Pension Schemes Bill

Peter Bedford Excerpts

2nd reading
Monday 7th July 2025 Commons Chamber

[Mr Peter Bedford (Mid Leicestershire) (Con)]

Cross-party working is essential to ensuring that there is public confidence in a system we will all need to use in our twilight years. That is why Conservative Members are ready to work constructively to improve this legislation and, where necessary, to provide a “critical friend” approach and challenge the Government’s thinking. When it comes to pensions and the long-term financial security of our constituents, we should not play party politics. It is in this spirit that I raise my own concerns with the Bill.

The Bill does not focus enough on increasing the amount of money flowing into people’s pension pots—something we literally cannot afford to ignore. I am proud that it was the last Conservative Government that led the introduction of auto-enrolment—a significant pensions reform that dramatically improved individuals’ financial wellbeing in later life. The 8% contribution was a game changer. Yes, the system relies on inertia, but for the first time, millions of workers began saving for their retirement. We must now confront an uncomfortable truth: the contribution rate looks less adequate by the day. Too many of our constituents are heading towards retirement without the income they will need. For example, the Pensions Policy Institute has highlighted that 9 million UK adults are currently under-pensioned.

Inaction is not an option. We are allowing people to sleepwalk into a retirement crisis. The level of auto-enrolment contribution was never intended to be a silver bullet. Instead, it was conceived as a foundation or starting point for pension savings. Importantly, that foundation was once supported by two key pillars: defined-benefit schemes, which offered guaranteed incomes to many, and higher levels of home ownership, which provided an asset to fall back on in later life. Both have eroded significantly over the last two decades. The 8% auto-enrolment rate on its own is woefully inadequate, and many workers will not realise that in respect of their own financial circumstances until it is too late.

It would be all too easy to simply raise the auto-enrolment rate to some arbitrary level, but we would find ourselves back here in 15 years’ time having the same conversation about a system where inertia and disengagement continue. If we truly want lasting change, we cannot focus solely on the percentage; we need to dramatically improve how people engage with their savings. That starts with improving financial education. As the sponsor of a private Member’s Bill on this precise topic and as a chartered accountant by background, this is a cause on which I place great importance. Shockingly, though perhaps unsurprisingly, Standard Life has highlighted that three in four people do not know how much they have in pension savings. That needs to change through increased engagement, but also by allowing savers increased control over their own savings. People should be able to easily view all their pots in one place, which is why it is frustrating to have seen delays to the roll-out of the pensions dashboard, which many hon. Members have mentioned.

The pensions dashboard will encourage individuals to make active choices, to understand their options and to assess whether their current savings are enough for their desired lifestyle in retirement.

[Kirsty Blackman]

On that note, does the hon. Member agree that we should also make it easier for people to understand what a defined-contribution scheme pot actually means for them in retirement—that is, how much income it will get them on a monthly or annual basis, rather than just, “This is the value of the pot”?

[Mr Bedford]

The hon. Member makes an important point. That goes back to financial education and ensuring that people truly understand their pensions and savings.

Increasing savings is important, but we need to ensure that it is driven by individuals who understand and can shape their own financial futures. Other countries have looked at increasing incentives for saving. South Africa and the US have schemes that enable people to draw from their pension pots in tightly defined circumstances, such as for emergencies or investment opportunities. Such flexibility would increase confidence in pension savings and help address the other concerning fact that 21% of UK adults have less than £1,000 set aside for emergencies, leaving them susceptible to economic shocks outside of their control and, in turn, less likely to prioritise savings in their pensions.

Poor pensions adequacy does not just harm retirees; it has serious implications for the state. As our life expectancy continues to rise, the state’s pension bill will continue to increase. Benefits like pension credit will increase exponentially as the lack of adequate private provision leaves more and more relying on the state. As we saw just last week, it is often incredibly hard to reform welfare. As a Conservative, I believe that the answer lies in personal responsibility and in encouraging and helping people to build up their own private pension provision for the benefit of themselves, their family and, ultimately, the rest of society.

[Kit Malthouse]

My hon. Friend is making a strong speech and some strong points. Does he agree that the alarm bells he is ringing about financial education, the under-provision of pensions and longevity are even more stark and alarming next to the demographic change that means that over the next 30 years, we will see the number of workers per pensioner plummet? We will go from about 3.6 workers per pensioner at the moment to well under three by 2070, which means that even if pensions are not enough, the country will not be able to afford to plug the gap as it does at the moment?

[Mr Bedford]

My right hon. Friend makes a compelling case. As I said in my speech, this goes back to financial education and ensuring that we all understand the implications of pensions adequacy.

My concern about adequacy does not mean that the Bill does not have its merits. The continuation of Conservative policy, the small pots consolidation and the creation of megafunds are sensible reforms that will increase individuals’ pension pots by reducing dormant pots and increasing economies of scale. However, this is a missed opportunity for a Government with a large majority. They could have acted more boldly, moved faster and improved pension adequacy throughout the United Kingdom.

I would like a clear commitment from the Government that they are actively looking at improving pensions adequacy. The Labour party has long professed to be the party of workers, yet some who look at the Bill will sense that it does not go far enough in preventing the UK from declining into being a society funded by welfare in retirement. Let us encourage people to strive, work hard and save more for a better future. I very much hope that the Government will work collegiately and cross party with His Majesty’s Opposition in Committee to ensure that our constituents do not sleepwalk into a retirement crisis.

Pension Schemes Bill (First sitting)

Peter Bedford Excerpts

Committee stage
Tuesday 2nd September 2025 Public Bill Committees

[Kirsty Blackman]

Q There is a question around surplus release, and the power of trustees in relation to surplus release. It makes sense that there should be surplus release, but trustees may feel under pressure from employers to release the surplus when it might not be the right thing for scheme members. Do you think the Bill has got that balance right? How can that be monitored to ensure that trustees are not pressured when it is not the right thing for scheme members?

Rob Yuille: The most important thing is that trustees do have the power that is in the Bill—that power should stay there. Conflicts of interest were mentioned earlier; it is interesting what surplus release could do to make occupational schemes more like commercial schemes. With master trusts, commercial schemes and superfunds, if pension schemes could be run for the benefit of the employer by taking surplus, that gives rise to a different relationship and potential conflicts. The Pensions Regulator needs to be alive to that. In any case, TPR is becoming more like the FCA and the Prudential Regulation Authority as a regulator, and I think that needs to continue.

[Mr Peter Bedford (Mid Leicestershire) (Con)]

Q Many aspects of the Bill command cross-party support, but I want your view on where the Bill does not quite go far enough, and where it perhaps goes too far.

Zoe Alexander: I would probably lean towards talking about the local government pension scheme in that context. There are some parts of the Bill where we feel powers are being taken that may not be required; one is around requiring funds to choose a particular pool, and one is requiring particular pools to merge. We think that the LGPS is moving in a very positive direction. Obviously two pools have been closed, and funds are merging with other pools already. We are not sure that those powers are actually required. We think that the direction of travel is set and that the LGPS understands that, so we feel that those powers might be overstepping the mark.

Rob Yuille: I have no view on local government. I think what I am about to say should have cross-party support, or at least cross-party interest. It is a macro Bill about how the market and the system work, but it is also about people and the decisions that they need to make. We are glad to see the small pots provision in the Bill, but it is on an opt-out basis, similar to the default pension benefits solutions. People have decisions to make, such as whether to stay in or not, and they need to be supported in the decision making. We are proposing a textbook amendment that would enable schemes to communicate electronically in a way they currently cannot and in a more positive way—even where people did not have a chance to opt in to that kind of communication, which is seen and regulated as direct marketing. We know that there is cross-party interest in the ability to communicate more clearly with customers, specifically in relation to those provisions.

[Rachel Blake]

Q I want to probe the suggestion that the mandation sunset clause should come back from 2035. You alluded to your rationale for that, but can you expand on the argument about what difference that could make?

Zoe Alexander: If you put yourself in the position of pension scheme trustees, having the presence of the reserve power, which may or may not be exercised, to direct the way that you invest does not necessarily feel like a comfortable position to be in. We understand why the Government are taking that power. We understand the imperative to get more investment in the UK and we support that. Clearly, the longer the power abides on the statute book, the longer there is that risk hanging over those trustees. They may be required to invest in particular ways. We do not know where we will be politically in 2035. We do not know what Government will be in place. It pushes us potentially into another Government, another Parliament—it is the unpredictability. So we did talk with many of our members about this, and had lively debates about whether it should be 2030, 2032 or 2035. There was a really strong consensus around bringing it forward to 2032. We do not want it too early because it might pre-empt a decision that need not be taken. But 2035 felt too far away.

--- Later in debate ---

[Damien Egan]

Q Christopher, a number of us are on the Work and Pensions Committee and we know that one of many big issues is people coming up to retirement and being prepared—even knowing how much they have got to take into retirement. How do you see this Bill—you have talked through some of the challenges—helping people to prepare for their future, know how much money they will have and make decisions at a better time?

Christopher Brooks: How the Bill tackles that is probably through the governance structures that will be put in place. When there is a fiduciary duty, the governance is reasonably strong. I believe it is stronger under a fiduciary duty than under the contract-based system. For example, the trustees are better placed than IGCs—independent governance committees. I think we will see IGCs potentially play a greater role in some of the transfers. That is an opportunity to make sure that IGCs can do their job more effectively and have better access to the necessary data, which was flagged previously by the FCA as not always being the case. Clearly they need to be independent, so it will not be appropriate to have employees of the firm sitting on them any longer. I believe a number of them do at the moment, but I do not think getting employees taken off will be an issue.

Once you are in retirement, you have a separate issue. Because the decumulation part of the Bill leaves a lot to the regulators to decide in the future, it has not been clearly specified how the governance will work, so there is an issue about making sure, when those regulations are written, that it does work well for people. There is clearly going to be a gap around information as well. We recently did some research with Aviva, and one of the recommendations was that we need some kind of intervention for people in their mid-70s about how they look after the rest of their lives and how they manage their pension. That kind of support is going to be crucial if people are expected to take a decision in their late 70s or early 80s with regard to annuitisation or how they draw down the rest of their money. There is a big gap there as well.

[Mr Bedford]

Q I think financial education is the key to ensuring pensions adequacy. To build on Damien’s question about ensuring that members are fully informed about their pension assets and what the returns are going to be, what they will provide, what are your thoughts on what support the Bill offers, or does not offer, to ensure members are fully informed on the key decisions they have to make?

Christopher Brooks: Providing information takes you so far, and it is really important to do that: there are some really big gaps, as we see with Pension Wise UK, which is a really good and well-liked service, but has a really low take-up. That is just an example, but we need to get more people into a position to access the information. However, they will then still need a lot of support, because pension decisions are really challenging for the vast majority of people.

[Mr Bedford]

Q Where is that support going to lie—with organisations such as Age UK, charities or the pension provider? Where do you see that balance sitting?

Christopher Brooks: It could lie either with Government and the Money and Pensions Service providing a widespread service, for example. It could lie with charities, or providers could be told to help people with these decisions—they could potentially commission charities. We are working with Aviva to look at running a pilot in the retirement space, which will hopefully go ahead soon and give us some insights into what kind of support people need. People think about their lives holistically, and they are not necessarily thinking about a pension as separate from their current accounts, so we need to think about how it works for people. That is the key thing.

Jack Jones: I think we look at this slightly differently. I am not convinced that any more financial education, guidance, or points at which we need to intervene in the system to ensure that people are equipped to make decisions is the way forward. This Bill recognises that, and the introduction of default retirement products is a recognition that everywhere else in the pension system, it works on the principle of default and generally works quite well. We have seen that that principle is really powerful; if people are defaulted into something, they will stay there, whether that is their contribution rate or the investment options. Defaults are really sticky; we rely on that and make use of it through auto-enrolment, to get people into saving schemes.

More and more, as we find ways in which that does not work, we need to go back and look at fixing the system a little bit so that it works better by default, rather than providing people with more education, because that is pushing against the grain of all of our experience of what works and what is effective. I think that Chris is right that it puts a lot on the governance structures and on the consumer protections there, but I think that is where this Bill has to work. It has to put in place something that will be appropriate for the vast majority of members, and that will work with the minimal amount of engagement—we have to have some kind of engagement on retirement, such as, “This is what I am going to retire and this is where my pension should be paid,” but not beyond that.

[David Pinto-Duschinsky (Hendon) (Lab)]

Q I want to build on the questions that the hon. Member for Mid Leicestershire and my hon. Friend the Member for Bristol North East were raising. Obviously, part of the challenge we face is around the proliferation of small pots; certainly, when I talk to my constituents about issues of long-term retirement planning, that is the consistent theme. The Bill obviously sets out a path to try to deal with some of that proliferation that has been caused since the introduction of auto-enrolment. What are your views on the extent to which the Bill provides the right framework for dealing with that kind of proliferation?

Jack Jones: As Zoe said earlier, we should be here already. It has taken us a long time to get to the point where we have an agreed solution. It looks as if the mechanics of it will work. I think we need to let that bed in and prove that it works. The main concern from our perspective is the £1,000 definition of a small pot. Obviously, from a lot of angles, £1,000 is a lot of money—but as a pension pot it really is not. Looking at this once you have proved the concept and you have a system that works and that hoovers up the smallest pots and those most likely to become orphaned is one thing, but I think if you are looking at helping people to avoid accumulating 10 medium-small pots over their career, we need to look at how to increase that over time.

Christopher Brooks: I agree with Jack. I think the Bill is really strong on small pots and the system that is envisaged will really help. I guess my only comment would be that £1,000 is not a huge amount of money, so maybe over time that amount could be raised, and some kind of indication that that is the intention might be helpful.

--- Later in debate ---

[The Chair]

Mr Bedford, we do have a little time if you wish to ask a question.

[Mr Bedford]

Q I want to go back to your point around the value for money implementation, which a few Members have already raised. Specifically, there is always this competing challenge between satisfying the metrics that are in there and delivering returns for your investors. How do you see that balance in the Bill? Do you see it being too much one way, or do you see it hindering the performance of investment?

Colin Clarke: At a high level, the Bill, as it stands, is primarily rule-making powers. A lot of the detail is going to be in the secondary legislation. In terms of rule-making powers, as it stands, I think the Bill has the right provisions in place. The detail is going to be around the actual assessments that you have to follow for determining whether something is delivering value, not delivering, intermediate and so on. For me, getting that detail right in the secondary legislation is going to be quite key, as is having clarity at an early stage on what that is, so that it can go through the proper consultation paper and we can look at the risks and at whether there are any unforeseen consequences. At a high level, we know that the Bill’s rule-making powers set the right framework for that secondary legislation.

Pension Schemes Bill (Second sitting)

Peter Bedford Excerpts

Committee stage
Tuesday 2nd September 2025 Public Bill Committees

[Damien Egan (Bristol North East) (Lab)]

Q I would like to move us on to the aspects of the Bill that place a duty on schemes to offer members default retirement products. We touched on it a bit this morning. What do you think they could look like?

Sophia Singleton: I might start on this because I think that the Bill should not set out what the product looks like. The policy should set the rules of the game, providers and pension schemes should be allowed to innovate and to develop solutions that meet the needs of their members, and then policy should obviously monitor and oversee product development to ensure that it is effective. When I say “set the rules of the game”, I mean clear guidance around the things that should be considered when developing these solutions. It should consider whether it should deliver an income and consider whether it should provide longevity protection. It should consider those factors, but an income for life might not be the answer for all schemes. It will probably be the answer for many, but not for all, so that is why there needs to be flexibility for providers and schemes to develop solutions.

Helen Forrest Hall: From a PMI perspective, obviously we recognise that with the shift from DB to DC, the choices that are facing people at retirement are growing ever more complicated, and at the moment, they are largely left to their own devices and that is a far from ideal situation so we very strongly support the proposals in the Bill to provide those default pathways, particularly for those who have not made an active choice. Actually, we support the focus on those default options as generating an income because, after all, that is what a pension is for. We do strongly support that.

We have a question around where this sits in the pensions reform road map. We very much share the desire to provide people at that point of retirement with a bit more support, guidance, help and some form of default pathways as soon as possible. But we are concerned that doing so in advance of trying to bring those small pots together and reaching scale in the market puts a burden on schemes, in terms of the number of DC schemes that might not meet the scale test having to put this in place in the meantime, and potentially confuses members. For example, if you have got 11 pots that all happen to be trust based, and you have got 11 different default solutions, that is potentially going to be confusing.

We do not think that nothing should happen in the meantime. Our proposal would be to extend the point at which the mandation requirement would come in, but use engagement from regulators, particularly for large schemes—those that are going to meet scale or be exempt from the scale test—to really start piloting what good looks like in terms of both the guided retirement requirements and the FCA’s proposals for targeted support. There is a really important piece of work to be done thinking about how all of those align into a better, but not perfect, pension saver member journey at the point of retirement. It is not about moving slowly; it is about thinking about the right time that the mandation kicks in so that schemes can plan effectively and things can be tested in the meantime.

Sophia Singleton: Just to add one other element to that point around timescale, I think master trusts are going to be required to comply by 2027. One of the solutions, which might be the right solution for schemes, is the decumulation CDC. We do not expect that the regulations to facilitate that will be in place by 2027. Ensuring that those align so that that option is available to schemes when they are considering their decumulation solution would be beneficial as well. I agree with everything Helen said, but just add that extra element.

[Mr Peter Bedford (Mid Leicestershire) (Con)]

Q I have just a couple of general questions. You have articulated this in your points already, but where do you think the Bill goes too far and may have an adverse impact, and where does it not go far enough to make progress in this space?

Helen Forrest Hall: I will take this opportunity to reiterate that we strongly support the vast majority of the provisions in the Bill: the consolidation, value for money and retirement provisions; finally legislating for DB superfunds, which we warmly welcome; and striking the balance on DB surplus—there was a better balance to be struck. To a certain extent we have already talked about our key issue where the Bill potentially goes too far, which is around the mandation requirement and the reserve power.

On value for money, I think that the Bill is doing the right thing. Value for money is going to be an everchanging set of circumstances, particularly if we build scale in the market. What might be required on day one for value for money—we probably want a core set of metrics that can be easily comparable across schemes—might really mature as the market consolidates into a small number of fairly significant defined contribution funds. You might quite rightly expect regulators and the regulations to ask an awful lot more of those schemes in terms of what they are doing under value for money.

We think it is only right and proper that they sit in secondary. There have occasionally been issues with putting too much in a pensions Bill, and creating problems with the market being able to adapt as we go. So I think that this is actually the right thing to do, albeit that we would welcome further clarity from regulators around the fact that they would like to start small and grow—at the moment there is very little detail on the value for money measurements. We are talking actively with them, but it is useful to get the reassurance that we will start from a principle small basis and move out, rather than potentially creating additional burdens for schemes during what will be, on a number of fronts, quite a busy pensions reform road map.

Sophia Singleton: We very much support almost all the provisions in the Bill; mandation, as we have already talked about, is the exception. Where would we go further? There are two things that we would ask for.

The first is in relation to DB surplus. We have talked about how we were pleased to see that the safeguards were in place—we feel that they are very robust. We would like some clarity in the Bill, though, that that provision overrides any existing restrictions in scheme rules, because as it is currently drafted there are some schemes that might not be able to utilise that provision. We have provided some more details about making it open to all in our submission—making it clear that the provision overrides any existing restrictions, subject to the safeguards being properly used and so on.

The second one is an addition that we would love to see to the Bill: the removal of the admin levy, which pays towards the Pension Protection Fund admin costs. The DWP did a review in 2022 that concluded that it was no longer needed—it is a cost to schemes and therefore to employers. We have prepared a simple draft for the legislation that we have shared with you and the DWP that would remove it, and it is a very easy way to remove a cost on employers.

Helen Forrest Hall: If I could just add one point on the DB surplus, because Sophia’s points reminded me of it, I think there are a couple of areas where there could be further easements. They are not necessarily for a pensions Bill—some of them are more Finance Bill-related—but in giving trustees full flexibility to consider all the beneficiaries of a scheme, it would be useful if there were further easements that enabled them to make, for example, one-off payments to members without being subject to extraneous tax charges and, similarly, that would allow employers to pay some of that surplus as DC contributions into another trust. At the moment, the legislation does not provide for that, and obviously that would be a way to help trustees, and actually employers, who might be looking to enhance their pension provision overall—not just being able to move money around within one legal structure.

--- Later in debate ---

[Mr Bedford]

Q Going back to the consolidation of small pots, have you any thoughts or comments on the timeframes involved in how that would be implemented, particularly in the context of the roll-out of the pensions dashboard, which has taken quite some time to be rolled out in the industry?

Patrick Heath-Lay: The Government have put forward a default consolidator model. We are completely supportive of that; we think it is the right solution to tidy up the 13 million small deferred pots that are out there and those that are being created on a daily basis. That model has been done with extensive consultation with the industry.

To go back to the first question, which was about all the different options that have been considered before, we do think that this is the right approach. A couple of things around it are critical. First, we need to make sure that the technical solutions—the IT capability or infrastructure—should be as efficient as possible. We are contributing to the various pieces of research being done at the moment to evaluate which models are in existence and ready to be utilised. There is no doubt that the dashboard will contain some elements that will be helpful, such as a pension finder, that will be helpful, and I suspect that they will utilise pieces of that technology. But I do think—and I suspect the conclusion will be—that we need something new. Some of the expertise in the industry can be leveraged. I suspect that that is expertise that our organisations can provide. Given that we have already addressed the big pension savings gap for savers, we can help to develop that model.

On whether the solution is doable within the timeframe, 2030 is a big ask, but we should have that target to go after. We should try to be in a position where default consolidators exist in the market, we are developing the solution and we are able to solve the problem, because the number of small pots being created almost daily by the industry is a big problem for savers.

Ian Cornelius: I agree with Patrick. It is a problem that needs fixing. We also support the default consolidator approach. The sequencing is sensible: we want scheme consolidation first and then small pots, because there is no point in going through the complexity of consolidating small pots before consolidating at the scheme level. Dashboards will help, but they will not solve the problem. A solution is required, because this is driving a lot of cost and a lot of complexity. It would be nice if it were sooner than 2030. Given the ambition of the Bill as a whole, I think that that is probably realistic, but it does need to come after scheme consolidation, as I say.

Patrick Heath-Lay: The requirements on those organisations that choose to apply to be default consolidators need to be of a good standard. Our organisations operate a single-pot model. Whenever anyone rejoins from a different employer, their money goes into exactly the same pension pot. That is not a common model across the industry. Things like that should be thought through when defining the requirements for being a consolidator. Those that wish to apply need to hit a good regulatory standard to ensure that value is delivered through those models.

[David Pinto-Duschinsky]

Q Patrick, we have heard loud and clear your message that getting the value for money framework right is at the core of this. The Bill aims to put that on a sound footing. Which elements are required to get it right? How do you think the Bill will help to build them up?

Patrick Heath-Lay: As a package, the Bill brings forward the concept of value for money in a general sense. We need to move the conversation in our industry, particularly the conversation around workplace pensions, to the subject of value. We are all here to deliver value for members. The bit that always gets a lot of conversation is what value really means, but you cannot walk past the three fundamental drivers of a pension proposition, which are the investment return we give our members, what we charge them for it, and how our service shows up for them, probably in those moments of truth when they need us for guidance. Those are the three core elements to value, which we should not walk past.

We see this as an incredibly important area. I certainly believe that we should try to get this right as an industry, as best we can, from day one, because I think that it will be an important measure that we—regulators, Government, everyone—will lean on to understand how these reforms are playing through.

As an organisation, we have led a pound-for-pound initiative that others have joined. We brought in expertise from Australia, which is about 20 years ahead of us, and brought together a group of providers that are effectively going to dry-run some value for money measures and utilise that concept to provide some findings to regulators and Government that will hopefully help the iteration of our value for money framework. We really do see this framework as an important area, and I would like to see those three elements at its core.

Ian Cornelius: The focus on value has to be the right thing for our members. That is what they care about; that is what we are here for. There is some complexity to work through, such as how you measure value and what timeline you measure it over. Quite lot of engagement is required. We are piloting and trialling it; we almost certainly will not get it right the first time. It will be important to make it as practical and simple as possible. As Patrick said, it has real potential, in combination with the rest of the Bill, to shift the focus from cost to value. In the past, there has undoubtedly been too much focus on cost and not enough on value.

--- Later in debate ---

[Steve Darling]

Yes.

Michelle Ostermann: We have several types of levies that support our organisation. If I may, I will just take a step back to help everyone to understand what role they play.

The PPF is not terribly well understood because we are a bit unique in this industry and there are only half a dozen bodies like us in the world. The UK is one of the few countries that have a protection fund such as this. In some ways we back as an insurer in that we collect premiums or levies from the industry from the 5,000 corporate DB schemes and backstop 9 million potential future members that still sit in those schemes. We collect the levies and hold them in reserve much like an insurance company. We are not an insurance company, but we do so much like they would mathematically and with similar models.

At the same time, if a corporation fails, we take its pension scheme, which is usually underfunded, and its orphan members and put them into a pension scheme. We are both a pension manager and an insurer of sorts. When there is a failure and a scheme comes to us with insufficient assets to make good on its pension liabilities, we take some of our reserves almost as a claim, and move them over to the pension fund so that it is fully funded at all times using a largely liability-driven investment-type strategy. The levies that we collect are twofold: first we collect a levy related to the risk of the industry. You may be familiar with our purple book and the industry-wide assessment we do. We monitor the risk of that entire complicated £1 trillion industry to decide how much to set aside as reserves.

Our reserves are often referred to as a surplus, but they are not a surplus; they are reserves sitting there for potential claims in 50, 80 or 100 years. We will be the last man standing in this industry. We are here as an enduring and perpetual solution. As long as there is DB in the industry, we will have to backstop it. We set aside those reserves for the 9 million members and current £1 trillion in case of future market environments that we cannot predict today. Those levies have been collected over 20 years from the constituents of that industry. We have collected just over £10 billion from that levy system and have paid out £9.5 billion of it as claims to the pension fund.

As those levies were coming in over that 20-year period we were investing them in an open DB growth-type strategy. As such, we have built up £14 billion of reserves and so now consider ourselves largely self-funding. We no longer need to collect that levy from the industry now that those reserves are sitting there—in so far as we can best tell with our models today. We prefer to reserve the right to turn it back on should we need it in the case of a market correction event, some unforeseen circumstance or an evolution in the industry. However, right now, those fees are no longer required by us; it is a risk assessment that is suggesting that.

[Mr Bedford]

Q Building on Steve’s question on the levy, some hon. Members have asked about surplus extraction feeding into the overall risk profile in the markets. Clearly, if that was to happen and there was perceived to be an increased risk, it could result in an increase in the levy. The Bill allows for the levy to be reduced to zero. What are your thoughts about that?

Michelle Ostermann: We have thought a fair bit about that. We do not see very many scenarios in which we would need to turn it on, although it is always difficult to predict. As you know, the industry evolves in many ways and over the 20 years we have seen quite an evolution, including the creation of new alternative covenant schemes and commercial consolidators. We will backstop those as well, and we will need to charge a levy for them. There could be an unforeseen market event, similar to that just described, so we need the ability to turn the levy back on—simply to keep it as a lever. Today, the legislation reads that if we were to lower it to 0%, we can only increase it year on year by 25%. However, 25% of zero is zero, so we are a bit cornered. We have asked for a measure that would allow us to increase it by as much as a few hundred million a year. The most we have ever charged in one year was just over £500 million.

As I said, we have collected £10 billion gradually over many years. The new measure allows us to increase it by no more than 25% of the ceiling number every year, which is currently £1.4 billion. That means we could go up as much as £350 million in a single year, if needs be. However, we are a very patient long-term investor. Even though we are taking on closed corporate DB schemes, we run it as if we were an open scheme, because we are open to new members all the time. As such, our investment strategy does most of the heavy lifting for our organisation now.

On our £14 billion reserves, we make over £1 billion a year in gains from that investment strategy, which funds the £1 billion we pay out in the pension scheme to members. We are now a mature organisation that should be able to maintain a steady state. The most we would be able to increase the levy by in one year is £350 million, but we would expect to be patient, wait a few years, and try to ride out the situation not needing it, only turning it back on should we need it. We consult before we turn it on and we take a lot of feedback on this. We are quite thoughtful, as we have always been, and I hope people agree.

[Mr Bedford]

Q I am just interested in examples of recent shocks that have happened, where you had to pay out significant sums and what those sums were.

Michelle Ostermann: The biggest example is a macroeconomic shock that would affect the solvency of corporations. The failure of the corporation itself is more likely to have an impact than just a change in interest rates or equity markets. The change in interest rates can affect the fundedness of a scheme, but many of those schemes, over 75% of them now, are actually really well funded. And they have pretty well locked down their interest rate risk because they have put a good chunk of assets against their liabilities in a fairly tight hedge. Although we saw, as a result of the liquidity crisis a few years ago now, that things can change. The degree of risk, specifically leverage risk inside some of those strategies, does make them fallible. I would say the biggest shocks would be massive interest rate movements that are unforeseen, a very significant macroeconomic environment causing failure in many corporations, and technically, even a significant move in equity markets, but we would usually just ride that out. Markets can go down 20% or 30%. We would only go down 10% or 15% and we would be able to recover that in under five years, historically speaking.

[John Milne]

Q It has been a long-standing battle over pre-1997 compensation rights. Would you agree that this Bill is perhaps an opportunity to at last address that issue, perhaps by a judicious amendment or two? Do you think that that is feasible, and what framework might that take?

Michelle Ostermann: We have been progressing on this quite a bit lately. It is one of the most prevalent discussions, both with our board and with our members. We speak very often with the entirety of the industry. Several are very strong advocates for it as well, a few of which are here today, and we have taken quite a bit of humble feedback. We have worked as best we can with the Work and Pensions Committee to estimate a significantly complex set of potential scenarios for making good on historical indexation needs for pre-’97. They range in price, are quite expensive and would require us to incur or crystallise a liability. They are not cheap. It would be difficult for both us and the Government to be able to afford. The taxpayer would have an implication to some of these, depending on how they are formed, and it is beyond our prerogative to make that decision but we have been facilitating and encouraging it to be made. We would welcome progress on that. I understand, in fact, an amendment was tabled earlier today in that regard, so I was warmed by that.

Pension Schemes Bill (Third sitting)

Peter Bedford Excerpts

Committee stage
Thursday 4th September 2025 Public Bill Committees

[The Chair]

I refer Members to the Chair’s provisional selection and grouping of amendments, which should give them a guide as to which amendments are grouped and which are not.

[Mr Peter Bedford (Mid Leicestershire) (Con)]

It is a pleasure to serve under your chairmanship, Sir Christopher. I hope that the Government consider amendment 246, which would require annual reporting by LGPS asset pools on the financial performance of local investments. This is not bureaucratic red tape; it is a necessary safeguard that would help trustees in upholding their fiduciary duties and responsibilities and protect the interests of scheme members and the people whose pensions are at stake. It would be a sensible addition to the Bill, especially when we consider the fact that the Government’s impact assessment offers very little on LGPS consolidation. There is no reference to the impact that the de facto mandation of local investment will have on the trustees’ fiduciary duty or on members’ outcomes. I urge the Government to consider the amendment, not only for those reasons but because it would give consolidated asset pools greater clarity over whether their investments are best placed.

[Steve Darling]

I start by wishing the Minister a happy birthday. [Hon. Members: “Hear, Hear.”] I am sure that for all of his life he has wanted to be sitting on a pensions Bill Committee on his birthday.

More seriously, when we were in desperate measures in my time as a local authority councillor in Torbay, we borrowed to invest and make money for the local authority—that was once upon a time, because it is no longer possible—so I know from experience that authorities often have to invest elsewhere in the country to get the best financial returns. Our experience in Torbay was that a lot of our investments in the south of England got in the money that we needed to keep the local authority ticking over.

I would therefore welcome the Minister’s thoughts on how we get the balance right. Clearly, investors would want to invest in the local area to drive economic development, but there is a need to balance that with getting positive outcomes for the pension fund. Some guidance from the Minister on how he sees that balance being struck, as the hon. Members for Wyre Forest and for Mid Leicestershire have alluded to, would be helpful.

--- Later in debate ---

[Mark Garnier]

I beg to move amendment 245, in clause 2, page 3, line 39, leave out from first “in” to end of line 39.

This amendment changes the definition of local investment to remove the reference to the benefit of persons living or working.

This amendment runs closely with amendment 246. Amendment 245 changes the definition of local investment to remove ambiguous reference to the benefit of persons living or working in the area. It is a small, technical amendment, but it is about giving more focus on the key need to members of the fund.

[Mr Bedford]

At present, the Bill arguably lacks a clear definition of how the priorities of the asset pools must follow, particularly on what qualifies as local investments. Our amendment seeks to address that gap by simplifying this. Put simply, we believe that local should mean local. These asset pools should prioritise investment in large-scale projects, actively promote local growth or make tangible improvements in local infrastructure—improvements that directly benefit the people in that local area.

Where no such opportunities exist, other investment options should be considered, but we cannot allow a situation where, for example, an LGPS fund raised in the midlands is continuously redirected elsewhere in the country. Unfortunately, the Bill appears to suggest that the other areas included in the consolidated LGPS schemes could benefit disproportionately. My constituents may ask me, “Why aren’t these funds being used locally by investing in local opportunities, rather than being gifted to councils in other areas of the country, assisting in the same way?” I believe the amendment will add clarity on that to the Bill, and I would welcome the Minister’s comments on it.

[Kirsty Blackman]

I was thinking about how the amendment would work in practice in my local area. I live in the Aberdeen city council area. We are landlocked. We are surrounded by the Aberdeenshire council area. If those local authorities were in separate local government pension schemes, the effect of the amendment would be that Aberdeenshire council could not class an investment in Aberdeen as a local investment despite the fact that its local authority headquarters are in Aberdeen. That is the only sensible place for them because Aberdeenshire goes all around Aberdeen, and it is the only place to which someone can reasonably get transport from all the areas in Aberdeenshire.

Although I understand what the hon. Members for Wyre Forest and for Mid Leicestershire are saying about the classification of local investments, I am not uncomfortable with the fact that the clause includes

“for the benefit of persons living or working in”

the area. If, for example, people in Aberdeenshire invested in a new swimming pool in Aberdeen city, I imagine that it would be used by a significant number of people in Aberdeenshire, and would absolutely be for their benefit.

We should remember that the local government pension schemes will have to prove that the thing they are investing in is for the benefit of local people living or working within the scheme area, although it may be slightly outside it. For example, if they invested in a small renewable energy project providing renewable energy to local people across a border, they would fall foul of this. It would not be classed as a local investment despite the fact that it would be very much for the benefit of people living or working within the scheme area.

The level of flexibility in the clause, and the fact that the schemes will have to justify their investments anyway, is more sensible than what the amendment suggests. I understand the drive to ensure that provision is made for local investment in local areas, but because of the nature of some of those boundaries, it makes more sense to keep the clause the way that the Government have written it.

--- Later in debate ---

[Kirsty Blackman]

I will speak specifically to amendments 260 and 265. Any communication with scheme members is a good thing, particularly if there are to be changes such as those we have been discussing. Sometimes, surplus extraction may not be for the benefit of scheme members; sometimes it may be for other reasons, and trustees have a duty to make clear what they think it is for and to release a surplus only if they think it is a reasonable thing to do. However, they may not have a full understanding of how members feel about what the surplus could be used for. For example, scheme members who are active members might feel that they would love their company to invest in something to make their lives and their jobs easier, and might be keener on that extraction than the trustees might think, so it would be great to have that input.

Amendments 260 and 265 are incredibly similar—surprisingly similar, in fact—and I am happy to support both, were they put to a vote. Amendment 261 is consequential; on amendments 247 and 267, I do not feel I have enough information on what trustees think to make a reasonable judgment on whether either amendment would be a sensible way forward for trustees to meet their fiduciary duty, which is to provide the best guaranteed return for scheme members. I will step out of votes on amendments 247 or 267, but I will support the amendment that requires members to be consulted in advance.

[Mr Bedford]

I rise to speak to amendment 260. I thank my hon. Friend the shadow Minister for outlining our rationale for the amendments. My comments regard informing members. I support the right to pay surplus to employers—I think that is the right thing to do, so long as the correct safeguards are in place—but it is right to inform members of that decision. Not only is it the right thing to do, but it will improve member engagement in the whole pensions process. I made a point in Tuesday’s evidence session on the importance of financial education, and a number of witnesses supported that position. By more actively engaging with members, we will ensure that they take part in their own pension provision and ensure that the right decisions are made in their own interests.

[Torsten Bell]

My overall reflection on the amendments is that in most cases what is being requested is already happening, or risks reducing flexibility for trustees. I will set that out in a bit more detail, but I am grateful to hon. Members for their contributions and for the amendments targeting important areas of concern.

Amendments 247 and 261 aim to maintain the buy-out funding threshold for surplus release from DB schemes. Member security is at the heart of our changes, as I have already set out. We are clear that the new surplus flexibilities must both work for employers and maintain a very high level of security for members, as we all agree. Under these proposals, surplus sharing will remain subject to strict safeguards, including the actuarial certification and the prudent funding threshold, which is the same threshold that the TPR under the previous Government had put in place for defined-benefit schemes to aim for more generally. The defined-benefit funding code and underpinning legislation require that trustees aim to maintain a strong funding position more generally, leaving aside the question of surplus release. They do that so that we have very high confidence that members’ future pensions will be paid.

However, the Government are minded to amend the funding threshold at which surplus can be released from the current buy-out threshold to the full funding on a low dependency basis, as I mentioned earlier. That is still a robust and prudent threshold that aligns with the existing rules, as I have just said. The goal here is to give more options to DB scheme trustees. Again, that is true across the Bill: we are aiming to provide trustees with more options about how they proceed.

Many schemes are planning to buy out members’ benefits with an insurer. In many cases that is the right thing for them to do, but other schemes might want to continue to run on their scheme for some time without expecting future contributions to be required from an employer. The low-dependency threshold will give flexibility to trustees to do so. It is right that they have a variety of options to choose from when selecting the endgame for their scheme.

The Government will set out the details of the revised funding threshold in draft regulations, on which we will consult. More broadly, we think it right that that is done via secondary legislation, not primary legislation.

Pension Schemes Bill (Fourth sitting)

Peter Bedford Excerpts

Committee stage
Thursday 4th September 2025 Public Bill Committees

[Kirsty Blackman (Aberdeen North) (SNP)]

I am in massive agreement with putting more investment into the provision of advice. On Tuesday, we heard the terrible stats that only 9% of people actually get advice on their pension from a financial adviser. Yet this amendment is the wrong vehicle to achieve that, given that it is looking purely at DB surpluses.

My understanding is that people who have DC pensions are much more likely to need advice than those who are on DB pensions, because that someone with a DC pension cannot tell how much they will get before they actually apply for the annuities when they retire. Their life circumstances may change between the age of 40 and hitting retirement. My understanding is that those on DB pensions have a pretty clear idea of what they are getting on a weekly, monthly or annual basis, in addition to a lump sum that they may be awarded as part of that DB pension scheme. Using the surplus created in DB schemes to fund advice for DC scheme participants would not be in the best interests of the scheme members.

I agree that we need more advice; I think that the proposal made in new clause 1 for earlier advice is incredibly important, because by the time someone gets to the age of 50-plus or very close to retirement, they do not have time to fix any issues. I would love to see people, when they are first auto-enrolled, getting advice on how much pension they are likely to get from whatever percentage of pay is put in, what a top-up looks like and how putting money into their pension as early as possible gives them the best possible outcomes in retirement, rather than panicking at the last possible moment to try to increase it.

On the mid-life MOT, free advice is already available for people at the age of 50, but it is drastically under-utilised. The Government could move in the direction of ensuring that when people get their bowel cancer check pack through the post, they also get a date and a time for an appointment with the Pensions Advisory Service, so that they do not have to proactively make it themselves. That would make a massive difference.

Successive Governments have believed that doing that would cause too much uptake and there would not be capacity to provide that service, but as we come to the generation of people who have been auto-enrolled hitting 50, when they are due that mid-life MOT, the benefits would be so great and would provide prospective pensioners with clarity about how much they could get. They could be told that taking the entire thing in cash and putting a chunk of it into a bank account is a truly terrible idea—we know that far too many people do that. I am in favour of anything that the Government can do to expand the free advice service that is there already, but I think that the funding vehicle proposed in amendment 3 is not the right way to go about it. I would like the Government to put more money into it, and many more people getting the advice that they need.

The guidance and targeted support mentioned on Tuesday are incredibly important, increasingly so as we see the trend away from DB schemes towards DC schemes. I was looking at my family’s personal pension the other day, and the amount of money in the DC pot. I do not have the faintest clue what it means. I know something about pensions, but being able to translate that large figure into a monthly amount is simply impossible until it is time to apply for the annuity, when we get the understanding of what our life circumstances look like.

I would like changes to be made to the advice given. I do not think that we are in the right position. I wonder if the review will take some of this into account. On pension sufficiency, as the hon. Member for Mid Leicestershire said, people being better informed and more engaged with their pensions is an incredibly positive thing, but we are not there yet. More needs to be done to encourage people down that route.

[Mr Peter Bedford (Mid Leicestershire) (Con)]

I want to reiterate a lot of the points mentioned by the hon. Member for Aberdeen North. Financial education is key to unlocking many of the challenges that we face in adulthood, whether budgeting, debt management, saving or planning for retirement. I introduced a ten-minute rule Bill, the Financial Education Bill, earlier this year; I know we already have an element of it in secondary schools, but we need to go further as a country and ensure that everyone, from the very young upwards, has that education to inform the key decisions in our lives.

I take the hon. Member’s point on DB schemes funding those seeking advice for DC schemes, but it is often the case that members have pensions in both DB and DC schemes: people move quite fluidly from a job in the public sector to one in the private sector, and will inevitably have membership in both DB and DC schemes. The Bill would benefit from the amendment proposed by the Liberal Democrats.

I also take the hon. Member’s point on the need for better engagement by employers. I know some large companies offer employees mid-life MOTs on financial education and management. Certainly, FTSE 100 companies that I have worked for offer employees that kind of support as they approach retirement. I am sympathetic to new clause 1, which amendment 3 is connected to, because it is essential that as we get older and plan for retirement, we are fully informed on those decisions. I will support the Liberal Democrat amendment.

[Rebecca Smith (South West Devon) (Con)]

In line with what has been said already, my thought is that plenty of financial education is a good thing; to say that some is worth pursuing and some is not seems a bit at odds with what we have been debating. I echo what colleagues have said about workers who come from a DC scheme into a DB scheme and need that education. I am sure there are many new Members who are in that position—I cannot be the only person who is—and, while I am fortunate enough to have taken pension advice throughout my career, I know many people have not.

For me, this is not something that is mandated, but a suggestion for something that could be done. Providing another alternative and another opportunity for people to receive financial education—particularly people in their 20s, 30s and 40s who have not had it at school, because it was not part of the curriculum at that point—is something we should welcome and not restrict.

The amendment seems to me perfectly sensible. I appreciate why some people might think it does not go far enough, or that the matter will be addressed later in the reporting back that the Government will do on pensions in general, but the emphasis on people around the age of 40 is particularly important, because they still have a good 20 years—or 30 years, potentially; who knows what will come forward from the Government?—to work and to ensure that they maximise returns to achieve adequacy. Having an additional vehicle to do that seems to me a sensible thing, and I put on record my support in the same way that my hon. Friend the Member for Mid Leicestershire has.