Pension Schemes Bill

Lord Vaux of Harrowden Excerpts

2nd reading
Thursday 18th December 2025 Lords Chamber

[Lord Vaux of Harrowden (CB)]

My Lords, it is about five years since we last saw a Pension Schemes Bill in this House, and it is good to see so many familiar faces, albeit sitting in different places in the Chamber. It is also good to be welcoming some new faces to our small band of pension enthusiasts, and I am particularly looking forward to hearing the maiden speech of my noble friend Lady White of Tufnell Park.

This is a big Bill, and there is a lot in it, much of which is to be welcomed and is not particularly controversial. I am going to restrict my comments to two areas of the Bill, one of which I think we will hear quite a lot about.

First, I understand and agree with the reasons and the desire to consolidate small dormant pension pots, but I have some concerns about the details. We are all aware of the problem of lost pensions, whereby a person has forgotten about a pension, perhaps from a long-ago short period of employment. This is one of the problems that the much-delayed pensions dashboard is designed to solve. Compulsorily moving a small pot from one provider to another risks increasing that problem: it will be much more difficult to track down a pension that you dimly remember if it has been moved, perhaps with any correspondence having been sent to an out-of-date address.

The definition of “dormant” is also slightly concerning: a pension pot will be considered dormant if no contributions have been made into the pot during the last 12 months and the individual has taken no steps to confirm or alter the way the pension pot is invested. I have a couple of pension pots that would be considered dormant under that definition, but that is simply because I am happy with the choices I made in the past; I would not consider them to be dormant. In the opposite direction, £1,000 seems a rather low definition of small, although I see it can be changed by regulation.

I am not clear when the Secretary of State intends to make the relevant regulations, but to avoid making the problem of lost pensions worse, I would suggest that it should not be done until the first pensions dashboard is fully operational and accessible to the public. As I understand it, that will not be until late 2027. Perhaps the Minister could provide a brief update on that. Also, there should be a clear requirement that any such transfer, carried out in a situation where no response has been received from the individual, should be clearly flagged on the dashboard to help people track them down.

The second issue I want to raise is more important. Here, I fear that a trend is beginning to emerge already—and that, most unusually, I am going to find myself in disagreement with the noble Baroness, Lady Altmann. This is the power for the Government to mandate the asset allocation of a master trust or group personal pension scheme. Pension schemes should be managed for the benefit of the beneficiaries. The trustees have a fiduciary duty to that effect. The Government mandating that a proportion—and there is no limit to this in the Bill—should be directed into types of assets and locations chosen by them rides a coach and horses through that principle. Who will be liable if such investments are not suitable or go badly wrong? I do not see any indemnification of trustees here. What makes the Government think that they know better than a professional qualified pension manager as to what is best for scheme members? The track record of government investing is not stellar, to say the least.

Of course, the reason for this is to push more pension funds into UK assets, often described as “productive assets”. Like the noble Lord, Lord Sharkey, I have that in inverted commas here, but even that makes little sense in this respect. Let us look at the sorts of assets that the Bill refers to. The first is private equity. Now, private equity may be a good place for a pension fund to put some of its money. Over time, returns have generally exceeded public markets and bonds, primarily because of the use of leverage, but I would love to understand why the Government think this would be a good thing for the country.

What private equity does is buy existing assets, then leverage them up with high levels of debt, thereby gearing up the possible returns that can be made on normal levels of growth. That reduces the corporation tax payable by the company because debt interest is tax-deductible, and the debt is often located in overseas low-tax jurisdictions. Typically, then, overheads and costs are reduced as far as they can be to make the company appear more profitable for sale after three to five years, and that often has the effect of reducing investment in the company and often leads to job reductions.

So where is the benefit to the country from this? If noble Lords do not believe me, I give them Thames Water, left underinvested and indebted by Macquarie, which took out billions in the process, or Debenhams, where the three private equity owners collected £1.2 billion of dividends financed by debt and property sales that left the company to go bust. Others we could mention would be Southern Cross Healthcare and Silentnight, where, ironically, pensioners also lost out, and we have the current anti-competitive situation with veterinary practices. Of course, this is a generalisation, and there are exceptions, but the idea that PE generates growth is doubtful at best—venture capital, development capital, growth capital, yes; PE, not so much. Why do the Government think it would be a good idea to force pension funds to invest in private equity?

Amazingly, the Bill does not actually set out that allocations must be made into UK assets. The wording is drafted so widely that the only assets globally that cannot be prescribed are assets listed on a recognised exchange; nor does it set any limits to what percentage should be allocated into the assets the Government prescribe. In theory, 100% could be allocated. The only safeguard in the Bill—contrary to the Minister’s comment that there are many safeguards—is that the Secretary of State must review the effects of any such regulation within five years of the regulations coming into force. We should note that this is not an independent review; it is a review by the Secretary of State, the very person who made the regulations. That does not fill me with huge confidence. Anyway, if things have gone wrong after five years, what can be done? Is the Secretary of State to be liable for the losses that scheme members have incurred because of the Government overriding the fiduciary duty?

We are an outlier in terms of our pension funds investing in their own country’s productive assets, especially when compared with countries such as Canada and Australia, so I understand why the Government wish to change that, but the way to achieve that is first to understand why it is not happening now. I would be interested to hear from the Minister why she thinks that is. I suspect it is down to a number of issues, including demographic issues, the attractiveness of our markets versus others, regulation, taxation—Gordon Brown’s dividend stealth tax has a lot to answer for—and, I am sure, others. The better solution, surely, is to identify and deal with the barriers that exist to make UK productive assets a more attractive investment prospect, not to take the frankly lazy and inefficient route of mandating without addressing the underlying reasons. Neither Canada nor Australia mandates. Rather, they promote domestic investment in infrastructure and projects through collaboration, not by forcing specific allocations. We should learn from those examples.

The Minister has been clear that the Government do not expect to use this mandation power. This raises a wider point of principle, one that the Minister and I have debated in other contexts in the past, which is that the Government should not give themselves powers that they do not intend to use. As the noble Baroness, Lady Stedman-Scott, said, there is a tendency to use them regardless at some point, even if it is another Government who use them. This is becoming a bit of a trend, and one that I feel should be strongly resisted. There are two potential solutions to this part of the Bill. Either we need to clarify the whole fiduciary duty principle and improve safeguards, or we should remove the power altogether, and I must say that I favour the latter.

With that, I look forward to working with Members from all around the House, as ever, and the Minister on the Bill. In the meantime, I wish everyone a very happy Christmas.

Pension Schemes Bill

Lord Vaux of Harrowden Excerpts

Committee stage
Thursday 22nd January 2026 Grand Committee

I look forward to the Minister’s response.

[Lord Vaux of Harrowden (CB)]

My Lords, before I start, I apologise to the Grand Committee for failing to be here to speak a previous amendment. It was unavoidable, unfortunately. I am very grateful to the noble Lord, Lord Palmer, for stepping into the breach. I have had an exciting afternoon moving from R&R to pension schemes. I apologise that I am afraid I am going to be in the same position next week, so it will not be me speaking to my Amendment 119. Anyway, there we go.

I speak in support of Amendments 111, 161 and 162, tabled by the noble Lord, Lord Sharkey, to which I have added my name. To be honest, I support all the amendments in this group that seek to remove the asset allocation mandation powers, which is probably the most controversial part of the Bill. The trustees or managers of pension schemes have an obligation to act in the best interests of scheme members. That is their fiduciary duty. It is not their job to carry out government policy and they should not be forced to act in a way that they may believe is not in the best interests of scheme members. That is the clear implication of mandation. If the assets that the Government wish to mandate are so suitable or attractive for the relevant scheme, the trustees would presumably already be investing in them. If mandation is required to force trustees to invest in such assets, it implies that they have decided that they are not suitable assets for the scheme. That drives a coach and horses through the whole fiduciary principle. As we will come to in a later group, personally I would feel very uncomfortable about taking up a trustee role in such circumstances.

It begs a range of questions. Who will be liable if the mandated assets perform poorly? The Bill is silent on this. Why should scheme members take a hit because of government policy? Are the trustees liable for any below-par performance? Why do the Government feel they know better than professional managers and trustees? I do not see any evidence at all that the Government are a better manager of investments. Who will decide on the asset allocation, and based on what criteria? There is nothing in Bill that sets out the purpose or criteria for the asset allocation: just some examples, including private equity, which the noble Lord, Lord Sharkey, mentioned, which will be looked at in a different group. All the Bill says specifically is that the allocation may not include securities listed on a recognised exchange. How will the impact be measured and reported? The Bill does require the Secretary of State to publish a report setting out the expected impacts on scheme members and UK economic growth, but there are no reporting requirements on the actual outcomes.

Surely it would be better to try to understand why pension schemes are not currently investing in these so-called productive assets. What are the barriers to them doing so? That is not a rhetorical question; I would very much like to hear why the Minister thinks this has not been happening. What is, or has been, stopping the pension schemes investing in those assets they believe are so desirable? Surely, the better answer must be to try to remove those barriers, to make the assets more investable, rather than mandating, perhaps by refining regulation or adjusting tax—Gordon Brown’s dividend tax raid has, I am sure, quite a lot to do with this—or taking whatever other actions may be required to remove or reduce the identified barriers. Mandation is, frankly, the lazy option. We should identify and deal with the root causes if we want a sustainable solution.

The Government say they do not intend to use the mandation powers and, in some ways, that is worse than using them. The powers are there as a stick in the background, to force trustees to invest as they want, but without giving the trustees any of the protections that might exist if they could at least show they were acting as required by law. In any case, as a matter of principle, Governments should never take powers that they have no intention of using. This mandation power drives a coach and horses through the fundamental fiduciary duties of trustees. The Government say they do not intend to use it; it should be removed.

[Baroness Altmann (Non-Afl)]

My Lords, I support all the amendments in this group. I echo the words of noble colleagues in the Committee about the dangers of the Government mandating any particular asset allocation, especially the concerns about mandating what is the highest risk and the highest cost end of the equity spectrum at a time when we are aware that pension schemes have probably been too risk-averse and are trying to row back from that.

What is interesting, in the context of the remarks made by the noble Lord, Lord Vaux, is that I was instrumental in setting up the Myners review in 1999, which reported in 2001, under the then Labour Administration. As Chancellor, Gordon Brown’s particular concern was about why pension funds do not invest much in private equity or venture capital. That was the remit of the review. The conclusions it reached were that we needed to remove the investment barriers, to change legislation, to encourage more asset diversification, to have more transparency and to address the short-term thinking driven by actuarial standards—at the time, it was the minimum funding requirement, which was far weaker than the regime established under the Pensions Regulator in 2004.

So this is not a new issue, but there was no consideration at that time of forcing pension schemes to invest in just this one asset class. The barriers still exist. In an environment where pension schemes have been encouraged, for many years, to think that the right way forward is to invest by reducing or controlling risk and to look for low cost, it is clear that the private equity situation would not fit with those categories. Therefore, I urge the Government to think again about mandating this one area of the investment market, when there are so many other areas that a diversified portfolio could benefit from, leaving the field open for the trustees to decide which area is best for their scheme.

I am particularly concerned that, as has been said in relation to previous groups, private equity and venture capital have had a really good run. We may be driving pension schemes to buy this particular asset class at a time when we know that private equity funds are trying to set up continuation vehicles—or continuation of continuation vehicles—because they cannot sell the underlying investments at reasonable or profitable prices and are desperately looking for pools of assets to support those investments, made some time ago, which would not necessarily be of benefit to members in the long run.

Pension Schemes Bill

Lord Vaux of Harrowden Excerpts

Committee stage
Tuesday 3rd February 2026 Grand Committee

[Baroness Kramer (LD)]

My Lords, my noble friend Lord Sharkey sends his apologies; he is at a funeral and will read Hansard with great attention. I thank the noble Lord, Lord Vaux, for supporting me on Amendment 167. I think it is the first time in 15 years that I have degrouped an amendment to stand by itself, but I can see no other way to ensure a clear answer from the Government: will they put their money where their mouth is?

The Committee has discussed qualified assets and, while I do not intend to repeat the discussion, I hope that everyone understands how high risk a portfolio of such assets is. The Financial Services Regulation Committee, in January, titled its look at the private equity markets as Private Markets: Unknown Unknowns. Some 75% of firms invested in by venture capital fail. Complex infrastructure is both high risk and illiquid; we can think HS2, the Elizabeth Line—four years delayed and £4 billion over budget—and Hinkley Point, which seems to run out of money time after time. If someone with a substantial pension wants to invest in such assets, that is fine with me, but the Mansion House Compact —or accord, I do not care which terminology is used—covers only auto-enrolment default fund pension schemes. These are vehicles for those with the narrowest shoulders, with low incomes, small pensions and little financial knowledge. The downside risk for them means poverty.

The Government have assured us, and those pension savers with the narrowest shoulders, that under the Mansion House Compact, and by putting 10% of their pensions into qualified assets, they will be winners—to quote the Minister on the first day in Committee:

“with an average earner potentially gaining up to £29,000 more by retirement”.—[Official Report, 12/1/26; col. GC 205.]

No warning of the downside was mentioned and clearly, to the Minister, the downside does not seriously exist. I challenge that. I am always very wary of promises of low-risk, high-return investments.

The Government have argued that the Mansion House Compact, combined with the provisions in this Bill, brings great benefits because risk can in effect be eliminated by the structures that have been introduced and the use of large providers. I want to challenge some of those shibboleths. Large providers have explained to me that they can enhance pensions and use qualified assets safely through lifestyle investing, where more is invested into high-risk assets early in the life of the pension, switching later to low-risk investments. If I lose £100 in the first year that I save in a pension, the loss is compounded through the life of the pension and I will have thousands less to get me through retirement. If I lose £100 the day before my pension matures, I lose £100. Early losses are never made up by later gains because they in no way enhance the performance of other assets in the portfolio. If you lose on A, there is no sudden guarantee that you will gain on B. Lifestyle investment is a marketing tool to sell schemes to the financially anxious.

The Government and the Minister argue that the risks in qualified assets can be mitigated away through diversification. For a fund fully invested in good-quality assets, such as the FTSE 100 or the S&P 500, I see the argument for diversification to manage risk, but diversification loses its effectiveness in high-risk portfolios, as everyone should have learned from the collateralised debt obligation scandal that triggered the financial crisis in 2008. Let me illustrate with an extreme example. I go to the casino, maybe several casinos. I play the slot machine, roulette and blackjack. I am beautifully diversified. But we all know that I will still lose my money.

The Government’s case that pensioners with the narrowest shoulders should be 10% invested in qualified assets really depends on assumptions that it makes about asset allocation. The argument is that the pension companies involved would employ the best experts to pick winners among those qualified assets. Some experts are better than others, though I note that they all will find statistics and present them to show that they have the Midas touch.

I note the analysis of the Government Actuary’s Department, which shows that over time and on average—that is a key word—virtually every model portfolio tested delivers similar results. But there is a catch, as the noble Lord, Lord Sharkey, pointed out last week—the GAD’s conclusion underscored its uncertainty. It said that

“there is considerable uncertainty, particularly with the assumptions for projected future investment returns”.

The noble Lord, Lord Sharkey, also quoted from the Institute and Faculty of Actuaries, which made the point even more forcefully. I could not work out what the mean looked like when I looked at that work done by the government department. Obviously, the mean really matters because an average can be made up of a few big winners and a lot of small losers. It is the losers in the high stakes game of qualified assets that worry me.

I am not attempting to stop the Mansion House Compact and the Government’s plan to put 10% of the assets of auto-enrolment default funds into qualified assets even though they are unlisted, opaque, high-risk and illiquid. My amendment would simply require the Government to provide a safety net for those who are in no position to live with the downside in these investments.

The noble Lord, Lord Davies of Brixton, last week said that

“the inevitable corollary of mandation”,

which is where he was focused,

“is responsibility for the outcome”.—[Official Report, 26/1/26; col. GC 284.]

But I regard the Mansion House Compact as very much a government-driven agreement designed by the industry to head off even more coercive action and so I think that the same principle applies: “responsibility for the outcome”.

My amendment is simple:

“Upon the individual becoming entitled to receive retirement benefits under the scheme, the trustees or managers must obtain an actuarial assessment of—


(a) the net investment return attributable to the qualifying assets held within the default arrangement over the period during which the individual’s rights were so invested, and


(b) the net investment return that would have been achieved over the same period had those assets instead been invested in a prescribed benchmark fund”.


In the amendment, benchmark fund

“means a diversified, low-cost equity index fund of a description specified in regulations”.

If the benchmark fund would have performed better, the Government make up the difference to the pensioner. The calculation, despite what the Minister said, is very simple, requires no new data and can be crafted straightforwardly. Pension schemes would just code it into their normal reporting.

If the Minister and the Government are right, and investment in qualified assets, as structured under the Mansion House Compact and in this Bill, benefits and does not harm pensioners in auto-enrolment default schemes—those people I described at the beginning with the narrowest shoulders and least able to take risk—it costs the Government absolutely nothing to sign up to this protection provision. If the Government believe their own words, accepting my amendment means taking no risk at all for the Government or taxpayer. My amendment only costs the Government money if they are wrong in the promises that they are making. The amendment would certainly give peace of mind to the poorest pensioners and strengthen their confidence to save and to invest.

We all want auto-enrolment to better serve low earners, but that requires shaping policy around the capacity of low earners to take risk. I ask the Government to put their money where their mouth is and provide the pension value protection described in my amendment. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I apologise for not being able to be here last week for Amendment 142. I am grateful that the Minister responded to it regardless of that. I have added my name to Amendment 167. I will try to be very brief because the noble Baroness, Lady Kramer, has explained it with her usual clarity, and the amendment covers some of the same ground that we debated in the last group—although it attacks the problem from the other direction.

Pension Schemes Bill

Lord Vaux of Harrowden Excerpts

Report stage
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.

--- Later in debate ---

[Baroness Sherlock (Lab)]

It depends on how the market is structured. The decision-makers here are employers. Let us look at what happened under the Mansion House Compact, the predecessor of the accord, brokered under the previous Government. The words were that

“‘too much focus on cost’ remains the key barrier”.

In other words, we have a market in the employment sector where the focus has been for too long on cost, not value. The noble Lord shakes his head, but we have heard this from around the House. Indeed, in Committee many people who do not agree with this power accepted the underlying diagnosis, and that is the basis on which the Government are proceeding.

The Government want the industry to invest in the full range of assets. One of the reasons, I suspect, that the Mansion House Accord is moving together is to make sure that it is clear that the market is going in that direction. That is the problem, we think: there is a risk of a failure of collective action. The accord is a commitment. The power gives providers assurance that the whole market will move so that they will not then be in a position where somebody faces a competitive advantage by reverting back to focusing on cost and not on value.

[Lord Vaux of Harrowden (CB)]

As I understand the noble Baroness’s argument, the focus on cost is the problem. This Bill solves that with the value-for-money framework, so why do we also need the mandation power?

[Baroness Sherlock (Lab)]

This all comes as a package. A lot of attention is focused on this particular reserve power, but in fact it is the combination of all the elements of the Bill that we discussed in some detail in Committee over recent weeks: the question of the investment in scale, the need for the value-for-money framework, the need for the option to consolidate small pots. All these things come together to create the conditions in which this will work. This reserve power is to address a particular question, the risk of collective failure. I fully accept that the noble Lord does not agree with it, but I want at least to have the opportunity to make the argument as to why the Government are proposing to do it in this way.

The Mansion House Accord represents a voluntary commitment by 17 of the UK’s largest DC pension providers to invest 10% of their default funds in private markets, at least half of that in the UK, by 2030. We continue to be encouraged by progress, but the risk of a collective action failure in this market has long been recognised. As I said, individual providers face strong commercial incentives to keep costs low and to defer action until others move first. The reserve power exists as a backstop to ensure that if voluntary progress stalls, the Government have the means to act. Its presence in the Bill sends a clear signal that the commitment to change is underpinned by more than good intentions, and it helps to give each provider confidence that the rest of the market will move too.

At earlier stages we discussed a range of issues around safeguards and other things, which I thought would come up in later groups but that will obviously depend on what happens next. First, the power is time limited. The noble Baroness, Lady Stedman-Scott, thinks this power will outlive us all. I hope it does not, because if it has not been used by the end of 2035 it falls away, so I very much hope that it will not outlive the noble Baroness and me, although obviously we are in the Lord’s hands: should we be called home, what can we do? If it has not been used by 2035, it falls away. If it has been used, any percentage requirements in place cannot be increased beyond that date.

Secondly, the Bill establishes a savers’ interest test. Pension providers will be able to apply for an exemption from the targets where they can show that meeting them would cause material financial detriment to their members. Thirdly, the Government must consult and publish a report on the expected impacts, both on savers and on growth, before exercising the power for the first time, and a post-implementation review must follow within five years. Finally, the regulations implementing any requirements will be subject to the affirmative procedure, so Parliament would have its say.

I will respond to some specific questions. There was a question about how to define UK assets. This would be done in regulations were the power ever to be used. Consideration would have to be given to the characteristics of different asset classes. The Mansion House Accord is accompanied by some high-level guidance on how a UK investment should be identified within each of the different asset classes. That asset class by asset class approach to establishing the location is also the one that the FCA has taken as it consults on the upcoming value-for-money disclosure requirements, which will require firms to provide UK overseas asset allocation split. If the Government ever came to exercise these powers, we would expect similarly to take an asset class by asset class approach.

Questions were raised about a future Government and how this might be used. The noble Baroness, Lady Coffey, prayed in aid the European Convention on Human Rights, and I commend her on that. First, on the question on property rights, this applies to default schemes and people can choose to opt out, but she raises a relevant point. Obviously I hope there will never be one, but if there ever were a Government of a different persuasion, were they to seek to use it in a way beyond what is here, I think they would run into problems. This Government have made it quite clear, in Committee in this House and in the other House, that the purpose of the power is to assure good outcomes for savers and the economy, recognising diversification benefits and the potential for higher returns. It is not an instrument for channelling investment into pet projects or specific companies.

The noble Lord, Lord Vaux, quoted me on this point. It was marvellous—“What he said” is what I would say. That is the Government’s view, and I have spoken about the various safeguards, but even if a future Government wanted to use these powers to do something either much broader or much more specific, of course they would have to abide by established principles of public law, including the requirement for Ministers to act rationally, ensuring procedural fairness and compatibility with ECHR rights when making secondary legislation.

The Government are under no illusions about the significance of this power. It is a substantial intervention and, if we ever found the need to use it, we would have to proceed with great care. I understand the strength of feeling on this. These powers, alongside the scale provisions, the value-for-money framework and the consolidation measures, are a package. Together, they are designed to deliver a step change in outcomes for millions of pension savers. If we remove the reserve power, we remove the mechanism that gives the rest of this framework its teeth when it comes to investment diversification.

For a long time, successive Governments have recognised the need to channel pension capital into productive assets. Auto-enrolment has brought millions more people into saving. We now have a responsibility to ensure that those savings are put to work properly to deliver better long-term returns. But the question before us is whether the Bill should contain the backstop at all. In the Government’s view, the answer is yes. Without it, the voluntary commitments made by the industry would rest on good faith alone. The experience of previous attempts to shift investment patterns in this market suggest that that, on its own, may not be enough. For those reasons, I respectfully ask the noble Baroness not to press her amendment.