Pension Schemes Bill

Lord Sharkey Excerpts

2nd reading
Thursday 18th December 2025 Lords Chamber

[Lord Sharkey (LD)]

My Lords, I join the Minister and the noble Baroness, Lady Stedman-Scott, in saying how much I look forward to the maiden speech of the noble Baroness, Lady White, especially since I too live in Tufnell Park.

It is always a pleasure to follow the Minister. We welcome an important set of proposals for reform. We would support many of these proposals, but several merit serious examination and probing in Committee. As things stand, I should say upfront that we cannot support the mandation proposals in the Bill. I hope that we can constructively modify these proposals during the Bill’s passage through the House.

The Minister will know that stakeholders have expressed significant concerns about risk to member security, trustee independence and long-term saver outcomes that may be contained in the Bill’s proposals. For example, there are worries that easing access to DB surpluses of employers could undermine member benefits. Phoenix has noted that surplus release thresholds will be set in secondary legislation. It believes that a post-release funding level is essential to protect members and limit covenant risks. It opposes lowering the threshold to “low dependency” and believes that surplus should only be released above buyout affordability. Some MPs and the ABI have called for stricter oversight, including retention of the three “gateway tests” to prioritise buyouts over superfunds.

The ACA also recommends that trustees have a formal role in assessing and agreeing any rule changes and in determining any refund of a surplus to an employer. The CEO of TPR, Nausicaa Delfas, whose name I googled—it means “burner of ships”—is on record as saying that:

“Where schemes are fully funded and there are protections in place for members, we support efforts to help trustees and employers consider how to safely release surplus if it can improve member benefits or unlock investment in the wider economy”.


It is not entirely clear how those two outcomes may be traded off, but I would be grateful if the Minister could say more about government thinking on member protection in release and distribution of surplus. I know that my noble friend Lord Thurso, who cannot be here today because he is undergoing a medical procedure in Inverness, will also wish to test the Government’s thinking in this area in Committee.

Then there is the critical question of mandated asset allocation. This Bill, as everyone knows, contains a reserve power to authorise DC master trusts and group personal pensions used for automatic enrolment to invest a minimum proportion of assets in “productive” investments, including UK assets. On the face of it, this cuts directly across trustees’ fiduciary duties and members’ best interest tests. It risks political direction of asset allocation. Does anyone really believe that the Government would be better at allocating funding than the markets? This mandation may well create significant market distorting effects if, for example, the demand for such “productive” assets outpaces their availability.

There is also the risk that such a power may be extended over time to influence allocation on an even larger scale than might be currently envisaged. It is worrying that the Governor of the Bank of England has been reported as saying that he does not favour mandation. The Institute and Faculty of Actuaries has said in a written submission:

“The criteria for Master Trust authorisation were intended to produce a safe and reliable savings environment and we do not believe the concept of qualifying assets belongs there”.


This power to mandate

“introduces a commercial conflict between pension providers and trustees over asset allocation, weakening the fiduciary accountability of the trustees … It is also premature to give the Government a sweeping power it does not expect to make use of (we note the percentage of mandated assets cannot be increased after 2035 but that might encourage a government to ‘use it or lose it’.) We would urge Parliamentarians to consider the implications of a future government—of any configuration—having a power to define qualifying assets as any project that the government of the day can meaningfully define, charging the capital costs to the auto-enrolled pension savings of the nation … Should mandating schemes to invest in accordance with Government direction proceed, it needs to be made clear what the respective responsibilities of Government and trustees are”

as the finances work themselves through.

I would be very grateful if the Minister could set out for us how mandation and fiduciary duty can be reconciled without complicating or diluting the proper exercise of fiduciary duty. Perhaps a definition of “productive” would be a useful start. My noble friend Lady Kramer, who is attending a funeral this afternoon, had intended to speak to this point and wanted to ask for a detail and risk profile of assets that will qualify as “productive”.

Most people contribute through auto-enrolment into default funds. They have few resources and should not be in high-risk investments—and certainly not without their permission. Ministers have promised statutory guidance to help resolve the issue of potential conflict between mandation and fiduciary duty. On Report in the Commons, Torsten Bell said

“I intend to bring forward legislation that will allow the Government to develop statutory guidance for the trust-based private pensions sector”.—[Official Report, Commons, 3/12/25; col. 1043.]

He did not specify what kind of legislation or when. The Minister has told us that this guidance will not amount to direction and will have the usual force, or lack of force, present in the many existing “have regards” that exist in the financial services arena. She has also told us that this draft guidance will not be available before Committee begins. This is surely not ideal.

Can the Minister reassure us that, at the very least, this draft guidance will be available before the end of Committee stage? We need to be able to discuss the details of the guidance before we agree to legislation. That is especially the case if the Government intend to rely on the use of SIs, which would of course deprive Parliament of any effective means of scrutiny at all. May I ask her to take another look at the timing, so that we may be able to take guidance properly into account in our discussions of mandation?

Perhaps the Minister can also explain why the mandation currently has sunset provisions for expiry in 2035 if no regulations are in fact made. Why not use, for example, the Mansion House targets to generate a significantly earlier cut-off?

Then there are questions of value for money and consolidations, which have been discussed already. The ABI, as I am sure the Minister knows, pushes for regulatory mechanisms to force consolidation only when it clearly benefits customers. I heard the Minister endorse that approach. The key word here is “clearly”—what does this mean? What will be the test, and who will be doing the testing?

As important as any of these things is the question of pensions adequacy or inadequacy. It is very disappointing that the Bill does nothing to tackle such things as low contribution rates, self-employed exclusion and early savings barriers. The question of whether people are saving enough is probably easy enough to answer, but what to do about it is entirely absent from the Bill. We will want to discuss this further.

Finally, there is no substantive mention of climate issues in the Bill and no reference to, for example, the Paris Agreement. There is an obvious asymmetry here. The Bill provides for increasing investment in productive assets, which are to be defined. It says nothing about which assets should be avoided or minimised. Industry analysts caution that, if the mandation favours domestic growth sectors without, or which do not have strong, climate screening, schemes could be nudged into assets misaligned with the 1.5 to 2 degrees pathway. That would certainly conflict with the spirit, if not the letter, of the Paris Agreement, and it would damage everybody and every enterprise.

Proposed new Clause 19, brought forward at Third Reading in the Commons by my honourable friend Manuela Perteghella, addresses this issue. This new clause, not voted on, would have required the Government and the FCA to make regulations and rules restricting exposure of some occupational and workplace pension schemes to thermal coal investments, and to regularly review whether the restriction should be extended to other fossil fuels. We will bring forward a similar amendment in Committee.

This is a very important Bill with some obviously welcome proposals but also some deep causes for concern, especially as regards mandation and the failure to address pension inadequacy. We look forward to a constructive discussion with the Government and detailed examination of the Bill.

Pension Schemes Bill

Lord Sharkey Excerpts

Committee stage
Monday 12th January 2026 Grand Committee

Moved by

[Lord Sharkey]

3: Clause 1, page 3, line 7, at end insert—
“(7A) Scheme regulations made under this section are subject to the super-affirmative procedure, as defined by section (Super-affirmative procedure).”Member’s explanatory statement
This probing amendment seeks to clarify the Government’s willingness to subject regulations made under this section to the super-affirmative procedure, as defined in another amendment in the name of Lord Sharkey to after clause 120. It is connected to other amendments to clause 120 in Lord Sharkey’s name.

[Lord Sharkey (LD)]

My Lords, in moving Amendment 3, I will speak also to Amendments 221 and 222. These amendments would enable meaningful scrutiny of any of the Bill’s nearly 130 delegated parts when it seemed appropriate to Parliament.

The Bill before us is a skeleton Bill. The DPRRC says that the test for a skeleton Bill is whether it is

“legislation containing so many significant delegated powers that the real operation of the legislation depends entirely or in very large part on regulations made under it”.

This Bill, with nearly 130 delegated powers, clearly passes that test; in fact, it is an obvious and extreme example of a skeleton Bill. This means that parliamentary scrutiny of the Bill is severely restricted. That is because, as things stand, statutory instruments cannot be amended and, by convention, are not rejected. As a result, the Government are taking powers to make policy before they have decided what that policy should be or before critical policy details are in place.

The Constitution Committee was clear in its 2018 report The Legislative Process that:

“Without a genuine risk of defeat, and no amendment possible, Parliament is doing little more than rubber-stamping the Government’s secondary legislation. This is constitutionally unacceptable”.


The DPRRC, in its recent report on the Bill, is equally critical and alarming. It says, among other things:

“We take the view that this Bill is in large part a licence for Ministers to make subordinate legislation … We would have found helpful an explicit declaration from the Department that the bill is a skeleton bill, accompanied by a full justification for adopting that approach, including why no other approach was reasonable to adopt and how the scope of the skeleton provision is constrained”.


The committee’s report, one of the most damning and disturbing that I have read, goes on to say:

“We would also have welcomed an opportunity to examine indicative regulations for at least some of the more important delegated powers given the large part played by delegated powers in this Bill”.


Can the Minister say whether and when the Government will comply with the committee’s suggestion on indicative regulations? We have seen no such indicative draft regulations. I understand that such drafts were circulating among government and industry after the summer. Is that the case? If it is, why has Parliament not been included in the circulation? It is hard to avoid the conclusion that Parliament is being deliberately bypassed.

The affirmative procedure proposed in my Amendments 3, 221 and 222 is designed to deliver a measure of real scrutiny. Together, they would deliver a form of super-affirmative statutory instrument. Paragraph 31.14 of Part 4 of Erskine May characterises the super-affirmative procedure like this:

“The super-affirmative procedure provides both Houses with opportunities to comment on proposals for secondary legislation and to recommend amendments before orders for affirmative approval are brought forward in their final form. (It should be noted that the power to amend the proposed instrument remains with the Minister: the two Houses and their committees can only recommend changes, not make them”.


The noble Baroness, Lady Penn, who is not in her place at the moment, when a Minister gave this House a helpful summary of how the procedure would work in practice, once the House had decided that the procedure should be followed in a particular case. She said that

“that procedure would require an initial draft of the regulations to be laid before Parliament alongside an explanatory statement and that a committee must be convened to report on those draft regulations within 30 days of publication. Only after a minimum of 30 days following the publication of the initial draft regulations may the Secretary of State lay regulations, accompanied by a further published statement on any changes to the regulations. They must then be debated as normal in both Houses and approved by resolution”.—[Official Report, 19/10/20; col. GC 376.]

According to the Library, the last time I asked, the last recorded insertion into a Bill of a super-affirmative procedure was by the Government in October 2017 into what became the Financial Guidance and Claims Act. When they are not doing it themselves, they have traditionally opposed its use on any or all of three grounds. The first is that it is unnecessary because the affirmative procedure provides sufficient parliamentary scrutiny. The second is that it takes too long and the third is that it is cumbersome. We may hear any or all of these objections from the Minister today.

The first objection, that the affirmative procedure provides sufficient scrutiny, is plainly and simply wrong—unless the Government regard no effective scrutiny as sufficient. The second objection, that it takes too long, is to misread its purpose; the super-affirmative procedure takes longer, but that is because it contains provisions for real scrutiny, which necessarily takes time. This is not a negative—it is the merit of the procedure and the point of it. The third traditional objection, that the super-affirmative could turn out to be cumbersome and a disproportionate use of parliamentary time, has no force in the proposed use of the super-affirmative procedure set out in my three amendments. The procedure would be used only if either House decided that an issue was important enough to require the extra scrutiny that the procedure provides.

The House has debated the use of super-affirmatives before. In 2021, we addressed the matter in Committee and on Report on the Medicines and Medical Devices Bill and other notorious skeleton Bills. There was very broad support for using super-affirmatives from around the Chamber, including from the late and much-lamented Lord Judge, who said:

“The wider use of the super-affirmative process would ensure better parliamentary scrutiny and control of the Executive, which for too long have simply ignored the constant urgings of the parliamentary committees in this House”.—[Official Report, 12/1/21; col. 654.]


When the proposal on that Bill was put to a vote, the result was: Content 320, Not-Content 236. Many distinguished Members voted for the use of super-affirmatives, including the noble Baroness, Lady Sherlock. I beg to move Amendment 3.

--- Later in debate ---

[Baroness Sherlock (Lab)]

I was going to say that I am grateful to the noble Lord, but I am not sure that I am, really. I am sure he has not missed the fact that the amendments put forward by the noble Lord, Lord Sharkey, do not apply simply to the LGPS provisions in the Bill. They would have widespread application throughout the Bill and implications beyond it. I say that they would have all these implications and I am talking about trustees because they would have a significant impact on the way that all those actors in the pension space would be able to engage in future.

In the past, I have heard people around the House criticise Governments for making decisions at the centre without engaging with those in industry and business who have to deliver them. I know that, if the Government had given huge amounts of certainty and left nothing out there, the criticism would simply be the reverse of what we have heard today. We have to find a balance. The Government believe we have found the right balance. Some Members of the Committee will disagree. I have looked carefully into this, and I am defending the balance that the Government have come to, but I accept that if noble Lords disagree, we will have to come back to this in due course.

We think the existing framework already strikes the right balance between scrutiny and practicality, enabling Parliament to oversee policy development while allowing essential regulations to be made in a timely and orderly way. In the light of my comments, particularly about the proportionality of this, its comparability with previous pensions legislation and the degree to which it is in continuity with the way pensions legislation has traditionally been made by successive Governments, I hope the noble Lord will feel able to withdraw his amendment.

[Lord Sharkey (LD)]

I am grateful to all those who have contributed to this brief debate. The complexity described by the Minister is obviously real and clearly important, but one of the ways of dealing with complexity is to have the instruments to simplify it and discuss it. My response to the scenario painted by the Minister would be to say: let us have super-affirmative procedures and accept that they will take up a bit more time and involve a bit more work, but, as I pointed out, that is their entire point.

Skeleton Bills always limit parliamentary scrutiny, and the Pension Schemes Bill is not an exception to that; in some ways, it is a confirmation of it. I understood the Minister’s case, but the Government’s desire to limit parliamentary scrutiny is a mistake. The SIs generated by this Bill will have real consequences for the real economy. We cannot usefully discuss these consequences until we have the detail. It seems to me as simple as that. Of course, having the detail helps only if we can do something about it, and the super-affirmative procedure provides that opportunity.

--- Later in debate ---

[Lord Davies of Brixton (Lab)]

I am still mystified as to why Amendment 220 is not included in this group. It is left bereft, right at the end of the Marshalled List. Is there a reason?

[Lord Sharkey (LD)]

If the noble Lord is asking why it is there, I am afraid I will have to plead the Public Bill Office.

[Baroness Sherlock (Lab)]

I am advised that Amendment 220 had been withdrawn, not just not debated. We will look into that, and the noble Lord will need to clarify it.

--- Later in debate ---

[Lord Sharkey (LD)]

I beg leave to withdraw Amendment 3.

Amendment 3 withdrawn.

Pension Schemes Bill

Lord Sharkey Excerpts

Committee stage
Thursday 22nd January 2026 Grand Committee

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I did not expect to lead this group, but due to the diligence of the Public Bill Office in tracking down consequential amendments, my Amendment 90 has come to the top.

My Amendment 110, which is my main amendment in this group and on which I will focus my remarks, seeks to delete new Section 28C of FSMA. At the heart of new Section 28C is the asset allocation definition, which is flawed not because of its aspiration but because it rests on a complete misunderstanding of what investment trusts or listed investment companies actually invest in, and it excludes them.

Last Monday, I explained the anti-competitive and reputational effects of encouraging the flow of investment exclusively via the new LTAF vehicle and excluding the long-standing listed investment company structure. Today I have touched on the role that they play in valuation. Before turning to the wider reasons why this clause is fundamentally flawed, I will dispel another misconception I hear in circulation: “Investment trusts do not do infrastructure”. Well, I do not know what you call the Thames Tideway Tunnel, Sizewell C, utility-scale onshore and offshore wind, schools, hospitals, hydroelectric schemes, solar and nuclear energy, space, communications and satellites—but I call them infrastructure. All are substantially invested in, at the building stage, by investment trusts. Perhaps the Minister would accompany me to see some of these, although maybe not in space.

I also hear the claim that they do not do the big infrastructure projects that the Government are focused on. That is not really true, but there is nothing in the asset list of private equity, private debt, venture capital and interests in land that says, “Only the mega size”, or that stops them being qualified assets when held by another route. Anyway, we all need all scales of infrastructure investment and ongoing funding for expansion.

On Monday this week, our much-vaunted new prospectus rules came into effect; they make it easier, cheaper and faster to raise both IPO and follow-on capital. This applies to listed investment companies, too. What was this for? It was precisely so that companies can grow faster, bigger pools of capital can be raised more efficiently and larger infrastructure projects and bigger funds can be built. What is the point of celebrating our new financial market regulation if the Government then block the very vehicles it was designed to support? Why are some people in charge of investment—yes, some of them are to blame, too—still of the mindset that investment trusts do not do primary investment, at the very moment when rule changes are being made to build on the boom in primary infrastructure investment that has come through this route in recent years?

I come on to mandation more generally. I am not against the underlying intent of encouraging more pension investment in private assets. However, there is already a far greater awareness of the need to do that. The policy argument is won, but we have only just got to setting up LTAFs and the listing rule changes. The Government have not given the financial industry the chance to show what it can do. It is hardly a vote of confidence in our largest industry—financial services. What message does that send to the world? It says, “Go somewhere else; we have to bully to get things done in London”. What does it say about our famous and canny asset management in Edinburgh? If the Government want to add encouragement, use “comply or explain”—or, better still, “always explain”—to add transparency and understanding to the system. My goodness, neither the Government nor parts of the pensions industry seem to know what goes on in the wider asset management industry. Do not just ask the same people who have driven the old pension investment strategies.

Then we come to trustees. I have amendments elsewhere in the Bill aimed at clarifying that they can and should look to wider systemic and economic effects, but they should not be overridden. At their core, members’ interests are paramount for trustees. New Section 28C does not have members’ interests paramount. It threatens deauthorisation and the disruption and cost that that would cause if, in the judgment of trustees and in full knowledge of the characteristics of their members, they consider that a little less infrastructure or private equity is appropriate. What if the phasing of big projects means that there is a dip when investments exit? What if you are still in the J-curve dip? If some things perform badly, or the rush to invest exaggerates prices, do trustees have to keep pumping money in at poor value? No, that is the moment for explanation and perhaps a modification of strategy, not compulsion or deauthorisation.

Let us be clear: a deauthorisation power of this kind is not neutral. It creates a structural pressure towards consolidation. If a scheme risks losing authorisation simply because its trustees judge that a different phasing or balance of assets is appropriate for its members, they get closed down or forced to merge. That is backdoor consolidation, not member-focused governance.

These are some of the reasons why I want to remove new Section 28C entirely. It does nothing but harm. It is economically inept, competitively unfair, legally unprincipled and blind to the regulatory opportunities that have only just come on stream. I beg to move.

[Lord Sharkey (LD)]

My Lords, it is a pleasure to follow—and I did—my noble friend discussing the reserved mandatory powers in the Bill. I will speak to my Amendments 111, 161 and 162. I thank the noble Lord, Lord Vaux, for adding his name to all three and the noble Lord, Lord Sikka, for adding his name to the first.

The purpose of these amendments is to remove the reserve power of mandation from the Bill. The case against these reserve mandatory powers has been set out by a large number of important institutions. Most criticism seems to focus on the issue of conflicts with fiduciary duty. Critics of mandation have argued, correctly in my view, that directing trustees to hold a fixed share of specified assets conflicts with the trustees’ duty to act solely in the interests of their members. Mandation of investment in specific asset classes for policy reasons rather than on a risk/return consideration risks subordinating members’ interests to political objectives.

This also exposes trustees to legal liability for breaching their duty, especially if the investments are seen as politically motivated or fail to deliver competitive returns. The lack of legal clarity around the scope of fiduciary duty, particularly regarding systemic risks or broader economic impacts may well exacerbate trustees’ concerns about litigation and regulatory risk.

I know that the Government are alive to the fiduciary duty issue and have promised to produce statutory guidance to help. At our meeting before Second Reading, I asked the Minister whether this guidance would have binding provisions. The answer was no. The guidance will have, apparently, the same force as the many other “have regards” in our financial services sector. I also asked the Minister whether we could see a draft of this guidance before the end of Committee, but I have not had a reply to date. I therefore ask the Minister again whether we will see draft guidance so that we may scrutinise it before the end of Committee, or at least on Report. It is easy to understand, in these circumstances, why some legal experts and industry groups have called for a statutory clarification of fiduciary duty and argue that only primary legislation can provide the cover that trustees need to invest confidently, as the Government wish, without breaching their duties.

There is also the question of definition. What is the appropriate test for “productive” when applied to mandated assets? What is the appropriate test for “UK investment”, or even “qualifying assets”? Can the Minister say what these tests are and when they are likely to be available to Parliament for examination? There are other significant concerns with mandation. For example, it may produce lower returns and higher costs if it drives crowded trades, pushing schemes into lower-quality or overpriced assets simply to hit targets. As the large DC providers have noted, if there are not enough good-quality opportunities in the mandated classes, schemes may be forced into illiquid or sub-optimal funds. This concern has been made clear as a condition of voluntary participation in the Mansion House Accord. Then there may be a risk in reducing diversification. Concentrating pension assets in restricted geography or restricted asset classes inevitably increases vulnerability to UK-specific economic shocks.

--- Later in debate ---

That is probably all I have time to say. We will come back to many of the details next week, but the Government recognise that the use of this power would be a significant intervention. We also recognise the need to tread cautiously and with scrupulous regard to the impact on savers. This measure has been designed in exactly that spirit. I look forward to discussing all this in more detail, but the powers are an important part of the Government’s overall package and, as such, I respectfully request that noble Lords do not press their amendments.

[Lord Sharkey (LD)]

Can the Minister respond to the point I made about statutory guidance?

[Baroness Sherlock (Lab)]

I will answer that next week, if that is okay, when we discuss the issues of fiduciary duty.

Pension Schemes Bill

Lord Sharkey Excerpts

Committee stage
Monday 26th January 2026 Grand Committee

[Lord Sharkey (LD)]

My Lords, I will speak briefly under the auspices of Amendments 146 and 147 when we resume some of the discussions the Minister promised last week to continue, notably on mandation and statutory guidance. In our debate last week, I tried to establish the evidence base for the Minister’s assertion that

“the Government would not be proposing these powers”—

mandation—

“if there were not strong evidence that savers’ interests lie in greater investment diversification than we see today in the market”.—[Official Report, 22/1/26; col. GC 218.]

The key words here are “strong” and “evidence”. There are certainly those whose opinions would align with the Minister’s assertion, but opinion is not the same as evidence and not nearly the same as strong evidence.

As I said last week, the DWP recently commissioned the Government Actuary’s Department to model four variations of pension scheme strategies. I will not list them again, but the study concluded that across a range of economic scenarios the model portfolios deliver very similar projected pension pot sizes. But it also showed that if the current underperformance of the UK versus global equities persists, UK-heavy allocations will underperform the baseline. The Government Actuary’s Department said in a post on GOV.UK on 15 November 2024:

“Our analysis showed that a greater level of exposure to private markets may deliver slightly improved outcomes to members. However, there is considerable uncertainty, particularly with the assumptions for projected future investment returns”.


That does not sound like strong evidence for anything.

The Institute and Faculty of Actuaries makes the same point. It says that, based on the Government’s own impact assessment, “We do not think there is strong, clear evidence that in most foreseeable scenarios savers’ interests lie in greater investment in private markets and infrastructure”. It believes that there exists a very uncertain central estimate of an extra two percentage points over 30 years, equivalent to 0.066% a year compounded. It goes on to say: “Given the inherent uncertainty in such estimates, this is almost negligible and could easily turn out to be negative over the next 30 years or indeed much higher”. The IFoA goes on to say: “The point is that it is far from clear that there would be a material benefit”. That does not sound like strong evidence commendation either, yet this is the basis on which the Government seek to mandate investment, which raises as a consequence significant concerns about the operation of fiduciary duty.

The proposals in this Bill, for there is a power to mandate investment, cause uncertainty about trustees’ duties to their members. That uncertainty is understandable, especially because the case for mandation is weakly evidenced, if evidenced at all. The uncertainty is also unnecessary in many ways because of the existence of the Mansion House Accord for which, as others have said, 17 leading pension providers have already signed up. How will the anticipated statutory guidance, for example, contribute to the model of co-operation embedded in the Mansion House Accord? Is it no more than a useful threat? What role will the statutory guidance play in modifying the application of fiduciary duty? In fact, can the Minister confirm that the promised statutory guidance will have something to say about the possible clashes between mandated action and fiduciary duty, if only to confirm the primacy of fiduciary duty?

Minister Bell responded on 22 January to a Written Question from my honourable friend the Member for Stratford-upon-Avon about the scope of the coverage of the upcoming guidance on fiduciary duties. His reply did not refer to the mandation powers at all. Will the Minister confirm that the guidance will be non-binding and have the same have force as many other “have regards” that exist in the financial services sector? If the guidance has, or could plausibly be read as having, detectable, real-world influence, it should come before Parliament for scrutiny, and it should come before us when we can recommend changes.

Minister Bell’s Written Answer, as I mentioned a moment ago, says of the guidance that:

“Work will commence shortly beginning with an industry roundtable to gather views and technical expertise to ensure the guidance meets the identified need”.


I suppress my astonishment at this rather late start for thinking about statutory guidance. I notice that, in the reply, there was no mention of Parliament and the role it might play or of timescale in all this, except we now know that it has either just started or is about to start. In other words, as things stand, the likelihood of effective parliamentary scrutiny of anything to do with statutory guidance is unlikely. This is entirely unsatisfactory for the reasons that the noble Lord, Lord Ashcombe, has argued so forcefully.

There is no compelling evidence that mandation will work. If the Mansion House Accord is to be taken seriously and the Government play their part, mandation will be unnecessary. Mandation would interfere with or complicate the principal of fiduciary duty. It is also opposed by major stakeholders including, as I mentioned previously, the Governor of the Bank of England.

The Institute and Faculty of Actuaries ends its latest assessment of the situation by saying that trustees should not be leaned on to invest in ways that conflict with their own best judgment. Instead, those investments and markets that the Government wish to promote should continue to be made more attractive through initiatives such as LTAFs and so on. The pension schemes will freely choose to follow in a way that is right for them and their members. We agree with that and will continue to try to convince the Government that the reserve power is not necessary or desirable—activated or not—and that there is no sound basis for using it.

[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.

Pension Schemes Bill

Lord Sharkey Excerpts

Committee stage
Thursday 5th February 2026 Grand Committee

[Viscount Younger of Leckie (Con)]

My Lords, Amendment 205 in my name would require the Government to review levels of pension awareness among young people and to consider how existing policy might better support earlier engagement with pension saving. Members of the Committee will have noticed that I have included certain steers as to what the review should focus on; I hope that this brief debate will enable Members to agree largely with what we are trying to do here.

For many people in their 20s and 30s, pension saving is driven almost entirely by automatic enrolment. In one respect, this is a success story: it clearly illustrates the impact that automatic enrolment has had, with around 71% of young people in full-time employment now contributing to a pension and often benefiting from employer contributions, tax efficiency and the long-term advantages of compounding. Of course, there are opt-outs, but I am pleased to say—I hope that the Minister will confirm this—that opt-out rates remain relatively low.

Progress is, therefore, welcome. However, it still leaves nearly one-third of young people not saving at all. Starting to contribute at a younger age makes an enormous difference. Compound interest, where returns build, not only on contributions but on previous returns, means that early saving is particularly powerful. Small amounts saved early can matter more than much larger sums saved later.

Yet, the reality facing young people is difficult. Surveys consistently show that younger generations face an uphill financial struggle. For many, and I remember how I felt in my early 20s, retirement feels distant and abstract, something to worry about later, rather than now. Unsurprisingly, confidence among those aged 25 to 44 about their later life savings is among the lowest of any age.

We need to understand why this is the case. It is not enough for policy bodies to list familiar explanations, such as behavioural bias, lack of knowledge or low trust, and then publish discussion papers. The Government need to know in detail what is actually preventing young people engaging with pensions. If automatic enrolment is still leaving out around one-third of eligible workers, more work clearly needs to be done. As with most things in pensions policy, the answer will be complicated, but complexity is not an excuse for inaction.

We should be clear that automatic enrolment alone is not sufficient to deliver an adequate income in retirement. Of course, I am very aware that the pensions review will be looking at this as its stage 2 focus, and I will talk more about that later. Will the pensions review properly examine these barriers to saving among the young? If not, why not? I ask the Government to give a response on this.

Young people are often focused on more immediate priorities: for example, saving for a house deposit, building an emergency fund or paying off student loans understandably come first and spring to mind; pensions, as I said earlier, are seen as something for later life. But time does not pause and there are real benefits to saving early. Early contributions help smooth out market volatility and allow savers to benefit fully from compounding over decades. Most young people will be in defined contribution schemes, where these effects matter greatly.

There is also a deeper issue of confidence. Nearly half of Gen Z believe that the state pension will not exist by the time they retire. This is a generation shaped by repeated economic shocks, from the financial crisis to the pandemic and the cost of living crisis triggered by the war in Europe. For them, pensions can feel less like a promise and more like a relic. The question is, what do we do about it? I am disappointed, as I said earlier, that pension adequacy appears only in the second stage of the review. In my view, and many people’s views, this should be a priority. Your Lordships should be asking whether lowering the automatic enrolment age, removing the lower qualifying earnings band or increasing minimum contribution rates would deliver better outcomes.

We should be asking what more can be done to reduce the barriers that discourage young people from saving at all. This is why the amendment seeks to require the Government to move faster to review pension awareness among young people and how existing policy would better support early engagement—that is, to move now and not wait until stage 2.

Finally, reverting to the barriers that I alluded to, I will make one final point, which is on the question of compulsion—just to get my oar in on this before the end of today’s proceedings. Mandation, or even the threat of it, will fall most heavily on younger savers, a point made powerfully by my noble friend Lord Fuller earlier in the week. It risks burdening a generation who are 30 or 40 years away from retirement and who already face significant disadvantage within the system. There is already generational unfairness in pensions policy and we believe that mandation would only entrench this. It should have no place in the Bill, but we have rehearsed those arguments before. Without further ado, I beg to move.

[Lord Sharkey (LD)]

My Lords, I will speak briefly but enthusiastically in support of Amendment 205. The case for a review was eloquently put by the noble Viscount, Lord Younger, and its merits are surely obvious. I hope the Minister will be able to agree with that.

In particular, I hope the review will take a close look at the situation that many Gen Z people find themselves in. Many work in the gig economy or are self-employed. The Gen Z average savings are small: 57% have pots smaller than £1,000 according to PPI data, and half of them cannot estimate their pots in any case. Perhaps alarmingly, 45% of Gen Z people rely heavily on social media for financial information—presumably delivered by animated cats. The proposed review could and should examine this in much more detail.

[Baroness Neville-Rolfe (Con)]

My Lords, I support my noble friend Lord Younger of Leckie in proposing a review of pension awareness and saving among young people.

When I had the honour to review the state pension age for the DWP in 2021-22, I was struck by two things that strengthened the case for better policy in this area. First, I found it much more difficult to get young people or their representatives, or indeed middle career workers, to engage in my review. Those who did were keen to keep pension contributions down and they did not believe the state pension would still be universal by the time they reached the retirement age of, say, 70. They were worried about buying a flat, as my noble friend has said, looking after their children and paying back their student loans.

Secondly, the level of financial education was dire. Schools were focusing well on human rights, the environment and ESG, which was discussed under the previous amendment, but not on pensions or financial management. They were not teaching the importance of early saving, the magical impact of compound interest, the value of a pension matched by the employer and the risk of new sources of profit like cryptocurrencies. Much more such education is needed in our schools but the Department of Education was resistant, partly because teachers are also often a little short on financial education. This is an important area and I am sure the Pensions Commission will look at it, but my noble friend is right to highlight what a big job we have to do.