Pension Schemes Bill

Caroline Nokes Excerpts

Consideration of Lords message
Monday 27th April 2026 Commons Chamber

[Andrew Western]

The hon. Gentleman will be aware that conversations are always ongoing to ensure that any legislation that comes from this place can be adopted by all the nations of this great country. I hope that some of the concerns that have continued to be raised by his colleagues, and by peers in the Lords as well, will be addressed by some of the detail that I am about to set out.

As I have said, that power can be used only once, and, if unused, lapses entirely in 2032. Even if it is used, however, the entire asset allocation regime falls out of effect and the statute book at the end of 2035. These provisions rule out any of the more lurid uses we have heard it claimed that the power would be used for, restricting it narrowly to underpinning the Mansion House accord.

As well as insisting on that package, the Government are today introducing further amendments to the savers’ interest test in the proposed new section 28G of the Bill. I remind the House that the reserve power exists because providers have said that they struggle to do something that is in savers’ interests, namely invest in a wider range of assets. However, the savers’ interest test exists for circumstances in which schemes can show that even investing as little as 10% in private assets—far below the levels that we see internationally, or in open defined benefit schemes here in the UK—might not be in their particular savers’ interest. In those circumstances, it allows them a route to seek an exemption from any requirements imposed by the reserve power. Arguments have been made, here and in the other place, about whether the test as drafted included sufficiently clear and strong protections. The Government have reflected on those arguments, and the further amendments before the House today respond to them. There are four changes.

First, we are lowering the threshold for an exemption. The Bill as drafted would have allowed regulations to require a scheme to show that compliance “would cause” material financial detriment. We are changing that to

“would be likely to cause”.

A scheme will need to show that detriment is the probable consequence, not a certain one.

Secondly, the Bill now makes it explicit that when a scheme meets the threshold, the regulator must grant the exemption. That has always been the Government’s intention, and the amendment ensures that there is no room for doubt.

Thirdly—here I want to respond directly to arguments raised by noble Lords about the weight that should be given to the judgment of trustees and scheme managers—we are proposing a change to put their assessment of savers’ interests centre stage. The new text makes clear that the responsible regulator must not only receive the scheme’s own assessment of why compliance would be likely to cause material financial detriment, but be required to have due regard to it. Schemes must set out their reasoning, and the regulator must engage with it properly and thoroughly. “Due regard” is established statutory language with legal weight: it means that the regulator cannot simply pay little or no attention to the scheme’s analysis.

Fourthly, the regulator must give reasons when it refuses an application. That matters because schemes have a right of appeal to the upper tribunal, a right that is strengthened if applicants know why they were turned down.

Let me draw this together. The savers’ interest test now provides a lower threshold, an explicit guarantee that exemptions will be granted when the test is met, a requirement for the regulator to give proper weight to the scheme’s own analysis, and transparency and accountability if an application should fail. Taken alongside the constraints on the power itself—the percentage caps, the single-use restriction, the 2032 sunset and the 2035 full repeal—this is a framework of strong and explicit protections.

There are those, here and in the other place, who would prefer the reserve power not to exist at all. As Members of this House know, we respect that position, but it is not a position that we share and it is not the position of the Government. There is a well-evidenced collective action problem in the defined contribution market, and the consequences of leaving it unresolved would fall on pension savers. That is not a risk that the Government are prepared to take.

This House has made its view clear on two occasions, and the Government have responded by baking in a raft of additional safeguards to primary legislation. This is now a third round of material changes, which I suspect this House may again endorse with a decisive majority. At some point, the question before the House is no longer the detail of the amendments, but whether the other place should continue to reject the clearly expressed view of the elected House and delay the passage of a Bill that delivers for savers in a whole host of ways. I urge the House to send these amendments back to the other place, and to bring these exchanges to a close.

[Madam Deputy Speaker]

I call the shadow Secretary of State.

[Helen Whately (Faversham and Mid Kent) (Con)]

First, may I thank the hon. Gentleman for opening this evening’s debate, and for setting out the latest Government amendments, in place of the Pensions Minister? These ping-pong sessions with the hon. Member for Swansea West (Torsten Bell) have become a regular in my diary, and I will miss him this evening.

When this Bill was introduced last summer, we said that much of it was a sensible step forward that built on the work of the previous Conservative Government. We stand by that view, but supporting the broad direction of a Bill does not mean unqualified support for its every provision. Throughout its passage, we have challenged the Government on the local government pension scheme, on member communications and on the scale requirements in the Bill, but you will be pleased to know that those debates are behind us, Madam Deputy Speaker.

Today, there is just one issue left: mandation, or, as the Government prefer to call it, the reserve power—a power that sat in clause 40 until the noble Lords once again removed it from the Bill last Wednesday. The Government’s case for this power is straightforward: they want more pension investment in private markets and, by extension, more pension investment in the UK. That was the ambition behind the Mansion House accord, and it is an ambition that we share. We want to see the accord succeed, we want more productive investment, and we want pension capital to work harder for savers, but although the ambition is right, this policy is not. Mandation is the wrong lever to achieve those aims.

As the House has heard from me and my hon. Friend the Member for Wyre Forest (Mark Garnier) at each stage of this Bill, mandation is flawed both in principle and in practice. The Government may call it a reserve power, but everyone knows what it is: a threat hanging over pension schemes if they do not fall into line. The Mansion House accord was a voluntary agreement built on trust, with mutual commitments between industry and the Government. Mandation replaces trust with a threat in law. Why would the pension sector, or in fact any sector, ever try to come together and agree a voluntary pact with the Government again if it is hammered into law a few months later?

Mandation puts in statute a power that, though more limited in its current manifestation, could be put to all manner of uses. It cuts across the fundamental duty of trustees to act in the best interests of savers; instead, that duty is trumped by Government requirements in law. It means that pension savings, or a share of them, will be put to work to serve the interests of the Government, not the interests of the saver who wants their pension to provide them with a decent income in later life. Perhaps most seriously of all, mandation risks undermining public trust in the pension system. That is why the power is not just unnecessary; it is dangerous and has no place in this Bill.

I will now turn to the Government’s latest amendments on mandation that are before us today, which apply to the so-called savers’ interest test. At the moment, if a pension scheme believes that complying with the Government’s mandation power would not be in the members’ interests, it may apply for an exemption, but to secure one, it must show that compliance would cause “material financial detriment” for members. That is an extraordinarily high bar. The Government have heard the concerns raised in this House and the other place, particularly by Lady Bowles, and have now brought forward further amendments.

The Minister told us that the amendments will strengthen the exemption process. Well, they do make it slightly easier for schemes to argue that a mandated investment allocation may damage returns. Instead of having to prove that mandation “would” cause material financial detriment, schemes will now need to show that such detriment is just “likely”—we have gone from “would” to “likely”. Frankly, if the Minister thinks that this one-word change offers a truly robust safeguard, I urge him to think again.

The need for these amendments tells its own story: the Government accept that mandation risks conflicting with the duties that trustees and pension providers owe to savers. If no such conflict existed, there would be no need at all for an exemption process. The right to appeal, enhanced through today’s amendments, demonstrates that Ministers accept that mandation may force schemes away from doing what is in their members’ best interests. Under the amended Bill, schemes must still prove likely financial harm before they are allowed to do what is best for savers. That misunderstands the principle at the heart of fiduciary duty. Trustees should not need state approval to act in the best interests of their members. These amendments just tinker at the margins; they do not fix the flaw in the policy.

I have been talking in somewhat technical terms, but I want to remind the House of the consequences of what we are talking about. If the Government push pension schemes into the wrong investments, those investments underperform and savers end up with weaker returns, who carries the can? Not the Minister, who has stepped in valiantly today, and not the Government, who legislated for this power. It will be pensioners, who will retire with less. Let us remember whose pensions we are talking about here. Who is most likely to suffer if the Government turn out to be a poor asset manager? The millions of workers who contribute via auto-enrolment—people who have never chosen an investment strategy, but who trust pension providers to do the right thing on their behalf.

Those people are not poring over fund fact sheets; they are getting on with work and supporting themselves and their families, hoping that one day they will be able to retire with financial security. This policy asks those savers to place their trust not in pension managers, but in Government Ministers. In doing so, it risks undermining the very trust on which auto-enrolment depends. We can debate whether the level of auto-enrolment is right, but no one challenges whether it is a good thing overall. Yet the Government are putting at risk this success story, around which there has been great political consensus, and the consequences do not stop with pension savers.

What signal does this send to the wider investment community? We hear that major City reforms are to come in the King’s Speech, but will the market really greet those reforms with confidence if this Bill becomes law with mandation in it? Confidence would be created if investors could see that the Government are committed to making the UK a good place to invest in. Mandation sends the opposite message. It tells people that we have a Government who are prepared to go where the UK state does not usually go: to get involved in the allocation of private capital. It tells people that the Government will take a shortcut to getting investment in the UK by forcing pension schemes to do so, rather than fixing the underlying problems. I do not think that the Minister’s colleagues have really thought this through. The easy answer is rarely the right answer.

Where does that leave us? It leaves us at an impasse, with agreement on the diagnosis but profound disagreement on the prescription. We all want more pension investment in the UK, and the Conservatives support moving from a focus on cost to a focus on value. We support removing barriers to the Mansion House accord, but there is no consensus for state compulsion. Pensions belong to the people who earn them, not Ministers. I have yet to find anyone who wants to trust a politician with their hard-earned pension savings, but that is exactly what the Government are trying to force on the country’s savers through this Bill.

Today the Minister finds himself tasked with defending the indefensible, and one provision is preventing an otherwise good Bill from passing. The Government amendments make mandation less bad, but if something is wrong in principle, it does not become right in smaller doses. I leave the Government with one simple message: remove mandation, and the job is done—this Bill will pass.

[Madam Deputy Speaker (Caroline Nokes)]

I call the Liberal Democrat spokesperson.

[Steve Darling (Torbay) (LD)]

As the shadow Secretary of State has said, there is a lot to be welcomed in the Bill. In considering the Bill, we have looked to Australia and Canada, and at best practice throughout the world, and there is much we have drawn from. For the Liberal Democrats, the pensions world that we are looking to enter with this Bill is greatly to be welcomed. Up and down the United Kingdom—from Tobermory in Mull to Torbay in Devon—we desperately need greater investment in our economy. We must make sure that we have a productive economy, but mandation is not the way to achieve that.