Pension Schemes Bill

Baroness Stedman-Scott Excerpts

2nd reading
Thursday 18th December 2025 Lords Chamber

[Baroness Stedman-Scott (Con)]

My Lords, I too look forward to the maiden speech of the noble Baroness, Lady White. I have every confidence that she will make a great contribution, including to the work of the House generally. Having had some interface with her at the DWP, I am very confident that will happen.

Although the Bill is not perfect, I hope the Minister will take comfort from the broad cross-party consensus that exists around many of its core measures. Across your Lordships’ House, we share a common ambition: having a pensions system that delivers strong returns for those it serves.

In 2010, we inherited from the previous Labour Government a private pensions system that was not fit for purpose. The shift from defined benefit to defined contribution had left millions behind and, in 2011, just 42% of people were saving into a workplace pension. The cornerstone of reform was auto-enrolment—a Conservative innovation and an undeniable success. Today, around 88% of eligible employees are saving for retirement, with most opt-outs made on the basis of sound financial advice.

Workers deserve dignity in retirement, not merely a safety net. That is why, before the last election, the Government rightly focused on two enduring challenges: value for money and pensions adequacy.

Let me begin by acknowledging what the Bill gets right. We welcome progress on the pensions dashboard, which will help savers access their information more easily and plan for retirement. We also support the Bill’s emphasis on consolidation, including larger pension funds, the consolidation of the Local Government Pension Scheme, and the long-overdue merging of small, stranded pots—all of which have the potential to improve efficiency and value for money, provided that risks are properly managed. Finally, we welcome the humane and necessary measures to improve access to pensions for those facing terminal illness. Taken together, these provisions represent steps in the right direction.

However, while there is much to commend, there are also areas where we believe the Bill falls short, and in ways that matter deeply to the millions depending on it. The most striking omission in the Bill is the absence of any meaningful progress on pension adequacy. The uncomfortable truth is that too many people are simply not saving enough to secure a decent standard of living in retirement: a situation made all the more difficult in the current economic circumstances.

Auto-enrolment was never intended to be the finished article. It was a foundation, not the building itself. Yet the Bill proceeds as though the task were complete. The central question of whether current savings levels are sufficient is not confronted but deferred: pushed into the second stage of the review. This is not reform: it is a holding space, in which difficult but necessary decisions risk being postponed rather than resolved.

Adequacy should have been the organising principle of this legislation. Instead, it has been quietly parked for another day. In its place, the Government have focused on taxing pension contributions, increasing the cost of employment, and layering additional regulation on to the terms and conditions of work. We are regulating, taxing and constraining the very mechanisms through which retirement savings are generated, yet we have failed to address the most basic and consequential question of all: are people saving enough to retire with security and dignity?

A further missed opportunity is the failure to support the self-employed with new and innovative ways to save affordably for their retirement—more than 4 million people who drive our economy, create jobs and take risks, yet too often face retirement with no provision at all. Only around one in five self-employed workers earning over £10,000 a year currently saves into a pension. This is not a marginal problem; it is a structural gap in our pensions system. We need practical and pioneering solutions to support this growing group, and the Bill should have set that direction. We have spoken directly to the self-employed in preparation for this legislation, and in Committee we stand ready to assist the Minister by bringing that engagement and evidence to bear.

Our wider engagement also brought into sharper focus the Bill’s treatment of public sector pensions. This Bill is, in our view, decidedly LGPS-light. We will therefore table amendments to address that omission, ensuring that the scheme operates with greater clarity, flexibility and accountability. At the heart of our concern is the need for a more transparent, simpler and reformed approach to reviewing employer contribution rates for local authorities. This is not about loosening discipline or weakening the scheme. It is about prudent financial management and giving councils the tools they need to govern responsibly. This is what local authorities deserve and it is good financial governance.

The Bill shows no enthusiasm for addressing excessive prudence and the record surpluses within the Local Government Pension Scheme. We are not naive enough to suggest that the LGPS surpluses can be extracted or treated in the same way as those of private defined benefit schemes. But, under the Chancellor’s revised fiscal rules, those surpluses are now treated as assets offsetting public debt. That may be fiscally convenient but it represents a missed opportunity to enhance councils’ resilience. In appropriate circumstances, those surpluses could—and should—be used to support reductions in employer contribution rates. However, too often, overly cautious actuarial methodologies, excessive prudence and a lack of transparency have locked councils into contribution rates that are simply too high.

Proportionality and openness in how assumptions are set and decisions are reached are pivotal. Without transparency, those assumptions cannot be properly challenged through due diligence, and Section 151 officers cannot fully discharge their statutory duties. We must therefore ensure that interim reviews of employer contributions are more accessible, transparent and accountable, through clearer statutory trigger conditions, published policies, improved actuarial transparency and strengthened statutory guidance.

Kensington and Chelsea demonstrated precisely that approach in the aftermath of the Grenfell tragedy. Yet, across the country, councils are still forced into an exhausting and uncertain process to navigate the existing regulatory framework simply to secure interim contribution reductions after a formal valuation. We look forward to engaging constructively with the Government to ensure that councils are properly supported in delivering services while fully meeting their LGPS obligations.

Finally, I turn to what I regard as the most troubling element of the Bill: the proposed reserve power to mandate pension fund investment strategies within master trusts and group personal pension schemes used for automatic enrolment. Mandation is not a neutral tool; it is the quiet nationalisation of pension investment strategy. It is a fundamental shift in who ultimately controls investment decisions. Automatic enrolment has succeeded because it is trusted. Mandation threatens that trust: automatic enrolment is trusted by employers, by industry, and above all by millions of ordinary savers who have neither the time nor the confidence to manage complex financial decisions themselves.

It is therefore deeply concerning that this power is targeted specifically at automatic enrolment default funds. These are the schemes used disproportionately by those with the least means and the least financial confidence: the very people who rely most heavily on the integrity and independence of the system we have built over decades.

This is where the injustice bites. Those with the fewest means and the least financial confidence are the ones Labour’s mandation would trap. The savviest can opt out; the poorest get locked in. That is the injustice of mandation. Those savers need our protection, not a situation in which their pension outcomes become indirectly shaped by ministerial preferences, however well intentioned. Conservatives built automatic enrolment; Labour now stands a chance of threatening it.

We built automatic enrolment on a simple settlement: the state sets the framework, but trustees make the investment decisions. The Bill risks blurring that line. At stake here is trustee independence and fiduciary duty, principles that sit at the very heart of pensions policy. Trustees are bound, both legally and morally, to act in the best financial interests of their beneficiaries. Pension schemes exist to serve savers, not to serve the shifting political priorities of the day.

In this context, I am reminded of the warning offered by the respected pensions expert Tom McPhail, who invoked Chekhov’s famous dramatic device: the gun on the wall. If the gun is hung on the backdrop of the stage in the first act, it will be fired by the third. Once a Government arm themselves with a power, no matter how benignly it is presented, history suggests that it will eventually be used. If the Government do not intend to use the power, why is it in the Bill?

Rather than relying on the logic of “mandation as a backstop”, I urge the Minister and her team to step back and address the underlying reasons why pension funds are not investing more in the UK in the first place. Low domestic investment is not simply a collective action problem, as the Government suggest. It reflects real structural barriers, and the Government should compile the relevant evidence and report back on how those obstacles might be removed.

Will the Minister undertake to do this? There are better and far less constitutionally troubling ways to unlock long-term investment. I offer her just one example. Solvency rules continue to constrain insurers from investing in productive UK assets that offer stable long-term returns. Reforming those outdated rules could, according to Aviva, unlock billions of pounds over the next decade. That is how we should be driving growth, by removing barriers to investment and not by inserting the state into decisions that properly belong to independent trustees acting solely in the interest of savers. It is therefore striking that the Government have chosen to expend so much political capital on a mandation policy that commands little support beyond the DWP and lacks a wider consensus across the industry. Can the Government provide assurances that savers in auto-enrolment pension schemes will not subsequently discover that their pension providers have been instructed to invest in specific entities such as Thames Water?

I close by reaffirming our commitment to work constructively with the Government. Stability and confidence in the pensions market are paramount. It is in that spirit that we approach this Bill. Where improvements can be made, we will table amendments. We will engage in good faith to ensure that the detail is right and that the framework ultimately serves savers, schemes and the wider economy. We broadly support the direction of travel that the Government are pursuing. However, as today’s debate has made clear, there remain important questions around the detail, the intent of forthcoming regulations and what has been omitted from the Bill.

When closing today’s debate, my noble friend Lord Younger of Leckie will expand on these points, set out further concerns and put several direct questions to the Minister. We hope that the Government will reflect carefully on those issues as the Bill progresses. I look forward to working with the Minister in the weeks and months ahead and to continuing this constructive, robust dialogue as we seek to strengthen the legislation.

Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Committee stage
Monday 12th January 2026 Grand Committee

[Viscount Thurso (LD)]

My Lords, I will briefly give my support to the noble Lord, Lord Davies. I believe that many schemes would absolutely like to put money into social housing. The scheme of which I am a trustee, and which I mentioned earlier, has recently put 5% into social housing—it is entitled to do that, and it did so based on an investment case. It has put a further 5% into social infrastructure—it has also done that based on an investment case; it is part of the protection assets within the fund. We are allowed to do that, so can the Minister therefore say whether anything in the Bill prevents the funds that we are discussing from doing exactly the same thing?

[Baroness Stedman-Scott (Con)]

My Lords, we come to another group of largely probing amendments, which I welcome. A good deal of the process on the Bill will be about unpacking what the Government intend, how these provisions will work in practice and what the industry can anticipate. Certainly, those are the questions that have been raised with me in my engagement with representatives.

I will speak briefly to the amendments in the names of other noble Lords, many of which are clearly probing in nature and raise important and legitimate questions about how Local Government Pension Scheme assets might be deployed to support wider economic and social objectives. We welcome that debate. It is right that Parliament explores how long-term patient capital can help support UK growth, infrastructure and social outcomes. I recognise the spirit in which these amendments have been brought forward.

However, from our side, we believe that it is important to be clear about a central principle: LGPS funds are, first and foremost, fiduciary vehicles. Scheme managers have a legal duty to act in the best financial interests of members and beneficiaries, and that duty must remain paramount. However, I note that the Local Government Pension Scheme’s advisory board has already warned that:

“New government regulations could ‘directly usurp’ the most fundamental duty of council pension funds”.


Could the Minister address that in his response?

Opportunities for investments in areas such as UK growth assets or social housing should therefore be presented, structured and made investable in a way that meets risk-adjusted return requirements and not mandated or directed through statute. There is a clear difference between creating a strong pipeline of investable opportunities and compelling capital allocation. Once we move from encouragement to prescription, we risk undermining trustee independence.

Many of the amendments in this group helpfully test where that boundary should sit, and I hope that the Minister can reassure the Committee that the Government’s approach is to enable, not to direct, in order to attract pension investment through quality and value, not through compulsion. If we keep fiduciary duty at the centre and focus on making UK opportunities genuinely competitive investments, growth and good pensions will go hand in hand. That is the balance that we are keen to see maintained.

I shall speak to my two amendments in this group, Amendments 9 and 11, which are intended to improve clarity, accountability and future-proofing in Clause 2, rather than to change the underlying investment powers of the scheme managers.

Amendment 9 would require scheme managers to publish an annual report on the local investments held within their asset pool companies, including both the extent of those investments and their financial performance. If local investment is to play an increasing role within LGPS portfolios, transparency is essential. Members, employers and taxpayers are entitled to understand not only where capital is being deployed but how it is performing. This amendment would not mandate local investment; nor would it direct decision-making. It simply asks that where such investments are made, they are visible, measurable and open to scrutiny. The question it poses to the Government is straightforward: is transparency, rather than compulsion, the right way to build confidence in local investment? We believe that it is.

I add at this point that a great many Bills are coming before your Lordships’ House in which the interaction with post-devolution structures is far from clear. The Government should be making more of an effort to provide clarity on the post-devolution picture when drafting legislation. I therefore ask the Minister—here come the exam questions—how do the Government intend to keep the definition of strategic authorities under review as devolution evolves? What assurances can be given that future legislation will align properly with the new devolved arrangements? Do the Government accept that there is a risk of confusion and overlap if these definitions are not regularly updated to reflect constitutional changes? More broadly, what steps are the Government taking to ensure a coherent and consistent approach to the interaction between the new powers and devolution settlements? Crucially, how will assets and liabilities be carved up post devolution, and can the Minister assure us that this will be done independently? I am very happy for the Minister to write, rather than bombarding him with a massive amount of work now—although maybe we should; I do not know.

Amendment 11 is probing in nature and concerns the definition of strategic authorities. Currently, the Bill hard-codes a specific list of bodies in primary legislation, yet the architecture of English devolution is changing rapidly, not least through the forthcoming English devolution Bill. This amendment therefore asks whether that definition is sufficiently agile and future-proofed or whether it risks becoming outdated almost as soon as it is enacted. It invites the Minister to explain how the Government intend to ensure that LGPS governance can adapt to evolving local and regional structures without requiring repeated primary legislation.

Taken together, these amendments seek to strengthen Clause 2 by reinforcing accountability on the one hand and flexibility on the other, while preserving the core principle that investment decisions must remain firmly rooted in fiduciary duty. I look forward to the Minister’s response to the questions the amendments raise and his reassurance that the Government’s approach is to enable good investment decisions through transparency and clarity rather than prescription.

[Lord Katz (Lab)]

My Lords, I am grateful to noble Lords for these amendments and for the probing and helpful debate that we have had on this group.

I turn first to Amendment 7 in the name of my noble friend Lord Davies of Brixton, which explores how LGPS assets might be used to provide social housing. The Government aim to ensure that LGPS investments support the prosperity and well-being of their local communities, just as members did throughout their working lives—an aim that is certainly reflected in my noble friend’s amendment. However, the Government do not wish to direct asset pools as to the manner of their investments—to be fair to my noble friend, he said that this was not about mandation. To respect the independence of LGPS funds, it remains the responsibility of administering authorities to set their investment strategy.

The reforms will require administering authorities to co-operate with strategic authorities to identify and develop appropriate investment opportunities, which may include social housing-related investments. While social housing is a high priority for local areas and may provide suitable opportunities for investment, it should be for strategic authorities to consider and set priorities appropriate for their areas.

My noble friend asked whether the revised regulations might act as a barrier to investing in social housing. We would say that that is not the case; there will not be a barrier. Administering authorities will continue to set the investment strategy for their fund, including local investment priorities. They must have regard to local growth priorities in setting their investment strategy and can recommend opportunities to their pool. Local investments are not restricted to any asset classes. The Government see housing as one of as the investment sectors with the greatest potential for local government impact.

My noble friend Lady Warwick of Undercliffe spoke cogently and with some passion on the importance of increasing social housing. That is something the Government would align with. She asked whether we were confident that, without reference to social housing in the Bill, the LGPS will invest in it. I say to her—to be fair there was some acknowledgement of this in her comments and in those of my noble friend Lord Davies—that there is a long history of local investment by the LGPS. Cornwall Pension Fund, for example, has committed more than £100 million to a local impact fund with a focus on solar farms and affordable housing. Greater Manchester Pension Fund has backed major housing and regeneration projects in the north-west, to which it commits 5% of its total assets. The LPP pool is a major investor in the Haweswater Aqueduct Resilience Programme. The London and LPP pools have established the £250 million London fund, to which my noble friend Lord Davies referred. It invests in opportunities in London, including in residential property and affordable housing, as well as community regeneration, digital infrastructure and clean energy.

My noble friend Lady Warwick asked whether the Government would ensure that all LGPS have the right tools to provide the best returns for members. The Government’s expectation is that the reforms will deliver the wider benefits of professionalised asset management, including long-term savings and efficiency. We are also aiming to strengthen LGPS fund governance. Better governance ensures decisions are more effective, with decision-makers able to be agile, better at managing risk and able to pick up opportunities.

Amendment 11 was mentioned by a number of noble Lords and was tabled by the noble Baroness, Lady Stedman-Scott. I agree that the definition of strategic authority should be consistent across all relevant legislation. This Bill and the draft regulations that the Government have prepared will ensure that the authorities that are treated as strategic authorities in England for the purpose of the English Devolution and Community Empowerment Bill are treated as such for the purpose of LGPS investments. If any new authorities become strategic authorities, the Government will use the regulation-making powers to ensure that their treatment remains the same. I hope that addresses some of the concerns raised by the noble Baroness, Lady Stedman-Scott. She talked about her concerns about potential confusion over a changing and emerging landscape. I am happy to write to her with more details, as she was so kind in setting so few exam questions compared with her Front Bench colleague on my earlier group. Her restraint is commendable.

Regarding Amendment 12, I understand the noble Lord’s intention is to encourage greater domestic investment across the whole of the UK and, indeed, growth is the number on mission of this Government. The LGPS already invests approximately 30% of its assets in the UK. Greater consolidation will build on this success story as the pools will have greater capacity and expertise to invest domestically, including in infrastructure and unlisted assets.

The noble Lord, Lord Fuller, asked about the duty to co-operate and whether it would make it difficult for schemes to invest outside their locality. I reassure him that the proposals do not prevent investment outside the area of the funds or the pool. Administering authorities are free to set whatever local investment target they consider appropriate. While investment across the UK is strongly encouraged, the purpose of this requirement is to promote investment that has tangible benefits to the fund or its pool. Expanding the definition to the whole of the UK would go too far and local benefits would be diluted.

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[Lord Palmer of Childs Hill (LD)]

I have always reckoned that the duty of pension fund managers is to the members. What we are trying to do now is say that they have other duties; however, it is not very clear where the borderline is.

[Baroness Stedman-Scott (Con)]

I know how frustrating it is when Members keep getting up to ask questions, but I have to do this. The Minister referred to a backstop. For what purpose? In what circumstances would it be used? Can the Minister help us understand that?

[Lord Katz (Lab)]

The backstop power relates to our earlier discussion on previous amendments. It would be used in extremis. The problem is that the noble Baroness is asking me to conject on what are hypothetical situations. Some of these issues will be set out in some of the regulations that will follow.

I am happy to go back a couple of interventions and pick up the point made by the noble Baroness, Lady Altmann. I would be happy to write to try to clarify the distinction that we are making. Of course we want to see good levels of investment in a range of different asset classes, but we are absolutely not saying that this is a slippery slope to taking powers of direction or mandation. We are very clear on that. Ultimately, this is the nature of pensions legislation: some of the clarity comes down stream. We are clear that the Government’s intention in the Bill is purely to provide the framework to ensure that we can harness the potential of these asset pools to make some meaningful investments.

[Baroness Stedman-Scott (Con)]

This is in the Bill. I know that the Minister cannot do this now—I accept that he can write to me—but can he please help us? If it is in the Bill, we need to know what it means before regulations come.

[Lord Katz (Lab)]

I am not sure whether I can provide much more clarity than I have done so far, so I would be very happy to write to the noble Baroness to spell that out.

I realise that I have not given the levels of satisfaction and clarity that Members perhaps wanted but, as these are probing amendments, we contend that they would have a minimal impact. On that basis, I ask the noble Baroness to withdraw her amendment.

Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Committee stage
Wednesday 14th January 2026 Grand Committee

This amendment seeks to probe the process that the Secretary of State will be required to follow in order for a compulsory merger to take place, and the wider considerations that will be applied in deciding whether such a merger is appropriate.

[Baroness Stedman-Scott (Con)]

My Lords, it is a pleasure to open today’s debate on the remaining groups of amendments relating to the Local Government Pension Scheme. We are conscious that Ministers have already undertaken to write to the House on a number of points, and we do not wish to add unduly to that correspondence or set exam questions. However, we hope that today’s debate may allow some of these issues to be addressed in real time.

Let me be clear at the outset that this is a probing stand-part notice intended to seek clarity from the Government. Clause 6 is striking in its brevity, but the power it confers is anything but modest. It would allow scheme regulations to provide for the merger explicitly, including a compulsory merger, of local government pension funds. Compulsory merger is a significant and, in many cases, irreversible intervention. It has profound implications for governance, funding positions, local accountability and, ultimately, the retirement savings of millions of scheme members and the obligations of employers. We are dealing here with very substantial sums of public money and the livelihoods of millions of people.

Before such a power is afforded to a Secretary of State who may have little or no specialist expertise in pensions, it is only right that the Committee understands clearly how this power will be exercised and what safeguards will apply. The clause itself, however, tells us very little. It provides no indication of the process that will be followed, the criteria that will be applied or the protections that will be in place for members, employers and administering authorities. I therefore hope that the Minister can assist the Committee on a number of points.

First, on expertise and decision-making, pension scheme governance is highly complex and technical. What confidence can the Government offer that the Secretary of State is the appropriate decision-maker for imposing compulsory mergers, particularly in the absence of any requirement in the Bill to obtain independent expert pensions advice?

Secondly, on process, what precise procedural steps will be required before a compulsory merger can be ordered? Will there be a statutory consultation and, if so, with whom? Will affected scheme managers, administering authorities, employers and scheme members have a formal opportunity to make representations before a decision is taken?

Thirdly, on safeguards and accountability, what independent checks and balances will exist to ensure that the Secretary of State cannot act unilaterally? Will decisions be required to meet defined tests, such as necessity or proportionality, and to be supported by evidence? Will there be any right of review or challenge where a fund believes a compulsory merger is not in the best interests of its members?

Fourthly, on financial risk, given the scale of the assets involved, what assurances can the Government provide that members’ savings will not be exposed to undue risk or that decisions will not be influenced directly or indirectly by political or short-term considerations rather than long-term fiduciary interest?

Finally, on precedent, does the Minister accept that conferring such a broad enabling power sets an important precedent for ministerial intervention in pensions governance more widely? If so, how do the Government justify that approach, and why are the limits of this power left entirely to secondary legislation?

We ought to have answers to these questions before the conclusion and passing of the Bill. Clause 6 confers wide discretion in a highly technical and sensitive area, with potentially far-reaching consequences. It is therefore entirely appropriate for the Committee to press the Government to explain how this power will be exercised, what safeguards will be in place and how the interests of scheme members will be protected. I look forward to the Minister’s response.

[Lord Palmer of Childs Hill (LD)]

My Lords, as has been stated, this clause introduces compulsory mergers of Local Government Pension Scheme funds, and the word “compulsory” worries me. We on these Benches accept that consolidation can sometimes improve efficiency and governance, but compulsion—I emphasise this—is a serious step that demands strong justification and clear safeguards, as the noble Baroness, Lady Stedman-Scott, stated.

At present, the Bill establishes the power without clearly setting out the criteria, process or routes of challenge. That sequencing matters. Trustees, employers and members need confidence that mergers will occur only when there is compelling evidence of benefit to the people—that is, the pensioners themselves. We on these Benches are concerned that forced mergers, if poorly handled—and some may well be poorly handled—could undermine trust rather than strengthen it. Before endorsing compulsion, which we are asked to do, Parliament should understand how decisions will be made, how dissent will be treated and what protections exist if a merger proves detrimental.

At this stage, it is quite right that there should be probing as to what is behind all this and what will happen in all the various circumstances that need to be in place to protect members of the Local Government Pension Scheme. I wait to see further information as the Bill progresses.

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[Lord Katz (Lab)]

I am seeking help from my noble friend Lady Sherlock in a helpful conference on the side. The investment assets are in pools, so that is not necessary. The backstop powers are very clear: if there is a need for a merger or we are worried about a failing scheme, there is that backstop power and this is why. It would not be used to direct particular investment strategies.

[Baroness Stedman-Scott (Con)]

My Lords, I thank all noble Lords who have taken part in this debate, and I also thank the Minister for his full and detailed response to the questions that were asked. The Minister talked about perhaps using these powers when there are local government reorganisations; that is highly likely in the current climate, I would think.

The purpose of this stand part notice is not to resist sensible reform but to underline the importance of clarity, certainty and proper accountability where Parliament is being asked to confer powers on this scale. Clause 6 is framed at a very high level, yet it opens the door to decisions that could permanently reshape local government pension arrangements, where powers are capable of compelling structural change. It is vital that those affected understand not only that the power exists but the principles that will govern its use. Clarity matters for scheme managers, employers and, above all, scheme members, whose long-term interests depend on confidence in the stability and predictability of the system. Certainty matters because pension funds operate on long horizons, and opaque or open-ended powers can create risk.

Most of all, the responsible exercise of delegated powers depends on transparency. When Parliament is asked to delegate authority in a highly technical and sensitive area, it is entirely reasonable to expect a clear account of how that authority will be exercised and what safeguards will guide it. However, in view of the response given by the Minister—I am sure that all noble Lords who have taken part in this debate will look at Hansard; if there are any issues, we will go back to the Minister—I beg leave to withdraw the stand part notice.

Clause 6 agreed.

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Moved by

[Baroness Stedman-Scott]

14: After Clause 7, insert the following new Clause—
“Review of the cost and sustainability of the Local Government Pension Scheme(1) The Secretary of State must conduct a review of the long-term cost and sustainability of the Local Government Pension Scheme.(2) The review must give particular consideration to admitted bodies, including housing associations.(3) A report must be laid before Parliament within 12 months of the day on which this Act is passed.”Member’s explanatory statement
This amendment requires the Government to review the long-term cost and sustainability of the Local Government Pension Scheme, with particular consideration given to admitted bodies such as housing associations, and to report its findings to Parliament.

[Baroness Stedman-Scott (Con)]

My Lords, this group of amendments is the first of three groups that together seek to ensure that the Local Government Pension Scheme operates more effectively and proportionately, protecting member benefits, supporting long-term sustainability and remaining affordable for employers.

The context is critical. The financial position of the scheme has changed profoundly. On a low-risk basis, the LGPS was around 126% funded in March 2025, rising to around 147% by September, with surpluses of £87 billion and £147 billion respectively. This is a striking shift from the 2022 valuation, when the scheme stood at around 65% funded. In short, the scheme has moved decisively from deficit recovery into sustained overfunding.

That shift has unavoidable implications for contribution rates. On prudent assumptions, future services costs are around 15%—falling closer to 6% once surplus is taken into account—yet employers continue to pay contributions of around 21%, costing roughly £9 billion a year across the scheme. Even under highly cautious assumptions, those levels now appear materially higher than is necessary to maintain long-term solvency. These amendments do not seek root-and-branch reform; they ask whether the regulatory framework is still operating as intended and whether contribution setting remains fair, transparent and proportionate.

Amendment 14 therefore requires a review of Regulation 62 of the Local Government Pension Scheme Regulations 2013, which lie at the heart of how employer contributions are determined. The concern here is not actuarial prudence in valuing liabilities but contribution prudence—the policy choice to extract additional buffers from employers, even where funds are demonstrably in surplus. At the centre of this issue are the undefined concepts in Regulation 62(6): desirability, stability, long-term cost efficiency and solvency. Their ambiguity has allowed increasingly conservative interpretations to become embedded in valuation practice, driving contribution rates beyond what the funding position alone would justify.

So I would like to ask the Minister three questions. How do the Government define “desirability”? How do they define “stability”? And how do they define “solvency” in this context? If the Government cannot clearly articulate what these terms mean, how can they be applied consistently when determining contribution rates? If Ministers cannot explain their intent, how can those responsible for applying the regulations be expected to reflect the Government’s wishes rather than their own interpretation? Does the Minister accept that, in the absence of clear guidance, it will be pension funds and actuaries that end up defining these terms in practice? This interpretation will shape outcomes.

In practice, expansive interpretations of “stability” and “long term cost efficiency” can justify unaffordable contribution rates, diverting resources from adult social care, housing delivery and other front-line services, while offering employers little scope to make legitimate trade-offs. There is also a clear imbalance of power. Employers bear the full cost of contributions yet often have limited influence over outcomes. Practice on the treatment of surpluses varies widely, with some funds permitting release and others prohibiting it on opaque grounds. Does the Minister agree that greater clarity and consistency would plainly be beneficial?

Amendment 15 asks a simple but necessary question: is the Local Government Pension Scheme affordable in the long term? It requires a review of long-term costs and sustainability, including impacts in respect of admitted bodies such as housing associations, with the findings reported to Parliament. This is an attempt not to undermine the LGPS but to ensure transparency, proportionality and long-term affordability—principles this House has always upheld.

This analysis is not abstract; a growing body of concrete cases now demonstrates how these regulatory interpretations are operating in practice. I would be very happy—indeed, delighted—to share the full set of these examples with the Minister, should he not already be aware of the scale and consistency of the issue. I trust that he will feel free to take up this offer if it helps.

I will briefly outline one such case. In this instance, the fund in question is assessed as being 107% funded on a gilts minus 0.2% basis. This compares with the previous valuation basis of gilts plus 2.3%. At the current valuation, the council had a reported surplus of £57 million. Despite that clear surplus, measured on an exceptionally prudent valuation basis, the contribution outcome is, frankly, striking. Under the fund’s stabilisation policy, the employer’s primary contribution rate is permitted to reduce by no more than 2%. At the same time, the employer is still required to pay approximately £20 million per year in secondary, or so-called deficit recovery, contributions. That outcome is extraordinarily difficult to justify. Secondary contribution rates exist for one purpose only: to repair deficits. In this case, there is no deficit. Assets exceed liabilities, even under assumptions more conservative than those typically employed by insurers, whose pricing is generally close to a gilt-flat basis. Yet, notwithstanding that surplus position, the employer is still being required to make substantial deficit recovery payments. The council involved has been forced to seek exceptional financial support from MHCLG.

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[Lord Davies of Brixton (Lab)]

The noble Baroness cited a particular case and gave considerable detail about the circumstances. Is there any reason why the Committee cannot be told which authority it concerns? As things stand, there is no way that I or any other Member of the Committee could comment on that case. If the noble Baroness can tell us which authority it is, in the interest of transparency, I urge her to do so.

[Baroness Stedman-Scott (Con)]

I have always been a supporter of transparency. I do not know the answer to the noble Lord’s question, but I will find out and let him know either the name of the council or the reason why I cannot give it to him. We have other examples that we are happy to share. I hope that answers the noble Lord’s question. I beg to move.

[Lord Davies of Brixton (Lab)]

It is a pleasure to take part in this debate. It is an important issue and public money should always be open to scrutiny and deep thought about how we approach these issues. The noble Baroness, in introducing the amendments, quoted the significant switch round in the financial state of the Local Government Pension Scheme. She will be able to have an interesting discussion with her former colleagues, Liz Truss and Kwasi Kwarteng, as to why exactly that has happened. They have had more influence on it probably than the actuarial profession.

My message essentially is, “If it ain’t broke, don’t fix it”. What we have here is the Official Opposition attempting to make a crisis out of a significant success. The Local Government Pension Scheme has been successful, as attested to by the noble Lord, Lord Fuller, yet here we are being presented with it as if there is some crisis to address. We should recognise that, in actuarial terms, the financial management of the scheme has been a significant success. It is up to those suggesting reviews—two in this group of amendments and two more in the following group, which should more accurately be here—to explain, rather than providing anonymous details, what the problem is.

The context is that, compared to private sector funded schemes, where contributions have been increasing, what we are going to see in the coming year is the opportunity of significant cost reductions. This is for two reasons. First, it is because of the successes of Local Government Pension Scheme investments, with returns of around 9% per annum since the last valuations. As a result, that has generated significant surpluses—significant excess of assets over liabilities. I shall come back to that in a later group. Following the latest set of triennial valuations, substantial reductions will be available. It is up to individual authorities to make their decisions, but the opportunity will be there, certainly for most funds.

As far as actuaries who support and work within the local government sector are concerned, as I explained on Monday, this discussion comes as a bolt from the blue. What we really need in this area is stability. It would be far better to promote discussion first within the sector, with those who know what they are talking about, before producing these proposals, which inevitably lead to uncertainty.

It is not a surprise, given the environment we are in, that there has been no consultation on this, unlike the investment changes, because it is part of a programme that we see with amendments submitted later in this Bill. There are some people who just do not like successful collective pension provision. There is an agenda at work here. As I say, I do not oppose consideration of the issues, but we should understand where it is coming from.

It is important to understand that the last valuations were in 2022. The current valuations, as at 31 March last year, are under way and we do not yet have the full results. Early results have been provided and we know the direction of travel, but we do not know the final results, which is why I question the figures being quoted. We do not yet know the results over the sector as a whole of the current series of valuations. Any speculation about that outcome misses the point.

The second point I want to make is that there is no one-size-fits-all solution to the funding of local government pension schemes. They vary widely in their size. The staff membership has to be taken into account, and that varies, and you also have to understand that some of these funds have significant numbers of non-local government members through the admitted body process and each of those has to be assessed in a proper way. There is no way you can have a one-size-fits-all approach to the actuarial management of these funds. You need the professional knowledge and judgment of actuaries—you may think I am promoting my own profession—to decide what is the best approach.

Clearly, that judgment should be open to review and, of course, it has been reviewed. That is what is so nonsensical about these proposals. Under Section 13 of the Public Service Pensions Act 2013, the Government can ask for reviews of the funded public service schemes, which effectively means local government schemes. Indeed, such a review has been carried out and a full detailed report produced by the Government Actuary, setting out the approach that has been adopted, comparing the different approaches—there are four firms of actuaries, which all have slightly different approaches—reconciling them and judging the assumptions that have been made.

Broadly speaking, the Government Actuary has given these valuations a clean bill of health. Therefore, any suggestion that there is anything wrong about the actuarial approach that is being taken is denied by the Government’s own actuarial adviser. Funds need to take account of local needs and public interest has a role in deciding how services can be employed in these funds. There is no question of refund in these funds, but the way in which it affects contributions is crucial.

Another point, which I think the noble Baroness ignored, is that these funds are all subject to the cost- capping arrangements set out in the coalition Government’s review of public service pensions of 14 or 15 years ago. There is a cost cap. I made a note of what the noble Baroness said: that the full cost of the contributions “bears on the employers”. That is just wrong. It bears on the employers and the members together. It is the employers’ costs that are capped under legislation and it is the members who bear the risk of increasing costs and stand to enjoy the benefit of reducing costs. The cost cap is crucial in these schemes and to ignore its important role fails to understand what we are doing. I am sorry—I could go on, but I think the situation is clear.

There was just one other point—I will go on. It arises under the next group and it is the idea of a statutory funding standard. Of course, we tried that with private sector pension schemes and it was a disaster. Everyone agreed it was a disaster and we had to have a new system—whether the new system was any better is a matter for debate. However, the idea of having a statutory funding standard just did not work.

To conclude—I hope it is a conclusion this time—there is no evidence that the existing system has failed. Indeed, we expect to see the benefits of the current approach when we decide what these funds should be in the light of the forthcoming valuation results.

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In conclusion, I consider that the existing statutory processes already provide routes to examine and remedy any issues of affordability in the scheme. I ask the noble Baroness to withdraw her amendment.

[Baroness Stedman-Scott (Con)]

My Lords, I thank those taking part in this interesting debate, and the Minister for his response. I completely agree with the noble Lord, Lord Davies of Brixton, that discussion and consultation is best first. I will take advice on the naming of the authority, and I will certainly take advice on speaking to Kwasi Kwarteng. This is not a matter of political inheritance; it is a matter of changed circumstances. In 2022, when many Local Government Pension Scheme funds were still in deficit, higher employer contribution rates were, on balance, the correct and responsible course of action. At that point, the application of prudence, both actuarial and contribution-based, were broadly aligned with the financial position of the scheme.

What has changed is the context. Market conditions have shifted materially in recent years. Higher interest rates, improved funding positions and stronger asset values have transformed the balance sheets of many funds. This has been underscored by the most recent triennial valuation in 2025, which has revealed the scale of surplus that was neither anticipated nor problematic in earlier cycles. It is precisely at this point that the interpretation of the regulations, particularly Regulation 62(6), has come to the fore. The issue is no longer whether prudence is appropriate but how it is being applied in a materially different financial environment. Rules that operated sensibly when schemes were in deficit are now, through interpretation rather than legislation, producing outcomes that risk becoming disproportionate and unaffordable.

That is why the amendment matters. It is not an attempt to rewrite history or to relitigate past policy decisions; it is a forward-looking attempt to ensure that a regulatory framework designed for balance and sustainability remains fit for purpose as conditions change. This should not be a partisan issue. It is about ensuring that regulation keeps pace with reality, that prudence remains proportionate and that employers are not locked into contribution levels that no longer reflect the underlying financial position of the scheme. I hope noble Lords have appreciated the spirit in which we have tabled these amendments but, for now, I beg leave to withdraw the amendment.

Amendment 14 withdrawn.

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Moved by

[Baroness Stedman-Scott]

20: After Clause 7, insert the following new Clause—
“Interim reviews of employer contribution rates in the Local Government Pension Scheme(1) The Secretary of State must by regulations made under section 3 of the Public Service Pensions Act 2013 (scheme regulations) amend the Local Government Pension Scheme Regulations 2013 (S.I. 2013/2356) as follows.(2) After regulation 58(4), insert—“(5) The funding strategy statement must comply with regulation 64A(2) and be published in a form accessible to non-specialist readers.”(3) Regulation 64A (revision of rates and adjustments certificate: scheme employer contributions) is amended as set out in subsection (4).(4) For paragraphs (1) and (2), substitute—“(1) The administering authority may obtain a revised rates and adjustments certificate where the funding strategy statement sets out the administering authority’s policy on revising contributions between valuations and one or more of the following conditions is met—(a) there has been a significant change in the liabilities arising or likely to arise since the last valuation;(b) there has been a significant change in the employer’s ability to meet its obligations to the Scheme, consistent with that employer’s obligations to deliver value for money and services for local taxpayers;(c) the employer requests a review and agrees to meet the reasonable costs of that review.(2) The funding strategy statement must include a clear and accessible policy on revising contributions between valuations, including—(a) the process and evidential requirements for employers to request a review,(b) indicative timescales for the administering authority to determine such a request,(c) the criteria the administering authority and fund actuary will apply (including risk appetite and prudence levels), and(d) the approach to apportioning reasonable costs of any review.(2A) Where an employer makes a request under paragraph (1)(c), the administering authority must—(a) acknowledge the request within 10 working days,(b) determine the request within 12 weeks (or such longer period as is agreed with the employer), and(c) provide written reasons for its decision.(2B) For any review under this regulation, the fund actuary must prepare an Actuarial Methods Statement which— (a) explains, step by step, the models and methodologies used to project liabilities, assets and funding needs,(b) sets out all material assumptions, including discount rates, inflation, salary growth, mortality, longevity improvements and any smoothing or damping mechanisms,(c) specifies the level of prudence applied and how that prudence has been determined, and(d) provides sensitivity and scenario analysis showing potential outcomes under varying market conditions and employer covenant assessments.(2C) The administering authority must publish the Actuarial Methods Statement alongside the decision under paragraph (3)(c), subject only to the redaction of information which is commercially sensitive or relates to individuals. (2D) The Secretary of State must issue statutory guidance on—(a) how councils and other employers may make requests under paragraph (1)(c),(b) the matters administering authorities should take into account when considering such requests, including the balance between Scheme solvency and local taxpayers’ interests in the continued delivery of core services, and(c) the minimum standards for actuarial transparency under paragraph (5).(2E) Administering authorities must have regard to guidance issued under paragraph (6)(a).(2F) The Secretary of State must publish the guidance within six months of the day on which this Act is passed and keep it under review.””Member’s explanatory statement
This new Clause aims to strengthen Regulation 64A of the Local Government Pension Scheme Regulations 2013 to make interim reviews of employer contribution rates more accessible and transparent.

[Baroness Stedman-Scott (Con)]

My Lords, I hope the Committee will forgive me for the length of this amendment, which is tabled in my name and that of my noble friend Lord Younger of Leckie.

Despite its length, its purpose is in truth a simple one. It seeks to ensure that the provision for interim reviews of employer contribution rates under the Local Government Pension Scheme is not merely available in theory but genuinely usable in practice. At present, while the regulation allows interim reviews, the circumstances in which they may be triggered are so narrowly framed and so conservatively interpreted that many employers find them effectively inaccessible. The consequence is that contribution rates can remain detached from the financial reality and workforce profile for prolonged periods, even when there has been a clear and material change in circumstances.

I will not revisit the funding position of individual schemes, but it is important to note, once again, how sharply the position of the Local Government Pension Scheme has changed. Recent low-risk analysis shows the scheme moving from around 65% funded in 2022 to significant and sustained overfunding in 2025, with all funds now above 100%. That shift has clear implications for contributions. Even on prudent assumptions, implied future service rates are far below the roughly 21% that employers currently pay, at a cost of around £9 billion a year.

The difficulty is that the formal valuation process is not designed to respond quickly to changing circumstances. In this case, the 2025 valuation cycle in a number of cases has already concluded. As a result, councils now face contribution rates based on assumptions that no longer reflect current financial conditions, with no realistic prospect of adjustment through the normal valuation timetable. In those circumstances, the interim review mechanism becomes the only viable route to a fair and proportionate outcome.

Valuations are infrequent by design, but financial reality does not always conform to that schedule. Where there has been a material change in funding position, workforce composition or employer risk, interim reviews are intended to act as a safety valve, allowing contribution rates to be reassessed before costs are locked in for years at a time. In practice, however, access to that mechanism is so constrained that it often fails to perform the role it was created to serve. For that reason, although previous amendments address the deeper structural drivers of the current contribution pressures, I will turn to the interim mechanism.

The proposed new clause before us does not change the intent of the law. It seeks only to ensure that the safeguards Parliament has already provided can be used effectively by councils whose contribution rates may no longer be justified by the scheme’s underlying financial position. Specifically, it strengthens Regulation 64A of the 2013 regulations by addressing the practical barriers that councils face when seeking a review. It clarifies when a review may be requested, requires funds to set out clearly how requests are made and assessed, introduces transparency around the actuarial assumptions and underpinning contribution rates, and promotes greater consistency through statutory guidance.

Taken together, these changes do not weaken prudence or undermine solvency, but they make the process intelligible and navigable for the employers expected to engage with it. The underlying problem, therefore, is not that councils lack the right to request an interim review but that they lack a realistic means of exercising that right. Processes are unclear, evidential thresholds are opaque, and actuarial models are often presented in ways that make meaningful engagement extremely difficult.

In those circumstances, Regulation 64A functions less as a practical safeguard and more as a theoretical reassurance. That matters, because the financial consequences for councils are immediate and real. Pension contributions represent a significant and growing share of local authority expenditure. When contribution rates remain misaligned with financial reality, they absorb resources that would otherwise support front-line services. Yet councils remain fully accountable to local taxpayers for their financial decisions, even when the assumptions driving those costs are neither transparent nor consistently applied. The result is a system that undermines sound financial management at precisely the moment when many authorities are already under severe strain.

This brings us directly to the statutory duties that already rest on local government. Section 151 of the Local Government Act 1972 requires every authority to appoint a Section 151 officer, typically the chief financial officer, who bears personal responsibility for the proper administration of the authority’s financial affairs. These officers are legally obliged to ensure that expenditure is lawful, prudent and sustainable, and that duty does not stop at pension cost. Where long-term liabilities appear misaligned with risk, or where contribution volatility threatens service delivery, it is entirely reasonable that a Section 151 officer should be able to seek closer scrutiny through an interim review.

If such an officer believes that the assumptions underpinning contribution rates warrant examination, the system should enable that scrutiny rather than obstruct it. This clause does not ask actuaries to abandon prudence or funds to compromise solvency; it simply ensures that those charged with financial stewardship are given the transparency and procedural clarity necessary to discharge their existing legal responsibilities. Indeed, this is the most significant change made by the amendment. It clarifies the trigger conditions for an interim review by amending the second condition so that an employer’s ability to meet its LGPS obligations is assessed in a way that is consistent with its statutory duties to deliver value for money and to maintain services for local taxpayers.

At present, actuarial assessments tend to treat local authorities as possessing an effectively risk-free covenant, on the assumption that central government would ultimately step in to prevent failure. As a result, actuaries are understandably reluctant to accept that a council might be unable to meet its pension obligations, and contribution rates are set on the basis that payment is in practice guaranteed. However, that assumption does not reflect the financial reality facing local government. The strength of a council’s covenant is not unlimited; it is ultimately constrained by its local tax base and its legal obligation to balance its budget. Councils cannot borrow indefinitely to meet pension costs, and they also cannot insulate those costs from their wider responsibilities to residents.

This amendment would require the actuarial assessments to recognise that balance. Prudence must not operate as a one-way ratchet, where contribution levels can only ever rise or remain elevated, regardless of changing circumstances. Instead, prudence must be weighed alongside councils’ duties to local taxpayers, while continuing to protect and secure the benefits of scheme members. In short, this change does not undermine member security but simply ensures that assessments of affordability reflect the real-world constraints under which councils operate rather than an abstract assumption of unlimited state backing. The law already allows interim reviews in principle but, in practice, the system makes them inaccessible. This proposed new clause would close the gap, clarify the rules, improve transparency, introduce consistency and strengthen accountability, ensuring that interim reviews function as a real safeguard rather than a theoretical one.

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With that, I ask the noble Baroness, Lady Stedman-Scott, to withdraw her amendment, given that the information is already publicly available and because of the importance of consultation on changes.

[Baroness Stedman-Scott (Con)]

My Lords, I thank all noble Lords who have contributed to the debate on these amendments; I also thank the Minister for his response. I thank in particular my noble friend Lady Altmann for both her amendment and the way in which she explained it. Her expertise, track record and knowledge of this industry are second to none; I know that others in the Room are equally in that position.

My noble friend Lady Scott made a very important point about local government reorganisation, which is bound to have an impact on pension schemes. The question that she asked on financial statements was pertinent.

I have been intrigued to watch the relationship between my noble friend Lord Fuller and the noble Lord, Lord Davies of Brixton, develop. I am sure that it will become even more interesting as the Bill carries on. I can tell the noble Lord, Lord Davies of Brixton, that we have chapter and verse on the information to which we have referred today; where we are able to share it, we will do so.

The Minister made the important point that the markets change; the skill is in knowing at what point to intervene and review matters, but it is important that we have the right process and framework in place to do so.

In closing, I reiterate that this amendment is ultimately about making the system work as Parliament intended. Interim reviews exist on the statute book for a reason. They are meant to provide flexibility where circumstances change materially between formal valuations, and to prevent contribution rates becoming detached from economic reality. Yet where a safeguard exists in law but cannot be exercised in practice, it ceases to be a safeguard at all.

This amendment seeks not to weaken the Local Government Pension Scheme or to second-guess actuarial judgment but to ensure that prudence operates as a balanced discipline rather than an inflexible default. Where funding positions have strengthened significantly and where contribution rates place growing pressure on local services, it is reasonable that employers should be able to access a clear, transparent and intelligible process to seek reassessment. Clarity matters here. Councils are legally required to manage their finances prudently, deliver value for money and protect essential services for local taxpayers. They cannot discharge those duties effectively if contribution-setting processes are opaque, thresholds are unclear or review mechanisms are practically out of reach.

This amendment would simply align pension governance with those existing statutory responsibilities. It would make explicit how interim reviews may be requested, how they will be assessed and on what basis assumptions will be scrutinised. In doing so, it would strengthen confidence that decisions affecting billions of pounds of public expenditure are being taken proportionately, transparently and in full recognition of the real-world constraints under which councils operate. In short, it would turn a theoretical right into a usable one and restore the balance between member security, financial sustainability and the proper stewardship of public funds. That, I suggest, is not unreasonable but a modest and responsible objective. With that, I beg leave to withdraw my amendment.

Amendment 20 withdrawn.

Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Committee stage
Monday 19th January 2026 Grand Committee

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank the noble Lord, Lord Davies, for putting these amendments down and speaking in detail about them. We also heard good words from the noble Lord, Lord Kirkhope, the noble Viscount, Lord Thurso, and the noble Baroness, Lady Noakes. I almost thought, “Is there any point in getting up and speaking?” but I am a politician.

This group goes to first principles. What is a defined benefits pension surplus and what is it for? For us, DB surplus is not a windfall or an accident, as I think others have said. It is a result of long-term assumptions, member contributions, employer funding decisions and investment outcomes—all those—but above all, it exists within a framework of promises made to members in return for deferred pay. We are therefore concerned about renaming—we keep on coming back to this—“surplus” as simply “assets” available for redistribution.

Language matters here because it shapes both legal interpretation and member confidence. Treating surpluses as inherently extractable risks weakening the fundamental bargain that underpins DB provision. Our position is not that surplus should never be accessed, but that it should be considered only after members’ reasonable expectations have been fully protected. That includes confidence in benefits security, protection against inflation erosion, and trust and accrued rights not being retrospectively interpreted. I have always thought that with DB pensions you need prudence. How far do prudence and good governance go?

Finally, the question for Ministers is whether the Bill maintains the principle that DB schemes exist first and foremost to deliver promised benefits or whether it marks a shift towards viewing schemes as financial reservoirs once minimum funding tests are met. In that case, one has to think, “What is the minimum for the funding tests?” We shall come on to that in an amendment that the noble Lord, Lord Sikka, has put down later in the Bill on where companies fail. It is a question of when those surpluses are available, if they are ever available.

[Baroness Stedman-Scott (Con)]

My Lords, when I entered the department in July 2019, defined benefit pension schemes did, on occasion, report surpluses. However, those surpluses were neither of the scale nor the character that we are now observing. If one looks back over the past quarter of a century and beyond, it is evident that both the funding position of defined benefit schemes and the methodologies used to assess that funding have changed materially.

The surpluses reported today are not simply large in absolute terms but different in nature. They are measured against significantly more prudent assumptions, particularly in relation to discount rates, longevity and asset valuation, than would have been applied historically. It is therefore right that these emerging surpluses are examined with care and transparency. Bringing them into the open is necessary, and I say at the outset that the Government are right to have raised this issue explicitly in the Bill.

That said, we consider that the Bill does not yet fully reflect a number of the practical and operational issues faced by both trustees and sponsoring employers when seeking to make effective use of those provisions. In that respect, our position is not materially distant from that of the Government. Our concerns are not ones of principle but of application and implementation. We recognise that issues relating to potential deadlock between trustees and sponsors are important, but we are content for those matters to be considered at a later stage in the Committee’s proceedings. Our immediate focus is on understanding how the proposals are intended to operate in practice, how decisions are expected to be taken within existing scheme governance arrangements and how these new powers interact with established trustee fiduciary duties and employer covenant considerations.

This is a busy group, and noble Lords have done a sterling job in setting out their reasoning and rationale. I shall, therefore, not detain the Committee further by relitigating those points but will speak to my Amendment 25 in this group. Like a number of our amendments in this part of the Bill, it is a probing amendment intended to seek clarity. Clause 9 inserts new Section 36B into the Pensions Act 1995. The new section gives trustees of defined benefit trustee schemes the ability by resolution to modify the schemes’ rules so as to confirm a power to pay surplus to the employer or to remove or relax existing restrictions on the exercise of such a power.

The clause contains one explicit limitation on that power. New Section 36B(4) provides that the section does not apply to a scheme that is being wound up. In other words, wind-up is the only circumstance singled out in the Bill in which the new surplus release modification power cannot be used. Amendment 25 would remove that specific exclusion, and I want to be clear that the purpose of doing so is not to argue that surplus should be released during winding-up; rather, it is to test the Government’s reasoning in identifying wind-up as the sole circumstance meriting an explicit prohibition in primary legislation.

By proposing to remove subsection (4), the amendment invites the Minister to explain whether the Government consider wind-up to be genuinely the only situation in which surplus release would be inappropriate or whether there are other circumstances where the use of this power would also be unsuitable. If those other safeguards are already captured elsewhere, it would be helpful for the Committee to have that clearly set out on the record. Equally, if wind-up is used here as a proxy for a broader set of concerns, the Committee would benefit from understanding why those concerns are not addressed more directly.

Surplus release is a sensitive issue. The way in which the boundaries of this new power are framed therefore matters. Where the Bill chooses to draw a line in the legislation, it invites scrutiny as to why that line has been drawn there and only there. This amendment is intended to facilitate that discussion and to elicit reassurance from the Minister about how the Government envisage this power operating in practice and what protections they consider necessary beyond the single case of wind-up. On that basis, I look forward to the Minister’s response and any clarification she can provide to the Committee.

[The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, I am grateful to my noble friend Lord Davies of Brixton and the noble Baroness, Lady Stedman-Scott, for explaining their amendments, and to all noble Lords, who have spoken so concisely—we positively cantered through that group; may that continue throughout the day.

It is worth saying a word about the Government’s policy intent, but let me start by saying that the DB landscape has changed dramatically, a point made by the noble Baroness, Lady Stedman-Scott. Schemes are currently enjoying high levels of funding. Three in four schemes are running a surplus and there is around £160 billion of surplus funds in the DB universe. Schemes are also now more mature. The vast majority minimise the risk of future volatility with investment strategies that protect against interest rate and inflation movements. In addition, the DB funding code and the underpinning legislation require trustees to aim to maintain a strong funding position so that they can pay members’ future pensions. In response to the noble Lord, Lord Palmer, that is the primary purpose of DB funding schemes: above all, they must be able to pay members’ pensions. That is what is set out quite clearly in the DB funding code and the underpinning legislation. That is overseen by the Pensions Regulator.

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[Lord Palmer of Childs Hill (LD)]

My Lords, I will try to make this quick. Proposed new clause in Amendment 45 requires the Secretary of State to commission an independent review into the application and impact of state deduction mechanisms in occupational defined benefit pension schemes. It focuses on the clawback provisions, particularly in the Midland Bank staff pension scheme and associated legacy arrangements.

Why is this review needed? State deduction provisions can reduce members’ pension entitlements, sometimes in ways that are complex or unclear. There are concerns about fairness and transparency and a disproportionate impact, particularly on lower paid staff and women. It ensures members, regulators and Parliament have clarity about the origin, rationale and effects of these provisions.

The review will examine the history and rationale for state deduction in a Midland Bank staff pension scheme and assess clarity. It will be conducted by a person or body independent of HSBC and associated schemes. We will also try to ensure that it must consult affected scheme members, employee representatives, pension experts and stakeholder organisations. I beg to move.

[Baroness Stedman-Scott (Con)]

My Lords, we are broadly supportive of the purpose behind this amendment. It raises an important set of questions about whether members of defined benefit schemes have been given clear, timely and accessible information about state deduction or clawback provisions, and whether the rationale for those provisions has been properly explained to them over time.

Of course, individuals must take responsibility for managing their own finances and retirement planning. But that responsibility can only be exercised meaningfully if people are properly informed in advance about what will happen to their pension, when it will happen and why. When changes or reductions are triggered at state pension age, members need adequate notice so that they can make sensible and informed financial decisions. In that context, a review of the adequacy of member communications, the transparency of the original rationale and the accessibility of this information is welcome. While we may not necessarily agree with some of the more precise parameters and timetables set out in the amendment, as a way of posing the question and prompting scrutiny, it is a reasonable approach.

That said, we have spoken to someone who has intimate, working knowledge of the Midland Bank pension scheme and has experience of the workings of the scheme. They confirmed to us that they were fully aware of this provision, because it was in all the literature they were sent when they were enrolled. Given this, can the noble Lord give some more insight into why he thinks some members of this scheme were aware, and others not, and how could this be addressed?

I would be interested to hear from the Minister whether she has any initial views on the issues this amendment raises. In particular, how accessible is this information to members in practice today, and what steps, if any, would the Government or Department for Work and Pensions take if it became clear that these arrangements are not well understood?

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Lord, Lord Palmer, for introducing his amendment and drawing attention to this issue, which is of real importance to some members in integrated schemes. After a lifetime of work, people rightly expect their pension to provide security and stability in retirement. For many, their occupational pension forms a key part of that.

Integrated schemes can feel confusing or unexpected to those affected, particularly when their occupational pension changes at the point when their state pension is paid. These schemes are designed so that the occupational pension is higher before state pension age and then adjusted downwards once the state pension is paid, because the schemes take account of some or all of a state pension when calculating the pension due. However, if it is not clearly explained, the change could come as a surprise. I acknowledge that and the worries some members have expressed. It is important to be clear that members are not losing money at state pension age. The structure of these schemes aims to provide a smoother level of income across retirement by blending occupational and state pension over time.

Concerns have been raised that deductions applied within integrated schemes may represent a higher proportion of income for lower-paid members, many of whom are women. This reflects wider patterns of lower earnings during their working lives, rather than any discriminatory mechanism within the schemes themselves, but I appreciate why this feels unfair to those affected. The rules governing these deductions are set out in scheme rules. Employers and trustees can decide on their scheme’s benefit structure within the legislative framework that all pension schemes must meet. The Government do not intervene in individual benefit structures but do set and enforce the minimum standards that all schemes must comply with.

Although this type of scheme is permitted under legislation, it is essential that members understand how their scheme operates. Therefore, it is extremely important that people have good, clear information about their occupational pension scheme so that they can make informed decisions about their retirement. What matters just as much as the rules is that people understand them. Good, clear information is essential so that members are not taken by surprise when they reach state pension age.

If a member believes that the information they received was unclear or incomplete, they are not without redress. They can make a complaint through their scheme’s internal dispute process or, if needed, escalate their case to the Pensions Ombudsman for an independent determination.

The Government absolutely share the desire for people to have confidence in the pensions they rely on, but, given the protections already in place and the long-established nature of schemes, we do not believe that a review is necessary. For those reasons, I ask the noble Lord to withdraw his amendment.

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[Baroness Altmann (Non-Afl)]

My Lords, I have enormous sympathy with the thoughts behind the amendment of the noble Lord, Lord Sikka. However, I share the concerns expressed by the noble Baroness, Lady Noakes, in that it is not clear how that would work, because this would then need to be a contingent payment or some kind of conditional payment which can be recouped, and that would impact creditors or debt holders of the company as well. Does the noble Lord feel that if, as a consequence of the surplus payment, members also got enhanced benefits, that would in some ways compensate for the future eventuality of what he is concerned about?

Finally, in the days before we had a Pension Protection Fund, I was very much in favour of increasing the status of the unsecured creditor position of a pension scheme. But in the current environment, where there is a Pension Protection Fund, and where the Bill will be improving the protections provided by it, it is much less important to increase the status on insolvency of the pension scheme itself than it would have been in past times. I certainly agree with the noble Lord, Lord Palmer, that if there were to be any such provision, it should be a lot less than 10 years.

[Baroness Stedman-Scott (Con)]

My Lords, I am grateful to the noble Lord, Lord Sikka, for tabling this amendment, which is clearly motivated by a desire to protect scheme members and guard against the risk that pension surpluses are extracted prematurely, only for employers to fail some years later. I suspect that there is broad sympathy with this objective across the Committee. However, I have a number of questions about how this proposal would operate in practice and whether it strikes the right balance between member protection, regulatory oversight and the wider framework of insolvency law. My noble friend Lady Noakes, the noble Lord, Lord Palmer of Childs Hill, and the noble Baroness, Lady Altmann, have all raised points connected to this amendment. I hope I am not duplicating their questions, but I will ask mine.

First, can the noble Lord say more about how this amendment would interact with the existing hierarchy of creditors under the Insolvency Act 1986? As drafted, it appears to require pension schemes to be paid ahead of all other creditors, including secured creditors and those with statutory preferential status? Does the noble Lord envisage this as a complete reordering of creditor priorities in these cases? If so, what thought has he given to the potential consequences for lending decisions, access to capital or the cost of borrowing for employers that sponsor defined benefit schemes?

Secondly, I would be grateful for further clarity on the choice of a 10-year clawback period, which other noble Lords have raised. As has been said, 10 years is a very long time in corporate and economic terms, and insolvency occurring at that point may bear little or no causal connection to a surplus payment made many years earlier, perhaps in very different market conditions. What is the rationale for that specific timeframe, and how does the noble Lord respond to concerns that this could introduce long-tail uncertainty for employers and their directors when making decisions in good faith?

Thirdly, how does the amendment sit alongside the existing powers of the Pensions Regulator? At present, trustees must be satisfied that member benefits are secure before any surplus is paid, and the regulator already has moral hazard powers to intervene where it believes scheme funding or employer behaviour to be inappropriate. Does the noble Lord consider those tools insufficient and, if so, can he point to evidence of systemic failure that would justify addressing this issue through restructuring insolvency priorities rather than through pension regulations?

I am also interested in the practical operation of this provision. Proposed new subsection (2) would allow amendments to both the Insolvency Act 1986 and the Enterprise Act 2002 to achieve the intended outcome. That is a very broad power, even acknowledging the use of the affirmative procedure. Has any thought been given to how this would operate in complex insolvencies; for example, where surplus has been paid to a parent company, where assets are held across a corporate group or where insolvency proceedings involve cross-border elements?

Finally, although I understand the protective instinct behind this amendment, I wonder whether there is a risk of unintended consequences. Might the creation of a potential super-priority for pension schemes discourage legitimate surplus extraction, even where schemes are demonstrably well funded, trustees are content and regulatory requirements have been met? If that were to occur, could it inadvertently weaken employer covenant strength over time rather than strengthen it?

None of these questions is intended to diminish the importance of member protection or suggest that concerns about surplus extraction are misplaced. Rather, they are offered in the spirit of probing whether this amendment is the most proportionate and effective way of addressing those concerns, or whether there may be alternative approaches, perhaps within the existing regulatory framework, that could achieve similar objectives with fewer systemic risks. I look forward to hearing the noble Lord’s response and the Minister’s comments.

[Baroness Sherlock (Lab)]

My Lords, I thank my noble friend Lord Sikka for introducing Amendment 45A. For clarity, I will speak to the amendment as if intended to address the power to pay surplus under Section 37, as Section 36B contains the modification power.

I fully recognise the concern that members’ benefits must remain protected when surplus is paid and that trustees take a long-term view of scheme funding and employer covenant. This is why there are strong safeguards, which I have described, as set out in Clause 10. Before the release of any surplus, trustees will need to make sure that the scheme is prudently funded and seek advice and sign-off from the scheme actuary, and other advisors, about the viability of any release and the impact that may have on the long-term health of the scheme.

While trustees perform an essential role in safeguarding members’ benefits, prioritising them above all other creditors in these circumstances risks distorting the already established insolvency regime. It creates uncertainty for businesses, ultimately harming the very members we all seek to protect.

On the points made by the noble Baroness, Lady Noakes, it is our concern that placing trustees ahead of other unsecured creditors could create significant uncertainty, increased borrowing costs and restricted access in future to finance, especially for smaller businesses. In the long term, this could potentially weaken employer support for pension schemes and threaten their sustainability, rather than strengthen it.

It is important to recognise that the current system already provides significant security for pension scheme members. Pension funds in UK occupational schemes are held in trust and are legally ring-fenced from the employer, so they cannot be accessed by creditors in an insolvency. The PPF exists precisely to offer a safety net to members who would otherwise risk losing their pensions when their employer fails.

Following the Chancellor’s announcement at the Budget, this Bill will also introduce annual increases on compensation payments from the PPF and FAS on pensions built up before 6 April 1997.

The insolvency regime is designed to operate alongside the compensation system. The structure of the pension protection levy already reflects the risk of employer failure and spreads that risk fairly across eligible schemes. The PPF assumes the creditor rights of the pension scheme trustees in the event of insolvency of the sponsoring employer and seeks to maximise recoveries from the insolvent employer’s estate.

Pension schemes, backed by a strengthened PPF, are already in a stronger position than many unsecured creditors. Giving trustees priority would leave small suppliers, contractors and even some employees with significantly reduced recoveries, despite having far fewer protections. We should not create a system where small businesses and individual workers bear disproportionate losses because a pension scheme deficit overrides all other obligations. There is also the risk of moral hazard, where trustees could be less prudent when deciding to release surplus, knowing that, under employer insolvency, they would have guaranteed priority above other priorities.

The amendment could affect the employer’s business plans as creditors may be less likely to lend money to the employer. Equally, banks may place conditions on borrowing to prevent surplus release if trustees were given priority. That dynamic could push companies towards insolvency earlier, not later, having a knock-on effect on members.

The only other thing I will add is that there are other tools open to trustees that are concerned about the strength of the employer covenant and the security of benefits. It is open to trustees during funding discussions or other negotiations to seek a fixed or floating charge over the employer’s assets, which would, in effect, elevate the scheme’s position in the insolvency priority order, providing additional protection should the employer become insolvent.

I want to be clear that trustees will have the final decision on whether to release the surplus. Before they can do so, the Bill stipulates statutory safeguards before a surplus can be released. I thank the noble Lord for his concern but for the reasons I have outlined, I ask that he withdraw his amendment.

Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Committee stage
Thursday 22nd January 2026 Grand Committee

[Lord Palmer of Childs Hill (LD)]

My Lords, as has been expressed, this group establishes the foundation of the value-for-money framework. We welcome the ambition to improve outcomes for savers. However, the effectiveness of value for money will depend on how it is defined, measured and implemented, and I welcome the comments from the noble Baronesses, Lady Bowles, Lady Altmann and Lady Kramer, which elaborated on these points.

I shall concentrate on Amendments 49 and 54 and I hope I can persuade the noble Baroness, Lady Coffey, that they are of value. These amendments will extend the scope of the Bill’s value-for-money provisions. They ensure that they apply not only to defined contribution schemes but defined benefit occupational pension schemes as well.

The arrangements make it clear that regulations can make different provision for different types of scheme. Critically, however, all schemes must be covered by the value-for-money assessment, with a proper value-for-money rating. Members of DB schemes deserve the same transparency and assurance about value for money as members of DC schemes. DB schemes still represent a significant part of the pensions landscape. Excluding them risks creating an uneven playing field and less scrutiny where it is still needed.

A single, consistent framework across occupational pensions improves comparability, avoids regulatory gaps and ensures that all savers benefit from the same standards of accountability. The two amendments in my name would ensure that the Bill delivers on its promise of value for money across all pension schemes. The measure is simple: every saver in every scheme, whatever its type, deserves value for money. Other noble Lords have expressed this in detail.

The noble Baroness, Lady Altmann, spoke about pensions jargon. We are here in a very rarefied atmosphere, where people have some knowledge—I have less than many in the Room—of what pensions are about and what phrases such as “default pensions” mean. We need to make it clear to people who have no interest in pensions other than receiving a cheque at the end of the month at a certain age what it all means. Some people need to be clear about the choices they make, and we need to do as much as we can. These amendments, both those that have been spoken to already and the two in my name, seek to protect people’s interests.

[Baroness Stedman-Scott (Con)]

My Lords, we come again to a varied group. I shall focus my remarks on the amendments in my name and that of my noble friend Lord Younger of Leckie. I welcome the contributions from other noble Lords and I look forward to the Minister’s response. We have a few amendments in this group: Amendments 50, 51, 52, 53, 57 and 74, and the Clause 13 do not stand part proposition.

Before I turn to the amendments in my name and that of my noble friend Lord Younger of Leckie, I will say a few words about the value-for-money framework that sits at the heart of the Bill. The introduction of a value-for-money framework has the potential to be genuinely transformative for workplace pensions if it is designed and implemented well. We support the principle of value for money. However, much of what this legislation seeks to achieve will stand or fall on how the framework is designed, applied and enforced.

As drafted, the provisions are relatively skeletal, despite the pivotal role that value for money is expected to play. If value for money is to drive real improvement rather than box ticking, it must be transparent in its methodology, robust in its metrics and genuinely comparable across schemes. Cost alone cannot be the determining factor. A scheme that is cheap but delivers persistently weak net returns does not represent good value for money for savers. Comparability will be key. Without clear, standardised metrics, there is a risk that value for money simply reinforces price-chasing behaviour rather than improving outcomes. My amendments are therefore intended not to oppose the concept of value for money but to strengthen it, to ensure that it is implemented in a way that improves saver outcomes, respects fiduciary duty and avoids unintended consequences.

I turn to the amendments in more detail. Amendments 50 to 53 in my name and that of my noble friend Lord Younger of Leckie, and the noble Baroness, Lady Bowles of Berkhamsted in the case of Amendment 53, are probing amendments that go to the heart of whether the value-for-money framework established by Clause 11 will operate as a genuinely effective tool for improving saver outcomes.

Clause 11 creates a very broad enabling power. It allows for the creation of a value-for-money framework, but is largely silent on what value for money should actually consist of. Given the centrality of value for money to the Bill as a whole, it is important to test the Government’s intentions on the minimum elements that will underpin the framework.

Amendment 50 would require value-for-money regulations to include publication of a fees-to-returns ratio. The purpose here is straightforward: cost on its own is not value. As I have said, a scheme that is cheap but delivers persistently weak net returns cannot sensibly be said to offer good value to members. If value for money is to be outcome-focused, it must show what savers are receiving relative to what they are paying, rather than allowing headline charges to dominate decision-making.

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[Lord Palmer of Childs Hill (LD)]

These are obviously probing amendments. They are all to do with the jargon: if we are arguing about the jargon, how much more confused will the normal punter be in trying to understand the jargon. This group focuses on how value for money is expressed, enforced and communicated.

We support the principle that members should be able to understand whether their scheme is performing well. However, value-for-money ratings also carry significant power. They will influence trustee behaviour, in particular, as well as employer decisions and market structure. That makes proportionality and precision essential.

I am particularly concerned about overreliance on short-term performance metrics. Saving for a pension is, or certainly should be, inherently long-term. Schemes should not be penalised for temporary underperformance driven by market cycles or responsible long-term investment strategies.

We also question whether compliance mechanisms become blunt instruments. Labelling schemes “poor value” without clear context may drive consolidation for the wrong reasons, reducing competition without improving outcomes. Clear language matters—I use the word “jargon” once again—but so does nuance. Members need information they can trust, not simplified labels about market complexity.

I have some questions for the Minister. How will this regime distinguish between persistent structural failure and short-term variation? How will it use this intermediate rating? How will it encourage genuine improvement rather than defensive behaviour by trustees? Trustees are meant to be very careful; they will be cognisant of the intermediate position. I will be interested to hear the Minister’s views on that.

[Baroness Stedman-Scott (Con)]

My Lords, again, this is a substantial group. I will not detain the Committee for too long but, before I turn to my amendments, I briefly welcome those tabled by the noble Baroness, Lady Altmann. As she set out so clearly, her amendments seek to simplify the language used in value-for-money assessments so that they are more readily and intuitively understood by scheme members. This goes to a point that has arisen repeatedly during our discussions in Committee: many of the concepts in this Bill, as well as the language used to describe them, are dense, technical and difficult to grasp. A considerable level of prior knowledge is often required simply to understand what is being proposed, let alone its practical effect. I am reminded of a remark attributed to Joseph Pulitzer. He said that information should be put before people,

“briefly so that they will read it, clearly so that they will understand it … picturesquely so that they will remember it, and, above all, accurately”.

Surely that is the standard to which we should aspire, in not only this Bill but more broadly in our legislative work. Clarity, intelligibility and accessibility should be central objectives. The language we choose and the way in which we define key terms in legislation are fundamental, yet they are too often treated as secondary concerns.

I therefore warmly welcome the amendments in the name of the noble Baroness, Lady Altmann, precisely because they address this issue head-on. Jargon is easy to reach for, but it is also, in a sense, lazy. When we are constructing a value-for-money framework whose purpose is to communicate value for money, we must be vigilant about terminology that obscures rather than illuminates and about euphemisms and phrases that sound authoritative but fail to convey real meaning. Many noble Lords will be familiar with Eric Blair’s essay, Politics and the English Language, and the amendments tabled by the noble Baroness serve as a timely reminder of some of the lessons it contains.

The first amendments in this group to which I have added my name—Amendments 60 and 61—would remove sub-paragraph (ii) from Clause 15(1)(b) as well as subsection (2). These amendments speak to a simple point: where responsible trustees or managers have determined that a scheme is not delivering value for money, that judgment should be sufficient to justify a rating of “not delivering” without the need to satisfy additional statutory conditions that risk being overly prescriptive.

Trustees already sit at the centre of this framework. They are charged with assessing investment performance, costs, charges, service quality and long-term member outcomes. They are subject to fiduciary duties and regulatory oversight. It is therefore entirely reasonable to trust their professional judgment when they conclude that a scheme is failing to deliver value for money. As the Bill is currently drafted, that judgment must be supplemented by one of a series of defined conditions, whether persistent intermediate ratings, a lack of realistic prospect of improvement or regulatory non-compliance. While well-intentioned, those conditions risk turning what should be a principles-based regime into a mechanistic one, encouraging trustees to focus on meeting thresholds rather than acting decisively in members’ best interests.

Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Committee stage
Monday 26th January 2026 Grand Committee

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank all noble Lords who have contributed to this debate. As we know, this group addresses the use of scale, as measured by assets under management or monetary value, as a determinant of scheme quality.

The noble Lord, Lord Fuller, gave the example of the Orkney trust. I ask myself: what is the reason? Is it size? Personally, I think it is the calibre of the single malt whisky. Then we go to the other end of the country, to Guernsey. Is it because trusts are at the extremes of the country that causes the good benefits, or is it something else? You can always look for a reason: it could be size, location or anything else—or, indeed, the quality of the whisky.

We accept that scale can bring efficiencies, but there is a strong question over whether size alone is a reliable proxy for value. Amendments 91 and 95 recognise that some master trusts and group personal pension schemes deliver strong investment performance despite being below prescribed thresholds. Amendment 98 similarly acknowledges that innovation and specialism do not always depend on scale, location or whatever else.

We are also concerned about the rigidity of fixed monetary thresholds in the Bill. Amendments 99, 101, 106 and 108 in the name of the noble Baroness, Lady Altmann, are concerned about the rigidity of fixed monetary thresholds in the Bill. These amendments probe whether the figures chosen are evidence-based and future-proofed, or whether they risk being outdated—that is the point—as the market evolves. It is not cast in stone, and we should not try to see it as such.

Amendments 101, 104 and 108 in the names of the noble Baroness, Lady Altmann, and others, raise an additional concern: the risk of mandating common investment strategies. Diversity of approach is a strength of a pension system. Forcing schemes into uniform strategies risks herding behaviour and systemic vulnerability. My question to the Minister is this: is the Government’s objective genuinely better member outcomes—which I believe we all want—or prioritising administrative simplicity at the expense of innovation, competition and resilience? All the amendments in this group tackle this problem, and those in the name of the noble Baroness, Lady Altmann, particularly stress that. I hope we will continue to push these through to the next stage of the debate on this Bill.

[Baroness Stedman-Scott (Con)]

My Lords, today’s groups build directly on the issues explored in last Thursday’s debate. That discussion was both stimulating and constructive, and the contributions made, particularly on mandation, highlight the value of the scrutiny that this Bill continues to receive in Grand Committee. On this group, in the interests of brevity—I am sure that will please the whole Committee—I shall keep my remarks focused on the amendments in my name and that of my noble friend Lord Younger of Leckie. A number of significant and related issues have been raised by other noble Lords, and we will wish to return to these later today. We will listen carefully to the Minister’s response to the points made on this group.

Amendment 98 would introduce a clear and proportionate innovation exemption for relevant master trusts under Clause 40, so that schemes delivering genuinely specialist or innovative services are not automatically required to meet the scale threshold simply because of their size. We have been challenged today not to be obsessed with size. We recognise the policy aim of improving outcomes through scale. However, as I said, size is not always a reliable proxy for quality or value: there are master trusts that are smaller by design yet deliver strong member outcomes through innovation, whether in investment approach, governance or engagement with particular workforces. As the Bill is currently drafted, such schemes risk being forced to consolidate or exit, not because they are failing members but because they do not meet a blunt asset size test.

Amendment 98 provides a sensible alternative route, recognising that innovation and specialisation can also deliver high-quality outcomes. This amendment simply ensures that size alone is not determinative. I hope the Minister will see this as a constructive amendment that supports innovation and choice while remaining fully aligned with the Bill’s objective of improving outcomes for savers.

Amendment 102 is, again, a probing amendment. Clause 40 gives the Secretary of State the power to determine by regulations the method for calculating a master trust’s total assets for the purposes of this provision. That is a potentially significant power, because the way that total assets are defined and measured will determine which schemes fall within scope and which may benefit from exemptions.

--- Later in debate ---

[Lord Palmer of Childs Hill (LD)]

My Lords, I congratulate the noble Baroness, Lady Altmann, on having a group of nine amendments all on her own. We normally share groups rather than have them all on our own. This group considers how scale requirements interact with default pension arrangements where most savers remain invested. I have listened to the debate and, having spent a large part of my career in accountancy and advising clients, I know that the trouble is that the majority of clients are not expert enough to know what they should do with their pension. They seek advice from various organisations on what they should do. We should make sure that the quality of the advice they get suits their position in life. As other noble Lords have said, we are concerned about the overly rigid scale test, which could unintentionally narrow choice within defaults and push schemes towards one-size-fits-all designs.

Amendment 97 highlights the importance of allowing defaults that reflect members’ differing ages, health conditions, retirement plans and risk profiles. Amendments 97A to 101B probe—this is the point—whether the authority can take account of the combined value of assets across multiple default arrangements, rather than assessing each in isolation. Without this flexibility, schemes that offer well-designed cohort-based defaults could be penalised simply for tailoring provision.

Amendments 168A and 170A reinforce this point, seeking to ensure that schemes are not excluded from the market for moving beyond crude uniform defaults. Our concern is that defaults should be designed around member needs, not regulatory convenience. I hope the Minister will explain how the Bill avoids pushing schemes towards uniformity at the expense of suitability and long-term outcomes.

I hope the Minister does not regard the series of amendments in this group as combative. They are meant to try to help pensioners or future pensioners. It is wrong if the Government look for a simple process but do not look at the benefit for the people concerned. I think it was the noble Lord, Lord Fuller, who talked about what happens in gilts and the like. I come from a period in the chartered accountant profession when you always went into gilts in what you thought were the last few years of your working life. Now, things have changed. We have to look at what you do and when you do it, and those things depend on the people involved.

I hope the Minister will see that these amendments are trying to say that things should not be too prescriptive. They are not against what the Government are trying to do, which is look after people. But are doing it on a one-size-fits-all basis, which does not work in the real world that we are in. I hope the Government go back and think about this a little more so that, when we come to Report, we can be a little more innovative.

[Baroness Stedman-Scott (Con)]

My Lords, I wish to speak briefly in support of this group of amendments in the name of my noble friend Lady Altmann. She has once again demonstrated her expertise and the value that she brings to our scrutiny of these important issues. Most importantly, she explained the spirit in which these amendments were tabled.

Throughout our proceedings on this Bill, a consistent theme across the Committee has been the need for proportionality in the steps we are taking on scale and value for money, and for definitions that are sufficiently comprehensive to reflect how the market actually operates in practice. I do not intend to repeat the points already made by the noble Baroness or ask the questions she has posed, but we will listen carefully to the Minister’s response on these issues.

Clause 40, as drafted, risks applying the scale test in an overly narrow and mechanical way by requiring the regulator to assess each default arrangement in isolation without regard to the wider context in which it is offered. That approach is not necessarily proportionate; nor does it reflect the economic reality of how master trust providers operate. This amendment would allow the regulator to take into account the combined assets of several non-scale default arrangements offered by the same provider. In doing so, it would not dilute the principle of scale; rather, it would ensure that scale is assessed in a comprehensive and realistic way, focusing on the resilience, governance and efficiency of the provider as a whole.

That matters because, without this flexibility, we risk forcing consolidation for its own sake and potentially requiring well-run, well-performing defaults to be wound up simply because they fall on the wrong side of an arbitrary threshold—even where the provider clearly operates at scale overall. This amendment therefore speaks directly to the principles that we have already raised in Committee: that regulations should be outcome-focused rather than box-ticking, and that they should avoid unintended consequences that could undermine member confidence rather than enhancing it. For those reasons, I believe this is a sensible and proportionate refinement of Clause 40, and I hope the Minister will give it serious consideration.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Altmann, for the clarity of the exposition of her amendments, and I thank all noble Lords who have spoken. I will try to explain what the Government are trying to do here and then pick up the specific points that the noble Baroness raised.

To maintain the policy on scale and secure its benefits for pension scheme members, there will need to be centralised decision-making over a large pool of assets. The Bill sets out that this will be delivered by the main scale default arrangement, which is subject to a common investment strategy. I recognise that the noble Baroness has raised concerns about the common investment strategy being able to accommodate different factors, but I will tell the Committee why it is there. A key purpose of the policy is to minimise fragmentation in schemes and to have a single default arrangement at the centre of schemes’ proposition. Fragmentation is an issue, not because it is a piece of government dogmatism but because it is in the interests of members that those who run their schemes have a big wallet at the centre to give the scheme the buying power and expertise they need, because that enables them to deliver on the benefits of scale.

When we consulted, the responses told us that there were schemes with hundreds of default arrangements that have been created over a long period of time and that this is a problem. Members in these arrangements get lower returns and pay higher charges, which some consultation responses also told us. It is important that we deal with that fragmentation and that we improve member outcomes.

However, the Government also recognise that there are circumstances where a different default arrangement is needed to serve specific member needs only—for example, for religious or ethical regions. These will be possible through Chapter 4 but they will not count towards the main scale default arrangement. If the scale measure encompassed multiple default arrangements or combined assets, as these amendments would allow, it would not drive the desired changes or support member outcomes derived from the benefits of scale. Following consultation, there was clear consensus that scale should be set at the arrangement level as that is where key decisions about investments are made. Simply put, centralised scale is the best way to realise benefits across the market for savers.

The pensions industry has told us there are too many default arrangements in some schemes, and that fragmentation—

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[Lord Sharkey (LD)]

My Lords, I will speak briefly under the auspices of Amendments 146 and 147 when we resume some of the discussions the Minister promised last week to continue, notably on mandation and statutory guidance. In our debate last week, I tried to establish the evidence base for the Minister’s assertion that

“the Government would not be proposing these powers”—

mandation—

“if there were not strong evidence that savers’ interests lie in greater investment diversification than we see today in the market”.—[Official Report, 22/1/26; col. GC 218.]

The key words here are “strong” and “evidence”. There are certainly those whose opinions would align with the Minister’s assertion, but opinion is not the same as evidence and not nearly the same as strong evidence.

As I said last week, the DWP recently commissioned the Government Actuary’s Department to model four variations of pension scheme strategies. I will not list them again, but the study concluded that across a range of economic scenarios the model portfolios deliver very similar projected pension pot sizes. But it also showed that if the current underperformance of the UK versus global equities persists, UK-heavy allocations will underperform the baseline. The Government Actuary’s Department said in a post on GOV.UK on 15 November 2024:

“Our analysis showed that a greater level of exposure to private markets may deliver slightly improved outcomes to members. However, there is considerable uncertainty, particularly with the assumptions for projected future investment returns”.


That does not sound like strong evidence for anything.

The Institute and Faculty of Actuaries makes the same point. It says that, based on the Government’s own impact assessment, “We do not think there is strong, clear evidence that in most foreseeable scenarios savers’ interests lie in greater investment in private markets and infrastructure”. It believes that there exists a very uncertain central estimate of an extra two percentage points over 30 years, equivalent to 0.066% a year compounded. It goes on to say: “Given the inherent uncertainty in such estimates, this is almost negligible and could easily turn out to be negative over the next 30 years or indeed much higher”. The IFoA goes on to say: “The point is that it is far from clear that there would be a material benefit”. That does not sound like strong evidence commendation either, yet this is the basis on which the Government seek to mandate investment, which raises as a consequence significant concerns about the operation of fiduciary duty.

The proposals in this Bill, for there is a power to mandate investment, cause uncertainty about trustees’ duties to their members. That uncertainty is understandable, especially because the case for mandation is weakly evidenced, if evidenced at all. The uncertainty is also unnecessary in many ways because of the existence of the Mansion House Accord for which, as others have said, 17 leading pension providers have already signed up. How will the anticipated statutory guidance, for example, contribute to the model of co-operation embedded in the Mansion House Accord? Is it no more than a useful threat? What role will the statutory guidance play in modifying the application of fiduciary duty? In fact, can the Minister confirm that the promised statutory guidance will have something to say about the possible clashes between mandated action and fiduciary duty, if only to confirm the primacy of fiduciary duty?

Minister Bell responded on 22 January to a Written Question from my honourable friend the Member for Stratford-upon-Avon about the scope of the coverage of the upcoming guidance on fiduciary duties. His reply did not refer to the mandation powers at all. Will the Minister confirm that the guidance will be non-binding and have the same have force as many other “have regards” that exist in the financial services sector? If the guidance has, or could plausibly be read as having, detectable, real-world influence, it should come before Parliament for scrutiny, and it should come before us when we can recommend changes.

Minister Bell’s Written Answer, as I mentioned a moment ago, says of the guidance that:

“Work will commence shortly beginning with an industry roundtable to gather views and technical expertise to ensure the guidance meets the identified need”.


I suppress my astonishment at this rather late start for thinking about statutory guidance. I notice that, in the reply, there was no mention of Parliament and the role it might play or of timescale in all this, except we now know that it has either just started or is about to start. In other words, as things stand, the likelihood of effective parliamentary scrutiny of anything to do with statutory guidance is unlikely. This is entirely unsatisfactory for the reasons that the noble Lord, Lord Ashcombe, has argued so forcefully.

There is no compelling evidence that mandation will work. If the Mansion House Accord is to be taken seriously and the Government play their part, mandation will be unnecessary. Mandation would interfere with or complicate the principal of fiduciary duty. It is also opposed by major stakeholders including, as I mentioned previously, the Governor of the Bank of England.

The Institute and Faculty of Actuaries ends its latest assessment of the situation by saying that trustees should not be leaned on to invest in ways that conflict with their own best judgment. Instead, those investments and markets that the Government wish to promote should continue to be made more attractive through initiatives such as LTAFs and so on. The pension schemes will freely choose to follow in a way that is right for them and their members. We agree with that and will continue to try to convince the Government that the reserve power is not necessary or desirable—activated or not—and that there is no sound basis for using it.

[Baroness Stedman-Scott (Con)]

My Lords, I will speak briefly on the other amendments in this group before turning to Amendment 145 in my name and that of my noble friend Lord Younger of Leckie. As noble Lords have already set out, Clause 40 represents a significant extension of regulatory influence over asset allocation in defined contribution default arrangements. Given the scale of that change, it is both reasonable and necessary that we consider carefully how risk, responsibility and accountability are apportioned within the framework the Bill creates.

The amendments in the name of my noble friend Lady McIntosh of Pickering, and the noble Baronesses, Lady Bowles of Berkhamsted and Lady Altmann, seek to introduce greater certainty and procedural fairness into the operation of the savers’ interest test. Removing an automatic time limit on exemptions, ensuring that schemes are not compelled to alter asset allocations while determinations or appeals are ongoing and requiring the authority to give reasons for its decisions are all, in my submission, entirely sensible propositions. They make the framework that the Bill creates more robust, transparent and defensible.

In a similar vein, allowing schemes to apply for the savers’ interest test over a limited number of consecutive years, while demonstrating a credible pathway to compliance, reflects a realistic understanding of how long-term investment strategies are developed and implemented. It recognises that good outcomes for savers are not always delivered by abrupt or mechanically imposed changes.

Several of the amendments in this group speak directly to the core point of fiduciary responsibility, which, as was powerfully reinforced during our debate on the final group last Thursday, is an absolutely central point to the approach being adopted by noble Lords across the Committee. The amendments reinforcing fiduciary duty and proposing a safe harbour for trustees acting in good faith on professional advice and in accordance with their duties are an attempt to clarify that nothing in this Bill should place trustees in an impossible position, caught between regulatory direction on the one hand and their fundamental obligation to act in the best financial interests of members on the other.

Related to this, the probing amendment from the noble Lords, Lord Vaux of Harrowden and Lord Palmer of Childs Hill, asks an important and unresolved question: where investment decisions are mandated by the state, in effect, where does liability sit if those investments underperform? Even if the Government do not accept the mechanism proposed, the question itself cannot simply be wished away; I hope that the Minister will address it directly.

I also wish to touch on the amendments that deal with systemic risk, structural neutrality and herding behaviour. Requiring trustees to have regard to long-term systemic risks, including economic resilience and climate change, is entirely consistent with existing best practice and does not mandate investment in any particular asset or vehicle. Ensuring that listed investment funds are not structurally disadvantaged helps preserve choice and diversification. The amendment on regulatory herding speaks to a well-understood risk: overly prescriptive frameworks can drive homogeneity of behaviour, amplifying systemic risk rather than mitigating it.

I hope, therefore, that the Minister will engage seriously with the questions these amendments ask around process, liability, fiduciary duty and risk. Even where the Government may not be minded to accept the amendments, as drafted, they highlight issues that, given the provisions in the Bill, deserve clear and careful answers.

As has been our consistent approach throughout these days in Committee, my own amendment seeks to probe the Government on a key question: why have they provided for a maximum civil penalty of £100,000 for failure to comply with the mandation requirements set out in this chapter? Given the nature of those requirements and the breadth of discretion that they confer on the authority, it is not at all clear in the Bill how the Government have arrived at that figure or why it is considered proportionate. We are dealing here with decisions around long-term asset allocation in pension default arrangements—areas where reasonable, professional judgment may legitimately differ and where the consequences of regulatory direction may not be apparent for many years. In that context, a six-figure penalty is not a trivial matter.

This amendment is designed to invite the Government to explain the rationale for the level of the penalty; how it is expected to be applied in practice; and whether sufficient regard has been had to scheme size, intent and the nature of any alleged breach. I hope that the Minister can set out clearly why £100,000 is the appropriate ceiling; how proportionality will be ensured; and what safeguards will exist to prevent penalties being applied in a blunt or mechanistic way.

[Lord Katz (Lab)]

We have to have a hard stop at 8 pm, I am afraid, so I move that the Committee do now adjourn.

Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Committee stage
Tuesday 3rd February 2026 Grand Committee

[Lord Fuller (Con)]

My Lords, I will not repeat the long list of government missteps on a global, international stage from those politicians who have interfered with people’s retirements. Safe to say, it represents moral hazard.

There is a mismatch between the long-term investment needs of people who are saving for retirement half a generation ahead—in particular, the youngest members of our workforce—and the short-term political wants of those who might direct. Politics is transient. MPs come and go, but the hangover from bad decisions lasts a long time. The 1997 changes to dividend taxes have cast a long shadow that has deprived millions of a secure retirement. We should have learned that lesson but, no, we have not. Mandation risks repeating that mistake all over again and benighting a new generation of youngsters who are 30 or 40 years away from retirement. There is already generational unfairness in the system. Mandation will perpetuate it again. It should have no place in the Bill, yet here we are discussing it.

I align myself fully with the proposers of these amendments and hope that, even at this late stage, between Committee and Report, the Government will look at this matter once more. Mandation should not be part of the Bill because of that simple moral hazard. MPs and the Treasury love to tell people what to do, but they will not be around to pick up the pieces when, or if, it all goes wrong.

[Baroness Stedman-Scott (Con)]

My Lords, I shall speak briefly to Amendment 167, which was tabled and spoken to eloquently by the noble Baroness, Lady Kramer, and supported by many noble Lords. This amendment touches on a set of concerns that we raised at Second Reading and to which we will return in considerably more detail in our debate on the next group.

For the sake of brevity, at this stage, I will confine myself to the central point of principle. The issue here is not simply asset allocation but where risk is placed and who should take it when investment decisions are shaped by government direction, rather than trusty judgment. The mandation power introduced by the Bill is targeted narrowly at automatic enrolment default funds—the schemes that are relied on by those who are least likely to have made an active choice and are least able to respond if outcomes are adversely affected. That targeting matters. Mandation does not apply evenly across the pensions landscape. It does not touch defined benefit schemes, self-selected funds, SIPPs or bespoke arrangements but falls with notable precision on default savers—those who depend most heavily on the neutrality and integrity of the system to act on their behalf.

Amendment 167 raises a legitimate question about protection and accountability in that context. If default funds are required to follow mandated investment decisions and if those decisions underperform a simple, low-cost benchmark, should the consequences fall entirely on members who neither chose the strategy nor, in practice, have the capacity to respond to it? Of course, it may be said that members are free to move to another fund, but that response lacks behavioural realism. Automatic enrolment defaults exist precisely because many savers do not actively choose, do not regularly review and do not feel equipped to intervene in complex investment decisions. How can we put them in that position?

For a significant proportion of members, remaining in the default is not an expression of preference but a reflection of constraint, limited time, limited confidence and limited financial literacy. Behavioural realism tells us that these savers will not simply move in response to policy changes, however well signposted. To place the full downside risk of mandated investment decisions on that group is therefore not neutral; it is a deliberate allocation of risk to those least able to manage it. The noble Baroness’s amendment is therefore not an attempt to eliminate risk but to highlight the asymmetry that mandation introduces and the absence of any corresponding safeguard for those most exposed to its effects.

These issues around mandation, choice, fiduciary duty and the position of default savers run through the architecture of the Bill. We will return to them in much greater depth in the following group. For now, I simply underline that the concerns raised by Amendment 167 and all those who have spoken are not isolated. I look forward to the Minister’s response and hope that the Government will take note of the concern laid out to them today and do the right thing.

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Baroness, Lady Kramer, for explaining her amendment, which would in essence introduce a requirement for the Government to establish a framework for compensating savers in the event that they lose out financially because they were invested in assets that they would not have been were it not for the use of these powers. I am sorry to say that because we have just discussed a similar amendment from the noble Lord, Lord Vaux, in the previous group, some of my arguments may sound a little familiar, but I hope that the noble Baroness will bear with me.

First, as I have said, the Government would not be proposing these powers if there was not strong evidence that savers’ interests lie in greater investment diversification than we see in today’s market. That is the Government’s view. I mentioned in the last group that there is a range of evidence out there which goes to this point. I cited one example of it; there are others cited in the DWP paper to which the noble Lord, Lord Sharkey, referred. I pointed out that we are an international outlier in this matter, so that is the Government's view.

The reason we are doing this, once again, is that we believe that it is in the interests of savers to have a small, risk-adjusted diversification within the context of a portfolio; we believe that it is the best thing for savers. DC pension providers themselves have recognised that a small allocation to private markets can offer better risk-adjusted returns as part of a diversified portfolio. The noble Baroness has offered one view as to why people are not doing this. In our view, many providers have so far not done it not because it is necessarily in savers’ best interests not to do it but because of competitive pressure to keep fees low or because of a lack of scale, among other reasons.

Secondly, if the Government ever came to consider exercising these powers, they would first have to publish a report considering the impact of the proposed asset allocation requirements on savers. Crucially, that is an opportunity to confirm that bringing forward the requirements is in savers’ interests, based on the circumstances at that time. I say to the noble Lord, Lord Vaux, that there is also a report required after the powers are used and within five years. Thirdly, if the Government ever did implement the requirements, the legislation provides for a formal process under which providers could apply for an exemption based on evidence that meeting the requirements would cause savers “material financial detriment”.

Crucially, savers will continue in all circumstances to be protected by the core fiduciary duties of trustees. Specifically, trustees would continue to be subject to a duty to invest in savers’ best interests, in line with the law. This comes down to the fact that the Government are not mandating trustees to invest in any particular assets. Were these powers ever to come about, the trustee duty would apply, as I have said, to the selection of individual investments in a portfolio, to the balance of different asset classes in a portfolio, including the balance between private asset classes, and to any decision to apply for an exemption under the savers’ interest test. If a provider felt that the asset allocation requirement was not appropriate for their particular circumstances, we would expect the existing duties to guide them to submit an application under the savers’ interest tests.

--- Later in debate ---

[Lord Palmer of Childs Hill (LD)]

Maybe that would be a good thing. I am not convinced that the regulator pushing away from primary legislation to regulation is necessarily the way forward. I am not convinced that what has happened to date has failed. Therefore, I am not sure why we want to change this without adequate proof. The idea that the FCA wants to swallow up everything else is fairly normal in the gladiatorial forum that we have. I would like to see what the FCA and others have to say about this before we make a final decision.

[Baroness Stedman-Scott (Con)]

My Lords, I speak to both Amendments 180A, tabled by my noble friend Lady Coffey, and Amendment 206, which stands in the name of my noble friend Viscount Younger of Leckie and myself. Both amendments address the regulation of pensions and how the regulation is best exercised in the interest of scheme members and future pensioners.

It was the intervention of my noble friend Lady Coffey at Second Reading that first prompted me to reflect more deeply on the role of regulators. As my noble friend argued then, and has argued again today in speaking to Amendment 180A, this Bill misses a significant structural opportunity by retaining two separate pension regulators. I agree with her. There is something inherently odd about the fact that very similar pension products can be treated differently depending on whether they fall within the remit of the Pensions Regulator or the Financial Conduct Authority. That observation is not controversial; it is simply a reflection of how the current system operates.

I recall clearly the passage of the then Pension Schemes Bill in February 2020 and remember responding to amendments from across your Lordships’ House by explaining that personal pension schemes were regulated by the FCA, rather than the Pensions Regulator, and that imposing requirements on personal pension providers through that legislation would risk creating a patchwork of overlapping regulatory oversight. Providers, it was argued, would otherwise be required to respond to two separate regulators in relation to the same activity. That was the Government’s position at the time, and it illustrates that the existence of regulatory fragmentation in this area is not a matter of dispute.

A great deal of work has gone into managing the fragmentation, with strategic documents, dating back to 2018, seeking to grapple with the issue. The FCA and the Pensions Regulator have published joint regulatory strategies explicitly acknowledging the complexity that arises where their remits intersect and the need for close co-ordination. More recently, an independent review of the Pensions Regulator in 2023 again highlighted the challenges inherent in this divided regulatory landscape. Taken together, these developments point to structural issues in the regulatory ecosystem that can, at the very least, create confusion and the risk of inconsistency.

It was on the basis of that experience in government and of careful consideration since then that I sought to identify what might realistically be done in this Bill. I came to the conclusion that Amendment 206 represents a proportionate and pragmatic compromise. It would require the Government to establish a formal published protocol setting out clearly how the Financial Conduct Authority and the Pensions Regulator co-ordinate, how responsibilities are divided between them and how they communicate when regulating the pensions industry. The evidence shows that there is complexity, overlap and, at times, confusion between the two regulators. Stakeholders frequently complain of unclear lines of responsibility and the regulators themselves openly acknowledge that co-ordination is difficult, hence the repeated reliance on joint strategies and informal arrangements.

It was our sense that the problem is one not of outright contradiction but of opacity, complexity and accountability. Amendment 206 is, therefore, carefully targeted at the problem, which is clearly evidenced. It seeks to improve co-ordination and clarity without asserting a level of regulatory failure that has not yet been conclusively demonstrated. That does not place it in opposition to the argument advanced by my noble friend Lady Coffey; indeed, I would be very happy to work with her, as we did so constructively on previous pension legislation, to strengthen this area further.

In my view, a formal co-ordination protocol has three important virtues. First, it can evolve over time as the regulatory landscape changes. Secondly, it can be tightened if problems persist or new risks emerge. Thirdly, it can itself become the evidence base for any future decision to pursue more fundamental consolidation of regulatory functions, should that ultimately be judged necessary. For those reasons, I commend Amendment 206 to the Committee and urge the Government to see it not as an obstacle but as a constructive and proportionate step towards greater clarity, accountability and confidence in the regulation of pensions.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Coffey. Things are never dull when she is around. Frankly, that is quite a thing to say for a pensions Bill—I apologise to all the pensions nerds.

I thank noble Lords for introducing their amendments. The noble Baroness, Lady Coffey, said that her amendment would require the Secretary of State to do a review exploring the viability of moving the FCA’s pension regulation functions, apart from those for SIPPs, to TPR. On Amendment 206, the noble Baroness, Lady Stedman-Scott, wants a statutory joint protocol, formal co-ordination mechanisms, a published framework for oversight and the mandation of regular joint communication.

The Government keep the regulatory system under continuous review. The noble Baroness, Lady Coffey, has given us an absolutely fair challenge. As we have already found here, the reality is that, when you come to discuss this, some people are on team FCA, some are on team TPR and some—such as the noble Lord, Lord Fuller—do not like any of them and want to throw everybody else into the mix and have somebody reviewing all of them. So it is fair to say that it will not be easy to achieve consensus on this.

Let us come back to the principle. The Government’s view is that there is still a fundamental difference between trust-based and contractual pension schemes. Contract-based pension schemes are based on an individual contract with the saver. As the pension market continues to evolve, and as we move towards a more consolidated market, we will need to ensure that the system evolves with it and that there is more regulatory alignment where it is really needed. However, TPR, the FCA and other bodies, including the PRA, are on to this. So I suppose the exam question here is: do we need one regulator to take over the other, or is it possible to create a regime for regulatory alignment and joint working? I will try to make the case for the latter; the noble Baroness can tell me at the end whether I have a pass or a fail on the exam paper.

The Government’s view is that TPR and the FCA have distinct roles. Each has its own framework, reflecting the range of pension types and the need for tailored oversight. They operate under distinct statutory frameworks, and existing arrangements already enable effective co-ordination between them. TPR and the FCA have established a joint regulatory strategy that outlines their respective roles; that collaboration is underpinned further by a formal memorandum of understanding and, where necessary, joint protocols on specific issues detailing how the two regulators co-operate, share information and manage areas of overlap. They have published a joint document outlining their respective roles. They run joint working groups and consultations. They publish shared guidance, and they conduct regular joint engagement with stakeholders. These mechanisms are well established and provide the flexibility needed to respond to developments in the pensions market. That close collaboration ensures the same good outcomes for pension savers, regardless of legal structure, and aims to avoid the potential for regulatory arbitrage.

The noble Baroness, Lady Stedman-Scott, mentioned the independent review of the Pensions Regulator by Mary Starks in 2023. That review recommended that no changes should be made to the framework. The review concluded that it was far from clear what the benefits of shifting to a single regulator would be and whether that would in fact outweigh the costs and the risks of distraction.

Moving on, we do not believe that a statutory requirement for a joint protocol is needed, as proposed in Amendment 206. It risks duplicating existing arrangements and in fact replicating parts of the memorandum of understanding and joint regulation strategy that are already in place. Where specific regulatory risks would benefit from more formally aligned regulatory approaches, the organisations consider the need for a joint protocol. An example would be the 2019 joint approach to guidance for trustees and advisers supporting pension members with decision-making exercises.

We also do not believe that the review proposed by Amendment 180A is necessary at this time. We continue to keep the system under review to make sure that it continues to deliver. Any future changes need to be evidence-led and shaped through engagement with stakeholders. In the light of that, I hope the noble Baroness, Lady Coffey, will feel that I have passed the exam test and is able to withdraw her amendment.

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[Baroness Coffey (Con)]

My Lords, I support Amendment 182 tabled by the noble Baroness, Lady Bowles of Berkhamsted. Gosh, superfunds—that has been quite a journey. It must be about six years ago that I apparently received a letter from Andrew Bailey, who I think was running the Prudential Regulation Authority at the time. I never actually received it, but I read it in the FT and on Sky. It told me that it all seemed very unfair compared with the Solvency II reform, which is what insurers had to go by. That is why I am strongly concerned about Clause 65(2)(a) being in this Bill.

I think we are seeing the hand of the ABI again here, trying to basically squeeze out other activity when we should be focused on what is in the best interest of the pension scheme members. We also want to try to make sure that we do not have never-ending firms going into the PPF. The superfunds, which I recognise the Government have embraced through this, are definitely a good option but are different to having an insurer buyout, even with some of the changes that have happened away from Solvency II to whatever version of Solvency UK. There has been more reform with less risk around some of the margins in that regard.

So I encourage the Ministers to think again about whether subsection (2)(a) is really the right approach for the outcomes they seek. Otherwise, why bother? Why bother having a superfund if you can get only the equivalent of what it is to get the insurer buyout?

I could go further, but I am conscious that the dinner business break is bringing exciting business and that the Committee wishes to finish by a certain time. So I will leave superfunds for another time, perhaps in the Bishops’ Bar. But, with that, I support my noble friend in Amendment 182.

[Baroness Stedman-Scott (Con)]

I will speak to Amendment 181 tabled by my noble friends Lady Noakes and Lady Altmann, and Amendments 182 and 183, tabled by the noble Baroness, Lady Bowles of Berkhamsted, and my noble friend Lady Altmann. I will also address the broader issue of the role of superfunds within our defined benefit pensions landscape.

At the outset, I want to be clear that my understanding is that the Government remain committed to creating a thriving and credible superfund market. That ambition is welcome because superfunds have the potential to support two important public policy objectives. First, they support member outcomes; properly regulated superfunds can improve security for members and, in the case of a run-on superfund model, they offer the additional prospect of enhanced benefits over time through the sharing of surplus and investment upside.

Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Committee stage
Thursday 5th February 2026 Grand Committee

[Lord Palmer of Childs Hill (LD)]

My Lords, this amendment has the distinction of being in a grouping all of its own, which obviously shows how important it is. The proposed new clause in it would require the Secretary of State to publish a report within 12 months on

“the impact of consolidation in the occupational pensions market”.

It would ensure, I hope, that Parliament and the public have transparency on how consolidation is reshaping the sector. We know that consolidation is accelerating in the pensions market and, although scale can deliver benefits—I hope—it can also raise risks: reduced competition, fewer choices for savers and further barriers for new entrants. A clear evidence base is an essential part of the solution to strike the right balance.

The report referenced in this amendment calls for information on a number of things. The first is market concentration—for instance, trends in the number and size of schemes and the level of provider dominance. The second is effects on competition and innovation: whether consolidation is driving efficiency or stifling creativity and diversity. The third is consumer choice: how member options are being affected. The fourth is barriers to entry: challenges faced by small and medium-sized providers in entering or growing in the market. The last is an assessment of whether current competition and regulatory safeguards are sufficient.

The report would also have a particular focus on exclusivity arrangements, exit charges and pricing structures that may distort the market. Furthermore, the Pensions Regulator and the Competition and Markets Authority would have a role in overseeing these risks. The review would also examine potential policies or regulations to support new entrants and maintain a healthy and competitive pensions market.

To summarise, we know that consolidation must serve savers’ interests, not just the interests of the largest providers. This proposed new clause would ensure that Parliament is properly informed—it should be informed on all things, whether on this or on the noble Lord, Lord Mandelson—that regulators are held to account and that future policy is based on evidence. From a Liberal Democrat perspective, well-functioning markets matter. Competition, diversity of approach and the ability for new entrants to challenge incumbents are essential if savers are to benefit over the long term. Ministers need to explain why a formal review of consolidation is resisted, given the scale of structural change this will accelerate. We are asking just for a review, and we hope the Government will not think this too much to ask for before we enter this new realm. I beg to move.

[Baroness Stedman-Scott (Con)]

My Lords, it is a pleasure to close this debate and respond to the remarks of the noble Lord, Lord Palmer, on his Amendment 184. I am grateful to him for raising this issue, because it goes to the heart of how we ensure that pension reform delivers better outcomes for savers rather than simply neater market structures on paper. I think there is reasonably wide backing across the pensions industry for the Government’s broad objective of greater consolidation and efficiency within the defined contribution market. Many stakeholders accept, and indeed support, the proposition that increased scale, when combined with robust governance, strong investment capability and appropriate oversight, has the potential to deliver stronger long-term outcomes for members. Few would argue for fragmentation for its own sake.

However, support for consolidation is not the same as support for consolidation at any cost, or consolidation pursued without sufficient regard to its secondary effects. Well-founded concerns remain that the current design of the scale test risks it being too blunt an instrument. In particular, it does not distinguish adequately between schemes that are genuinely underperforming and those smaller or mid-sized providers that, despite operating below the proposed thresholds, none the less deliver consistently high-quality, well-governed and, in some cases, market-leading outcomes for savers. Indeed, the Government’s own analysis underlines this risk. The chart contained in paragraph 70 of the Government’s 2024 report shows no clear or consistent correlation between assets under management and gross five-year performance across large parts of the master trust and group personal pension market.

The principal scale-related concern identified appears to relate not to well-run schemes operating below the threshold but to the very smallest arrangements, in particular certain single-employer schemes where governance capacity and resilience can be more limited. That matters because consolidation in a pensions market is not a neutral process. This is not a typical consumer market. Savers are largely captive, choice is constrained, switching is rare and inertia is high. In such an environment, reductions in the number of providers can weaken competitive pressure long before anything resembling a monopoly appears. The risk is not always higher charges tomorrow but slower innovation, less responsiveness and poorer outcomes over time.

That is why this amendment is important. It would ensure that consolidation serves savers and that Parliament retains a clear grip on how the market is evolving. Small distortions in competition today—barely visible in the short term—can compound into materially worse outcomes over 30 or 40 years of saving. In a system built on long horizons, early and structured scrutiny is essential.

There is also the question of innovation. Smaller and newer providers have often been the source of advances in member engagement, digital capability, decumulation options and investment design. If consolidation raises barriers to entry through disproportionate compliance costs, restrictive exit charges or exclusivity arrangements, innovation risks being squeezed out, even where headline charges appear to fall. Efficiency gains that come at the expense of progress are a poor bargain for future retirees.

The report required by this amendment would not obstruct sensible consolidation; nor would it second-guess the direction of travel. Rather, it would provide Parliament with the evidence needed to ensure that consolidation is proportionate, targeted and genuinely in the interest of savers. It would help ensure that regulatory and competition safeguards remain fit for purpose as market structures change, and that opportunities for new high-quality entrants are not inadvertently closed off.

For these reasons, I believe that this amendment strikes the right balance. It is supportive of reform, alert to risk and grounded firmly in the long-term interests of those whose retirement security depends on the decisions we take today.

[The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, I thank the noble Lord, Lord Palmer, for introducing his amendment, which would require the Government to conduct a report on the impact of consolidation in the occupational pensions sector within 12 months of the Act being passed. I am grateful to the noble Baroness, Lady Stedman-Scott, for her remarks and her acknowledgement of the benefits of consolidation and the widespread support for it.

The fact is that consolidation is already happening across the pension landscape. The number of DC pension providers has reduced from roughly 3,700 in 2012 to about 950 schemes today. On the DB side, the number of schemes is similarly down from about 6,500 in 2012 to 4,800 in 2026, with a record number of transactions currently estimated in the buyout market. Our aim is to accelerate this trend of consolidation through the DC scale measures and DP superfunds. As I have said before, scale brings numerous benefits directed at improving member outcomes, including better governance, greater efficiency, in-house expertise and access to investment in productive markets.

I am not going to respond in detail to the comments from the noble Baroness, Lady Stedman-Scott, on innovation and other things, because we have given them a decent canter in previous meetings in Committee, but it is absolutely essential that pension schemes remain competitive post-scale. We expect that schemes with scale will innovate and drive competition, especially, for example, in consolidating single-employer trusts. The market will evolve, as will the needs of members, and we expect that the schemes and the industry will be able to align with this.

It is absolutely right that the Bill will lead to major change in the occupational pensions market. Although I do not agree with this particular proposal, I absolutely agree with the noble Lord, Lord Palmer, that we must understand and monitor the impact of these reforms, because the impacts of consolidation really matter. That is why a comprehensive impact assessment was produced, analysing the potential impacts of the Bill, with plans to evaluate the impact in further detail. An updated version of the impact assessment was published as the Bill entered this House; crucially, it included further details of our ongoing monitoring and evaluation plans, including critical success factors and collaboration across departments and regulators.

We have provided the market with clarity on our approach so that changes can be put into effect, but we need to allow time to assess and evaluate the impacts following full implementation. We will assess the overall impacts over an appropriate timeframe, given that the full effects of consolidation will be after the Bill has been implemented.

As I have mentioned before, we published a pensions road map, which clearly sets out when we aim for each measure to come into force. The fact is that many of the regulations to be made under the Bill will not have been made or brought into force within a year of the Bill becoming an Act. Any review at that point could be only very partial. However, the Government are committed to strong monitoring and evaluation of this policy, especially of its impact on members. The noble Lord, Lord Palmer, is absolutely right to point to the crucial role of the Pensions Regulator and the CMA. They are best placed, in the first instance, to monitor the impacts of consolidation as part of their respective statutory functions, including an analysis of emerging trends. The Pensions Regulator, for example, will play a key role in monitoring the impact of consolidation on the trust-based DC pensions market via its value-for-money framework.

I can therefore assure the Committee that we will keep this area under review, consistent with our stated policy aims for the sector and for good member outcomes. We will also continue to monitor our working arrangements with the regulators; this includes their ongoing monitoring of the pensions industry. We will submit a memorandum to the Work and Pensions Select Committee with a preliminary analysis of how the Act has worked three to five years following Royal Assent. The committee may then decide to conduct a fuller inquiry into the Act, consistent with standard practice, as set out in the Cabinet Office’s Guide to Making Legislation.

Given the above, a separate government report risks duplicating work while putting an undue burden on all those involved. If issues are identified by regulators before the Government submit a post-legislative memorandum, and there is a need for government action, then an evidence-based response can be taken. I completely agree with the noble Lord about the importance of this and I thank him for raising this debate. However, I hope that he feels reassured and able to withdraw his amendment.

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[Baroness Altmann (Non-Afl)]

Good. I now have it and I want to check that everyone else has it too. That is my first question dealt with.

In speaking to this amendment, the aim is to enable members of pension schemes that have gone into the PPF after their assessment period to be extracted, with regulations laid that will govern the terms on which they can be extracted. This is particularly relevant to the AEAT scheme: I know that we will come to this in later groups, with a requirement for a review of the situation. My amendment is trying to facilitate a practical resolution to the problems faced by the Atomic Energy Authority scheme. There are parallels with the Atomic Weapons Establishment or AWE scheme: employees originally had a scheme similar to and in fact derived from that of the UK AEA.

The AWE staff and their pensions were transferred to the private sector, and in 2022 the Government granted a Crown guarantee to the private company scheme. However, members of the AEA scheme were told that the scheme that they were encouraged to transfer to in 1996 would be as secure as that provided by the Atomic Energy Authority public sector scheme. This was not the case, though, because it was not offered a Treasury guarantee. It would appear that the Government Actuary’s Department failed to carry out a proper risk assessment of the various options offered to those members in 1996. Indeed, they were apparently specifically told not to worry about the security of the scheme to which they transferred all their accrued benefits. Of course, all these accrued benefits are pre-1997.

What happened after that is that they went into a private sector scheme. It was a closed section of that scheme, only for the members who transferred their public sector rights into it. The public sector rights had full inflation protection for pre-1997 and members paid an extra 30% or so contribution into that private sector scheme in order to conserve the inflation protection. However, as part of that, the pension they were saving for, the base pension, was lower than the one for those members in the open scheme who had joined not from the public sector. They were working on the principle that that their scheme was secure and that they would be getting the uplifts of inflation. When it failed—the private sector company went bust in 2012—and they went into the PPF in 2016, they suddenly discovered that they had paid 30% more for inflation protection, which was gone. And because they had paid 30% more for that protection and were accruing a lower pension, a 180th instead of a 160th scheme, their whole compensation was lower than that of everybody else who had not had any assurances from the Government that transferring their previous rights into a private sector scheme would generate these kinds of losses.

This is probably the worst example I have seen of government reassurance and failed recognition of the risks of transferring from a guaranteed public sector scheme into a private sector scheme. This amendment seeks to require the Government to lay regulations that would transfer members out of the PPF, those members of the closed scheme, if they wish to. I am not forcing anyone to do so within this amendment. You have to offer them the option of going or staying if they are satisfied with the PPF. Also, a sum of money may need to be paid to the PPF, which would take away the liability and thereby reduce PPF liabilities, but also sets up an alternative scheme that could be along the lines of the AWE arrangements, for example. That would potentially be another option. On privatisation, the Government received a substantial sum of money from the sale of that company, the private sector takeover of the commercial arm of the Atomic Energy Authority. That delivered less money than was paid to the private sector scheme to take over the liabilities. Therefore, the Government have money to pay with, which they have never really acknowledged.

I hope that this amendment is a potentially direct way to help the AEAT scheme, if the Government are minded to consider it. It builds on a provision that is already in the Pensions Act 2004, which talks about situations whereby there is a discharge of liabilities in respect of the compensation, which this amendment would be doing. It prescribes the way in which subsection (2)(d) of Section 169 of the Pensions Act 2004 could be used to help the AEAT scheme.

I have also been approached by a private sector employer whose scheme failed and went into the PPF. At the time, the employer did not have sufficient resources to buy out more than the Pension Protection Fund benefits for his staff. He now is in a position to do that and would like to do so but, at the moment, he cannot get his scheme extracted. He is willing to pay an extra premium to do that, in pursuance of a moral duty to try to give his past staff better-than-PPF benefits. That is what this amendment is designed to achieve. It is built on the connection between AEAT and AWE, but could also help other private sector schemes if the employer feels—it would normally involve smaller schemes—that there is a moral obligation that they can now meet, financially, to recompense members at a level better than the PPF, once the assessment period is over and the resources have gone in, and to take it back out again.

[Baroness Stedman-Scott (Con)]

My Lords, this group concerns the proposed transfer of the AWE pension scheme into a new public sector pension arrangement, as set out after Clause 110 in government Amendments 194 to 202, with the associated measures on extent and commencement in government Amendments 223 and 224.

At first glance, these new clauses are presented as technical and perhaps little more than an exercise in administrative tidying up, reflecting the fact that AWE plc is now a wholly government-owned company. However, on closer inspection, several questions come to mind. This represents a material transfer of long-term pension risk and does so in a way that raises serious questions around principle, process and precedent.

On an IAS 19 accounting basis, AWE plc reported a defined benefit pension deficit of £97 million as at 31 March 2025. The company has already made significant one-off contributions: £30 million in March 2024, following an earlier £34.4 million in March 2022. These payments form part of a recovery plan agreed with the trustee and the Ministry of Defence, and the position is subject to ongoing review. This is an active funding challenge, one that should be considered carefully.

The provisions before us establish a bespoke statutory framework for a single named company. They provide for the creation of a new public sector pension scheme, the transfer of assets and liabilities, the protection of accrued rights, specific tax treatment, information-sharing powers, consultation requirements and arrangements for parliamentary scrutiny. All of this is meticulously itemised and carefully drafted.

Yet my concern lies not with the drafting but with the policy and constitutional choice that sit beneath it. We are told repeatedly that members’ rights will be preserved; that phrase carries considerable weight. The question is a simple one: which rights precisely are being preserved? Are we referring solely to rights accrued through past service or does that protection extend to future accrual as well? Does it encompass accrual rates, indexation arrangements, retirement age and survivor benefits or are members’ entitlements merely frozen as a snapshot at the point of transfer? What happens if the rules of the receiving public sector scheme change in future? These questions go to the heart of both member security and parliamentary responsibility. They deserve answers in the Bill, not assurances in principle or reliance on mechanisms that may evolve long after this Committee has given its consent.

There are also practical questions that remain unanswered. How exactly will trustees be formally discharged of their responsibilities? Additionally, does this change relate to DC members? Will each defined contribution pot be automatically converted or will past defined contribution rights be crystallised, with future accrual taking place under a defined benefit structure? For scheme members, these questions go to the very heart of retirement security.

I also question the decision to legislate company by company. This new clause is not objectionable because it concerns pensions; it is objectionable because it concerns one named corporate identity. Primary legislation should set rules of general application.

If the policy rationale here is sound, and if it is right that the pension schemes of wholly owned government companies should be transferred into the public sector on certain terms, that principle should be capable of being expressed generally and should not be hard-coded for AWE alone. Otherwise, we will face an unhappy choice in the future: if AWE’s status changes again, Ministers must either live with an outdated statute on the books or return to Parliament with yet another Bill to amend it. Neither outcome represents good lawmaking.

There are also practical questions that I hope the Minister will address. Will members receive individualised benefits statements, comparing their position before and after the transfer in clear, comprehensible terms? What support will be made available for members who need independent guidance, rather than reassurance from the scheme sponsor itself? Will there be formal consultation with scheme members and recognised unions, and will the responses to that consultation be published?

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[Baroness Altmann (Non-Afl)]

My Lords, I have added my name to these amendments. I very much support the aims of the noble Baroness, Lady Bowles, to ensure there is proper flexibility in the levy paid by companies to the PPF. The PPF can then use its discretion to decide which companies should pay more than others and which companies are more secure than others in terms of their pension schemes. The current requirement is based on circumstances that have fundamentally changed over the past 20 years or so, since the whole system was first thought of.

The PPF is one of our incredible success stories in terms of protecting people’s pensions by successfully investing money that it has taken in. It has worked far better than anyone would have anticipated at the time, and we need to pay tribute to those who have been running the PPF; they have done an extraordinarily good job in the face of sometimes very difficult circumstances. I hope that the Government will think favourably about the possibility of allowing the PPF this kind of flexibility, given that the situation with pension schemes, surpluses and funding levels has changed so fundamentally.

[Baroness Stedman-Scott (Con)]

My Lords, the amendments in this group in the name of the noble Baroness, Lady Bowles, are thoughtful and proportionate. They raise genuinely important questions about how we can future-proof the operation of the Pension Protection Fund.

Clause 113 amends the provisions requiring the PPF board to collect a levy that enables the board to decide whether a levy should be collected at all. It removes the restriction that prevents the board reducing the levy to zero or a low amount and then raising it again within a reasonable timeframe. We welcome this change. It was discussed when the statutory instrument passed through the House, at which point we asked a number of questions and engaged constructively with the Government.

The amendments tabled by the noble Baroness would go further; once again, the arguments she advances are compelling. Amendment 203A in particular seems to offer a sensible way to shape behaviour without micromanaging it—a lesson on which the Government may wish to reflect more broadly, especially in relation to the mandation policy. If schemes know that the levy will always be raised in one rigid way, behaviour adapts, and not always in a good way. In contrast, with greater flexibility, employers retain incentives to keep schemes well funded, trustees are rewarded for reducing risk and the levy system does not quietly encourage reckless behaviour on the assumption that everyone pays anyway.

This amendment matters because it would ensure that, if the PPF needed to raise additional funds, it could do so in the least damaging and fairest way possible at the relevant time. I fully appreciate that the PPF is a complex area but, as the market has changed and is changing, and as the pensions landscape continues to evolve, the PPF must be involved in that journey. These are precisely the kinds of questions that should be examined now, not after rigidity has caused unintended harm.

I turn briefly to Amendment 203C. We are open to finding ways to prevent the levy framework becoming overly rigid, which is precisely why we supported the statutory instrument when it came before the House. Instead of hardwiring an 80% risk-based levy requirement into law, this amendment would place trust in the Pension Protection Fund to raise money in the fairest and least destabilising way, given the conditions of the year. Flexibility may well be the way forward. I have a simple question for the Minister: have the Government considered these proposals? If the answer is yes, why have they chosen not to proceed? If it is no, will they commit to considering these proposals between now and Report? I believe that that would be a constructive and proportionate next step.

[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.

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Moved by

[Baroness Stedman-Scott]

204: After Clause 117, insert the following new Clause—
“Pension investment in social bonds: framework, value for money and market enablement(1) The Secretary of State must, within 12 months of the passing of this Act, prepare and publish an assessment of whether a pension-specific framework should be established to support trustees of occupational pension schemes who wish to invest, where they consider it appropriate, in social bonds and other forms of social infrastructure investment.(2) The assessment must consider the extent to which such a framework could—(a) provide clarity on the application of trustees’ fiduciary duties in relation to social bonds,(b) set out principles for assessing risk, return, liquidity, duration and transparency of such investments, having regard to the long-term nature of pension liabilities,(c) support consistency and comparability in the evaluation of social bonds across schemes, and(d) facilitate trustee confidence and member understanding of such investments.(3) In particular, the Secretary of State must consider whether, and how, the social and economic outcomes associated with social bonds could be reflected within the value for money framework applicable to occupational pension schemes, including—(a) the relevance of long-term economic impacts to member outcomes,(b) the extent to which such investments may mitigate systemic or economy-wide risks material to pension savings, and(c) the presentation of information to members in a clear and proportionate manner.(4) The assessment must also consider how a pension-specific framework could support the development of a credible and investable pipeline of social bond opportunities, including— (a) how public bodies, local authorities, social enterprises or other issuers might bring forward proposals in a form suitable for consideration by pension schemes,(b) the role of standardisation, intermediaries or aggregation vehicles in reducing transaction costs and improving investability, and(c) how such proposals could be assessed on a consistent basis without imposing any obligation on pension schemes to invest.(5) In developing the assessment, the Secretary of State must consider what metrics and evidential standards would be required to ensure that any framework for social bonds is pension-specific, including—(a) metrics relating to long-term risk-adjusted financial performance,(b) alignment with the duration and cash flow characteristics of pension liabilities,(c) the financial materiality of social and economic outcomes to pension savers over time, and(d) the avoidance of reliance on generic or non-financial impact measures not relevant to pension scheme decision-making.(6) Following the assessment, the Secretary of State must—(a) publish the conclusions of the assessment, and(b) where the Secretary of State considers it appropriate, issue statutory guidance or make regulations establishing a pension-specific framework for the prudent assessment, reporting and communication of investments in social bonds.(7) Nothing in this section—(a) requires trustees to invest in social bonds or any other asset class, or(b) alters the requirement that trustees act in the best financial interests of scheme members.”

[Baroness Stedman-Scott (Con)]

My Lords, I will speak first to my Amendment 204. I make clear that this amendment does not require trustees to invest in any particular asset class, nor does it seek to redefine or dilute fiduciary duty in any way. Those safeguards are explicit in the amendment. Trustees must always act in the best financial interest of scheme members, and nothing here displaces that principle, consistent with the approach that we have taken throughout our deliberations in Committee. Instead, the amendment asks the Government to step back and consider whether trustees who wish to explore investments such as social bonds or social infrastructure would benefit from clearer pension-specific guidance and a more coherent framework within which to operate.

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In summary, although we very much share the aim of ensuring that pension capital does not contribute to human rights harm, the Government believe that the existing responsible investment framework remains the appropriate way forward, it being effective, flexible and proportionate. I look forward to continued discussions; in the meantime, I hope that the noble Baroness can withdraw her amendment.

[Baroness Stedman-Scott (Con)]

My Lords, I shall conclude briefly. I hope that it is clear from the discussion this afternoon that there is a shared concern across the Committee to see pension schemes operate responsibly, prudently and in the best long-term interests of their members. Where we differ is on how that objective is best achieved. In my view, the strength of our pensions system lies in its balances: clear legal parameters set by Parliament, coupled with trustee independence, evidence-based judgment and accountability to members.

I thank all noble Lords for their contributions—in particular, the noble Lord, Lord Pitt-Watson, who made a valuable and excellent contribution. He made my heart sing, and I think that our hearts beat in concert in terms of responsible and social investment. I am very keen to learn more from the noble Lord about his experience of responsible investment.

I appreciate the Minister’s response. She has been very clear—message received. I look forward to discussing social impact bonds more with the Minister and anybody else in the Committee who wishes to take part. With the leave of the Committee, I beg leave to withdraw my amendment, but, if it comes back on Report, I will be very happy.

Amendment 204 withdrawn.

Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Committee stage
Monday 23rd February 2026 Grand Committee

That is the contribution I want to make. I do not believe there is a problem with the law; the problem is helping trustees and, in my respectful view, we ought to get on with it now.

[Baroness Stedman-Scott (Con)]

My Lords, I am grateful to all noble Lords who have contributed to this debate. I recognise that these amendments are brought forward in a spirit of good will and genuine concern, and I thank all noble Lords for that. I turn first to Amendment 212 in the name of the noble Lord, Lord Sharkey, and to the amendment tabled by my noble friend Lady Coffey.

It is important that we approach this discussion with clarity about the framework that already governs occupational pension schemes. From my understanding, there is already a substantial and detailed regulatory architecture in place. First, schemes are required to maintain a statement of investment principles since the reforms introduced in 2019 and 2020. That statement must explicitly address financially material considerations, including environmental, social and governance factors. It must set out how climate change is taken into account, describe stewardship policies, including voting and engagement, and explain how such risks are integrated into investment decision-making. This is no longer optional; it is embedded in the core governance documents of the scheme.

Secondly, larger schemes are required to publish an annual implementation statement. This must explain how the policies set out in the statement of investment principles have in fact been followed. In other words, schemes must not merely declare their approach to environmental, social and governance matters but demonstrate how that approach has been put into practice. This has moved the framework from being purely policy-based to being demonstrably action-based.

Thirdly, schemes with £1 billion or more in assets, together with authorised master trusts, must comply with climate risk reporting aligned with the Task Force on Climate-related Financial Disclosures framework. This includes governance of climate-related risks, strategy for transition, scenario analysis, metrics and targets, such as carbon intensity, and annual public reporting. These are not light-touch obligations; they are detailed, prescriptive and public-facing requirements. Taken together, this represents a significant body of regulation. It requires trustees to consider financially material risks, including climate-related risks. It requires them to disclose how those risks are managed and to report publicly on progress and metrics.

Against that background, we should be cautious before layering additional statutory requirements on top of what is already a comprehensive regime. Trustees have fiduciary duties to act in the best interests of members, they must take into account financially material considerations, they are accountable to the Pensions Regulator and they operate within a framework that has been progressively more demanding in recent years. Trustees should retain the ability to determine, within that framework, which investments are in the best interest of their members.

Our task in this House is to ensure there is clarity, coherence and proportionality in regulation, and that we identify genuine gaps, rather than duplicate existing obligations. My aim in engaging on these amendments is precisely that: to ensure that we debate this matter with a clear understanding of the substantial framework that already exists, and to probe carefully whether there are specific technical deficiencies that require further legislative interventions. This is an important area, but it is equally important that we legislate with precision and with full awareness of the structure that is already in place.

[Baroness Sherlock (Lab)]

My Lords, I am very grateful to the noble Baronesses, Lady Hayman and Lady Coffey, and the noble Lord, Lord Sharkey, for introducing their amendments, and all noble Lords for contributing to a very interesting discussion. I will start with Amendment 212 from the noble Lord, Lord Sharkey.

While I recognise the aim behind this amendment, the Government believe that decisions about whether to invest, divest or engage must rest with trustees, who are already legally required to invest in the best financial interests of their members and to consider climate-related risks as part of that duty.

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I therefore await the response from my noble friend the Minister with interest. I support amendments in both groups, because of the lack of understanding and the way they were misled, and some sort of measure is required. For AEA Technology, there is clearly a responsibility on the Government, through the PPF or separately—that is a matter of detail to me. They should be entitled to redress. The integration case is a bit more difficult, because we cannot blame the Government for employers’ inability to explain to people what their scheme provided, but there should be a huge obligation on employers where they decided what the scheme structure should be and failed to explain it to their scheme members. These are different cases, but they are united by a failure to deliver what scheme members could reasonably expect.

[Baroness Stedman-Scott (Con)]

My Lords, I begin by thanking the noble Lord, Lord Palmer, for bringing forward these two amendments. I hope noble Lords will forgive me if I am relatively brief. At this stage, I am not sure that there is a great deal to add beyond listening carefully to the Minister’s reply and reflecting on it.

Turning to Amendment 216, the intention behind the proposed new clause is plainly serious and honourable. It goes to the heart of many of the issues that the noble Lord explored in speaking to the more specific provisions in Amendment 218. It seeks to ensure that, where members of occupational pension schemes have suffered detriment as a result of the actions or omissions of employers, sponsors or administrators, those injustices are properly examined. That instinct is entirely understandable.

When failures occur, whether through poor governance, inadequate communication or regulatory weakness, the consequences can be profound. Members may discover losses only years later, often at or near retirement, when there is little opportunity to recover. For some, that can mean genuine hardship. It is therefore right that this House remains vigilant and does not dismiss concerns about injustice lightly. The proposed new clause is also right to emphasise information failures, governance weakness and access to redress. Transparency, fiduciary duty and effective routes to remedy are fundamental to maintaining trust in the pension system.

However, while the intention is sound, we must consider carefully whether this is the right practical solution. First, there are already several mechanisms in place to investigate and adjust injustice. The Pensions Regulator exercises oversight and enforcement powers, the Pension Ombudsman provides an independent route for complaints and can issue binding determinations and parliamentary committees have repeatedly examined systemic issues in pension governance. Before establishing a further independent review, we should ask whether there is a clearly defined gap in the existing framework.

Secondly, the proposed new clause is framed in very broad terms. It calls for a

“review into injustices experienced by members … as a result of the actions or omissions”

across the occupational pension landscape. That could encompass decades of case history, multiple regulatory regimes and a wide variety of scheme structures. There is a risk that the scope becomes so expansive that it proves difficult to deliver focused and actionable conclusions within the proposed timescale.

We must also be mindful of expectations. A statutory independent review, particularly one examining injustice and potential options for compensation, may raise hopes of large-scale financial redress. If the eventual conclusions are more limited, or if remedies carry significant financial implications, it may lead to further disappointment among those affected.

If there are clearly identifiable categories of members who have fallen through gaps in the system, or areas where regulatory architecture has demonstrably failed, those issues should indeed be examined with care and precision. In short, the intention behind the proposed new clause is principled and compassionate. It recognises that pensions are about security and dignity in later life, and that injustice in this sphere can have lasting consequences. The question for us is whether a broad, independent review, commissioned within three months and covering the full occupational landscape, is the most effective and proportionate way to achieve that objective. I look forward to the Minister’s reply.

[Viscount Thurso (LD)]

The noble Baroness has answered the broad point in my noble friend’s first amendment, but there is the narrow point in AEA Technology, which seems to meet exactly what she said: namely, that there is a specific gap that members have fallen through, where Ministers in this place and the other place are both giving cast-iron assurances and documentation and still there is a problem. Does she accept that this needs particular attention?

[Baroness Stedman-Scott (Con)]

I made it very clear we have to look at where things have fallen through a system and where people have been severely impacted, and we have to look at it compassionately. My question was whether this is the right method and vehicle to do this, not whether we should look at it.

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[Baroness Stedman-Scott (Con)]

My Lords, I support Amendment 217, tabled by my noble friend Lady Neville-Rolfe. This amendment does not seek to diminish the value of public service, nor to undermine the pensions of those who dedicate their careers to the NHS, our schools, the civil service, the Armed Forces, the police or the fire service. Rather, it asks for something far more modest and necessary: transparency, long-term thinking and honesty about sustainability.

The amendment would require the Secretary of State to conduct and publish a review of the long-term affordability, intergenerational fairness, fiscal sustainability and accounting treatment of our major public service pension schemes, including the NHS pension scheme, the teachers’ pension scheme, the Civil Service Pension Scheme, the Armed Forces pension scheme, the police pension scheme and the firefighters’ pension scheme. My noble friend Lady Neville-Rolfe has outlined clearly and forensically the challenges of the concerns about the sustainability of unfunded public sector schemes. These are not new, but they are becoming more pressing. In 2023-24, total employer and employee contributions amounted to £49.9 billion. Total payments to pensioners were £55 billion. That left a shortfall of £5.1 billion, met directly from general taxation. In other words, today’s taxpayers are already topping up the system.

According to the Policy Exchange, unfunded public sector pension liabilities now stand at approximately £1.4 trillion: around 45% of GDP and approaching half the size, or more, of the official national debt. These are not hypothetical sums; they are long-term promises underwritten by future taxpayers. Unlike funded private sector schemes, most public sector pension contributions are not invested to generate returns; they are returned to the Treasury while current pensions are paid from current spending. This means future liabilities depend on future taxation. The burden is simply rolled forward. That may be sustainable—but it may not be. Surely this Committee is entitled to know which it is.

My noble friend Lady Noakes in her foreword to the Policy Exchange report set out clearly that transparency and realism are essential if we are to protect both pensioners and taxpayers. A mature system does not fear review; it welcomes it. I ask the Minister: do the Government believe the current trajectory of unfunded public service pension liabilities is sustainable over the next 20 or 30 years, what assessment has been made of the intergenerational fairness of asking younger taxpayers—many without access to defined benefit pensions themselves—to underwrite these commitments, how does the Treasury account for these liabilities in long-term fiscal planning, and are they fully reflected in measures of public sector net worth? Finally, if the Government are confident in the system’s sustainability, why resist a formal review that would provide clarity and reassurance?

This amendment would not prescribe reform; it simply asks for a comprehensive review and publication of the facts. If the costs are sustainable then let us demonstrate it, and if adjustments are needed then let us confront them honestly.

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Baroness, Lady Neville-Rolfe, for introducing Amendment 217, which would require the Secretary of State to produce and publish a review of public service pension schemes, focusing on different aspects of the cost, affordability and accounting treatment of these schemes. I remind the Grand Committee that I am a member of the parliamentary pension scheme, and therefore of my appreciation of the work of the noble Viscount, Lord Thurso.

The noble Baroness is quite right to focus on the affordability of these schemes and what this means for intergenerational fairness, given that unfunded public service pension schemes pay out over £60 billion in pensions and lump sums each year and are often the single largest liability in the whole of government accounts.

However, as has been indicated already, and as the noble Baroness will know only too well, her party conducted a major review during the coalition Government, in the form of my noble friend Lord Hutton’s Independent Public Service Pensions Commission. That led to major reforms, including the new schemes to which all active members of the main schemes are contributing today, with a move from final salary to career average design, higher pension ages and higher member contribution rates. Due to the McCloud judgment and the resulting choice exercise for affected members, those members may have been building up only since April 2022, meaning that these major reforms are only now fully bedding in for all members. As my noble friend Lord Davies noted, the then Government committed to the 25-year guarantee, in effect committing to no further major reforms to public service pension schemes until 2040.

The proposed review would be conducted by the Secretary of State for Work and Pensions. However, I note that statutory public service pension schemes are the responsibility of the Chancellor of the Exchequer, and I know that the Treasury works closely with the OBR and the NAO on this policy area already.

The centrality of the questions that the amendment would require the review to consider means that much of this information is regularly published already. For example, the OBR publishes a forecast of the cash-flow cost of public service pensions over the coming years as part of its forecast at every fiscal event, including spending on pensions and lump sums, income from pension contributions and the net balancing payment to or from the Exchequer. The OBR also publishes long-term projections of spending on public service pension schemes as a share of GDP as part of its fiscal risk and sustainability reports. As noted, the most recent forecast from September 2024 projects that spending will decline from 1.9% of GDP to 1.4% of GDP over the next 50 years.

Demographic changes as a result of longevity or migration are taken into account in the OBR’s long-term analysis. The sensitivity of scheme liabilities to longevity is central to the four-yearly valuation reports used to set employer contribution rates across schemes. Both the valuation reports and the whole of government accounts contain detail on different accounting treatments of scheme liabilities and how to interpret the resulting headline figures. Given that all this information is regularly published already, and the reforms to public service pension schemes that have already been implemented, a government review into the affordability of these schemes would merely collate existing information in one place.

Let me address some of the specific questions that were raised, turning first to the treatment of pensions and the whole of government accounts. In recent years, liability has decreased significantly, falling from £2.6 trillion in 2021-22 to £1.4 trillion in 2022-23 and £1.3 trillion in 2023-24. The whole of government accounts report is fully transparent in explaining that these changes were driven by an increase in the applicable discount rate rather than changes in the amount of pension being accrued by scheme members. The whole of government accounts reports present this liability in accordance with the international financial reporting standards. There are no plans to change that approach and nor do we think there should be.

However, I am aware that members of the PAC have asked whether this liability could be presented on a more permanent basis, to show how it would change in the absence of changes to the discount rate, to aid user understanding. The Treasury is currently exploring options to present pension liabilities on a constant basis. To be clear, any such presentation would be purely supplementary and would not affect the underlying pension liability calculations or the way those are presented in the financial statements.

The noble Baroness, Lady Neville-Rolfe, asked why the Government are funding the gap permanently. The answer is that current contributions reflect the cost of current employment—pensions to be paid in the future. Current contributions are not intended to be and do not relate to current pensions in payment, which were earned years or indeed decades ago. So current pension costs reflect pensions earned. This is therefore not an appropriate basis to consider affordability. Traditionally, the central measure for Governments has been pensions as a proportion of GDP.

On whether it is right to be paying these kinds of pensions, I am very grateful to the noble Viscount, Lord Thurso, for his stirring defence. It is really important to recognise that, sometimes, this is discussed as though all public sector employees are calling in huge salaries and doing little for them. He defended how so many people in the public sector are driven by vocation and a calling into public service: they do things to serve and often have lower salaries than they might have elsewhere. I pay tribute to all those who are in that position.

It is true that, compared with the private sector, remuneration in the public sector is weighted towards pension. This is why public service pension schemes are so central to the Government’s fiscal forecasts. However, the noble Viscount is quite right: public sector remuneration has to be considered in the round, across pay and pensions. That is why pension provision is specifically taken into account as part of the pay review body process across the major public service workforces.

It is also important to distinguish between the generosity and cost of the schemes and their DB design. My noble friend Lord Hutton noted in his review for the coalition Government that they are a large employer capable of bearing the risks inherent in a DB design. It is thus in a different position from other employers. In a sense, cutting public service remuneration, whether from pay or pensions, would allow any Government to score savings for the Exchequer, but the fact is that reward packages for each public sector workforce have to be designed to maintain the required levels of staffing and to deliver the required public services.

Finally, it is worth remembering that the changes made following the Hutton review were significant. As I said, the scheme design changed from final salary to career average; pension ages were increased to state pension age for most schemes and to 60 for the police, firefighters and the Armed Forces; member contribution rates were increased across schemes, except for non-contributory Armed Forces schemes; and other aspects of scheme design were modernised, for example, in supporting flexible retirement. At the time, it was estimated that those reforms would save £400 billion over 50 years. Separately from the Hutton reforms, the then Government also switched the indexation of the scheme from RPI to CPI, in line with other forms of spending.

This has been a very interesting debate but, as I have said, most of the information that has been sought in the review is out there already, so such a review is not currently worth while. I hope the noble Baroness can withdraw her amendment.

--- Later in debate ---

[Baroness Stedman-Scott (Con)]

My Lords, I shall speak to Amendment 219A, tabled by the noble Baroness, Lady Altmann, and moved by the noble Baroness, Lady Bowles. This amendment would ensure a more structured and joint approach between government departments and their related regulators, including the PRA, the FCA and the Pensions Regulator, so that their respective responsibilities for solvency, consumer interests, member protection and the promotion of growth are properly aligned.

I understand very clearly where the noble Baroness is coming from. Indeed, I am reminded of our earlier debate in Committee when I spoke to Amendment 206 alongside my noble friend Lady Coffey’s Amendment 180A. At that time, we touched on an issue that remains unresolved—the fact that very similar pension products could be treated differently, depending on whether they fall within the remit of the Pensions Regulator or the Financial Conduct Authority. That observation is not controversial—it is simply a reflection of how our current regulatory architecture has developed over time. Different bodies created at different moments for different purposes now oversee parts of what, to the saver, appears to be the same market. It is therefore entirely reasonable to ask whether greater alignment would improve clarity, consistency and outcomes. There may well be areas where closer co-ordination would be beneficial.

I shall not rehearse in full the arguments that I made previously, but I continue to believe that a formal co-ordination protocol offers three important virtues. First, it provides flexibility. A protocol can evolve as the regulatory landscape changes, allowing co-operation to deepen or adjust without the need for immediate structural overhaul. Secondly, it allows for escalation. If problems persist or new risks emerge, the framework for co-ordination could be tightened, strengthened or made more prescriptive. Thirdly, and perhaps most importantly, such a protocol can generate the evidence base for future reform. If, over time, it becomes clear that more fundamental consolidation of regulatory functions would better serve consumers and markets, the experience of structured co-ordination would provide the practical foundation of that decision. In that sense, this amendment is not about precipitating institutional change but about coherence; it is about ensuring that solvency, consumer protection, member outcomes and growth are pursued not in isolation but in a balanced and mutually reinforcing way.

For those reasons, I believe that the amendment from the noble Baroness, Lady Altmann, raises an important and constructive point for the Committee to consider.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Bowles, for introducing Amendment 219A on behalf of the noble Baroness, Lady Altmann. As we have heard, it would require regulations made under the Bill to be aligned with the technical actuarial standards.

I say at the start that I share the concern that governing bodies work together to ensure that members are protected and that schemes work to secure the best outcomes. It is also important that trustees have considered the range of options available to them before making decisions on their schemes’ direction of travel and committing funds to any particular option. However, I assure the Committee that there is already a lot of collaboration between the Government and regulators on a formal and informal basis. Trustees, in line with their duties, are considering the options for their schemes in the round.

This amendment would require trustees themselves to comply with the criteria for technical actuarial standards. These are intended for actuaries to comply with, who must operate according to the standards set by the Financial Reporting Council. Actuaries will then provide advice to trustees in response to trustee requests, highlighting the risks, assumptions and options available to them.

Actuarial analysis plays an important role in informing the process. It provides a clear assessment of the risks, underlying assumptions and range of options available for a given request. But it is advisory in nature and does not, in itself, determine the final decision. Trustees will then draw on this information to inform their decisions about the effective operation and governance of the scheme. It will be considered alongside other advice that trustees may consider appropriate to obtain, including investment, legal and covenant advice. But trustees are ultimately the decision-makers, and they remain fully accountable for the choices that they make on behalf of their members.

Trustees already consider the correct endgame for their schemes. The risks and opportunities facing schemes differ according to a range of factors, including the maturity of the scheme and the strength of the employer covenant. Under the funding code, trustees are required to set out their funding and investment strategy, describing how they intend to meet members’ benefits over the long term—their long-term objective. The funding code requires trustees to assess the key risks to delivering their funding and investment strategy, to explain how these risks are monitored and to set out the steps being taken to mitigate them. Trustees must also assess the employer covenant, as the employer’s financial strength is central to supporting the scheme.

The Pensions Regulator has set out guidance for schemes to consider their long-term objective and options, including buyout, superfunds and run-on, which sets out clear expectations of trustees. It will be updating the guidance and will work with the FCA and, where appropriate, the PRA and FRC to ensure alignment across all guidance relating to considerations of alternative options. Requiring alignment between regulations and professional standards could have unintended consequences, including reducing flexibility for trustees and requiring a succession of further legislative changes to maintain alignment as these standards evolve over time. It could also result in the actuarial profession being the driver behind the content of regulations, when this should clearly be a matter for government policy.

It is crucial that trustees remain in the driving seat when making decisions for schemes, which this amendment would have the effect of removing. I am grateful to the noble Baroness, Lady Bowles, for giving us the opportunity to have this debate, on behalf of the noble Baroness, Lady Altmann, but I hope she feels able to withdraw the amendment for the reasons that I have outlined.