Pension Schemes Bill (Second sitting)

Luke Murphy Excerpts

Committee stage
Tuesday 2nd September 2025 Public Bill Committees

[Mark Garnier]

That is very helpful; thank you.

[Luke Murphy (Basingstoke) (Lab)]

Q I want to return to your comments, Councillor Phillips, to be sure that I caught your meaning. You mentioned the popularity or otherwise of network grid schemes running across the countryside. I was not quite sure whether you were saying that those were a relevant consideration for investment.

Councillor Phillips: Like the local government sector, the local government pension scheme operates in a goldfish bowl: constantly, on a weekly basis, an article is written about you or you receive a freedom of information request. So you are very conscious of the scrutiny, and that helps direct you to manage the investment risks as part of your fiduciary duties. What people do not realise is that there will be particular packages that Government and strategic mayors may think a fine investment that they should be in, but there might be some local problems. To go back to the previous question, it might be better for Northumberland to invest in it rather than Cornwall. That sensitivity has to be there.

[Luke Murphy]

Q But would that outweigh the fiduciary duty and the question of monetary benefits to lenders?

Councillor Phillips: The fiduciary duty would still be your main concern but in managing your risks you would have to take that into consideration as well.

[Luke Murphy]

Q How do you measure the unpopularity or otherwise? Do you look at polling? Is it just a broad sense of sentiment? As a measure, it feels a bit vague. If you are weighing that up against fiduciary duty, are you doing any actual research? I am just trying to understand how you weigh it up against the fiduciary duty.

Councillor Phillips: That is problematic, but at the same time you know when there are things it is perhaps best to steer clear of—perhaps a bypass, or something hugely controversial. It goes back to the mandatory business. If you are forced to invest in something that does not go well locally, that is not going to sit right or do the reputation of the scheme any good. Ultimately, as my colleague has said, we are talking about a well-run scheme with good integrity. Our businesses supply pensions to some of the lowest paid people in the public sector.

[Luke Murphy]

Q It does not appear to be easily definable. What the financial benefits to members of an investment will be is easier to define through the fiduciary duty, but what is popular locally feels like a bit of a value judgment.

Councillor Phillips: Like a lot of judgments.

[The Parliamentary Under-Secretary of State for Work and Pensions (Torsten Bell)]

Q Since we have gone to mandation and surplus, I encourage you to clarify that the reserve power and the surplus measures in the Bill do not affect the LGPS in any way. Those are not within the remit of the Bill.

Councillor Phillips: My understanding is that it is a back foot.

--- Later in debate ---

[Mark Garnier]

Q So you could run into the same problems that we saw recently where the Financial Ombudsman Service was publishing who has been under investigation, which caused problems. That has now been changed, but we could be entering into that same problem.

Tim Fassam: If you see very strong market or regulatory consequences for hitting an intermediate rating, the focus will be on not being intermediate rather than on being the best that you can be. We would like to see a focus on delivering the best value for money that you can.

[Luke Murphy]

Q In your written evidence, the Phoenix Group encourages Parliament to reassess some of the timelines for the initiatives to ensure that there is sufficient time for market participants to respond in the interests of members and consumers. However, you also advocate for bringing forward the 2030 timeline for small pots and extending its scope to all pension schemes. How do you reconcile those two comments? Could you elaborate on why you think the deadline should be brought forward for small pots and extended? What are some of the barriers or challenges that might make the Government reluctant to take up your suggestion?

Tim Fassam: That is a very good question. One of the things that makes the Bill powerful but more complex is the number of elements that interact. Eventually, we hope, it makes the whole greater than the sum of its parts, but it does mean it is critical that you get the ordering right. For example, we need the value for money framework and transfer without consent as soon as possible, so that we are able to get in good shape for the 2030 scale test—so those deadlines brought forward. Small pots are part of that scale: we are seeing thousands of new small pots generated every year, so the quicker we can get on with managing small pots, the fewer of them there will be for us to manage going forward.

It is critical to think very carefully about the staging and phasing of the various elements of the Bill. That is the point we are trying to make. On the elements that help the market get to where we hope to get to by 2030, we need to get in as swiftly as possible, with enough time after the detail is in place for the industry to implement. I appreciate it looks like we are asking for things to be slowed down and sped up, but it is just making sure the ordering is correct and we have enough time to get into good shape for that 2030 deadline.

We think the scope should be extended partly because of how supportive we are of the measures. Being a historical consolidator of private pensions, we have millions of customers who are not workplace customers but who could benefit from being transferred into a more modern, larger scale scheme and from going into a consolidator of small pots, for example. We see that value in our own book. We look at the opportunity and think, “We wish we could do that for this group of customers. They would really benefit.”

The pensions market is quite complex, as others have pointed out. It is contract-based and trust-based. You also have workplace and private pensions. The more consistent we can be across all the different types of customer, who often do not think of themselves as being any different from each other, the more coherent a scheme we are likely to get at the end result.

[Luke Murphy]

Q What would be the challenges of that extension and scope?

Tim Fassam: We see it predominantly as opportunity. We are not saying that the rules necessarily need to change. We are just saying these new opportunities should be extended to a wider group of available schemes, but the infrastructure we are putting in place regarding workplace auto-enrolment savers can be utilised across the piece.

[Steve Darling]

Q The bar for small pots is currently set at £1,000. Is that ambitious enough? Should it be £2,000? £5,000? Or is it a matter of eating an elephant and having to be sensible about what is achievable?

Tim Fassam: I think eating an elephant is a very good way of putting it. I think £1,000 is certainly a good place to start. This will be an incredibly valuable part of the pensions ecosystem, but it will be complex and getting it right will require a lot of thought and a lot of close working between Government regulators and industry. Having that narrow and focused scope allows us to get it in place and get it working; then it would be perfectly reasonable to look at the level at a later date. For the time being, I think that is a very clear cohort of individuals who are likely to benefit from consolidation, because at the moment they are in uneconomic pools.

--- Later in debate ---

[The Chair]

Last question—Luke Murphy.

[Luke Murphy]

Q You said on Second Reading that you would encourage trustees, if they are considering a surplus release, to prioritise indexation of those that have not received it on their pre-’97 accrual. But some evidence submissions have suggested that it should go beyond encouragement, and maybe to mandation. Will you consider that?

Torsten Bell: I understand why people say that but, as I say, it is for trustees. We are not going to legislate to change the offer made in scheme rules to savers, because that would be to fundamentally change the system. But trustees will want to consider that, and they will be in a very strong position to take a strong view about that when discussing with employers what happens with the surplus release situation.