Pension Schemes Bill

Baroness Noakes Excerpts

Monday 26th January 2026 Grand Committee

Moved by

[Baroness Noakes]

91: Clause 40, page 38, line 34, at end insert—
“(c) able to demonstrate that they deliver investment performance which exceeds that achieved by the average of all Master Trusts which hold an approval under section 28A in respect of a main scale default arrangement.”Member’s explanatory statement
This amendment allows Master Trusts which deliver good investment performance to be excluded from the scale requirements.

[Baroness Noakes (Con)]

My Lords, I will speak to my Amendments 91 and 95. I thank my noble friend Lady Neville-Rolfe for adding her name to them. Having had a little detour into asset mandation in the last group, we now return to scale. My Amendments 91 and 95 relate to master trusts and group personal pension plans, respectively, returning to the theme of size not being everything. They are intended to exempt from the scale requirements those schemes that deliver investment performance which exceeds that achieved by the average of all master trusts or all group personal pension plans.

We debated the general theme of size not being everything on the last day of Committee. I firmly believe that we should not let an obsession with size squeeze good performers out of the market. The Minister’s arguments on that day, despite protestations to the contrary, show that the Government have an obsession with size that overrides their professed desire for better outcomes for savers. If they really care about outcomes for savers, they should not be fixated on structural issues such as the size of assets under management, because good investment returns are not the exclusive preserve of schemes that reach the magic £25 billion of assets. The evidence for the Government’s policy cited by the Minister last week merely indicates that there is a correlation between size and returns achieved. That evidence, however, categorically does not demonstrate that good returns are obtained only by those which pass a size threshold.

At the heart of this debate is the problem that the Government are trying to use this Bill to force pension schemes to divert investment resources into things that the Government think will improve the UK economy, while at the same time claiming the objective of good outcomes for savers. I remind the Minister of Tinbergen’s rule: if policymakers wish to have multiple policy targets, they must have an equal number of policy instruments under their control. One instrument—mandating the size of pension provider—will not achieve the separate targets of improving savers’ outcomes and increasing UK productive investment without risking policy effectiveness and reduced transparency and accountability. By ignoring Tinbergen’s rule, the Government are actively inviting policy failure in this area.

I also strongly support Amendment 98 in the names of my noble friends Lord Younger and Lady Stedman-Scott. Innovation will not thrive in the pension sector if it has to pass arbitrary size tests. We should do everything that we can in this Bill to promote innovation. I beg to move.

[Baroness Altmann (Non-Afl)]

My Lords, I, too, have a number of amendments in this group and I will address my remarks mainly to them. Amendments 99 and 106 recommend removing the specific figure of £25 billion from the Bill and replacing it with a figure to be determined by the Government nearer the time, I hope, after detailed consultation.

On the last day in Committee, when we debated Amendment 88 on small pots, in the name of the noble Baroness, Lady Noakes, which proposed a monetary limit of £10,000, the Minister rejected the amendment on the grounds that

“the Government are not persuaded that it is sensible to hardwire the cap in primary legislation”.—[Official Report, 22/1/26; col. GC 188.]

Quite right. The same applies here: my amendment follows exactly that principle. I am concerned about the risks involved in tying primary legislation to a fixed monetary sum.

First, a change in market conditions could render it inappropriate. Secondly, such a large sum risks stymieing the development of newer companies and gives an exceptional competitive advantage to those providers already of the required scale. There is no evidence—I have been searching—to suggest that big is always best and there is certainly no academic proof that £25 billion, £10 billion or any other number is the right dividing line between successful funds and failing funds.

Newer entrants with an interesting approach to member service, digital engagement or innovative investment may well take time to break into the market, but just because they have not reached what the Bill determines is the magic number should not mean that they are forced to close, which is what the Bill would do, in effect.

The Minister said that consolidation and scale will mean

“better outcomes for members … lower investment fees, increased returns and access to diversified investments, as well as better governance and expertise in running schemes”.—[Official Report, 22/1/26; col. GC 202.]

That may well be the case for many, but deliberately disadvantaging innovation and putting up barriers that damage recent or newer entrants, regardless of their merits, runs counter to those intended outcomes over the longer term. Using collective vehicles, for example, run by already established experts such as closed-ended investment companies, can replace the need for in-house expertise at each of the big pension funds. Indeed, that option is already available but is being discouraged by the Bill.

As the noble Baroness, Lady Noakes, said, a correlation is not the same as a causative impact. Putting £25 billion into the Bill creates a big issue with some of the newer companies that will fall into the vacuum between the new entrant pathway, which does not start until a scheme is established after 2030, and the transitional pathway, which requires this fixed £10 billion—I could have tabled amendments on that, but £25 billion is the same principle—if they have not reached that level.

What is worse—I tried to indicate this last week—is that, although I know that the Government want to inject certainty by including these numerical figures, unfortunately they are also blocking the progress and potentially forcing the closure of a number of schemes that have digital-first methodologies right now but have not been established long enough to reach the required scale and to which the market to raise growth capital is currently shut. Who would lend money to a newer company that may or may not reach the scale required by the particular date?

The Government need to think again about the merits of using a fixed number, as the Minister mentioned last week. I would be happy to meet officials or Ministers to go through the rationale that has had this damaging effect in the market. I hope that we will not give a hostage to fortune by specifying a particular number in the Bill that may or may not prove to be right, wrong or damaging. I hope that the Minister will help the Committee to understand whether the Government might consider this principle.

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I understand that noble Lords do not like the idea of scale in all cases, but I hope I have reassured them about the nature of our approach and the sense of it, and I hope they will feel able not to press their amendments.

[Baroness Noakes (Con)]

My Lords, I thank all noble Lords who took part in this debate, which has demonstrated that there is unanimity on this side of the Committee on scale not being the most important thing—in direct contrast to the Government’s dogged attachment to scale.

We will probably return to innovation next week, so the Minister will not escape it, but I do not think the Government yet understand how innovation works and what it takes to scale a business: the timescales involved, the way you need to raise finance during the growth of a business, and the impact that what they have put in the Bill will have on those processes. We will need to explore that in much more detail. The noble Baroness, Lady Altmann, who wished to do so, is absolutely right, because I do not think the Government really understand what is involved in this area.

On “big is best”, which we on this side of the Committee certainly do not subscribe to, the Government said that the primary objective was savers’ outcomes, but a couple of minutes later the Minister said that the objective was consolidation. Is there a hierarchy of objectives in this Bill? It is not clear to me that there is. A few sentences away, she talked about the benefits that derive from scale, but the Government seem to have closed their mind to this: if you can get equivalent benefits without scale, why should you not?

That was immediately followed by the Minister saying that when you are in a £25 billion-plus fund, you put double the money into productive finance. There we are into the real objective of this Bill: to funnel savers’ money into productive investment. I refer the Minister to my comments on each policy objective needing a policy instrument and getting into terrible trouble when you try to get one policy instrument to meet more than one objective. I was reminded of this by one of her Back-Benchers, who kindly pointed out that clear rule, which is well evidenced. I will not disclose his identity, and he is not going to get up and say it, but I really think the Government should look again at how they are using the instruments in this Bill to achieve what are clearly multiple objectives, not disclosed in a hierarchy and not even acknowledged as being potentially in conflict. We will clearly not progress any further in Committee, but the Minister should be in no doubt that this will be a feature of our discussions on Report. I beg leave to withdraw.

Amendment 91 withdrawn.

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[Lord Fuller (Con)]

My Lords, the noble Lord, Lord Davies, found the Government’s position inexplicable such that these amendments have become necessary. I can understand that. The point is that the Government do not—they do not understand finance. Perhaps they should have had a few more prawn cocktails before the election; they might have got some learning inside them. This group demonstrates that there is ignorance in this Bill about investment, asset classes and asset allocations.

New Section 28C(5) treats private equity as if it is just one class, but it is not. That is why I welcome Amendment 121, specifically proposed new paragraphs (f) and (g), which would lay out the appropriateness of scale-up capital and quoted and unlisted companies.

There is no doubt that you can make a lot of money in private equity. High risk leads to high rewards; the big hitters can and do make money. The early backers of Revolut turned a million into a billion, as the FT reported last week. On that basis, everybody should be having a go. What could go wrong? We all know that, in many cases, companies get loaded with debt and dividends are extracted; we have ended up with serial bankruptcies in the casual dining sector, for example, and Claire’s has gone bust twice in the last four months. I am not exactly sure the Government should be mandating this sort of thing by statute.

Putting that to one side, I have some experience through my membership of the Norfolk Pension Fund in private equity investment. I have been a board member since 2007. There are some big firms in this space; HarbourVest might be a name familiar to noble Lords but others are available, as it says in the adverts.

To participate in this space, you typically enter a 10-year commitment for quite a lot of money as a fund. You provide the fund manager cash certainty. He can go ahead and acquire smaller firms within the fund. You do not pony the money up front necessarily; it just needs to be available when the fund manager calls you to chip in. By and large, the fund manager finds the firms and invests that money, typically over the first four years of the indicative 10-year period. They then grow and nurture those firms until they can be sold for a profit—unless they go bust in the meantime, which many do.

At some point, 10 to a dozen years later, after all the surviving companies have passed on and the fund closes, all the money is returned to the pension fund. It is a well-trodden path and a proper asset class. This is why proposed new paragraph (g) in Amendment 121 is so important. These opportunities should be available to pension funds, but the Bill as currently constructed excludes them. It is madness. This is not what we need as a nation.

We need to go further. We need to be able to step in and help those founder-owned companies, together with local business angels, their families and friends, to get to the stage where HarbourVest can have a nibble. We need to make the small nibbles into larger fish. It is the scale-up issue. The exam question here is to identify good founder-led businesses locally and grow them. I declare an interest; I have been a director of New Anglia Capital Ltd, which was public sector, 100% owned by councils in Norfolk and Suffolk for the purposes of investing in early stage companies, taking them from a glint in the eye to the stage at which private equity might get involved. My goodness, it is hard. We have invested in bright prospects in life sciences, engineering, medical technology and clean energy. It is high risk, and I am told it carries the opportunities to make big returns—not that we have found them yet. But at least it carries that opportunity. As a nation we need to turn those cygnets into swans and those small acorns into mighty oak trees. The Bill should aim to do that, but it does not.

The conflict is with the press release that accompanied the Mansion House announcement. The Government’s own presser boasted:

“More than 50 scale-up businesses have signed a joint letter to the Chancellor welcoming the reforms as a ‘significant milestone in ensuring British institutions back British businesses at the scale required to generate growth, employment and wealth’”.


I feel sorry for the people who signed up that letter, because they were suckered. The Bill does little to scale up businesses and it has taken the noble Baroness, Lady Altmann, to put proposed new paragraph (f) into the amendment so that the Government’s own press release can form part of the law.

Forcing everything to be large, as we have heard, makes it harder to get the boost for start-ups. Amendment 121 would remedy this. We need it not just for those start-up businesses: the founders, their families and friends and all those angels—important though they are. We need it for our provincial cities and market towns. These are the places with the gems that need to grow in pursuance of

“UK growth assets rather than wider overseas assets”,

as it says in the Member’s explanatory statement.

Without this amendment, Mansion House is a mirage. By this Bill the Government have done a confidence trick on those who believed there would be a flow of capital to these businesses. It is not too late to change course. I echo strongly the comments of the noble Baronesses, Lady Bowles and Lady Altmann, and note that we are in Committee. I think this Committee is doing valuable work, because it has set up the conversations we all need to have between now and Report. The Government can reflect on what they are trying to achieve and recognise that it will not be achieved by the Bill as currently constructed. We may then need to have a compromise that will actually do the thing we are here to do, which is to invest in Britain and have better, more secure futures for people who want to invest in pensions, not Lego sets or Star Wars characters.

[Baroness Noakes (Con)]

My Lords, I am grateful to the noble Baroness, Lady Bowles of Berkhamsted, for her forensic analysis of both the Mansion House Accord and the ways in which there is a significant mismatch between what is in that accord and what is in this Bill. I confess that I was not aware of the extent of that, so that analysis is really important; I look forward to hearing what the Minister has to say.

I would like to comment on whether investments in listed securities should be excluded; here, I will part company with many of my colleagues on this side of the Committee. I understand why they are excluded. It is because buying and selling shares in listed companies is just buying and selling a financial asset. The buying and selling of shares in UK-listed assets does nothing to put money into the UK economy.

However, the way in which this measure is drafted probably goes too far, because it is possible that companies could raise new capital—for the purpose of investing in some of the things where the Government wish to encourage new investors—and that those vehicles could be listed. The way in which the Government have approached this is possibly too extensive, but I certainly do not think that the simple buying and selling of financial assets aligns with getting productive investment into the economy. As the noble Baroness, Lady Altmann, knows, I do not think that is a valid objective for this Bill—certainly not one that should override the need to get good returns for savers.

[Baroness Altmann (Non-Afl)]

I apologise, but I think that the noble Baroness’s characterisation of the impact of buying and selling, as she said, on listed companies—whether that puts money into the economy, to use her words—does not necessarily apply in the way she believes, particularly with closed-ended investment companies.

One of the problems with which they have had to deal, because of the regulatory constraints that we have been trying to help the Government address over the past two or three years, is that if people are selling these closed-ended investment companies but no one is buying them, they sink to a discount to their net asset value. At that point, they cannot invest in new opportunities; they cannot IPO or raise new capital. That has had a dramatic impact on the economy because these closed-ended companies, which were investing significantly in infrastructure across the country, have been unable to raise new money to invest in new opportunities.

[Lord in Waiting/Government Whip (Lord Katz) (Lab)]

If this is an intervention, it is quite a long one. I ask that interventions be kept brief; they should just be questions, really.

[Baroness Noakes (Con)]

The noble Baroness knows that she and I disagree on this subject. I hold to my view that the buying and selling of shares is simply the exchanging of financial assets.

[Baroness Bowles of Berkhamsted (LD)]

May I intervene so that I do not have to take up time later? I cannot see the difference between the follow-on funding that you get with a listed investment company, if you have an IPO, and the subsequent follow-on funding rounds. With an LTAF, you have initial fundraising and subscriptions. With a listed investment company, you buy and sell on the market. With the open-ended LTAFs, you have redemptions, purchases and flow matching. If you are watching the money, those are equivalent processes.

[Baroness Noakes (Con)]

If the noble Baroness, Lady Bowles, had listened, she would know that I said I thought what the Government were doing had gone too far, because there were instances where there was a necessary flow between the raising of funds and that flowing into new investment.

A number of noble Lords on this side of the Room have been talking as though this Bill stops pension schemes investing in listed assets or investment companies. It certainly does not; it merely says that they do not qualify if asset mandation is introduced. We ought to be concentrating on whether this is a valid policy objective—the Minister knows that I do not subscribe to that—to get money out of pension funds and into the real economy. We then ought to concentrate on which flows achieve that; certainly not all flows of buying investment trusts or other listed vehicles will achieve that.

[Viscount Younger of Leckie (Con)]

My Lords, I rise to speak in strong support of a number of carefully drafted amendments tabled by the noble Baroness, Lady Bowles, and once again ably supported by the noble Baroness, Lady Altmann. I will also speak to my Amendment 127.

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[Baroness McIntosh of Pickering (Con)]

My Lords, I am grateful to my noble friend Lord Younger of Leckie for introducing this group and setting the scene so eloquently, and to my noble friend Lady Penn for speaking to her amendment. I shall speak to the amendments in my name and I thank the noble Baroness, Lady Altmann, for lending her support to Amendments 129, 153 and 156. They follow on neatly from the other amendments about which we have heard. The Bill requires the Government to publish a report before the introductory regulations are brought into force to bring in the reserve powers, but it covers only how the financial interests of savers will be affected and the effect of the regulations on economic growth.

The purpose of my Amendment 129 is to set out additional items to be covered in the report, to ensure that the Government properly and comprehensively assess the impacts of any future regulations, such as, for example, the functioning of workplace pensions markets and impacts on the market of assets to be mandated and other requirements. What I am proposing in Amendment 129 is to test whether the Government have done enough to justify using such a drastic power. I am also suggesting, taking up the point of my noble friend Lord Younger, that the first report should be in less than five years: the first report should be after two years, because a lot of damage could be done in the first two years and even more damage could be done if there is no report for five years.

Amendment 156 continues on this theme, looking at a different part of Clause 40 for these purposes. Amendment 153 says that there should be a review, as I have mentioned, which should take place within at least two years, in addition to a review within at least five years. While the review in the Bill allows for mandation to be in place for five years before the Secretary of State must review its impact, I believe that that is too long and that it could potentially allow for negative effects to set in under the regulations under the Bill for affected default schemes. Taken together, Amendments 153 and 156 bring forward the review of regulations to take place within two years after those regulations have been in force, as well as after another three years to stop any further damage being done. We set out here what those reviews should look at

“the functioning of the market for Master Trusts … what effects the measures have had on that market … what effects the measures have had on the markets for qualifying assets”,

and so on, as set out in these amendments.

I hope the Minister will look favourably on these amendments, particularly since there is a mood on this side to coalesce around a review within the first two years.

[Baroness Noakes (Con)]

My Lords, all the amendments in this group raise important issues. I hope that none of them will be necessary, because I hope that we will have got rid of the power from the Bill, so these will become irrelevant details. I have Amendment 130 in this group, which would modify the mandation power by removing new Section 28C(15). This subsection “overrides any provision” of a trustee or scheme rules that conflicts with the mandation power. Thus, if the scheme had been set up with investment parameters that, for example, ruled out investing in private equity, and the Government then specified private equity, the wishes of the employer expressed in the scheme’s governing documents would be completely overwritten. Since there is no requirement in the Bill, as I understand it, for the Government to specify more than one asset class, it is quite possible that the Government could specify a required asset class that conflicted with things that had been deliberately set up when the scheme was set up.

I can understand, of course, why the Government want to encourage pension schemes to consider investing in alternative asset classes. I do not think you will find much resistance to the concept of investing in alternative asset classes. But I simply cannot understand why the Government think they should have a power to force schemes to invest in a particular way, if a conscious decision has already been made not to invest in that asset class. The Government might not agree with that decision, but I hope we do not live in a world where the Government can simply ignore the clearly expressed wishes of those they govern. I hope that we still live in a free society. Subsection (15) seems to me to extend the powers of the state too far, and we ought not to go along with it.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I have several amendments in this group: Amendments 154, 157, 158 and 159, which I will not say much about because I am fishing in the same pond as everybody else. If there is this mandation, we are anxious to know how it works, and we think the review should come earlier—I have put in some of the things that I think it should look at. I will spend more time on my Amendment 131, which is about prior steps that would have to be taken before there was any exercise of the mandation and regulations were made. It is about the prior steps that must be taken before the Secretary of State can exercise the regulation-making power in new Section 28C—what I termed the devil’s clause once before, although we now know that it is the ABI clause.

It is probably worth pausing here to remind ourselves whom the ABI represent: it is the Association of British Insurers and it represents the insurance companies, which are the manufacturers of the LTAFs, as was indicated earlier. It had a meeting in which, as usual, it displayed the slide that says, “We’re not colluding and breaking competition law, but we’re just going to agree that we won’t be investing in the other vehicle that has protected net asset value, and we’ll do a Q&A that says that’s not happening”. Interestingly, the insurers present at that meeting seem to have either forgotten about it or are telling me that they did not agree to anything. However, I leave that hanging.

If the Government wish to enforce a power of this potential scope, which, as has been explained, is much wider than the example in the Bill—a power that could reshape asset allocation across the pension sector—it must be subject to proper safeguards. These prior steps are not obstacles but constructive checks that should support the Government’s own objectives.

Proposed new paragraph (a) would require the Secretary of State to

“review the effect of any voluntary agreements or coordinated commitments relating to asset allocation”.

We have had a lot of policy alignment, pledges and so forth, and we all want the voluntary method to succeed. But if the point comes that regulations are contemplated, it is essential to understand what the voluntary route has already achieved, where the evidence points and why it did not happen.

Proposed new paragraph (b) would require an assessment of

“the impact of any such agreements on asset allocation, pricing and valuations”.

If the Government are concerned about market functioning, they should be equally concerned about how co-ordinated commitments affect pricing signals and valuation discipline. This is simply good policy hygiene because it ultimately affects workers’ pensions.

Proposed new paragraph (c) would require a review of

“the likely effect on returns to pensions savers”.

We all hope for the double benefit: better long-term returns for savers and productive investment that supports the UK economy. But we must analyse whether that is happening in practice, and if not, why not, before moving to a regulatory footing.

Proposed new paragraph (d) would require the Secretary of State to “obtain clearance” from the Competition and Markets Authority, and that is entirely consistent with the CMA’s pro-competition remit and with the competitiveness and growth objectives embedded in FSMA. Any use of this power must reinforce the UK’s competition framework, not bypass it, and where co-ordinated commitments already exist in the market, the Government must be certain that any regulations they bring forward meet a clear public interest justification.