Pension Schemes Bill

Baroness Neville-Rolfe Excerpts

Thursday 19th March 2026 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I am sorry for forgetting having agreed to that intervention.

In moving Amendment 105A, I will also speak to Amendments 114 and 115 in this group. I thank my noble friends Lady Stedman-Scott and Lady Neville-Rolfe for adding their names. In the previous group, we concentrated on size not being everything when determining which pension schemes will be allowed to live on after the consolidation enforced by the scale requirements. My noble friend’s Amendment 77, which the House has just agreed to, has modified the size test. However, even with that important change, the scale requirements will represent a major market intervention by the Government. It is the DC schemes market that I am addressing with these amendments.

My amendments focus on the role of competition and innovation. The one thing that we really need in the long term is a market that will continue to evolve and work for the interests of pension savers. The one thing that we do not need is a mature market consisting of a limited number of large players untroubled by the potential for market disruption. Mature markets can still be competitive and there would be incentives to innovation within a mature market, but that innovation tends to focus on incremental and often process-based improvement. The plain fact is that factors such as incumbent inertia and investment in legacy systems act as counterweights. Disruptive innovation is typically associated with new entrants that spot underserved markets, structural rigidities and the opportunities to harness technological breakthroughs. They do not all succeed but often end up reshaping mature markets, such as is happening with fintechs.

The rules that the Bill sets out for pension schemes must ensure that the benefits of competition and innovation, which ultimately deliver better returns for pension savers, are kept alive and well in the new pension scheme universe that the Bill will deliver. My Amendments 105A and 115 focus on the regulation-making powers surrounding the new scale requirements in Clause 40, and the new entrant and consolidation powers in Clauses 42 and 44. They would both require those making the regulations to have regard to

“the encouragement of innovation in the design and operation of pension schemes, and … the benefits of competition among providers of pension schemes”.

These regulation-making powers will be operated in part by the Secretary of State and in part by the FCA and the Pensions Regulator. The important thing is that, when deciding on the regulations, the person making them must keep competition and innovation in mind as relevant factors for shaping how the detailed rules are framed and will affect how the market develops over time. This is especially important in relation to the Pensions Regulator, whose statutory responsibilities are very narrowly drawn and do not extend to the pension provision market as such.

My other amendment in this group, Amendment 114, would add competition and innovation to the matters to be addressed by the review of non-scale default arrangements as required by Clause 43. I am currently minded to test the opinion of the House on the two amendments seeking to affect the regulation-making powers—Amendments 105A and 115. I beg to move.

[Baroness Neville-Rolfe (Con)]

My Lords, I support Amendment 105A and the proposed new clause in the name of my noble friend Lady Noakes, to which I added my name. It is essential, in my view, to require the regulations to be pro-innovation and pro-competition rather than over-exclusionary. The £25 billion minimum provided for in the Government’s reforms seems set to deter innovation. My noble friend Lady Noakes has explained the case and the reach of our proposal very well, so I will not speak at length.

I was a trustee of the pension fund at Tesco, which at the time was worth less than £25 billion. We were innovative: we invested in private equity, including US private equity, when others did not, and we had part of our portfolio in housing—just the sort of innovation that the Chancellor is seeking to encourage. However, today that would not be seen as innovation. I am sure that my successors are looking at today’s innovative investments: fintech, quantum, space, rare earths, new types of weapons and other types of disruptive innovation. I have also been struck by the arrival in the pensions market of online-only operators. They started small, made good returns and are a growing part of the market.

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[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Noakes, for introducing her amendments. The Government think it essential that pension schemes remain competitive post scale and we expect that schemes with scale, as well as market disruptors, will continue to innovate and drive competition. We actively encourage competition through the provision of the new entrant pathway to allow new innovative schemes to enter the market.

The scale measures place a requirement for a main scale default arrangement at the centre of the scheme, to deliver scale and the benefits that that can bring. Amendments 114 and 115 relate to measures on consolidation and addressing fragmentation within schemes that are in the market. There is currently significant fragmentation within the market, with high numbers of default arrangements that do not ultimately serve member outcomes.

While I recognise that much of the fragmentation is a product of history in contract-based schemes, we have seen that the number of default arrangements is increasing across the market and in a number of master trusts. We do not want to see the same issues arising over time as exist in GPPs, where members are in too many default arrangements that do not offer value.

Let me be clear: the measures in Chapter 4 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. What we want to see is default arrangements being created where this meets and continues to meet genuine member or employer need in tandem with the scale measures. That is why we are introducing measures to prevent new default arrangements from being operated without regulatory approval and carrying out a review into current arrangements to establish where they should be consolidated or the reasons for them to continue.

Amendment 114 seeks to require the review of default arrangements to consider the extent to which arrangements contribute to innovation and competition. I agree with the spirit of this amendment, but I do not think that it is necessary. The review must already consider the circumstances where it is appropriate for non-scale default arrangements to continue operating and it is right that competition and innovation will be part of that work. The review will consider how competition and innovation have driven the operation of non-scale default arrangements and what they are expected to deliver for members.

Amendment 115 seeks to require that regulations under Clauses 42 and 44 will have regard to competition and innovation. Again, I agree with the intention behind the amendment, but it is unnecessary. I shall explain why. It is reasonable to expect that the regulations that set out the criteria in which regulators can approve new default arrangements will include innovation and competition. Indeed, we expect these arrangements to meet a specific need or offer something different to the market. It is also reasonable that these will be considerations in setting out where non-scale default arrangements will have to be consolidated. However, as the Bill sets out, those regulations already have to take into account the conclusions of the review, and that will consider competition and innovation.

Amendment 105A seeks to require regulations across the scale measures to have regard to innovation and competition. I reiterate the Government’s support for an innovative market, and we expect providers to continue to innovate. The amendment is not needed to achieve that but, although well-intentioned, the duty that the amendment would introduce ignores the policy objectives of the scale measures and the benefits they are expected to bring. To be clear, the benefits of scale include lower charges, diversified investments and improved governance. We are already creating space in the market for innovation through the new entrant pathway and, as previously outlined, we still expect the market to be competitive.

More than that, though, we need to remember something crucial about the nature of the DC market. A competitive market is vital but we also have to recognise that the ultimate beneficiaries—the members—do not select their scheme. That is done by the employer. Employers are the decision-makers on pension provision. They are the buyers in this market and they will try to do the best for their workforce, but ultimately, of course, their focus will be on current rather than past employees. We therefore need to drive schemes to deliver for all members, not just those who are actively contributing, and too narrow a focus on competition and innovation will not do that. The needs of members should be paramount.

[Baroness Neville-Rolfe (Con)]

Before the Minister proceeds, could she tell us whether competition and innovation feature at all in the Bill?

[Baroness Sherlock (Lab)]

My Lords, there is, of course, an innovation pathway; innovation therefore clearly has to be in that. The innovation pathway is the innovation pathway, so it clearly is in that. I have set out on the record my expectation of what will be considered in the review and the fact that the regulations will have to take account of what the review says. I hope that satisfies the noble Baroness.

The needs of members should be paramount. It is right that the Government are acting to protect them and to drive schemes to have the capability and capacity to deliver better outcomes. I hope that the noble Baroness, Lady Noakes, can see that we share the same overall objectives and that the Bill as drafted accommodates the intent of her amendments. I hope she feels able to withdraw the amendment.