Pension Schemes Bill

Debate between Baroness Altmann and Viscount Younger of Leckie

Report stage
Monday 23rd March 2026 Lords Chamber

[Viscount Younger of Leckie (Con)]

My Lords, I will speak briefly. We welcome the intent behind these amendments. We have spoken with campaigners and representatives of affected members and understand the concerns that sit behind them. Those concerns are real and deserve to be taken seriously. I have listened very carefully to the remarks from the noble Baroness, Lady Altmann, and the noble Lords, Lord Hain, Lord Wigley and Lord Davies, with the case studies that they have cited relating to the losses suffered by individuals, and also the emotional consequences.

However, we have reservations about the proposed approach. As drafted, these amendments would, in certain circumstances, compel the payment of lump sums. That does not sit comfortably with the core principle that we have adopted throughout the passage of this Bill: that we should not seek to direct or constrain pension funds in a way that limits their ability to act in the best interests of their members. If the PPF determines that using surplus to provide such payment is appropriate, proportionate and in members’ best interests, of course we would support that. However, that judgment is properly one for the fund itself, not something that should be prescribed. It is for the Government to offer a response to the questions and the points raised by other speakers, and I look forward to the remarks from the Minister.

While we have sympathy with the objective of these amendments, we do not believe that mandating this approach is the right way to achieve it. Therefore, I am afraid that we are unable to support them.

[Baroness Altmann (Non-Afl)]

The Minister may correct me, but I do not believe that the Pension Protection Fund could itself agree to make these lump sum payments; they need to be enabled by legislation. I have not double-checked that, but that was what I was led to believe.

[Viscount Younger of Leckie (Con)]

The noble Baroness asks a fair question. Can the Minister clarify that? We have looked into this in some depth and come to our own conclusion, and I am afraid we will have to stick to that: but I do take the noble Baroness’s point.

Pension Schemes Bill

Debate between Baroness Altmann and Viscount Younger of Leckie

Report stage
Thursday 19th March 2026 Lords Chamber

[Baroness Altmann (Non-Afl)]

My Lords, Amendments 112 and 113, which I shall not press to a vote, are designed to ensure that we try to keep the needs of pension scheme members at the heart of all the policy changes that we make. For me, pensions have always been about people; they are not just about money.

In relation to the clause that concerns restricting the creation of new non-scale default arrangements, these amendments seek to permit default arrangements below scale—for example, where a company seeks to identify different types of member and put together a default arrangement that is specifically suited more to that type of member than to the traditional one-size-fits-all policy that pension schemes so often seem to be based on, and that certainly do not suit many of the members who are put into them.

I hope that the Minister will help me understand why the Government want to have just one default arrangement—potentially with just one common investment strategy—rather than encouraging more of a pension market that can serve individual groups of members with different needs. That could include those who are in poor health and who might need a different approach, or those who may not know when they are going to retire and therefore a life-styling fund that takes them out of higher return investments would not be appropriate for them.

The idea of pension companies asking members about themselves, beyond just looking at their chronological age, seems to be rather alien. However, I hope it could become much more common, given the digital enabling that is available to pension companies. That would allow them to ask two or three relevant questions, including about someone’s health or whether they have a final salary pension alongside this scheme that they could rely on instead. That is the intention behind these amendments, and I look forward to the Minister’s response.

[Viscount Younger of Leckie (Con)]

My Lords, this amendment speak to a principle that we on these Benches have returned to throughout our consideration of the Bill: the framework we are putting in place must reflect the reality of outcomes, not simply a rigid set of predetermined requirements. This amendment recognises that many schemes quite properly design different default arrangements for different cohorts of members. That is not a weakness; it is a strength. It reflects an understanding that savers are not all the same, and that good outcomes often require a degree of tailoring.

Where such schemes are performing well and delivering strong outcomes for their members, they should not be penalised simply because they do not conform to a single uniform model. In that sense, this amendment is important. It does not undermine the objective of improving scale where that is beneficial, but it ensures that we do not lose sight of the ultimate goal, which is—returning the same theme—better outcomes for savers.

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Baroness, Lady Altmann, for introducing her amendments. I covered quite a bit of this ground in my response to the previous group, which was quite long, so I will not repeat that—I hope that the noble Baroness will not mind.

As I set out in the previous group, Chapter 4 of the Bill relates to default arrangements and the fragmentation in schemes that are in the market. To reiterate, the measures in this chapter do not cap or limit the number of default arrangements, nor do they impact on the ability of a new entrant to enter the market. I previously mentioned innovation, which features in the new entrant pathway, but what we want to see is default arrangements being created to meet member needs. That is why we are introducing a range of measures for them to need regulatory approval before they begin to operate.

On Amendment 112, I understand that the intent is to allow a scheme to have

“several non-scale regular arrangements”.

However, it is not clear what is meant by a “regular” arrangement in the description, as it is not defined.

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[Baroness Altmann (Non-Afl)]

My Lords, I have the pleasure of supporting these amendments. I am very pleased that the Government have made the decision to improve flexibility and help the working of these new superfunds. We do not yet know quite how they will go, so I thank the Government and fully support the amendments.

[Viscount Younger of Leckie (Con)]

My Lords, I shall speak briefly to this group of amendments. At the outset, I recognise that a number of these amendments are either technical or consequential. It is entirely right that the Bill should be internally consistent and operable in practice.

However, Amendment 117 raises a more substantive issue on which I would be grateful for some clarification from the Minister. This amendment alters the way in which the protected liabilities threshold for superfunds is determined, moving to a model in which the threshold is defined as a percentage set out in regulations. I know that we are on the cusp of closing proceedings on the Bill today, but I am afraid that I have a number of questions on this.

First, will the Minister set out clearly what problem this amendment seeks to address? What deficiency has been identified in the current approach? Secondly, what assurance can the Minister give that this change will not weaken the level of protection afforded to members? Is there any scenario in which this more flexible, percentage-based approach could permit lower funding levels than would otherwise have been required? Thirdly, how does the Secretary of State intend to determine the appropriate percentage? Will there be a minimum floor or is this entirely to be left to future regulations? Finally, given the importance of this safeguard, can the Minister explain why it is not being set out in the Bill and what level of parliamentary scrutiny will apply to the regulations that determine it?

Flexibility can be valuable, but when it comes to member protection it must be accompanied by clarity and by robust safeguards. I look forward to the Minister’s response.

Pension Schemes Bill

Debate between Baroness Altmann and Viscount Younger of Leckie

Committee stage
Thursday 5th February 2026 Grand Committee

[Viscount Younger of Leckie (Con)]

My Lords, I will speak to Amendments 187A, 188A, 189A and 203ZA tabled by the noble Baroness, Lady Altmann. She has long been a formidable and principled advocate for pension savers and much of the Committee will be sympathetic to the underlying concerns that she raised in her remarks. In particular, her consistent focus on member protection, governance and long-term security has materially shaped the debate on pensions policy over many years—and rightly so.

However—the Committee might expect me to say this—while I share the noble Baroness’s objectives, I am not persuaded that the amendments, as drafted, strike the right balance in this instance. I listened carefully to her remarks and her constructive suggestions as to how such payments could be made in the form of lump sums, whether through several lump sums or another way. As ever, she is constructive and positive, and I accept that. These amendments would use the Pension Protection Fund and the Financial Assistance Scheme to make retrospective lump-sum payments to compensate for unpaid historical indexation. We think that that would represent a significant shift in principle.

I listened carefully, as I always do, to the remarks from the noble Lord, Lord Davies of Brixton, who called retrospection a red herring. I was not absolutely sure what he meant by that. As I see it, retrospection is just that: retrospection. I think that it describes the payments in the way that it is meant to do. However, the PPF was designed as a forward-looking safety net, not as a mechanism for reopening past outcomes or making retrospective compensation payments. The Minister, to be fair to her, made this clear in her closing remarks in previous groups.

Such an approach would raise serious concerns about cost, complexity and consistency. Although we are somewhat clearer about costs from the helpful remarks from the Minister in the previous group, I am still uncertain—as, I think, other Members of the Committee are—about what the overall costs would be and what the impact would be on the levy and on other contributors. That uncertainty makes me cautious about supporting these amendments, which risk turning a clearly defined insurance mechanism into an open-ended compensation scheme. I suspect that the Minister—without wanting to steal her thunder—may take a similar view in her response, judging from her remarks in the previous group.

[Baroness Altmann (Non-Afl)]

The noble Lord just said that this would impact on the levy, but if there is a one-off payment, it would not affect the scheme going forward. Therefore, it should not impact the levy at all; it is a lump-sum payment rather than an increase in the base pension payable going forward.

[Viscount Younger of Leckie (Con)]

As ever, that is a very helpful clarification, but I will leave it up to the Minister to answer that. I stick with my view that we are not persuaded by these amendments. Perhaps there is more debate to be had. I have said all that I need to say; I am afraid that I am unable to support these amendments.

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[Viscount Younger of Leckie (Con)]

My Lords, I will speak to Amendment 203 in the name of the noble Lord, Lord Davies of Brixton, and I am grateful to him for his tour d’horizon on the history behind this issue with the uprating, going back through several parties and Parliaments. Like the noble Baroness, Lady Altmann, I fully understand why members find this proposal attractive. The idea that pensions should keep pace with inflation feels intuitively fair, of course, but we think that mandating inflation increases for all pre-1997 service in live defined benefit schemes would be a step too far.

This amendment would dictate in statute how trustees and employers must use scheme resources and any surplus. We believe that this is overly prescriptive and risks being actively anti-business. Many employers are already using DB surpluses constructively, and that includes improving DC contributions for younger workers, supporting intergenerational fairness, and strengthening scheme security through insurance-backed arrangements and special purpose vehicles. We think that these are sensible negotiated outcomes, reflecting the needs of both members and sponsors.

It is also important to remember that employers have carried DB risk for decades. When funding assumptions proved wrong, when markets fell or when longevity rose faster than expected, it was employers who stepped in, often for many years, through additional contributions and balance sheet strain—that might be an understatement. I choose to use a casino analogy, not to make light of a serious subject but to illustrate the basic logic of risk sharing. Here goes.

In a defined benefit scheme, the employer and members effectively walk into a casino together. Trustees place bets on behalf of the scheme on how much risk to take in the investment strategy, what funding assumptions to use, how quickly to de-risk, how to price longevity and inflation exposure. Members benefit if those bets perform well because the scheme is safer and more likely to deliver the promised pension in full. But, crucially, if those bets go wrong—that is, if markets fall, inflation spikes, people live longer than expected or the assumptions prove too optimistic—the bill lands not on members but on the employer. The sponsoring employer is legally on the hook to repair the damage, often through years of additional contributions, cash calls at the worst possible moment and significant strain on the balance sheet. That is what the employer covenant means in practice: it is the backstop when the world does not behave as forecast, which, as we know, it often does not.

So, if we accept that the employer is the party that must cover the losses when the scheme is underwater, surely it cannot be right to argue that, when the scheme comes in above water—when investment returns are strong, funding improves and a surplus emerges—the employer must be barred in principle from any share of that upside. That is not risk sharing; it is risk asymmetry. Heads, the members win; tails, the employer loses. In any rational system, if one party is compelled to underwrite the downside, that party must be permitted—subject, of course, to trustee oversight and member protection—to share in the upside. If we legislate for a system where the sponsor carries all the risk but is denied any benefit when outcomes are good, surely we distort incentives. We make sponsorship less attractive and encourage employers to close schemes faster, de-risk more aggressively or avoid offering good provision in the first place.

This is a crucial point. The fair outcome is not that employers take everything or that members do. It is that surplus is discussed and allocated jointly by trustees and employers, balancing member security, scheme sustainability and the long-term health of the sponsoring employer. That is partnership. Legislation should support that balance but not override it; that is a crucial point.

Mandating automatic inflation uplift would also have wider consequences: higher employer costs; increased insolvency risk, ultimately borne by the PPF; knock-on effects on wages, investment and employment; and, potentially, higher PPF levies. For PPF schemes, uplift is manageable because the employer covenant has gone and Parliament controls the compensation framework. Imposing similar requirements on live schemes, however, risks destabilising otherwise healthy employers. In short, uplift should be an option, not a statutory obligation. As I said earlier, decisions should rest with trustees and employers together and not be compelled by legislation.

That said, focusing on choice does not mean ignoring power imbalances, because in some schemes genuine deadlock leads trustees to sit on surplus and de-risk further. That may be understandable, but I think it is fair to say it is inefficient. Government should be looking at how to enable better use of surplus by agreement, not mandating outcomes. Much more needs to be done on breaking deadlocks, but we believe that Amendment 203 is not the right way to do it.

[Baroness Altmann (Non-Afl)]

May I just correct the record? I believe that the Goode committee may indeed have recommended limited price inflation up to 5%, and I apologise to the Committee.