Pension Schemes Bill

Lord Johnson of Lainston Excerpts

Thursday 19th March 2026 Lords Chamber

[Lord Vaux of Harrowden (CB)]

My Lords, when you are trying to solve a problem, it is best to try to understand the root causes of the problem and then resolve those causes—diagnose and treat the disease, not the symptoms. That is why I have repeatedly asked the Minister why she believes UK pension funds have been so reluctant to invest in so-called UK productive assets. I know she gets frustrated with me asking this question regularly, but she has never answered it. She always responds, as she did again on 11 March, by explaining what the symptom is: that UK pension funds invest a much lower proportion in UK productive assets than international comparators. She is right, and, as noble the noble Baroness, Lady Altmann, just pointed out, I do not think any of us disagree with that, but that does not answer the fundamental question. Why are UK assets apparently so unattractive to UK pension funds? What are the barriers to investment that we need to remove?

The Minister has often told us that the mandation power is just a backstop to the voluntary Mansion House agreement and probably will not be used. That is precisely the problem. It does not need to be used; its very existence is, in effect, mandation. As the Times pointed out so clearly on Saturday:

“A voluntary agreement … ceases to be voluntary … if it is underwritten by the promise of compulsion”.


Even if the power is not used, it still creates a fiduciary duty problem: the trustees are still, in effect, being forced to act in a way that they might not believe to be in the best interests of members, but they will not even have the defence of ,“We were only following orders”, if it turns out badly. The Minister has never given an adequate response to the question of who should bear the risk if the government-mandated assets result in poor performance.

On 11 March, the Minister said:

“This power does not direct schemes into specific assets or projects. What it does is set a broad framework aligned with the industry’s own voluntary commitments under the Mansion House Accord. Trustees retain full discretion over individual investment selection and the balance between asset classes”.—[Official Report, 11/3/26; col. 279.]


But that is not what the Bill says. What it actually does is give the Government power to require that an undefined and unlimited percentage is invested in qualifying assets, which are defined as

“an asset of a prescribed description”.

I stress that it says “an asset”, not just a class of assets.

There is no limit in the Bill on what those assets can be, except that they cannot be listed on a recognised exchange. Contrary to what the Minister has told us, specific assets or projects can be prescribed. Nor does the Bill require them to be in the UK; they can be anywhere in the world. The first regulations to define the asset allocation are subject to the affirmative procedure, but after that, any future Government can prescribe any asset, anywhere in the world, on any percentage, under the negative procedure.

As the noble Baroness, Lady Bowles, pointed out, a scheme can apply for an exemption, but it is an incredibly high hurdle. A scheme must prove that the asset allocation requirement would cause

“material financial detriment to members”.

That is extraordinary—not just that it is “not in members’ interests”, but “material financial detriment”.

Contrary to the Minister’s assurances, this unlimited mandation power can be used to direct trustees to invest in classes of assets or specific assets. It fundamentally undermines the fiduciary duty of pension trustees. This dangerous power must be removed from the Bill. Instead, the Government should, as I said at the beginning, focus their efforts on identifying and removing the underlying barriers to UK investment.

[Lord Johnson of Lainston (Con)]

My Lords, I speak in this mini-debate in full support of this amendment. I am extremely concerned about the principle of government directing any form of investment. I do not think any Government have a strong record on making investments, and to compel pension funds to make such investments would be incredibly dangerous. As the noble Lord, Lord Vaux of Harrowden, has so wisely said, we are setting ourselves a very dangerous precedent here that we will all—as people who want to retire at some point—live to regret.

My second point is a technical one, which the noble Lord, Lord Vaux, touched on but is worth exploring slightly further: namely, the description of what a directed investment is. What is a UK investment—the sort of thing we would be told we have to invest in? Is it a company where the headquarters is domiciled in London, or that employs a certain number of people, or that does a certain thing in the UK specifically related to certain asset classes?

The reality is that you will have enormous problems if you try to force money into certain parts of the economy. You will get crowding out and excess price. An example could be to force these pension funds to invest in infrastructure. You would have a crowding out of other investments into infrastructure projects that would be mispriced, and that would create problems when it came to trying to generate returns. We should be very careful about that. Prescription over investment is one of the worst things a Government can possibly do, and I think we should acknowledge that in this House.

As has been mentioned, why are we talking about forcing people to buy things that other people do not wish to buy when we should be trying to create an economy that people want to invest in? I call upon the Minister to put that as the priority, rather than trying to force people to do things they do not wish to do, which will cause enormous problems in the long term.

[Lord Wolfson of Aspley Guise (Con)]

My Lords, I begin by declaring an interest as chief executive of NEXT plc, a company that has over 20,000 colleagues enrolled in an auto-enrolment pension.

I want to convey to the Government just how worried people are at the idea that the Government are planning to mandate how their pensions—their life savings—should be invested. To be told that a percentage, as yet to be determined, should be invested in certain classes of assets, as yet to be defined, by Ministers who can give no indication as to what they want to do with these powers is deeply worrying.

Good investments do not need to be mandatory. In fact, there is the inherent suspicion that investments which are compelled are unlikely to be very good investments. It is worse than that, because if the demand for certain asset classes is artificially increased then the returns are likely to fall further. Why pay a healthy return to an investor who has no choice but to invest in your class of asset?

It might be argued that while mandated investments are not so good for pensioners, they will be good for the nation as a whole. This is a dangerous precedent, and it is not credible, because the Government are not well placed to allocate capital in this way. They are subject to political pressures, the competing priorities of their Back Benches, the media and the polls.

I join other noble Lords in saying that the Government are not wrong to worry. The British pension funds show an alarming tendency to avoid investing in UK businesses, but there are better answers than this—reform the regulatory regime, make the UK a more attractive place to invest in. Compulsion is the worst possible solution, and it is that compulsion that goes to the heart of my concerns, and those of many others, about this power.

The greatest risk of this power is that the Government abuse it—that in the thick of some political storm, under pressure to boost the economy and to serve some interest group, they mandate large-scale misguided investment in some part of the economy as a last roll of the dice. I stress that I completely accept that this Government would not abuse the power. However, can the Minister be so sure that all future governments, perhaps led by their political opponents, will not abuse it?

Other noble Lords have rightly spoken about the breadth of these skeleton powers. They are not quite Henry VIII powers but, to me, they look very much like Robert Maxwell powers—the power to control and direct the investment of other people’s hard-earned savings for purposes other than their benefit. Back then, we said that never again would we put the savings of so many people in the hands of so few powerful people, or risk people’s life savings being invested for anything other than their benefit. This power takes us back in the wrong direction. It should not stand. I support the amendment tabled by the noble Baroness, Lady Bowles.