Pension Schemes Bill

Debate between Viscount Younger of Leckie and Lord Davies of Brixton

Committee stage
Monday 12th January 2026 Grand Committee

[Viscount Younger of Leckie (Con)]

My Lords, it is a privilege to open today’s debate and to begin what I am sure will be five engaging and constructive days of scrutiny on this Bill in Committee. The proposed new purpose clause, in my name and those of my noble friend Lady Stedman-Scott and the noble Baroness, Lady Bowles, is not an attempt to rehearse the arguments advanced at Second Reading. Rather, it is intended to address a specific issue arising from the way in which the Bill has been framed and from the legislative approach that the Government have chosen to adopt.

The debate I seek to initiate is a principled one about legislative clarity and certainty, particularly in the context of what is, by any reasonable definition, a framework Bill. We believe that the Bill, as currently drafted, is light on detail and relies heavily on delegated powers. This has inevitably left your Lordships debating intentions, aspirations and hypothetical outcomes, rather than the Government’s settled policy. In those circumstances, is it not all the more important that Parliament is clear on the face of the legislation about what it actually intends to achieve?

The purpose clause amendment therefore intends to establish an overarching statement of intent, setting out the objectives against which the Bill and the regulations made under it should be understood and scrutinised. Where detailed provision is deferred to secondary legislation, such a statement provides Parliament, regulators and stakeholders with a clear point of reference. Without it, how are we to assess whether the powers being taken are exercised consistently with the will of Parliament, rather than merely within the scope of ministerial discretion?

More broadly, the amendment invites the House to reflect on whether Parliament is being asked to confer wide-ranging powers without sufficient clarity as to how they are intended to be used. At what point does flexibility begin to shade into uncertainty? How can proper legislative certainty be maintained when substantive policy choices are deferred, potentially amended repeatedly and then removed from direct parliamentary scrutiny? If there were an alternative procedural route that allowed the House to engage meaningfully with these questions, we would of course be willing to consider it. However, in the absence of such a mechanism, is it not reasonable to seek to debate these matters through a proposed new purpose clause, which would allow the House to test the Government’s intent within the normal amending stages of the Bill?

This concern is particularly acute in relation to value for money. Much of what this legislation seeks to achieve will ultimately stand or fall on the effectiveness of the value-for-money framework. Yet the provisions before us are thin and largely skeletal, despite the central role that the framework is expected to play. How can Parliament properly assess the merits of this approach when so much turns on detail that has yet to be set out?

I say at the outset that we are supportive of the value-for-money framework in principle, but its success will depend almost entirely on the detail of its design, the consistency of its application across schemes and the robustness of its enforcement. Without greater clarity on these points, how are trustees, regulators and members to understand the standards against which they will be judged?

That leads me to a wider question about the long-term purpose of the Bill. How do the Government envisage the pensions landscape to look like in 10, 15 or even 20 years’ time? Is the objective consolidation, greater scale, improved outcomes for savers or some combination of all three? How will we know whether this legislation has succeeded in delivering that vision?

We wish to engage not only with the immediate legislative mechanisms but with the broader strategic direction that underpins them. We fully accept that legislation must allow Ministers a degree of flexibility to respond to changing circumstances, but flexibility without a clear, articulated destination risks leaving Parliament and the industry uncertain about the direction of travel. Is it unreasonable to ask for the House to be told not only what powers are being taken but to what end they are intended to be used? It is in that spirit that this purpose clause has been tabled and I very much look forward to the debate that I hope it will provoke.

I wish to return briefly to the question of mandation, which, although I have not directly mentioned it, is an underlying issue in the Bill. It illustrates precisely why questions of purpose, process and limitation matter so greatly in the context of a framework Bill of this kind. We will of course turn to this in greater detail later in Committee but, as we are discussing the purpose of the Bill in this clause, it would be remiss of me not to mention it here at the outset as one of the most contentious provisions in the Bill—as we heard, broadly around the House, at Second Reading.

As drafted, the Bill establishes a broad enabling framework but leaves a great deal of substantive policy to be determined later through regulation. That approach inevitably creates uncertainty. It also places a heightened responsibility on Parliament to ensure that any powers taken are clearly bounded, carefully justified and firmly anchored to a stated purpose. In that context, we do not consider there to be a compelling case that asset allocation mandates are necessary to increase productive investment in the United Kingdom. Indeed, mandation risks cutting across the fundamental principle that investment decisions should be taken in the best interests of savers by trustees and providers who are properly accountable for the outcomes. I am sure that we will hear more about these arguments in Committee.

When the Bill itself provides only a skeletal framework, the absence of clarity around how such powers might be used becomes all the more concerning. If any future Government were ever minded to pursue mandation, it is essential that any such power be tightly limited, that savers’ outcomes are clearly protected and that asset allocation decisions are insulated as far as possible from political cycles and short-term pressures. Investment decisions should remain with those charged with fiduciary responsibility and not be directed by Ministers, however well intentioned. Those safeguards cannot simply be assumed; in a framework Bill, they must be explicit.

Moreover, the case for mandation is further weakened by the existence of credible and constructive alternative routes to unlocking greater levels of UK investment. Industry participants, including Phoenix Group, have identified a number of areas where policy reform could make a meaningful difference without recourse to compulsion. Government institutions such as the National Wealth Fund and Great British Energy could play a significant role by aligning guarantee products with insurers’ matching adjustment requirements, by engaging institutional investors earlier so that projects are structured to meet long-term investment needs and by continuing collaboration with the ABI Investment Delivery Forum to deliver investable infrastructure pipelines.

Similarly, the Mansion House Accord, building on the 2023 compact, has already driven tangible industry action. In our view, the priority now should be delivery, rather than the creation of new and potentially far-reaching powers. That includes implementing a robust value-for-money framework with standardised metrics; introducing minimum default fund size requirements, whether £25 billion or £10 billion, with a credible growth plan; and aligning the defined contribution charge cap with the Pensions Regulator’s approach by excluding performance fees where appropriate.

More broadly still, stronger capital markets are essential if the United Kingdom is to attract both domestic and international investment. This includes supporting the work of the Capital Markets Industry Taskforce, exploring measures to foster a stronger home bias in UK equities, considering whether stamp duty on share transactions is acting as a drag on competitiveness, and examining targeted tax incentives for pension fund investment in UK infrastructure. Ultimately, rather than mandating investment, policy should focus on understanding why UK investment has lagged. That requires serious engagement with questions of market structure, regulatory design, the quality of investment pipelines and the underlying risk-return characteristics of UK assets. Mandation risks treating the symptoms rather than addressing the causes.

I look forward to the Minister’s response. I make no apology for laying out certain aspects that I believe fit with the purpose of the Bill. However, as I said at the outset, I hope that we have a productive and interesting Committee. I beg to move.

[Lord Davies of Brixton (Lab)]

It is a pleasure to be here. Although for a while I was feeling a bit lonely, I very much welcome my noble friends; what we do not make up in numbers, I am sure my friends will more than make up for in the quality of their contributions. I declare an interest as a fellow of the Institute and Faculty of Actuaries.

It is worth at this stage spelling out that I have spent a lifetime advising people about pensions. I was the TUC’s pensions officer for a number of years. I was also a partner in a leading firm of consulting actuaries, and I worked for a number of years with a scheme actuaries certificate undertaking scheme valuations. In terms of sheer experience, I can fairly say that this is unique to noble Members of this House. I will not go on at length on future occasions, except when it is directly relevant.

The noble Viscount, Lord Younger of Leckie, declared his intention to avoid repeating a Second Reading speech—it is arguable as to whether he achieved that intention—but, in a sense, I welcome the opportunity to look at the Bill as a whole. While I support the Bill and I support my noble friends—there are some really good measures in here—the text underlying the opposition amendment suggests that we have a pensions system in chronically bad condition.

It suggests that returns are inadequate, that the system is fragmented and that it lacks transparency, with people unable to assess what they are getting. It provides inadequate communications. It is inconsistent across the different forms of provision. It prevents, or makes hard, innovative and flexible solutions to the problems that are faced. It needs to provide greater clarity for employers. It currently does not achieve responsible and innovative use of pension surpluses. To me, this suggests a system at risk of chronic failure.

To be honest, I accept those criticisms because underlying this system is the personal pension revolution introduced by the Conservative Government 40 years ago, which has proved to be unfit for purpose. We are having to make all these changes because of the failure of the system that the Conservative Government introduced. We need these changes because personal pensions did not work out. Collective provision is the answer to decent pension provision, and the Bill supports and develops collective provision and moves across this idea that everyone can have their own pot which they look after for themselves. I oppose the amendment and look forward to further discussions on the individual issues as they arise.

Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025

Debate between Viscount Younger of Leckie and Lord Davies of Brixton

Monday 8th December 2025 Grand Committee

[Lord Davies of Brixton (Lab)]

We have here the interaction of a number of different pieces of legislation. Of course, we are all looking forward to the Second Reading of the Pension Schemes Bill next week. We have before us the Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025. We also have the 2022 regulations that first set out the regulatory requirements for CDC schemes. In parallel, we have the Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations. As the Minister and the Front Bench well know, that sets out another of the Government’s initiatives: to provide CDC schemes that can offer retirement pensions, rather than people having to buy annuities. All these different pieces of legislation interact in ways, I think it is fair to say, that are sometimes difficult to grasp.

What worries me about these regulations is that it is a bit like when you have extensive building work in your house, and the architect asks you where you want the light switches. Of course, you do not know where you want the light switches until you have lived in that house for two or three years, but you have to decide in advance. This is my concern about these regulations: we do not know how these schemes will work in practice. We are all agreed that they are a good thing, we want to see them supported and developed and we have to start somewhere, but certain aspects of what is before us today cause me some concern—or, to tone it down, some level of interest.

First, is it clear that the provisions in the Pension Schemes Bill dealing with value for money, guided retirement and particularly scale will apply to these schemes? They are closer to these schemes than they are to defined benefit. It is quite clear in the legislation that the scale requirement applies to DC arrangements. To what extent will the scale requirement directly, or indirectly through the supervision requirements, end up requiring schemes of a particular scale? My fear is that, if there is a scale requirement, it will just be another barrier to establishing these schemes that, in practice, we all want.

An associated point that has been raised is that we are now effectively getting separate CDC regimes. The existing one with the Post Office scheme is the only live example, and that is very scheme specific. We do not know how far the legislation can cover other sorts of single-employer CDC schemes. Then we have the multi-employer scheme regime and the retirement pension CDC regime. Are these regimes completely separate? To what extent is there going to be scope to make transfers from one regime to another? Are these regimes overlapping or are they distinct?

One problem is always raised. I am a strong supporter of CDC arrangements. It should be the future of private sector pension provision and we want to encourage it as much as possible, but there are problems with the way it works in practice. Ultimately, however deep it is hidden down in the workings and however many formulae you adopt to ensure fair treatment, there is always the risk of some form of cross-subsidy between members. There will be winners and losers.

With multiple employer CDCs, there is also the possibility of cross-subsidy between employers. It is inherent in the approach, in my view. I know supporters of CDC argue that it is not the case, but I think you should always be concerned about the fear of that. We do not know, because so many of the supervisory powers are given to the regulator, the detail of how they are going to be applied. Will it be made clear that this will not be an impediment to developing these sorts of arrangements? The important point is communication. We need to be clear in the regulations about the need for full and adequate communication so that potential members are fully aware of the nature of the arrangement they are entering.

My final concern is that we are heading towards a retailisation of this sort of provision. It will become a retail product, and that is not how I and many other people envisaged CDC operating. It should be a collective endeavour. I must admit that I have an instinctive reaction against the use of the word “proprietor” for the sponsor of these arrangements. I would prefer the word “sponsor”, because “proprietor” implies that it is not a collective arrangement but a commercial one.

Clearly, it will cost money to set up these arrangements and, to a certain extent, the complexity introduced by these regulations means that even more money will be required to do so. But my fear is that we will ultimately end up with underregulated insurance companies, rather than the collective and co-operative arrangement that I think is the true way forward for CDC arrangements. My fears are that it is all too complicated. We need to be clear about the overlap between these different areas of legislation and the different types of CDC arrangement. A system in which people have the right to transfer their money out of a scheme at the same time as the Government are encouraging schemes to invest in non-market based investments, means that there is a contradiction, which could be the Achilles heel of this type of arrangement.

I am taking this opportunity to express my concerns and raise them formally with the Minister. The specific questions are about multiple CDC arrangements, information communication requirements and an approach which enables people to understand what they are getting here—it is better than pure DC.

My final complaint is that the regulations persist with the business of calling these schemes “collective money purchase”. I have made the point before in these discussions that they are not collective money purchases. They are called money purchase schemes because you purchase an annuity, and these schemes are being set up specifically with the introduction of retirement-only CDCs so that you do not have to buy an annuity. I am really sorry that the department has persisted in using the term “money purchase” in these regulations when they are clearly not money purchase arrangements.

[Viscount Younger of Leckie (Con)]

My Lords, I am pleased to speak in this debate on the regulations extending collective defined contribution schemes to unconnected multiple employer arrangements. I say at the outset that I accept the apology given by the Minister for the changes needed in Schedule 2. I hope that when she responds she will confirm that these are minor changes, as I assume they are; that would be helpful.

By any measure, this is a highly technical statutory instrument that even seasoned pensions professionals would concede is difficult to absorb on first reading. Yet precisely because of that complexity, and the potentially far-reaching implications for the architecture of our pensions system, it is essential that this Committee scrutinises it with particular care. Collective defined contribution schemes—CDCs—are an important and promising innovation. They offer the potential for better outcomes than pure defined contribution schemes for risk-sharing across generations and smoothing investment volatility in retirement. They could and should play a larger role in the future of pension provision in the United Kingdom.

We also recognise that this SI is an enabling vehicle. It is a mechanism to broaden the CDC framework so that unconnected employers may participate. We raise no objection to that direction of travel. I am surprised that this debate will not have more contributions from other Peers. I am very pleased that we have the welcome and regular presence of the noble Lord, Lord Davies. I am quite surprised that we have no representation from the Liberal Democrats. I am not sure why that is.