Pension Schemes Bill

Baroness Bowles of Berkhamsted Excerpts

Thursday 5th February 2026 Grand Committee

[Viscount Thurso (LD)]

My Lords, I have one quick question to obtain reassurance, I hope, from the Minister in relation to Amendment 199 on taxation. I imagine that it is consequent on some of the problems that we had with the McCloud remedy, which required tax changes and the Treasury to intervene. The amendment uses the word “may”, which allows the Treasury to do it if it wishes. Should that not be “must”, in that what we are promising AWE is that nobody will be tax disadvantaged? I put that to the Minister and ask for some reassurance.

[Baroness Bowles of Berkhamsted (LD)]

I have a couple of questions. I must confess that these stem from previous occasions when promises to be at least as good do not appear to have happened, as in the AEA transfer. I am a little suspicious of this, as it seems to be in the same kind of area.

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Moved by

[Baroness Bowles of Berkhamsted]

203A: Clause 113, page 147, line 25, leave out lines 25 to 28 and insert—
“(b) may impose a scheme-based pension protection levy in respect of a description of eligible scheme (or in respect of all eligible schemes) or may impose both a risk-based pension protection levy and a scheme-based pension protection levy in respect of a description of eligible scheme (or in respect of all eligible schemes).”Member’s explanatory statement
If the Pension Protection Fund (PPF) needs to raise a pension protection levy in future, this amendment would give the PPF more flexibility as to how to raise a levy and to decide at the relevant time whether to raise a risk-based levy, a scheme-based levy, or both (as well as the appropriate proportions between them).

[Baroness Bowles of Berkhamsted (LD)]

My Lords, this Bill is removing the requirement for the Pension Protection Fund to charge a levy each year, and the PPF has said for some time that there will not be one this year. Indeed, our discussions on other issues today have taken us into speculation as to whether there would ever need to be a levy again if the PPF is self-funding on the investment income from its current surplus assets.

The purpose of these amendments is to give the PPF more flexibility to adapt to changing circumstances and the changing landscape should a levy be needed in the future, recognising that that future might be quite a long way away. As we are now in a more robust world than when the levy was created, with the PPF and this £14 billion surplus, the levy is no longer needed and we do not know when it will need to be raised again.

Amendment 203A would add flexibility to the PPF fund-raising provision so that it can raise funds that are either scheme-based or risk-based or both. That replaces the present Bill position that a scheme-based levy can be provided only if there is also a risk-based levy. Amendment 203B is consequential, and Amendment 203C would remove the requirement for at least 80% of the levy to be risk-based, which is obviously incompatible with the all-round flexibility that I am proposing in Amendment 203A. Thus, the PPF would be able to decide the type of levy and the balance between the two. The PPF itself has already publicly commented that it would support greater flexibility, and there might need to be a case for a greater proportion of any levy to be scheme-based.

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[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Bowles, for introducing her amendments and explaining why she wants to advance them. As she said, taken together, they would give the PPF much more flexibility—full flexibility, in fact—in deciding how to set the levy by removing the requirement for at least 80% of the PPF levy to be risk-based. Obviously, in the current legislation, 80% of the levy has to be based on the risk that schemes pose to the PPF; this supports the underlying principle that the schemes that pose the greatest risk should pay the highest levy.

Although the PPF is responsible for setting the pension protection levy, restrictions in the Pensions Act 2004 prevent it significantly reducing the levy or choosing not to collect a levy when it is not needed. As has been noted, the PPF is in a stronger financial position and is less reliant on the levy to maintain its financial sustainability. That is why, through the Bill, we are giving it greater flexibility to adjust the annual pension protection levy by removing the current legislative restrictions.

Clause 113 will enable the PPF to reduce the levy significantly, even to zero, and raise it again within a reasonable timescale if it becomes necessary. To reassure levy payers, Clause 113 provides a safeguard that prevents the board charging a levy that is more than the sum of the previous year’s levy and 25% of the previous year’s levy ceiling. The legislative framework will also enable the PPF to continue to charge a levy to schemes it considers pose a specific risk. In support of this change, the PPF announced a zero levy for 2025-26 for conventional DB schemes and is consulting on setting a zero levy for these schemes in the next financial year. That would unlock millions of pounds in savings for schemes and boost investment potential, and it has been widely welcomed by stakeholders.

On the way forward, as the PPF is not currently collecting any levies from conventional schemes, whether risk based or scheme based, the make-up of the split is less consequential for schemes: a different percentage of a zero charge is still zero. But, while the PPF is strongly funded, it underwrites the whole £1 trillion DB universe, as I said. There is inevitably huge uncertainty about the scenarios that could lead to the possibility of the PPF needing to charge a levy again in the future, but it cannot be entirely discounted. We recognise the concern that, if that were to happen, the proposed legislation does not go far enough to allow the PPF to calculate the appropriate split between risk-based and scheme-based levies, particularly as the number of risk-based levy payers is expected to diminish over time.

Obviously, the amendments tabled here would give the PPF full discretion on how the split of the levy is calculated and set. While that may be welcomed by some, our view is that we need to consider any changes carefully to ensure that any legislation is balanced, is proportionate and gives the right flexibility while maintaining appropriate safeguards. That will take time. We will continue to consider whether further structural change to the PPF levies may be required in the future and, where it is, whether it works for the broad spectrum of eligible DB schemes, the PPF and levy payers.

In response to the noble Baroness, Lady Stedman-Scott, the Government’s view is that there is a reason the framework is set in legislation: to give levy payers confidence on future calls. But, as I said, we will consider the way forward. I cannot say to the noble Baroness that we will do that between now and Report—it will take time to reflect on future changes and, if there are to be any, to make sure that they happen—but I am grateful to her for raising the matter and for the debate that it has produced. I hope she will feel able to withdraw her amendment.

[Baroness Bowles of Berkhamsted (LD)]

I thank noble Lords who spoke. I freely admit that they know more than I do about these aspects, so I am glad that the conversation has started. I understand that this might bring something a little less wide in due course. It is a conversation that, having started, I hope will be continued. I will think about whether I can invent something that is a little less adventurous for Report, but in the meanwhile, I beg leave to withdraw my amendment.

Amendment 203A withdrawn.

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[Baroness Altmann (Non-Afl)]

I understand the point that the noble Lord is making. I am just not convinced that one would want to put this type of responsibility on the Government. Of course, judgments in international law change from time to time, and trustees are investing for the very long term. I recall the example of Myanmar given by the noble Lord, Lord Pitt-Watson. There are difficult issues that I understand the Government might regulate for. How pension trustees then build that into their asset allocation is another layer of complexity that I have concerns about, but I certainly have every sympathy with the intentions of the noble Lord, Lord Hendy, and the noble Baroness, Lady Janke. It is a difficult one. I just caution that getting to that level of prescription could be the thin end of the wedge for pension trustees, who already have so many responsibilities upon their shoulders.

[Baroness Bowles of Berkhamsted (LD)]

I welcome the noble Lord, Lord Pitt-Watson, to the Committee. His comments have inspired me to make a very small intervention. It is true that there is a lot of index investment, and inevitably that will capture things inadvertently, but there are now many more indices that will be socially responsible or environmentally responsible, and trustees can choose to use them.

If pension trustees collectively and pension funds made a little more noise and made more approaches to the index providers, we may well get indices that are more pushy in what they do for social and environmental protection. Ultimately, most of the time they are paid to invent an index or they are doing it for their own platforms, but I see an open door there to apply pressure.

[Lord Palmer of Childs Hill (LD)]

My Lords, I welcome the contribution of the noble Lord, Lord Pitt-Watson—may there be many in the future. In coming to the Moses Room for the pensions Bill debate, I never thought that I would have to declare an interest, but according to the Companion I need to say that I am the president of the Liberal Democrat Friends of Israel. I need to put that on the record because of what has been said.

I understand where we are coming from, but the trouble is that in the modern world, investments are global. You do not necessarily have one cup being manufactured in the UK or in the countries mentioned by noble Lords. Very often, you have bits of equipment manufactured here, in Israel, in America and elsewhere. I give the F35 aircraft as an example: the parts are assembled from all parts of the world. It becomes a global thing, and it is difficult in the global economy to identify where something is manufactured or whatever.

The point at issue—it is a good point—is that trustees have to make the decision. They will take into account all the points made by the noble Lord, Lord Hendy, and my noble friend Lady Janke, but at the end of the day they have a fiduciary responsibility to their members. This is not the first time this has happened. Hertfordshire very recently had an amendment to divest from one country. It was passed on the chairman’s vote. What happened? It went back to the pensions committee of Hertfordshire County Council, which decided that its fiduciary duty was not to make political statements but to look after the investments under its control. Whether it is Myanmar, Israel, China or Russia, it is a very slippery slope when you do that. So, as people involved in pensions, we have to leave it to the trustees to use their judgment, taking into account all the factors that the noble Lord, Lord Hendy, and others mentioned. It is a fiduciary judgment. Our view is that the fiduciary duty should be robust, not restrictive, focused on long-term member outcomes, informed by real-world risks and clear enough to avoid defensive or overly narrow decision-making. I do not support this amendment.