Pension Schemes Bill

Lord Wolfson of Aspley Guise Excerpts

Report stage
Thursday 19th March 2026 Lords Chamber

[Lord Johnson of Lainston (Con)]

My Lords, I speak in this mini-debate in full support of this amendment. I am extremely concerned about the principle of government directing any form of investment. I do not think any Government have a strong record on making investments, and to compel pension funds to make such investments would be incredibly dangerous. As the noble Lord, Lord Vaux of Harrowden, has so wisely said, we are setting ourselves a very dangerous precedent here that we will all—as people who want to retire at some point—live to regret.

My second point is a technical one, which the noble Lord, Lord Vaux, touched on but is worth exploring slightly further: namely, the description of what a directed investment is. What is a UK investment—the sort of thing we would be told we have to invest in? Is it a company where the headquarters is domiciled in London, or that employs a certain number of people, or that does a certain thing in the UK specifically related to certain asset classes?

The reality is that you will have enormous problems if you try to force money into certain parts of the economy. You will get crowding out and excess price. An example could be to force these pension funds to invest in infrastructure. You would have a crowding out of other investments into infrastructure projects that would be mispriced, and that would create problems when it came to trying to generate returns. We should be very careful about that. Prescription over investment is one of the worst things a Government can possibly do, and I think we should acknowledge that in this House.

As has been mentioned, why are we talking about forcing people to buy things that other people do not wish to buy when we should be trying to create an economy that people want to invest in? I call upon the Minister to put that as the priority, rather than trying to force people to do things they do not wish to do, which will cause enormous problems in the long term.

[Lord Wolfson of Aspley Guise (Con)]

My Lords, I begin by declaring an interest as chief executive of NEXT plc, a company that has over 20,000 colleagues enrolled in an auto-enrolment pension.

I want to convey to the Government just how worried people are at the idea that the Government are planning to mandate how their pensions—their life savings—should be invested. To be told that a percentage, as yet to be determined, should be invested in certain classes of assets, as yet to be defined, by Ministers who can give no indication as to what they want to do with these powers is deeply worrying.

Good investments do not need to be mandatory. In fact, there is the inherent suspicion that investments which are compelled are unlikely to be very good investments. It is worse than that, because if the demand for certain asset classes is artificially increased then the returns are likely to fall further. Why pay a healthy return to an investor who has no choice but to invest in your class of asset?

It might be argued that while mandated investments are not so good for pensioners, they will be good for the nation as a whole. This is a dangerous precedent, and it is not credible, because the Government are not well placed to allocate capital in this way. They are subject to political pressures, the competing priorities of their Back Benches, the media and the polls.

I join other noble Lords in saying that the Government are not wrong to worry. The British pension funds show an alarming tendency to avoid investing in UK businesses, but there are better answers than this—reform the regulatory regime, make the UK a more attractive place to invest in. Compulsion is the worst possible solution, and it is that compulsion that goes to the heart of my concerns, and those of many others, about this power.

The greatest risk of this power is that the Government abuse it—that in the thick of some political storm, under pressure to boost the economy and to serve some interest group, they mandate large-scale misguided investment in some part of the economy as a last roll of the dice. I stress that I completely accept that this Government would not abuse the power. However, can the Minister be so sure that all future governments, perhaps led by their political opponents, will not abuse it?

Other noble Lords have rightly spoken about the breadth of these skeleton powers. They are not quite Henry VIII powers but, to me, they look very much like Robert Maxwell powers—the power to control and direct the investment of other people’s hard-earned savings for purposes other than their benefit. Back then, we said that never again would we put the savings of so many people in the hands of so few powerful people, or risk people’s life savings being invested for anything other than their benefit. This power takes us back in the wrong direction. It should not stand. I support the amendment tabled by the noble Baroness, Lady Bowles.

[Lord Fuller (Con)]

My Lords, those people who have done the right thing and saved for retirement have made a bargain with the state: in exchange for a little help on the way in, the state will be relied on a little less on the way out—that is the deal. The responsibility for finding people to look after your money lies with the individual and the trustee or investment managers they appoint. On that simple truth, London has developed global leadership in asset and investment management, and the entire City ecosystem has created a tax gusher that pays for defence, schools and hospitals. We should not place it or its reputation under threat.

We have heard a lot from the Dispatch Box over the last 12 months or so about the sort of investments that the Government think we should invest in. We need to learn some lessons from history. One such investment is green schemes, forgetting that when they tried this under political direction in Sweden it created the $5.8 billion Northvolt disaster and all the public sector pensioners lost their shirts. The Minister from the Dispatch Box lionised the large Canadian public sector schemes as the model that should be followed. Last year, their investment returns went down by 5%, at the same time as our own LGPS went up by 9%.

Ministers want schemes to backfill UK infrastructure, and perhaps steel, which we now learn could cost us over £1 billion in a little over a year—money that will never be seen again—or carbon storage and passive funds, which, by arithmetic, lead you into bubbles or into high-risk private assets. At 5 am this morning, the Financial Times published an excoriating demolition of the claims that private equity funds do as well as the Chancellor claims, especially as the J-curve gets stretched out beyond 10 years. I could go on, but I will not.

The point is that, while Ministers want to pick winners, they have been selling lemons. The pound shop pundits are trying to force-feed the riskiest parts of the market—the bits the other professionals turn their noses up at or consider are not right for the man in the street—down the throats of those for whom taking excessive risk is not necessarily the right thing. The Government’s job is to create the environment for the best and most attractive investment ideas to come forward, not to beat pensioners with a stick and strong-arm them into financing their high-risk pet projects, with high fees and uncertain returns.

But, worst of all, if mandation does come, it will create the sort of value-sapping moral hazards and conflicts of interest that will allow the most poorly performing managers to have a “get out of jail free” card—“It was that Torsten Bell chap what told me to do it, guv”—while trashing the global reputation of the UK asset management business and imperilling that tax gusher we all rely on. But, ultimately, it will be the little guy who pays the price, poorer long after Rachel Reeves and Torsten Bell have become a footnote in history. It is our duty to stop this, and we must.

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, as we have heard, the combined effect of these amendments would be to remove from the Bill the Government’s reserve power to require certain pension schemes to hold a prescribed percentage of their assets in qualifying assets. As the noble Baroness, Lady Bowles, indicated, we explored this territory in some depth in Committee, and noble Lords made a number of detailed and considered arguments. It has been good to have an opportunity to talk to a number of colleagues since then and to discuss their concerns. The Government have reflected but continue to regard the asset allocation reserve power as a necessary part of the reform package that this Bill introduces, and I will set out why.

The headline case is that there is strong evidence that savers’ interests lie in greater investment diversification than we see today in the DC market, and there is probably broad agreement on that. DC pension providers themselves have recognised this. A small allocation to private markets, as part of a diversified portfolio, offers the potential for better risk-adjusted returns over the long term. But despite that recognition, many providers are not yet acting on it. That is not because diversification is against savers’ interests. It is in significant part because of competitive dynamics, the pressure to keep headline costs as low as possible in order to win and keep new business from employers, and the difficulty of any single provider moving ahead of the market. This is not just the Government’s view. It is what the industry has said repeatedly.

[Lord Wolfson of Aspley Guise (Con)]

My Lords, does the Minister not recognise that in most industries, moving ahead of your competitors is an advantage, not a disadvantage? It is certainly not a reason not to move in the right direction.

[Baroness Sherlock (Lab)]

It depends on how the market is structured. The decision-makers here are employers. Let us look at what happened under the Mansion House Compact, the predecessor of the accord, brokered under the previous Government. The words were that

“‘too much focus on cost’ remains the key barrier”.

In other words, we have a market in the employment sector where the focus has been for too long on cost, not value. The noble Lord shakes his head, but we have heard this from around the House. Indeed, in Committee many people who do not agree with this power accepted the underlying diagnosis, and that is the basis on which the Government are proceeding.

The Government want the industry to invest in the full range of assets. One of the reasons, I suspect, that the Mansion House Accord is moving together is to make sure that it is clear that the market is going in that direction. That is the problem, we think: there is a risk of a failure of collective action. The accord is a commitment. The power gives providers assurance that the whole market will move so that they will not then be in a position where somebody faces a competitive advantage by reverting back to focusing on cost and not on value.