Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Committee stage
Monday 26th January 2026 Grand Committee

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank all noble Lords who have contributed to this debate. As we know, this group addresses the use of scale, as measured by assets under management or monetary value, as a determinant of scheme quality.

The noble Lord, Lord Fuller, gave the example of the Orkney trust. I ask myself: what is the reason? Is it size? Personally, I think it is the calibre of the single malt whisky. Then we go to the other end of the country, to Guernsey. Is it because trusts are at the extremes of the country that causes the good benefits, or is it something else? You can always look for a reason: it could be size, location or anything else—or, indeed, the quality of the whisky.

We accept that scale can bring efficiencies, but there is a strong question over whether size alone is a reliable proxy for value. Amendments 91 and 95 recognise that some master trusts and group personal pension schemes deliver strong investment performance despite being below prescribed thresholds. Amendment 98 similarly acknowledges that innovation and specialism do not always depend on scale, location or whatever else.

We are also concerned about the rigidity of fixed monetary thresholds in the Bill. Amendments 99, 101, 106 and 108 in the name of the noble Baroness, Lady Altmann, are concerned about the rigidity of fixed monetary thresholds in the Bill. These amendments probe whether the figures chosen are evidence-based and future-proofed, or whether they risk being outdated—that is the point—as the market evolves. It is not cast in stone, and we should not try to see it as such.

Amendments 101, 104 and 108 in the names of the noble Baroness, Lady Altmann, and others, raise an additional concern: the risk of mandating common investment strategies. Diversity of approach is a strength of a pension system. Forcing schemes into uniform strategies risks herding behaviour and systemic vulnerability. My question to the Minister is this: is the Government’s objective genuinely better member outcomes—which I believe we all want—or prioritising administrative simplicity at the expense of innovation, competition and resilience? All the amendments in this group tackle this problem, and those in the name of the noble Baroness, Lady Altmann, particularly stress that. I hope we will continue to push these through to the next stage of the debate on this Bill.

[Baroness Stedman-Scott (Con)]

My Lords, today’s groups build directly on the issues explored in last Thursday’s debate. That discussion was both stimulating and constructive, and the contributions made, particularly on mandation, highlight the value of the scrutiny that this Bill continues to receive in Grand Committee. On this group, in the interests of brevity—I am sure that will please the whole Committee—I shall keep my remarks focused on the amendments in my name and that of my noble friend Lord Younger of Leckie. A number of significant and related issues have been raised by other noble Lords, and we will wish to return to these later today. We will listen carefully to the Minister’s response to the points made on this group.

Amendment 98 would introduce a clear and proportionate innovation exemption for relevant master trusts under Clause 40, so that schemes delivering genuinely specialist or innovative services are not automatically required to meet the scale threshold simply because of their size. We have been challenged today not to be obsessed with size. We recognise the policy aim of improving outcomes through scale. However, as I said, size is not always a reliable proxy for quality or value: there are master trusts that are smaller by design yet deliver strong member outcomes through innovation, whether in investment approach, governance or engagement with particular workforces. As the Bill is currently drafted, such schemes risk being forced to consolidate or exit, not because they are failing members but because they do not meet a blunt asset size test.

Amendment 98 provides a sensible alternative route, recognising that innovation and specialisation can also deliver high-quality outcomes. This amendment simply ensures that size alone is not determinative. I hope the Minister will see this as a constructive amendment that supports innovation and choice while remaining fully aligned with the Bill’s objective of improving outcomes for savers.

Amendment 102 is, again, a probing amendment. Clause 40 gives the Secretary of State the power to determine by regulations the method for calculating a master trust’s total assets for the purposes of this provision. That is a potentially significant power, because the way that total assets are defined and measured will determine which schemes fall within scope and which may benefit from exemptions.

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[Lord Palmer of Childs Hill (LD)]

My Lords, I congratulate the noble Baroness, Lady Altmann, on having a group of nine amendments all on her own. We normally share groups rather than have them all on our own. This group considers how scale requirements interact with default pension arrangements where most savers remain invested. I have listened to the debate and, having spent a large part of my career in accountancy and advising clients, I know that the trouble is that the majority of clients are not expert enough to know what they should do with their pension. They seek advice from various organisations on what they should do. We should make sure that the quality of the advice they get suits their position in life. As other noble Lords have said, we are concerned about the overly rigid scale test, which could unintentionally narrow choice within defaults and push schemes towards one-size-fits-all designs.

Amendment 97 highlights the importance of allowing defaults that reflect members’ differing ages, health conditions, retirement plans and risk profiles. Amendments 97A to 101B probe—this is the point—whether the authority can take account of the combined value of assets across multiple default arrangements, rather than assessing each in isolation. Without this flexibility, schemes that offer well-designed cohort-based defaults could be penalised simply for tailoring provision.

Amendments 168A and 170A reinforce this point, seeking to ensure that schemes are not excluded from the market for moving beyond crude uniform defaults. Our concern is that defaults should be designed around member needs, not regulatory convenience. I hope the Minister will explain how the Bill avoids pushing schemes towards uniformity at the expense of suitability and long-term outcomes.

I hope the Minister does not regard the series of amendments in this group as combative. They are meant to try to help pensioners or future pensioners. It is wrong if the Government look for a simple process but do not look at the benefit for the people concerned. I think it was the noble Lord, Lord Fuller, who talked about what happens in gilts and the like. I come from a period in the chartered accountant profession when you always went into gilts in what you thought were the last few years of your working life. Now, things have changed. We have to look at what you do and when you do it, and those things depend on the people involved.

I hope the Minister will see that these amendments are trying to say that things should not be too prescriptive. They are not against what the Government are trying to do, which is look after people. But are doing it on a one-size-fits-all basis, which does not work in the real world that we are in. I hope the Government go back and think about this a little more so that, when we come to Report, we can be a little more innovative.

[Baroness Stedman-Scott (Con)]

My Lords, I wish to speak briefly in support of this group of amendments in the name of my noble friend Lady Altmann. She has once again demonstrated her expertise and the value that she brings to our scrutiny of these important issues. Most importantly, she explained the spirit in which these amendments were tabled.

Throughout our proceedings on this Bill, a consistent theme across the Committee has been the need for proportionality in the steps we are taking on scale and value for money, and for definitions that are sufficiently comprehensive to reflect how the market actually operates in practice. I do not intend to repeat the points already made by the noble Baroness or ask the questions she has posed, but we will listen carefully to the Minister’s response on these issues.

Clause 40, as drafted, risks applying the scale test in an overly narrow and mechanical way by requiring the regulator to assess each default arrangement in isolation without regard to the wider context in which it is offered. That approach is not necessarily proportionate; nor does it reflect the economic reality of how master trust providers operate. This amendment would allow the regulator to take into account the combined assets of several non-scale default arrangements offered by the same provider. In doing so, it would not dilute the principle of scale; rather, it would ensure that scale is assessed in a comprehensive and realistic way, focusing on the resilience, governance and efficiency of the provider as a whole.

That matters because, without this flexibility, we risk forcing consolidation for its own sake and potentially requiring well-run, well-performing defaults to be wound up simply because they fall on the wrong side of an arbitrary threshold—even where the provider clearly operates at scale overall. This amendment therefore speaks directly to the principles that we have already raised in Committee: that regulations should be outcome-focused rather than box-ticking, and that they should avoid unintended consequences that could undermine member confidence rather than enhancing it. For those reasons, I believe this is a sensible and proportionate refinement of Clause 40, and I hope the Minister will give it serious consideration.

[Baroness Sherlock (Lab)]

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

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

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

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

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

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[Lord Sharkey (LD)]

My Lords, I will speak briefly under the auspices of Amendments 146 and 147 when we resume some of the discussions the Minister promised last week to continue, notably on mandation and statutory guidance. In our debate last week, I tried to establish the evidence base for the Minister’s assertion that

“the Government would not be proposing these powers”—

mandation—

“if there were not strong evidence that savers’ interests lie in greater investment diversification than we see today in the market”.—[Official Report, 22/1/26; col. GC 218.]

The key words here are “strong” and “evidence”. There are certainly those whose opinions would align with the Minister’s assertion, but opinion is not the same as evidence and not nearly the same as strong evidence.

As I said last week, the DWP recently commissioned the Government Actuary’s Department to model four variations of pension scheme strategies. I will not list them again, but the study concluded that across a range of economic scenarios the model portfolios deliver very similar projected pension pot sizes. But it also showed that if the current underperformance of the UK versus global equities persists, UK-heavy allocations will underperform the baseline. The Government Actuary’s Department said in a post on GOV.UK on 15 November 2024:

“Our analysis showed that a greater level of exposure to private markets may deliver slightly improved outcomes to members. However, there is considerable uncertainty, particularly with the assumptions for projected future investment returns”.


That does not sound like strong evidence for anything.

The Institute and Faculty of Actuaries makes the same point. It says that, based on the Government’s own impact assessment, “We do not think there is strong, clear evidence that in most foreseeable scenarios savers’ interests lie in greater investment in private markets and infrastructure”. It believes that there exists a very uncertain central estimate of an extra two percentage points over 30 years, equivalent to 0.066% a year compounded. It goes on to say: “Given the inherent uncertainty in such estimates, this is almost negligible and could easily turn out to be negative over the next 30 years or indeed much higher”. The IFoA goes on to say: “The point is that it is far from clear that there would be a material benefit”. That does not sound like strong evidence commendation either, yet this is the basis on which the Government seek to mandate investment, which raises as a consequence significant concerns about the operation of fiduciary duty.

The proposals in this Bill, for there is a power to mandate investment, cause uncertainty about trustees’ duties to their members. That uncertainty is understandable, especially because the case for mandation is weakly evidenced, if evidenced at all. The uncertainty is also unnecessary in many ways because of the existence of the Mansion House Accord for which, as others have said, 17 leading pension providers have already signed up. How will the anticipated statutory guidance, for example, contribute to the model of co-operation embedded in the Mansion House Accord? Is it no more than a useful threat? What role will the statutory guidance play in modifying the application of fiduciary duty? In fact, can the Minister confirm that the promised statutory guidance will have something to say about the possible clashes between mandated action and fiduciary duty, if only to confirm the primacy of fiduciary duty?

Minister Bell responded on 22 January to a Written Question from my honourable friend the Member for Stratford-upon-Avon about the scope of the coverage of the upcoming guidance on fiduciary duties. His reply did not refer to the mandation powers at all. Will the Minister confirm that the guidance will be non-binding and have the same have force as many other “have regards” that exist in the financial services sector? If the guidance has, or could plausibly be read as having, detectable, real-world influence, it should come before Parliament for scrutiny, and it should come before us when we can recommend changes.

Minister Bell’s Written Answer, as I mentioned a moment ago, says of the guidance that:

“Work will commence shortly beginning with an industry roundtable to gather views and technical expertise to ensure the guidance meets the identified need”.


I suppress my astonishment at this rather late start for thinking about statutory guidance. I notice that, in the reply, there was no mention of Parliament and the role it might play or of timescale in all this, except we now know that it has either just started or is about to start. In other words, as things stand, the likelihood of effective parliamentary scrutiny of anything to do with statutory guidance is unlikely. This is entirely unsatisfactory for the reasons that the noble Lord, Lord Ashcombe, has argued so forcefully.

There is no compelling evidence that mandation will work. If the Mansion House Accord is to be taken seriously and the Government play their part, mandation will be unnecessary. Mandation would interfere with or complicate the principal of fiduciary duty. It is also opposed by major stakeholders including, as I mentioned previously, the Governor of the Bank of England.

The Institute and Faculty of Actuaries ends its latest assessment of the situation by saying that trustees should not be leaned on to invest in ways that conflict with their own best judgment. Instead, those investments and markets that the Government wish to promote should continue to be made more attractive through initiatives such as LTAFs and so on. The pension schemes will freely choose to follow in a way that is right for them and their members. We agree with that and will continue to try to convince the Government that the reserve power is not necessary or desirable—activated or not—and that there is no sound basis for using it.

[Baroness Stedman-Scott (Con)]

My Lords, I will speak briefly on the other amendments in this group before turning to Amendment 145 in my name and that of my noble friend Lord Younger of Leckie. As noble Lords have already set out, Clause 40 represents a significant extension of regulatory influence over asset allocation in defined contribution default arrangements. Given the scale of that change, it is both reasonable and necessary that we consider carefully how risk, responsibility and accountability are apportioned within the framework the Bill creates.

The amendments in the name of my noble friend Lady McIntosh of Pickering, and the noble Baronesses, Lady Bowles of Berkhamsted and Lady Altmann, seek to introduce greater certainty and procedural fairness into the operation of the savers’ interest test. Removing an automatic time limit on exemptions, ensuring that schemes are not compelled to alter asset allocations while determinations or appeals are ongoing and requiring the authority to give reasons for its decisions are all, in my submission, entirely sensible propositions. They make the framework that the Bill creates more robust, transparent and defensible.

In a similar vein, allowing schemes to apply for the savers’ interest test over a limited number of consecutive years, while demonstrating a credible pathway to compliance, reflects a realistic understanding of how long-term investment strategies are developed and implemented. It recognises that good outcomes for savers are not always delivered by abrupt or mechanically imposed changes.

Several of the amendments in this group speak directly to the core point of fiduciary responsibility, which, as was powerfully reinforced during our debate on the final group last Thursday, is an absolutely central point to the approach being adopted by noble Lords across the Committee. The amendments reinforcing fiduciary duty and proposing a safe harbour for trustees acting in good faith on professional advice and in accordance with their duties are an attempt to clarify that nothing in this Bill should place trustees in an impossible position, caught between regulatory direction on the one hand and their fundamental obligation to act in the best financial interests of members on the other.

Related to this, the probing amendment from the noble Lords, Lord Vaux of Harrowden and Lord Palmer of Childs Hill, asks an important and unresolved question: where investment decisions are mandated by the state, in effect, where does liability sit if those investments underperform? Even if the Government do not accept the mechanism proposed, the question itself cannot simply be wished away; I hope that the Minister will address it directly.

I also wish to touch on the amendments that deal with systemic risk, structural neutrality and herding behaviour. Requiring trustees to have regard to long-term systemic risks, including economic resilience and climate change, is entirely consistent with existing best practice and does not mandate investment in any particular asset or vehicle. Ensuring that listed investment funds are not structurally disadvantaged helps preserve choice and diversification. The amendment on regulatory herding speaks to a well-understood risk: overly prescriptive frameworks can drive homogeneity of behaviour, amplifying systemic risk rather than mitigating it.

I hope, therefore, that the Minister will engage seriously with the questions these amendments ask around process, liability, fiduciary duty and risk. Even where the Government may not be minded to accept the amendments, as drafted, they highlight issues that, given the provisions in the Bill, deserve clear and careful answers.

As has been our consistent approach throughout these days in Committee, my own amendment seeks to probe the Government on a key question: why have they provided for a maximum civil penalty of £100,000 for failure to comply with the mandation requirements set out in this chapter? Given the nature of those requirements and the breadth of discretion that they confer on the authority, it is not at all clear in the Bill how the Government have arrived at that figure or why it is considered proportionate. We are dealing here with decisions around long-term asset allocation in pension default arrangements—areas where reasonable, professional judgment may legitimately differ and where the consequences of regulatory direction may not be apparent for many years. In that context, a six-figure penalty is not a trivial matter.

This amendment is designed to invite the Government to explain the rationale for the level of the penalty; how it is expected to be applied in practice; and whether sufficient regard has been had to scheme size, intent and the nature of any alleged breach. I hope that the Minister can set out clearly why £100,000 is the appropriate ceiling; how proportionality will be ensured; and what safeguards will exist to prevent penalties being applied in a blunt or mechanistic way.

[Lord Katz (Lab)]

We have to have a hard stop at 8 pm, I am afraid, so I move that the Committee do now adjourn.