Pension Schemes Bill (First sitting)

Rebecca Smith Excerpts

Committee stage
Tuesday 2nd September 2025 Public Bill Committees

[John Grady]

Q With DC—defined contribution—schemes, as you know, savers themselves have discretion about where they put their money. The issue we face, illustrated by Dimson, Marsh and Staunton’s regular review of asset returns, is that people are not saving in things that will get them a long-term return, are they? The other issue we face is that there has been a real shift from public markets to private markets over the past 25 years or so. If you are not investing in those, you are missing out on returns that mean more money when you retire. I was just wondering, Ms Clark, if you could just put into context the work you are doing on the advice guidance boundary review and wider advice to savers, and how that will help pension savers and, therefore, help these reforms succeed?

Charlotte Clark: It is important to say that most people who are saving in a pension are probably saving in the default. When you say that they are choosing their investment, most of them are not. Whether it is the trustees of that scheme or whether it is the independent governance committee of that scheme, most people are going into that default, so the importance of the default is really crucial. While it is important to really think about engagement and talk about the advice guidance boundary review and some of the work that is happening there, it is also important that some people will not want to make those decisions. It is only people like us who seem to care about these sorts of things. Getting other people engaged in their investment is quite a challenge.

You are right that we are doing quite a lot of work, largely around the ISA area and the at-retirement area. One of the challenges at the moment is people taking money out of their pension and then putting it in cash. That may seem like a really wise decision if you are 55, but if you do not need that money for 20 years, it may keep track with inflation but you are going to miss out on asset returns, equity returns or other aspects of investment. So, we are really thinking about how we engage with people about those sorts of discussions. How can we make sure they are getting the right support? It comes back to the targeted support programme, which goes live in spring next year. So, working with providers at the moment on how they can support people when they are making these sorts of decisions, and just think about whether, if it is not full financial advice—I understand that can be very, very costly—are there other areas where we can give people help that is not as kind of extreme as that but allows people to think about those decisions in the round?

Patrick Coyne: I would just add that one of the reforms in the Bill around guided retirement is reflective of that default conundrum we face. We have a brilliant system—11 million more savers—but nobody making an active choice. That means that when people approach retirement, only one in five has a plan to access and when they do, as Charlotte said, half are taking it as cash. That cannot be the right outcome. Within the Bill, introducing a guided retirement duty enables those institutional investors to start to guide individuals or cohorts of members into the right kind of products for them, with clear opt-outs for them to choose a different way. As Charlotte said, the type of support and new form of regulated advice could really help inform savers and make good choices at that point.

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

Q Obviously, a big part of the Bill is the assumption that mandation is a good idea. I would be interested to know to what extent you agree with the Bank of England Governor, Andrew Bailey, that mandating pension scheme investments is not appropriate?

Charlotte Clark: Following on from Zoe and Rob—I think they have articulated this issue really well—I do not think anybody disagrees with the direction of travel: trying to get more assets into private markets and higher return markets, and making sure there is more diversity within portfolios and that the scale of pension funds in the UK are using that in an effective way on investment. The issue of whether mandation is the right tool to use is ultimately one for you and the Government. There are obviously challenges, which Rob and Zoe have articulated, around how you do that, when you have a trustee in place whose responsibility is to the member, and making sure that is paramount in the system?

Patrick Coyne: I agree with that. I think it is fair to say that there is a degree of consensus in the marketplace, among Government, industry and regulators, that we need to make structural reforms to the marketplace and put value for money at the heart of the system. A big part of that is a move towards fewer, larger pension schemes, because of some of the factors that Charlotte just outlined—the ability to in-house your investments; the ability to consider a broader range of investments, which can sometimes be quite complex; and broader governance standards. Mandation is of course a matter for Parliament, but clearly structural reform is needed within the marketplace.

[Rebecca Smith]

Q We are not all Government Members in this room, so we are quite keen to hear what bits you think might work and what bits might not work. That is where the question came from.

As a supplementary question, do you think trustees and scheme managers should be provided with a safe harbour if they are required to invest in assets that underperform? I think that is probably what a lot of the public would be interested in as well. You do not want somebody to be mandated to put money into something that is doing worse than it was doing before it was moved.

Charlotte Clark: There is an exemption in the Bill, though, that basically says that if you are a trustee and you do not believe it is the right thing for your members then you should not put that money in. That is just going to be a very tricky assessment for the trustees or the scheme manager, and then for the regulators, at the point of addressing why they did not meet those levels. If they believe that it is not in the interests of the member, the Bill allows for that.

[Rebecca Smith]

Q Are there not going to be too many hoops to jump through to prove that the trustee is correct, if they have to prove it to a regulator? I suppose that is what the safe harbour means. Will the trustees have the benefit of the doubt, or are they going to have to be watertight in their belief that they are right, to make sure that they can stand up to the regulator?

Charlotte Clark: The level of that process would be something that we would put into secondary legislation and rules. We would really have to think through what that process looks like.

Patrick Coyne: Yes, absolutely. Implementation is critical here. This will be something that is done with wide consultation with the industry.

[Torsten Bell]

Q It is not right to say that mandation is at the centre of this Bill. There is one backstop power and there are a lot of clauses that we are going to spend a lot of the next few months—

--- Later in debate ---

[Alice Macdonald (Norwich North) (Lab/Co-op)]

Q My question is related to that. Aviva, in your written evidence, you spoke quite a lot about the value for money framework. Could you expand on what you think the benefits and challenges are? You also referred to the Australian regulator’s model, in terms of learning. You have already covered a bit of it, but if there anything you could add on what we could learn from that model about incentivising investments in the right areas, that would be great.

Dale Critchley: What we have heard from Australia is that the thing to avoid is regulator-defined targets, which will probably lead to herding, and can lead to schemes avoiding certain investments. For example, in Australia, property includes social housing and commercial property, but there is one benchmark for everything. So pension schemes do not invest in social housing, because they cannot achieve the benchmark through investing in social housing, as the benchmark is common across all property. Those are things to watch out for.

The other piece is that if you have set benchmarks, people will look to achieve the benchmark and not exceed it—they do not want to be the white chicken among all the brown chickens. Those are the things to avoid, in terms of the value for money benchmarks.

[Rebecca Smith]

Q This builds on something that was mentioned in the previous panel by Age UK—that a lot of the education that will need to be done to ensure that people understand what is going on, particularly with the small pots consolidation, could fall on Government, charities or providers. As pension provider representatives, what is your view on how far into the detail the Bill has gone in terms of who is responsible for that? We have seen in other, similar legislation an expectation put on businesses to provide the service, and it is often done at your cost rather than any sort of Government cost. I would be interested to know what you think about that.

Colin Clarke: I think it is right that the Bill, as I understand it, places the responsibility for member education and member communications on the provider, because ultimately the pension provider will be the organisation facilitating these things and making them happen. As was touched on in the previous panel, the availability of Pension Wise and other services like that is valuable, but I think pension providers ourselves have a responsibility to make sure that we deliver the right guidance and support for members.

Dale Critchley: The only thing I would add to that is that, if we start to edge towards guidance, we can come into an issue around marketing. If we sell the benefits of, for example, the default solution, rather than just say, “This is who the default solution is designed for,” and leave it to the customer to join the dots, we may have a better outcome, but it would be marketing, and we cannot do that, because of the privacy and electronic communications regulations. We would need member consent to deliver marketing communications, even though we are trying to help the customer.

[Rebecca Smith]

Q Are you effectively saying that if you put the customer first, which is ultimately what this entire piece of legislation is trying to do, then, at the moment, other regulations will stop that from happening, so we might want to look at that?

Dale Critchley: Yes.

[Rebecca Smith]

The privacy piece came up earlier this morning as well, so that needs looking at.

Dale Critchley: If we deliver something that looks towards targeted support, where instead of just saying, “This is the solution you will go in if you make no choice,” we say, “This is the solution we think is best for you, and you will go in if you make no choice,” that would edge towards marketing, and we could not say that.

[Sarah Edwards]

Q I want to pick up on the changes around DC, and the fact that there are quite a lot of different things—we have talked about value for money, changes in scale and, obviously, default retirement ages. From your perspective, is there a sequencing that needs to happen to make sure that they work, and is that provided for? What would your guidance be around that?

Colin Clarke: I do not think the Bill itself necessarily has the timescales in it, because it will be left to secondary legislation to look at when all these things actually fit together. A very helpful document was published alongside the Bill, with a potential road map. There is a logical order in which certain things have to happen. For example, the value for money test will require movement of members from historical defaults into something that will deliver better value. To achieve that, the contractual override for contract-based schemes would need to be in place in good time before the value for money exercise happens. Otherwise, there will be constraints that might inhibit the ability to do that.

Similarly, with small pots, a lot of the measures will lead to consolidation at scheme level. That will address some, but not all, of the small pots issue. The road map sets out small pots being at the end, and that is a sensible place to put them, because there will be a lot of other activity that happens first that will solve some of the problems. It does not make sense for small pots to be moved before they are moved again—you could see things moving around a couple of times.

On guided retirement, the potential timing of implementation is quite tight if it is going to be 2027 for certain schemes, when we do not have any secondary legislation yet. It is very important that that is consulted on as soon as possible so that we have clarity. Dale mentioned working on various different solutions. We have been doing something similar at L&G, and they may well be the right thing for members, but we know that we will have to fit them around regulations and make some adjustments, so having clarity on those early would be very helpful.