Pension Schemes Bill (Seventh sitting)

Debate between John Milne and Mark Garnier

Committee stage
Thursday 11th September 2025 Public Bill Committees

[John Milne]

This is really about trying to place the Minister’s attention on this important issue—we will not press the new clause to a vote. It is about focusing the Minister’s mind on the task at hand. The undersaving groups include, but are not limited to, women, ethnic minority groups and others affected by long-term pay or pension gaps. The new clause would provide mechanisms to fund and deliver targeted support.

New clause 41 is designed to put a cap or ceiling on the amount of free advice accessed by any individual saver. It is a subset of new clause 1. Some individuals have very complicated financial affairs, which threaten to take a disproportionate amount of effort to decipher, in the event that we were to provide free advice. Those individuals will tend to be much better off and with multiple pension pots, which is precisely why they will end up needing more advice. Placing a ceiling on the advice available would ensure that the free advice was targeted only at those who needed it most.

New clause 43 is a potential solution to the information deficit that we are trying to address. It would enable auto-enrolment into Pension Wise as the vehicle for giving advice. We tabled it as a probing amendment to provoke the Minister’s consideration. The purpose of the new clause is to help people properly understand and engage with their pension by auto-enrolment into Pension Wise advice at key stages, with the freedom to opt out. Pension Wise guidance is free, impartial and has very high satisfaction rates—94%—among those who have used it, yet uptake remains strangely low, which is an excellent illustration of exactly why the whole advice area needs urgent attention.

Government data shows that of those who have accessed defined-contribution pension pots, only 14% have done so after receiving Pension Wise advice. That is despite various efforts, including a stronger nudge to encourage taking guidance before pots are accessed. Wake-up packs and other communications have shown limited effectiveness, and the evidence shows that savers will need more than passive information; they need action-oriented support.

If anything, the situation is getting worse. The proportion of pensions accessed after receiving guidance or advice has reduced by around 9 percentage points since 2021-22. Evidence from the DWP’s 2022 research shows that although most people start saving for retirement in their 20s and 30s, many do not start planning for retirement until their 50s. Auto-enrolment into guidance would therefore significantly increase take-up and improve retirement outcomes for many. Defined-contribution scheme members, in particular, often lack clear information about their options; Pension Wise would help fill that gap.

New clause 43 leaves flexibility for the Secretary of State to determine the appropriate ages, processes and notification methods. We recognise that it would be a significant move, and that there would be technical issues to solve. That is why we have tabled it only as a probing new clause, to explore whether the Government will look at trials or further measures to boost guidance uptake. Auto-enrolment into a pension scheme has been a great success, so perhaps the next logical step is auto-enrolment into advice. Why not try it?

[Mark Garnier]

I am keen to speak to these Liberal Democrat new clauses, because we have a fundamental problem. Research by Pensions UK shows that more than 50% of savers will fail to reach their retirement income targets set by the 2005 Pensions Commission, and closing the gap between what people are saving and what they will need must be a pressing concern of any Government. So, we need the second part of the pensions review to be fast-tracked, with a laser-like focus on pensions adequacy.

This takes me back to when I first became a Member of Parliament some 14 or 15 years ago. The big issue at the time in the independent financial advisers market was the retail distribution review. My hon. Friend the Member for West Worcestershire (Dame Harriett Baldwin) and I held our first Backbench Business debate on the retail distribution review, and it is recorded in Hansard that we predicted this would be a problem as a result—fewer independent financial advisers being available to give advice.

There were three key elements of the retail distribution review. They were very well-intended, and let us not beat about the bush: there were reasons why they were brought about. One of them was intended to raise the professional standards of independent financial advisers, and I think we would all agree that that has to be a good thing. The advisers complained at the time because they did not want to take exams. If they had been in the business for 40 years, why would they feel that they needed to take an exam? But why should they not improve their standards? There were issues to do with lifetime liability—advisers’ taking responsibility beyond seven years for advice that they had given, which was very contentious. Also there was clarity on the models of advice being given.

However, the key element that caused the problems was where independent financial advisers, prior to that moment, were being paid a commission on the product that was being sold, which potentially led to product bias. If a commission was being paid at 2.5% on one product and 1% on another, the independent financial adviser would have a material interest in selling that higher-commission product, even if it was a worse product. That could have been dealt with by having a maximum commission rate on all the products; it could have been set at 100 or 150 basis points, which would have dealt with that problem. We saw this issue in the London stock exchange until 1986, when there were fixed rates of commission, so nobody could undercut another broker by providing cheaper dealing measures. We therefore knew it could work.

The direct result of all this was that when the retail distribution review was brought in by the FCA in January 2013, we saw a massive drop in the 35,000 independent financial advisers. That has since recovered, and we now have around 36,000 advisers. The important point is that a financial adviser who goes out to persuade somebody to take advice on their pension now needs to charge a fee. Before that, to the person receiving the advice, the financial adviser would appear to be doing it for nothing. There would be an agreement, so it would be transparent and they would know exactly what was going on.

However, the point is that now, if I am being asked to put money into a pension fund and I know I am paying the 1.5%, the fact that the commission is coming out of the money going in feels much less restrictive than being sent a bill for £1,500 or £2,000. That is much more difficult to meet, even though it comes to the same point in the end. The result of this is that, whereas about 50% of people used to put money into pensions and receive financial advice, the number is now 9%.

There are an awful lot of newly elected Members of Parliament here. After 10 or 15 years, they will find themselves in a Bill Committee making these points and saying, “We told you this would be a problem. We told you so, yet here we are trying to resolve a problem that we knew was going to happen, and we allowed it to.” I am very cynical about Parliament sometimes, as all Members will be eventually. The important point is that the Liberal Democrat new clauses are an attempt to deal with the problems that we knew would come about. Auto-enrolment is brilliant—we really like auto-enrolment—but there are various things coming in under this Bill. We have to be careful that the things we bring in with the best intentions do not end up creating bigger problems due to unforeseen circumstances.

If the Liberal Democrats pressed new clause 1, we would happily support it, as it is a good amendment. It will be interesting to see if that comes through, but this is something we have to get right. People need to get advice because far too many people are going to go barrelling into their 67th birthday, or whatever it is, and suddenly discover that they have run out of money, and that is not a good place to be.

Pension Schemes Bill (Eighth sitting)

Debate between John Milne and Mark Garnier

Committee stage
Thursday 11th September 2025 Public Bill Committees

[Mark Garnier]

I am highly reassured by the Minister’s words. The important point is to ensure that if the bodies are to work together and do this, we need to keep them held to account on it. The Financial Conduct Authority was set up as an independent regulator and reports back to such things as the Treasury Committee. Presumably, TPR reports back to the Work and Pensions Committee. Already we can see a potential problem there, because separate Select Committees are doing the investigation. That is an important point, but I am confident that the Minister and his civil servants are aware of the problem and will be resolutely super sharp-focused on this issue to ensure that we have regulatory clarity. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 39

Section 38: commencement

“(1) The provisions in section 38 shall not come into force except in accordance with regulations made by the Secretary of State.

(2) A statutory instrument containing regulations under subsection (1) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”—(John Milne.)

This new clause would require that the provisions in clause 38 could only be enacted once agreed through secondary legislation.

Brought up, and read the First time.

[John Milne]

I beg to move, That the clause be read a Second time.

Overall, this Bill has wide cross-party support, as evidenced by the fact that we have been rattling through it at such a pace. However, the power of mandation is undoubtedly the most controversial aspect. To be briefly Shakespearean: to mandate or not to mandate, that is the question.

The new clause would require that the provisions in clause 38—the mandation powers—be enacted only through secondary legislation. It is an attempt to square the circle between two competing views. The Liberal Democrats have concerns about the implications of mandation, frankly, as has much of the pensions industry. For example, Pensions UK, which is a signatory of the Mansion House accords, has stated:

“We believe that the best way of ensuring good returns for members is for investments to be undertaken on a voluntary, not a mandatory basis. We also note powers being taken to specify required investment capability for schemes, and to direct LGPS funds to merge with specific pools. All of these powers will require careful scrutiny.”

Similarly, the Society of Pension Professionals has said:

“The SPP does not support the reserve power to mandate investment in private market assets and recommends its removal from the legislation. The mandation power creates significant uncertainty, including questions about legal accountability for investment underperformance and how eligible assets will be defined. The threat of mandation risks distorting market pricing and could reduce public trust in pensions, as savers may fear that financial returns are no longer the top priority.”

The Minister has stated on a number of occasions that mandation should not be necessary, that he does not expect to have to use it and that the Mansion House accord demonstrates the industry’s willingness to act voluntarily. The obvious response is that if that really is the case, and that UK private markets truly offer the best option for pension savers while meeting the fiduciary duties, the industry should not need any prodding and mandation will not be required. The Minister’s response on previous occasions, and no doubt today, has been to observe the history and point out that thus far, the industry has been slow to make that change.

We recognise that the Minister is wholly committed to the path of giving himself mandation powers, whatever we or anyone else says. Indeed, he sees it as core to the legislation. For that reason, we have proposed the new clause as a halfway house. The power would be put on the books, but it would require secondary legislation to be enacted. It would give the Minister the ability to have access to mandation powers at short notice if he deemed it necessary, without needing primary legislation, but in the meantime, it does not hang over the industry like a sword of Damocles. It may seem just a psychological difference, but psychology matters, and there are other advantages.

Somewhat counterintuitively, sometimes having too much of a stick can be a problem in itself. The Minister would be under pressure to use the stick for the sake of consistency in every case where any company went slightly over the limit or was under the limit, even when he might prefer to take a softer, more conciliatory approach. We therefore see this new clause as a way to help the Minister exercise the powers he needs, but without stepping too heavily on industry’s toes. As he has said, he does not believe that he will ever need to exercise the power, so let us keep it at arm’s length.

Pension Schemes Bill (Third sitting)

Debate between John Milne and Mark Garnier

Committee stage
Thursday 4th September 2025 Public Bill Committees

[John Milne]

The purpose of amendment 5 is to ensure that regulations take account of the particular circumstances of occupational pension schemes that were established before the Pensions Act 1995. There is effective discrimination against certain pre-1997 pension holders. That is a long-standing grievance and has remained unresolved for far too long. This has been reflected considerably in my postbag, as I am sure it has been for pretty much every MP.

In the evidence session on Tuesday, we heard moving testimony from Roger Sainsbury of the Deprived Pensioners Association and Terry Monk of the Pensions Action Group. As they told us, many of those affected are, literally, dying without ever seeing satisfaction. Many of these pensioners are receiving a fraction of what they are entitled to and what somebody who paid the exact same sums is currently receiving. It is causing genuine hardship.

Members of the pre-’97 schemes are often in a different position to those in later schemes. These schemes were designed under a different legal and regulatory framework. Current legislation does not always reflect those historical realities, which creates unintended inequities.

The amendment would require regulations under clause 9 to explicitly consider these older schemes. It would allow such schemes, with appropriate regulatory oversight, to offer discretionary indexation where funding allows. The key impacts would be to provide flexibility while ensuring safeguards are in place, give trustees the ability to improve outcomes for members in a fair and responsible way, and help to address the long-standing issue of members who miss out on indexation simply because of the scheme’s pre-’97 status. It also ensures that members can share in scheme strength where resources permit.

Clearly, safeguards are needed, and the amendment makes it clear that discretionary increases would be possible only where schemes are well funded. Oversight by regulators ensures that employer interests and member protections remain balanced. The intention behind the amendment is to bring fairness and flexibility into the treatment of pre-’97 scheme members and to modernise the system so that it works for today’s savers without undermining scheme stability.

[Mark Garnier]

I will not take up too much of the Committee’s time, but suffice it to say that we all heard the evidence that was presented on Tuesday, and we in the Conservative party agree with the Liberal Democrats’ amendment. We will support it.

Pension Schemes Bill (Fourth sitting)

Debate between John Milne and Mark Garnier

Committee stage
Thursday 4th September 2025 Public Bill Committees

[John Milne (Horsham) (LD)]

I beg to move amendment 3, in clause 9, page 9, line 4, at end insert—

“(e) about the proportion of any surplus that may be allocated, or the manner in which it may be determined, for the purpose of contributing to the provision of free, impartial pension advice and guidance services for scheme members.”

This amendment enables a proportion of surplus funds to be used to fund free pension advice.

The purpose of the amendment is to allow a proportion of pension scheme surplus funds to be allocated to funding free, impartial pension advice and guidance services for members. In my former life in advertising, it was sometimes my job to help people to understand their pension options so that they could make the right choices, and I can tell the Committee it was not an easy task. Pensions are complicated, and far too many people have no idea at all what is in store for them, and therefore do not take advice. We argue that rectifying this gap is the key task that at the moment is underserved by the Bill. There are proposals such as the pensions dashboard that certainly help, but they are by no means sufficient. More action needs to be taken, and that is the essence of the amendment.

Without proper advice, members risk making poor financial decisions, such as taking all their lump sum and getting taxed unnecessarily, which could severely damage their long-term security. Free, impartial advice is essential to level the playing field between those who are more informed and perhaps have higher incomes, and those who are not. The details of our revised proposals are laid out in new clause 1, which, slightly inconveniently, will be discussed later in the proceedings; this amendment is about the funding for that measure. We propose two stages of advice: at age 40, which is a critical moment for all midlife planning and pension consolidation, and again within six years of expected retirement, when the emphasis shifts more to decisions about drawdown, annuities and retirement income options.

The first question that is always asked when any extension to a Government service is proposed is, “How will we pay for it?”. This measure is a highly relevant, targeted solution to that question, made possible by accessing surplus funds. We have general agreement, I think, that surpluses in pension schemes should not be allowed to sit idle or be seen simply as windfall funds, but we have less clarity and agreement on what exactly is the best use for them. I would argue that the measure we propose, employing a small proportion of the surplus to fund member advice, is at once a highly relevant targeted use for the funds, and something that will have a disproportionately large impact on pension adequacy, which is of course a matter of great concern to the Minister outside this Bill.

The amendment does not mandate a fixed proportion; it simply gives the Secretary of State powers to determine what proportion he or she thinks should be used. It creates flexibility and safeguards, so that the balance between scheme health and member benefit can be properly managed. Importantly, funding advice from surpluses would reduce the need for members to pay out of their own pockets; for many, the cost is prohibitive, so it simply does not happen. A further benefit is that it would build trust among the public that schemes are actively supporting member outcomes beyond just the pension pot itself.

To summarise, the amendment is designed to ensure that pension surpluses, when they arise, are used to strengthen member outcomes. Advice and guidance are just as important as the pension itself in ensuring good retirement outcomes. The amendment is a practical, fair and member-focused way of improving the system.

[Mark Garnier]

As we have heard, the amendment authorises the use of surplus pension funds to contribute to the provision of free, impartial pension advice and guidance services to scheme members. The age of 40 is very important, and I hope that the Minister, on his 42nd birthday—

--- Later in debate ---

[John Milne]

Yes, it sounds rather unpleasant. We will think more about this subject, and I am sure we will discuss further, but I thank him for the clarification. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Mark Garnier]

I beg to move amendment 259, clause 20, page 21, line 23, leave out from “procedure” to end of line 29

This amendment would make all regulations on consolidation of small dormant pots in DC schemes to the affirmative procedure all times they were made rather than just after first use.

The hon. Member for Aberdeen North asked an interesting question about the application of the affirmative procedure to regulations on the pot size. Our amendment seeks to address the use of the affirmative procedure in the wider legislation that goes with this.

As we continue to table amendments urging extra parliamentary scrutiny, I feel myself becoming slightly depressed at the prospect of having to see too much of the Minister, even though he is undoubtedly a lovely chap, in Delegated Legislation Committees as we consider every single change. It is important though, because at the end of the day Parliament needs to scrutinise what is going on, so it is a good thing that the size of the pot is subject to the affirmative procedure.

It is okay, but not ideal that for anything that could be to do with the wider legislation, the negative procedure applies. Members having to look for a very material change going through in a written ministerial statement or whatever and then raise it is not necessarily such a good thing, given that this is fixing 13 million of these pots. That is an awful lot of them. If we increased the threshold to £2,000, would that number be 26 million? A lot of people that could be affected by this.

This was largely a probing amendment to see what the Minister has to say. We are unlikely to divide the Committee on it. None the less, I am very interested to hear what the Minister has to say about the affirmative procedure.