Pension Schemes Bill

Lord Kirkhope of Harrogate Excerpts

Thursday 18th December 2025 Lords Chamber

[Lord Kirkhope of Harrogate (Con)]

My Lords, before I make my few remarks, I also congratulate the noble Baroness, Lady White, on her most excellent maiden speech. I declare my interest as a trustee and a director of pension funds for a number of years. I acknowledge that this Bill is, in general, a good idea; however, as has been said by many people—I hate to repeat it again—it is a complex multifaceted set of proposals, and the devil is in the details. As I said, I have read this in almost every report so far at this stage of the Bill.

To most working people, their pensions are prospectively there simply to support them when they retire. Good employers, whether in the public or private sector, know that pension provision is often measured carefully when job opportunities are considered. Whether it is a defined benefit plan or a defined contribution plan is quite often a matter of good luck rather than good management and is often determined as a result of historic tradition in the particular industry or business.

In this legislation, the Government have the good general intentions of assisting members in DC schemes, including the enhancement of opportunities to get better returns through increasing the size of schemes and returning surpluses to employers. They also want to encourage schemes to invest in UK asset classes, thus hoping to help the economy, which I am sure is a laudable aim, particularly at present. All well so far, but let me at this early stage of our deliberations just put down one or two markers for later debate.

Increasing DC schemes to £25 billion—an arbitrary figure—has some real downsides. I suspect that this will reduce competition due to consolidation, leaving less choice and barring entry for new schemes, and will increase vulnerability, especially to cyber attack. DC schemes have been the preferred formula now for over 20 years and master trusts for only about 10 years and, of those, only a handful have achieved that magic £25 billion.

Next is the question of surpluses in DB funds. When interest rates were low, many employers put billions into schemes to repair a large number of deficits. They became less competitive than employers who did not have any DB schemes. I therefore hope that, in the Bill’s changes, we might find ways in which some of these surpluses could be returned to be utilised to fund capital expenditure, and I hope the Minister might be able to agree to that.

There are examples of surplus sharing and, in that context, I mention the Aberdeen Group’s adoption of the Stagecoach pension scheme less than two weeks ago—perhaps already mentioned by noble Lords. Members there will get two-thirds of future surpluses and Aberdeen one-third. I have no doubt that this will give great pleasure to bus drivers all over the UK but, like so many other aspects of pensions, there must be safeguards. It is the trustees who must always decide to distribute surpluses and they must act independently of employers, remembering that the basic principle is always to act in the best interest of the members. The intentions in the Bill for the allocation of surpluses in DB schemes seem to extend quite widely and to include enhancement of contributions in DC schemes. This crossover needs some care and further explanation.

Superfunds should be respected as an alternative destination, but advisory costs can be enormous. Also, actuaries must follow their obligations under Technical Actuarial Standard 300 and give advice on alternatives when consideration is taking place to transfer pension scheme obligations to insurers under buyout contracts. Improving the superfund regime is all well and good, but the Government must deal with the barriers around adviser intransigence and those potentially enormous costs. Without that attention, the idea of growing superfunds is a non-starter, as is evidenced by there being only one such fund in the UK at present.

Regarding encouragement to invest in UK assets, I also retain great reservations on mandation powers. As I said at the beginning, in theory it is a good idea that investing to help the UK should be given greater priority, but I remain concerned about the conflict of interest that might arise. This issue was raised by my honourable friend Mark Garnier at Second Reading in the other place. I go back to the strict obligation on trustees to always perform their role in the best interests of beneficiaries. That might suggest a new concentration on UK investment, but not necessarily. We need some more help for trustees for this responsibility. In response, the Minister in the other place suggested an opt-out if there were to be material detriment to members in taking such preferential decisions. I suggest that that would not satisfy the need for trustees to consider a wide list of things in determining those best interests of members.

On the powers for the ombudsman, we need to delve further into the intentions of the Government. Moving the ombudsman to become a form of court or tribunal changes to some extent the nature of its work. The relationship between the regulator, trustees and the ombudsman is currently very clear. We need a better explanation of their future respective roles and powers. My experience is that, although the Pensions Regulator imposes and controls duties and reminds pension trustees of their obligations, it is always, of course, ultimately up to the trustees themselves to decide what they believe is a proper course. Putting the regulator or the ombudsman into an enhanced role will not only diminish the absolute responsibility of trustees; it could also put those bodies into invidious situations of decision-making between themselves. No doubt there are also substantial resource issues to consider.

Lastly, I mention the pensions dashboard to the Minister, which has no doubt been referred to. A progress report would be welcome, as would an assurance that, as was clearly stated by the Minister at Second Reading in the other place, it will be completed and ready by autumn next year.

No doubt we can perfect matters as the Bill proceeds, as is the way with this House. The intentions are fine; the logistics and implementation to meet those intentions may well take quite a lot of work.