Pension Schemes Bill

Baroness Coffey Excerpts

Committee stage
Tuesday 3rd February 2026 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, I have three very simple questions. First, why in some areas is the delegated legislation by negative resolution and in some cases by affirmative resolution? In Clause 49, regulations under subsections (1)(b) and (6)(a) are by negative resolution, as are some in Clause 50. I would just like to understand why.

Secondly, I am very aware that people will differ, as has been said. Some will want to take their money earlier than others, perhaps because they are using their pension as some sort of early day fund, or perhaps because they have a serious illness and do not expect to last long. Is that variation provided for? I would like that assurance.

Thirdly, if somebody has two pensions—perhaps one saved under auto-enrolment, which is what we are talking about, and another, perhaps because they worked in the public sector, a defined benefit scheme—how is the pension provider covered by these clauses going to allow for that difference of need?

[Baroness Coffey (Con)]

My Lords, Clause 49 is quite interesting. Clearly, we have been on a journey for some time. Going back 35 years, Maxwell raided his pension fund, completely screwing over his employees at the time, which led to the 1995 Act as a consequence. There were other items in there as well, but that brought in a much more controlling approach to aspects of pensions.

One of the liberations that happened in the previous pensions Acts a decade ago was that people did not have to do a particular thing with their money. I know this is money that was topped up by aspects of tax relief and the like but, ultimately, instead of being forced in a particular direction with an annuity in a different way, people had a choice. I am conscious that various scams happened when people were transferred from one to another. I hope those people will find a special place in hell; they have deprived people of the money that they had rightly gathered over the years and scammed them out of it. But ultimately this did give a choice to people, with all that money, about how they wanted to spend their retirement—instead of somebody else telling them what to do.

I am concerned that this clause, in effect, requires a guaranteed solution. I appreciate that my noble friend Lady Noakes has talked particularly about removing the need for there to be a regular income as part of this solution, but if benefit solutions are going to be required by this legislation, there should not just be a choice of a minimum of one. There should be at least two, so that people can still have that choice. That is why in Clause 49(1)(a), I think that “one or more” should be “a minimum of two”, if that is going to be the way that we go.

The other thing that is not clear to me—perhaps I just have not spent enough time reading this—is what happens if people do not want the default pension. What choice do they have? It does not feel as though they have any choice at all. I am trying to understand something: what is the real problem that Ministers and the Government are trying to address here? Do not get me wrong—we want to make pensions as simple as possible for people. I know that my former employer used to set up a particular approach, saying that it was easy and that you could buy into it, but it was your choice what you did. That is why I am concerned about Clause 49 in particular. I hope that, by the time we get to Report, the Minister will have reconsidered whether ripping away freedoms is the right way for the people whom the Bill is intended to support.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Viscount, Lord Younger, for introducing this debate, and to all noble Lords.

Let me briefly outline the problems that the chapter on guided retirement is seeking to address. The landscape is changing. I will not get into the detail of how we have gotten to where we are with my noble friend Lord Davies, but the reality is that we are now in a position where fewer than a million people in the private sector are saving into a DB pension, whereas more than 15 million are saving into DC schemes. Of course, unlike in DB schemes, DC members carry the risk themselves; what you get out depends entirely on what you put in and how it performs. The result is that DC savers face risks: the risk of savings not lasting through later life; the risk of market fluctuations; and the risk of inflation eroding purchasing power. They also face decision‑making risks, as retirement choices can be complex and poor decisions can have lasting effects. Clause 49 enables the Government to respond to those risks, putting savers first. Our objective is the vast majority of DC savers no longer having to make complex decisions about how to secure a sustainable income in later life, although—I say this in response to the noble Baroness, Lady Coffey—the freedom to choose absolutely will remain.

Let me explain how we envisage this happening. When DC members approach their scheme to access their savings, they will be presented with the default pension solution; in acknowledgement of my noble friend Lord Davies, let us call them “default plans” from this point onwards. At this point, the member will have the option to say yes to the default plan or say, “No, I want to choose a different way to use my assets”; that could be an alternative in their own scheme or elsewhere. We will explore this, including how schemes can give appropriate support, in our consultation. The interaction should not be a surprise to members at this point because we will ensure that, through appropriate communications, members hear about the concept of a default plan from very early on in their pension journey.

Clause 49 will require pension schemes to design and develop pension plans based on the generality of their membership, by which we mean gaining insight of what the vast majority of their members want from their pension assets. The noble Viscount, Lord Younger, wanted to know how they are meant to do this. We know that many schemes already have member panels; we expect these, as well as other channels to obtain member insight, to continue. The Government will not specify unless necessary but the regulator will work with schemes, through guidance, on how to identify the needs of their members. The Government will also consult on whether there should be minimum standards for gathering information so that the solutions reflect the generality of the scheme membership.

We anticipate that the evidence from scheme members will indicate that there is no one common set of aspirations, so we are giving the scheme the ability to introduce more than one default plan. Where there is more than one default plan, there will be a simple triage to determine which one the member is offered. Again, the benefit of this approach is that no member will have to make a complex decision on how to take their pension payments, except to request that they want to start receiving payment. As has been mentioned, the default plans must provide a regular income during retirement. We will consult on the detail, but it will be for trustees to determine exactly how they achieve this; there is scope for product innovation.

The clause also makes provision, as has been noted, for exemption where that would not be appropriate. I will turn to Amendment 178, which relates to this, in just a moment but, crucially, savers will retain the choice to access their pension another way. We know that retirement is not a linear experience and that circumstances change both at and after retirement. Life events such as deciding to work part-time, health conditions and bereavement can all factor in and have an impact on household incomes. That means that gathering insights and engagement with members will be important, alongside well-designed and flexible plans.

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Moved by

[Baroness Coffey]

180A: After Clause 57, insert the following new Clause—
“Review: transfer of the Financial Conduct Authority’s pension regulation functions to the Pensions Regulator(1) Within six months of the day on which this Act is passed, the Secretary of State must publish a review to assess the viability of transferring the Financial Conduct Authority’s pension regulation functions to the Pensions Regulator.(2) The review under subsection (1) must include an assessment of whether the Pensions Regulator should take on responsibility for the regulation of defined contribution pensions, except for self-invested personal pensions, in place of the Financial Conduct Authority.(3) The Secretary of State must lay the report under subsection (1) before Parliament.”Member’s explanatory statement
This probing amendment explores moving to one regulator, the Pension Regulator, for all pensions (both defined contribution and defined benefit) that are not self-invested private pensions (which would stay with the Financial Conduct Authority).

[Baroness Coffey (Con)]

My Lords, noble Lords may want to consider Amendment 180A an amuse-bouche before we get back into the real meat and honey, as it were. I am grateful to the noble Baroness, Lady Altmann, for having also signed this amendment. We have already made it clear that the Pensions Act 2008 set out the requirements for auto-enrolment into pension schemes, which was commenced and brought into effect in 2012. As such, all employers are now required to provide a workplace pension scheme and to make contributions.

The question I pose in this amendment is not whether pensions should be well regulated—that is a given—but whether the current regulatory architecture best supports effective supervision, good member outcomes and long-term system stability in this emerging ecosystem of pensions. I contend that it would do so only if occupational pensions, though not self-invested pensions, were regulated solely by the Pensions Regulator without the overlapping or parallel oversight of the Financial Conduct Authority. This is fundamentally an issue of regulatory design.

The Pensions Regulator was established with a clear statutory mandate: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund; and to promote the good administration of work-based pension schemes. Its regulatory approach is deliberately scheme-centric, focusing on governance, funding, the employer covenant, trustee capability and long-term risk management. By contrast, the Financial Conduct Authority’s framework is product and transaction centric. It is designed around the regulation of firms that either make, distribute or advise on financial products, with a particular emphasis on conduct at the point of sale, disclosure and consumer choice.

The FCA’s tools, culture and regulatory philosophy—whether that is speed, competition, disclosure or transactional fairness—are shaped, in effect, by retail finance. That approach is fine, but I suggest to the Committee that it is not so well suited to not only the current pensions world but the evolving world of pensions that this Bill, in particular, is accelerating. Let us be clear: the FCA’s consumer duty is to the individual. That is not what we see with workplace pensions more broadly, where we have the trust-based approach.

The ongoing involvement of the FCA in pensions risks creating, if it has not done so already, regulatory overlap without regulatory coherence. I am aware that there are statements of co-operation but, particularly with the evolution of the pensions world for employees through the Bill, this should lead us to consider a change in the regulatory approach. The contract-based approach is evolving and, as we have already debated, will now be able to be overridden. For that reason, I come back to the question of whether we should think about the Pensions Regulator being the sole regulator, apart from for self-invested personal pensions; I can see that the consumer duty element under those individual schemes is well suited to the FCA.

The danger of dual regulation is real, costly and can be confusing. The uncertainty is evident. In having two different ways, there are some conflicts over how certain assets or schemes can be treated. There is the risk of misclassifying pensions as short-term financial products, rather than what could be really long-term social contracts. We know that people often remain disengaged from their pensions. Their outcomes therefore depend far more on scheme design, trustee competence and the long-term investment strategy.

I think that the Pensions Regulator understands this reality much better. It recognises that good outcomes come from strong governance, clear fiduciary duties and long-term risk management in not only defined benefit schemes but defined contribution schemes. As I have already mentioned, I am conscious that, although there is collaboration, the risk of regulatory drift is still real. This would be solved by moving, in essence, to having one regulator for all occupational pension schemes.

The Pensions Regulator has already shown that it can evolve. It has strengthened its focus on value for money, professional trustee standards, consolidation and other elements on which it is doing well. A single regulator would deliver clarity, coherence and confidence, which is why I have tabled this amendment seeking a review. More specifically, in subsection (1) of the proposed new clause, I suggest

“a review to assess the viability”.

I say “viability” deliberately but then, in subsection (2), I offer a little leeway on that review, including whether the Pensions Regulator should take it on. This may feel to many like dancing on the head of the pin but, actually, we are seeing these two regimes in parallel. In effect, we are starting to see almost the removal of the contract-based approach. As a consequence, we should grab the challenge and make this change.

I am conscious that the Minister may ask, “Why did you not do this when you were in power?”, which is a fair question. But as my noble friend Lady Stedman-Scott will know from the time we were doing the 2021 pension scheme, when we were bringing in certain measures, including dashboards, once the Treasury gets hold of something it does not want to let go. Let us not pretend otherwise.

We are coming on to a debate shortly about superfunds. I am not going to reveal every battle that we had then; nevertheless, it was certainly a challenge. That is no disrespect to my other noble friend Lady Neville-Rolfe, because she was a great Treasury Minister. But it is a case of making sure that this Bill, in particular, is accelerating what is happening. It is going back, in effect, almost to a paternalistic or maternalistic approach, so it makes sense to at least review this change now. I hope the Minister will give it careful consideration. I beg to move.

[Lord Fuller (Con)]

My Lords, the advantage of Committee is that we can bat around some batty ideas without troubling the scorers too much. I am not going to violently disagree with either of my noble friends or the noble Baroness, Lady Altmann, in this respect, but it oversimplifies the pensions landscape. I totally endorse the idea that we need to have a fresh look at the regulatory environment within which pensions operate, because things have not gone right.

There has been a regulatory groupthink. The example of the LDI, the liability-driven investments disaster, is a case in point, because the LDIs anchor schemes that are in deficit and can never climb out of that. That is sort of how they work. The regulator has bamboozled and misdirected trustees over many years not to focus on maximising the returns, so that there is sufficient money in a scheme to pay the pensions as they fall due over its lifetime—that would be a good long-term objective. No, the regulator has forced them to look, three years at a time, at how they can focus on the deficit, not on the term. There has been a failure of regulation and that needs to be remedied.

The amendments in the names of my noble friends and the noble Baroness, Lady Altmann, focus on the Pensions Regulator, which we have heard is much more corporate-focused, and the FCA, which is much more individually aligned, but they fail to see the wider landscape. Any review, in my opinion, should consider the Bank of England because, ultimately, it directed the whole industry and the other regulators to go down the LDI route. That finished and grievously damaged so many private schemes on that false altar of deficit focus rather than asset maximisation.

Then there is a triumvirate. There is the Government Actuary’s Department, which I accept is not occupational; it is for public schemes, but it sets the tone. Then there is His Majesty’s Treasury, which has just been mentioned, and the Pension Protection Fund. I agree with the thrust of the amendments that have been tabled, and we are only in Committee, but I would widen the scope of the report to include those other actors—the Bank of England, the Government Actuary’s Department, the Pension Protection Fund and His Majesty’s Treasury—so that we can see regulation in the round, because unless we do so, we will not cover up those regulatory cracks that some schemes have fallen down.

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[Lord Palmer of Childs Hill (LD)]

My Lords, what worries me is that the noble Baroness, Lady Coffey, says we should grab the challenge. I am not sure that I am ready to grab the challenge and not convinced that we should abandon, in any way, the Financial Conduct Authority. I wonder what representations have been made by the FCA on this. I would like to hear how the FCA feels about the Pensions Regulator taking over and what has happened in the past.

[Baroness Coffey (Con)]

I can assure the noble Lord that the FCA will not give anything up. In fact, it would probably rather swallow the Pensions Regulator.

[Lord Palmer of Childs Hill (LD)]

Maybe that would be a good thing. I am not convinced that the regulator pushing away from primary legislation to regulation is necessarily the way forward. I am not convinced that what has happened to date has failed. Therefore, I am not sure why we want to change this without adequate proof. The idea that the FCA wants to swallow up everything else is fairly normal in the gladiatorial forum that we have. I would like to see what the FCA and others have to say about this before we make a final decision.

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[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Lord, Lord Fuller, for clarifying his view and apologise if I misrepresented it. I will not respond at any length but will simply say that there is already considerable join-up between the actors in this space. I do not feel it is necessary to have a single review just to work that out.

[Baroness Coffey (Con)]

I thank noble Lords for contributing to this debate. Certainly, in speaking to pension providers that are regulated by both TPR and the FCA, this brings additional complexity, which is another reason for this to come in. I appreciate that my noble friend Lord Fuller suggested this could be a batty idea. It is not a new idea. The 2013 report by the Work and Pensions Select Committee chaired by Dame Anne Begg—its Labour chair—called for it then. It was linked to the fact that we were starting auto-enrolment. The whole landscape for people, particularly those new to pension contributions and the like—and indeed for existing people—was shifting to workplace occupation-based pensions, which are all regulated by TPR. So I think it was going for simplicity in that regard.

My noble friend is particularly cross about an aspect of the Pensions Act 2004. I would have invited him to perhaps table an amendment to the Bill with his objections to the statutory funding objective, which is the element that particularly irks him. It replaced the minimum funding requirement, but that is a debate for another day, rather than trying to resolve it all now. I thought the Minister did well, particularly in reading out her brief and keeping the Treasury happy. That is no bad thing for any Minister in a Government but, of course, I beg leave to withdraw my amendment.

Amendment 180A withdrawn.

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[Baroness Bowles of Berkhamsted (LD)]

My Lords, everyone—apart from insurers, perhaps, who prefer buyout and the regulatory cash bonus it brings them—is in favour of superfunds. They should improve member benefit security. They can enhance members’ benefits, as the noble Baroness, Lady Noakes, just said. They can return cash to employers when appropriate, supporting UK businesses. They can also invest more in productive finance than a buyout or a DB scheme can.

However, numerous barriers make it difficult for superfunds and my Amendments 182 and 183 seek to address two of them. Amendment 182 seeks to remove gateway test 1, which is the test that prevents a scheme that can afford a buyout entering a superfund. The policy of pushing everything to buyout is intended to address risk, but it is not always in the members’ best interests; that could be considered more. Discretionary benefits, which can often include things on which expectations are based, may be lost. For example, spouses’ entitlements and increases in pensions are often discretionary; I know that that is the case in parliamentary schemes.

In a buyout, discretionary benefits are likely not to be paid, but a superfund could pay them. There seems to be some underlying assumption that superfunds do not serve risk reduction, but that does not reflect the extremely secure funding position that superfunds are held to by the regulations. Additionally, the test is unstable because funding levels vary. A scheme can start the process unable to afford buyout, and therefore be deemed able to go into a superfund, but if later on it could afford buyout part-way through, it would be required to reverse out and would be forced into a buyout. That can mean a lot of wastage of cost and time, as well as worse-off pensioners. Removing the test would give schemes more flexibility in the course they pursue, and may be better for the economy. If they chose a superfund, it would mean that more schemes could keep money invested in pensions and pay out more generously, rather than that extra money being lost in the insurance companies.

Amendment 183 is about the wind-up trigger and the protected liabilities threshold. This in, in essence, the point at which a superfund’s funding drops to such a level that it must close and enter the PPF. The recent PPF indexation means that the protected liabilities threshold is now above the low-risk trigger—that is, the technical provisions threshold—which is upside-down from the policy design, where the low-risk trigger is intended to be a less critical warning scenario than the wind-up trigger and is the point at which the scheme funds must be boosted by investor money.

This upside-down formulation will make it harder for superfunds to attract investor capital and will probably push pricing up closer to buyout levels, narrowing the slice of the market that superfunds can operate in. That is good if you are shareholders in insurance companies but, again, not for pensioners, who lose benefits. The amendment proposes a “lower of” formulation for the definition of the protected liabilities, which would set it at lower and more reasonable levels.

There could be other ways to fix this or remove the protected liabilities threshold entirely and rely on trustee powers in distressed situations, which is normal practice for regular DB schemes. But staying in the upside-down formulation does not seem right and risks stifling the nascent superfund model. I appreciate that this is a recent development because of the indexation and possibly one that the Government did not originally foresee, but it none the less needs tackling.

[Baroness Coffey (Con)]

My Lords, I support Amendment 182 tabled by the noble Baroness, Lady Bowles of Berkhamsted. Gosh, superfunds—that has been quite a journey. It must be about six years ago that I apparently received a letter from Andrew Bailey, who I think was running the Prudential Regulation Authority at the time. I never actually received it, but I read it in the FT and on Sky. It told me that it all seemed very unfair compared with the Solvency II reform, which is what insurers had to go by. That is why I am strongly concerned about Clause 65(2)(a) being in this Bill.

I think we are seeing the hand of the ABI again here, trying to basically squeeze out other activity when we should be focused on what is in the best interest of the pension scheme members. We also want to try to make sure that we do not have never-ending firms going into the PPF. The superfunds, which I recognise the Government have embraced through this, are definitely a good option but are different to having an insurer buyout, even with some of the changes that have happened away from Solvency II to whatever version of Solvency UK. There has been more reform with less risk around some of the margins in that regard.

So I encourage the Ministers to think again about whether subsection (2)(a) is really the right approach for the outcomes they seek. Otherwise, why bother? Why bother having a superfund if you can get only the equivalent of what it is to get the insurer buyout?

I could go further, but I am conscious that the dinner business break is bringing exciting business and that the Committee wishes to finish by a certain time. So I will leave superfunds for another time, perhaps in the Bishops’ Bar. But, with that, I support my noble friend in Amendment 182.

[Baroness Stedman-Scott (Con)]

I will speak to Amendment 181 tabled by my noble friends Lady Noakes and Lady Altmann, and Amendments 182 and 183, tabled by the noble Baroness, Lady Bowles of Berkhamsted, and my noble friend Lady Altmann. I will also address the broader issue of the role of superfunds within our defined benefit pensions landscape.

At the outset, I want to be clear that my understanding is that the Government remain committed to creating a thriving and credible superfund market. That ambition is welcome because superfunds have the potential to support two important public policy objectives. First, they support member outcomes; properly regulated superfunds can improve security for members and, in the case of a run-on superfund model, they offer the additional prospect of enhanced benefits over time through the sharing of surplus and investment upside.