Pension Schemes Bill

Baroness Hayman Excerpts

2nd reading
Thursday 18th December 2025 Lords Chamber

[Baroness Hayman (CB)]

My Lords, I declare my interests as a past chair and present director of Peers for the Planet. It is a great pleasure to follow the noble Lord in what he has just said. We have worked together on these issues before, and I feel somehow that on the issue to which I will return, fiduciary duty, we have the very good beginnings of a cross-party amendment with him, me and the noble Baroness, Lady Bowles—and I hope we will recruit from the Labour Benches as well.

The noble Lord, Lord Sharkey, some hours ago—not long hours, interesting hours—mentioned the absence in the Bill of any reference to the Paris Agreement and the Climate Change Act. The noble Baroness, Lady Bennett, mentioned the previous Pension Schemes Bill, in which we both participated six years ago.

That Bill, thanks to a cross-party amendment and great support from the noble Baroness, Lady Stedman-Scott, who was the Minister at the time, included references to the Paris Agreement and the Climate Change Act. I am assured that it was the first piece of pensions legislation in the world that mentioned those things, and it has been followed by many pieces of pensions legislation in many jurisdictions since then. Therefore, I am hopeful that we may make some progress on this.

As the Pensions Regulator has said, pension schemes are

“uniquely placed to understand that short-termism in the face of systemic risk is not the right approach for … pension savers”.

Successive Governments have recognised that the UK’s long-term prosperity will depend on our ability to lead the transition to a greener financial system. However, financial experts, such as the Institute and Faculty of Actuaries and the Pensions Regulator, warn that many schemes continue dramatically to underestimate climate and environmental risks. The Pensions Regulator has stressed that climate change and nature loss are not “abstract concerns” and that

“awareness of and managing systemic risks is … a core part of effective trusteeship”.

The Chancellor recognised the centrality of the issue in her Mansion House speech last year. In letters to the Bank of England and financial regulators, she said:

“The climate and nature crisis is the greatest long-term global challenge that we face”.


She recommended that they

“consider how these risks could impact financial stability over the near and longer-term”.

She also reaffirmed her commitment to make the UK a global leader in sustainable finance.

There are clear benefits to placing the UK at the centre of global financial flows that will drive the economy of the future, creating high-quality jobs and enabling the investment we so urgently need in the face of ongoing economic and cost of living pressures. The pension sector must be central to that endeavour. With the third-largest stock of pension assets in the world, the UK has the capacity to set a global benchmark for responsible investment. The £3 trillion held in UK pensions represents an enormous opportunity to align long-term investment with long-term risks and long-term economic stability.

However, significant exposure to environmental and supply chain risks and fossil fuels leaves savers at risk of holding stranded assets or seeing significant reductions to their pension pots in the years ahead. This is neither in members’ interests nor in our national interests. Therefore, in our discussions on the Bill, I will be very interested to hear how pension schemes investments can align with our climate and nature goals.

As the Bill stands, it remains silent on how the major pension reforms it contains will support the delivery of our nature and net-zero targets, despite the risk to both savers and our economic prosperity that institutions, such as the International Energy Agency and the Climate Change Committee in this country, have highlighted. UKSIF has estimated that approximately £88 billion-worth of UK pensions are directly invested in fossil fuel assets, and that, even if the limited decarbonisation pledges made so far by countries are fulfilled by 2040, £15 billion of UK pensions are at risk of loss due to stranded assets.

The Bill offers a practical, incremental opportunity to put a direction of travel in statute on the need to move away from investment in carbon-intensive assets in a managed and orderly way. It could send a clear signal about the long-term risks we face and help pension schemes to prepare for the transition in a considered way.

One of the measures we could take, and something that I will certainly be focusing on, as I said, as we go through the remaining stages of the Bill, is the clarification of fiduciary duty. For too long, many pension schemes’ trustees have reported confusion about what they should take into account when making investment decisions, particularly when those decisions involve long-term structural risks such as climate change, nature loss and other systemic factors. This can lead to unnecessary and unjustified caution and reinforce a bias towards short-term financial returns, even when the long-term risks are clear.

I think we all absolutely understand and agree that trustees of pensions have a fundamental responsibility to act in their members’ financial interests. However, the clarification of fiduciary duties in legislation, far from detracting from that responsibility, would enable trustees to fulfil it more effectively. So, while I welcome the commitment made on Report in the other place for guidance on this issue to be brought forward, guidance alone falls short of providing the legal certainty that is needed, as the noble Baroness, Lady Bowles, said so clearly.

Guidance can be challenged, ignored, and reversed without primary legislation. The legal ambiguity to which trustees are currently exposed will remain, even if in a slightly lesser degree, if there is only guidance on which to rely. Legislative clarification would dispel that uncertainty and future-proof the system to ensure that pension schemes are better able to recognise and to manage the systemic risks of climate change and nature loss. It would support trustees to act in the long-term interests of all beneficiaries and address issues of intergenerational fairness that are becoming of increasing importance as the longer-term consequence of the climate and nature crisis becomes clearer. It could also lead to better returns and increase new investment in the areas we need to future-proof our economy: clean energy, clean transport, clean infrastructure and, crucially, to unlock the economic opportunity of investing in nature-positive solutions.

I very much look forward to pursuing those issues as the Bill proceeds through your Lordships’ House.

Pension Schemes Bill

Baroness Hayman Excerpts

Committee stage
Monday 23rd February 2026 Grand Committee

[Lord Sharkey (LD)]

My Lords, Amendment 212 is in my name and those of the noble Baronesses, Lady Hayman, Lady Griffin of Princethorpe and Lady Bennett of Manor Castle. I thank them for their support and look forward to their contributions. I also thank the Better Pensions Coalition for its input and advice—I should probably say “guidance” rather than “advice”, since no money changed hands.

This amendment has a simple purpose: it seeks to restrict pension investments in companies that undertake certain significant levels of climate-damaging activity Specifically, it would require the Government to legislate to exclude firms with high thermal coal exposure from pension scheme portfolios within one year of Royal Assent. It would require regular reviews on whether to extend the exclusion, and would permit the Government to legislate to implement the outcomes of those reviews. The amendment sets out to do this by amending Section 41A of the Pensions Act 1995, which was inserted by Section 124 of the Pension Schemes Act 2021 under the previous Conservative Administration.

Section 41A allows the imposition of regulation on trustees of pension funds in order to secure

“effective governance of the scheme with respect to the effects of climate change”.

The location of this clause means that all exclusions must be legislated for on climate-risk grounds, not on ethical grounds or approval or disapproval of certain investments. That is why the primary focus of our amendment is the risk to savers’ retirements generated by climate change. It is the case that savers are at risk, not just from fossil fuel assets that have become stranded as the cost of low-carbon energy falls, but from their pension schemes’ investments in fossil fuels funding increased global emissions, contributing to runaway climate change, which would damage returns and the value of their other investments.

There are no safe-haven assets that will be immune from the 2.6 degrees centigrade global warming we are currently steering towards. The Institute and Faculty of Actuaries has assessed that the current suite of global climate policies could shrink the global economy to half its current size. Alltech finance research indicates that UK pension portfolios could face valuation declines of between 25% and 50% under plausible climate scenarios. Pension savers risk a much more expensive retirement and poor quality of life from continued fossil use. The cost of housing, energy and food is likely to be much higher, partly because their pensions have funded dangerous levels of climate change.

The amendment starts with thermal coal, the most damaging and least necessary fossil fuel. Here in the UK, of course, we ended the use of coal on the power grid in 2024, but despite that, UK pension funds risk undermining this progress by funding the continuous expansion of coal overseas. New research recently published by Finance Innovation Lab has found that pension schemes hold around £10 billion in thermal coal and that this could be responsible for around 17 million tonnes of greenhouse gases each year. Ironically, that is the same as the entire reduction in emissions from the UK power network under successive Conservative and Labour Administrations between 2019 and 2025. In other words, the UK’s main climate policy achievement at home, replacing coal-fired power with clean energy, may have been cancelled out by pension scheme investments in coal overseas, using contributions from savers, employers and taxpayers.

Pension schemes also continue to hold many more billions, around £88 billion at the last estimate, in fossil fuel companies as a whole, including those involved in new coal and gas and oil exploration. This has some of the characteristics of a collective action problem. The International Energy Agency has warned that there is no scope for additional fossil fuel production if the world is to stay within safe climate limits. Schemes fear missing out on short-term returns that other schemes may be generating, so each scheme staying invested and funding further oil, gas and, especially, coal investment is jeopardising long-term returns for themselves and for everybody else.

The UK pension sector is the largest in Europe. It has the potential to move markets, hasten the global exit from coal and, in due course, to do the same thing for oil and gas expansion. I make it clear that our proposed amendment does not sacrifice member returns. Any decisions to require exclusion must be made on climate risk grounds in accordance with the provisions of Section 41A of the Pensions Act 1995, not on the basis of ethical or political objections, as I said. The amendment cannot be used by the Government to mandate or forbid other types of investment because only the investments set out clearly in proposed new subsections (6B) and (6C) are in scope. Any attempt by the Government to use our amendment to exclude a wider range of investments without demonstration of the climate risk would be unlawful. I should also mention at this point that steelmaking would be unaffected by our amendment: the ban would be limited to thermal coal. Over time, we will need to phase out coking coal as well, but this can take place when it can be done without disrupting the sector.

We have seen in our discussions in Committee that the Government would like to have a reserve power to mandate pension investment into private markets for member returns and wider economic benefits. For Peers who are opposed to the principle of mandation, as I am, I reassure noble Lords that the power to exclude contained in our amendment is very tightly constrained. It would permit a direction to exclude only on climate risk grounds, in accordance with the terms of Section 41A. The Government, as we have seen, are proposing a reserve power to allow direction on almost any grounds, as long as they produce a report first. Our amendment is limited to coal and other fossil fuels. The Government’s reserve power allows the direction of investment into any sector, jurisdiction or asset class, as long as it is not listed.

The Government may claim that the consolidation proposed in the Bill will help reduce investment in fossil fuels, but that seems unlikely on the basis of current behaviour. Industry research due to be published next month by Corporate Adviser Intelligence will show that seven of the largest 19 schemes used for automatic enrolment—including household names such as Aviva, Royal London and Scottish Widows—remain invested, via their default fund, in one or more of thermal coal, tar sands and Arctic drilling.

Transition plans also do not look likely to address our concerns. Labour’s manifesto proposed that schemes should be required to produce and implement Paris Agreement-aligned transition plans but, 18 months on, there does not appear to be a decision on whether to proceed with that. As I understand it, there is slated to be a consultation on policy detail in 2026 and there may be regulations in 2027, with plans perhaps to be produced in 2028—so probably no action before the next general election. But the Government have made strong commitments, both at COP and in their own targets, with the aim of an effective 40% reduction in greenhouse gas emissions between 2020 and 2030. Transition plans will be great for the 2030s and 2040s, but those plans can be built only on the emissions reductions that we achieve in this decade.

We need faster action to be able to achieve our targets. Our amendment will deliver some of that, and I beg to move.

[Baroness Hayman (CB)]

My Lords, I declare my interests as a director of Peers for the Planet and a previous chair of that organisation. In this group of amendments, we address long-term systemic risks and how pension schemes both assess and manage them. All three of the amendments that we are discussing recognise that it is pension savers who will pay the heaviest price if the financially material risks to their savings and standards of living posed by climate change and biodiversity loss are not properly accounted for.

I have added my name to Amendment 212, which was just introduced so cogently by the noble Lord, Lord Sharkey. It is important because, as he said, UK pension schemes and savers remain overexposed to the risks of stranded assets from fossil fuels—in particular, coal. New research by the Finance Innovation Lab suggests that UK pension funds have at least £10.5 billion invested in companies that are extracting or burning coal, which could pose significant risks to pension savers. To date, pension schemes have not been required to take mitigating actions, so the sector has not moved quickly enough or at the scale needed to insulate savers from the emerging market and physical risks linked to those very carbon-intensive investments.

I also welcome the constructive intentions behind Amendment 218E in the name of the noble Baroness, Lady Coffey, and I look forward to hearing her speaking on it later. This amendment seeks to solve a major blind spot in the pension system by equipping trustees with the tools to understand how nature loss may affect asset values, as well as how global efforts to restore nature may reshape markets.

I now turn to my cross-party amendment, Amendment 218A. I thank the noble Lord, Lord Sharkey, and the noble Baronesses, Lady Penn and Lady Griffin of Princethorpe, for their support in adding their names. I am grateful to the Minister and her officials for a useful and interesting meeting ahead of today’s debate, although I hope that she may be a little more optimistic in her response to my amendment today. I am also grateful for the briefings I have received from UKSIF, Unison and ShareAction, and I pay tribute to the Financial Markets Law Committee for both its work on fiduciary duty and its extremely valuable 2024 report.

That report highlighted the way in which the gap left in legislation relating to fiduciary duty causes confusion and uncertainty and can result in trustees interpreting duties in overly narrow ways. I do not want to repeat my Second Reading speech, but there is now a widespread acceptance that the current lack of clarity around fiduciary duty is a real problem for pension scheme trustees—for example, in how trustees balance maximising short-term returns, potentially at the expense of considering other material factors over the longer term, which can have real-world implications for members’ interests further down the line. Even the Treasury, in its recently updated Green Book, recommends that the business case for proposals with a lifetime beyond 2040 should now be appraised against warming scenarios of both two degrees and four degrees centigrade, a possibility under which scientists say that the risks to economic growth and financial stability go up and into uncharted territory.

Pension Schemes Bill

Baroness Hayman Excerpts

Report stage
Monday 23rd March 2026 Lords Chamber

These amendments strengthen trustee confidence, enhance governance and modernise the interpretive framework that underpins pension savings. I beg to move.

[Baroness Hayman (CB)]

My Lords, when I came into the Chamber today, a Cross-Bench colleague congratulated me on the way in which my amendment has been handled; it is an absolutely perfect example of how the House of Lords should operate. We are all very aware, I think, that sometimes we are not operating at our best at the moment. In this case, an amendment was put forward on a cross-party basis and negotiations went on with the Minister; we managed to thrash out an amendment—and we did not get everything that we wanted, but we certainly got the legislative basis on which guidance could be issued. That guidance has been asked for by trustees and the industry and considered by working groups. I first got involved with the issue and knew that there was a request for clarity some five or six years ago, when we had another Pension Schemes Bill.

I am seriously disappointed that what I thought was a consensus that this was a good way forward has not been accepted across the House. I am particularly distressed that, as I understand, the Liberal Democrat Benches will not be supporting the government amendment today. My understanding up to this morning was that the concerns that existed there related to the fact that my amendment had in some way been watered down and was less tough, putting less into statute and giving more reassurance to those who were concerned about overinvolvement. The Minister set out very clearly that this was not a case of overinvolvement; it is certainly not a case of mandation. I was once told that a Secretary of State in a previous Government said that he did not worry at all about “have regard” amendments, because they could be ignored if there was a basis for so doing.

So I am, as I say, very upset. I will not go through all the arguments as to why this would be valuable—I did it at Second Reading and in Committee and the Minister has done it for me today. I am no expert, and I accept that there are experts in the Chamber, but pension investments are the ultimate long-term investments—the ultimate investments in which long-term, systemic risks should be taken into account. The anxiety that some pension fund trustees had about taking those into account was holding those funds back from acting in the best interests of their pensioners. That, quite simply, was what we were trying to put right in this amendment. The Minister has made a compelling case for this amendment, which she and her officials have taken infinite care over, and I still hope, even at this late stage, that those who are thinking of not supporting it will reconsider and support it strongly, as I do.

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I shall make a few brief remarks in support of the Government. I declare an interest as chairman of the Financial Markets Law Committee, which issued a paper about two years ago now to try to explain the very complicated problems. This would be an easy matter to solve if lawyers were not paid at the extortionate rates at which they are paid, because each bunch of trustees could take their own legal advice, but unfortunately we live in a world where lawyers are grossly over-remunerated, and it is not practicable for trustees of pension schemes to take legal advice. It is therefore necessary to provide some guidance in relation to fiduciary duties.

These are complicated, partly because they have a very ancient history, albeit one that has worked well, and partly because the Law Commission issued a paper some years ago which was not entirely clear. The paper that the Financial Markets Law Committee issued, although it was agreed unanimously by the committee, is not entirely easy to follow. Therefore, what was needed was something that ordinary trustees could look at and be guided by in the exercise of their fiduciary duties. As the Minister has explained, and as my understanding is, the guidance is going to be prepared by an independent group. Having had to see some of those who have been involved, “independent” is a correct description of them. Pension lawyers are tough people and I have no doubt whatever that they will produce independent advice and will not be cowed by any Minister into providing something that does not accord with the law—what they will be doing is giving guidance on the law.

There is one point upon which I disagree with the Minister. She says that the guidance will be authoritative. Yes, in one sense, but not authoritative in the sense in which it is popularly understood. They cannot give advice that changes the law in any way whatever, because that would be ultra vires what they are intending to do, and if they did, one could go to the court and say, “The Secretary of State’s guidance does not represent the law”. Therefore, the argument that this is in some sense changing the law is totally misconceived, maybe because some have not read the amendment very closely. This is simply guidance.

When we look at fiduciary duties and at the 2005 pension regulations, as amended in 2018, there are phrases that are not easy to understand. Therefore, what the Secretary of State is going to do seems to me entirely sensible. She is going to get a group of independent people—and jolly independent they are too—presided over by Sir Robin Knowles, who is fiercely independent, and all they will be doing is trying to explain the law to people, without the people concerned having to pay the fees of lawyers.

I cannot understand how anyone could possibly oppose this. If there is something in the wording that is not quite right, it would be wonderful if someone could say what it is; no doubt it could be corrected in time for Third Reading. To deprive pension trustees of advice and force them into the hands of lawyers is quite wrong. Who pays the fees of the lawyers? The pension funds. This is a good piece of legislation, and we ought to support His Majesty’s Government.

--- Later in debate ---

Tabled by

[Baroness Hayman]

167: After Clause 117, insert the following new Clause—
“Clarification of pension scheme investment duties(1) In section 36 of the Pensions Act 1995 (choosing investments), after subsection (9) insert—“(10) In complying with requirements imposed by this section and regulations, a trustee or manager must have regard to guidance prepared from time to time by the Secretary of State.”(2) The Secretary of State must, within six months of the day on which this Act is passed, issue and thereafter maintain statutory guidance for trustees of trust schemes in relation to the discharge of their investment duties.(3) The statutory guidance must set out (amongst other matters) the ways in which trustees may, when investing the assets in the best interests of members and beneficiaries, take into account—(a) the risks and opportunities provided by matters such as climate change, environmental and social factors, and(b) members’ and beneficiaries’ standards of living.(4) The Secretary of State must issue and thereafter maintain corresponding guidance within the same six-month period for the Local Government Pension Scheme.(5) The Financial Conduct Authority must issue and thereafter maintain corresponding guidance within the same six-month period for providers of pension schemes to which Part 7A of the Financial Services and Markets Act 2000 (as inserted by section 48 of this Act) applies.(6) Before publishing the statutory guidance for the first time, the Secretary of State must lay the draft guidance before Parliament.(7) The Secretary of State must withdraw the draft guidance if, before the end of the 40-day period, either House of Parliament resolves not to approve it.”Member’s explanatory statement
This new clause seeks to ensures that statutory guidance, to which trustees must have regard, is issued within six months of Royal Assent to clarify investment duties of occupational pension schemes, including a range of risks and opportunities and beneficiaries’ standards of living. It also requires the FCA and Secretary of State for Housing, Communities and Local Government to issue corresponding guidance for workplace personal pension schemes and the Local Government Pension Scheme.

[Baroness Hayman (CB)]

Tempting though it is to reinitiate the earlier debate, I will not move Amendment 167.

Amendment 167 not moved.

--- Later in debate ---

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to join a distinguished cross-party group, signing and speaking to Amendment 170. Like the noble Lord, Lord Sharkey, I want to reflect back to what was said in Committee, when the Minister said that she shared the cross-party concern about pension scheme investment in thermal coal, that she recognised the high financial and climate risks, and that she welcomed some industry-led reductions in exposure. She said that the Government would

“support and challenge the sector in rising to that task”

and that the levers to do that included

“better data and better transparency”.—[Official Report, 23/2/26; col. GC 291.]

That is what this amendment aims to deliver, because the transparency is just not there now.

Transition plans are often cited as a solution to this. These were a manifesto commitment in July 2024, to meet Paris alignment transition plans, but 18 months into this Parliament, there has not been a response to a consultation which took a year to emerge, and more or less asked, “Should we do all of this?” Recently, the Pensions Minister, Torsten Bell, said that transition plans for pension schemes were not a priority, which is reinforced by the fact that the Government are not taking powers in this Bill. There have been suggestions that consolidation will fix all this, but an analysis by Corporate Adviser Intelligence shows that the DC multi-employer schemes most commonly used for automatic enrolment are in fact the largest of them and more invested in thermal coal, and that the mid-sized schemes that would be consolidated are less exposed.

It is also worth stressing that there is a precedent for Ministers writing directly to the largest pension schemes to understand their responsible investment practices and for the Government setting non-statutory expectations about pension schemes’ investment practices. Those on the Front Bench in front of me will probably not thank me for pointing out that when they were in government, they set out a non-statutory expectation in the 2019 green finance strategy that pension schemes and others would disclose climate risks in line with the Task Force on Climate-related Financial Disclosures by 2022. Later, the then Pensions Minister, Guy Opperman, wrote to the 50 largest pension schemes to request their policies and understand their climate investment strategies. That is what the previous Government were doing—surely this Government do not want to be behind that.

It is clear that there is actually a latent appetite to go further. Two-thirds of the audience, mostly representatives of pension funds, at the recent Pensions UK conference debate between Caroline Lucas, my former honourable friend, and the noble Lord, Lord Gove, agreed that pension funds were not now doing enough to tackle the climate change risks. These are, as I said in Committee, financial as well as climate risks. We simply are not taking the steps that are needed. This amendment would provide the way forward that the Minister suggested in Committee that she wanted to see. Here it is, so I hope to hear positive news from the Government on this amendment.

[Baroness Hayman (CB)]

My Lords, I have added my name to this amendment. Given the quality of the speeches that have explained exactly what it would do and its very limited but important purpose—simply to allow the Government to have a proper handle on the data and a proper understanding of the exposure that pension schemes have to thermal coal investment—I think it would be a valuable step forward, one that I hope will get support from all around the House. In Committee, the Minister rightly acknowledged the high financial and climate risks associated with thermal coal investment and indicated that it was the Government’s expectation that industry will do more to reduce levels of coal investment, but we need to understand exactly what those levels are and to monitor them. For that reason, I support the amendment.

[Baroness Stedman-Scott (Con)]

My Lords, I am grateful to the noble Lord, Lord Sharkey, and the noble Baronesses, Lady Hayman, Lady Griffin and Lady Bennett, for this amendment, and I fully recognise the principle that underpins it. However, we have some reservations about the approach taken here. In particular, we are concerned that it would impose an additional compliance burden on schemes, including the Local Government Pension Scheme. The LGPS should be focused on delivering the best possible outcomes for its members, and where there is surplus within the system, that should be directed towards supporting members’ interests, rather than being absorbed by additional reporting requirements.

More broadly, while this amendment is framed around thermal coal, it raises a wider question: introducing a requirement for annual reporting on specific categories of investment risks setting a precedent which could, over time, expand into a much broader set of ESG-related reporting obligations that, in our view, risk creating a cumulative regulatory burden which may not ultimately serve members as well as it intends. So, while we understand and respect the intent behind this amendment, we are not persuaded that this is the right way to proceed.