Pension Schemes Bill

Lord Katz Excerpts

Monday 26th January 2026 Grand Committee

[Baroness Altmann (Non-Afl)]

I apologise, but I think that the noble Baroness’s characterisation of the impact of buying and selling, as she said, on listed companies—whether that puts money into the economy, to use her words—does not necessarily apply in the way she believes, particularly with closed-ended investment companies.

One of the problems with which they have had to deal, because of the regulatory constraints that we have been trying to help the Government address over the past two or three years, is that if people are selling these closed-ended investment companies but no one is buying them, they sink to a discount to their net asset value. At that point, they cannot invest in new opportunities; they cannot IPO or raise new capital. That has had a dramatic impact on the economy because these closed-ended companies, which were investing significantly in infrastructure across the country, have been unable to raise new money to invest in new opportunities.

[Lord in Waiting/Government Whip (Lord Katz) (Lab)]

If this is an intervention, it is quite a long one. I ask that interventions be kept brief; they should just be questions, really.

[Baroness Noakes (Con)]

The noble Baroness knows that she and I disagree on this subject. I hold to my view that the buying and selling of shares is simply the exchanging of financial assets.

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[Baroness Bowles of Berkhamsted (LD)]

I am not sure that “directly held” applies to an LTAF either. The fact is that you have wrappers and underlying assets. It is discriminatory, and that should be tested. I still do not see how, when you have the public policy laid out by the high-level working group set up to create LTAFs, you can then say, “A private negotiation overrides that”. I stand by that.

I know that the Pensions Minister received a letter from a past lord mayor, Alastair King, who is one of the architects of the Mansion House initiatives, on 22 October last year. He relayed that he had encountered both support for the investment trust market and concerns that the Bill did not acknowledge the potential of the investment company structure. That evidence—one of the architects asking, “What’s going on here?”—also seems to have been ignored.

I come to the same basic point: for me, the Government have not provided a clear, public or specific rationale for this exclusion. I would say that neither has the ABI, but I did not know that it runs the country. All of the evidence points the opposite way to what the Government have done. Officials have confirmed in meetings that no assessment of using listed investment companies has been carried out, despite the clear steer of the policy in the working group to do so. It seems that this Q&A from the ABI overrides a Bank of England/FCA/government working group. That cannot be so. The only explanation ever offered is that there are “suitably targeted guardrails”—a phrase that has never been defined, evidenced or justified. What do you have to guard from in a listed investment company? Competition? Transparency? That is a very strange thing to say; it is an instrument of division and discrimination, protecting secrets.

Let us remind ourselves of what we are dealing with: two collective investment vehicles, each of which is a wrapper holding protected assets of net asset value for the pension scheme. That is where they differ from an ordinary equity. An ordinary equity does not have any protection for the assets; if the company goes bust, it is bust. If the listed investment company goes back to the net asset value, the assets are still there for the pension fund. That is the difference, which is why a collective investment vehicle such as a listed investment company belongs with the LTAF; it does not belong with an equity.

I still do not see why they stick so closely to some Q&A but, whether by design or by accident, they have produced a proposal that I still say is without foundation, without evidence and, frankly, without integrity. It is irrational and procedurally unfair, and it fails to take account of relevant and public considerations, relying instead on things that have not been consulted on and that have been presented through private industry discussions. I have never seen anything like this before. There are simple ways to make it fair in various proposed amendments in the rest of this group, spoken to by the noble Baroness, Lady Altmann—

[Lord Katz (Lab)]

The noble Baroness has spoken for five and a half minutes now. Whether she is pressing or withdrawing her amendment, this should be brief.

[Baroness Bowles of Berkhamsted (LD)]

I have only two more lines. I will just remind noble Lords that there are simple ways to make this fair and reasonable, as spoken to by the noble Baroness, Lady Altmann. These give a free choice of instrument, with no compulsion—and yet there is still resistance, with no rational explanation. This is, of course, not the end, unless the Government see their error, but for now I beg leave to withdraw my amendment.

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[Baroness Stedman-Scott (Con)]

My Lords, I will speak briefly on the other amendments in this group before turning to Amendment 145 in my name and that of my noble friend Lord Younger of Leckie. As noble Lords have already set out, Clause 40 represents a significant extension of regulatory influence over asset allocation in defined contribution default arrangements. Given the scale of that change, it is both reasonable and necessary that we consider carefully how risk, responsibility and accountability are apportioned within the framework the Bill creates.

The amendments in the name of my noble friend Lady McIntosh of Pickering, and the noble Baronesses, Lady Bowles of Berkhamsted and Lady Altmann, seek to introduce greater certainty and procedural fairness into the operation of the savers’ interest test. Removing an automatic time limit on exemptions, ensuring that schemes are not compelled to alter asset allocations while determinations or appeals are ongoing and requiring the authority to give reasons for its decisions are all, in my submission, entirely sensible propositions. They make the framework that the Bill creates more robust, transparent and defensible.

In a similar vein, allowing schemes to apply for the savers’ interest test over a limited number of consecutive years, while demonstrating a credible pathway to compliance, reflects a realistic understanding of how long-term investment strategies are developed and implemented. It recognises that good outcomes for savers are not always delivered by abrupt or mechanically imposed changes.

Several of the amendments in this group speak directly to the core point of fiduciary responsibility, which, as was powerfully reinforced during our debate on the final group last Thursday, is an absolutely central point to the approach being adopted by noble Lords across the Committee. The amendments reinforcing fiduciary duty and proposing a safe harbour for trustees acting in good faith on professional advice and in accordance with their duties are an attempt to clarify that nothing in this Bill should place trustees in an impossible position, caught between regulatory direction on the one hand and their fundamental obligation to act in the best financial interests of members on the other.

Related to this, the probing amendment from the noble Lords, Lord Vaux of Harrowden and Lord Palmer of Childs Hill, asks an important and unresolved question: where investment decisions are mandated by the state, in effect, where does liability sit if those investments underperform? Even if the Government do not accept the mechanism proposed, the question itself cannot simply be wished away; I hope that the Minister will address it directly.

I also wish to touch on the amendments that deal with systemic risk, structural neutrality and herding behaviour. Requiring trustees to have regard to long-term systemic risks, including economic resilience and climate change, is entirely consistent with existing best practice and does not mandate investment in any particular asset or vehicle. Ensuring that listed investment funds are not structurally disadvantaged helps preserve choice and diversification. The amendment on regulatory herding speaks to a well-understood risk: overly prescriptive frameworks can drive homogeneity of behaviour, amplifying systemic risk rather than mitigating it.

I hope, therefore, that the Minister will engage seriously with the questions these amendments ask around process, liability, fiduciary duty and risk. Even where the Government may not be minded to accept the amendments, as drafted, they highlight issues that, given the provisions in the Bill, deserve clear and careful answers.

As has been our consistent approach throughout these days in Committee, my own amendment seeks to probe the Government on a key question: why have they provided for a maximum civil penalty of £100,000 for failure to comply with the mandation requirements set out in this chapter? Given the nature of those requirements and the breadth of discretion that they confer on the authority, it is not at all clear in the Bill how the Government have arrived at that figure or why it is considered proportionate. We are dealing here with decisions around long-term asset allocation in pension default arrangements—areas where reasonable, professional judgment may legitimately differ and where the consequences of regulatory direction may not be apparent for many years. In that context, a six-figure penalty is not a trivial matter.

This amendment is designed to invite the Government to explain the rationale for the level of the penalty; how it is expected to be applied in practice; and whether sufficient regard has been had to scheme size, intent and the nature of any alleged breach. I hope that the Minister can set out clearly why £100,000 is the appropriate ceiling; how proportionality will be ensured; and what safeguards will exist to prevent penalties being applied in a blunt or mechanistic way.

[Lord Katz (Lab)]

We have to have a hard stop at 8 pm, I am afraid, so I move that the Committee do now adjourn.

Debate on Amendment 140 adjourned.