Pension Schemes Bill

Lord Willetts Excerpts

Committee stage
Monday 19th January 2026 Grand Committee

[Baroness Noakes (Con)]

My Lords, I understand the motivation behind the amendments in this group, which call, in one way or another, for inflation protection, in particular for pre-1997 pensions that do not benefit from indexation to have a first call on pension scheme surpluses. I do not, however, support these amendments.

When compulsory indexation was first introduced by statute, it was applied only to pension rights which accrued after April 1997. That was a deliberate policy choice by government at the time. Although the cap and the index have been tinkered with over time, the basic policy choice has remained intact. The 1997 change was itself quite costly for those employers that had not previously included indexation or inflation protection in their pension offer to employees, which was quite common at the time. I am sure that the Government at the time were aware that imposing indexation on all accrued pension rights would have been very expensive for employers and would very likely have accelerated the closure of DB schemes.

The period after 1997 saw the evaporation of the kind of surpluses that used to exist, which, incidentally, vindicated the 1997 decision to exclude the pre-1997 accrued rights, because if they had been included, that would almost certainly have accelerated the emergence of deficits, which led in turn to employers considering how they could cap their liabilities by closing schemes entirely or future accrual. As we know, the period of deficits lasted until the past couple of years; they lasted a very long time.

Alongside this period of deficits emerging, there was a mutual interest among trustees and employers to de-risk pension schemes. That is why they shifted most of the assets into things such as gilts, which, in turn, increased the sensitivity of the defined benefit schemes to gilt yields, as we saw in the LDI crisis, and resulted, when interest rates started to rise again, in the surpluses starting to emerge. It was not the only cause but a very significant cause of the surpluses that we now see. We now have schemes in surplus: DWP figures suggest £160 billion—that figure will probably change daily as interest rates change—but that was only after significant employer support throughout the 1990s and the noughties was required, when significant deficit recovery plans had to be signed up to by employers to keep their defined benefit schemes afloat.

The amendments in this group seem to be predicated on the thought that these surpluses are now available for member benefits, as though employers had nothing whatever to do with funding their emergence. Because DB pension schemes are built on the foundation of the interests of members, it is obvious that the surplus will have to be shared between the two—that was partly covered in the previous debate—but the one thing we must always remember is that they have emerged largely from the huge amount of funding that has had to be put in since 1997 to keep the schemes afloat. That the surpluses have emerged does not mean that they are available for whatever good thing people want to spend them on. I certainly do not think it is right to use surpluses to rewrite history to create rights that deliberately were not created in 1997, for the very good reasons that existed at the time. For that reason, I do not support these amendments.

[Lord Willetts (Con)]

My Lords, I want briefly to enter this discussion to identify another group not captured in the neat divide of employers and scheme members. When there is £160 billion knocking around, people tend to work out elegant arguments for why some group or another has a claim on that money. I understand the arguments for the pre-1997 claims, but I have to say that what my noble friend Lady Noakes just said is a very accurate account of the history and the thinking at the time. There is indeed an argument that, looking back, there was a fundamental change in the character of the defined benefit pension promise with that legislation then, which probably ended up as the reason for their closure. A with-profits policy became one where you had a set of rights, which were more ambitious and have proved in many cases too onerous for employers.

--- Later in debate ---

[Baroness Altmann (Non-Afl)]

May I ask my noble friend a couple of questions? I totally accept the rationale for the change happening only post-1997, but does he accept that because we now have surpluses and there is this gap, a one-off payment would be a potential way of recognising the problem faced by the pensioners without changing the long-term funding position of the scheme?

[Lord Willetts (Con)]

I am not against such payments. As I say, I think this is highly discretionary—there would be a negotiation. I absolutely understand that argument, and we have all received letters from the people suffering financial distress in some circumstances because of not having pre-1997 inflation protection. But I just want to bring in another consideration and try to find out where it would fit in when the employers or the trustees are reaching a decision.

The Government have a policy, or rather we now have on a cross-party basis, a successful policy of auto-enrolment. The levels of pension contribution to the next generation, who are not in these schemes, are way lower than the pension contributions that have generated these large surpluses. It would be great if we could see increasing contributions. Where might a decision fall if an employer says, “We have now turned our scheme into surplus because of the work of the company, and one thing we could do with the money is to put some enhanced contribution into the auto-enrolment pensions of the next range of employees, whose pension rights at the moment will be far lower than those of the people covered in this debate”?

[Baroness Bowles of Berkhamsted (LD)]

I am quite pleased to follow the noble Lord, Lord Willetts, because I feel that we are fishing slightly in the same pond. I added my name to the amendment proposed by the noble Baroness, Lady Altmann, and I support doing something for the pre-1997 people. When you look at something as long-term as pensions and you have different cohorts coming in, moving along and coming out, you have to somehow get into cohort fairness. You will always have the circumstance that people have paid into something and then they get something out when there is something else in the pot. We will come to this even more so when we start to deal with private assets, so I shall not go on at length here, because I will go on at length there. I am in the same camp as the noble Lord, Lord Willetts, in thinking that you do not say that it is clean cut and these people are in and those people are out—you have to look at fairness more broadly across the piece.

Schools and Universities: Language Learning

Lord Willetts Excerpts

Thursday 8th January 2026 Lords Chamber

[Lord Willetts (Con)]

My Lords, I am very impressed by these attempts to maintain order in the classroom, and I will try to stay under five minutes.

I congratulate the noble Baroness, Lady Coussins, on bringing this debate to the House, and like the noble Lord, Lord Hannay, am delighted that the Government are rejoining Erasmus+. We should, however, confront the fact that when it comes to Erasmus, the Brexiteers have a point. Erasmus was designed and assumed to be an exchange programme in which there would be roughly balancing flows of students between different countries, justifying the fact that they had taxpayer-financed education whichever country they went to. However, in reality, there were very large inflows of students into the UK through Erasmus, but, sadly, modest outflows of students, so Erasmus was a cost for the UK. Can the Minister therefore explain to the House whether the Government are doing anything in this new agreement to ensure a better balance of flows in and out of the UK? Does she agree that it is particularly important that we do more to get British students, of whatever age, studying and working in placements and internships abroad? That is the best way of solving this problem. For that, the programme needs to be properly managed. Sadly, one of the other difficulties we had with the Turing scheme was the uncertainty and failures in competent management. The sooner we can say that the British Council will have a leading role in delivering these programmes, in both directions, the greater the chance we have of something that is successful.

I declare an interest as I serve on the board of the Centre for British Studies at Humboldt University in Berlin—perhaps one of the remaining uses of my rusty A-level German. At Humboldt University, we try to send students on a combined programme of study and work placements in the UK. Since Brexit, that has been a lot harder. I very much hope that, now we are rejoining Erasmus+, that will be more feasible again. However, the students in Berlin are not simply German nationals; they come from elsewhere. Will this arrangement cover German universities regardless of where the students come from, or will the arrangement be restricted to the subset of students at the Centre for British Studies who are German or other EU citizens? It would be very helpful to hear from the Minister on that. I hope she may agree that if specific issues like this arise, I can write to her and take her through the issues and problems that we face.

I want to end on one wider point. We have heard some bold claims about the study and teaching of modern languages being fun. I hope that that is the case; it is a great argument to deploy. However, I personally find that an argument that is particularly persuasive with Ministers used to hard-headed assessments of economic benefits and returns to the UK, and who often focus very much, therefore, on STEM subjects as those with the greatest utility and practical value, is that when they or the media sit around considering a crisis anywhere in the world, we assume in the UK that we have a window on the world. We always assume that we have an expert who speaks the language, that we have a historian who knows the background to whatever crisis or political problem. We assume that our security agencies have the capacity to track what is going on—but, as we know, in order to pass security vetting, people need to have had a family history of living in the UK, which enables their security to be established. It is that window on the world that depends, ultimately, on British people studying a wide range of foreign languages. If we lose that, our capacity to engage in the world—including the most practical forms necessary for our own national security—is eroded. I hope, then, that during this debate, we develop a long list of arguments for modern languages, and that alongside the fun, alongside the culture and alongside the economic benefits, we will not forget the practical security angle as well.

Pension Schemes Bill

Lord Willetts Excerpts

2nd reading
Thursday 18th December 2025 Lords Chamber

[Lord Willetts (Con)]

My Lords, I welcome many features and proposals in this substantial and significant Bill. It does, of course, draw on the work of the previous Government, and indeed continues progress on pensions that has long been conducted on a cross-party basis. I think back to my time as shadow Work and Pensions Secretary 20 years ago, when I worked with the then Pensions Minister James Purnell as he investigated auto-enrolment; I then served in the coalition Cabinet with Sir Steve Webb implementing these proposals. I remember also many years of debating with my noble friend Lady Altmann, and I agree with a lot of what she has just said. I look forward to the maiden contribution from the noble Baroness, Lady White, and I rather suspect that during her time in the No. 10 Policy Unit she may have also been engaged in some of these debates.

The Bill comes before the proposals from the re-established Pensions Commission, and I hope that it will have the flexibility to make it possible to implement ideas that emerge from the Pensions Commission. There is a still a crucial question hanging over the original Pensions Commission work, and it is great to see the noble Baroness, Lady Drake, in her place. She knows that I agonise over whether there was a scenario where defined benefit pension schemes could have been saved 20 years ago. They had become very onerous, and over decades successive Governments had added to the regulations to make the defined benefit promise more and more generous and more and more cast iron. Eventually, they had become so onerous that companies closed them to new members, so what had always been intended as an intergenerational contract was made so generous that it became a once-off special offer for the members of those schemes when they closed. It is possible that a significant reduction in the burdens on employers might have enabled some version of those schemes to survive. That is relevant to today’s debate on measures such as collective DC, which is an attempt to recreate some of those strengths. We went instead to pure DC, and younger employees have not been able to enjoy anything like the pension promise of older members of company schemes.

We did some work on this at the Resolution Foundation back in 2023. I cannot remember what has happened to the chief executive at the time, but perhaps I can quote some figures from our intergenerational audit in 2023. We estimated that millennials born in the early 1980s will reach the age of 60 with, on average, £45,000 less in pension assets than boomers born 20 years earlier. That is the challenge of boosting the pensions savings of the younger generation, which I hope is the cross-party basis for this legislation.

A particularly acute example of how this generational unfairness can work is that some of those defined benefit schemes closed to new members were in deficit. The company plugged the deficit gap by using revenues generated by all of its workers, including the younger workers, which it put into the defined benefit scheme available only to some of the workers. We now have some very interesting examples of what happens when these schemes find themselves now, thank heavens, in surplus. The recent Stagecoach deal is a very interesting example; it has been widely welcomed in the media, and in many ways it is good news. However, the Stagecoach pensions scheme closed to new members in 2017. After that, the younger workers had no opportunity to join it. There will now be a distribution of the surplus. I hope the Minister might comment on the feasibility of some of the uses for that surplus, which are not in the current provisions. We heard from my noble friend Lady Stedman-Scott about the importance of pension adequacy. Would it be acceptable for one use of the surplus to be to pay increased auto-enrolled employer contributions into the pension schemes of employees of Stagecoach who joined post 2017 and were therefore not in the earlier scheme? Some of their work will have generated the revenues that created the surplus. Would helping them through the successful auto-enrolment model not be one way forward? Another use, which is being talked about, is funding a collective DC pension arrangement to help get those schemes going. I very much hope we will move beyond the single CDC we have at the moment with Royal Mail. Pensions UK has an interesting proposal for some tax waivers for extra contributions going into CDC, especially out of pension surpluses. Again, I hope the Minister might be able to give that a welcome.

The closure of DB schemes and the creation of pure DC was the background to some of the big shifts we have been talking about. There has been a massive shift from equities into bonds and away from UK assets into assets held abroad. We are talking about this as if it is just rational capitalism working and trustees exercising their discretion, but I have a lot of sympathy with the points that my noble friend Lady Altmann made, because the British model is a very unusual model. I believe it is largely to be explained, not by some higher economic rationality, but by the strange features of the closure of DB and moving to pure DC. It means that the percentage invested in UK equity fell from 50% 20 years ago to 5% now. That makes us a complete outlier across the OECD for the willingness of our pension funds to invest in UK assets.

This is not what the pension fund members and contributors expect. As we know from recent polling published by the London Stock Exchange, when you do a survey of 1,000 current members of workplace pension schemes and ask them how much of their pension contributions they think are going into British business, their estimate is 41%—nearly 10 times larger than what is actually happening. If you ask them whether they think their pension scheme should invest more in British industry, even if this would involve some sacrifice in their future pensions, 61% say yes.

Most funded pension schemes in other advanced western countries are much more deeply rooted in their own national economy and realise that part of what they are trying to do is create the environment in which their national pensioners thrive in a healthy economy in a generation’s time. It is absolutely right to have this debate now in Britain and, for me, having been involved—and still being involved, in different ways—in the science base and research, it is deeply frustrating that we have one of the world’s great research bases and one of its great financial centres but we have totally failed to link the research base with the commercial investors in the City. That needs to change.

Successive Chancellors have been trying to do this, and of course we have had the Mansion House compact and now have the Mansion House Accord. There is now a fraught debate about mandation, and I realise all the delicacies about it. I personally think that the recent proposal from the London Stock Exchange is a very interesting way forward: not specifying the asset allocation by type of asset but saying that, whatever asset allocation has been decided upon, 25% should go into UK assets—absolutely not with full mandation but expecting this as a provision for UK DC default funds. So I hope the Minister will say that the Government are considering this proposal from the London Stock Exchange, now backed by 250 founders and chief executives of UK companies. I hope she will assure the House that, if that proposal were to go forward, this Bill would provide the necessary legislative framework, which I am assured is not an ambitious set of changes. There are things that can be done to secure a far greater understanding of the value of investing in British industry and other British assets than we have seen over the last few years.

I will briefly raise one other issue involving the other Pensions Commission: the investigation of pension age. I hope the Minister may be able to say something about this, because the clock is ticking. There was a half-hearted partial announcement of the decision that the pension age should go up further under the previous Government, which has not been followed up. My view is that that debate has got totally trapped in a preoccupation with life expectancy and using projected life expectancy as the only metric—what I call RIP minus X—or formula that has to be used. What pension age you set is not simply a mechanical calculation around life expectancy but an important fiscal decision. As in all other decisions, there are other factors, including long-term public expenditure costs and the likely income of pensioners from other sources.

I hope therefore that we will not find that we look back on this debate and ask why we missed another opportunity to prepare the ground and properly consider whether, given the fiscal constraints that any Government face, we should also be considering increases in the pension age.

Post-16 Education and Skills Strategy

Lord Willetts Excerpts

Wednesday 22nd October 2025 Lords Chamber

[Baroness Smith of Malvern (Lab)]

There will be opportunities through V-levels for those interested in vocational routes into the creative industries. There will be opportunities through some of the sector skills packages—not least, for example, in the area of digital—to support the creative industries. There is, of course, a sector skills plan as part of the creative industries element of the Government’s industrial strategy.

[Lord Willetts (Con)]

My Lords, I particularly welcome the increase in fees for students, as that sets the resources available for the education of students without affecting the monthly repayments that graduates subsequently make. However, the international student levy will take away quite a bit of that resource, so does the Minister agree that the real resource available for educating students overall will continue to fall? Does she accept that that cannot carry on indefinitely?

I also welcome the recognition in the White Paper that there is no viable alternative to the fees and loans system that we have now had for over 20 years. But is the Minister concerned that there are still misunderstandings and misplaced anxieties that it is somehow a fixed amount of debt like a credit card debt or stops you getting a mortgage? If anything, those concerns appear to be increasing. Will the DfE energetically commit to explaining to young people the realities of how the system works?

[Baroness Smith of Malvern (Lab)]

On the noble Lord’s first point, no, I do not accept that an index-linked increase in tuition fees—a certainty of funding that no other public or private sector organisations, or very few, could have committed to them—will leave universities worse off. That is notwithstanding this Government’s decision that in order to reinstate the maintenance grants removed by the last Government we will use a levy on international students to reintroduce targeted maintenance grants for students. Of course, asking students to invest in their education is right, alongside government investment, but we need to make sure that that world-leading higher education system is open to all who can benefit from it and that we close the gap in access, which has persisted for too long.

Workers (Economic Affairs Committee Report)

Lord Willetts Excerpts

Thursday 8th February 2024 Lords Chamber

[Lord Willetts (Con)]

My Lords, I congratulate my noble friend Lord Bridges on an excellent opening to this debate and all members of the committee on a really topical and important review—made even more topical by Monday’s ONS announcements, revealing how little we understand what is happening to the labour market and making his call for better data particularly important. I would like to draw on my position as president of the Resolution Foundation to make four practical proposals as to how we might tackle this problem by intervening at different ages of the life cycle.

First, among young people aged 18 to 24, we seem to have an increasing problem of inactivity, particularly due to ill health, which has doubled, and within that mental ill-health. There is clearly a complex link with low skills because, by and large, more educated young people, even if they report mental health problems, appear to be more likely to remain in work and in the workforce, so low skills and inactivity are linked to ill health, particularly mental ill-health. It is very tricky to challenge this, but I am increasingly concerned by the Government’s proposal to defund 200,000 BTECs—the 200,000 young people studying BTECs, a vocational qualification introduced back in the 1980s—in the expectation that they will instead do T-levels, which are currently taken up by 5,000 people and are a far more academic qualification. There is a real risk that the defunding of BTECs over the next two years will contribute to a rise in inactivity and worklessness among young people, as they find that there is no suitable educational altercation which justifies their remaining in study until the age of 18. I hope that the Minister will give us assurances that the effects of this phasing out of the funding of BTECs will not lead to an increase in worklessness.

Secondly, for women—it is preponderantly women—with children, especially less well-paid women working relatively small hours for low pay and unemployed mothers with young children, the Government have an excellent initiative to increase access to formal childcare. However, low-paid and less educated mothers are least likely to be accessing formal childcare; their childcare arrangements tend to be less formal and, therefore, they are least likely to be helped by the Government’s initiative, however welcome it is. There are two specific things that could be done to help them. First, they are very likely to be using childminders, but the regulations about childminding that is accessible and will be publicly funded are very strict, so a more liberal regime on funding childminding might help a group whom it would be particularly beneficial to get into the workforce. Secondly, although universal credit also helps with childcare costs, the processes are very bureaucratic. There is no specifically identified line of universal credit for your childcare and, if you increase your hours, there will be an unpredictable reduction in your total universal credit entitlement, even if you are using childcare to reduce your hours. Therefore, the free childcare option that the Government are currently pursuing is not sufficient to tackle inactivity among less-educated low-paid mothers with children.

Thirdly, on sickness and the links between sickness and inactivity, the committee draws attention to the fact that, sadly, being long-term sick seems to lead to people disengaging from the labour market. We on these Benches are always very wary of more labour market regulation—our labour market is already very heavily regulated—but, at the moment, when you cease receiving sick pay from your employer and go on to sickness benefit, you lose all rights to remain in contact with, and have the potential to return to, your employer. There is an argument for a right to return for the long-term sick, in order to keep them in touch with their employer. Such an initiative that is worth considering.

Fourthly, on older people, as the committee explains, the British model, with a higher rate of pension income from funded savings and less dependence on state benefits means that the benefit regime is less shaping behaviour—you keep on working until you get your benefit—and behaviour is more influenced by private pension savings. The Government already have some proposals in place for increasing the age at which you can access your private pension savings without tax penalty to 57. There is a strong case for raising that age further, so that if you wish to access your pension savings, you have to remain in work—you are not able to do so without a significant tax penalty—until you are even older than 57. I have always been rather a hardliner on raising the pension age. I personally think that the obvious way to help offset the enormous costs of the triple lock is to carry on raising the pension age as rapidly as possible. At least the proposal is to link the tax relief—the tax benefits—to pension age minus 10, but I think pension age minus 10 is too generous; we should have a more ambitious goal so that people are able to access their funded savings only at a later age.

Finally, I very much agree with the points in the committee’s report that, although there is frustration about what has happened to the stock of economically inactive people, we should focus in particular on the flow of people into economic activity; there is more we can do there and that should be the policy priority. Although it is rather a cliché at the end of every piece of policy research to say that more data is needed, on this occasion it really is very important. As my noble friend explained in his powerful opening contribution, the labour market statistics, particularly the Labour Force Survey, are now in a total mess. Nobody can make sense of what is happening, the ONS has confessed it cannot really understand it, and this is an area where more data and research are certainly needed.