good value to members who would otherwise be able to benefit from a scheme that is potentially on track to enter the transition pathway but will not quite be there.

I will offer the Committee an example. One of the recent new entrants, Penfold, which was established in 2022, will not have the time that other new entrants, established a few years before it, will have—such as Smart Pension, which may well be on track to reach the goal by 2030. Penfold faces a cliff edge because it launched only in 2022, has already surpassed the £1 billion asset-under-management mark and could well quadruple business over the coming few years, which would be an extremely positive achievement, but it will not qualify it not to have to close.

There are other new potential entrants that were planning to enter the market in the next three or four years, but they cannot now do so unless they are able to enter the pathway. That is why Amendment 136 suggests that schemes that have been established for, let us say, less than 10 years—again, that is a probing figure—would be able to enter either the transition or new entrant pathway if there is a demonstrable case that they will be able to grow. However, I am completely aligned with the noble Baroness, Lady Noakes, that big is not necessarily best and that there are risks of an oligopoly developing in this connection, which I hope the Government would not have intended. I am convinced that that would not necessarily be in the interests of the market, innovation or pension savers more generally.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords for introducing their amendments. As this is the first time we are going to debate scale, let me first set out why we think scale matters. I hope to persuade the noble Baroness, Lady Noakes, with my arguments, but she is shaking her head at me already, so my optimism levels are quite low given that I am on sentence two—I do not think I am in with much of a chance.

Scale is central to the Bill. It adds momentum to existing consolidation activity in the workplace pensions sector and will enable better outcomes for members, as well as supporting delivery of other Bill measures. These scale measures will help to deliver lower investment fees, increased returns and access to diversified investments, as well as better governance and expertise in running schemes. All these things will help to deliver better outcomes for the millions of members who are saving into master trusts and group personal pension plans.

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[Baroness Sherlock (Lab)]

I feel that we will have to agree to disagree on this point. The Government are not obsessed with scale; the Government believe that the evidence points to scale producing benefits for savers. We find the evidence on that compelling. I understand the noble Baroness’s argument, but the benefits of scale are clear. They will enable access to investment capability and produce the opportunity to improve overall saver outcomes for the longer term.

I cannot remember whether it was this amendment or another one that suggested that a scheme that did well on value for money should be able to avoid the scale requirements; the noble Baroness, Lady Altmann, is nodding to me that it was her amendment. The obvious problem with that is that schemes’ VFM ratings are subject to annual assessment and, therefore, to change. It is therefore not practical to exempt schemes from scale on the benefit of that rating alone.

We are absolutely committed to the belief that scale matters. It is not just that we think big is beautiful—“big is beautiful” has always been a phrase for which I have affection—but I accept that it is not just about scale. It is not so for us, either. We need the other parts of the Bill and the Government’s project as well. We need value for money; we need to make sure that schemes have good investment capability and good governance; and we need to make sure that all parts of the Bill work together. This vision has been set out; it emerged after the pension investment review. The Government have set it out very clearly, and we believe that it is good.

[Baroness Altmann (Non-Afl)]

The remarks that the Minister is making are of concern to me—and, I think, to other Members of the Committee—because they are just what the big providers would say. They have the power. I have seen this in the pensions landscape for years: the big players have this incredible advantage and lobbying power and the power to get their way on legislation somehow. That is not always bad for members; I am not saying there is something terribly wrong with the big providers. What I am saying, though—this is an important point—is that there is a real need for innovation, new thinking and new ideas in this space. Huge sums of money are under discussion here. If we are bowing to the existing incumbents and not making provision even for those small businesses that are currently established but will not necessarily reach that scale in time, I am not convinced that we are improving the market overall. I would be grateful for a thought on that, or for the Minister writing to me.

[Baroness Sherlock (Lab)]

I am going to push back on the premise of the noble Baroness’s comments. I understand that she feels very strongly about this, but the Government are not doing this to benefit large pension schemes. The Government are doing this to benefit savers. The Government established an independent pension investment review, looked carefully at the evidence and reached the view that the best thing for savers is, via these measures, to encourage and increase the consolidation that is already happening in the marketplace. It is our view that that, combined with the other measures in the Bill, will drive a better market for savers and better returns for savers in the long term. That is why we are doing it—not because we want to support any particular players in the market; that is not what we are about.

The noble Baroness mentioned her Amendment 136; I want to respond to that as well as to the noble Baroness, Lady Noakes. There is an issue around whether schemes already in the market have enough time to make scale. From when the Bill was introduced in 2025, schemes have up to 10 years, if we include the transition pathway, to reach scale. We project that schemes with less than £10 billion in assets under management today could still reach the threshold based simply on historical growth rates. For example, a £5 billion fund today, growing at 20% a year, broadly in line with recent growth in the DC market, could reach £25 billion within 10 years—and that does not take account of the impact of consolidation activity, which we expect to see within the single employer market as a result of reforms brought forward in the Bill, such as VFM, which we expect to lead to poorly performing schemes exiting the market.

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[Baroness Altmann (Non-Afl)]

Is there a reason why the Government will not even consider allowing some transitional entry for schemes that are already established, such as the one I mentioned, which may or may not reach that number? This is not a magic number—£10 billion or £25 billion are not magic numbers—but these are businesses that are already established. It will put people off entering the market if suddenly, with no warning, a company that started in 2022 is under pressure. Let us say that there are bad markets or that it takes longer; as I was saying, at the moment, employers are not going to give these companies new business. If the Government could look at some minimum period of establishment that could get new entrants into the 2010 transition, that would be good.

[Baroness Sherlock (Lab)]

The important thing here is clarity. The noble Baroness mentioned a single scheme. I am not going to comment on individual schemes, for reasons she will appreciate—she would not expect me to do so, I know—but we have to set some clear boundaries. The boundary has to be somewhere. As I said, we have actually gone for the bottom end of what was consulted on. We have created a transition pathway precisely to give schemes the opportunity to grow; they need to be able to persuade us that they have a credible path to do that.

In the case that the noble Baroness mentioned, if there were some particular market conditions that caused problems across a sector, she will be aware that in the Bill there is something called a protected period. There are powers in Sections 20 and 26 of the Pensions Act 2008 that give regulators the ability to delay temporarily the impact of the scale measures. That is to ensure that the consequence of a scheme failing to meet the scale requirement—having to cease accepting any further contributions—is planned and managed. There is a range of reasons why that might happen. It might be about an individual scheme that has been approved as having scale but has failed to meet the threshold or it might be a market crash that affects all schemes. There is flexibility there for the Government.

However, the principle is that we have to set some boundaries around that. The Government have reviewed the evidence carefully, and we have concluded that the point that we have chosen is appropriate. We have created a transition pathway in order to do that, and we have created new entrant pathways in order to accommodate those situations. We believe that that will protect members’ interests.

Pension Schemes Bill

Debate between Baroness Sherlock and Baroness Altmann

Committee stage
Monday 19th January 2026 Grand Committee

[Baroness Sherlock (Lab)]

Absolutely. There may be—I am not saying that there are—risks that need to be explored around the use of sole corporate trustees. The consultation will look at that, and at generally improving the quality and standards of administration to improve service quality and so on. That runs until 6 March. My noble friend may wish to contribute to it; I commend it to him.

On safeguards, trustees will need to notify the regulator when they exercise the power to pay surplus. As part of that notification, we anticipate the provision to be made in regulations for trustees to explain how, if at all, members have benefited because that will help the regulator monitor how the new powers are being used.

In response to the noble Viscount, Lord Thurso, the Pensions Regulator has already set out that trustees should consider the situation of those members who would benefit from a discretionary increase and whether the scheme has a history of making such increases. Following this legislation—and as I may have said in the previous group—TPR will publish further guidance for trustees and advisers, noting factors to consider when releasing surplus and ways in which trustees can ensure members and employers can benefit.

On that broader point, we feel that it must be a negotiation, because increasing indexation would increase employer liabilities, so it is right that it ends up being a negotiation. All the safeguards are already there. My noble friend Lord Davies asked what advice trustees should take. We expect trustees to take appropriate professional advice when evaluating a potential surplus release and making a payment. As well as actuarial advice, this should also include legal advice and covenant advice to enable trustees to discharge their duties properly. Let us not forget that a strong covenant is the best guarantee a scheme has; not undermining the covenant, or the employer that stands behind it, is crucial to this.

Amendment 44 would require the Secretary of State to publish a report on whether trustees’ duties should be changed to enable trustees to pay discretionary increases on pre-1997 accrued rights. It is not clear to us why this would be needed as the scope of trustee fiduciary duties do not prevent trustees paying discretionary increases, where scheme rules allow them to do so. We expect trustees to consult their professional advisers, including lawyers, on their duties if they are not sure.

Amendment 41 from the noble Lord, Lord Palmer, highlights the importance of ensuring that members have access to good quality pensions advice. Although we understand the intention, we remain clear that we will not be mandating the use of surplus released from schemes. My noble friend Lord Davies made the good point that, in some ways, the greatest need for support is on the DC side rather than the DB side. DB scheme members expect to receive a lifelong retirement income, which trustees must regularly and clearly communicate to members. This is typically based on salary and length of service, offering strong financial security. For DB, the benefits they will receive on retirement are generally known.

The Government recognise the importance of robust guidance, however, and we already ensure that everyone has access to free, impartial pensions guidance through the Money and Pensions Service, helping people to make informed financial decisions at the right time. The MoneyHelper service offers broad and flexible pensions guidance that supports people throughout their financial journey.

A couple of other questions were asked, including what employers will use the surplus for. The Pensions Regulator published a survey last year, Defined benefit trust-based pension schemes research. In a sample of interviews, it found around 8% of schemes with a funding surplus reported having released a surplus in the last year. That equates to nine schemes. Of those nine, seven schemes used the surplus to enhance member benefits. One used it to provide a contribution holiday for future DB accrual and one to make a payment to a DC section established in the same trust. None of the nine schemes stated that the surplus was released to the employer.

In answer to the noble Lord, Lord Willetts, and my noble friend Lord Davies, it was always the case that it depends on the scheme rules. I want to make sure I get this right. I had a note somewhere about it, but I am having to wing it now so I will inevitably end up writing and correcting it. If there is a DB and a DC section in the same trust, it could be possible, depending on the scheme rules, for trustees to make a decision to release funds from one to the other. But trustees may not be able to agree to that; it would obviously depend on the circumstances. However, as I understand it, there is nothing to stop an employer releasing funds—surplus released from a DB scheme back to an employer. The employer could then choose to put that money in, for example, a DC scheme. I understand the tax treatment would be such that the tax payable on one can be offset as a business expense on the other, making it a tax neutral proposal. In any case, as noble Lords may have noted, the tax treatment of surplus rate has dropped from 35% to 25%. A decision has been made to make that drop down. If by winging it I have got that wrong, I will clarify that when I write the inevitable letter of correction.

My noble friend Lord Davies asked about tax treatment. I will read this out, as it is from the Treasury, and I will be killed if I get it wrong. Amendments to tax law are required to ensure these payments—one-off payments—qualify as authorised member payments and are taxed as intended. The necessary changes to tax legislation will have effect from 6 April 2027. Changes to tax legislation are implemented through finance Bills and statutory instruments made under finance Acts. There will be consequential changes to pensions legislation where necessary, which will be dealt with through regulations. I hope that satisfies my noble friend. If it does not, I will write to him at a later point.

I hope I have covered all the questions. I am really grateful for that contribution; it is one of the ways in which this Committee illuminates these matters. But I hope, having heard that, the noble Baroness feels able to withdraw her amendment.

[Baroness Altmann (Non-Afl)]

I thank the Minister for her explanation. Although it is rather disappointing, I understand where she is coming from. I also thank all noble Lords who have participated in this group. There is a general feeling across the party divides—but obviously not unanimity—that lack of inflation protection is an issue. How or whether it is dealt with is the big question. I hope that maybe we can all meet and discuss this and how it could best be brought back on Report, if it is going to be brought back. With that, I beg leave to withdraw the amendment.

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[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Altmann, for setting out her amendments. I am also grateful to all noble Lords who have spoken. I must admit that I have learned more about actuaries in the past week than I ever knew hitherto, but it is a blessing.

Three different issues have come up. I would like to try to go through them before I come back to what I have to say on this group. In essence, the noble Baroness, Lady Altmann, has us looking at, first, actuaries: what is their role, what are the standards and how do they do the job? Secondly, what are the right endgame choices—that is, what is out there at the moment? Finally, what should be in the surplus extraction regime? We have ended up with all three issues, although the amendments only really deal with the last of those; they deal with the others by implication. Let me say a few words on each of them, then say why I do not think that they are the right way forward.

We have just finished hearing from the noble Lord, Lord Fuller. Obviously, we are talking about the position now. DB schemes are maturing and, as such, are now prioritising payments to members. Given this context, they are naturally more risk-averse, as they are now seeking funding to match their liabilities. Since the increases in interest rates over the past five years, scheme funding positions have—the noble Lord knows this all too well—improved significantly in line with their corresponding reductions and liabilities.

However, when setting an investment strategy, trustees must consider among other things the suitability of different asset classes to meet future liabilities, the risks involved in different types of investment and the possible returns that may be achieved. The 2024 funding code is scheme-specific and flexible. Even at significant maturity, schemes can still invest in a significant proportion of return-seeking assets, provided that the risk can be supported.

On actuaries, actuarial work is clearly an important part of the process. It helps set out the picture, as well as highlighting the risks, the assumptions and the available options, but it does not determine the outcome. My noble friend Lord Davies is absolutely right on this point. Decisions on how a scheme uses the funds are, and will remain, matters of trustee judgment. The role of the actuary is to support the judgment, not replace it. Trustees are the decision-makers, and they remain accountable for the choices that they make on behalf of their members.

Of course, in providing any certification, actuaries will continue to comply with the TAS standards set by the Financial Reporting Council. I am not going to get into the weeds of exactly how the standards work but, on the broader points made by the noble Baroness, Lady Altmann, we agree that the requirements and the regulations must work together. As my noble friend said, after the funding regime code was laid, the FRC consulted on revisions to TAS 300 covering developments; it has now published the revised TAS. These are complex decisions. Regulators need to work together. We will come back to this issue later on in the Bill, following an amendment from the noble Baroness, Lady Coffey.

In terms of the endgame choices, the independent Pensions Regulator has responsibility for making sure that employers and those running pension schemes comply with their legal duties. Obviously, the Government are aware of the recent transaction that resulted in Aberdeen Asset Management taking over responsibility for the Stagecoach scheme; we are monitoring market developments closely. Although we support innovation, we also need to ensure that members are protected. Following the introduction of TPR’s interim superfund regime and the measures in this Pension Schemes Bill, we understand that new and innovative endgame solutions are looking to enter the DB market and offer employers new ways to manage their DB liabilities. I assure the noble Baroness that we continue to keep the regulatory framework under review to ensure that member benefits are appropriately safeguarded.

Then, the question is: what is the right thing to be in the surplus extraction regime? I know that the noble Baroness, Lady Altmann, is concerned that, following these additional flexibilities to trustees around surplus release, trustees continue to consider surplus release in the context of the wider suite of options available to their scheme, including buyout, transfer to a superfund or other options beyond those. Following these changes, trustees will remain subject to their duty to act in the interests of beneficiaries. As such, we are confident that trustees will continue both to think carefully about the most appropriate endgame solution for their scheme and to act accordingly. For many, that will be buyout or transferring to a superfund, rather than running on.

Let me turn to what would happen with these amendments specifically. Amendment 33 would link the operation of the surplus framework to existing standards on risk transfer conditions in TAS. In essence, it seeks to ensure the scheme trustees have considered a potential buyout or other risk transfer solution before surplus can be released. Amendment 33A has a similar purpose; again, it aims for trustees, before they can release surplus, receiving a report from the scheme actuary assessing endgame options and confirming compliance with TAS.

Although I appreciate the noble Baroness’s intention to ensure that trustees select the right endgame for their scheme, these amendments are not needed because trustees are already required, under the funding and investment regulations, to set a long-term strategy for their scheme and review it at least every three years; that strategy might include a risk transfer arrangement. Furthermore, although I know the noble Baroness has tried to minimise this, hardwiring any current provisional standards into the statutory framework could have unintended consequences, including reducing flexibility for trustees and requiring further legislative or regulatory changes to maintain alignment as these standards evolve over time.

We are back to the fact that, in the end, trustees remain in the driving seat with regard to surplus release. As a matter of course, TPR would expect trustees to take professional advice from their actuarial and legal advisers; to assess the sponsor covenant impact when considering surplus release; and to take into account relevant factors and disregard irrelevant factors, in line with their duties. We are working with the Pensions Regulator regarding how schemes are supported in the consideration of surplus-sharing decisions. The new guidance already considers schemes as part of good governance to develop a policy on surplus. TPR will issue further guidance on surplus sharing following the coming into force of the regulations flowing from the Bill, which will describe how trustees may approach surplus release and can be readily updated as required. Alongside the Pensions Regulator, we will work with the FRC to ensure that TAS stays aligned.

I am grateful for the noble Baroness’s contribution and the wider debate, but I hope that she will feel able to withdraw her amendment.

[Baroness Altmann (Non-Afl)]

I thank the Minister and everybody else who has spoken. I have enormous respect for the noble Lord, Lord Davies, and take what he says seriously. I am most grateful for the support of the noble Lord, Lord Fuller.

I make no apology for the technical nature of these amendments, but I apologise that they had to be shoehorned in; this is such an important issue, though. This environment of higher inflation risk, excessive prudence and hoarding of surpluses is damaging pension adequacy. The de-risking overshoot has sucked innovation, energy and impetus out of the pension system and the economy. Indeed, the chair of the trustees of Stagecoach described to me that he faced what he termed co-ordinated and insidious behind-the-scenes lobbying against the trustees’ aim to try to obtain better pensions for their members; he also said that the lobbying was in favour of annuitisation as the best option for the scheme.

There is no lobbying for either improving member benefits or giving a lot more money back to employers at the moment. If we were able to get an amendment such as this one into the Bill, so that everybody must consider the range of available options plus innovative strategies, I would hope that the outcome of the Bill would be much better, more productive use—which is the aim of the Government: the Minister, Torsten Bell, has rightly talked about using surpluses in a productive manner.

The FSCS backs annuities. It has no government guarantee. I hope that, on Report, we may come back to the spurious safety of the current recommended future for this enormous amount of assets and find ways in which the Bill might be able to accommodate the need for a mindset change in this connection. For the moment, I beg leave to withdraw the amendment.

State Pension: Triple Lock

Debate between Baroness Sherlock and Baroness Altmann

Tuesday 21st January 2025 Lords Chamber

[Baroness Sherlock (Lab)]

My Lords, I am certainly not going to answer for the leader of the Opposition. I will allow others who are rather better qualified than I am to do that. But I can assure her that the idea of means testing the triple lock, even if its meaning were clear, is not something we on these Benches embrace.

I can tell the noble Lord very clearly that we have a manifesto commitment that the triple lock will hold for the entirety of this Parliament. That is a huge commitment. The noble Lord mentioned winter fuel payments. Means testing those meant that a number of pensioners lost a sum of £200 or £300. By contrast, the amount of money we are investing in the state pension will mean that the annual rate will go up by up to £1,900 by the end of this Parliament.

The comments by my colleague, the Minister for Pensions, Torsten Bell, were made as a private individual when he was the head of a think tank. It is the job of heads of think tanks to think big ideas and to talk about them. However, I assure the House that Minister Bell, along with me, is fully committed to the triple lock and the Government’s commitment to it. I hope the nation’s pensioners will be delighted to hear that.

[Baroness Altmann (Non-Afl)]

Does the Minister agree that there is an inconsistency in the triple lock between younger pensioners, who tend to be better off and for whom the triple lock provides protection for their full new state pension, and the oldest pensioners, who tend to be poorer, or those on pension credit, who either have only the basic state pension triple lock protected, or, in the case of pension credit, no triple lock protection at all? Is there any plan for a review of how, generally speaking, the distribution of incomes among pensioners and the protection provided by the triple lock interact?

[Baroness Sherlock (Lab)]

The noble Baroness has raised a number of important and connected questions. Let me pick a couple of them out—as many as I can in the time. First, on the distinction between those on the old basic state pension and those on the new state pension, it is not a straight read across that people on one are getting more than people on the other. As she knows, it depends, of course, on what the national insurance contribution rates were and how many years they worked. How much contribution they made determines how much they will get. It is also a fact that many people on the basic state pension were contracted out and therefore will have occupational pensions and will have paid lower national insurance contributions as a result. Whichever of those state pensions people get, we will guarantee that it will go up by the triple lock, which is a massive investment, given the economic climate, and a huge investment in pensions.

On the broader question, the noble Baroness will know that in the second stage of the pensions review we will look at the whole question of the adequacy of pensions. We need to have in our country a system designed to be built, as she knows as a former Pensions Minister, on the foundation of the state pension but with an adequate second pension coming from occupational provision. On that, auto-enrolment, investment in the system, addressing gender pay gaps, and a whole range of questions are important. I will stop talking now as I have talked for far too long. The point is that we are investing in pensioners, we will get the pensions market working and we want this to work for everybody.

Pensioners: Winter Support

Debate between Baroness Sherlock and Baroness Altmann

Tuesday 29th October 2024 Lords Chamber

[Baroness Sherlock (Lab)]

On bureaucracy, 80% of people now apply for pension credit online. You can apply online, on the phone or on paper, or you can get help from the DWP or a third-party organisation, but 80% apply online. That is by far the simplest and quickest way to do it, not least because you end up answering, at most, 48 questions and sometimes only 35, because lots of things you do not have to go through are taken out. That might seem like a lot, but it really is not—the experience people have is fairly straightforward. If you do not like doing it online, you can phone up and that is the equivalent, because the person on the other end just does it for you—you are on the phone and they are entering all the details. Some weeks, only 5% of people apply on paper.

On how long it takes to process it, as we are expecting an influx of applications, we have redeployed another 500 staff to work on processing. We know that there will be slightly longer times and are warning people who apply that it could take up to nine weeks, but I assure the House that if anyone applies in time, they will get the money. If that means that for a small number of people there will be a cashflow issue, I encourage them go to their local authority to apply to the household support fund to tide them over that gap.

[Baroness Altmann (Non-Afl)]

My Lords, I encourage the Minister to recognise that the winter fuel payments are being taken away from the very poorest pensioners. Those on pension credit are not the poorest; those who are entitled to it and will eventually receive it will also not be the poorest because they will get thousands of pounds extra, including winter fuel payments. Those slightly above that—it is estimated there could be 1 or 2 million—have no means of receiving the money that they will need this winter. There is no protection for them. The Minister talks about the reduction in fuel costs. Last winter and the one before, those pensioners received one-off cost of living payments. With a Budget tomorrow, it may not be too late to recognise that this is a mistake; it is going to cause serious harm to a number of pensioners and cost the Government and the NHS significant sums.

[Baroness Sherlock (Lab)]

My Lords, nobody went out thinking that this is where we would like to be, but the noble Baroness knows very well the economic situation that we inherited, and she will know exactly why it was necessary to save money in year. I remind the noble Baroness that, by definition, the poorest pensioners are getting the support they need provided they apply; we will make it as easy as possible for them to do that. For everybody else, the Government have committed to sticking to the triple lock for this Parliament. That means that somebody on the new state pension will find that, over this Parliament, the value of that state pension will rise by £1,700, and the value of even the basic state pension will rise by £1,300. That is where the huge extra support will come from for the pensioners that she is talking about.

Pensions (Extension of Automatic Enrolment) (No. 2) Bill

Debate between Baroness Sherlock and Baroness Altmann

3rd reading
Monday 18th September 2023 Lords Chamber

[Baroness Altmann (Con)]

My Lords, I congratulate and thank my honourable friend Jonathan Gullis on initiating this Private Member’s Bill in the other place. I also thank my honourable friend the Pensions Minister, Laura Trott, my noble friend Lord Younger, the Lords Minister, DWP officials and the Bill team, the Public Bill Office, the Lords Library and the Lords clerks.

This Bill reflects the strong cross-party support in both Houses and continued political consensus on auto-enrolment. In that regard, I thank the noble Baronesses, Lady Sherlock and Lady Drake, whose work on the Pensions Commission recommended automatic enrolment, and the noble Lords, Lord Davies and Lord Palmer, for their speeches supporting the Bill, which paves the way for half a million younger people and at least 2.5 million older workers to build bigger pensions, particularly for the low paid. I look forward to the promised early consultation to confirm the details and timing of the regulations, which will see the provisions of the Bill implemented by all employers. I beg to move.

[Baroness Sherlock (Lab)]

I thank the noble Baroness, Lady Altmann, for piloting the Bill through this House and I share her thanks to the Minister and his team, and all noble Lords who participated. Auto-enrolment is a much-loved child with more than one parent. As the noble Baroness said, the work came from the Pensions Commission, set up by the last Labour Government and on which my noble friend Lady Drake and the noble Lord, Lord Turner, served with such distinction. The coalition Government implemented it in 2012, and there has been a welcome growth as a result in the number of people saving for a pension. We can all celebrate that—but, as we noted at Second Reading, pensions adequacy is still an issue, so we need to look at continually improving auto-enrolment and addressing the question of the gender pensions gap, which remains a matter of serious concern.

This simple, permissive Bill would allow the Government to make progress in fulfilling their commitment by implementing some of the 2017 review measures, namely reducing the lower age limit for being auto-enrolled and removing the lower earnings limit. The Minister confirmed at Second Reading that the Government were still committed to doing that in the mid-2020s. Without wishing to be depressing, as 2023 begins its descent towards the sea, I wonder if the Minister can give us any hint as to whether 2024 might be the year, or is this gently rolling into the grass beyond the election?

The Opposition fully support this Bill. I thank again all those involved in proposing it and look forward to its passage.

Social Security (Up-rating of Benefits) Bill

Debate between Baroness Sherlock and Baroness Altmann

Report stage
Tuesday 2nd November 2021 Lords Chamber

[Baroness Sherlock (Lab)]

My Lords, my apologies: I was too slow to leap up. I thank my noble friend Lord Davies for introducing his Motion and thank all noble Lords who have spoken. As I said in Committee, I think we all share an underlying concern, which is about the living conditions of pensioners—particularly poorer pensioners—in our society. I will not rehearse our debates on pensioner poverty, but I am grateful to my noble friend Lord Davies for opening up the question of a strategic approach to the state pension.

The assumption had been that the state pension, old or new, was the basis, or the foundation, of developing retirement income and that any private provision would be on top. Given that we have rising levels of pensioner poverty now, and looking across the landscape of current saving rates on auto-enrolment, are the Government confident that this strategy is working and that people will have adequate income in retirement on the basis of the figures that she is seeing? I should be interested to hear her response to that.

My noble friend Lord Sikka again mentioned the question of people who are struggling. We are very anxious about the cost of living facing pensioners in the difficult months ahead, which is why I very much hope that the Government are tackling pensioner poverty in the ways that we have discussed.

Taking my noble friend Lord Davies at his word, he did not in fact raise this with the intention of pressing the Government for 8.1% now but to raise the broader questions. I hope the Minister will take him on that basis and give him a response that will help to answer the kind of questions he has raised.

[Baroness Altmann (Con)]

I apologise for being even slower to rise. I will not detain the House long. I would just like to echo and support the calls for a wider review of state pensioner support. That is long overdue. Perhaps this debate will produce a willingness at the department to look again at all the elements of the way we support pensioners in this country.

Pension Schemes Bill [HL]

Debate between Baroness Sherlock and Baroness Altmann

Committee stage & Committee: 4th sitting (Hansard) & Committee: 4th sitting (Hansard): House of Lords
Wednesday 4th March 2020 Grand Committee

[Baroness Altmann]

My Lords, I add my support to many aspects of the amendment from the noble Baroness, Lady Bowles. She is trying to do something very helpful for the Committee and the Bill. We have all expressed concerns about the wide-ranging powers in this Bill, which seem to go a lot further than normal for such Bills. I recognise that pensions Bills tend to have wide powers added to them, but it makes sense to identify areas where we would not wish the legislation to allow a Minister to do things that would normally come back to Parliament for our scrutiny or further legislation.

[Baroness Sherlock]

My Lords, I, too, share the aspiration of the noble Baroness, Lady Bowles, to constrain somewhat the use of the extensive powers that the Government are blessing themselves through this Bill. I will not, however, reopen that debate in any great detail, although there is a temptation to say “We have another whole hour of Committee, we can debate this at great length”. The danger of a list is that some noble Lords will have concerns about particular aspects, such as constraining trustee power, while some will be in favour of multi-employer collective money purchase schemes. Most of us, however, would have reservations about the ability to amend primary legislation.

Although it may not feel as though Bills come along in super abundance, in the field of pensions it feels like they come along all the time like the number 19 bus, but I take the point. In fact, if we are going to have a list I would like to add to it: I would start with not allowing dashboards to do transactions without covering that in primary legislation. I have a long list in my notes which I will develop at length should we return to this. What might be helpful is if the Minister, in replying, would tell Committee whether the Government intend to do any of these things.

Pension Schemes Bill [HL]

Debate between Baroness Sherlock and Baroness Altmann

Committee stage & Committee: 3rd sitting (Hansard) & Committee: 3rd sitting (Hansard): House of Lords
Monday 2nd March 2020 Grand Committee

[Baroness Altmann]

The noble Lord raises an important point which highlights that I have not necessarily covered all the areas to be dealt with on this. Including auditors and having a requirement for them to verify the accuracy of data is indeed another way of approaching the issue. I went to trustees and scheme managers widely, but auditors are another area which might be considered.

[Baroness Sherlock]

My Lords, I do not want to say very much, but I have a couple of questions on the back of what the noble Baroness, Lady Altmann, has said.

Can the Minister tell the Committee a little about what the regulators and the Government are doing to ensure that companies are ready to clean up data ready for transferring to the dashboard? Is there any intention for providers to check that members recognise the accuracy of the data at any point? Regarding what the noble Baroness described, if data had been wrong for decades, perhaps the member would not have known the details, but they might have known if they were not in a scheme, were in a different one, or if the basics were different.

The Cheviot Trust said that it was concerned that deferred members’ data would be less accurate. Is this on the DWP’s horizon? If so, what is being done about it?

Pension Schemes Bill [HL]

Debate between Baroness Sherlock and Baroness Altmann

Committee stage & Committee: 1st sitting & Committee: 1st sitting : House of Lords
Monday 24th February 2020 Grand Committee

[Baroness Sherlock]

I think this is a language question. The problem that my noble friend Lady Drake raised at Second Reading and which we are trying to raise here is not about a capital buffer to deal with the intergenerational questions of benefits and payments at a time. It was the equivalent in master trust regulations where the sponsoring employer has to put money up front in a safe place so that if things go wrong and the scheme collapses the fallout can be funded without raiding members’ benefits. I think the noble Baroness, Lady Bowles, is describing something slightly different.

[Baroness Altmann]

I hope I can intervene helpfully. This is allied to the issue of data. If a scheme has to wind up, the biggest cost is the administration, and the likelihood of a scheme with poor data records needing to take money from members’ pensions to meet the very high costs of administration when a scheme is failing is much greater. That goes back to the original reason for suggesting that we need a buffer that can cater for the disaster scenario. It is like an insurance policy so that if things have gone horribly wrong with that scheme, members do not potentially end up with no pension because there is something that we have set up from the beginning that can help fund the costs involved and there are systems and processes to check regularly that data are correct along the way which would mitigate the costs of going back over many years and trying to resurrect records.

Personal Independence Payment

Debate between Baroness Sherlock and Baroness Altmann

Monday 6th June 2016 Lords Chamber

[Baroness Altmann]

The noble Lord rightly cites that Motability offers a support package. It has volunteered to do so given its financial position, and very generously offered to help those who lose their Motability car. I stress that although some people lost their cars, overall some 22,000 more people now have a Motability car under the PIP scheme.

[Baroness Sherlock (Lab)]

My Lords, when the Minister wrote to me to put the record straight after the debate in the name of the noble Baroness, Lady Thomas, she conceded that her original statement that there was not a 20-metre rule was wrong. In fact, somebody who could walk 20 metres but not 50 metres could get the enhanced rate of PIP only if there was something else going on; for example, they might have a learning disability and struggle to plan a journey. When we come back to basics, this means that somebody who can walk only a very short distance, the length of two buses, will lose their Motability car simply because they will now fail a test they would once have passed. This test has been used for 35 years, is based on research evidence, and is used for the blue badge, the guidance on the built environment and lots of other tests. The Government got this one wrong. Will they not accept that now?

[Baroness Altmann]

The noble Baroness has significant expertise in this area. Once again, I apologise for the incorrect statement that I read out during the debate. However, I am assured that it is not a strict 20-metre rule and that some people who cannot walk more than 20 metres—of course, the reliability criterion is also important here—will receive the higher rate. I repeat that the aim was to ensure that we support at the highest rate people who are unable or virtually unable to walk. There is no one particular test—the 50-metre test is not a recognised one, either—for someone who is unable or virtually unable to walk. We are keeping this closely under review. It is widely accepted by stakeholders that PIP is now in a settled and improving state.

Personal Independence Payment: Mobility Criterion

Debate between Baroness Sherlock and Baroness Altmann

Wednesday 4th May 2016 Lords Chamber

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Baroness, Lady Thomas of Winchester, for moving this Motion and for explaining carefully the nature of the problem that we address tonight. I am also grateful to all noble Lords who have spoken, many of whom I have heard address the same issue repeatedly. It is very good to hear them again tonight and I pay tribute to them and to the noble Lord, Lord Alton—he is in his place but has not spoken tonight—who again has been tenacious in his support of the issues around Motability for some time.

I hope very much that the Minister has come here tonight in a constructive spirit and ready to listen, because she has heard stories from people who know a great deal about this, have a great deal of experience and who know whereof they speak. As we have heard, the shift from DLA with its qualifying threshold of 50 metres to PIP where 20 metres became the new rule for the enhanced component has been very controversial from the outset. The change was hugely unpopular. The Disability Benefits Consortium reminded us in its briefing for this debate that when the Government consulted, 914 of the 1,142 respondents indicated a clear preference for extending the qualifying distance for the enhanced rate from 20 metres up to 50 metres. The arguments were compelling. As my noble friend Lord McKenzie has just made clear, 50 metres was a widely recognised, established benchmark based on research used by many other government departments and other measures around the world. It is clearly a sensible choice. By comparison, no case was ever made for 20 metres. It became increasingly clear to all concerned that in practice what was sought was a criterion that more people would fail, and that would therefore result in less money paid out. It was designed to save money, or more precisely to transfer money from disabled people to the Exchequer.

This is a significant loss. The noble Lord, Lord Low, pointed out that some half a million people could lose money and that this could be over £30 a week. But I want to reinforce the point that this is one of those benefits explicitly designed to deal with the extra cost of disability. We really risk losing that dimension of social security at our peril. This is not simply a handout: it is about recognising that for disabled people to do the things that other people take for granted—to take their children to school, have a social life and have a job—they need access to transport that is not provided for them by the state. There are two ways that we can deal with this. We can make our public transport system dramatically more accessible and cover the entire country or, for a fraction of that cost, we can carry on making payments to enable disabled people who qualify for this to go to Motability or elsewhere to get access to transport.

I pray that the day will come when the noble Baroness, Lady Grey-Thompson, will never have to drag herself on to a train again. Only she could manage it: those who are not Paralympic athletes might struggle. But I hope very much that that will not be the situation for very much longer. In the mean time, people need access to vehicles.

Crucially, we have already heard that some 14,000 people have lost their Motability vehicles after being reassessed for PIP. That is cracking on for half of all the reassessments, so there are some significant losses ahead of us. Also, we have heard compelling cases from various noble Lords, including the noble Baronesses, Lady Grey-Thompson and Lady Brinton, of cases where the assessment has gone spectacularly, farcically wrong. When the Minister comes to respond, I am sure the temptation in the brief at this point will be to say that these are isolated cases and things can always go wrong, but if they can go that wrong, something has gone wrong with the quality process somewhere down the line. It means that something systemic has to be addressed. The reality is that the system is not working. It is broken. Disabled people have suffered significantly already. They have suffered very badly from social security spending cuts in the last Parliament and in this one. While the U-turn in the Budget on PIP was very welcome, the Government are still cutting spending on disability benefits by £1.2 billion by the end of this Parliament.

I have some questions for the Minister. How many people does she now predict will lose the higher rate mobility component by 2020? How many will lose their Motability cars as a result of the PIP reassessment? Is she satisfied with the way that the “moving around” assessments are conducted? Finally, is she happy with the outcomes of the reduction to 20 metres? Is it working as the Government planned? I asked the Minister on 7 March how she felt the loss of Motability cars and other access to support would help the Government to tackle the disability employment gap. She reassured me that the Government were committed to halving the disability employment gap and said that the PIP approach was more consistent and fairer than DLA. The Government, we understand, will produce a White Paper on disability. If they are serious about tackling the disability employment gap and increasing opportunities for disabled people to participate fully in our society, they have to do something about this. I am pleased to support this Motion.

[The Minister of State, Department for Work and Pensions (Baroness Altmann) (Con)]

My Lords, I first assure the noble Baroness and the House that this Government have always been, and continue to be, fully committed to engaging with disabled people and organisations such as Disability Benefits Consortium and Disability Rights UK. I know that the Minister for Disabled People met the noble Baroness on 18 April to discuss the very issue raised in this debate. I also echo the sentiments of the Secretary of State during his Statement to Parliament last month. We are a one-nation Government committed to supporting everyone to achieve their full potential and to live independent lives.

Integral to that vision is ensuring that those with the greatest need are supported the most. We introduced the personal independence payment because disability living allowance was no longer fit for purpose. Under DLA, we assessed people purely on the basis of a disability, rather than considering individuals’ needs.

--- Later in debate ---

[Baroness Altmann]

I thank the noble Lord for his question. I can assure him from my own experience that it is important that we have any statistics properly verified before they are released as official statistics. We will release relevant data, and if we have any further information, I will be happy to write to the noble Lord with any other data we can provide.

As regards the information that the noble Baroness, Lady Grey-Thompson, asked for on the amount of money spent on mandatory reconsiderations and appeals, we will provide written details of those costs.

[Baroness Sherlock]

My Lords, when the Minister was describing the 20-metre rule and 50-metre rule, I could see a lot of puzzlement around the Chamber. It may just be that I was not keeping up with her, so will she indulge the House for a moment and clarify that? I understood from the Government’s justification, included in the House of Commons briefing on Motability, that,

“We recognise that people who are unable to reliably walk more than 50 metres”—

and it goes on to say that they will get the standard rate, which will go,

“to those who cannot reliably walk between 20 and 50 metres”,

and the enhanced rate will be for below 20 metres. Therefore, can the Minister explain to us whether what I have described is not true? That is what the House of Commons briefing on this says.

[Baroness Altmann]

To reiterate for the noble Baroness, if a claimant cannot walk up to 50 metres safely, reliably, repeatedly and in a timely manner, they are guaranteed to receive the enhanced rate of the mobility component. Therefore, there is not a strict 20-metre rule. There is discretion, and an individual assessment is made. We take into account whether the person is in pain and whether they can reliably walk or manage on their own.

I can also reassure noble Lords that our door is open. We are happy to engage. The Secretary of State and the Minister for Disabled People regularly engage with disability groups. We would like to continue to do so. Clearly, we want to make sure that this new process is working. As far as we can see at the moment, it appears to be.

Children: Parental Separation

Debate between Baroness Sherlock and Baroness Altmann

Wednesday 27th April 2016 Lords Chamber

[Baroness Altmann]

My Lords, the department is working with other departments in a cross-government strategy to support children, with a lot more funding for mental health issues and co-operation between the various departments.

[Baroness Sherlock (Lab)]

My Lords, “so far” is a telling phrase. The Minister talked about the CSA but the Government are in the process of shutting down all CSA cases and telling parents that if they want to apply to the new scheme they have got to hand over one-fifth of all the money to the DWP in fees. However, they are allowed to apply to the new scheme only if they first ring a phone line and let someone on the other end of the phone try to talk them out of it and tell them to go away and make a deal with their ex directly. Mrs Thatcher set up the CSA to make sure that parents pay for their kids even if they are separated from the other parent. If there are any grounds to the growing concern that parents will end up paying less money to children than they have in the past, will the Minister accept that the strategy has failed and needs to be reviewed?

[Baroness Altmann]

The noble Baroness clearly has significant expertise in this area, but I have to say that the current system, which was set up in 2012, does not automatically take 20% of the payments. As I say, the point of the new system is to encourage parents to make their own arrangements. It is only if they do not use the direct payment method that they will pay the additional premium for that service.

[Baroness Sherlock]

My Lords, the noble Baroness has reminded me—

Child Support (Deduction Orders and Fees) (Amendment and Modification) Regulations 2016

Debate between Baroness Sherlock and Baroness Altmann

Monday 14th March 2016 Grand Committee

[Baroness Sherlock]

I thank the Minister for answering some of my questions but I confess to disappointment that she was not able to provide any figures at all, given that I gave her office a few hours’ notice that I would be asking for that information, which ought to be in the public domain. However, I shall look forward to the letter expressing the figures in detail.

There are two questions which either the Minister did not answer or I expressed poorly—I take full responsibility for her answering a different question from the one I asked. The first question was on the timing of the compliance opportunity. I was not trying to ask her—I apologise if I did—why she was not doing the compliance opportunity on the existing scheme, as opposed to the CMS. What I was asking was: why did the Government not delay the compliance opportunity until the arrears had been moved across as well as the ongoing maintenance, so that the compliance opportunity could then be done on the entire liability of both ongoing maintenance and arrears? She said that it was testing behaviour, but that tests only the willingness to pay a small amount of that, and the arrears may be significant.

As to the second question, I did not quite understand what the Minister said about why the Government did not want to use the compliance tools available to them on self-employed non-resident parents. What is the reason for assuming that they do not need enforcement in the way that employed parents do? She could, I presume, use deduction orders as they are used now. She did not explain why that would not be the case.

[Baroness Altmann]

I will try to be a little more forthcoming with some figures, but, as I say, I will write to the noble Baroness with a more detailed reply. So far, 700,000 to 800,000 segment 3 and 4 cases have been moved across. When all cases are finished, there will be 800,000 to 900,000 cases expected to come over on to the 2012 scheme. I apologise to the noble Baroness that I may have omitted to answer the two specific questions that she asked me. It is not that she was not clear; it is that I was unable to keep up with all the questions.

The timing of the compliance opportunity is partly to ensure that we can successfully complete the migration of the old cases on to the new system in time to be able to close the existing IT systems before they run out of their usable life. There is a timing issue of requiring to get on with the compliance opportunity for segment 5 so that we can meet the end deadline for closing the 1993 and 2003 IT systems without incurring significant extra cost. If we were to delay until all the arrears had been cleansed on the old system, that might well take us beyond the period. By moving segment 5 across slowly now, we are trying to test how this compliance opportunity is working in a small number of cases, as I described earlier, and how the new system is working for those cases before we ramp up with these significant additional thousands of cases that still need to come across and meet the end deadline. This migration and the new system are being very carefully managed. It is a massive undertaking. We know the problems we have had with IT systems in the past, and we do not want those to happen with the new system.

Also, we would have had to either let everyone have direct pay or charge everyone for their ongoing maintenance. That is why we have not used the tools for the self-employed people. We are giving them the opportunity that we believe we have to give them. We cannot collect arrears until they have not paid. As I understand it, the deduction orders and the lump sum deduction orders will help us collect arrears but we cannot consider arrears from the old scheme as arrears in the new scheme, so we would either have to deem all the self-employed as unreliable payers, and therefore we could then enforce collection and charges, or give them the opportunity to prove that they are unreliable before we then take the fees for the collection and charges.

If further clarification is required, I will write to the noble Baroness. However, as I understand it, those are the bare bones of the issue. We can expand on that.

I thank noble Lords for their contributions to the debate and for their constructive approach to today’s proceedings. This Government are committed to ensuring that those parents who choose to apply to the statutory 2012 child maintenance scheme benefit from a successful and stable arrangement for payments in the interests of their children. Introducing a compliance opportunity will ensure that non-resident parents with a history of non-compliance should not access the direct pay service unless they have demonstrated a change of behaviour. This aims to help parents with care have confidence that their new arrangement will suit their circumstances and work in the best interests of supporting their children. I commend this instrument to the Grand Committee.

Motability

Debate between Baroness Sherlock and Baroness Altmann

Monday 7th March 2016 Lords Chamber

[Baroness Altmann]

My Lords, the time taken for appeals is being reduced. Certainly the first step is mandatory reconsideration, which in general takes place before the Motability car needs to be returned, as there is a seven-week period. However, the long-standing policy of the department is that if it is assessed that somebody is no longer entitled to a car, it must be removed pending appeal.

[Baroness Sherlock (Lab)]

My Lords, the Minister thinks that the system is working better. One must ask: for whom? The BBC reported in February that 14,000 disabled people had had their Motability cars taken away from them, which is 45% of the 31,000 who had had an assessment. If that scales up, we will see hundreds of thousands of disabled people not having access in future to a Motability car. So I ask the Minister again the question put to her by the noble Baroness, Lady Thomas of Winchester: how does this contribute to the Government’s aim to halve the disability employment gap?

[Baroness Altmann]

The Government are absolutely committed to halving the disability employment gap and we understand that being reassessed for any benefit can be a challenging time. That is why, after discussions with my department, Motability announced a £175 million package of transitional support. Those who lose their cars can get £2,000 for a new one or can buy their old car, and are given time to adjust. But the idea of the reassessment is that the DLA was inconsistent—many people had lifetime awards—whereas PIP offers a more consistent and fairer approach.

Family Test

Debate between Baroness Sherlock and Baroness Altmann

Tuesday 26th January 2016 Lords Chamber

[Baroness Altmann]

My Lords, I assure the House that the family test is indeed incorporated into every new domestic policy consideration by this Government.

[Baroness Sherlock (Lab)]

My Lords, I spoke recently to a woman called Ruth, who had adopted three siblings aged under four. The children were placed with her only because she agreed to stay home in their early years, because they were very damaged. However, her husband was a vicar, and she could only afford to give up work and feed the children because of tax credits. She got in touch to say that if the Government push through the plan tomorrow to limit all benefits and tax credits to the first two children in any family, she would not be able to adopt those children in future, and they would stay in care at a cost of £40,000 per child per year. I asked the Minister how that policy passed the family test. He would not tell me. Will she?

[Baroness Altmann]

My Lords, as I said, the family test is not a tick-box exercise. Policy is always about trade-offs, but the family test ensures that family impacts are explicitly considered when making those trade-offs.

Disabled People: Independent Living

Debate between Baroness Sherlock and Baroness Altmann

Tuesday 17th November 2015 Lords Chamber

[Baroness Altmann]

My Lords, the Government believe that local authorities are best placed to decide what intervention and support disabled people require. I should add that all Independent Living Fund users had one-to-one visits, and reports were sent to local authorities before the scheme was closed.

[Baroness Sherlock (Lab)]

My Lords, I can see that the Minister has a brief that requires her to tell us how committed the Government are, but I wonder whether she can listen to some of the stories she has heard today. From the comments made by the noble Baronesses, Lady Campbell, Lady Hollins and Lady Brinton, and from the two reports that have been mentioned, it is quite clear that there is very serious disquiet that people who used to get help from the ILF are not now getting it. Therefore, I ask her again: what plans do the Government have specifically to ensure that disabled people are able to get the care that they used to get and can expect to get in the future?

[Baroness Altmann]

My Lords, as I have said, we are monitoring the impact of the Independent Living Fund: 94% of users were already receiving local authority support. Local authorities have an obligation under the Care Act to meet the minimum standards required for all those who need care and support, including taking account of their requirement to live independently. I assure the House that the Government are committed to supporting those who need care and support. As I said, the spending will be higher each year between now and 2020 than it was in 2010. This will rely on local authorities carrying out their duties, which we will monitor.

Employment

Debate between Baroness Sherlock and Baroness Altmann

Wednesday 4th November 2015 Lords Chamber

[Baroness Altmann]

My Lords, we understand that the position in Redcar is terribly distressing for all the families involved, and the Government are already addressing this issue. There are measures already in place to help the workers affected to retrain. The Government are committed to full employment, and there are record numbers of people in work. We have had tremendous success in helping people back into work and we will continue to do that for Redcar and around the country

[Baroness Sherlock (Lab)]

My Lords, the Minister did not mention that over a third of the new jobs created between 2010 and 2014 were people becoming self-employed, and that those jobs tend to be less secure and lower paid. Will the Minister therefore confirm that self-employed people will not benefit from what the Government call the new living wage—the higher minimum rate for the over-25s—and yet will still lose through the changes to tax credits? What are the Government doing to compensate them?

[Baroness Altmann]

My Lords, self-employment is a very important route into work for many people, particularly many women, and we have set up, under Julie Dean, an independent review of any barriers to self-employment that may exist. We will also continue to work with the noble Baroness, Lady Mone, in supporting start-ups for disadvantaged communities.

Disabled People: Access to Work Fund

Debate between Baroness Sherlock and Baroness Altmann

Monday 29th June 2015 Lords Chamber

[Baroness Altmann]

We will carefully monitor all our programmes. Access to Work is one of the many programmes that we have introduced and are planning to roll out to protect the disabled and help them to work if they want to, as many do. Last year, we ensured that nearly a quarter of a million more disabled people had work. That is a tremendous success, and our programmes are working.

[Baroness Sherlock (Lab)]

My Lords, it has been rolled out. It is already out there, and the Government are limiting the budget. Will the Minister follow up on the questions asked by the noble Lord, Lord Low, and the right reverend Prelate? Of the 200 people affected, 90% are deaf. They will not be protected in the long run; they will lose the money to pay for their interpreters. Advice is helpful. Interpreters are essential. How will the Government protect them?

[Baroness Altmann]

We are introducing a range of programmes. Access to Work was never designed to be an unlimited-cost programme. We will ensure that all those who are potentially affected by the cap will have more flexible support to help them as they require it.

Family and Relationship Support

Debate between Baroness Sherlock and Baroness Altmann

Monday 22nd June 2015 Lords Chamber

[Baroness Altmann]

I can confirm for the noble Lord that the commitment to £7.5 million per annum is a firm one, and we will be spending at least that amount. The total government-wide spending for family, parenting and relationship support is approximately £6.5 billion, with a number of different programmes, including the troubled families programme, help and support for separated families, the innovation fund and, of course, childcare support. In our manifesto we have guaranteed funding for relationship provisions every year over the Parliament. We were the only party to do so.

[Baroness Sherlock (Lab)]

My Lords, I welcome the Minister to what I think is her first Oral Question and I look forward to debating with her on DWP matters. The Minister mentioned the family test, which the Prime Minister announced in 2014 and that was going to be five questions that all policy or legislation across government would have to be subjected to by civil servants before Ministers would sign them off. Today’s papers are full of reports that, according to the Prime Minister, tax credits for children will bear the brunt of the £12 billion welfare cuts. Could she tell the House whether that policy has been subject to the family test and, if so, what the result was?

[Baroness Altmann]

Clearly there is speculation in the papers about all sorts of things. I certainly cannot comment on that particular issue, but I repeat my assurance that all polices are subject to the strict family test.