Pensions

Steve Darling Excerpts

Tuesday 11th November 2025 Commons Chamber

[Mr Speaker]

I call the Liberal Democrat spokesperson.

[Steve Darling (Torbay) (LD)]

I apologise for inadvertently using the word “you” the last time that I spoke, Mr Speaker.

Clearly, the clock is ticking for WASPI women. There are 3.6 million WASPI women across the United Kingdom, which is half a million more than the population of Wales. Sadly, a WASPI woman dies every 13 minutes.

I welcome the statement from the Secretary of State. When we have explored this subject in recent months, I have found it extremely disturbing how the ombudsman failed to engage with the previous Conservative Government because they knew that there would not be a deal to make around what the relevant approach would be on compensation for WASPI women. I plead with the Secretary of State to revisit that; after all, Government Members are on record as supporting WASPI women for many years. Will he look to meet with them and ensure that there is a fair deal? There is due to be a High Court hearing next month, and I implore him to engage positively and to get a fair deal for WASPI women.

[Pat McFadden]

The hon. Member is right; this issue has gone on for a long time. I took the view that, in the light of the evidence being cited, the right thing to do was to look again at it and at the decision in the round. I cannot speak for the previous Government’s failure to engage with the ombudsman—that is a matter for them—but I can tell the hon. Member that this Government are engaged with the ombudsman on the action plan discussed earlier, and we will continue to be engaged. As I said, I will come to a conclusion and report to the House as soon as possible.

Public Authorities (Fraud, Error and Recovery) Bill

Steve Darling Excerpts

Consideration of Lords amendments
Wednesday 5th November 2025 Commons Chamber

[Madam Deputy Speaker (Judith Cummins)]

I call the Liberal Democrat spokesperson.

[Steve Darling (Torbay) (LD)]

I thank the Government for the steps taken to improve the Bill since it was debated in Committee. We as Liberal Democrats still have grave concerns about elements of the Bill, but it is in a much better place, and I thank all colleagues for working together collaboratively to drive for improvements.

Clearly, fraud is wrong. Some people believe that fraud against large organisations such as supermarkets and the Government is a victimless crime, but if we do not have that money, because it has been fraudulently claimed, we have to apply larger taxes or choose not to spend money on things such as tackling climate change. It is therefore important that it is tackled, but we need to ensure that we have two words guiding us: proportionality and fairness. We as Liberal Democrats still have grave concerns that elements of the Bill are not as proportionate as one would wish.

I will focus my remarks on Lords amendment 43. We Liberal Democrats feel that more responsibility should be given to the independent reviewer in relation to proportionality and fairness. We still have concerns about the blanket approach, where mass fishing will effectively occur with the proposals before us. One does not have to look that far back in recent IT history to see where things have gone wrong. I believe it was only last week that child benefit was frozen for 23,500 households across the United Kingdom, because those families left the country and were not accounted for when they returned. That error was made on a computer system, and that affected just a small proportion of those to whom this Bill is set to be applied.

The reasonableness of Ministers was debated repeatedly in Committee. I am not questioning the reasonableness of the current Minister, or multiple Ministers who preceded him, but I question what we are seeing on the other side of the Atlantic and the person who has the levers of power in the Oval Office. What may be seen as “reasonable” in politics in the United Kingdom is sadly a distant memory in the United States of America. We must ensure that we guard against that future in the legislation we are putting forward now.

On the use of force, the Liberal Democrats are pleased that the Government have taken a step in the right direction in their amendment, although we feel that it could be stronger. We would encourage colleagues to vote against the Government’s proposals, because we strongly support Lords amendment 43.

[John McDonnell (Hayes and Harlington) (Lab)]

I must say that I do get a bit edgy when Front Benchers agree so much.

In respect of Lords amendment 84, I want to be absolutely clear about what the Minister has said. As far as I am aware, it will now be a human being making the decisions: an authorising officer. The authorising officers will be able to draw upon all other information—that is what the Minister said—but it is still not clear to me whether a decision can be made simply on the basis of the EVM information. It would therefore be useful if the Government’s intention were read into the record more clearly.

As for Lords amendment 43, I want to follow up on what was said by my hon. Friend the Member for Poole (Neil Duncan-Jordan). We have received representations with regard to, in particular, people suffering from mental health issues, some of whom would be leading chaotic lives. The Minister is right to say that it is not for Ministers to engage in the process of making individual decisions because that is for the authorising officers to do, but the one occasion on which the Minister can be held to account is when the annual independent review takes place.

According to my understanding, the Minister said that the reviewer would not be prevented from exploring the issue of the exercise of powers and the impact on vulnerable people. May I suggest that that could be strengthened? Perhaps he will tell us when he responds to the debate. It is not just about prevention; it is appropriate for the independent review to consider that issue, largely because of the representations that we have received consistently throughout our debates on the Bill, and from a wide range of organisations that represent people with disabilities and, in particular, mental health challenges. A statement to that effect would be more reassuring than the words that we have heard so far.

I do not really understand why the Government would resist this, because it is just a basic element of accountability in an area that, as my hon. Friend the Member for Poole has said, could affect so many people and could have such a significant adverse effect. I do not want to exaggerate, but I was in the House throughout our discussions of the introduction of the work capability assessment, and, although the last Government refused to accept it, we now know that it resulted in a large number of suicides. In this instance, I would not want us to enter into a reform of the processes specified in the Bill without a regular review of the harms that could be caused, which would enable us subsequently to adjust the legislation if necessary.

I would welcome a clarification from the Minister, or perhaps a strengthening of the words that he has used so far.

Welfare Spending

Steve Darling Excerpts

Tuesday 4th November 2025 Commons Chamber

[Steve Darling (Torbay) (LD)]

It is important that the House, first of all, reflects on where the Conservatives left our community when they left power. We should reflect on the fact that the number of people who are economically inactive has gone up from 2.1 million in 2019 to 2.8 million. The fact that the bill for incapacity benefits has gone up from £34 billion to £51 billion is quite shocking. It is interesting that the Conservatives feel able to share their pearls of wisdom with the Chamber after leaving the world in such a sorry state. The Conservatives have climbed into the gutter to produce the proposals before us this evening; Disraeli and Peel must be turning in their graves.

There are some real challenges. We need a true culture change, both in the benefit system and in the employment world, to help people get into work. That culture change should involve us taking a trauma-informed approach, in the DWP, in our civil service and in our society, so that we can help people who can work into work.

I would also like to reflect on the sorry state in which the Conservatives left our NHS after they starved it of cash and failed to invest in it for many years. It is a great pity that so many residents came to me in my first year as MP for Torbay to tell me that they were unable to have the operations they required, due to the Conservatives’ lack of investment over many years. They bled money out of the capital system to cover the costs of revenue. That is utterly shameful. Torbay hospital continues to crumble and, sadly, under the new Labour Government, we still see £250 million of in-year cuts to our NHS services. While the Conservatives undermine those with mental health challenges, Devon partnership NHS trust is set for £21 million in cuts.

[Dr Evans]

It was the Conservative Government who brought in the mental health investment standard to ensure parity for mental health. It is this Government who made the capital cut the hon. Gentleman mentions, and who are not meeting the standard. I am intrigued; why does he think that there is so much difficulty understanding that, and why are the Labour Government making cuts to mental health payments?

[Steve Darling]

I thank the hon. Member. I reflect on the savage cuts made to public health spending. I would particularly mention the number of people who sleep rough on our streets. I campaigned on the issue as a young Liberal, more than 30 years ago. Sadly, those rough sleepers are just the tip of the iceberg when it comes to the challenges in our society. The cuts faced by the Devon partnership trust are a real challenge.

I want to move on to Access to Work. Ministers have said on the record that it is one of the Government’s best kept secrets, but I fear that it has not performed as strongly as it could in driving people into work. In fact, I and others have real concerns that changes to the system could undermine it. Someone with a disability is 50% more likely to be out of work. A quarter of people who are registered blind are in work. That clearly means that 75% are out of work—those are shocking figures.

The Liberal Democrats welcome the Charlie Mayfield report on how we can engage appropriately with the employment world, and on the positive lessons that can be learned from our nearby colleagues in Europe. I look forward to that coming forward, but perhaps the Government put the cart before the horse; the report should have been undertaken before the Employment Rights Bill was progressed.

Finally, I come to a policy that Liberal Democrats have voted against on three occasions in this Parliament: the two-child limit and the benefits cap. What choice was there for the widow and her children? I am shocked that the Conservatives have such heartlessness that they are turning their backs on those individuals. Some 4.5 million children—that is, every third child—live in poverty in the United Kingdom. In a visit that I made to Barton Hill academy in recent years, I asked the kids what they liked and did not like about Torbay. Their answers were not so much about things like litter; they were more about mum and dad not being able to make ends meet. I wonder how many of those youngsters were impacted by the two-child limit.

In conclusion, there are elements of the Bill that we Liberal Democrats welcome, such as the ability that it will give us to manage the benefits bill, and a return to face-to-face assessments where possible, but others are totally derisible. We see the benefit system as being akin to our NHS: it should be there to support people in living their best life. We will therefore not support the motion.

[Several hon. Members rose—]

Oral Answers to Questions

Steve Darling Excerpts

Monday 27th October 2025 Commons Chamber

[Mr Speaker]

I call the Liberal Democrat spokesperson.

[Steve Darling (Torbay) (LD)]

I note that last year the new Secretary of State for Work and Pensions said that it is open to debate as to whether the two-child limit is harmful. I note also that this policy has been the most impactful in driving children—more than 730,000 of them—into poverty. Will the Minister acknowledge that the two-child limit is harmful and work with Treasury colleagues to overturn it?

[Andrew Western]

I am happy to acknowledge the findings of the Child Poverty Action Group, which I think has put forward the statistics that the hon. Gentleman sets out. I remind him and all Members of this House that this is not the only lever available to us and that all levers are under active consideration. I also remind him, as I have reminded other colleagues, of the steps that this Government have already taken, including the roll-out of free school meals to all families in receipt of universal credit, which alone will lift 100,000 children out of poverty.

--- Later in debate ---

[Mr Speaker]

I call the Liberal Democrat spokesperson.

[Steve Darling (Torbay) (LD)]

The Government have made a promise that those transferring from legacy benefits to universal credit will find themselves no worse off, yet Liberal Democrat colleagues from all over the country are finding that people are worse off. Will the Minister share evidence of how the Government are supporting the most vulnerable where they find themselves worse off?

[Sir Stephen Timms]

Transitional protection is available for people making the transition across, and I spoke earlier about the support being provided through the enhanced support journey to people for whom the transition may be particularly difficult. I am thinking, for example, about some people on employment and support allowance. If the hon. Member is worried about particular cases and would like to send me the details, I am very happy to look at them.

Pension Schemes Bill (Eighth sitting)

Steve Darling Excerpts

Committee stage
Thursday 11th September 2025 Public Bill Committees

Brought up, and read the First time.

[Steve Darling (Torbay) (LD)]

I beg to move, That the clause be read a Second time.

New clause 2 is about market consolidation, and ensuring that the Minister undertakes to report back so we can see how it is progressing. Clearly, market consolidation will have positive impacts, but there is a law of unforeseen consequences, so it is important to ensure that there is a regular health check on what is happening in the market. It is not only about that law of unintended consequences, but about checking out the opportunity for new entrants to come into the system, and making sure that there are no unexpected barriers. To our mind, it is good practice that one would hope would be undertaken.

The new clause is a probing amendment; we will not be pressing it to a vote, but I look forward to reassurances from the Minister. We are keen to get on the public record what he says in this area, because we know from conversations with the industry that there is some interest in the matter.

[Kirsty Blackman]

I highlight again that the Regulatory Policy Committee considered the monitoring and evaluation plan in the impact assessment to be weak. It said that although everything would be reviewed around 2030, there were not many other points that the Government had committed to reviewing.

In the new clause, I probably would not have picked a timescale of 12 months after Royal Assent, given the length of the road map and the timings for the introduction of a significant number of things. I appreciate that as the new clause is crafted, it can pick up on problems before they occur. If things are moving towards consolidation in advance of the timelines, the Government should be able to analyse where the prospective issues are. However, the Minister could commit to providing Parliament with a review, and either giving information to the Work and Pensions Committee or making information and statistics publicly available.

--- Later in debate ---

[Torsten Bell]

The first thing to say is that this is focused on scale. We appreciate that the Bill would lead to major changes to the pensions market—the hon. Member for Torbay is absolutely right—and we want to understand and monitor the consolidation and scale process over the coming years. To state the obvious, market changes such the scale measures we are talking about take time, and many of the measures in the Bill will not even be implemented within the 12 months. On that basis, I hope that the hon. Gentleman will not push the amendment to a vote.

I agree on the wider point about the Bill as a whole and the need for strong monitoring and evaluation. I would probably take a slightly different approach from the hon. Member for Aberdeen North. The Bill contains a large number of measures, and the right way to monitor their implementation will be different for different parts of the Bill. When it comes to the questions of scale, which are the focus of this amendment, the monitoring—[Interruption.] That is not the response I was looking for. The monitoring is slightly more visible because we are talking about the number of workplace schemes, or at least workplace defaults, that exist.

Let me lay out a bit of what we have in place to monitor. We will be able to monitor scale, charges and, because of the interaction with the value for money regime, returns and asset allocation. Lots of the key success metrics that are meant to come with the scale changes, as well as the delivery of scale itself, will be visible. My honest view is that it is on all of us—obviously, it is particularly on the Government—to pay attention to that as we go.

On the wider question of whether we will consider further, I have already committed to do that and to come back and reflect on Report on how we do that. I put on the record my view that that is a reasonable thing to do, and I will do it, but we need to think about it differently for different parts of the Bill.

[Steve Darling]

I thank the Minister for putting his thoughts on the record. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 5

Report on fiduciary duty and discretionary indexation of pre-1997 benefits

“(1) The Secretary of State must, within 12 months of the passing of this Act, publish a report on whether the fiduciary duties of trustees of occupational pension schemes should be amended to permit discretionary indexation of pre-1997 accrued rights, where scheme funding allows.

(2) The report must consider—

(a) the impact of current fiduciary obligations on trustees’ ability to award discretionary increases to pre-1997 pension benefits;

(b) the potential benefits of permitting such discretionary indexation for affected pensioners;

(c) the funding conditions and thresholds under which discretionary indexation could be considered sustainable;

(d) the appropriate level of regulatory oversight and guidance required to ensure that discretionary increases are granted in a fair, transparent, and financially responsible manner;

(e) international approaches to indexation of legacy pension benefits;

(f) the legal and actuarial implications of amending fiduciary duties in this context.

(3) In preparing the report, the Secretary of State must consult—

(a) the Pensions Regulator,

(b) the Financial Conduct Authority,

(c) representatives of pension scheme trustees, members, and sponsoring employers, and

(d) such other experts or bodies as the Secretary of State considers appropriate.

(4) The Secretary of State must lay a copy of the report before both Houses of Parliament.”—(Steve Darling.)

This new clause requires the Secretary of State to report on whether the fiduciary duties of trustees of occupational pension schemes should be amended to permit discretionary indexation of pre-1997 accrued rights, where scheme funding allows.

Brought up, and read the First time.

[Steve Darling]

I beg to move, That the clause be read a Second time.

[The Chair]

With this it will be convenient to discuss the following:

New clause 18—Indexation of pre-1997 benefits—

“(1) Schedule 7 (pension compensation provisions) of the Pensions Act 2004 is amended as follows.

(2) In paragraph 28(3) leave out ‘so much of’ and ‘as is attributable to post-1997 service’ in each place they occur.

(3) Leave out paragraphs 28(5)(b) and (d), 28(5A) and 28(7).

(4) In paragraph 28(6) leave out definitions of ‘post-1997 service’ and ‘pre-1997 service’.”

This new clause would make indexation of compensation provided through the Financial Assistance Scheme and Personal Protection Funds applicable to both pre-1997 and post-1997 service.

New clause 19—Indexation of pre-1997 benefits for Financial Assistance Scheme members—

“(1) Schedule 2 (determination of annual and initial payments) of the Financial Assistance Scheme Regulations 2005 is amended as follows.

(2) In paragraph 9(2) leave out the first occurrence of ‘so much of the expected pension as is attributable to post-1997 service’ and insert ‘the expected pension’.

(3) In paragraph 9(2) leave out the second occurrence of ‘so much of the expected pension as is, proportionately, attributable to post-1997 service’ and insert ‘the expected pension’.

(4) In paragraph 9(2) leave out the definition of ‘post-1997 service’.

(5) Leave out paragraph 9(3) and insert—

‘Where the qualifying member has pensionable service prior to 6th April 1997 which has not been included in the underlying rate but which their scheme provided for, the scheme manager must determine the annual increase attributable to that service for each year since the date on which the annual payment was first payable and, if that increase has not been paid to the member, reimburse the member for that amount.’”

This new clause would make indexation of compensation provided through the Financial Assistance Scheme applicable to pre-1997 service and reimburse members for the annual increases in payments they should have received in light of this change.

[Steve Darling]

[Interruption.] I am not quite used to getting interrupted by thunder. Perhaps I should get used to it, with Jennie winning Westminster Dog of the Year, or at least the popular vote. Clearly, it was rigged—I jest.

On a more serious note, we are looking at a cohort of pensioners, the pre-’97 pensioners, who have been left behind without indexation. We heard moving evidence from two gentlemen who shared the challenges that many of those pensioners face, living in higher levels of poverty because of the failure to index.

Our proposal is to ensure that there is a responsibility to explore the possibility of amending the fiduciary duties—something I was not even aware of until I started exploring the Bill—to support the possibility of indexation. I am aware that a more prescriptive new clause has also been tabled. As Liberal Democrats, we sympathise with the aims, but we feel that we need to have confidence that the system has the capacity to pay out. Our proposal is a steady hand on the tiller approach. It is about sense checking and ensuring that there is an ability to support the appropriate levels of indexation. I hope that the Minister will look kindly upon the proposal, as it is the more level-headed approach, with all due respect to Plaid and the SNP.

[Kirsty Blackman]

I rise to speak in support of the new clause tabled by the Liberal Democrats and new clauses 18 and 19, which were tabled by my wonderful colleague from Plaid, the hon. Member for Caerfyrddin (Ann Davies).

The witnesses who came before us last week to speak about the lack of indexation for pre-1997 pensions made an incredibly passionate and powerful case for changing the system. We mentioned earlier the Work and Pensions Committee’s report, which suggested that the Government need to look at this issue seriously. I was quite disappointed by the Government’s response, which did not actually say very much. All it said was that changing the system would have an impact on the Government’s balance sheet. Well, yes, it might have an impact on the Government’s balance sheet, but it would have a significant impact for people who are in this situation through absolutely no fault of their own. They did the right thing all the way along, but the company they were with collapsed and the Pension Protection Fund or the financial assistance scheme has not given them the uplift.

The group of people we are talking about are getting older. They are not young any more. We know that older pensioners are the most likely to be in fuel poverty and to be struggling with the cost of living crisis. They are the ones making the choice about whether to switch on the heating. Given the rate of inflation that we have had in recent years, there is a real argument for utilising a small amount of the PPF’s surplus to provide a level of indexation. The cut-off is very arbitrary; it is just a date that happened to be put in legislation at that time. Were the Government setting up the PPF today, and the compensation schemes for people who lost their pension through no fault of their own, I do not think they would be arguing for not indexing pensions accrued before 1997. That would not be a justifiable position for today’s Government to take.

I am not sure whether the Bill is the right place to do this, but my understanding is that it needs to be done in primary legislation; it cannot be done in secondary legislation. Given what I mentioned earlier about the significant length of time between pieces of primary pension legislation, if the Government do not use the Pension Schemes Bill to address this problem today, on Report or in the House of Lords, when will they? How many more of the pensioners who are suffering from the lack of indexation will have passed away or be pushed into further financial hardship by the time the Government make a decision on this, if they ever intend to?

As I have said, I cannot see a justification for not providing the indexation. We know the PPF levy changes have been put in place because of that surplus, and there is recognition that the surplus exists and has not been invented—the money is there. I understand that the situation is different for the two funds, but particularly with the PPF, I do not understand how any Member of this House, let alone the Government, could argue against making this change to protect pensioners.

It may have an impact on the Government’s balance sheet, but it does not have an impact on the Government’s income, outgoings and ability to spend today. The PPF money cannot be used for anything other than reducing the levy or paying pensions. It is very unusual to have such ringfenced, hypothecated money within the Government’s balance sheet, but this money is ringfenced. The Government cannot decide to spend it on building a new school or funding the NHS. It can be used only for paying the pensions of people whose companies have gone under.

I very much appreciate the hard work of my colleagues in Plaid Cymru on this issue in supporting their constituents, as well as people such as Terry Monk, who gave evidence to us last week along with Mr Sainsbury. Now is the time for the Government to change this to ensure fairness and drag some pensioners out of poverty, so that they have enough money to live on right now during this cost of living crisis.

--- Later in debate ---

Brought up, and read the First time.

[Steve Darling]

I beg to move, That the clause be read a Second time.

I am afraid I have a difficulty, Ms Lewell: I am appearing soon in a Westminster Hall debate as a spokesperson, so I will have to go part-way through this debate—accept my sincere apologies for that.

New clause 7 is the beginning of a series of new clauses on pensions injustices. It is intended to probe. I know from fellow MPs that there are significant amounts of casework about people who fall short of being acknowledged as receiving benefits from pensions, such as spouses or partners of different descriptions.

Our world is complicated. I am adopted, and went from having one sibling to nine siblings in total; I have a complicated family. We all have complicated families. Equally, historically, pensions may not have taken account of how people’s lives might have become more complicated, such as with partners and the way that life moves on. We ask the Minister to reflect on that, and see how he may be able to tackle this injustice. I apologise for leaving before we complete the debate on the new clause, Ms Lewell.

[Kirsty Blackman]

If the new clause is pressed to a vote, I will not take part because it does not impact pensions in Scotland. However, I want to relay to the Committee and the Minister that I have heard a number of heartbreaking stories on this subject; I am aware that it is not the Minister’s fault that such situations have occurred. What has most impacted me is when I have heard the stories of people having to choose not to live with their partners if they are to continue to receive pensions.

Someone’s deceased police officer partner may have died a significant time ago. Finding happiness in a new relationship is a lovely thing, but that person might have to choose between getting the survivor’s pension and living with their new partner. That is a horrific decision that nobody should ever have to make. It would be great if the Minister recognised the issue: that people are being pushed into making difficult choices because of how the schemes have been written. I do not necessarily want the Minister to commit to changing the legislation, as I do not know whether it is within his gift to fix this, but will he recognise that the current situation is unfair? I think that would be a step in the right direction.

Pension Schemes Bill (Seventh sitting)

Steve Darling Excerpts

Committee stage
Thursday 11th September 2025 Public Bill Committees

[Mark Garnier]

I will be incredibly brief. We have heard a number of details from the Minister. Clauses 93 to 96 contain what we believe are sensible and welcome amendments that reflect current market and scheme conditions. In particular, the changes related to the Pension Protection Fund are positive. With a strong funding position in many defined benefit schemes recently and the PPF’s healthy reserves exceeding £14 billion, these legislative changes are timely. The industry strongly supports the option for a zero levy, which reduces financial pressure on well-funded schemes. The Opposition wholeheartedly support these clauses.

[Steve Darling (Torbay) (LD)]

The Liberal Democrats welcome the direction of travel. As the shadow Minister identified, the industry has demanded some elements of the clauses, but they are mostly about supporting consumers. The end users of these services should be a key element of what the Bill is about.

[Kirsty Blackman]

I agree with the point that the Liberal Democrat spokesperson just made. The clauses represent good decisions both for those who work in the industry and for members of the public—people paying into pension schemes and hoping to get an adequate pension when they retire.

I want to comment on a few things included in the clauses. The Work and Pensions Committee report that was published a couple of years ago asked for several of the changes that are being made here, and I appreciate that the Government are now moving towards making a significant number of them in what is the most major piece of pensions legislation we have seen in years. I do appreciate the changes being made.

I am incredibly supportive of the changes to the terminal illness criteria, which create consistency with other Government legislation on the definition of terminal illness. As the Minister said, if this allows more people to access payments earlier and can improve their quality of life when they know how very short their remaining time is, it will be incredibly helpful. It will enable those individuals to access additional payments and funding more easily and quickly, so that they can make the most of the short time they have left. I appreciate that change.

The pensions dashboard changes are sensible, because people will be able to see the widest possible range of things when they log into the dashboard. It will do what it says on the tin, which is to bring everything together in one place, rather than people having to go somewhere else.

Lastly, I do not disagree on the PPF levy changes; I think this is the right decision. However, there is a significant surplus, and there are other things that could have been done with it; we will discuss new clauses 18 and 19 later. I thought the Government’s response to the Work and Pensions Committee report that I mentioned was sensible when it came to the PPF levy changes: “Yes, we agree this needs to be changed and we will look into it.” The response on the pre-1997 lack of uplift for members in the PPF and the FAS was not so helpful. It was more like, “Well, this is an impact on the Government’s balance sheet.” That is genuinely what the Government’s response says.

I am concerned that there are two very different ways of looking at the answers to those questions. In both cases, the answer could have been: “There is a significant surplus. We agree we should do something about it.” Changes could then have been made to support people who are in some cases really struggling to make ends meet, as was mentioned in last Tuesday’s witness session. That could have made a significant difference to their lives. If the Government had committed to allowing or encouraging the PPF to apply an inflationary uplift and provide support—even if they did so in a particularly progressive way, to support folk with the lowest earnings—that would have made the biggest possible difference to people who are genuinely struggling right now.

Pension Schemes Bill (Sixth sitting)

Steve Darling Excerpts

Committee stage
Tuesday 9th September 2025 Public Bill Committees

[Mark Garnier]

I thank the Minister for talking through the amendments. We understand the intention behind them, but we are worried that, as can often be the case, there may be an unintended consequence: the creation of a closed shop for master trusts. We do not want suddenly to find that, in trying to make a transition pathway, we end up making things more difficult because it has been interpreted in the wrong way. We are minded to oppose the amendments, but perhaps the Minister could instead give us his thoughts on how we can ensure that they do not get used the wrong way and that we do not end up with a closed shop of master trusts.

[Steve Darling (Torbay) (LD)]

I echo what the shadow Minister has just highlighted. We all want the reform that the Bill introduces, but we do not want what results from this process to be set up forever, with a lack of opportunity for change; I will talk a little further about that when we come to new clause 3. Some reassurance from the Minister that there is an opportunity for new entrants and innovation would be extremely welcome.

[Torsten Bell]

I apologise for my slip of the tongue at the start of my speech. This group of amendments deals with transition pathway relief. Here, in many cases we are talking about existing schemes that may not meet the £25 billion threshold, but which have a plausible path to that scale requirement over the following five years—I think that is a point of consensus across the Committee. That is what we are engaging with here. It is a reasonable approach to avoid a cliff edge, for exactly the reason that the shadow Minister set out.

--- Later in debate ---

[Torsten Bell]

These amendments clarify aspects of the approval criteria for prospective new entrants into the multi-employer DC market after the scale requirements come into force. Amendment 112 requires that a new prospective provider must have no current members—it must actually be new to the market. We want to ensure that the route is used only by those for whom it is intended, rather than as a loophole around the main intent of the Bill.

Amendment 113 requires that new entrants have strong potential to grow in order to meet the scale requirements under section 28A, and that the prospective scheme in question has an innovative product design. I think we will come to the question of product shortly, but to skip ahead, the regulations would allow us to talk about innovation in the nature of the service, not just in the product. That is a question for us to take away in the design of those regulations. That is not in the Bill itself, but it is an important clarification.

The remaining amendments in this group are consequential on amendment 113. They will offer greater clarity to potential applicants to this pathway, and I commend them to the Committee.

I thank the hon. Member for Torbay for tabling new clause 3 and acknowledge his wish that the pathway for new entrants into the DC multi-employer market be as supportive as possible for new providers. We of course agree with that sentiment. We want to see fewer, bigger schemes, but not a lack of competition in the longer run, even though we are a long way from that.

From an innovation viewpoint, the new clause is not necessary to achieve that aim. Competition will come from the possibility of innovation, but must also flow into the building of scale, which is the overall intent of the legislation. Given that the spirit of the new clause is achieved by the new entrants pathway, I ask the hon. Gentleman not to press it to a vote.

[Steve Darling]

It is a pleasure to serve under your chairmanship, Mr Turner.

Will the Minister put a little more flesh on the bone in respect of the ladder of opportunity for new entrants? We need to make sure that we do not end up with a system with large schemes and nobody being able to get into the super-league of opportunity that we have currently. We want to see innovation over time and hoped that, through the new clause, we could bake that into the system. We can have aspirations for how future Ministers deal with these matters, but we must give confidence to the industry in respect of future entrants, so that it continues to be a vibrant industry that drives investment and growth for people’s pensions. That is essential. We would be extremely grateful for some more flesh on the bone.

[Kirsty Blackman]

I appreciate the Minister’s clarification that I had talked about amendment 113 prematurely, but it was relevant in the context of the previous discussion.

I also appreciate the Minister’s clarification on the definition of “product”. I understand why he wants to make the amendment to tighten the Bill up a wee bit; however, it potentially tightens it up too much. Before Report, will he consider whether the use of the word “product” is right? Does he need to look at including that word in the definitions provided at the end of clause 38—I do not think it is currently included—to cover not only the physical things or offerings to people in terms of the products and investments they could look at, but the niche and specific service provision that might be attractive to people who are looking to invest their pensions because they have specific life conditions, or because their life and work does not fit into a normal box? I appreciate the earlier clarification in respect of the default products, which was incredibly important and helped to clarify my mind, but it would be helpful if the Minister agreed to take away my suggestion.

I can understand why the Liberal Democrats tabled new clause 3. We should consider where we are with the innovation pathway, and the fact that the new entrant pathway exists and the relevant regulations have not yet been created. I assume that the Minister and his team will listen to a huge number of people. Clause 38 says that

“such persons as the Secretary of State considers appropriate”

must be consulted; I hope that will be a wide group of people with significant experience in the industry.

Given that so many of us have mentioned challenger banks and new financial institutions, perhaps the consultation will look at what has been learned in that respect and whether some of the innovative decisions, and the regulations that allowed the provision of innovative products, should be included in the scope of the regulations. I would rather the innovation be quite wide, rather than quite tight, given that the scale thresholds and requirements have to be met anyway.

If somebody has a credible plan to reach that scale, surely pretty much any of the innovative solutions they may be suggesting are good, because they are also providing a credible plan to get that significant level of scale and the efficiencies that come along with that. Potentially the definition of products in the defined terms at the end could be a good vehicle for the Minister to ensure that the scope is as wide as he would like it to be.

--- Later in debate ---

[Torsten Bell]

I thank the hon. Lady for that question. There is not a formal requirement on the Secretary of State to carry out a review as we are going. My honest view is that any regulator and Secretary of State will want to actively monitor what happens. I very strongly expect that this will be discussed at great length at every single pension conference around those years, because all the providers will be talking to each other about how they are taking these things forward.

The hon. Lady will remember the discussion last Tuesday with some providers, including the National Employment Savings Trust and People’s Pension, about how they are already planning to bring these solutions forward. Although they are new for the industry, most providers had already been thinking about this, because they know that it would be the right thing to do even if there were not a Government requirement to do it, and because I have been clear with them for quite some time that this is the direction of travel in both the trust market and the GPP market.

I am not sure that we need a rigid, set date for a review, but I will take away the hon. Lady’s wider question about what reassurance we can offer that people will be actively monitoring what has happened rather than just watching and seeing what happens. I can certainly write to the regulators, for example, to make it clear that that will be our expectation.

Amendment 147 agreed to.

Amendments made: 148, in clause 42, page 55, line 11, at beginning insert

“at least in such circumstances or”.

This amendment allows for regulations to provide that particular events (as well as times or intervals) trigger a requirement to review default pension benefit solutions.

Amendment 149, in clause 42, page 55, line 13, leave out “relevant” and insert “pension”.

This amendment ensures that the definition of “pension benefit solution” is capable of operating in relation to a pension scheme that is not a relevant scheme (such as a collective money purchase scheme).

Amendment 150, in clause 42, page 55, line 25, leave out

“as a default pension benefit solution,”

and insert

“of the scheme as the pension benefit solution under which—

(i) the eligible members of the scheme generally, or

(ii) a subset of those eligible members,

will receive pension payments unless they choose to receive pension payments under a different pension benefit solution,”.

This amendment clarifies the definition of “default pension benefit solution”.

Amendment 151, in clause 42, page 55, line 40, at end insert

“;

(d) such other factors as may be prescribed.”—(Torsten Bell.)

This amendment allows other factors to be added by regulations to the factors that trustees or managers of a relevant scheme have to take account of in determining what default pension benefit solutions the scheme should make available.

[Steve Darling]

I beg to move amendment 279, in clause 42, page 55, line 40, at end insert—

“(4A) The trustees or managers of a relevant scheme, in determining whether to adopt or vary a default pension benefit solution, must—

(a) issue a written notice of the proposal to all members of the scheme, including—

(i) the expected impact on benefits and investment strategy, and

(ii) a written attestation that a market-wide assessment of all available options was undertaken;

(b) ensure a consultation period of at least 60 days has elapsed;

(c) confirm that fewer than 10 per cent of eligible members have objected in writing.”

This amendment adds the “without member opposition” safeguard to defined contribution schemes when changes to default pension benefit solutions are considered. It also requires a whole of market assessment to ensure the best solutions are chosen for members.

It is a privilege to move the amendment, because as Liberal Democrats we want to make sure that pensioners are at the heart of the Bill, as do many colleagues of different parties in this room, I am sure. For us, it is about driving a positive culture of engagement. The expectations that these proposals would place on managers or trustees would drive a positive engagement culture, as well as putting guardrails and protections around investments. I would welcome the Minister’s reflections on how the Bill would tackle our aspiration for the positive engagement culture that I am sure all Members in the room wish to see achieved through the Bill.

[Torsten Bell]

The amendment is absolutely right that trustees should consider a wide range of options when they are developing their default pension benefit solutions. As I have just remarked to the hon. Member for Aberdeen North, I suspect that that will be a big focus for trustees and scheme managers in the years ahead. Clause 48 does make provision for trustees or managers to consider the needs and interests of scheme members. I would emphasise that as the priority, as opposed to considering every option already on the market, because we are looking for them to develop the right solutions. In most but not all cases, that will be in-house; we will come back to some of the cases where they will not be doing that. We do not want to make it sound like an off-the-shelf situation in lots of cases, although I appreciate that doing their job will require them to look across the market.

I have a slight worry about setting a hard 10% of membership expressing an objection as a way of vetoing an approach. First, in many cases, there will not be a single default solution for members within a scheme; there will be a number of them for different cohorts within that scheme, not least based on the size of pots or their wider situation. We do not want a subset of a scheme to be able to vote down the solutions for everybody within the scheme, which is what the amendment would allow. The amendment would also allow those who are a very long way from retirement to shape the outcomes for those who are about to come to retirement.

My most important point, however, is that individuals have an absolute right to opt out. Although we talk in terms of default, just as we talk about automatic enrolment, the purpose is that this is a softer default than automatic enrolment. That is partly because we are expecting multiple defaults, not a single one where everyone is required to save at least a certain amount, but also because people will be able to opt out and have a range of different defaults.

I hope that I have provided reassurance that the Bill already includes important safeguards, and that trustees and scheme managers will already need to consider the issues that the Liberal Democrat amendment rightly puts on the table.

[Steve Darling]

I thank the Minister for his positive feedback. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 152, in clause 42, page 56, line 1, leave out

“are to assess the needs and interests of its”

and insert

“of a scheme are to assess the needs and interests of the scheme’s”.

This amendment corrects a minor verbal inconsistency.

Amendment 153, in clause 42, page 56, line 14, leave out “money purchase benefits” and insert

“benefits falling within paragraph (a) of the definition of ‘money purchase benefits’ in section 181(1) of the Pension Schemes Act 1993”.

This amendment restricts the definition of “eligible member” of a relevant scheme so that it does not include members who are accruing or entitled to collective money purchase benefits.

Amendment 154, in clause 42, page 56, line 16, leave out “established under a trust”.

This amendment amends the definition of “relevant scheme” so schemes that are not established under a trust may fall within the definition.

Amendment 155, in clause 42, page 56, line 25, at beginning insert “(1)(b) or”.—(Torsten Bell.)

This amendment provides for negative parliamentary procedure for regulations that prescribe when or in what circumstances default pension benefit solutions need to be reviewed.

Clause 42, as amended, ordered to stand part of the Bill.

Clause 43

Transferable members

Pension Schemes Bill (Fifth sitting)

Steve Darling Excerpts

Committee stage
Tuesday 9th September 2025 Public Bill Committees

[Mark Garnier (Wyre Forest) (Con)]

This is a very uncontentious and highly technical part of the Bill. We have no objections to any of these provisions and so will be supporting them.

[Steve Darling (Torbay) (LD)]

As the Liberal Democrat spokesperson, I echo that this is a direction of travel that we welcome. The vast majority of the proposals that are before us today are uncontentious. They follow the correct direction of travel in growth and change that we want to see in our pensions system in the United Kingdom.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of the Bill.

Clause 28 ordered to stand part of the Bill.

Clause 29

Further provision about contents of small pots regulations

[Torsten Bell]

I beg to move amendment 36, in clause 29, page 27, leave out lines 14 and 15.

This amendment clarifies that small pots regulations may confer rights of appeal more broadly than just in relation to the refusal of an application for authorisation.

--- Later in debate ---

Secondly, for providers, the current model is not just inconvenient, but a drag on the system. It is fragmented, inflates costs, blocks economy of scale and undermines the returns that savers get on their investment, whereas a lifetime model would streamline the process and cut unnecessary costs. The obvious benefits of consolidation are clear, but the lifetime pension pot model gives people a sense of ownership of their pensions. I hope the Minister takes on board my comments.

[Steve Darling]

As Liberal Democrats, one of the key lenses through which we look at the legislation is: how does it simplify the world for those who are not the most financially literate savers into their pensions? As Liberal Democrats, we strongly support the “pot follows member” approach, as it would simplify matters for people. It would ensure a clearer mechanism for savers to be aware of the level of their pension as their life moves on, and allow investments to be drawn together more easily. It would be interesting to hear the Minister’s reflections on that, and on why the Australian model is unsuitable for the United Kingdom.

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

It is a pleasure to serve under your chairmanship, Ms McVey. I want to add a few things to what my hon. Friends have said, and to reflect on the Minister’s rejection of our new clause as a significant administrative burden. I think we are talking about two sides of the same coin, because to have to keep hunting out small pension pots is a little like looking for things in the dark.

First, we are effectively advocating for a “Who Wants to be a Millionaire?” approach, where someone banks at each stage. I have done that while moving jobs over my lifetime, but I am fairly financially literate. It would be helpful if there were a box to tick on a form when changing job to say, “Yes, I want to move it to this company,” a bit like we do with our P45—we are quite capable of taking our tax with us from job to job. If there were a way of taking our pension with us as well, that would be helpful.

As my hon. Friend the Member for Mid Leicestershire said, that approach would put ownership in the hands of the employee, and it would mean that they did not have a niggling feeling in the back of their mind that they had missed a pot that they had forgotten about. Anything to enable people to have ownership of that pot, rather than be constantly on the back foot trying to hunt it down, would make significant sense. Allowing people to choose rather than having to accept what is offered to them would be incredibly helpful. Ultimately, it is up to them to do what they wish, but they would at least have the choice.

We heard a lot in the evidence sessions about the challenge of communication. We have seen that with Equitable Life and all sorts of other things to do with pensions. When someone changes employer, if there were a simple way to say, “I wish to take the pension with me to the new job,” that would reduce, not increase, the administrative burden. I appreciate what the Minister said, but although we are not looking to push our new clause to a vote, it is an incredibly pragmatic suggestion that warrants further reflection.

--- Later in debate ---

[Mark Garnier]

We have no objection to the technical amendments, but we will oppose the whole clause.

[Steve Darling]

We have no issue with the technical amendments. However, for us the crucial issue in the Bill is driving an environment of positive investment, and a system in the United Kingdom that individual investors—as in, would-be pensioners—can believe in.

The mandation element causes concern. As has been alluded to, there are assumptions that Ministers are reasonable people; however, we do not have to look that far across the Atlantic ocean to see politicians behaving unreasonably. It concerns us as Liberal Democrats that giving powers in the Bill without clear management of them is potentially a step too far. While the Minister, and other Ministers in the current Government, may be reasonable, who knows what is coming down the line in a very turbulent political system?

We therefore continue to have grave concerns around mandation, and look forward to hearing what assurances the Minister is able to give. The key outcome for us is making sure that there is a stable pensions system in which people can have confidence, because confidence is crucial for driving the positive investment that I am sure everybody in this room wants to see.

[The Chair]

I remind all Members that we are talking about the technical amendments. There will be a chance to talk about the clause later.

--- Later in debate ---

[Torsten Bell]

I am reassured that our agreement that scale is the desirable outcome is clear. It is great to have that on the record. I also put on the record that there is agreement about the value of innovation and about new entrants. I think that the only distinction is between a new entrant that then grows and a new entrant that does not. Our approach is to allow new entrants, but they need to be ones with a plausible sense that they can get to scale. Inherent to most of the innovation in the market—for example, in collective defined-contribution schemes—is that they would have to operate at scale to be effective. I think that the banking analogy is actually quite apt.

[Steve Darling]

Would the Minister be kind enough to reflect on a situation currently at play in the market, whereby Phoenix Group is withdrawing the management of billions of pounds from Aberdeen Group? These master products offer opportunities that could significantly impact on viability. Could the Minister reflect on that?

[Torsten Bell]

Let me just finish the point about the financial crisis, then I will come to the hon. Member’s question. The lesson from the financial crisis was that banks were too big, and the lesson that we all agree about is that pension schemes are too small. That is the distinction—that is why we are doing this Bill now and why the previous Conservative Government introduced different changes after the financial crisis. We are in a very different situation. That said, we need to prepare for the future and, when there are bigger pension schemes, we want a world where new entrants can come into them. I hear what has been said. I want to reassure the hon. Gentleman that we want to see new entrants offering innovative products. I take the point about services, which we will come back to when we come to amendment 113, but that needs to be a pathway, not a permanent carve-out that risks undermining the scale requirements.

Question put, That the amendment be made.

--- Later in debate ---

[Torsten Bell]

I shall speak briefly because I am conscious that we need to adjourn shortly for Treasury orals, which I know everybody will be joining us for. I will not rehearse the arguments I have already set out against the purpose of amendments 248 and 249, other than to note that I do not agree with the characterisation by the hon. Member for Mid Leicestershire.

Amendment 275 seeks to prevent the Government from designating securities in UK water companies as qualifying assets for the purpose of the asset allocation requirement. I recognise the points that the hon. Member for Wyre Forest made, and I am not surprised to hear that Reform has not thought through its policies in this regard. The Government have set out the safeguards we have put in place around the use of this power. We do not think we should single out a particular sector in primary legislation, so I ask Members not to press their amendments.

I thank the hon. Member for Horsham for introducing new clause 4. The investment he references is exactly the kind that we think would raise financial returns and improve quality of life at retirement. That is the purpose of these changes. He rightly raises the bringing together of the demand side—that is, the Mansion House accord and the change in investment behaviours—with the supply side. That is exactly what the Government are doing via planning permissions and everything else, to ensure that the pipeline of projects is there, including via the British Growth Partnership work, which is intermediating all of that. On that basis, we think that the new clause is unnecessary, but I completely agree with much that it contains.

[Steve Darling]

Reflecting on events over the weekend, may I congratulate the Minister on being one of the few who remained in post? There is talk of the Prime Minister using all levers of power to drive forward work on certain wicked issues. One of the big wicked issues is the lack of affordable housing. In my constituency of Torbay, only 8% of our housing stock is social-rented, compared with a national average of 17%. I encourage the Minister to reflect again on this and take the opportunity of new clause 4—surely socialists should vote for clause 4. This is another opportunity to apply all the pressure we can to drive more social-rented housing, to support our communities and those most in need in society.

[Torsten Bell]

I just point out that many of the measures in the Bill will support exactly that kind of investment in social housing, including those on scale and the local government pension scheme. On that basis, I think these amendments are unnecessary.

Ordered, That the debate be now adjourned.—(Taiwo Owatemi.)

Pension Schemes Bill (Fourth sitting)

Steve Darling Excerpts

Committee stage
Thursday 4th September 2025 Public Bill Committees

[The Chair]

I remind the Committee that with this we are discussing the following:

Amendment 260, in clause 9, page 8, line 30, at end insert—

“(e) requiring the trustees to provide a prescribed notification, as set out in (f) below, with the members of the scheme (or their representatives) not less than 60 days before making any payment under this section;

(f) the prescribed notification should include—

(i) the proposed amount of surplus to be paid to the employer,

(ii) the reasons for the proposed payment,

(iii) the impact on member benefits,

(iv) the scheme’s funding position after the proposed payment, and

(v) how members may make representations regarding the proposal;

(g) requiring the trustees to have regard to any representations made by members or their representatives having received the prescribed notification.”

This amendment would require trustees to notify members at least 60 days before making surplus payments to employers. It ensures members receive full information about proposed surplus payments, enabling informed participation.

Amendment 265, in clause 9, page 8, line 30, at end insert——

“(e) requiring the trustees to provide a prescribed notification to members of the scheme, or members’ representatives, not less than 60 days before making any payment under this section,

(f) requiring the prescribed notification under subsection (e) include—

(i) the proposed amount of surplus to be paid to the employer,

(ii) the reasons for the proposed payment,

(iii) the impact on member benefits,

(iv) the scheme's funding position after the proposed payment,

(v) how members may make representations regarding the proposal, and

(g) requiring the trustees to have regard to any representations made by members or their representatives having received the prescribed notification under subsection (e).”

This amendment would require trustees to notify members at least 60 days before making surplus payments to employers.

Amendment 267, in clause 9, page 8, line 30, at end insert—

“(e) requiring that, where the scheme actuary certifies under subsection (a) that the scheme’s assets exceed the cost of securing each member’s accrued rights with an authorised insurer for a continuous period of at least six months, the trustees must first secure a full buy-out of those rights before any payment of surplus may be made to the employer or any other person, and

(f) requiring that subsection (e) does not apply if the scheme actuary certifies that any surplus extraction would, after the extraction, still leave the scheme’s assets exceeding the cost of securing each member’s accrued rights with an authorised insurer.”

This amendment inserts a requirement to ensure that surplus extraction prior to a buyout does not adversely impact the scheme’s ability to reach buy-out.

Amendment 261, in clause 9, page 8, line 36, at end insert

“and including confirmation that the proposed payment (surplus access) will not adversely impact members’ benefits and that the prescribed notification has been completed in accordance with regulations made under subsection (2A).”

This amendment would aim to strengthen an actuary's role and oversight of schemes accessing surplus, by requiring confirmation that member notification has occurred before certifying surplus payments.

Does Mr Darling wish to respond further in this debate?

[Steve Darling (Torbay) (LD)]

I am happy for the Committee to proceed.

[Mark Garnier (Wyre Forest) (Con)]

Sir Christopher, I am happy to proceed in order to get things moving.

Question put, That the amendment be made.

--- Later in debate ---

[Steve Darling]

I should start by saying that I do not recognise the purist approach that we have heard from the hon. Member for Aberdeen North. This is an issue close to my heart, because my father, having seen the poverty that his father was in, saved significantly in his private pension scheme as a lorry driver. Sadly, however, he was extremely poorly advised, and as he approached retirement he put thousands and thousands of pounds into equities; then, in the late 1980s, there was a stock market crash. He might as well have burned half of his money. The further we drive the health of the pension industry, the better, and particularly knowledge for those who may not be very much in the financial world.

We heard in evidence from NEST that only 40% of people have even registered online to know what their pension is doing. For people for whom the financial world is a complete challenge—and even for many of us in this room, getting our head around it totally is a bit of a challenge—it is essential that we use every possible lever to make sure that quality advice is available. As Liberal Democrats, we will unashamedly use every opportunity in the Bill to provide high levels of education for those who are in receipt of pensions and to give them as much wind in their sails as possible.

[Torsten Bell]

I shall give a short speech, because there is a worrying habit developing of the hon. Member for Aberdeen North giving the Government Front-Bench speech for me. I should encourage that as we go on—she might be slightly traumatised by that, but we are where we are. Everybody in this room will agree on the importance of the principle that has been highlighted, and we have just heard a powerful point exactly along those lines.

Although the Government understand the intent behind amendment 3, there are two reasons why we will not support it. The first is a point of principle, which I have already set out: it is for trustees, not the Government, to decide how surpluses that benefit members should take place. We discussed the issue of discretionary benefits just now.

The second reason is less a point of principle and more a matter of reality. The amendment would provide advice only to existing members of specific schemes. I think we all agree, particularly in the light of the point made by the hon. Member for Aberdeen North, that the main problems are about the defined-contribution space and people coming up towards retirement. Lots of the people who are in schemes who would be coming forward for surplus release are already drawing down a very well-defined pension income.

It is not the ideal way to focus on the particular problem that we all agree exists, but we completely agree that robust guidance that assures that everyone has access to free and impartial advice is very important. That is the job of the Money and Pensions Service, but I completely hear what has been said about how it needs to go further. I am grateful for hon. Members’ contributions, but I urge the hon. Member for Horsham to withdraw his amendment.

--- Later in debate ---

Division 5

Ayes: 5

---

Conservative: 3
Liberal Democrat: 2

Noes: 11

---

Labour: 10
Scottish National Party: 1

[Steve Darling]

I beg to move amendment 264, in clause 9, page 9, line 4, at end insert—

“(e) Where regulations under subsection (2A) lower the funding threshold for a surplus payment to below the full buy-out funding level, the Secretary of State must—

(i) conduct an assessment setting out—

(A) prescribed stress scenarios and their impact on funding,

(B) a maximum permissible extraction percentage for each scenario, and

(C) contingencies to restore funding;

(ii) consult the Pensions Regulator, the FCA, and such actuarial bodies as may be prescribed; and

(iii) lay a report of the assessment before Parliament.”

This amendment requires the Secretary of State to conduct an assessment when the DWP calibrates any extraction threshold below buy-out.

[The Chair]

With this it will be convenient to discuss amendment 258, in clause 9, page 9, line 21, leave out

“in subsection (2A), after ‘section’ insert ‘37(2A),’”

and insert

“in subsection (2), after ‘virtue of’ insert ‘(za) section 37(2A)’”.

This amendment would make all regulations on DB surplus extraction subject to the affirmative procedure all times they were made rather than just after first use.

--- Later in debate ---

[Steve Darling]

Amendment 264 would provide a backstop and a check where there are potential extractions and buy-outs. It would give an opportunity for the Secretary of State to cast an eye over the process when the DWP does an assessment. It goes back to safeguarding: as I am sure this Committee will discuss repeatedly, we need to ensure that we have investors’ and beneficiaries’ best interests at heart. I hope that the Secretary of State will take the proposal at face value, as an appropriate guardrail, and I look forward to its endorsement.

[Mark Garnier]

Conservative amendment 258 would ensure that all regulations made under proposed new section 37(2A) of the Pensions Act 1995, which governs surplus payments from defined-benefit pension schemes, are subject to the affirmative procedure always, not just the first time that they are made. That would give Parliament ongoing oversight and scrutiny of any future regulations in the area. Without the amendment, regulations on defined-benefit surplus extraction would not consistently require parliamentary approval. That would potentially lead to insufficient scrutiny.

The amendment aims to provide better parliamentary control over regulations as they are introduced. The key worry is the risk that the Secretary of State, whoever he or she may be, might use these powers to allow the payment of a surplus at funding levels below buy-out standards at some point in future, which could jeopardise scheme security and could happen without parliamentary scrutiny. The amendment is about improving the transparency and accountability of surplus extraction regulations for DB pension schemes, ensuring that Parliament maintains consistent oversight and guarding against premature surplus extractions that might undermine scheme funding security.

--- Later in debate ---

[Torsten Bell]

I think I am grateful to the hon. Lady for her attempt to fire me. To clarify, carrying out the kind of prescribed stress scenarios and assessments set out in the amendment would require the Department for Work and Pensions to examine the DB landscape. In this specific area, that is the role of TPR and the PPF.

I turn to amendment 258. The first regulations on surplus will be subject to the affirmative procedure, for exactly the reasons that have been set out, and exactly because at that point they will be new but also comprehensive. As with every other pensions Bill, what we do not want to see is the affirmative procedure being used for small, technical changes that come to those regulations in the years that follow. However, our approach does allow for the necessary debate when those regulations are made. On that basis, I urge hon. Members to support the Bill as drafted.

[Steve Darling]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 258, in clause 9, page 9, line 21, leave out

“in subsection (2A), after ‘section’ insert ‘37(2A),’”

and insert

“in subsection (2), after ‘virtue of’ insert ‘(za) section 37(2A)’”.—(Mark Garnier.)

This amendment would make all regulations on DB surplus extraction subject to the affirmative procedure all times they were made rather than just after first use.

Question put, That the amendment be made.

--- Later in debate ---

[Torsten Bell]

Clause 9 will amend the safeguards on the sharing of surplus. The details will be set out in regulations, the parliamentary procedures of which we have just discussed. These safeguards will place the safety of members’ benefits at the heart of the policy.

Proposed new subsection (2B) of section 37 of the Pensions Act 1995 sets out the requirements, which are there to protect members, that must be set out in regulations before trustees can pay a surplus to the employer—namely that before a trustee can agree to release a surplus, they will first be required to receive an actuarial certification that the scheme meets a prudent funding threshold, and that members must be notified before surplus is released.

The funding threshold will be set out in regulations, which we will consult on, as discussed. We expect that release of the surplus will be permitted only when a scheme is fully funded on a low-dependency basis. Trustees are already required, through existing legislation, to set a long-term funding and investment strategy that targets exactly this funding level. These funding conditions will be set out in regulations made under the affirmative procedure and debated when first introduced.

Proposed new subsection (2C) will provide the ability to introduce additional regulations aimed at further enhancing member protections, where considered appropriate. Superfunds will be subject to their own regime for profit extraction; I am spelling this out, because we will come to it later in the Bill. The proposed new subsection will allow regulations to be made that are consistent with those provisions. Regulations may prevent payments from superfunds for a period, if surplus regulations come into force earlier than the superfund legislation, which we will debate later in the Bill. Crucially, decisions to release any surplus will remain subject to trustee discretion. I also note the removal of the statutory test in section 37(3)(d) of the Pensions Act, on the grounds that it does no more than reflect trustees’ existing duties.

The technical and consequential amendments at subsections (4) to (7) of clause 9 are to ensure that the new measures sit correctly in existing legislation but do not affect the overall policy. In summary, the clause will ensure that the release of a surplus is subject to strict safeguards. I commend it to the Committee.

Question put and agreed to.

Clause 9 accordingly ordered to stand part of the Bill.

Clause 10

Relevant schemes: value for money

[Steve Darling]

I beg to move amendment 269, in clause 10, page 10, line 10, at end insert—

“(aa) make, publish and keep under review the consistency of—

(i) regulated VFM schemes, or

(ii) regulated VFM arrangements,

with the goals of the Paris Agreement on climate change and clean energy;”.

This amendment, with Amendment 270, would require pension funds and managers to show whether their portfolio investments are consistent with the Paris Agreement.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 272, in clause 10, page 10, line 10, at end insert—

“(aa) make, publish and keep under review the compliance of—

(i) regulated VFM schemes, or

(ii) regulated VFM arrangements,

with statutory and regulatory targets for reducing sewage discharges by water and sewerage undertakers,”.

This amendment, with Amendment 273, would require pension funds and managers to monitor and report on the compliance of water and sewerage companies they invest in with targets for reducing sewage discharges.

Amendment 270, in clause 10, page 10, line 20, at end insert—

“(d) publish or share with prescribed persons, for the purpose of enabling VFM assessments to be made, prescribed categories of information (referred to as ‘climate alignment metric data’) regarding the scheme’s exposure to climate-related financial risks and the alignment of its investments with the goals of the Paris Agreement on climate change and clean energy.”

This amendment, with Amendment 269, would require pension funds and managers to show whether their portfolio investments are consistent with the Paris Agreement.

Amendment 273, in clause 10, page 10, line 20, at end insert—

“(d) publish or share with prescribed persons, for the purpose of enabling VFM assessments to be made, prescribed categories of information (referred to as ‘sewage discharge compliance data’) regarding the scheme’s exposure to, and investment in, companies holding permits to discharge sewage, including those companies’ performance against statutory and regulatory targets for reducing sewage discharges.”

This amendment, with Amendment 272, would require pension funds and managers to monitor and report on the compliance of water and sewerage companies they invest in with targets for reducing sewage discharges.

Amendment 271, in clause 12, page 12, line 21, at end insert—

“(iv) the consistency of the investment portfolio with the goals of the Paris Agreement on climate change and clean energy, including metrics for assessing climate-related financial risks and opportunities;”.

This amendment would require pension funds and managers to show whether their portfolio investments are consistent with the Paris Agreement.

Amendment 274, in clause 12, page 12, line 21, at end insert—

“(iv) the compliance of the investment portfolio with statutory and regulatory targets for reducing sewage discharges by water and sewerage undertakers, including metrics for assessing related environmental and financial risks and opportunities;”.

This amendment would require pension funds and managers to monitor and report on the performance of water and sewerage companies they invest in against targets for reducing sewage discharges.

--- Later in debate ---

[Steve Darling]

In tabling these amendments, we wanted to make sure that we calibrated them carefully. It is not about giving a clear instruction that says, “You must do this”; it is about ensuring that investors are alive to the Paris agreement on climate change and clean energy and that our water companies are complying with cleaning up our rivers and seas. Introducing a duty to report on how funds are having an impact on that would ensure a level of awareness without dictating to investors and thereby having an impact on the fiduciary duties that trustees should clearly have.

Throughout the Bill, the Government have quite rightly highlighted how pensions can be a force for good for our economy and for those who invest in it. The amendments would reinforce that approach. On climate change, clean energy and cleaning up our seas and rivers, the amendments are writ much larger, without interfering in where the money should be invested.

[Mark Garnier]

These are not amendments that we feel particularly inclined to support. They would require pension fund managers to make, publish and keep under review data to show that their portfolio investments are consistent with the goals of the Paris agreement on climate change and clean energy. That would include publishing prescribed information relating to climate change alignment and sewage discharge. Those are immensely important and worthy ambitions and intentions; we share their spirit, as we want a cleaner planet, cleaner waterways and improvements to our climate, but I do not think that this is the place to do it. Pension funds should be allowed to look at the best interests of their members, irrespective of wider public and social aspirations, so this is not a proposal that we feel we can support.

--- Later in debate ---

[Torsten Bell]

My support for the Welsh Government’s Well-being of Future Generations (Wales) Act 2015 is on the record, so I get to disagree with the hon. Member for Aberdeen North on something, which will be a relief for everybody.

I thank the hon. Member for Torbay for tabling the amendments. Clearly, addressing climate change is absolutely central to this Government’s agenda. It needs to be done in the right way. Pension funds hold significant capital, and I am pleased to say that at every conference and every session I hold with people involved in the industry I see that investors and pension schemes do now use their influence on companies to encourage them to take responsible action. That has been a big change over the course of the last decade. It can lead to better risk management and potentially also improve returns on investments, as well as helping companies to perform better in relation to environmental targets.

My overall argument, though, is that trustees must already consider financially material risks, including ESG factors. The statement of investment principles and the implementation statement are key tools that are already in place for disclosing a scheme’s approach to ESG issues, including climate change. Ultimately, the amendment is about disclosures; that is what it aims to achieve. Additionally, large schemes with assets above £1 billion, which in future will be the majority of schemes because of the scale measures that we will come back to, must also report on climate-related risks and opportunities, in line with the Task Force on Climate-Related Financial Disclosures.

We are looking to strengthen sustainability reporting, exactly as the hon. Member for Torbay wishes to see, through new UK sustainability reporting standards and our transition plan’s commitment, which the Government consulted on this summer. Taken together, our policy initiatives will modernise the UK’s framework for corporate reporting, giving pension schemes vital information about companies’ decarbonisation plans and about whether to escalate their engagement efforts with investee companies on environmental issues. The DWP is contributing to that work and will review the effectiveness of climate reporting requirements later this year, as part of our post-implementation review of the requirements of the Taskforce on Inequality and Social-related Financial Disclosures.

Given the existing reporting requirements, the Government’s position is that we will gently resist the amendments, to avoid duplication.

[Steve Darling]

Climate change is an existential threat to humanity, and although sewage may not be such a threat, it is still a significant issue; indeed, it is a wicked issue that needs to be tackled by our society as a whole. I wish to press the amendment to a vote, to show the Committee’s intent ahead of the Bill’s next stage.

Question put, That the amendment be made.

--- Later in debate ---

[The Chair]

Before I call the Minister, I should say that it is not clear to me whether Mr Darling wishes to speak to amendments 1 and 2, which are in this grouping.

[Steve Darling]

That had eluded me, Sir Christopher, so thank you for drawing me out on this one. Amendments 1 and 2 ensure that there is consistency and that there are no gaps where schemes could perhaps fall between the cracks of legislation. We feel that the amendments would give that continuity of support to schemes.

[Torsten Bell]

In response to the hon. Member for Torbay, I should say that I have already set out the case for the value for money framework not covering defined benefit pension schemes, which is what the effect of the amendment would be.

To the questions raised by the hon. Member for Aberdeen North, broadly, the answer is yes: the regulations will be published in detail as part of the consultation. Significant consultations have already gone on with a very wide range of stakeholders, both by the TPR and by the Financial Conduct Authority. There are further consultations, and then draft regulations, to come. It is worth thinking about how a lot of the changes in the Bill reinforce each other. It is important that we make reasonably swift progress on the value for money regulations, because the value for money regime is a requirement for us to be able to then make progress on some of the other bits that we will come to discuss, such as contract override and, indeed, small pots.

Amendment 28 agreed to.

Clause 10, as amended, ordered to stand part of the Bill.

Clause 11

Publication etc of metric data

--- Later in debate ---

[Mark Garnier]

Clause 12 seems fairly reasonable in its approach. Liberal Democrat new clause 42 seems in the broadest sense to follow our amendment 254 in respect of the Australian model; should it be pressed to a vote, we would be happy to support it. I have nothing more to add.

[Steve Darling]

As I stated earlier, one of our key drivers is making sure that people are able to make quality, informed decisions about their financial long-term future. The debate on the new clause drives that agenda. I am sure that the Minister has the best intentions, but what we are discussing is still within regulations that have yet to break cover. We would be more comfortable if it was in the Bill rather than tucked away in regulations. We will seek to press the new clause to a vote when the time comes.

Question put and agreed to.

Clause 12 accordingly ordered to stand part of the Bill.

Clause 13

Member satisfaction surveys

Question proposed, That the clause stand part of the Bill.

[Torsten Bell]

It will be a great relief to everybody to hear that clause 13, although vital, is relatively small. Importantly, it enables requirements relating to member satisfaction surveys, of a kind that I know hon. Members are supportive of, to be set out in the value for money regulations. As I have just argued, quality of service is one of the key pillars of the value for money assessment, and member satisfaction is a key aspect within that pillar. These surveys will allow schemes to better understand their members’ experience and to gauge just how good a service they are providing for scheme members. Members’ experiences and views on the quality of service will provide inputs to the holistic assessment of value that this entire part of the Bill aims to offer.

--- Later in debate ---

[Mark Garnier]

My hon. Friend makes an incredibly important point. The story that the Liberal Democrat spokesman, the hon. Member for Torbay, told about his father is the most important point here. As we come to the point where we want to cash in the defined-contribution pension, we could find ourselves cashing in at completely the wrong moment. In a stock market crash, although it could be just a blip in a long-term bull market, none the less the hon. Member’s father would have seen a 37% drop in the value of his equities if he was benchmarked to the FTSE 100. If he was in higher growth businesses, he could, as the hon. Member said, have seen a 50% drop. So we have to be very careful.

We can be as risky as we like when we are 21 years old. I cannot remember whether it was Adam Smith or Einstein who said that the eighth great wonder of the world is compound interest. Obviously we want to take risk early but, as we come up to that day when we finally turn our papers in and go home on the last day of work, we need to make sure we have got as much money out of our pension fund as we possibly can. That is why it is important to ensure that the VFM framework does not cause problems.

[Steve Darling]

This is a very interesting debate as lives continue to lengthen. In terms of people’s capabilities at different ages, 70 is probably the new 60. The reality is that someone might want to take out a proportion of their pension and hope for growth into their 80s, and then crystallise it at that stage of their life. Not that long ago, we had to buy an annuity, and there was not much choice, so we hit a hard wall. There is greater flexibility in the system now.

I want to talk about chickens. We heard talk in the evidence earlier this week of herding chickens, and of people not wanting to be the only white chicken in brown chicken world. It is about allowing the risk that drives growth. We know that allowing that risk can also drive a more vibrant economy. I welcome the Minister’s thoughts on how this framework can avoid that herding and how he would do that. I fear that the answer will be, “It will all be in the regulations and secondary legislation”, but some words of wisdom from the Minister would be welcome.

Pension Schemes Bill (Third sitting)

Steve Darling Excerpts

Committee stage
Thursday 4th September 2025 Public Bill Committees

[Mark Garnier (Wyre Forest) (Con)]

It is great to be starting what I hope will be quite a quick canter through today’s work, Sir Christopher. The Opposition welcome the broad grain of this entire Bill; it seeks to do a lot of very useful things in the pension industry across the UK. We have some contentious points, but those will not come up today.

Regarding clause 1, we welcome the creation of asset pool companies. These are sensible and pragmatic steps towards modernising the local government pension scheme, and much of the work had already been done under the previous Government. Consolidating funds represents a responsible approach that should deliver more effective management and investment of pension assets. The LGPS, as we have heard, is among the largest pension schemes in the UK, with 6.7 million members and £391 billion of capital. Before pooling, of course, it was 86 separate local authorities, which caused huge inefficiency, inequality of opportunities and, in some cases, poorer outcomes for pension beneficiaries.

I should mention at this point, Sir Christopher, that I am a member of the LGPS and also that, as a councillor on Forest of Dean district council, I was responsible for looking after some of this activity in terms of pension management. It was not an efficient way of doing things, so pooling is an incredibly good idea. We welcome the Government’s continuing our work to make these pension funds work more efficiently and deliver better returns for members, and ultimately we all want to see improved returns and lower employer contributions. Small funds, whether in local government or elsewhere, are rarely fit for purpose in the global investment environment.

We have some concerns. The broad framing of the powers contained in chapter 1, clause 1 could allow for the mandation of certain investments by Government. Pools should be investing in line with the investment approach set out by their underlying asset owners in order to deliver against the fiduciary duties of LGPS funds. Governments should not take powers that would erode fiduciary duty.

There are concerns about the costs of the Government’s decision to reduce the number of asset pools from eight to six. This is an administrative cost. We have heard from one council, Wiltshire, which is one of 21 LGPS funds in England now looking for a new pooling partner. Jennifer Devine, head of the Wiltshire pension fund, has said that the cost of closing its asset pool could come to as much as £100 million. There will be some costs incurred, but, none the less, the general thrust of the whole process is one that we support and we certainly would not stand in the way of these amendments.

[Steve Darling (Torbay) (LD)]

As the Liberal Democrat spokesperson, and echoing the hon. Member for Wyre Forest, I broadly welcome the thrust of the Bill. We heard in evidence that a lot of the industry is playing catch-up and is about 15 years behind those who are best in class. As Liberal Democrats, we are keen to make sure that we are supporting particularly those who are more challenged in being able to save or to make the right decisions, and that we use what levers we can to tackle issues such as climate change and cleaning up our environment. We look forward to working with colleagues on this Committee.

On the local government pension schemes and the pots, we welcome the direction of travel. However, for us it is about making sure that we keep local links to communities, and driving positive change through that investment in our local communities is absolutely essential. I look forward to the debates over the next few weeks.

[Kirsty Blackman (Aberdeen North) (SNP)]

I declare an interest as a holder of deferred membership of a local government pension scheme in Scotland, which will come into scope should the Government amendments go through, as I imagine they will. First, I thank the Government for working with the Scottish Government to make these changes and for taking the decision to agree with the Scottish Government’s request for these changes to be made. It is appreciated.

While I am on thank yous, the people who manage local government pension schemes are managing an incredibly significant amount of money and are ensuring that benefits are provided to many millions of people in those schemes. The hard work they do to steward those funds appropriately cannot be overestimated, so I say thank you to all the trustees who take that action on behalf of so many of us. Those working in the public sector tend to get a lower salary than they would in the private sector, but they often get access to a defined-benefit pension scheme or a career-average pension scheme, which is better than many people in the private sector get. There is a bit of give and take there.

On Tuesday, we heard from the Local Government Pension Scheme Advisory Board and also from one of the pension schemes. There was a commitment that came forward in the evidence to ensuring trustees are appropriately trained—I am not for a second saying that they are not appropriately trained right now, but we must ensure that level of training is provided when they have many other competing demands on their time. It is important that the Government ensure the correct monitoring, evaluation and also support of those organisations, so that if new training is required—for example, if environmental, social and governance provisions change, or decisions about where it is best to invest funds change—the Government commit to ensuring that trustees are given all the training they need. I believe that all pension trustees have a difficult job, but particularly those managing local government pension schemes, who are often local councillors—a task that, I know, is not a part-time job and is incredibly busy.

The other concern raised on Tuesday, and which was just mentioned by my Liberal Democrat colleague, the hon. Member for Torbay, is about the locality of the decisions made. It is important that the pooling of resources means more investment in important and key projects than would result from a smaller organisation. Hopefully, the reduction in administrative costs will ensure that those schemes are significantly more efficient, but I am keen that we do not lose the local voice within the pension schemes that we have now.

The case was made very eloquently on Tuesday that, while pension schemes take into account value for money—what we would have called best value in local government in Scotland—in decision making, they should ensure that they are not supporting projects that the community are absolutely up in arms about, because so many of their members will live in that community. Scheme members need that guaranteed return, but they also need their communities to be nice places for them to live.

I am slightly concerned that, with pooling, the ability for local projects to be put forward could potentially be lost. Although I am not asking for any specific changes, I would ask that the Government keep an eye on that. Should there be significant numbers of smaller projects that are not being supported because of the changes that previously might have been supported, the Government should consider whether they need to take action to ensure that those voices are better heard and that those smaller projects still have the opportunity for investment.

Thank you very much for allowing me to speak on this, Chair. I am assuming that we have also spoken on the clause stand part and are unlikely to debate that again at the end; I have therefore made most of my general comments here rather than particularly specific ones on the amendments.

--- Later in debate ---

[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]

On new clause 31, as we have heard, the local government pension scheme in England and Wales has reached a record surplus of some £45 billion, which is 112% of funding levels, as of June 2024, with some estimating that it will rise to more than 125% by the end of 2025. Despite that strong funding position, no measures have been introduced to make it easier to allow councils or employers to reduce contributions or take contribution holidays. The surplus could be used to create contribution holidays for local authorities, as we have heard, or potentially to reduce council tax or increase the money available for spending on local services.

The current Government focus remains on asset pooling and local investment strategies, rather than enabling the more immediate and flexible use of surplus funds. Councils can already reduce employer contributions under regulations 64 and 64A of the Local Government Pension Scheme Regulations 2013. The problem is that, in practice, actuaries and administering authorities hold the cards, and the guidance has been used to shut down reviews even when funding levels are strong.

The Minister needs to consider issuing better guidance to councils to make the process more transparent, to rebalance the power between councils and funds, and to ensure that actuaries properly consider reductions when the funding position justifies it. The mechanisms that are currently in place mean that the assumptions are overly prudent, reviews come only in cycles, and councils have no leverage in disputes.

New clause 31 seeks to introduce provisions to allow employers within the local government pension scheme to take contribution holidays or reduce employer contributions when surplus funding is confirmed, with actuarial valuations, subject to maintaining the security of member benefits. It would also require the Secretary of State to issue guidance on how surpluses could be prudently deployed to balance member security with local fiscal needs. That would enable councils to better manage budgets, support local services and stimulate local economies without compromising pension schemes.

However, the Minister seems to be working with the Opposition on trying to find ways to move all this forward, so for the sake of brevity we will seek to withdraw new clause 31.

[Steve Darling]

The Minister spoke of a couple of opportunities for regulation in this area, and we heard oral evidence about how an awful lot of this Bill is to be drawn out in secondary legislation. Will he give us timelines for when he plans to share the regulations, or at least begin the consultation on them, and say what he sees as the key elements of those regulations that will break cover in due course?

Question put and agreed to.

Clause 2, as amended, accordingly ordered to stand part of the Bill.

[The Chair]

For the avoidance of doubt, new clause 31 will be put to the vote much later on. At that stage, the hon. Member for Wyre Forest will be able to withdraw it if he so chooses.

Clause 3

Exemption from public procurement rules

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Mark Garnier]

I beg to move amendment 244, in clause 5, page 6, line 6, at end insert—

“(2) In the case of merger of schemes for local government workers, the Secretary of State must consider the geography of scheme areas and ensure these areas align with strategic authority boundaries before implementing the merger.”

This amendment requires the Government to explicitly consider the geography of new LGPS areas in any reorganisation.

The amendment would amend the Public Service Pensions Act 2013 to explicitly empower the Secretary of State to make regulations if there was a merger, including a compulsory merger, of two or more LGPS-funded schemes. The change in clause 5 would support flexibility for structural consolidation to enhance fund management and efficiencies; however, there is uncertainty about how the Government will confirm geographical boundaries for the local government pension scheme asset pools amid local government reorganisation.

Currently, LGPS reform aims to consolidate assets and strengthen local investment, but concerns remain about the implementation timescales and risks of disruption. Stakeholders highlight the need for clarity on new geographical boundary definitions and on alignment with new or existing local authority boundaries. Potential challenges exist in meeting asset-pooling and Government deadlines if changes coincide with wider local government changes.

Amendment 244 would require the Secretary of State to explicitly consider, for any LGPS scheme merger, the geography of scheme areas, and ensure alignment with strategic authority boundaries. This would help to provide clarity, promote smoother transitions and reduce disruption from concurrent local government reorganisations. The amendment emphasises the importance of integrating pension scheme boundaries with local government structures to support effective government and investment strategies. We hope the Government will reflect on this issue as the Bill progresses through the House.

[Steve Darling]

As the Lib Dem spokesman for this part of the Bill, I welcome the direction of travel.

[Kirsty Blackman]

If the hon. Member for Wyre Forest can confirm that he does not intend the change to apply in Scotland, because we do not have strategic authorities, I am quite happy not to vote for or against it and to leave it to those who do have strategic authorities.

--- Later in debate ---

[Mark Garnier]

I thank the Minister for his comments. We agree that the law needs to be updated to reflect current circumstances, and it makes sense to ensure that companies that have not made pre-2016 resolutions are not unfairly penalised. We broadly support the update to the law because it corrects an important imbalance. However, it is crucial, as we move forward, that we maintain the necessary guardrails and uphold the independence of trustees to protect scheme members’ interests. These important aspects will be further discussed in relation to clause 9.

I will raise a couple of points made by people we have been engaging with while looking at the Bill. First, the Pensions Management Institute highlighted its disappointment that the Government did not take the opportunity of this legislation, which broadly talks about defined-benefit funds, to make it easier and more tax efficient for employers and schemes to use scheme surpluses to fund contributions under defined-contribution arrangements, including those not held in the same trust. That would have opened up possibilities for many entities that have long since moved their ongoing DC provisions to a master trust or contract-based arrangement.

The Phoenix Group also highlighted an issue. To protect funding levels after surplus release, schemes may adopt more cautious investment strategies, reducing allocations to private and productive assets. That could undermine the Government’s growth objectives. Aside from those points, we are happy with the clause.

[Steve Darling]

I very much echo what the hon. Member for Wyre Forest said. Clearly, surpluses have built up over a number of years since the last crash. There has been a level of overcaution. It is important for our economy that those surpluses are appropriately released, which could drive economic growth. I am sure that all of us in the room want to see that.

--- Later in debate ---

[Mark Garnier]

Any decision to release surplus funds from defined-benefit pension schemes should rest firmly, as we have discussed, with the trustees. It is important to emphasise that trustees bear the ultimate responsibility for such decisions. We believe that surplus repayments to employers should be permitted only when members’ benefits are fully protected and robust safeguards are in place to maintain the security and sustainability of the scheme.

The Bill notes that the detailed criteria for surplus payments will be set out in forthcoming regulations, and those regulations must be subject to close scrutiny with a primary focus on safeguarding members’ benefits before any funds can be released. There remain important unanswered questions regarding what appropriate guardrails for surplus release should look like. One firm belief is that defined-benefit pension funds should be funded to buy-out levels, to the extent that they are capable of securing members’ benefits with an insurer. Additionally, any surplus extraction should demonstrably provide clear benefits to scheme members, rather than simply serving the employer’s interest—although we heard evidence on Tuesday that did not necessarily agree with that.

We acknowledge that there are broader issues facing defined-benefit pension schemes that we intend to explore further when the Committee considers the new clauses. In particular, the post-Maxwell accounting framework is a significant constraint on defined-benefit pension funds. The requirement to show deficits on company balance sheets suppresses growth potential. The Bill should not miss an opportunity to address those structural hurdles.

One of the behavioural outcomes we have seen is that defined-benefit pension funds have been investing large amounts of money into bonds, including Government bonds, and not into equities where there is the greatest growth potential in the economy. That throws up a couple of problems in this area. First, the money is not going into equities, which are much more volatile than bonds. Secondly, if we see surplus extraction from some of those funds, that money will come from the Government bond market—the gilt market—and there may be an impact on the Government’s ability to borrow funds, which is something we will hear more about on 26 November. Crucially, the Minister will now be part of that, and I suspect he will be taking into account the bond market’s ability to meet Government borrowing requirements when he gets close to that date.

Moreover, there is nothing in the current legislation to prevent surpluses from being used for purposes that do not support economic growth, such as share buybacks or dividend payments by the host employer. Neither of those outcomes necessarily aligns with the Government’s growth agenda, although it could be argued that the money is going back into the wider economy and finding its way back. None the less, we would like to see more guidance on how that money is to be spent. Simply repaying—potentially—private equity funds a large dividend will not necessarily help the greater good.

The Bill proposes new flexibilities for defined-benefit schemes in surplus. Currently, the Bill is unclear on the level at which employers can extract that surplus and there is concern that, once a scheme is fully funded on a low-dependency basis, buy-out could happen. That is a lower threshold than for a gold standard buy-out and, while it may free up capital for employers and support investment, there are concerns that the change could risk members’ security, as buy-out remains the safest way to guarantee benefits. Amendment 247 would provide strong protection against a change of environment where DB funds start to slip back into deficit positions.

Our amendments 260 and 261 are linked. Just Group plc wrote to the Committee to highlight that members of pension schemes that undertake employer surplus extractions should receive proper notification. Engagement with members should be undertaken before extraction, because ultimately any decisions on surplus extraction could be impactful on them. Setting out clearly in legislation what effective engagement would look like, including the role of the actuary in the process, would help trustees to understand their obligations and Parliament’s intent.

Amendment 260 requires trustees to notify members at least 60 days before making surplus payments to employers, and ensures that members receive full information about proposed surplus payments, enabling informed participation. Amendment 261 aims to strengthen an actuary’s role in oversight of schemes accessing surplus, by requiring confirmation that member notification has occurred before certifying surplus payments. Both amendments strengthen the guardrails around DB surplus extraction, as part of our overall strategy of putting member interest first and protecting trustees. We will be pressing these amendments.

[Steve Darling]

I rise to speak in respect of amendments 265 and 267, which echo the issues already covered by the shadow Minister. Allowing 60 days’ notice to scheme members is extremely important to the Liberal Democrats—and, to be fair, I am sure it is also important to the Government—and the central intention is to protect outcomes for members of schemes and ensure that there is enough flexibility. That 60 days’ notice is really important to us.

Ensuring that there is enough money in the scheme for any buy-out is the second element, which the hon. Member for Wyre Forest has already alluded to. We think it is very important that the finances are there and that we put scheme members at the centre of the proposals before us. I look forward to hearing from the Minister what reassurance he is able to give us on those points.

[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.

[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.

[Steve Darling]

Can the Minister give us some timescales? I asked previously about timescales, regulations and secondary legislation. I would be grateful if the Minister could address that.

[Torsten Bell]

The hon. Member rightly returns to an important question. As I set out at the evidence session on Tuesday, our pension policy road map, published at the same time as the Bill, details exactly when we are planning to bring forward regulations. My understanding is that these particular regulations should be consulted on in the spring of next year—if that is not right, I will make sure we come back to him with further details. As I say, the road map provides the details of that timeline. It is a very important question for people to be clear on. In that consultation, I am sure the evidence we have heard will be taken into account.

Amendments 260 and 265 correctly aim to ensure that members are well informed and represented when it comes to their pension schemes and retirement. The new paragraphs would be inserted into clause 9 of the Bill, which amends section 37 of the Pensions Act 1995. Section 37 already provides that regulations must require members to be notified in relation to a surplus payment before it is made.

This is therefore not about the flexibility of trustees; it is redundant, given the requirements already in the Bill. It is similar to the existing requirement under section 37 of the Pensions Act 1995, and we will again consult on these draft regulations following Royal Assent. Furthermore, trustees already have a clear duty to act in all matters in the best interests of the beneficiaries of their scheme, and they are best placed to decide, in consultation with the sponsoring employer, what actions are best for members—I will not keep repeating that point as we go through the rest of this Bill.

Finally, I thank the hon. Member for Wyre Forest for proposing amendment 261, with its requirement for actuarial confirmation that proposed payments from a DB surplus to employers will not adversely affect members’ benefits, and that members have been notified ahead of that release. Those are valuable objectives, but they are already achieved by the robust safeguards in place, including trustee discretion, the prudent funding threshold —on which we will consult—and the actuarial certification that a scheme is well funded.

In addition, the defined-benefit funding code and the underpinning legislation already require trustees to aim to maintain a strong funding position, and that is actively overseen by the Pensions Regulator. I believe the safeguards we have put in place put members at the heart of the policy, which is a point of cross-party agreement, and will allow trustees to continue to be the people who strike the correct balance between the benefits for employers and members. I hope this offers some reassurance to the Committee that, for the reasons I have outlined, these amendments are unnecessary; I urge hon. Members not to press them.