Pension Schemes Bill

Kirsty Blackman Excerpts

2nd reading
Monday 7th July 2025 Commons Chamber

[Kirsty Blackman (Aberdeen North) (SNP)]

Obviously that can happen only where there are surplus funds, and there may not be surplus funds in all circumstances. I just want to give the Minister a heads-up in relation to the questions about employee benefits. It would be useful in Committee to have more information about the Government’s analysis of how many of these surplus releases will directly benefit the employees rather than the employers. I understand that the Government, with their mission for growth, want investment in growing the company as well, but what kind of split does he expect to see? I do not expect an answer to that today.

[Torsten Bell]

It is nice to sometimes be able to surprise on the upside. I would expect employees to benefit in most cases, because trustees are in the driving seat and I am sure they will want to consider how employers and employees will benefit from any surplus release. Obviously, the exact split between the two will be a matter for the individual cases, but I am sure we will discuss that further in Committee.

I want to reassure the House that this is not about a return to the 1990s free-for-all. DB regulation has been transformed since then, and schemes will have to remain well funded and trustees will remain in the driving seat. They will agree to a release only where it is in members’ interests and, as I said, not all schemes are able to afford to buy out members’ pensions with insurers.

The Bill also introduces the long-awaited permanent legislative regime for DB superfunds, which is an alternative means to consolidate legacy DB liabilities. This supports employers who want to focus on their core business, and, as the superfunds grow, they will have the potential to use their scale to invest in more productive ways. Crucially, trustees will be able to agree to a transfer into a superfund only where buy-out is not available and where it increases savers’ security.

The Pension Protection Fund is, of course, the security backstop for DB members. It celebrates its 20th anniversary this year, and it now secures the pensions of over 290,000 people. The Bill updates its work in three important ways: first, by lifting restrictions on the PPF board so that it can reduce its levy where appropriate, freeing schemes and employers to invest; secondly, by ensuring that PPF and financial assistance scheme information will be displayed on the pensions dashboard as it comes onstream, which my hon. Friend the Member for Blaenau Gwent and Rhymney (Nick Smith), who is now not in his place, is keen to see; and thirdly and most importantly, by making a change to support people going through the toughest of times. As several hon. Members have called for, we are extending the definition of terminal illness from a 6-month to a 12-month prognosis, providing earlier access to compensation for those who need it most.

Pensions are complex beasts, and so are the laws that surround them. That complexity is inevitable, but not to the extent that some recent court cases risk creating. The Bill also legislates to provide clarity that decisions of the Pensions Ombudsman in overpayment cases may be enforced without going to a further court. I have been clear that the Government will also look to introduce legislation to give affected pension schemes the ability to retrospectively obtain written actuarial confirmation that historical benefit changes met the necessary standards at the time.

Governments are like people in one important respect: they can easily put off thinking about pensions until it is too late. I am determined not to do that. We are ramping up the pace of pension reform. The past two decades have delivered a big win, with more people saving for their retirement, but that was only ever half the job. Today, too many are on course for an income in retirement that is less than they deserve and less than they expect. The Bill focuses on securing higher returns for savers and supporting higher income in retirement without asking any more than is necessary of workers’ living standards in the here and now.

The Bill sits within wider pension reforms as we seek to build not just savings pots but a pensions system that delivers comfortable retirements and underpins the country’s future prosperity. Legislation for multi-employer collective defined-contribution schemes will be introduced as soon as possible after the summer recess, and we will shortly launch the next phase of our pensions review to complete the job of building a pensions system that is strong, fair and sustainable. It is time to make sure that pension savings work as hard for all our constituents as our constituents worked to earn them. I commend the Bill to the House.

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[Mark Garnier]

The former City Minister raises a good and important point. He tries to bring together a number of related but quite disparate issues that we need to think carefully about. I would not want to make Conservative party policy on the hoof at the Dispatch Box, though the Minister urges me to do so. These are important points, and I think my right hon. Friend would understand that I would not want to rush into anything without careful, considered thought. These are issues on which he and I—and the Minister, of course—might get together.

As I said, we need a bold, ambitious plan to ensure that every worker in this country can look forward to a retirement free from poverty and insecurity. That means looking again at contribution rates, the role of employers and how we support those who are excluded from the system.

Another omission in the Bill is the failure to extend the benefits of auto-enrolment to the self-employed. There are over 4 million self-employed people in the UK—people who are driving our economy, creating jobs and taking risks. Too many of them face the prospect of old age in poverty, with little or no private pension provision. Research by the Institute for Fiscal Studies found that only 20% of self-employed workers earning over £10,000 a year save into a private pension. With the self-employed sector continuing to grow, the Bill misses an opportunity to come up with innovative solutions for this underserved group in the workplace.

[Kirsty Blackman]

On auto-enrolment, the other missing group is those aged under 22. Auto-enrolment seemed to be set up with the view that people would go to university before entering the jobs market, but that is not the case for many people. It is possible that starting auto-enrolment earlier would mean much more adequate pension pots for people, because the earlier they save, the bigger their pot grows by the time they reach retirement.

[Mark Garnier]

The hon. Member makes an important point. The earlier people start putting money in, the better. As a result of compound interest, over many years they will end up with a bigger pension pot, even if at the beginning the contribution is quite small; the amount aggregates over a long period. We will discuss that in Committee.

We are concerned about the lack of detail in the Bill. Too much is left to the discretion of regulators and to secondary legislation. Parliament deserves to have proper oversight of these reforms. From my discussions with the industry, it seems there is tentative support for many of the reforms in the Bill. However, the message that keeps coming back is that the devil will be in the detail, so I hope that as this Bill makes progress through the House, the Minister will be able to fill in more of the blanks—and I am sure he will; he is a diligent individual.

I move on to the most important thing that this Bill hopes to achieve: growth. We want to support Labour Members on the growth agenda, but too often they go about it in slightly the wrong way. Surpluses in defined-benefit pension schemes are a great example. Interest rates have risen post-covid, and that has pushed many schemes into surplus. In principle, we support greater flexibility when it comes to the extraction of these surpluses, but there need to be robust safeguards; that is certainly the message coming back from the industry.

Under the legislation, there is nothing to stop these surpluses being used for share buy-backs or dividend payments from the host employer, for instance. Neither of these outcomes necessarily help the Government’s growth agenda. We would welcome a strengthening of the Bill to prevent trustees from facing undue pressure from host employers to release funds for non-growth purposes. In addition, to provide stability, the Government should carefully consider whether low dependency, rather than buy-out levels, will future-proof the funds, so that they do not fall back into deficit.

Although the Government are keen to extract surpluses from the private sector, there is not the same gusto shown in the Bill when it comes to local government pensions. The House has discussed in detail the Chancellor’s fiscal rules, not least earlier today. Under the revised rules introduced by the Chancellor, the measure of public debt has shifted from public sector net debt to public sector net financial liabilities. As a consequence, the local government pension scheme’s record £45 billion surplus is now counted as an asset that offsets Government debt. This gives the Chancellor greater headroom to meet her fiscal targets—headroom that, dare I say it, is shrinking week by week. I do not wish to sound cynical, but perhaps that is the reason why the Bill is largely silent on better using these surpluses. This may be a convenient accounting trick for the Chancellor, but the surpluses could have been used, for instance, to give councils pension scheme payment holidays. The Government could make it easier to follow the example set by Kensington and Chelsea, which has suspended employer pension contributions for a year to fund support to victims and survivors of the 2017 Grenfell Tower tragedy. These revenue windfalls could be redirected towards a range of initiatives, from local growth opportunities such as business incubators to improving our high streets. We could even leave more money in council tax payers’ pockets.

I turn to the part of the Bill on which we have our most fundamental disagreement: the provisions on mandation. The Bill reserves the power to mandate pension funds to invest in Government priorities. That not only goes against trustees’ fiduciary duties—although I appreciate and recognise the point the Minister made earlier—but means potentially worse outcomes for savers. Pensions are not just numbers on a spreadsheet; they represent a lifetime of work, sacrifice, and hope for a secure future. The people who manage these funds and their trustees are under a legal duty to prioritise the financial wellbeing of savers. Their job is not to obey political whims, but to invest prudently, grow pension pots and uphold the trust placed in them by millions of ordinary people.

That fiduciary duty is not a technicality; it is the bedrock of confidence that the entire pension system rests on. These pension fund managers find the safest and best investments for our pensions, no matter where in the world they might be. If things go wrong, we can hold them to account. But if this reserve power becomes law, we have to ask the question: if investments go wrong, who carries the can? Will it be the pension fund manager and the trustees, or the Government, who did the mandation?

Likewise, while the reserve power in the Bill focuses on the defined-contribution market, the shift in emphasis has potentially profound impacts across the sector. UK pension funds, along with insurance companies, hold approximately 30% of the UK Government’s debt or gilt market. If mature defined-benefit schemes move from the gilt market to equities, that potentially has a profound impact on the Government’s debt management, or ability to manage debt, and therefore interest rates and mortgage rates. For that reason, we would welcome the Minister confirming whether any concerns have been raised by the Debt Management Office, and possibly the Bank of England. There is widespread opposition from across the industry to this power—I am approaching the end of my speech, you will be pleased to hear, Madam Deputy Speaker. There are better ways for the Government to deliver growth, such as changing obsolete rules and removing restrictions.

In the annuity market, solvency rules prevent insurers from owning equity in productive UK assets. Wind farms, for example, deliver stable returns through contracts for difference and contribute to the Government’s green agenda. They could be an ideal match for long-term annuity investments, while also delivering clean energy. Releasing the limits on the ability of insurers to fully deploy annuity capital has the potential to unlock as much as £700 billion by 2035, according to research by Aviva. Rather than imposing top-down mandates, we want the Government to maximise growth opportunities from our pension industry by turning over every stone and seeking out the unintended consequences of old regulations, not imposing new ones.

I will conclude, Madam Deputy Speaker, as you will be delighted to hear. [Interruption.] Yes, I have taken a lot of interventions. We reaffirm our commitment to working constructively with the Government. Stability in the markets is of paramount importance, and we recognise the need for a collaborative approach as the Bill progresses through the House. We will bring forward amendments where we believe improvements can be made, and we will engage in good faith with Ministers and officials to get the detail right.

We want to go with, not against, the grain of what the Government are seeking to achieve through this Bill, and I look forward to working with the Minister in the weeks and months ahead.

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[Kirsty Blackman (Aberdeen North) (SNP)]

I start with an apology to the Minister, because I had a bit of a giggle when the timeline for pensions dashboards was mentioned. I have been here quite a long time, and I feel like we have been talking about pensions dashboards for that entire time. It has been suggested that they are just around the corner for most of the last 10 years. It feels like this is something that we rehash on a regular basis. It would be great if they really were just around the corner; I look forward to seeing them.

The right hon. Member for North West Hampshire (Kit Malthouse) will not be surprised to hear that our political ideologies are slightly different when it comes to interventionism and what the Government should or should not do. It is completely acceptable for the Government to give some direction on the largest assets, but I am specifically not talking about the LGPS, because it does not exist in Scotland. That part of the Bill does not apply to my constituents, so I will not touch too much on that.

[Kit Malthouse]

I understand where the hon. Lady is coming from. She is keen on Government intervention in our pensions, but does she recognise that that represents a fairly significant transfer of investment risk, and that the Government should underwrite that risk in all fairness to pensioners, who may lose money as a result?

[Kirsty Blackman]

Auto-enrolment was a fairly substantial intervention by the Government in pensions. Since 1997, pensions have had to increase in line with inflation, and that was an intervention by the Government. There has been a long trail of interventions by the Government in how assets are managed and where they are held, but pension trustees are still required to get a return. I agree with the right hon. Gentleman about specific projects, and I would be particularly concerned if we were looking at specific projects, but the mandation relates to UK assets, and the funds in which they could be invested.

I would love to see much more investment of pension funds in social housing, for example, where the trustees can get a pretty great return, but they will still have a fiduciary duty and responsibility. For defined-benefit schemes, the member will always get what they have been promised they will get. No matter how the fund is managed, they have a defined benefit from the scheme, unlike in a defined-contribution scheme, where it depends on the size of the pot as it grows—but I am going to carry on, because I have a lot to cover that is not to do with mandation, and as I say, the LGPS does not apply in Scotland.

On value for money, I think the Bill is good, because comparing pension schemes is difficult. Comparing any financial schemes is difficult because they are all laid out in different ways and the fees are calculated in different ways, so it does not make sense to most people. Some of stuff on requiring the publication of information on value for money in certain ways is important, and the surveys are also important. I have slight concerns about the chapter on value for money because, in comparison with the small pots consolidation section, there is no requirement to publish the regulations in draft before they actually become regulations. There is a requirement for consultation, as there is in both those chapters, but not a requirement for publication in draft. I think it is important for those to be published, so the widest possible range of views can come forward, because value for money is so important for such a wide range of people, whereas some of the other stuff in the Bill is much more technical and will have an impact on far fewer people. The point about publishing the regulations in draft is important.

I am disappointed that the Government have not made more moves on adequacy, but given where we are in the cost of living crisis, I can understand why it may be difficult to get cross-party political consensus on the creation of adequacy provisions. This Bill could have taken more of a look at pensions in general, rather than being about pensions specifically, because in a lot of ways the Bill is seeking to do is improve every individual’s pension pot’s potential for growth. That is an admirable aim, but some of the larger picture could have been included—for example, in relation to auto-enrolment, the under-22s and people earning small amounts of money who do not qualify.

The right hon. Member for Salisbury (John Glen) alluded to the mid-life MOT, which I have previously shouted about. I agree that people should be sent an appointment for a mid-life MOT, in the same way as they are asked to get their bowel cancer screening sent through the post. It should be exactly the same with a mid-life MOT, which is so important, but so many people duck and dive about it. Millennials are coming up to reaching this point, but millennials are a generation particularly averse to thinking about retirement, because we do not think it will happen to us. We think we will die before we get there, because there is an incredible amount of cynicism among millennials. We tend to avoid thinking about it because we are not going to reach that point, so forcing millennials—in the nicest possible way—by giving them such an appointment and making it for them means they are much more likely to undertake it.

On guided retirement, again I think the Bill tackles the issue pretty well by ensuring that people have more information. I am particularly concerned about the people who draw down the 25% tax-free sum of money, and then do not have a plan for the rest of it. How many of them have just thought about the 25%, and have not thought about the rest of it, or about how complicated and unpredictable annuities can be depending on the year? I am thinking about somebody I know who does not smoke or drink and runs 10 km a couple of times a week, but they will get a smaller annuity than somebody who does the opposite. Do people know how unpredictable it is—how much they will get and the fact that they cannot tell from what the pot looks like the actual outcome to cover their living expenses? Any kind of understanding people can be given about that is really important. I do still have concerns about some of the issues with freedoms and how financially disadvantageous it can be for a significant number of people.

I agree with some of the stuff on the consolidation of small pots. I have a concern about the fact that the Secretary of State or the Minister can make changes to the definition of small pots by looking at some consultation and then bringing a statutory instrument to the House. I would appreciate some clarification, and agreement that the Minister will consult pretty widely before taking a decision about changing the definition of small pots in secondary legislation.

On surplus release, I would disagree with a chunk of the Conservative Members who would use it for slightly different things. I press the Minister on the balance between the economic growth mission and what employees will get as a result of surplus release. I am pleased to hear that trustees will have some flexibility, but I am concerned that that creates a system with a number of tiers, because it depends on how passionate the trustees are about helping the employees or helping the Government’s growth mission. I would ask for some guidance from the Government about what they expect. When they are making that deal with employers, they have to agree with the employer where that money will go—how much of the money will go to increasing the pension pots and how much into people’s salaries. There will need to be a significant amount of guidance for trustees on where the Government expect money to go. It would be appreciated if we could be involved in the creation of that guidance, or at least be consulted on what it is supposed to look like.

On megafunds, there is a bit of a “wait and see” on what megafunds, both master trusts and the superfunds, will look like and how they will pan out. I can understand looking at other places the Government consider to be successful in how pension funds are managed and the very large investments that could be created as a result of huge funds. I appreciate that overheads can be reduced and that funds can be run more efficiently as a result, and that investments can be made into very large, long-term patient capital projects if the fund is significant.

My specific question on superfunds is about new entrants to the market. The Bill states that there is an ability for transitions. Organisations likely to meet superfund status at some point, given a certain amount of time, will be given slack until they can reach that status, which is utterly sensible. But then it talks about new entrants coming in to become a superfund. There is a pathway and the ability to get approval to do that, but only if they are innovative. I am slightly concerned about what innovative means, because it is not defined—I think it will be defined in secondary legislation. Why should they be innovative? Surely, if a new entrant is excellent, that should be enough? Innovative concerns me. I do not really understand what it means, or why it is in the rules for new entrants. Anything the Government can say to explain what they think that is supposed to mean, and what they intend it to mean in the secondary legislation, would be helpful.

On the whole, the SNP is cautiously optimistic about the Bill. We believe there need to be some changes and we have specific questions in various areas, such as: on the rationale in relation to mandating; on the rules on value for money and how they will impact individuals; and on the consolidation of small pots and how they will ensure individuals have better outcomes. It is not in the Bill, but ensuring the pension dashboard happens so that people can see the consolidation of small pots happening in real time would be incredibly helpful. The best outcome we can get is for everybody to have an adequate pension when they reach retirement. We will not get that if people cannot see and cannot understand what they have in their pensions and if those small pots are not consolidated.

[Several hon. Members rose—]

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[Mr Peter Bedford (Mid Leicestershire) (Con)]

Cross-party working is essential to ensuring that there is public confidence in a system we will all need to use in our twilight years. That is why Conservative Members are ready to work constructively to improve this legislation and, where necessary, to provide a “critical friend” approach and challenge the Government’s thinking. When it comes to pensions and the long-term financial security of our constituents, we should not play party politics. It is in this spirit that I raise my own concerns with the Bill.

The Bill does not focus enough on increasing the amount of money flowing into people’s pension pots—something we literally cannot afford to ignore. I am proud that it was the last Conservative Government that led the introduction of auto-enrolment—a significant pensions reform that dramatically improved individuals’ financial wellbeing in later life. The 8% contribution was a game changer. Yes, the system relies on inertia, but for the first time, millions of workers began saving for their retirement. We must now confront an uncomfortable truth: the contribution rate looks less adequate by the day. Too many of our constituents are heading towards retirement without the income they will need. For example, the Pensions Policy Institute has highlighted that 9 million UK adults are currently under-pensioned.

Inaction is not an option. We are allowing people to sleepwalk into a retirement crisis. The level of auto-enrolment contribution was never intended to be a silver bullet. Instead, it was conceived as a foundation or starting point for pension savings. Importantly, that foundation was once supported by two key pillars: defined-benefit schemes, which offered guaranteed incomes to many, and higher levels of home ownership, which provided an asset to fall back on in later life. Both have eroded significantly over the last two decades. The 8% auto-enrolment rate on its own is woefully inadequate, and many workers will not realise that in respect of their own financial circumstances until it is too late.

It would be all too easy to simply raise the auto-enrolment rate to some arbitrary level, but we would find ourselves back here in 15 years’ time having the same conversation about a system where inertia and disengagement continue. If we truly want lasting change, we cannot focus solely on the percentage; we need to dramatically improve how people engage with their savings. That starts with improving financial education. As the sponsor of a private Member’s Bill on this precise topic and as a chartered accountant by background, this is a cause on which I place great importance. Shockingly, though perhaps unsurprisingly, Standard Life has highlighted that three in four people do not know how much they have in pension savings. That needs to change through increased engagement, but also by allowing savers increased control over their own savings. People should be able to easily view all their pots in one place, which is why it is frustrating to have seen delays to the roll-out of the pensions dashboard, which many hon. Members have mentioned.

The pensions dashboard will encourage individuals to make active choices, to understand their options and to assess whether their current savings are enough for their desired lifestyle in retirement.

[Kirsty Blackman]

On that note, does the hon. Member agree that we should also make it easier for people to understand what a defined-contribution scheme pot actually means for them in retirement—that is, how much income it will get them on a monthly or annual basis, rather than just, “This is the value of the pot”?

[Mr Bedford]

The hon. Member makes an important point. That goes back to financial education and ensuring that people truly understand their pensions and savings.

Increasing savings is important, but we need to ensure that it is driven by individuals who understand and can shape their own financial futures. Other countries have looked at increasing incentives for saving. South Africa and the US have schemes that enable people to draw from their pension pots in tightly defined circumstances, such as for emergencies or investment opportunities. Such flexibility would increase confidence in pension savings and help address the other concerning fact that 21% of UK adults have less than £1,000 set aside for emergencies, leaving them susceptible to economic shocks outside of their control and, in turn, less likely to prioritise savings in their pensions.

Poor pensions adequacy does not just harm retirees; it has serious implications for the state. As our life expectancy continues to rise, the state’s pension bill will continue to increase. Benefits like pension credit will increase exponentially as the lack of adequate private provision leaves more and more relying on the state. As we saw just last week, it is often incredibly hard to reform welfare. As a Conservative, I believe that the answer lies in personal responsibility and in encouraging and helping people to build up their own private pension provision for the benefit of themselves, their family and, ultimately, the rest of society.

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[Andrew Western]

The right hon. Gentleman is correct in his interpretation, although I do not entirely agree with his characterisation. It is, I think, perfectly reasonable that we would ask trustees to explain how they feel that what is proposed would be to the detriment of their scheme members.

I welcomed the support of the Liberal Democrat spokesperson, the hon. Member for Torbay (Steve Darling), for many of the general proposals in the Bill. I entirely agreed with his comments about the need to give savers the best possible advice and protections. I also agreed with what he said about the opportunities to deliver further investment in our economy. As for social housing, which others also raised, he will know that many pension schemes already make such investments, and I certainly support their continuing to do so.

We then heard an excellent speech from my hon. Friend the Member for Tamworth. I particularly welcome her comments on the value-for-money changes, and she is absolutely correct to highlight the importance of looking at schemes in the round, not just on cost. On the pipeline of investments that she set out, I hope she is reassured by some of the steps that the Government are taking—for instance, through the Planning and Infrastructure Bill—to ensure that there are a range of exciting major projects, such a reservoirs and houses, that people will be able to invest in.

The right hon. Member for North West Hampshire (Kit Malthouse) is certainly correct to say that he punctured the air of consensus in outlining his reservations. I know that my hon. Friend the Pensions Minister has agreed to have a conversation with the right hon. Member next week, and I hope that he will find that incredibly helpful. Clearly, it is not for me to comment on whether this should be a hybrid Bill. On the question of megafunds, he is right that not all large schemes provide a better return, but the evidence shows that while that is not always the case, they do see better returns on average. That is an important point.

The hon. Member for Aberdeen North (Kirsty Blackman) was correct to raise how long we have been waiting for the pensions dashboard, and I am similarly excited and anticipate its arrival. I promise that it will be worth the wait when it finally arrives. On her point about the scope of the Bill, the pensions review will take forward a number of the issues on which she and other Members said the Bill could have gone further. The pensions review is under way, and we will say more about that incredibly soon.

[Kirsty Blackman]

On the pensions review, there is a massive cross-party consensus that there is an issue with its adequacy, and we want to see it tackled. Will Ministers agree to take this forward in as cross-party a way as possible? We all care strongly about it.

[Andrew Western]

This matter is important to everybody in this House, because it is important to the constituents of everybody in this House. I would be very open to ensuring that Members of this House are able to feed as much as possible into the pensions review. It is an incredibly important piece of work.

I return to the question of my age. As a millennial, I am terrified of admitting that I have now reached an age when I should be thinking about my pension, having just turned 40. In any event, some of the work around the consolidation of small pots and so forth will help people.

A number of Members have asked about the balance of the distribution of any surplus release, and it is ultimately for trustees to decide on that balance. On the point made by the hon. Member for Aberdeen North about potential guidance coming forward—the hon. Member for Mid Bedfordshire (Blake Stephenson) touched on this as well—that is something that I will discuss with the Minister for Pensions. It may well be teased out in Committee.

I hope that the hon. Member for Spelthorne (Lincoln Jopp) will be a member of the Bill Committee and continue the dialogue with the Minister for Pensions. I am always keen to find volunteers, and I hope that he will put himself forward. On the question of regulatory decision making, I hope that the Pensions Regulator has heard what he said about pace.

On the issue of divestment from funds that invest in fossil fuels and so forth, it is a matter for trustees. Individual flexibility on investments is a cornerstone of the system, but we are consulting on UK sustainability reporting standards and on transition plans.

Finally, we heard from the hon. Member for Strangford (Jim Shannon)—we always save the best for last. I am very grateful for his support for the Bill. If he was not 18 yesterday, I am sure it was the day before. None the less, I wish that everybody had a mum like his. We may not have had some of the challenges with the adequacy of people’s pensions had they all received such superb advice from their parents at the age of 18.

Today we embark on a transformative journey with this Pension Schemes Bill. This legislation underscores our readiness to deliver fundamental changes to the pensions landscape, an endeavour that is not only urgent, but essential for driving a future in which savers and, indeed, our economy can derive the benefits of a better organised, less fragmented and easier to navigate pension system, and I am pleased by the widespread support for the Bill across the House.

Question put and agreed to.

Bill accordingly read a Second time.

Pension Schemes Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Pension Schemes Bill:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 23 October 2025.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill may be programmed.—(Andrew Western.)

Question agreed to.

Pension Schemes Bill (Money)

King’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Pension Schemes Bill, it is expedient to authorise the payment out of money provided by Parliament of—

(a) any expenditure incurred under or by virtue of the Act by the Secretary of State, and

(b) any increase attributable to the Act in the sums payable under or by virtue of any other Act out of money so provided.—(Andrew Western.)

Question agreed to.

Pension Schemes Bill (Ways and Means)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Pension Schemes Bill, it is expedient to authorise—

(a) the levying of charges under the Pension Schemes Act 1993 for the purpose of meeting any increase in the expenditure of the Pensions Regulator attributable to the Act;

(b) the amendment of section 177(5) of the Pensions Act 2004 so as to increase the limit in that provision on the amount that may be raised by pension protection levies imposed by the Board of the Pension Protection Fund.—(Andrew Western.)

Question agreed to.

Pension Schemes Bill (First sitting)

Kirsty Blackman Excerpts

Committee stage
Tuesday 2nd September 2025 Public Bill Committees

[The Chair]

Before we hear from witnesses, does any Member wish to make a declaration of interest in connection with the Bill?

[Kirsty Blackman (Aberdeen North) (SNP)]

If the Government amendments in relation to the local government pension scheme go through, I have an interest as I am a deferred member of a local government pension scheme in Scotland.

[Rachel Blake (Cities of London and Westminster) (Lab/Co-op)]

I also wish to declare such an interest.

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[Steve Darling (Torbay) (LD)]

Q We have already had some exploration of mandation and other opportunities around getting greater investment within the United Kingdom. I would welcome some more drawing out of how investing in UK opportunities could be amplified without the need for mandation.

Rob Yuille: We have both mentioned the Mansion House accord already. In addition to the ambition to which providers committed, there were a series of critical enablers. Several of those are in the Bill already—thank you for that—including value for money and the drive to consolidation. But there were other things in there as well, including the need for alignment by the Department for Work and Pensions and the Financial Conduct Authority of their rules and guidance in relation to the charge cap pipeline of infrastructure projects, which I know the Government are proceeding with separately; and the need to ensure that the whole market buys into the value-for-money framework. In the pension investment review, Government did not take forward regulation of intermediaries—employee benefit consultants and so on—and we think that they could keep that under review.

The Government are seeking to take other steps that will evolve over time, such as crowding in investments. There are examples such as the British Growth Partnership and the LIFTS scheme, where the Government are either convening or investing alongside providers, which we would like to see more of. Outside of DC, as has been mentioned already, it is about working with annuity providers on eligibility for certain assets.

[Kirsty Blackman]

Q There is a question around surplus release, and the power of trustees in relation to surplus release. It makes sense that there should be surplus release, but trustees may feel under pressure from employers to release the surplus when it might not be the right thing for scheme members. Do you think the Bill has got that balance right? How can that be monitored to ensure that trustees are not pressured when it is not the right thing for scheme members?

Rob Yuille: The most important thing is that trustees do have the power that is in the Bill—that power should stay there. Conflicts of interest were mentioned earlier; it is interesting what surplus release could do to make occupational schemes more like commercial schemes. With master trusts, commercial schemes and superfunds, if pension schemes could be run for the benefit of the employer by taking surplus, that gives rise to a different relationship and potential conflicts. The Pensions Regulator needs to be alive to that. In any case, TPR is becoming more like the FCA and the Prudential Regulation Authority as a regulator, and I think that needs to continue.

[Mr Peter Bedford (Mid Leicestershire) (Con)]

Q Many aspects of the Bill command cross-party support, but I want your view on where the Bill does not quite go far enough, and where it perhaps goes too far.

Zoe Alexander: I would probably lean towards talking about the local government pension scheme in that context. There are some parts of the Bill where we feel powers are being taken that may not be required; one is around requiring funds to choose a particular pool, and one is requiring particular pools to merge. We think that the LGPS is moving in a very positive direction. Obviously two pools have been closed, and funds are merging with other pools already. We are not sure that those powers are actually required. We think that the direction of travel is set and that the LGPS understands that, so we feel that those powers might be overstepping the mark.

Rob Yuille: I have no view on local government. I think what I am about to say should have cross-party support, or at least cross-party interest. It is a macro Bill about how the market and the system work, but it is also about people and the decisions that they need to make. We are glad to see the small pots provision in the Bill, but it is on an opt-out basis, similar to the default pension benefits solutions. People have decisions to make, such as whether to stay in or not, and they need to be supported in the decision making. We are proposing a textbook amendment that would enable schemes to communicate electronically in a way they currently cannot and in a more positive way—even where people did not have a chance to opt in to that kind of communication, which is seen and regulated as direct marketing. We know that there is cross-party interest in the ability to communicate more clearly with customers, specifically in relation to those provisions.

--- Later in debate ---

[John Milne]

Q Do you think that the finance industry has a clear understanding of how to apply its fiduciary duty? Do you think the Bill makes that clearer or muddies the waters, or somewhere in between?

Patrick Coyne: I think that fiduciary duty is a powerful force for good. Across the Bill, this is about giving those trustees the tools for the job. I think there are a number of areas where that is true. Within the value for money framework, at the moment, it is very difficult for employers or schemes to effectively compare performance. As an anecdote, I was speaking to a provider recently. They were pitching for new business. They came in and pitched their investment data, and the employer said, “You’re the third provider today that has shown us they are the top-performing provider.” That cannot be right.

Then, when you are looking across the Bill towards the DB space, because of the funding reality that many schemes are facing at the moment, there is choice in end game options—so, “How do I enhance member outcomes at the same time as securing benefits?” Actually providing a statutory framework for super-funds as another option is a good first step, as is allowing the release of surplus, if it is in the members’ best interests to do so.

[Kirsty Blackman]

Q I have a question about the balance of decision making. Trustees are obviously required to steward and grow assets on behalf of scheme members. This Bill slightly changes the priorities in relation to value for money. There is potential for future mandation, in that it basically allows the Government, or the regulators, more say in what direction trustees are taking. In practice, it is relatively difficult for scheme members to influence decisions that trustees take. My reading of the Bill is that it does not increase scheme members’ power over the direction. For example, if they wanted to disinvest in something, or if they felt strongly about investing more in UK assets, they will not have any more power to do that. Am I correct in my reading of that? Do you feel that some scheme members feel that they should have more influence over what trustees do and the direction of travel?

Charlotte Clark: It is a good question. It is hard to get over the fact that the vast majority of people are very inert in the pension system. Of course, there are some who are not, specifically around ESG—environmental, social, and governance—investments, but most trustees take those things into account, and there has been clarification about how that aligns with things like the fiduciary duty. Obviously, within the contract-based scheme, there frequently are options, if somebody does not like something that is invested in within the default, to have their own investment strategy, if that is what they choose to do. Do I think this Bill changes that? I do not think so. I think what the Bill is essentially trying to do is use the power of scale and collectivism to get better returns and, really, a better service for most savers.

[Kirsty Blackman]

Q Do the majority of trustees already take into account what they think scheme members would think about certain investments anyway, or about ESG, for example?

Charlotte Clark: Almost certainly.

[Luke Murphy (Basingstoke) (Lab)]

Q I want to ask about Unison’s point about LGPS funds requiring equal member and employer representation on boards—I should declare an interest as a member of said trade union. According to Unison, the Bill will mean a lack of member voice on LGPS board governance. I wonder how you respond to that criticism?

Patrick Coyne: TPR’s responsibility is not for the asset pools, which are FCA-regulated entities, but we do have responsibility for governance across public sector schemes, including LGPS funds. It is really important to recognise the member voice within good decision-making, as Ms Blackman’s question indicated, but there are a number of ways to do that within standardised corporate governance boards and reporting functions, and that is something that we would look to explore over the coming months. With the LGPS boards, like the rest of the Bill, there is the ability, through greater scale, to start hiring better colleagues, introduce better systems and processes, and put in place better governance practices, and we would expect to see that come to pass.

Pension Schemes Bill (Second sitting)

Kirsty Blackman Excerpts

Committee stage
Tuesday 2nd September 2025 Public Bill Committees

[David Pinto-Duschinsky]

Q Clearly you are talking about a large administrative challenge, but also about building capacity. We know the funds need capacity to raise their investment sophistication and their ability to invest in a broader set of assets. What do you think the minimum efficient scale for this is, and how quickly could the pools get there?

Robert McInroy: At the moment, there are eight pools across the £400 billion-ish of assets. I believe the plan at the moment is to reduce that to six. You would imagine that that gives a big enough scale. Some of those pools will be £100 billion-plus; that should be able to punch its weight internationally, I would imagine. The LGPS itself is of course open to accrual and to new members joining, so that is just going to grow over time. In some ways, I think these reforms set the plan for the future as the scheme continues to grow.

[Kirsty Blackman (Aberdeen North) (SNP)]

Q I am pleased to hear you talking about what scheme members want, not just in terms of the return that they are expecting, but also the projects that are invested in.

My question is about consolidation and local concerns that people might have. For example, they may not want a wind farm invested in because they are worried about the infrastructure that goes alongside that. If there is consolidation, will that remove the ability to take account of local concerns and to find great local investment opportunities? Will it dilute the input that people have locally, because it is taking it further away from them, or do you think it will be okay?

Councillor Phillips: As we already know, the establishment of the pools does take it away. There is no denying that. The important thing is to have member representation on pools. The scheme advisory board has always been supportive of that, although you need flexibility in how you do it; I certainly would not go for 50:50, because of the governance and regulatory responsibilities that the administration authorities have. I think Border to Coast particularly has employee representatives on there, and that works very well. In particular funds, you will have representatives on the committee and on the pension board. That is always important.

Getting the right engagement is always going to be a struggle, with all the rest of it, but, particularly with some of the ESG issues, that helps to better understand some of the issues. Of course, elected members that sit there are representatives of their community as well. They are aware as well. They are also aware that when they sit at the table on a pension, they have a responsibility first and foremost to that pension.

[Kirsty Blackman]

Q Obviously, there is a mix of people on some of these boards that you would not necessarily find on other trust boards. I have been a councillor, so I am well aware of the different directions you are pulled in if you are a councillor or an officer in local government. Are boards able to find enough engaged members to be on them who have got enough skill? You were also talking about training and ensuring that they are better trained; is that something that you are working on currently?

Councillor Phillips: Absolutely. We laid recommendations from the board before Government some time ago. They have now been implemented and rolled out, and that is very much a crucial part of all of this. The headline is all about the pooling, but the Government’s changes, and training and developing your members, are absolutely critical because of the important decisions that they make.

--- Later in debate ---

[Kirsty Blackman]

Q On that last point about paying the surplus to scheme members—I am afraid we have had a massive pile of evidence—is that written in any of the evidence there, along with a suggestion of how to go about it?

Helen Forrest Hall: Yes, I think at least one of us has something, but we can certainly provide more details if that would be helpful.

[Kirsty Blackman]

Thank you, that would be really helpful.

[The Chair]

If there are no further questions from Members, can I thank the witnesses for their evidence this afternoon? We will move on to the next panel. Thank you very much for your attendance.

Examination of Witnesses

Patrick Heath-Lay and Ian Cornelius gave evidence.

--- Later in debate ---

[David Pinto-Duschinsky]

Q Patrick, we have heard loud and clear your message that getting the value for money framework right is at the core of this. The Bill aims to put that on a sound footing. Which elements are required to get it right? How do you think the Bill will help to build them up?

Patrick Heath-Lay: As a package, the Bill brings forward the concept of value for money in a general sense. We need to move the conversation in our industry, particularly the conversation around workplace pensions, to the subject of value. We are all here to deliver value for members. The bit that always gets a lot of conversation is what value really means, but you cannot walk past the three fundamental drivers of a pension proposition, which are the investment return we give our members, what we charge them for it, and how our service shows up for them, probably in those moments of truth when they need us for guidance. Those are the three core elements to value, which we should not walk past.

We see this as an incredibly important area. I certainly believe that we should try to get this right as an industry, as best we can, from day one, because I think that it will be an important measure that we—regulators, Government, everyone—will lean on to understand how these reforms are playing through.

As an organisation, we have led a pound-for-pound initiative that others have joined. We brought in expertise from Australia, which is about 20 years ahead of us, and brought together a group of providers that are effectively going to dry-run some value for money measures and utilise that concept to provide some findings to regulators and Government that will hopefully help the iteration of our value for money framework. We really do see this framework as an important area, and I would like to see those three elements at its core.

Ian Cornelius: The focus on value has to be the right thing for our members. That is what they care about; that is what we are here for. There is some complexity to work through, such as how you measure value and what timeline you measure it over. Quite lot of engagement is required. We are piloting and trialling it; we almost certainly will not get it right the first time. It will be important to make it as practical and simple as possible. As Patrick said, it has real potential, in combination with the rest of the Bill, to shift the focus from cost to value. In the past, there has undoubtedly been too much focus on cost and not enough on value.

[Kirsty Blackman]

Q This is about people who do not get financial advice, which is the vast majority of people, and their understanding of pensions and what they are likely to get. On a DB scheme, you get an annual statement that says you will get x amount a month or x amount a year. On a DC scheme, it is more like, “This is your total pot.” As everybody’s circumstances are different, they have no idea what that might actually look like if they were to get it on a monthly basis. I appreciate your positive words about the guided retirement and the targeted support. Do you think there is potential in the future for moving towards ensuring people get that advice earlier, so they can ensure the sufficiency of their pot, as well as ensuring that they are making the right decisions when they take that pot?

Ian Cornelius: It is definitely desirable. One of the challenges with auto-enrolment is—it is a positive and a negative—that people are not engaged. Inertia has worked really well, but you have to work to engage them to make sure they are contributing the right amount, thinking about what they will need in retirement and thinking about their circumstances. For example, at NEST, only 40% of our members are registered with us online, so we have a really big job to play to engage more of them, get them to register, and get them accessing the tools and support that are available to deliver the best outcome for them. It is our fiduciary duty to do that. There is a lot more that we can, need and want to do in that space. Guided retirement is a big step forward. Targeted support would be helpful. There is a big challenge for the whole industry there.

Patrick Heath-Lay: I agree. As this unwinds, we should think a little bit more about how engagement will help. It certainly is a big driver. Both the introduction of these propositions and the guidance and targeted support we can provide through those processes will be important, but we also have to accept that even in the most mature economies’ pension systems, people still do not engage very closely on this. Even when they do, they find it incredibly difficult to interpret what they are being told. How many people can do good compound interest calculations, for example? It is sometimes mind-boggling what we expect people to know. There has to be more onus on us through those processes, as an industry, for the guidance that we provide and the obligation on us to enable effective, accountable support to be there. There is much more, and this Bill goes a long way to enable us to do that.

[Kirsty Blackman]

Q In relation to investments and some of the stuff that was not invested in historically, if we are talking about renewable projects and affordable housing—things that, historically, pension funds have maybe not invested in—you said that investing in these projects is a problem for smaller companies until they build up that level of scale. Are there other barriers? Are there legislative barriers, or other barriers—maybe finding schemes to invest in—that you or other companies could do with additional help in overcoming?

Ian Cornelius: Having a strong pipeline of investable assets is key. There is no doubt about that. Patrick touched on this earlier: one other inhibitor has been cost. It is actually quite expensive to invest in private assets. One of the things that NEST does successfully is to drive that cost down, but that is a barrier. The focus on cost rather than value in the past made it harder. The Bill shifts the focus towards value, which will be really helpful. There are a number of challenges that the bigger you are, the easier it is to work through. The Bill as a whole will therefore definitely be helpful, but collaboration with Government and across industry should help to unlock more of those attractive private market opportunities.

Patrick Heath-Lay: I have previously discussed this with the Minister. There is a role for Government to play here. It was even acknowledged within the Mansion House accord that this is for the benefit of savers, and there is a role for all of us to play in finding those efficient routes to deploy that investment through. The problem right now is not whether there is investment to come; there is. The Mansion House accord has created that. There is a wall of capital potentially available. The issue is connecting it in the right way with the investable opportunities—not only the planning and whatever is needed to create those investment opportunities in the first place, but the routes of access and the investment vehicles used. There are further conversations to be had about how we can do that as an industry. Efficient deployment is probably the biggest challenge for us as an asset owner in ensuring that we are sharing that benefit back with members.

[John Milne]

Q Auto-enrolment is a great success story. It has certainly got lots more people investing in a pension than would have done otherwise. However, the fact remains that large numbers of them are nowhere near on course to have a reasonable pension in retirement. Small pot consolidation helps, but we have to admit that it is going to be a modest contribution to solving that problem. Do you think we are missing a trick in the Bill? Is there something else that could or should be there to help—or is that a job for another day?

Ian Cornelius: That is where we welcome the Pensions Commission. It has been set up to actively look at adequacy: what is right, and are people saving enough? There is no doubt that many people are not saving enough and there are a lot of people who are still excluded from retirement savings. There is a big issue and challenge with the self-employed. There is a challenge for the industry and the Government to work on, but the Pensions Commission creates the right environment to do that. Auto-enrolment has been a big success, but it is only a job half done. Completing that job through the Pensions Commission is incumbent upon the Government and industry.

--- Later in debate ---

[The Chair]

I call Kirsty Blackman. Very quickly, please.

[Kirsty Blackman]

Q In relation to private assets and the investment in them, is the balance between carrots and sticks correct in the Bill, or should more carrots, for example, be provided to encourage that investment?

Tim Fassam: That is another very good question. As the previous witnesses said, it is important to ensure that there is a pipeline of assets coming to us. A lot of what the Government are doing with the national wealth fund and the British Business Bank is helping with that. We would like to see—we would say this, wouldn’t we?—a little more focus on insurance versus banks. Banks are a vital form of capital—I am absolutely not suggesting they are not—but there is a skew towards banks. A few more insurance experts in the national wealth fund, and ensuring we have that pipeline of investable assets, could be valuable.

We are very lucky in the UK that we have fantastic start-ups, and amazing universities that are generating brilliant ideas. What we really need is scale-up capital. At the moment, about 70% of firms that need major scale-up capital go overseas for it, and then their head office moves. We need to make sure that we have an attractive environment for those firms to stay in the UK, and that is where scale comes in. A number of witnesses have talked about the benefits of economies of scale and professional asset management capability. That is absolutely right; they are critical benefits. One of the less discussed benefits is if you want to—

[The Chair]

Order. I apologise for the interruption, but that brings us to the end of the time allotted for the Committee to ask questions of this witness. On behalf of the Committee, I thank the witness for their evidence this afternoon.

Examination of Witnesses

Michelle Ostermann and Morten Nilsson gave evidence.

--- Later in debate ---

[The Chair]

We are not quite out of time, but I am going to call other Members to ask questions of the panel. I call Kirsty Blackman.

[Kirsty Blackman]

Q Thank you very much for all your hard work on this, for your passion and for how articulate you are, particularly for those people that cannot be there and cannot make the case themselves. I really appreciate it. I absolutely agree with what you are saying on indexation; I think it is incredibly important. You were talking about the people that would benefit from these changes. Are they overwhelmingly well-off people, or are they people that are really struggling because of the lack of indexation, and who would therefore be more likely to spend the money and to grow the economy by spending their money, if the Government are worried about balance sheets?

Roger Sainsbury: I have to say that there is a great range.

Terry Monk: I cannot remember what it is, but the average FAS member’s pension is something in the order of £4,000 or £5,000 a year, and if you look at the steelworkers, because they are our example, it is those sorts of guys. I worked in the City. I had a different job, but the majority of the people in the scheme had good benefits and good salaries but their pensions were important and they reflected the role they had in their life. I am not sure off the top of my head, but I think the average of the FAS pension is £4,500—some more, some less, obviously.

I want to make a point that I think Roger mentioned: at one stage, we were not at the table to talk as part of the pensions Bill. We lobbied hard. I know some of you have definitely put forward amendments to the pensions Bill to ensure that pre-1997 becomes part of the pensions Bill, which is why we are here today, but we had to work hard just to get that.

[Sarah Edwards]

Q I am interested in exactly what you were saying around the two-tier element, partly around the challenge of the fact that there are people who have got the full recompense or equivalent, and you have not. Do you feel that this is an opportunity to change that dial and set the record straight? Obviously, an amendment has been tabled. I recognise that; I just wanted to get a bit more from you on the fact that there are people who are in a completely different situation, and I just wanted you to build on that point that there are two sides to this. Some have not lost and some have.

Terry Monk: FAS stopped when PPF opened its doors in 2005, so most of the people in FAS did not have much opportunity to accrue any increasing benefits post 1997. The majority of them are old—the average age of the FAS member is now 73, which is much younger than I am. It is that age group of people who would really benefit, and their widows and their spouses—let us not forget them—and they would therefore spend money that they currently do not have to spend. They can afford their council tax. They can afford their heating. It would change their lives, in terms of feeling that they have achieved this success on their behalf and on behalf of the members.

Roger Sainsbury: I would like to talk a bit about the concept of an amendment. We have observed that one amendment has already been offered: new clause 18 suggested by Ann Davies MP. Our team and I have had a bit of a look at that in the last couple of days. While we very much appreciate her good intention in putting the amendment forward, it actually does not do the job in a number of respects. I do not know how many of you have ever grappled with the obscure and complex language of schedule 7 to the Act, but it is mighty complicated. Some time ago, I and my team spent several days trying to work out what an amendment should be to deliver what we wanted. I have got some first class people on the team, but in the end we decided we actually could not do it, and would have to leave it to the expert drafters in the Department.

That is yet another reason why—I mentioned it in the written evidence—at a meeting I have already asked the Minister if he would himself table the requisite amendment. When you come up against the sheer complexity that Ann Davies has obviously already come up against, this is another reason why we think that would be a very good idea. It is slightly unusual for a Minister to table an amendment to his own Bill, but it is permitted, as the Minister said when I was talking to him about it. In a complex situation like this, it would absolutely be the best way of getting straight to the desired answer, so I plead with all of you to join me in urging the Minister to take this on.

--- Later in debate ---

[Steve Darling]

Q I have two key questions. We have heard repeatedly in evidence today about questions to do with secondary legislation and guidance. As we go through the Bill Committee and further stages, what confidence do you have as Minister that you will be able to give some clear signalling to the industry about what is likely to be in that guidance and legislation, to drive the confidence it needs in the short to long term?

The other area that I want to ask about relates to the information that we heard from Nest: only 40% of its members had signed up online. That demonstrates that the issue is about getting positive engagement from those who are perhaps less financially secure. Are you confident that we are doing all we can through the Bill to help those who are most financially challenged? How are you going to hold yourself to account as we proceed to ensure that that is the case?

Torsten Bell: Those are great questions. On regulations, you are absolutely right. This pensions Bill, like most recent ones—although there have been exceptions that have come with unintended side effects, to go back to what was just mentioned—does rely heavily on secondary legislation. My view is that that is the right thing to do and is almost in the nature of pension schemes. That is partly because the detail should rightly be consulted on and partly because things will change in the context.

You are right that there is a large reliance on secondary legislation. Yes, in some areas, as we go through the detail, clause by clause, we will be able to set out to you where our thinking is up to. In lots of cases you will already see consultations by the FCA and TPR, starting to develop the work that will then feed into the regulations—that is particularly true, for example, on value for money, which we have just been discussing. I also think that it is important for us to provide clarity on when we will bring forward those regulations and when we will consult on the input to them, so that people know that. That was why, when we published the pensions reform road map, and when we published the Bill itself, I set out when we anticipate bringing forward those regulations so that everyone in the industry and in the House can see when that will happen. Page 17 of the road map sets out how we envisage that happening, and it is absolutely right. When we come to the clause-by-clause discussion, there will certainly be things where we will not be able to say, “This is exactly what will happen,” and rightly, because there needs to be further consultation with the industry on those things.

On the broader question of engagement with people, particularly those with smaller pensions—there is a very heavy correlation between the chance of someone being engaged with their pension and the size of that pension pot, partly for obvious reasons, but for wider context reasons, too—the pensions dashboard that Chris Curry mentioned earlier is a large part of facilitating that engagement. Lots of countries have had versions of the dashboard; it does make a material effect. One of the lessons from Australia is that the average size of DC pots, as they start to build rapidly—as that becomes the default system in an auto-enrolment world—does have a material effect.

I was with someone who runs one of the big supers recently; her view was that they hit a tipping point when there was suddenly this huge engagement where people were looking at the app provided by the super every week. There are pros and cons to that, by the way. Remember that there is a reason why we default people into pension savings. There are good and bad ways to engage with your pension. We do not want people on an app, in the face of a short-term stock market downturn, making drastic decisions to do with their investments that have long-lasting consequences. It needs to be done right; that is exactly why, when it comes to the dashboard, we are user testing it extensively.

[Kirsty Blackman]

Q I have two questions. If the Minister could just answer “yes” to the first one, that would be great. The Regulatory Policy Committee has said in its assessment of the impact assessment that the monitoring and evaluation plan is weak—it has used that word. It has said that more detailed plans are needed on monitoring and evaluation, outlining success metrics, reporting requirements and methodologies. Will the Minister commit to considering those and to updating us during the course of the Bill Committee about when monitoring might happen?

Torsten Bell: I am happy to take that away. Obviously, the monitoring will need to be different for different parts of the Bill, which are on different timelines.

[Kirsty Blackman]

Q The other question is in relation to the fact that there are 273 amendments—240 normal amendments and 30 new clauses—which we got yesterday. I have raised my concerns with the Minister privately about this, but I want to say publicly that this is a really big issue. It is very difficult for us to read 273 amendments in 24 or 36 hours, and to be able to make sense of the Bill. Does the Minister understand that this is an awful lot of amendments to be dumping on Committee members, and that it might make the line-by-line scrutiny significantly longer as we try to work out what the Bill will look like? The one that we discussed on Second Reading is very different in some areas from the one that the Government are now proposing.

Torsten Bell: Let me address that in two minutes before the Chair cuts us off. I definitely recognise that there is a large number of amendments. It is not unprecedented—the Procurement Act 2023 had 350 Government amendments, and 155 on Report.

[Kirsty Blackman]

I was on that one as well.

Torsten Bell: We have all made life choices. The thing that I am trying to avoid—and the reason why there are so many at this stage—is what has happened with other Bills, such as the Data Protection and Digital Information Bill in the last Parliament. I do not want to table loads of amendments on Report, after the line by line. That is the alternative. This is a very large Bill. The number of amendments, in part, reflects the fact that everyone has signed up to a Bill that is complicated and very large. My judgment was that it is right to get as many of those amendments down now, so that you have them for line by line. Also, I have gone out of my way over the last 24 hours to spell out to you all where the major changes are. The substance and the purpose of the Bill have not changed. In almost all cases, the amendments are relatively minor and technical.

[The Chair]

Last question—Luke Murphy.

Pension Schemes Bill (Third sitting)

Kirsty Blackman Excerpts

Committee stage
Thursday 4th September 2025 Public Bill Committees

[Steve Darling (Torbay) (LD)]

As the Liberal Democrat spokesperson, and echoing the hon. Member for Wyre Forest, I broadly welcome the thrust of the Bill. We heard in evidence that a lot of the industry is playing catch-up and is about 15 years behind those who are best in class. As Liberal Democrats, we are keen to make sure that we are supporting particularly those who are more challenged in being able to save or to make the right decisions, and that we use what levers we can to tackle issues such as climate change and cleaning up our environment. We look forward to working with colleagues on this Committee.

On the local government pension schemes and the pots, we welcome the direction of travel. However, for us it is about making sure that we keep local links to communities, and driving positive change through that investment in our local communities is absolutely essential. I look forward to the debates over the next few weeks.

[Kirsty Blackman (Aberdeen North) (SNP)]

I declare an interest as a holder of deferred membership of a local government pension scheme in Scotland, which will come into scope should the Government amendments go through, as I imagine they will. First, I thank the Government for working with the Scottish Government to make these changes and for taking the decision to agree with the Scottish Government’s request for these changes to be made. It is appreciated.

While I am on thank yous, the people who manage local government pension schemes are managing an incredibly significant amount of money and are ensuring that benefits are provided to many millions of people in those schemes. The hard work they do to steward those funds appropriately cannot be overestimated, so I say thank you to all the trustees who take that action on behalf of so many of us. Those working in the public sector tend to get a lower salary than they would in the private sector, but they often get access to a defined-benefit pension scheme or a career-average pension scheme, which is better than many people in the private sector get. There is a bit of give and take there.

On Tuesday, we heard from the Local Government Pension Scheme Advisory Board and also from one of the pension schemes. There was a commitment that came forward in the evidence to ensuring trustees are appropriately trained—I am not for a second saying that they are not appropriately trained right now, but we must ensure that level of training is provided when they have many other competing demands on their time. It is important that the Government ensure the correct monitoring, evaluation and also support of those organisations, so that if new training is required—for example, if environmental, social and governance provisions change, or decisions about where it is best to invest funds change—the Government commit to ensuring that trustees are given all the training they need. I believe that all pension trustees have a difficult job, but particularly those managing local government pension schemes, who are often local councillors—a task that, I know, is not a part-time job and is incredibly busy.

The other concern raised on Tuesday, and which was just mentioned by my Liberal Democrat colleague, the hon. Member for Torbay, is about the locality of the decisions made. It is important that the pooling of resources means more investment in important and key projects than would result from a smaller organisation. Hopefully, the reduction in administrative costs will ensure that those schemes are significantly more efficient, but I am keen that we do not lose the local voice within the pension schemes that we have now.

The case was made very eloquently on Tuesday that, while pension schemes take into account value for money—what we would have called best value in local government in Scotland—in decision making, they should ensure that they are not supporting projects that the community are absolutely up in arms about, because so many of their members will live in that community. Scheme members need that guaranteed return, but they also need their communities to be nice places for them to live.

I am slightly concerned that, with pooling, the ability for local projects to be put forward could potentially be lost. Although I am not asking for any specific changes, I would ask that the Government keep an eye on that. Should there be significant numbers of smaller projects that are not being supported because of the changes that previously might have been supported, the Government should consider whether they need to take action to ensure that those voices are better heard and that those smaller projects still have the opportunity for investment.

Thank you very much for allowing me to speak on this, Chair. I am assuming that we have also spoken on the clause stand part and are unlikely to debate that again at the end; I have therefore made most of my general comments here rather than particularly specific ones on the amendments.

[Torsten Bell]

I thank everyone who has spoken. I am grateful for the welcome for the Bill as a whole, for this chapter and for the amendments that particularly relate to Scotland. As the hon. Member for Wyre Forest pointed out, this Bill builds on progress that was put in train over the last decade, and I am glad to see that. It is only because of that progress that we are now able to accelerate quite significantly.

Questions were raised about mandation. I want to be absolutely clear that questions about asset strategy will sit directly with the administering authorities, as they do today. It is for them to set out those asset allocation decisions, which are, in the end, the biggest driver of returns for members. The investment decisions sit with pools, never with Governments. We will provide clarification, if we come on to one of the amendments later, to make clear that the Government will not be directing individual investment decisions of pools; that was never the intention.

Questions were raised about the administrative costs of transition. Those do exist, as they have in previous moves towards pooling, and will obviously need to be managed sensibly, but I think we all agree that those costs are small relative to the very large savings that will come from a much less fragmented system.

Points about the importance of trustees were powerfully made, and I absolutely agree. Stronger governance reforms have already been put in place for the LGPS trustees in England and Wales, and these reforms build on that through stronger governance more generally.

I also hear the argument about local voice. As I said, the administering authorities are responsible for setting the strategy in relation to local investments. Strategic authorities, because of a Bill that was passed earlier this week, will have a requirement to collaborate with the LGPS on those local investments. I take the points that were made, and I think there is consensus on these amendments.

Amendment 7 agreed to.

Amendment made: 8, in clause 1, page 1, line 12, leave out “Secretary of State” and insert “responsible authority”. —(Torsten Bell.)

This amendment and Amendments 10 and 11 are consequential on Amendment 7. References in Clause 1 to the Secretary of State are changed to “the responsible authority”. That term is defined by Amendment 24 to refer either to the Secretary of State (as regards England and Wales) or to the Scottish Ministers (as regards Scotland).

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[Kirsty Blackman]

I want to ask the Minister about the comments made on Tuesday in relation to the transparency already required of local government pension schemes. My understanding is that local government pension schemes are already pretty transparent, and that they are required to publish significant amounts of information.

On the amendment and the requirement for annual reporting, the case was made on Tuesday—I forget by who—that a particular moment in time may not give a true picture of what is going on. Investments may not provide an immediate return. In fact, pension funds are not necessarily looking for an immediate return; they are looking for a longer-term return so they can pay out to tomorrow’s pensioners as well as today’s. Pension schemes are one of the best vehicles for the patient capital that we need to be invested in the economy for it to grow, so I am little concerned that a requirement for annual reporting on specific investments may encourage short-term thinking. Can the Minister confirm what transparency regulations there are in relation to local government pension schemes and how they compare with those for other pension schemes?

[Rebecca Smith (South West Devon) (Con)]

I want to build on what the hon. Member for Torbay asked. As a former local councillor myself—I am not part of the pension scheme, I hasten to add, so I do not have an interest to declare—the bit from the evidence session that came out for me, thinking through this bit of the Bill, relates to the equivalent in treasury management. As a council, we often borrowed from the Public Works Loan Board to invest in, for example, a shopping centre to get the income from rent, business rates and so on. What safeguards or requirements will be put in place to ensure that any money spent from a pension fund goes on capital rather than revenue? I appreciate that council tax revenue increases could be used for that, but are there any safeguards to ensure that the money is not just spent and then does not exist anymore?

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[Mr Bedford]

At present, the Bill arguably lacks a clear definition of how the priorities of the asset pools must follow, particularly on what qualifies as local investments. Our amendment seeks to address that gap by simplifying this. Put simply, we believe that local should mean local. These asset pools should prioritise investment in large-scale projects, actively promote local growth or make tangible improvements in local infrastructure—improvements that directly benefit the people in that local area.

Where no such opportunities exist, other investment options should be considered, but we cannot allow a situation where, for example, an LGPS fund raised in the midlands is continuously redirected elsewhere in the country. Unfortunately, the Bill appears to suggest that the other areas included in the consolidated LGPS schemes could benefit disproportionately. My constituents may ask me, “Why aren’t these funds being used locally by investing in local opportunities, rather than being gifted to councils in other areas of the country, assisting in the same way?” I believe the amendment will add clarity on that to the Bill, and I would welcome the Minister’s comments on it.

[Kirsty Blackman]

I was thinking about how the amendment would work in practice in my local area. I live in the Aberdeen city council area. We are landlocked. We are surrounded by the Aberdeenshire council area. If those local authorities were in separate local government pension schemes, the effect of the amendment would be that Aberdeenshire council could not class an investment in Aberdeen as a local investment despite the fact that its local authority headquarters are in Aberdeen. That is the only sensible place for them because Aberdeenshire goes all around Aberdeen, and it is the only place to which someone can reasonably get transport from all the areas in Aberdeenshire.

Although I understand what the hon. Members for Wyre Forest and for Mid Leicestershire are saying about the classification of local investments, I am not uncomfortable with the fact that the clause includes

“for the benefit of persons living or working in”

the area. If, for example, people in Aberdeenshire invested in a new swimming pool in Aberdeen city, I imagine that it would be used by a significant number of people in Aberdeenshire, and would absolutely be for their benefit.

We should remember that the local government pension schemes will have to prove that the thing they are investing in is for the benefit of local people living or working within the scheme area, although it may be slightly outside it. For example, if they invested in a small renewable energy project providing renewable energy to local people across a border, they would fall foul of this. It would not be classed as a local investment despite the fact that it would be very much for the benefit of people living or working within the scheme area.

The level of flexibility in the clause, and the fact that the schemes will have to justify their investments anyway, is more sensible than what the amendment suggests. I understand the drive to ensure that provision is made for local investment in local areas, but because of the nature of some of those boundaries, it makes more sense to keep the clause the way that the Government have written it.

[Torsten Bell]

I will give a very short speech because the hon. Member for Aberdeen North has just made every single point that I was going to make. I understand the motivation behind the amendment, but we do not support it because it would prevent investments that straddle boundaries—for example, investments in transport and infrastructure that would benefit people living in both Wales and neighbouring English counties. We have heard other examples as well. It would be wrong to limit authorities in where they could invest in this way. I ask the hon. Member for Wyre Forest to withdraw the amendment as it unnecessarily limits the remit of local investment.

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[Torsten Bell]

Clause 2 sets out how assets will be managed in the LGPS under the reformed system of asset pooling. It requires that asset-pooling regulations introduced under clause 1 include requirements for all LGPS assets to be managed by pool companies. The clause would therefore introduce a statutory requirement to consolidate all LGPS assets into those pools, delivering the significant benefits that I know all hon. Members present agree on.

The clause also sets out that the regulations must require administering authorities to formulate, publish and keep under review an investment strategy for their authority’s assets. It also stipulates that regulations may set out from whom administering authorities can take advice on their investment strategy, a point raised by the hon. Member for Wyre Forest. The Government intend to use regulations to require that the pool be the primary source of advice. That will ensure that advice is provided on a consistent basis and free from competing interests, given that pools exist solely to serve their administering authorities. That is an important wider point to remember: the administering authorities are the shareholders of pools and are working together to deliver for members; they are not competing interests.

Regulations must also require administering authorities to co-operate with strategic authorities to identify and develop appropriate investment opportunities. This requirement will soon see the LGPS involved at an earlier stage on local investment opportunities. For the purposes of this provision, for England the definition of strategic authorities matches that in the English Devolution and Community Empowerment Bill, while for Wales it includes corporate joint committees. Members may wish to note that there is a reciprocal duty on strategic authorities in the English Devolution and Community Empowerment Bill.

In summary, the Government are introducing the provisions to finalise the consolidation of assets into pools, and to codify the role of the administering authorities in setting investment strategies and how that engagement with strategic authorities will happen.

I thank the hon. Member for Wyre Forest for tabling new clause 31, which would require the Government to publish guidance on how LGPS surpluses—of which there are now more, which is welcome—can be deployed to address financial needs in local authorities. I recognise that the hon. Member seeks to support local authorities in considering their financial positions against potential funding surpluses.

Decisions on employer contribution rates in the LGPS are rightly taken locally, not by central Government. Contribution rates for employers are set every three years as part of a valuation process—which hon. Members will know is approaching shortly—in which administering authorities will work with their actuaries and employers, including local authorities, to determine a contribution rate that is sustainable for employers and will allow the fund to pay out pensions in the future. As part of that process, a local authority is able to utilise a surplus in its funding position by reducing employer contribution rates. The LGPS is currently in a healthy funding position, as I said, and it is expected that some employers will follow that path. But crucially, again, that is a decision to be made locally on the basis of each employer’s needs.

The existing statutory guidance says that funds should set out in their funding strategy their approach to employer contributions, including a reduction of contributions where appropriate, and should carefully identify and manage conflicts of interest, including conflicts between the role of the particular administering authority and other local authorities that are participants.

[Kirsty Blackman]

This is a genuine question that I do not know the answer to. Is reducing the contribution made by employers the only way that the funds can currently utilise a surplus, or are there other methods by which they can spend it?

[Torsten Bell]

That is the only way that I have seen taken up by local authorities, and it is the main one that local authorities are discussing, although, as I have said, that is a decision for them. I hope that at least partially answers the hon. Lady’s question. I commend clause 2 to the Committee, and ask the hon. Member for Wyre Forest to withdraw his new clause.

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[Torsten Bell]

Clause 3 concerns how procurement law relates to the LGPS. New clause 21 is intended to replace clause 3, and I will endeavour to explain why it is a technical but valuable amendment. The existing clause and the replacing new clause are identical in their purpose and desired outcome. The reason for the change is technical: rather than stating in the Bill how procurement law affects the LGPS, new clause 21 will instead move the LGPS exemption directly into schedule 2 to the Procurement Act 2023, thereby future-proofing it against changes to the Procurement Act itself.

The amended clause has two aims. First, to broaden the scope of cross-pool collaboration, and secondly, to put client authorities, of the kind mentioned by the hon. Member for Wyre Forest, on the same footing as share- holders. That is necessary because the Procurement Act effectively caps the potential for collaboration through joint ventures between pools, as the vertical exemption in schedule 2 to that Act requires demonstration that no more than 20% of a pool’s turnover can be generated on behalf of anyone other than that pool’s shareholders. That may limit the collaboration between pools that we expect to see more of.

Legislation should not act as a barrier to collaboration. The clause addresses that by exempting LGPS pools from the 20% limit, such that the relevant procurement rules are satisfied so long as a pool is acting in the interests of any LGPS authority. Furthermore, given that LGPS authorities can choose to participate in their pool as a contracting client or as a shareholder, the clause also enables all LGPS authorities to benefit from the exemption, regardless of whether they are a client only or a shareholder. This means that LGPS pools will be able to specialise as centres of excellence for particular asset classes and for other pools to access those services, thereby reducing duplication and enabling the investments at scale that we heard so much about in the evidence session.

I ask that clause 3 does not stand part of the Bill, but commend to the Committee new clause 21, which replaces clause 3.

[Kirsty Blackman]

The Government have requested to withdraw clause 3 and replace it with new clause 21. I am slightly confused as to how we got to the point where the Government did not make this decision in the first place, and how the Bill we discussed on Second Reading did not include the change being made to the Procurement Act, instead of the change being made directly in the Bill. Have the Government done significant consultation over the summer, or received input from various organisations that has made it clear that the new way they are now proposing is better than the original?

I can understand that there are two different ways and that there may be a toss-up about which one is best, but why have the Government come down on the side of changing the Procurement Act rather than making the change in primary legislation in the Bill? The Minister has made a little bit of that case, but if he could expand on why the Government have chosen to change their approach, it would be incredibly helpful.

[Torsten Bell]

I will be very straight with the hon. Lady, in answer to her fair question. It would obviously be preferable if the clause were not changing between Second Reading and Report, so it is a completely reasonable question to ask. The straight answer is that it is both because of consultation responses, or people’s feedback, and because the legal advice is that this is a more foolproof way to make sure that the intent of the Bill on Second Reading is put into effect.

As I set out earlier, the key change is that other changes to the Procurement Act will not have unintended consequences for the LGPS in future. I hope the hon. Lady understands that that is the motivation. There is nothing else going on here. The change has happened over that period because that is when comments came in and when legal advice was received.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

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[Kirsty Blackman]

I thought clause 3 was being withdrawn.

[The Chair]

I put the Question that clause 3 stand part of the Bill and some people shouted aye and nobody shouted no—so that is it. I suggest that Members will have to deal with this on Report. The only way we learn how to conduct procedure in this House is through experience, and I am sure the Minister and the Government Whip will not forget this experience.

Clause 4

Scheme manager governance reviews

Amendments made: 18, in clause 4, page 4, line 35, leave out “for England and Wales”.

The amendment would secure that Clause 4 applies to scheme regulations relating to a pension scheme for local government workers for Scotland, as well as scheme regulations relating to a scheme for local government workers in England and Wales. Clause 1 does not extend to Northern Ireland (see Clause 100).

Amendment 19, in clause 4, page 4, line 40, leave out “Secretary of State” and insert “responsible authority”.

The amendment and Amendments 20, 21, 22 and 23 are consequential on Amendment 18. References in Clause 4 to the Secretary of State are changed to “the responsible authority”. That term is defined by Amendment 24 to refer either to the Secretary of State (as regards England and Wales) or to the Scottish Ministers (as regards Scotland).

Amendment 20, in clause 4, page 5, line 1, leave out “Secretary of State” and insert “responsible authority”.

See the explanatory statement for Amendment 19.

Amendment 21, in clause 4, page 5, line 19, leave out “Secretary of State” and insert “responsible authority”.

See the explanatory statement for Amendment 19.

Amendment 22, in clause 4, page 5, line 33, leave out “Secretary of State” and insert “responsible authority”.

See the explanatory statement for Amendment 19.

Amendment 23, in clause 4, page 5, line 38, leave out “Secretary of State” and insert “responsible authority”.—(Torsten Bell.)

See the explanatory statement for Amendment 19.

Question proposed, That the clause, as amended, stand part of the Bill.

[Torsten Bell]

Thank you for the learning, Sir Christopher.

Clause 4 enables the Government to make regulations that require LGPS administering authorities to undertake and publish an independent review of their governance arrangements at least once every three years. I am sure that Committee members will agree that good governance is critical to the healthy functioning of a pensions scheme. The clause will ensure that authorities face external scrutiny of their governance processes. Many authorities already carry out governance reviews of this form and this measure will merely ensure consistent high standards.

The clause also enables the Secretary of State to direct an authority to undertake an ad hoc governance review if they are concerned by significant weaknesses in an authority’s governance or suspect that an authority is not complying with regulations. As a result of the amendments we have already discussed, the power can also be exercised by Scottish Ministers in relation to the LGPS in Scotland.

New clause 22 enables the Secretary of State to give specified LGPS administering authorities certain additional powers, which most administering authorities will already have by virtue of being local authorities. The new clause allows the powers to be extended to administering authorities that are not local authorities, such as the Environment Agency. The new clause will simply create a level playing field for all administering authorities in England and Wales.

[Kirsty Blackman]

What is the Government’s rationale for not including Scotland in new clause 22? Is it because the Scottish Government looked at the original Bill and had not seen the amendments? Or is it because the differential structures between Scotland and the rest of the UK mean that it would not help in the Scottish situation? If the Minister is not clear on the answer, will he please commit to ask the Scottish Government whether they want to be included in the new clause and the relevant changes to be made so that it applies in Scotland? If the regulatory systems are the same, it seems sensible that a level playing field apply. It would be incredibly helpful if the Minister could make the commitment to check whether the Scottish Government want to be included.

[Torsten Bell]

I am happy to give that commitment. I am not aware of any administering authorities in Scotland that would be affected, but I am happy to take that point away.

Question put and agreed to.

Clause 4, as amended, accordingly ordered to stand part of the Bill.

Clause 5

Mergers of funds

[Steve Darling]

As the Lib Dem spokesman for this part of the Bill, I welcome the direction of travel.

[Kirsty Blackman]

If the hon. Member for Wyre Forest can confirm that he does not intend the change to apply in Scotland, because we do not have strategic authorities, I am quite happy not to vote for or against it and to leave it to those who do have strategic authorities.

[Torsten Bell]

I thank the hon. Member for Wyre Forest for the amendment and for the points he raised. Amendment 244 would amend clause 5 to allow fund mergers only if the two funds are in the same strategic authority, so it would be a highly constraining power. I recognise the logic, but our view is that it is far too constraining.

I emphasise to Members that the Government do not have any plans to require the mergers of LGPS funds, and that our strong preference is that when mergers take place, that happens by agreement between the administering authorities. The Government would use the power to require a merger of pension funds only as a last resort, if local decision making failed to deliver satisfactory arrangements.

I reassure Members that during the reform process Ministers and officials have looked carefully at how local government reorganisation, which is ongoing and very important, as the hon. Member for Wyre Forest rightly pointed out, maps on to the existing LGPS geography, and we will continue to do so. There should not be any friction between the emerging unitary structures and the LGPS. I reassure the Opposition that the administering authorities that were in the Brunel and Access pools are already carefully considering their choice of a new pool in the light of local government reorganisation.

In summary, it is important that local government pension funds and Ministers retain flexibility in their decision making so that decisions can be taken in the best interests of the relevant scheme. I ask the hon. Member to withdraw amendment 244.

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[Kirsty Blackman]

Perhaps it reflects my ideological position that I am much more comfortable seeing this happen with local authorities than I am here, and I am looking for more guardrails. In fact, there are more guardrails around how local government pension schemes do this. It can be done pretty much only if it is to reduce employer contributions, which increases the amount of money that local authorities have for either reducing council tax, as the hon. Member for Wyre Forest said, or for spending on whatever it is that they want to spend money on a day-to-day basis.

I would like to see more power go to trustees. I am concerned—this was raised previously—about the level of employer pressure that could come to bear on trustees about releasing surplus, when it may not be in the best interests of all the scheme members but the employer might be really keen to use the money. I am also concerned that we have had quite a lot of different ideas about what the surpluses could be used for. The Liberal Democrat spokesperson, the hon. Member for Torbay, made the same point as the Government about ensuring that employers could invest more to grow the economy, whether that is in bits of tech that make the company more productive or workplace benefits for those who are scheme members.

Why did the Government decide not to strengthen the powers of trustees in relation to the surplus release? Could the Government look in future at tightening what surplus release could be used for? Trustees have a fiduciary duty to ensure that members’ pensions grow as promised, and that they get the benefits that they were promised or that their defined-contribution scheme in other circumstances grows at the right level. However, if the fiduciary duty applies, why is there not a similar application in terms of surplus release? Why is there not a similar requirement on trustees to ensure that that surplus release goes the way that we think it should go?

On Second Reading, I said that there had not been enough clarity from the Government about how they want that surplus to be released. Are they encouraging or instructing trustees to release surplus to employers if it will be invested in the business, or if it is being done to invest in workplace training schemes? I am not convinced that there is enough clarity on this issue.

Given the Government’s drive to ensure that more people are working and that there is a reduction in the amount of economic inactivity, they could say, “Actually, if you are going to use this to improve access to work, to ensure that you can employ more disabled people, we will absolutely sign off a surplus release, provided that you have met all the other criteria.” The Government could encourage trustees to do that. I feel as though there are more levers that the Government could use and that they are not taking this opportunity.

I have not tabled any amendments on this issue, but I raised it on Second Reading. It would be great if the Government gave me some comfort that they are considering whether—in the future with the Bill or, down the line, in the guidance that is given to trustees—to strengthen the hand of trustees, so that they can direct employers better and so they do not come under pressure from employers; or whether the Government will take policy decisions or directions, and point them out to trustees so that they are encouraged to go in a certain direction to ensure that there is growth in the economy, which is apparently the Government’s first mission.

[Torsten Bell]

I welcome the broad consensus about the direction of travel from everyone who has spoken. I will come first to the remarks from the hon. Member for Aberdeen North, who made some key points. She understandably makes the direct comparison with the LGPS. To a large respect, that reflects the fact that the LGPS is an open scheme where the ongoing contributions are much more of a live question, but I take her point.

I will make a few remarks on her more controversial points about the role of trustees and what funds are used for. The powers of trustees are very strong. Trustees have an absolute veto on any surplus release under the clause, as they do currently, and they have fiduciary duties about how they should use their powers. That is stronger than was implied in some of the remarks that we have heard.

As for the wider point about pressure on trustees from employers, that can affect lots of issues and is not specific to the one we are discussing today. That is what the fiduciary duties of the trust system exist to protect against and what the regulatory work of the Pensions Regulator ensures does not happen. If there was inappropriate pressure on trustees, it would be a very serious issue. That is not specific to the surplus question—that applies to trustees just doing their job. My strong impression with every trustee I talk to is that they take that duty very seriously indeed. I agree that we should always keep that under review.

[Kirsty Blackman]

There is an absolute veto power—a yes or no—but it is also about the power for trustees to be able to say to employers, “This is how we would like you to use the money.” There is less flexibility for trustees there. Once the money is handed over to the employers, there is no comeback for trustees if employers do not use it as suggested.

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[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.

[Kirsty Blackman]

I will not say much just now. I would like to hear what the Minister says, and I might bob again after that, Sir Christopher.

[Torsten Bell]

I thank the hon. Members for Torbay and for Horsham for their amendments and for giving us the opportunity to discuss the matter of defined-benefit members and pre-1997 accruals. I should be clear that clause 9 and the related amendments refer to defined-benefit schemes, not to the questions of the Pension Protection Fund and financial assistance scheme compensation, which were discussed at such length—and, as several hon. Members have said, powerfully—at the evidence session on Tuesday.

The Government understand the intent behind the amendments. It is crucial that the new surplus flexibilities work for both sponsoring employers and members, for example through discretionary benefit increases where appropriate. That point was raised several times on Second Reading before the summer recess.

On pre-1997 indexation, it is important to be clear that most schemes—as I said, these schemes are not in the PPF or receiving FAS compensation—pay some pre-1997 indexation. Analysis published last year by the Pensions Regulator shows that only 17% of members of private sector defined-benefit pension schemes do not receive any pre-1997 indexation on their benefits, because different scheme rules specify whether someone receives that indexation.

Under the Bill, decisions to enable the scheme to release a surplus will always rest with trustees, who have a duty to act in the interests of scheme beneficiaries. Trustees, working with the sponsoring employer, will be responsible for determining how members should benefit from any surplus release, which may include discretionary indexation. My personal view is that, in lots of cases, it should, but that is where the discussion takes place. The Government are clear that trustees’ discretion is key to this policy. Trustees are best placed to determine the correct use of the surplus for their members, not least because that will involve making some trade-offs between different groups, particularly of members, and it is trustees who are in the position to do so.

It would not be appropriate for the Government to mandate that schemes provide uncapped indexation, in line with the consumer prices index, to all members prior to the making of a surplus payment. Where trustees plan to award discretionary increases, they are best placed to identify what increase is affordable and proportionate for the scheme and its members.

Although scheme rules may require an employer to agree to a discretionary increase—this point was made by several Members who were anxious about it on Second Reading—the trustees will have the final say when deciding to release surplus, and they are perfectly within their rights to request such an increase as part of any agreement that leads to a surplus release. That is a powerful power for trustees to hold on to.

The Pensions Regulator will publish guidance for trustees, as I previously mentioned, and for their advisers, noting factors to consider when releasing surplus and ways in which trustees can ensure that members and employees can benefit. That will happen following the passage of the Bill. These measures already give trustees the opportunity to secure the best outcomes for their members, which could include discretionary increases. I am grateful for the contribution from the hon. Member for Horsham, but on those grounds, I ask him to withdraw the amendment.

[Kirsty Blackman]

As I said, I wanted to hear from the Minister. I agree that trustees should be the ones making the decision on how to spend any surplus and whether to make an uprating. However, as some schemes are barred by their scheme rules from making such an uprating, my concern is about allowing them the flexibility to make it in any circumstances if they decide that that is the best thing to do. It is not about tying their hands and saying that they have to make an uprating; it is about allowing every single scheme the flexibility to make it if they decide that that is the best thing to do.

Where there are employer blockers or other issues in the scheme rules, can anything be done, in the Bill or anywhere else, to remove those blockers so that we can ensure that trustees have an element of choice and remove some of the unfairness that we heard about on Tuesday?

[Torsten Bell]

I think I can offer the hon. Lady some reassurance. It is true that within some scheme rules it will be clear that discretionary increases of the kind that we are debating would require employer agreement. I know that that has worried some hon. Members who think that that could be a veto against such releases in a surplus release situation.

My view—and the guidance to be released by the TPR will make this very clear—is as follows. It may formally be for the employer to agree to those discretionary increases. The scheme rules may apply to that, although in some schemes the trustees may be able to make that decision on their own—that will be a distinction that will depend on the scheme rules. However, even when the scheme rules say that the employers must agree, they will have a strong incentive to agree with the trustees if they are asking the trustees to release. That is why I say that the process of surplus release will change the dynamic of those discussions, which I recognise are currently not proceeding in some cases because employers are saying a blanket no to discretionary increases. We do not need legislative change to make that happen.

[Kirsty Blackman]

Would the Minister encourage those schemes that find that they want to release the surplus in relation to the uplift, but are struggling to get that process across the line, to go to the TPR, look at the guidance that is coming out and ask for assistance with making those discretionary uplifts?

[Torsten Bell]

I absolutely would. I have been making exactly those points to anyone who will listen.

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[Steve Darling]

I rise to speak in respect of amendments 265 and 267, which echo the issues already covered by the shadow Minister. Allowing 60 days’ notice to scheme members is extremely important to the Liberal Democrats—and, to be fair, I am sure it is also important to the Government—and the central intention is to protect outcomes for members of schemes and ensure that there is enough flexibility. That 60 days’ notice is really important to us.

Ensuring that there is enough money in the scheme for any buy-out is the second element, which the hon. Member for Wyre Forest has already alluded to. We think it is very important that the finances are there and that we put scheme members at the centre of the proposals before us. I look forward to hearing from the Minister what reassurance he is able to give us on those points.

[Kirsty Blackman]

I will speak specifically to amendments 260 and 265. Any communication with scheme members is a good thing, particularly if there are to be changes such as those we have been discussing. Sometimes, surplus extraction may not be for the benefit of scheme members; sometimes it may be for other reasons, and trustees have a duty to make clear what they think it is for and to release a surplus only if they think it is a reasonable thing to do. However, they may not have a full understanding of how members feel about what the surplus could be used for. For example, scheme members who are active members might feel that they would love their company to invest in something to make their lives and their jobs easier, and might be keener on that extraction than the trustees might think, so it would be great to have that input.

Amendments 260 and 265 are incredibly similar—surprisingly similar, in fact—and I am happy to support both, were they put to a vote. Amendment 261 is consequential; on amendments 247 and 267, I do not feel I have enough information on what trustees think to make a reasonable judgment on whether either amendment would be a sensible way forward for trustees to meet their fiduciary duty, which is to provide the best guaranteed return for scheme members. I will step out of votes on amendments 247 or 267, but I will support the amendment that requires members to be consulted in advance.

[Mr Bedford]

I rise to speak to amendment 260. I thank my hon. Friend the shadow Minister for outlining our rationale for the amendments. My comments regard informing members. I support the right to pay surplus to employers—I think that is the right thing to do, so long as the correct safeguards are in place—but it is right to inform members of that decision. Not only is it the right thing to do, but it will improve member engagement in the whole pensions process. I made a point in Tuesday’s evidence session on the importance of financial education, and a number of witnesses supported that position. By more actively engaging with members, we will ensure that they take part in their own pension provision and ensure that the right decisions are made in their own interests.

--- Later in debate ---

[Torsten Bell]

The hon. Member rightly returns to an important question. As I set out at the evidence session on Tuesday, our pension policy road map, published at the same time as the Bill, details exactly when we are planning to bring forward regulations. My understanding is that these particular regulations should be consulted on in the spring of next year—if that is not right, I will make sure we come back to him with further details. As I say, the road map provides the details of that timeline. It is a very important question for people to be clear on. In that consultation, I am sure the evidence we have heard will be taken into account.

Amendments 260 and 265 correctly aim to ensure that members are well informed and represented when it comes to their pension schemes and retirement. The new paragraphs would be inserted into clause 9 of the Bill, which amends section 37 of the Pensions Act 1995. Section 37 already provides that regulations must require members to be notified in relation to a surplus payment before it is made.

This is therefore not about the flexibility of trustees; it is redundant, given the requirements already in the Bill. It is similar to the existing requirement under section 37 of the Pensions Act 1995, and we will again consult on these draft regulations following Royal Assent. Furthermore, trustees already have a clear duty to act in all matters in the best interests of the beneficiaries of their scheme, and they are best placed to decide, in consultation with the sponsoring employer, what actions are best for members—I will not keep repeating that point as we go through the rest of this Bill.

Finally, I thank the hon. Member for Wyre Forest for proposing amendment 261, with its requirement for actuarial confirmation that proposed payments from a DB surplus to employers will not adversely affect members’ benefits, and that members have been notified ahead of that release. Those are valuable objectives, but they are already achieved by the robust safeguards in place, including trustee discretion, the prudent funding threshold —on which we will consult—and the actuarial certification that a scheme is well funded.

In addition, the defined-benefit funding code and the underpinning legislation already require trustees to aim to maintain a strong funding position, and that is actively overseen by the Pensions Regulator. I believe the safeguards we have put in place put members at the heart of the policy, which is a point of cross-party agreement, and will allow trustees to continue to be the people who strike the correct balance between the benefits for employers and members. I hope this offers some reassurance to the Committee that, for the reasons I have outlined, these amendments are unnecessary; I urge hon. Members not to press them.

[Kirsty Blackman]

The Minister has said that trustees are required to act in the interests of and to the benefit of scheme members. However, they are required to act so that members will get the benefits that they are promised under the pension. They are not required to act to the benefit of scheme members. As I said earlier, there is a distinct possibility—particularly with surplus, which is not going into the pension scheme and which can only be paid if those benefits are already guaranteed—that the surplus is only a surplus in the case where members are definitely going to get those benefits anyway.

It is the case that trustees might not know what is to the benefit of members. Requiring them, or asking them, to consult members on what they would like, or to provide members with information about how money is going to be spent, could get better results for those members. It is not going to change the amount of pension they will get, which is the trustees’ requirement; however, it may change their lives in a more positive way. Whether or not they are people currently paying into the scheme and actively employed, there are ways that the surplus could be spent that would benefit or disbenefit their lives.

In making that case, I think there should be a consultation with members. The hon. Member for Mid Leicestershire made the point very well that we should encourage people to take more interest in and have more input into their pensions, so that they have a better idea of what is going on, of the possibility of surpluses and of how they are spent. I would appreciate it if the Minister, when he is considering the regulations and the changes being made, could think about how best to consult scheme members. Given that trustees have a duty to act not in the best interests of members, but in the best interests of members’ pensions, I would love to see, around the surplus, arrangements that benefit scheme members—whether they are currently paying, future or deferred members, or those already getting their pensions—rather than solely the employer and the employer’s intentions.

Ordered, That the debate be now adjourned.—(Gerald Jones.)

Pension Schemes Bill (Fifth sitting)

Kirsty Blackman Excerpts

Committee stage
Tuesday 9th September 2025 Public Bill Committees

[Mark Garnier]

Again, I have no real comments, apart from to ask the Minister, perhaps when winding up, if he could explain how the Government came to the penalty levels of £10,000 for individuals and £100,000 for others. It would be useful to understand what the thinking was behind that.

[Kirsty Blackman (Aberdeen North) (SNP)]

My question was not dissimilar to the shadow Minister’s question on the amounts of the penalties—£10,000 for an individual and £100,000 in any other case. There is no delegated authority to raise it beyond those levels. There is an ability to set the amounts, provided they do not go above those. Would the process have to be in primary legislation should the Government wish to raise it above those levels? I am not generally in favour of a level of delegated authority, but if we end up in a situation where inflation is out of control, £10,000 may not seem a significant amount for an individual and £100,000 may not seem significant for a larger organisation. They may not be enough to prevent people or create the level of disincentive we wish to see. Have the Government looked at whether £10,000 and £100,000 are the right amounts?

On the clarification about FCA regulation, and the fact that if somebody is FCA regulated in another capacity, it may stop them from being subject to this, it is absolutely sensible that the Government have tabled the amendments. I am happy to support the changes and the clauses.

[Torsten Bell]

I thank the hon. Members for Wyre Forest and for Aberdeen North. The main question raised is about the level of the fines. To provide some context, the answer is yes—that would need to be amended by further primary legislation; there is not a power in the Bill to change that. It is an increase on previous levels of fines for individuals and organisations—from £5,000 to £10,000 for individuals, reflecting the high inflation we have seen in recent years. On that basis, it gives us certainty that we have seen a substantial increase, and we would not need to change it in the near future, but I take the point that in the longer term, we always need to keep the levels of fines under review, and we will need to do that in this case. I hope that provides the answers to hon. Members’ questions.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Clause 31

Enforcement by the FCA

Amendment made: 41, in clause 31, page 29, line 38, leave out subsection (4) and insert—

“(4) For the purposes of this Chapter a person is ‘FCA-regulated’ if they are an authorised person (within the meaning of the Financial Services and Markets Act 2000) in relation to the operation of a pension scheme.”—(Torsten Bell.)

This amendment clarifies that the definition of “FCA-regulated”, in relation to a person, refers to the person being FCA-regulated in respect of the operation of a pension scheme (as opposed to in a capacity unrelated to small pots regulations).

Clause 31, as amended, ordered to stand part of the Bill.

Clause 32

Power to alter definition of “small”

[John Milne (Horsham) (LD)]

I beg to move amendment 4, in clause 32, page 30, line 12, at end insert—

“(4) The Secretary of State must, at least once every three years, review the amount for the time being specified in section 20(2) to consider whether that amount should be increased, having regard to—

(a) the effectiveness, and

(b) the benefit to members

of the consolidation of small dormant pension pots.”

This amendment would require the Secretary of State to review and consider increasing the level of small pension pot consolidation every three years.

The purpose of the amendment is to require the Secretary of State to review at least once every three years the threshold for small dormant pension pot consolidation. It aims to ensure that the level set in clause 20(2) remains effective and relevant over time. The Minister will be aware that we have already considered the right level at which to set the consolidation; we tabled amendment 262 as a probing amendment, which would have changed the small pot consolidation limit from £1,000 to £2,000. As we have discussed, industry has a very wide range of views on what would be the best figure.

However, this amendment asks for a review, not a particular figure. As before, we do not intend to push it to a vote. To us, a formal review process seems sensible, but whether it should be set at three-year intervals or any other figure is open to question. Given the lack of certainty about what figure industry would like, it seems a good idea to review the threshold after we have seen the measure working in practice.

The pensions landscape evolves quickly, with more job changes and rising numbers of small inactive pots. Therefore, a static threshold risks becoming out of date and undermining the policy’s effectiveness, whereas a regular review keeps the system responsive to members’ needs. It would consider effectiveness—whether consolidation is working to reduce fragmentation and improve efficiency, and the benefit to members, so whether savers are seeing clearer statements, reduced charges and better value for money. It would also simplify retirement saving by reducing the number of scattered small pots, would help members to keep track of their savings and avoid losing pensions altogether, and would improve efficiency for providers, which could reduce costs for savers.

I stress that the amendment does not dictate that there should be an automatic increase. It simply requires the Secretary of State to consider whether the amount is still appropriate. Therefore, in our view, it strikes the right balance between flexibility and accountability. To summarise, this measure would keep consolidation policy up to date, effective and beneficial for pension savers. A regular, three-year review is a simple, proportionate step to ensure that the system works as intended.

[Kirsty Blackman]

I am happy to support the Liberal Democrat amendment. I have already mentioned the Regulatory Policy Committee’s impact assessment—it considers the monitoring and evaluation plan to be weak, saying:

“The policies are all due to be reviewed in 2030. More detailed plans are needed, outlining success metrics, reporting requirements, and methodologies, across the policies.”

The amendment fits quite neatly into what the RPC said, which looks for an understanding and acceptance that there needs to be regular reviews, given that the Government have not committed to a three-year—or shorter—time period on this issue.

There seems to be widespread support for the small pots consolidation across the House. This amount has been picked, and as I said in a previous sitting, there is not necessarily a perfect answer. It could be that change is required, or that all the companies and organisations that are consolidating small pots immediately manage to do it amazingly. It could happen as smoothly as possible, as a result of which the Government could decide to increase the threshold.

I think that compelling the Secretary of State to look at this is completely reasonable to ensure that they are doing it on a relatively regular basis, so that the threshold can be changed if necessary. There is potentially widespread support across the House for ensuring that there is a requirement to monitor the threshold on an ongoing basis. It is not that we do not trust, agree with or appreciate the Secretary of State’s work, but it would give us a level of comfort that it would be done regularly should the Minister accept that, consider something similar on Report or, at the very least, make a commitment from the Dispatch Box that a written statement will be made to Parliament on a fairly regular basis explaining the reasons for keeping or changing the level.

[Torsten Bell]

I thank the hon. Member for Torbay for tabling the amendment. The Government share his commitment to ensuring that the pot limit remains appropriate. As we have just heard, it is a matter of consensus, and it is good to debate how we best do that. The Government’s view is that the amendment is not necessary at this stage. Clause 32 already enables the Government to undertake a review at any time. That is a deliberately flexible approach that allows us to respond to developments in the market—not least reflecting on the question from the hon. Member for Aberdeen North about inflation—but also to any other material changes, and it empowers the Government to act when needed.

The amendment risks creating unintended consequences with a rigid cycle of Government reviews, which might mean that reviews do not happen when there is a good reason for looking at the matter, and that the Secretary of State is forced to carry them out when there is no rationale for doing so. We favour a more flexible approach. I take seriously the request for clarity that there will be regular reviews, and I can give that clarity. That is the intention.

A wider question has been raised about the success of the policy and its monitoring, which is separate from the level of the threshold. Changes to the threshold might be one response to success metrics, but others might be about the operation of the consolidation process more generally. I commit to actively monitoring those—not least what is happening to people’s pots as they are moved, how people are responding to that and levels of awareness. That is exactly what we need to be doing, irrespective of what happens on the scale of the threshold over time. There is cross-party consensus on the objective here. We have taken a slightly different view on the flexibility of that review and how often it happens, but I give all hon. Members a commitment that that will happen.

[Kirsty Blackman]

I have just one more brief comment. It drives me completely mad that whoever is standing at that Dispatch Box seems to believe that they will be in government in perpetuity. Given that this is the second colour of Government I have faced across the Committee floor, it may be that the Minister and his Secretary of State—who has changed, by the way—are very keen on doing a regular review, and I appreciate the Minister committing to it. However, it is not that easy for him to commit a Secretary of State of a different political stripe. Therefore, to give us all certainty, it would be great if the Minister went away and considered the possibility of including a more regular review on Report, so that a Secretary of State of any party is required to conduct one more regularly.

[Torsten Bell]

I thank the hon. Member for that comment. The nature of every piece of legislation means that a future Government can take a different decision. Thanks for the reminder of the nature of British politics—that is how it operates. I am slightly more relaxed than she is, because there will be significant pressure from the industry, and from everybody, to keep this under review. That is not a matter of controversy. It is conceivable that there may be a Government who are steadfastly against ever again looking at the small pots threshold, but having lived through the last 15 years, I would put that low down the list of uncertainties in British politics. However, I take the intention behind the hon. Lady’s point, and I promise never to assume that Labour will win every election from now until eternity.

--- Later in debate ---

[Torsten Bell]

Never! No. We should clarify what we mean by “industry”: in a lifetime provider model, employers take on a significantly greater administrative burden, because they have to engage with potentially every pension scheme in the country. Admittedly, we are limiting the number of those in future, but still, that is what employers find burdensome about a lifetime provider model. That was the preferred model of the right hon. Member for Godalming and Ash (Sir Jeremy Hunt) when he was Chancellor, but it was never actioned as Government policy.

As I said before, the 2014 Act was about “pot follows member”—for good reason, to try to address the small pots worry. I hope that that at least reassures the hon. Gentleman that my notes were the right way up.

[Kirsty Blackman]

I am now entirely confused. Can the Minister please clarify for all of us what the Bill actually does in terms of the consolidation?

[Torsten Bell]

I am glad we are all thoroughly confused. Three broad approaches have been set out to this small pots problem. The first is the one that the Bill takes forward, which is the multiple default consolidation solution—the automatic sweeping up of small pots into consolidated schemes to make everyone’s lives easier. Members would have one large scheme, or several larger schemes, but no really small schemes that they had to consolidate themselves. They could then choose to consolidate those larger schemes as they wished; there is a debate to be had about the size of the threshold in future. That is an automated approach.

One thing that is really important, about the point on average returns made by the hon. Member for Wyre Forest earlier, is that this is not about average. A scheme can only be a consolidator if it offers good value, so a pot cannot be swept into one that does not.

There has been much debate about other approaches over the years, and I have tried to distinguish between two of them. They aim to provide more of what has been debated here, which is slightly more ownership of one pot by the individual. However, “pot follows member” is, in practice, still maintaining the relationship between an employer and a single provider. It is not the individual but the employer who chooses the scheme. That is the approach we are rejecting today.

There is then a longer-term discussion about whether there are attractions to a lifetime provider. That is the case in some of the countries that have been mentioned—the “stapled to your lapel” model—where it is the individual who chooses their provider; obviously to some degree individuals can opt out now if their employer is happy. That is not on the table here. It needs to be considered, but it is a much more fundamental change to the relationship between the employers and the pension schemes.

[Kirsty Blackman]

I thank the Minister for that clarification. These are almost two different stages in the same process: we need to do the consolidation of the small pots right now, and then look at what we are going to do so that small pots will not ever exist and nobody will end up with a small pot, because we do one of the two options or some other option presented for the next step.

My understanding is that if we were to move to what the Conservatives have proposed in new clause 36, that would solve future problems but probably not deal with the situation where somebody has five small pots already. It does not schoomp them all together—I do not know how you are going to write that, Hansard; I am really sorry.

I appreciate what the Minister says about ensuring that the next step is kept under review and not automatically ruling out some of the options presented for the future. I tend to agree that we need to get this bit done—get rid of all those tiny pots that are dormant right now—and then move on to having that discussion, perhaps as part of the sufficiency and adequacy discussions, so that we have a pensions system that ensures that people are as well off as they possibly can be in late life.

Question put and agreed to.

Clause 32 accordingly ordered to stand part of the Bill.

Clause 33 ordered to stand part of the Bill.

Clause 34

Interpretation of Chapter

Amendment made: 42, in clause 34, page 31, line 1, leave out

“No. 42, ‘FCA-regulated person’”

and insert

“‘FCA-regulated’, in relation to a person,”—(Torsten Bell.)

This amendment is consequential on Amendment 41.

Clause 34, as amended, ordered to stand part of the Bill.

Clauses 35 and 36 ordered to stand part of the Bill.

Clause 37

Repeal of existing powers

Amendment made: 43, in clause 37, page 34, line 20, at end insert—

“(3) In consequence of subsection (1)(b), in section 256 of the Pensions Act 2004 (no indemnification for fines or civil penalties), in subsection (1)(b), for ‘that Act’ substitute ‘the Pensions Act 2014’.”—(Torsten Bell.)

This amendment amends section 256(1)(b) of the Pensions Act 2004 in consequence of the repeal of Schedule 17 to the Pensions Act 2014 by clause 37(1)(b) of the Bill, including uncommenced amendments of section 256(1)(b) on which the reference to “that Act” in section 256(1)(b) relies.

Clause 37, as amended, ordered to stand part of the Bill.

Clause 38

Certain schemes providing money purchase benefits: scale and asset allocation

[Torsten Bell]

I beg to move amendment 44, in clause 38, page 34, line 27, leave out

“‘other than an authorised Master Trust scheme’”

and insert

“‘that is not a relevant Master Trust and’”.

This amendment clarifies a verbal ambiguity in the amendment of section 20(1) of the Pensions Act 2008.

--- Later in debate ---

[The Chair]

I remind all Members that we are talking about the technical amendments. There will be a chance to talk about the clause later.

[Kirsty Blackman]

Thank you, Ms McVey—I was about to start by saying that I will not talk about clause 38; I will just talk about the technical amendments.

I have made the point before about the significant number of amendments. I do not know why the Government chose to table this number of amendments rather than submit a new clause that would replace the entirety of clause 38 and make all the changes that they wanted to make. I appreciate that the Government got in touch with us with some briefing information in relation to the changes to this clause, but we had that information very recently rather than significantly in advance. Given the huge number of technical amendments, it is very difficult to picture what the clause will look like with them all. Would the Minister agree that there could have been a better way to approach amending clause 38?

[Torsten Bell]

Let me first respond to the thrust of the comments from the Opposition; I will then come directly to that question. I am conscious that, having sat through Second Reading, most hon. Members have heard my views, and the Government’s views, on this, but let us set out the facts. It is the industry itself that set out the case for change. That is what the Mansion House accord does: it says that a different set of asset allocations is the right way to go in the longer term.

I support the industry’s judgment. The previous Conservative Pensions Minister has welcomed its judgment. I think it is the view of every senior Conservative ex-Minister sitting on the Opposition Back Benches that that change needs to come. [Interruption.] I am not speaking for the Opposition Front Bench; the hon. Member for Wyre Forest has just spoken eloquently for himself. I am speaking for former Conservative Ministers, including former Chancellors. If anything, they accuse me of being too timid—I am not sure what the characterisation of their current Front Bench would be in that regard. That is the status of the debate on this.

Why is there consensus? Leaving aside some of the points that have been raised, it is because this is in savers’ best interests. That is the motivation and the goal. It is also wrong to set out the conflict in terms as broad as the hon. Member for Wyre Forest has just used, because there is a clear savers’ interest test within the Bill that enables trustees or scheme managers to say that proceeding in a certain way would not be in the interests of their savers, and the asset allocation requirements would not bite.

Turning directly to the question about unreasonable Ministers—I have heard rumours of such things. They can exist, and there are protections against them: there are the usual judicial review protections, but in the Bill there are specific requirements to provide a report justifying any use of the reserve power and how it would play out. There are significant limits on the assets—it is broad asset classes—that can be set out in an asset allocation and there are limits to which assets can be covered.

There is the savers’ interest test, and importantly, there is a sunset clause for exactly the reason that we cannot predict what 2040 looks like today. I recognise that hon. Members will not support that part of the clause, but I hope they recognise that the goal is the same, which is that a change in investment behaviour is in savers’ interests. That is what the industry is telling us. As I said last Tuesday, the danger of a collective action problem—the problem that saw commitments made by the industry and the previous Conservative Government not delivered—is partly what this reserve power helps to overcome.

I have absolutely heard the points made about the volume of amendments. They are on the record, as will be all the points made during this process. To answer the question directly, the reason there are so many is that we had lots of useful feedback from industry over the summer, and I wanted to provide more clarity through the clause and make sure that we had the best version of it. We did not want to leave it until Report, so people have had a chance to see it as we go through Committee. I absolutely recognise the points made, and the specific point about the drafting choice of a large number of amendments versus an additional clause. I am sure the drafters will have heard that comment.

Amendment 44 agreed to.

Amendments made: 45, in clause 38, page 34, line 32, leave out “Conditions 1 and” and insert “Condition 1 and Condition”.

This amendment makes a minor verbal change to facilitate differential commencement of the scale and asset allocation conditions.

Amendment 46, in clause 38, page 34, line 37, leave out “of that scheme”.—(Torsten Bell.)

This amendment reflects the fact that a main scale default arrangement may be used by multiple schemes.

--- Later in debate ---

[Mark Garnier]

The Bill sets a minimum asset threshold of £25 billion for workplace pension schemes to operate as megafunds by 2030. This is not, in itself, particularly controversial, and we are all fully aware of the arguments about scale being effective when running pension funds. The requirement is intended to drive consolidation, improve economies of scale and boost investment in UK assets, but there is concern that such a high threshold could disadvantage boutique or niche funds or new entrants into the market that provide specialist services to cater for financially literate members who prefer a more tailored approach to their pension management. For example, Hargreaves Lansdown has highlighted that its £5 billion fund serves members who value investment autonomy and expertise. The risk is that the policy could reduce competition, limit consumer choice and stifle innovation by making it harder for smaller, specialist providers to operate or enter the market

Clause 38 provides little detail of the meaning of the “ability to innovate” and how “strong potential for growth” will be measured, but it is essential that the Bill provides a credible route to support innovation. If we tie the pensions market up by restricting it to a handful of large providers focused on back-book integration and building scale, there will be less space for innovation aimed at pension member engagement. The benefit of the existing market is that its diversity provides choice and creates competition, and competition is an important part of this. Smaller schemes are chosen by employers for specific reasons. If we lose that diversity and essentially create a handful of the same scheme propositions, employers and members will lose out on this benefit.

Realistically, it will be extremely challenging for new entrants to the market to have a chance of building the required scale. Our amendments create an innovation exemption for pension funds that provide specialist or innovative services as part of the new entrants clause. This will allow boutique or niche providers to continue operating if they demonstrate diversity in the market or serve a specific member need, even if they do not meet the £25 billion threshold.

[Kirsty Blackman]

Amendments 250 to 253, as well as Government amendment 113, which we will discuss later, clarify the word “innovation” and look at how best to define it. There are two different approaches from the Government and the Opposition to what innovation means. I raised the issue of defining innovation on Second Reading, so I am glad that both parties are trying to clarify it here, but I am not entirely happy with the way in which the Government have chosen to do so.

When we come to Government amendment 113, I do not feel that the chosen definition of “innovative products” is necessarily right. There could be a way of working that is innovative not in the product but in the way people access the product. For example, some of the challenger banks that we have had coming up are not necessarily providing innovative products, but they provide innovative ways to access those products, and in some cases, their pitch is that they provide a better interface for people to use. I think there is potentially a niche in the market for innovative services rather than innovative products. Government amendment 113 perhaps ties too much to products, although it depends on what the definition of “products” is.

Obviously regulations will come in behind this that define “innovative”, but I think the pitch made by the Opposition for the addition of “or specialist” is helpful. “Innovative” suggests that it may be something new, whereas there could be specialist services that are not of that size but are specific to certain groups of people who value the service they are receiving, one that is very specific to their circumstances, and who would prefer that operation to keep running and to keep having access to it because of the specialist service that is provided.

I am concerned about Government amendment 113. My views are perhaps closer to the Conservatives’ amendment, but thinking particularly about services rather than the products, and the way in which the services are provided to people and the fact that there could be innovation in that respect. Also, as the hon. Member for Wyre Forest said, there could be particular niche areas that do not need to be that size in order to provide a truly excellent service to perhaps a small group of people. It depends on how the Government define “innovative” and what the regulations may look like this, but I am inclined to support the Conservatives’ amendment.

[Torsten Bell]

I thank the hon. Member for Wyre Forest for tabling these amendments. We all recognise the importance of innovation in the pension landscape, but I respectfully oppose the inclusion of the amendments in the Bill.

One point that is at risk of being lost from the discussion so far is the central insight that is the motivation for this clause, which is that scale really is important. Scale really does matter. It has the potential to unlock a wide range of benefits, from better governance to lower costs, to access to a wider range of assets. All of those are integral to improving member outcomes, and if we provide many carve-outs, every scheme will say it is a specialist provider that should not be covered because its members value its inherent difference from every other, and we risk undermining the premise that I think has cross-party agreement, which is that we need to move to a regime of bigger schemes.

One of our aims in this Bill, which is relevant to the asset allocation discussion we just had, is to provide clarity that the change will happen, people will not duck and dive around for years attempting to litigate what is and is not a specialist provider and so on. Innovation is really important, as is competition in the market, but we need to do this in a way that does not undermine the purpose of the scale requirements, which I think is a matter of cross-party consensus.

Having said that, while innovation in the market is important, the Government’s view is that it is not an alternative to achieving scale. That is why we have provided for a new market entrants pathway. There, the innovation grants a temporary exemption from scale requirements, not a permanent exemption as the amendments would enable. That is because scale is very important indeed. Applicants to the pathway will be able to enter the market if they can demonstrate they have strong potential to grow to scale, and if they have some kind of innovative design. That is not a permanent exemption from scale requirements, and there should be cross-party consensus on avoiding that.

To provide reassurance on some of the points that have been raised, I emphasise that the scale requirements apply only to providers’ default offers. Providers of specialist offers and the rest, and self-invested personal pensions, are all able to continue to offer those specialist services, but the main offer in the workplace market does need to meet scale requirements. I hope with that explanation, hon. Members will not press the amendments.

[Mark Garnier]

I am not entirely happy with the Minister’s comments. I am slightly surprised, and I thought he might have listened a bit more carefully. We absolutely understand the economies of scale. A large, £25 billion pension fund can do amazing things. We are 100% behind that. We have not disagreed with that at all. However, I somehow feel myself listening to the Minister and hearing the reverse of the arguments we were making as we tried to allow new-entrant banks into the market after the financial crisis.

Those of a certain age—and the Minister turned 43 the other day, so he will remember the financial crisis—know that the problem was that a few very big banks were spreading the contagion. I remember being on the Treasury Committee and the Parliamentary Commission on Banking Standards after the financial crisis, when we were trying to sort out Labour’s previous mess, and not a single ab initio banking licence had been issued for 100 years. The only way that companies could get into the banking market—as Virgin and Metro were doing—was by buying dormant banking licences. I remember having long conversations—successfully, as it turned out—in order to try to allow companies such as Starling into the market. I think that Starling received the first ab initio banking licence for 100 years.

Having learned over the past 10 or 15 years about the effects of having large scale only, we are now having an argument about potentially stifling the pensions equivalent of companies such as Starling, Metro, Revolut and other innovators coming into the pensions market. I was hoping that from debating the amendments I could be convinced that the Minister would take away the thinking behind what we have come up with: that innovation should be good, and that there should permanently be new, fresh blood coming through. However, I do not think that he has got it. I was not going to push the amendments to a vote, but I now feel motivated to do so.

[Kirsty Blackman]

I want to make a brief comment about the definition of “specialist”. I appreciate the Minister’s clarification about the default products provided, but there could be a sensible definition of “specialist” that included, for example, that if providers can demonstrate that over 75% of their members engage in the management of their pension fund every year, that would be a very specialist and well-liked service. I understand that the scale is incredibly important. However, if a provider can demonstrate that level of engagement in its pension scheme, because of its innovative product or service, I think it would be sensible to look at the scale requirements, even if that provider does not yet meet them.

The Opposition have kindly left it up to the Minister and the Government to define what “specialist” would be, so I will support the Opposition amendments on that matter. However, when we come to Government amendment 113, I will require some clarification from the Minister about the definition of “products”.

[Torsten Bell]

I am reassured that our agreement that scale is the desirable outcome is clear. It is great to have that on the record. I also put on the record that there is agreement about the value of innovation and about new entrants. I think that the only distinction is between a new entrant that then grows and a new entrant that does not. Our approach is to allow new entrants, but they need to be ones with a plausible sense that they can get to scale. Inherent to most of the innovation in the market—for example, in collective defined-contribution schemes—is that they would have to operate at scale to be effective. I think that the banking analogy is actually quite apt.

--- Later in debate ---

[John Milne]

I will speak to new clause 4 on targeted investment vehicles. Its purpose is to empower the Secretary of State to establish or facilitate targeted investment vehicles for pension funds. Overall, the pensions industry is supportive of the Bill, as are the Liberal Democrats, but some sections have expressed concern that a requirement to invest in UK infrastructure and assets could lead to excess demand for a limited stock of investment, especially in the early days when the economy is adjusting. In a worst-case scenario, it could lead to overpaying for investments or difficulty in reaching Government targets. Government assistance to ensure a healthy flow of investment vehicles would therefore serve to prevent that from happening.

Furthermore, there is a unique opportunity to create vehicles that would allow schemes to invest in projects with clear social and economic benefits. It could include many different types of investments. For example, the Government could support the development of investment vehicles designed to revitalise high streets and local communities, provide affordable and social housing development, provide care home accommodation or support other projects that deliver long-term value while strengthening society.

The new clause sets out regulations that would set clear rules on which schemes can participate. Different provision could be made for different schemes and types of investment vehicles. The Pensions Regulator and the Financial Conduct Authority would be given defined responsibilities in authorising, supervising and regulating these vehicles. To be clear, trustees would only be expected to consider the investments where consistent with their fiduciary duties and long-term value for money for members. Pension funds are among the largest sources of long-term capital in the UK, so harnessing even a small proportion for socially beneficial investment could deliver real economic and community impact. Pooling of assets would also facilitate open access for smaller schemes. Done properly, that could align members’ retirement interests with a wider public good.

To summarise, the new clause is designed to ensure a constant supply of suitable investment vehicles so that pension funds can invest at scale in areas that are currently not receiving sufficient attention. At the same time, it would create a framework where pensions could be a force for social renewal and financial security. The clause ensures opportunities with safeguards in place for schemes to contribute to national priorities, while still securing value for members.

[Kirsty Blackman]

Although I am delighted by the intention of the hon. Member for Wyre Forest to get one over Reform with amendment 275, and I am quite happy to back that notion, I am also pretty happy with nationalised water in Scotland. Scottish Water is significantly better performing than the other water companies, so I would not automatically say that nationalised water is a bad thing, given that our water is lovely in Scotland. However, we could do with a little more rain on the north-east coast, given that we have had the driest spring and summer for 40 years, which is not ideal. I gently disagree with the hon. Member because the amendment does not take into account the Scottish context. I would love to see more investment in Scottish Water from pension funds or from Government-led investment vehicles or decision making.

On amendments 248 and 249, I am much more relaxed about mandation than the Conservatives are, as Members might expect given my ideological position. I have much less of an issue with going in that direction. I have heard all the Government have said about not planning to use those powers. It is reasonable for the Government to direct the economy in certain directions—that is what tax and Government spend are for. A good chunk of that is about ensuring that we make interventions so that the economy grows in the way that we want it to.

In many cases, Governments have historically refrained from picking winners when a decision to do so could have grown the economy faster. For example, historically, the Government could have given more backing to certain ports to ensure that they could grow, particularly through renewable energy or by building offshore wind farms, because we could do with more local capacity throughout the UK. Had Governments of all colours been clearer about which areas and regions they were backing, that understanding could have enabled those areas to win more contracts.

On new clause 4, the options for how mandation could work and the investment vehicles that are in place, I have talked about affordable and social housing development. The biggest thing the Government could do to encourage social housing, in particular, is to cancel the right to buy, which would allow local authorities to build significant levels of social housing. That is how we are managing to increase our housing stock in Scotland. We are not there yet—nobody says that we are—but we are able to build new social housing in Scotland at a scale that most local authorities south of the border are not, because cancelling the right to buy has made it affordable. I would love to see more investment in social housing.

I would have liked renewable energy to be included in the Lib Dems’ new clause 4. I appreciate that we cannot include everything, but it would have been nice, particularly when it comes to smaller renewable energy projects and in combined heat and power initiatives. Large-scale CHP makes a really positive difference in Aberdeen city. We have a large combined heat and power network, which heats a significant number of our multi-storey blocks at far lower prices. They are still seeing an increase in prices, absolutely, but they do not need to worry about putting money in the meter, because they know they will have hot water and heating for a fixed monthly fee, rather than paying more in winter and less in summer.

Lastly, harking back to the Future Generations Commissioner for Wales, it would be interesting for the Government to consider whether any potential mandation benefits future generations, given the intergenerational gap and given that people my age and younger are increasingly of the view that we will never get a state pension, because it will simply not exist by the time we reach retirement age—I am sorry if not everybody is at that level of cynicism, but most people my age and younger are. Looking at where our private pensions are invested and at the Government’s direction of travel, it would at least be an interesting thought exercise, in advance of any Government decision on mandation, to consider whether that money would benefit future generations or make things worse for them. In Wales, decisions can be called in for judicial review, should a public authority act against the wellbeing of future generations.

Looking at whether investments that could be directed by the Government would benefit or have a detrimental impact on future generations would be an interesting way to tie the Government’s hands. That way, we could see investment not simply in massive motorways, High Speed 2 or dual carriageways, but in things that have a demonstrable benefit, or at least no adverse impact, on the wellbeing of future generations. Surely that should be a positive thing for us all, given our huge responsibilities for the future of the planet and to those who will be living on these islands. Requiring that to be considered when the Government look at mandation could be a great way to do it.

I am not sure what I will do when we come to new clause 4—it will be voted on at the very end because it is a new clause. I like the idea, but I am not convinced that I would go down that exact route. I will not be supporting the Conservative amendments in this group, which I understand the shadow Minister is terribly shocked about, but there are places where we can have significant ideological disagreements, and this is definitely one of them.

[Mr Bedford]

I refer the Committee to my entry in the Register of Members’ Financial Interests, having worked in the water sector before being elected to Parliament. I will be speaking predominantly to amendment 248. The Committee heard evidence from industry experts who expressed concerns about the Bill’s mandation power. They were consistent and clear in raising concerns about the reserve powers in the Bill. I would like to reiterate some of those concerns raised by the industry, which I believe hon. Members should support today.

At the heart of clause 38 is its impact on the fiduciary duty of trustees—not just a mere technicality, but a duty that has been at the heart of trust-based governance for centuries. Trustees have a legal duty to act solely in the best interests of their members. However, the Government believe it is acceptable to tear up that duty through a ministerial power grab. If the Bill is passed in its current form, Ministers will have the power to override the judgment of trustees, which I do not believe is appropriate. That is not to guide or support, but to mandate them—to potentially force them to act against what are arguably the best interests and returns for their members.

That leads me to the potential impact on pensions adequacy in the UK. We are facing a pensions adequacy crisis, as I and other members of this Committee have said before. The majority of people are not saving anywhere near enough for retirement, and the cost to the state pension will only continue to rise, yet we have seen that the Government are willing to take investment decisions out of the hands of pension fund trustees.

--- Later in debate ---

[Mr Bedford]

I trust the pensions industry to make those judgments because they are the experts in this area, not Government Ministers, who often have short-term views. On Second Reading, one of my hon. Friends raised the example of HS2 and how Government priorities and policies can change over time. Would the hon. Member be happy for his constituents to have their money invested in a Government project or a large infrastructure scheme that is then scrapped, and to see huge losses to their pension scheme? I have huge concerns about the mandation point.

Clause 38, in its current form, undermines the trust that I mentioned earlier. I therefore urge hon. Members to back our amendment to ensure that the fiduciary duty remains and that we protect the security of millions of savers.

[Kirsty Blackman]

I corrected the Minister the other day on the definition of fiduciary duty, and the hon. Member for Mid Leicestershire just made a similar error. The fiduciary duty is not to act in the best interests of scheme members but to act in the best interests of getting them the pensions they were promised, or of growing their pensions. It is not necessarily about their best interests; it is about the best interests of their pension and the size of it.

We spoke about this quite a lot in relation to the local government pension scheme. There could be investments that make a person’s life significantly better than having an extra fiver a year in their pension. These are two different things. I appreciate that fiduciary duties should be what they are—I am not arguing with that; I am saying that the definition is not about acting in the best interests of scheme members but simply about growing their pension pots.

In terms of the two Lib Dem amendments and the points made about the investability of projects, we could argue about chickens and eggs and what will come first: will it be the economy growing in order that pension funds can find more investable projects, or will it be a pipeline of projects ready for funds to invest in, which is what the witnesses giving evidence last Tuesday suggested they need? If the Government are clear, not necessarily that they will include mandation but that there is a stick at the end of the process if the carrots do not work, confidence in that pipeline will grow in order for those projects to be there. I would love those projects to include what the Liberal Democrats are suggesting—housing and regeneration of town centres, for example—as well as investment in renewable energy and an increase in energy efficiency measures.

[John Milne]

Renewable energy schemes—particularly community energy, which I am a big fan of—are a very good addition, so we would support that.

[Kirsty Blackman]

I am delighted that the hon. Member agrees with me.

[Torsten Bell]

I shall speak briefly because I am conscious that we need to adjourn shortly for Treasury orals, which I know everybody will be joining us for. I will not rehearse the arguments I have already set out against the purpose of amendments 248 and 249, other than to note that I do not agree with the characterisation by the hon. Member for Mid Leicestershire.

Amendment 275 seeks to prevent the Government from designating securities in UK water companies as qualifying assets for the purpose of the asset allocation requirement. I recognise the points that the hon. Member for Wyre Forest made, and I am not surprised to hear that Reform has not thought through its policies in this regard. The Government have set out the safeguards we have put in place around the use of this power. We do not think we should single out a particular sector in primary legislation, so I ask Members not to press their amendments.

I thank the hon. Member for Horsham for introducing new clause 4. The investment he references is exactly the kind that we think would raise financial returns and improve quality of life at retirement. That is the purpose of these changes. He rightly raises the bringing together of the demand side—that is, the Mansion House accord and the change in investment behaviours—with the supply side. That is exactly what the Government are doing via planning permissions and everything else, to ensure that the pipeline of projects is there, including via the British Growth Partnership work, which is intermediating all of that. On that basis, we think that the new clause is unnecessary, but I completely agree with much that it contains.