Pension Schemes Bill

Baroness Warwick of Undercliffe Excerpts

2nd reading
Thursday 18th December 2025 Lords Chamber

[Baroness Warwick of Undercliffe (Lab)]

My Lords, I too look forward to the maiden speech of the noble Baroness, Lady White of Tufnell Park. I was delighted to discover that we are both honorary alumni of the University of Bradford.

An adequate pension must be the goal for everyone to ensure a happy and secure retirement. This Bill aims to achieve higher returns for pension savers. As many millions more people are now in pension schemes through automatic enrolment, it is imperative that we ensure they get good value for the money they are saving from their hard-earned incomes. At the same time, those savings must provide the best possible support in their retirement.

Both the previous and current Governments recognised that, if we are to achieve the growth our country needs, domestic markets must be stimulated to invest in the UK. This inevitably led to a review of the pension system. The pension sector is a major allocator of capital, which has a direct impact on the efficiency of the wholesale financial markets in driving innovation and investment in our economy.

The pension systems in most other advanced economies invest significantly more in their domestic economies than does the UK, as has already been said, where pension savings, as we should remind ourselves, are also supported by tax relief of over £70 billion per annum. The UK has deep savings pools, yet we have seen a reduction in domestic investment in the UK. The UK has one of the largest pension systems in the world. As the parliamentary Under-Secretary of State for Work and Pensions reminded us in another place, it is our largest source of domestic capital, underpinning not just retirement of millions of people but the investment on which the country’s future prosperity depends. It makes so much sense to seek better to harness that capital, to invest in a more diverse range of assets that would benefit the UK economy, but also not to place savers at risk. This Bill is a serious and most welcome attempt to address both issues of concern: domestic capital investment in the UK and improving the outcomes for millions of workers saving for their retirement.

The pension sector’s role as a major allocator of capital will come increasingly from defined contribution schemes. There is momentum behind the need to focus on the DC pension sector’s ability to deliver good value for pension savers. In addressing these twin challenges of improving the outcomes for pension savers and achieving sustainable economic growth, there is general agreement that we need market consolidation, to see fewer pension providers operating at scale, and to deliver higher returns to savers and greater investment in UK productive assets. The Bill introduces the enabling powers to achieve that structural reform and greater consolidation in the market. But that raises major issues in respect of regulation and the governance standards required in both the management and administration of those schemes and the oversight of them by those with the fiduciary duty to protect the scheme members.

The case for consolidation is compelling, but will the Government give further consideration to the governance and regulatory requirements that need to be placed on those fewer scale pension providers managing billions, even trillions of assets over time so that downside risks are controlled and the desired outcome is achieved?

On the specific issue of trustees in these consolidated schemes, in another place, Liam Byrne MP called out the risk that in creating scale through fewer and bigger pension funds, there would still be a failure to deliver desired levels of investment in the UK. He called for greater legal clarity on trustees’ fiduciary duties, their ability to consider systemic factors and their impact on members pension savings when taking investment decisions. The Minister, Torsten Bell, advised that the Government will bring forward legislation to clarify that trustees can take systemic factors into account. Can the Minister advise the House as to the timescale for bringing forward that legislation?

The Bill aims to improve the returns workers receive on their retirement savings. We know that the DWP, the regulator and the FCA are working together to create a disclosure framework for assessing value for money that is to apply across the whole DC market, enabling consistent and comparable assessments of workplace pension schemes. To fully implement that framework, however, will require primary legislation in addition to the provisions in this Bill. When do the Government anticipate fully rolling out a new framework for assessing value for money?

I turn to the issue of accessing pension savings on retirement. In a DC world, UK savers are not well supported at retirement in making the complex decisions they face. They must manage their own longevity, inflation, and investment risk, and many struggle. Which? rightly points out that these decisions may have severe consequences and can mean that an individual outlives their savings. So it is good news that the Bill requires trustees of pension schemes to provide their scheme members with default retirement solutions that are relevant to their needs, and to help them manage the risks they face when they move into retirement. But we have to ensure that those solutions are fit for purpose. Are the Government actively considering additional guidance and regulation on the assessment of the value and benefit for members of the default retirement solutions to be provided by the schemes?

There are now many millions of small pension pots, as workers move from employer to employer, and the numbers are increasing. It is a major inefficiency in the pension system, as the Minister herself pointed out. The welcome advent of the pensions dashboard will help savers to take action to consolidate their pension pots. Characteristically, however, inertia means that many will not. The Bill provides for very small pots to be automatically transferred into qualifying consolidator schemes, which should reduce administration costs and deliver better returns for consumers through lower costs and charges. Can the Minister say what the Government’s current thinking is on the timetable for implementing the necessary regulation to allow this to happen?

There are several other important changes in the Bill which other noble Lords have already raised, but I finish by highlighting one of the changes to the PPF—the Pension Protection Fund—compensation. The decision to introduce legislation to enable prospective annual increases on pre-1997 compensation to PPF and FAS members is welcome. It could benefit more than a quarter of a million PPF and FAS members, but I am concerned that it will leave an unfairness, because no retrospective increases are applied to pre-1997 accrued pensions. The prospective increases will not apply to those members whose schemes did not provide increases to pre-1997 pensions prior to entering the PPF, and there is no recognition in any form of the major past loss of pension value, particularly given the incidence of high inflation and the acute financial impact on those affected. In its foreword, a recent PPF levy policy document concludes:

“The likelihood of the PPF encountering significant funding problems in the future … is low and is expected to continue to reduce over time … if funding problems did arise, these could be resolved over a multi-year period with our investment returns likely to be the most significant contributor”.


I go back to the points made by my noble friend Lady Drake on 23 April, when she raised this issue. Taking into account the considerable confidence in the funding level and investment returns, that £32.2 billion of assets, £19 billion in liabilities and reserves of £13.2 billion are held by the PPF, and the reduction in the levy to zero, the level of fairness set in the striking of the balance between levy payer and PPF/FAS member does not appear right. As my noble friend said:

“Not only has the levy in quantum declined hugely; the levy has also declined as a proportion of the PPF’s funding mix. Roughly one-third of the funding comes from the assets transferred to the PPF from those members’ pension schemes. Similarly, another third comes from the investment returned on assets, and 11% comes from assets recovered by the PPF on behalf of those schemes. Less than a quarter—23%—of the funding comes from the levy, and that is going to fall”.—[Official Report, 23/4/25; col. GC 32.]


Can the Minister take back to the Government consideration of an ad hoc payment to those members of the PPF with pre-1997 service, in recognition of the considerable real loss of pension that they have experienced? Such a payment should be well within the funding levels of the PPF. Payment of the prospective increases to pre-1997 pensions accrued to those whose original scheme may not have made provision for such increases.

Pension Schemes Bill

Baroness Warwick of Undercliffe Excerpts

Committee stage
Monday 12th January 2026 Grand Committee

[Lord Davies of Brixton (Lab)]

I emphasise that this is not about mandation. Mandation is a big issue, but this is not about that; it is about the possible ways in which Local Government Pension Scheme assets could be invested. It is a probing amendment and I am sure that it is not word perfect in achieving its objective.

It arises under subsection (4) of this clause. It mentions various issues with how the strategy that is set out should be implemented. It is a probing amendment that seeks to explore how, and to what extent, Local Government Pension Scheme assets might be used to provide social housing as an investment. The oddity about this debate is that I am sure we all share the belief—tell me if I am wrong—that housing is an ideal investment for a pension fund. What I want to know from the Government is the extent to which that will be possible within the structure being established by this Bill.

I start with the fund, which is a long-term defined benefit pension scheme with inflation-linked liabilities. Social housing assets provide long-dated stable income streams that closely match this profile, so the sheer logic of these funds investing in local housing is clear. This issue has been debated extensively, within the relevant field, among the think tanks and so on that support local authorities and are interested in the investments of the Local Government Pension Scheme. For example, a think tank called Localis produced a report recommending that council pension assets should be a funding solution to the UK’s affordable housing crisis; that issue is widely discussed and widely supported.

Of course, that has already happened and is already happening. The London CIV has a substantial investment on behalf of the London pool of investments in social housing. I refer to social housing; personally, I have a preference for council housing, but the issue is broader and includes all forms of social housing. For example, the head of real estate at the London CIV says:

“Our UK Housing Fund is designed to help increase the supply of good quality affordable housing while delivering income-driven returns to our Partner Funds”.


Again, in the heart of the industry and the sector, the value of this approach is strongly supported.

More specifically, are funds investing in local housing? They might be investing in housing, but it could be anywhere. However, the synergy with a local fund investing in local housing has a massive attraction in terms of both the councils involved and the members of a scheme seeing how their funds are being invested in the local community. That is a very attractive perspective on how the funds should be decided.

At the same time—this point does not need spelling out—we face a severe housing crisis. There is a need for extensive housebuilding. We have the resources and the need, so why do we not just get on and do it? Council pension funds are, by their nature, patient, long-term investments; that is such a good match for housing delivery. Of course, it is accepted, from the number of funds that have already gone this way, that the fiduciary responsibility is suitable. The committees managing these funds see that investing in housing matches their fiduciary responsibility.

Everyone agrees that there is a great deal of synergy here. Local pension schemes investing in social housing is financially prudent and low-risk, provides a long-term strategy and delivers clear public value. What is there not to like? Can my noble friend the Minister assure the Committee that this synergy will be recognised in the forthcoming regulations and the accompanying statutory guidance?

We are debating this matter in terms of the Bill here, but, as the previous debate made clear, it is the regulations that count. The regulations that will govern how these pools can invest are currently being discussed—an extensive consultation is taking place—but, alongside that, is a closed consultation on the statutory guidance that will accompany the regulations. There may be a debate as to why it is not a public consultation on the statutory guidance, because the two things—the regulations and the guidance—mash together closely.

The problem is that the draft statutory guidance limits the extent to which local funds can set requirements on the actual decisions that will be taken by the pools. I am getting into the detailed structure of how the administering authorities and the investment pools will work together. The point relates generally to all forms of local investment but it is particularly acute in this area, where we are talking about building houses for local people. More specifically, does the proposed pooling framework act as a potential barrier to Local Government Pension Scheme investment in social housing?

There is a broader, more general issue here; I am gear-shifting. The specific issue is whether the pooling arrangements interfere with local investments, particularly in housing, but there is the general issue of whether administering authorities—local councils, in effect, for these purposes—can pass their ESG considerations, for example, on to the pooling arrangements. We need to be clear at this stage. I have raised this issue specifically in relation to housing—it would be good to get a clear answer on that—but there is a wider point around the other ways in which these funds should be investing in the local community. Are the new structures going to stop that happening in practice?

On the other amendments in this group, I think that I agree with Amendment 9, but I will listen to my noble friend the Minister’s response on it. I look forward to hearing the reasons for Amendment 10; I do not understand it, but I shall listen carefully. I do not really understand Amendment 11 either, so, again, I look forward to the explanation from the noble Viscount. In the meantime, I beg to move the amendment standing in my name.

[Baroness Warwick of Undercliffe (Lab)]

My Lords, I have no extant interests to declare—my interest in pension schemes is in the past—but I have considerable sympathy with my noble friend Lord Davies’s Amendment 7.

We suffer from chronic underinvestment in genuinely affordable and social housing, which is undermining the social fabric of this country and limiting the opportunity for the growth that we so badly need. The Government have vowed to build 1.5 million homes by the end of this Parliament, with a longer-term aim of resolving the housing crisis; other Governments have attempted to do the same. The Government have already committed substantial sums towards that aim, but demands on public funding are increasing and more resources will clearly be needed to deliver it.

I had a particular interest in housing associations in the past. These raise private debt to put alongside public grant to fund social housebuilding, and currently have more than £130 billion of debt facilities in place. The social housing sector is a great example of harnessing public and private investment to drive economic growth and build the homes that we need. Net additional dwelling figures for the 2024-25 financial year showed that 208,600 homes were added to England’s stock—well short of the 300,000 homes a year needed to meet the Government’s target of 1.5 million homes by the end of this Parliament. With the right funding, investment and financial capacity in place, social and affordable housing can play a key role in boosting supply and meeting that ambitious homes target.

There is a general recognition of the need to increase institutional investment in the UK and that pension schemes, with their long-term characteristics, could and should be part of that solution. This part of the Bill refers specifically to the LGPS. The Chancellor has already cited the LGPS as a means of achieving that necessary level of investment. In fact, several LGPS funds already have a strong track record of co-investment in affordable housing, and that potential needs to be maximised. I hope that the Government will ensure that all large pension schemes have the right incentives and strategic tools, coupled with an effective regulatory regime, to provide returns to the scheme while protecting scheme members’ interests and ensuring enduring social impact.

Pension Schemes Bill

Baroness Warwick of Undercliffe Excerpts

Committee stage
Thursday 22nd January 2026 Grand Committee

My time has come to an end—I said that this was a busy group—but, with the leave of the Committee, I would like to continue for a few more minutes. Amendment 74 would place a duty on the Secretary of State to lay within 12 months of Royal Assent the regulations establishing the value-for-money framework and it would require those regulations to set out clearly how schemes will be assessed, the standards that they must meet, how they will be held to account and what happens when they fall short. That matters for three reasons: first, certainty; secondly, coherence; and, thirdly, accountability. This amendment would ensure that the powers that Parliament is being asked to confer are exercised in a timely and comprehensive way. In short, this is an amendment about delivery. It reflects the reality that value for money is not achieved simply by legislating for powers but by ensuring that those powers are used, that standards are clear and that regulatory expectations are understood across the system. I look forward to the Minister’s response.

[Baroness Warwick of Undercliffe (Lab)]

My Lords, I am sympathetic to the probing amendments in the names of the noble Baroness, Lady Altmann, and the noble Viscount, Lord Younger—Amendments 47 and 51 respectively—on value for money, which I alluded to at Second Reading. With any Bill or set of regulations, it is important to have clarity on the intentions and in minimising any unintended risk. That is particularly so when looking at the protection of citizens’ lifetime pension savings.

The FCA, the DWP and TPR have just published their consultation on their detailed proposals for the new value-for-money framework for DC schemes. These proposals come with real bite. When introduced, all relevant DC schemes will have to report on the value that they provide to members across a range of metrics. That assessment report will provide the basis for comparing the value that the scheme provides against other schemes. If a given scheme offers poor value, the firms and trustees must deliver improvements or otherwise transfer their members to a scheme that does provide good value. The framework requires an online central database to capture the disclosure of value-for-money data.

The Bill mandates the framework for contract-based schemes regulated by the FCA. The DWP and TPR will consult on draft regulations for the trust-based schemes. The first value-for-money assessments are expected in 2028. The framework provides for consistent measurement and disclosure on investment performance, costs and service quality; objective and consistent comparison against the market; transparency and disclosure; and action to be taken where a scheme is not delivering value. However, there are clearly concerns—we see them expressed in the briefings that noble Lords have received—that the framework could give rise to problems, which I, too, would like to probe.

The VFM framework provides for forward-looking metrics to be considered alongside backward-looking metrics, with the stated aim of allowing for

“a holistic approach to investment to deliver the best possible long-term outcomes”.

There is a risk that the value-for-money framework could result in herding, as others have alluded to, as schemes seek to avoid poor value assessments. There is also a risk of forward-looking metrics being used to game a scheme’s assessment. I ask the Minister: what guardrails are explicitly allowed for in this Bill to control these risks?

On quality of service, the recently published VFM framework takes a more limited approach to quality service and administration metrics. Furthermore, metrics on how members engage with their pensions have not been included in the framework, but they will be important in informing schemes’ responses to changes, such as guided retirement and the targeted support regime.

Looking ahead, how will these concerns be addressed? Poor-performing schemes that are rated “red”—meaning that they cannot be improved—must transfer out members where it is in their best interests. This is stronger than the originally proposed wording to consider a transfer. It is made possible by the Bill’s provision for a contractual override to allow transfers for contract-based arrangements without members’ consent. However, it is worth noting that some members will have safeguarded benefits. My final question to the Minister is: what will happen to those benefits? It is not clear what mitigations this Bill provides to protect members.

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

My Lords, I am grateful to all noble Lords for introducing their amendments and for the debate that followed. The amendments rightly seek an assurance that the VFM framework is strong and effective and they try to clarify how it will take account of a range of important factors that can affect the value that a scheme provides. I regret that I cannot accept them, but I am going to go through the reasons why, as some interesting issues are being raised. Obviously, if I told the Committee that I was going to accept them, noble Lords would all fall over in shock, but this is a good opportunity to get these issues out there.

Let me say at the outset that the aim of the VFM framework is simple: we want to ensure that all savers are in schemes that deliver the best possible long-term outcomes for their retirement. The framework seeks to raise standards across the DC market by driving transparency, comparability and competition on genuine value rather than just on cost—a point made by the noble Baroness, Lady Stedman-Scott.

Clause 11 is deliberately drafted to provide enabling powers that allow the regulations establishing the VFM framework to be developed in consultation with industry and to be adapted as markets evolve. However, the VFM framework must be able to adapt to future financial market developments and to align with the FCA requirements for contract-based schemes. The risk is that hard-wiring any detailed technical criteria or rigid deadlines into primary legislation takes away the flexibility that is genuinely needed. It could get in the way of effective regulation and risks locking in concepts that could become outdated. However, I accept that there is a question around how Parliament gets to scrutinise the detail.

Clauses 11 and 14 set out key features of the VFM regime and provide enabling powers for the Secretary of State to make regulations on how VFM assessments will operate, including the metrics, the benchmarks and the processes that they will have to follow. The regulations will be subject to formal consultation with industry and regulators before being laid in draft for parliamentary approval under the affirmative procedure. In our view, this strikes the right approach: the Bill has the overarching framework in primary legislation while the technical detail is developed transparently through secondary legislation.

However, the noble Baroness, Lady Coffey, made an important point: Parliament needs to be able to understand what the assessment process will look like. A joint consultation was launched in early January by the FCA and the Pensions Regulator; it will run until 8 March. This consultation is the next step in the process of consultation on the technical-level detail of the framework, which will help to inform development and consultation on draft regulations and draft FCA rules—those are, of course, legal instruments.

I am conscious that some of the amendments were tabled before that consultation was launched. Those noble Lords who are up to their ears in the pensions world will no doubt have read the consultation in detail, but I will make sure that we send any noble Lord who has not done so a summary of, as well as a link to, it. I would be happy to answer any questions, if that would be helpful, but I will unpack the basics of this now.

The consultation sets out updated proposals and detailed draft FCA rules for implementing the VFM framework in the workplace DC pensions market and it reflects stakeholder feedback from the previous FCA consultation. FCA rules will apply to contract-based schemes, whereas regulations made under the powers in the Bill will apply to trust-based schemes. By bringing them together, responses to the consultation will help to inform both the draft DWP regulations and the FCA rules, with the obvious aim of ensuring consistency across trust-based and contract-based schemes. We do not want to end up with any kind of regulatory arbitrage in this or any other area. It is important that we do not pre-empt the outcomes of that process to make sure that we get the details right. Draft regulations will be consulted on.