Pension Schemes Bill

Baroness Coffey Excerpts

2nd reading
Thursday 18th December 2025 Lords Chamber

[Baroness Coffey (Con)]

My Lords, there is a lot in this Bill. Some of it is to be welcomed—there are quite a few crackers in it. However, there are also large elements of it that feel—dare I say it at this time of Christmas?—like a little bit of a turkey. It is such a skeleton Bill that it is more appropriate for Halloween than the time in which we find ourselves.

I am not the only person here who believes that. I must say that the report from the DPRRC is one of the most damning that I have seen on a piece of primary legislation coming to your Lordships’ House. Indeed, the committee says that

“we have found it exceedingly difficult to provide meaningful comment on the Bill precisely because it is so skeletal”.

This extent of delegated powers—there are nearly more delegated powers than there are clauses—does not feel like the right place to be. Of course, I know that trying to work with the pension industry and see the scope of what it is trying to achieve means that a bit of flexibility may be needed, but it is important that we do not just, candidly, hand things over to almost a ministerial diktat, which I am afraid that parts of this Bill do.

I was Secretary of State when the previous Pension Schemes Act was passed in Parliament, and my noble friend Lady Stedman-Scott took it through this House; in fact, it started in this House. It built on—and this Bill continues to build on—the idea that where consensus comes together, we can get a very good product. Indeed, that continuity of thought is important, not just for the pensions industry but for the current and future pensioners that we seek to serve.

It has been useful to see the variety of consultations there has been, going back even to 2015, including about local government funds, and the actions taken when consolidation started to happen. There was a consultation in 2022 about other aspects of small pot consolidation. The clause I probably welcome the most is about value for money. It is really important that we make sure that we address these issues. In particular, the power to effectively shut down underperforming funds is good because, regardless of how little or how much people put in, many people are putting into their pensions all the time but do not necessarily realise quite how little will come out at the end of it. We will see more communication with the pensions dashboard, but the value-for-money framework will be a critical part of that.

There has been quite a lot of talk about trustees, and I know that a number of bodies have been trying to see if we can move to having solely professional trustees. That would be a mistake. I appreciate that is not what the Bill is calling for, but one of the challenges is that trustees, driven by a certain type of asset adviser, have been attracted to low-cost and low-risk pension schemes, but too often that has led to low return. So many of the gradual changes we have seen and that will start to come through in response to some of this legislation will be able to address that. That is vital and I will support measures to achieve it.

However, there is an underlying issue here about the mandation clause. From my experience in government, I remember a meeting in Downing Street with a bunch of pension providers, which was mainly driven by insurers. People had been told that they could not raise the issue of Solvency II being a problem. One or two were brave and did so, and were later chastised by Treasury officials. Nevertheless, it was important that they did. I understand the frustration of Government Ministers at the very top of government. People saying “We need investment” is all well and good, but why do they not put some of their money into it? I include the Local Government Pension Scheme in that. Ultimately, our traditional approach is one of state pensions not being particularly generous and trying to incentivise people to put into the private pension market, as well as what has happened historically with the defined benefit industry. That is why we have the system that we do, which has grown to the extent that it has so far—so much so that, as has been recognised, trillions of pounds in assets could be deployed to greater use, but it still must be for the benefit of current, future and, indeed, deferred pensioners.

Further, there is a missed opportunity in this Bill. Having two different regulators for pensions is a wasted opportunity. I know that the two bodies, the FCA and the Pensions Regulator, have been working on joint strategies, but fundamentally we still have significantly different rules on what can or cannot happen with pension funds, depending on how they are regulated. That just does not make sense.

This is the moment to try to change that. Frankly, the FCA has enough to do. Under their different rules, TPR allows a particular investment but the FCA does not, although it may seem to be a very similar product. We should not leave that element of complexity to be solved via delegated powers but take the opportunity to fix it in this Bill. That will need primary legislation and I hope that, although she may not welcome it—and, as I am trying to get it all out of the Treasury and the FCA, they certainly will not welcome it—the Minister will try to get it into one regulator to make a difference for the prosperity of our pensioners.

I am conscious that this is a missed opportunity in how pensions can help our planet. I strongly promoted the concept of planet, prosperity and people. These are mutually beneficial and there is no doubt that investment by the industry can play a part. That is why we put in place world-leading, pioneering regulations making the link to the TCFD and net zero. However, crucially, they did not mandate how investments were to be made or the drawing from a variety of assets but, basically, put a much greater duty of transparency on what was happening in the long term. The same needs to happen with nature and the TNFD. I will explore that in Committee.

In terms of what we want to achieve from this, I think your Lordships will share with the Government the outcome of having a good, robust and fully functioning pensions industry that generates prosperity, but let us not go down this tricky route of mandation. In particular, the DPRRC singles out that Ministers keep saying, “We don’t intend to use it”. In that case, let us not legislate for it. Let us make sure that we keep that blunt instrument away and continue to have a productive pensions industry. Nest, which was originally provided for in legislation prior to 2010 and came into effect within the last decade or so, has been a fantastic source to drive and make sure that we have private asset allocations. Let us celebrate that, work out why it worked so well and, as I have already suggested, make sure that we get rid of the stuff that is massively underperforming when prospective pensioners do not realise it.

It is going to be an interesting time in Grand Committee. I am afraid there will be a lot of amendments—this is not the only Bill I will be tabling amendments to—but I hope the Government will think again on the themes we will get into. If a lot of this is just about getting investment in Britain, the Government will need to answer why they scrapped the British ISA, which was a ready-made model. It is almost because it was not invented here. Fortunately, on the pensions journey, there is normally good cross-party consensus, but I fear that mandation has blown that out of the water. Nevertheless, let us see if we can try to fix it.

Pension Schemes Bill

Baroness Coffey Excerpts

Committee stage
Thursday 22nd January 2026 Grand Committee

[Baroness Kramer (LD)]

My Lords, I will be exceedingly brief. I may participate on an occasional basis on this Bill, despite the fact that it is very important. However, we have many people with exceptional expertise in the Room, for which I am extraordinarily grateful.

I have Amendment 167 in a later group on its own, which has relevance to one of the issues raised by my noble friend Lady Bowles in Amendment 46A, in which she introduces the concept that value-for-money regulations must take account of certain factors. Proposed new paragraph (c) particularly interests me, on

“the characteristics of the members of the scheme”.

In all the discussions that I have heard in the Mansion House compact and in the Bill, very little attention is paid to the characteristics of the members of the schemes, because they differ widely. I am particularly concerned that people on low salaries, whose primary savings for pensions and then investment is through auto-enrolment and default funds, have a very different risk profile from those of many people who otherwise engage in pension savings.

This is a group for whom the downside has far more serious consequences than for other groups. Many of us can afford to take a chance with parts of our pensions: if we lose some money, we are still going to be in relative comfort. That is essentially not true for this group. The upside benefit of taking risk and doing well from that risk is nice, but the consequences of taking risk and losing because of that risk are far more serious. I want to draw the Committee’s attention to that issue. As I said, I will pick it up again in Amendment 167, because to me it has been overlooked.

It is key that, when we devise pension arrangements, we recognise the very different risk profiles of members, so that what they are required to do—auto-enrolment and default schemes are in effect a requirement—matches their risk profile. I hope that we will begin to start to shift some of our thinking. There are amendments, in this group and in others, that could help very much with that issue.

[Baroness Coffey (Con)]

This group of amendments is quite interesting in starting to sketch out what is important in the value-for-money approach that is being adopted through the Bill. I did not know when the noble Lord, Lord Palmer of Childs Hill, would speak to Amendment 49 and I will be interested to hear what he has to say on this, because the only other form of occupational pension is, in effect, the defined benefit, where you know what you are getting. I was a bit surprised that he felt that that would need to go further, because that is a direct relationship between somebody and their employer. Nevertheless, I am sure he will explain further.

The noble Baroness, Lady Bowles of Berkhamsted, has tabled Amendments 55 and 56 to Clause 12, which are sensible, but one thing that concerns me at the start of that clause is the word “may”. We should be beyond that at this stage, which is why I also support my noble friends on the Front Bench in opposing Clause 13 standing part of the Bill. There are just too many ifs, buts and maybes, but when it comes to Clause 13 there is nothing at all. It is just a blank cheque for the future. I am conscious that things can vary over time, but we should be in a position where we are getting some clarity on what will be in these value-for-money assessments so that people can make choices. We should be getting that clarity now. If necessary, we can put down regulations for affirmative procedures but, candidly, I do not think it is good enough that we have this sort of approach to defining what is there for the future.

I say to the Minister that I appreciate that this is a real step forward and I welcome that. People put their money in, they are not exactly sure what return they are getting and they might look every now and again at where it is coming out. I appreciate that there is a whole journey to go on in pensions education, as well as for the trustees, in terms of what is really happening with their advisers who continue to do low-risk, low-reward. I encourage the Minister, however, to come back on Report with a much stronger sketching out of what will be in these assessments, as required by Clause 13. For example, instead of just having the word “may”, have some “must” in there and then open up the power later to adjust as necessary. It is also valuable to be able to repeal.

Amendment 74 concerns the “Duty to formalise the Value for Money framework”; I know that my Front Bench will speak to that shortly. It is a useful exercise to check whether it is working. There are other amendments which basically make comparisons with other pension providers. That gets trickier if it is done at such a detailed level because, again, people might want some basic information on what is happening with their money. To pick at random, they might want their money with Standard Life instead of Scottish Life; if there is some variation, they might want to make a change. It is those sorts of things that I encourage the Minister to have more detail on by the time we reach Report.

[Lord Palmer of Childs Hill (LD)]

My Lords, as has been expressed, this group establishes the foundation of the value-for-money framework. We welcome the ambition to improve outcomes for savers. However, the effectiveness of value for money will depend on how it is defined, measured and implemented, and I welcome the comments from the noble Baronesses, Lady Bowles, Lady Altmann and Lady Kramer, which elaborated on these points.

I shall concentrate on Amendments 49 and 54 and I hope I can persuade the noble Baroness, Lady Coffey, that they are of value. These amendments will extend the scope of the Bill’s value-for-money provisions. They ensure that they apply not only to defined contribution schemes but defined benefit occupational pension schemes as well.

The arrangements make it clear that regulations can make different provision for different types of scheme. Critically, however, all schemes must be covered by the value-for-money assessment, with a proper value-for-money rating. Members of DB schemes deserve the same transparency and assurance about value for money as members of DC schemes. DB schemes still represent a significant part of the pensions landscape. Excluding them risks creating an uneven playing field and less scrutiny where it is still needed.

A single, consistent framework across occupational pensions improves comparability, avoids regulatory gaps and ensures that all savers benefit from the same standards of accountability. The two amendments in my name would ensure that the Bill delivers on its promise of value for money across all pension schemes. The measure is simple: every saver in every scheme, whatever its type, deserves value for money. Other noble Lords have expressed this in detail.

The noble Baroness, Lady Altmann, spoke about pensions jargon. We are here in a very rarefied atmosphere, where people have some knowledge—I have less than many in the Room—of what pensions are about and what phrases such as “default pensions” mean. We need to make it clear to people who have no interest in pensions other than receiving a cheque at the end of the month at a certain age what it all means. Some people need to be clear about the choices they make, and we need to do as much as we can. These amendments, both those that have been spoken to already and the two in my name, seek to protect people’s interests.

--- Later in debate ---

[Baroness Altmann (Non-Afl)]

My Lords, I will speak to my Amendment 58. My remarks will apply to all the other amendments in this group, apart from Amendments 64 and 65, to which I will speak shortly, and Amendment 69 in the name of the noble Viscount, Lord Younger, which I also support.

My views on this group of amendments follow on from the comments I made earlier about jargon and trying to make pensions more member-friendly—more intelligible to the ordinary person. I believe that this is an extremely important area, having met so many members who simply do not understand what they are being told. The remarks from the noble Baroness, Lady Bowles, encapsulate some of that: if we cannot understand what we are being told in the communications, neither can members.

It was interesting to see that the original consultation suggestions of red, amber and green, which people would have at least a good chance of understanding, have instead been put into the Bill as “fully delivering”, “intermediate” and “not delivering”. Delivering what? We are talking about value; this is not Ocado or Amazon. The noble Baroness, Lady Warwick, in her remarks on the first group used the terms “good value” and “poor value” as if they were in the Bill—but they are not. My proposals in these amendments—to change the term “fully delivering” to “good value”, and “not delivering” to “poor value”—simply respond to what most people would expect this clause to tell them. I hope that the Minister understands that. Obviously, this is a probing amendment, so she may prefer other ways to express what we are trying to achieve here, but I hope that the intention behind these amendments will, in some way, feed into both the Bill and how the value-for-money framework will be considered when we develop it. It is a very sketchy framework at the moment.

I take the point about the consultation, but I have a related question. The critical players in moving away from the idea of cost to value, when assessing the merits of any particular scheme being used for the workforce in auto-enrolment, will be the employee benefit consultants. They advise the employers that they currently simply use cost as their major recommendation metric. They are not, in any way, properly scrutinised or regulated. Having done all this work to develop a value-for-money framework, will any attention be given to ensure that the people advising the employers on whether a scheme should be used will properly use the value-for-money framework that we will devise?

Amendments 64 and 65, which are also probing amendments, specifically address the “intermediate” rating, which is designed to have many levels or gradations. However, it seems that all of them could lead to scheme closure. They will all certainly lead to significant costs for a scheme rated “intermediate” due to the extensive reports and explanations that need to be given. My amendments simply seek to avoid significant extra costs, or the risk of scheme disclosure, for schemes that receive an “intermediate” rating on a shorter-term basis. It seems that it is almost possible that a “not delivering” rating will have a similar outcome to an “intermediate” rating because of how the Bill is phrased.

My suggestion is—and it is, as I said, probing and open for discussion and change—that you have to have an intermediate rating every year for, say, four years before the extensive requirements of this section kick in, so that in cases of up to five years you would need to notify the employer if you have changed from a good value to intermediate and the scheme would need to explain why this rating has been given and what plans it has for improvements. That would not be an extensive report, but it would obviously be helpful and would focus the minds of the scheme without the draconian implications that seem implied by the consequences of the intermediate rating as specified in the Bill. That brings me briefly to my support for Amendment 69, tabled by the noble Viscount, Lord Younger, and the noble Baroness, Lady Stedman-Scott, which probes what the penalties are, how they have been assessed and whether they are appropriate. I beg to move Amendment 58.

[Baroness Coffey (Con)]

My Lords, this is an interesting group of amendments. My noble friend has explained the importance of clarity in who decides whether something is fully delivering. I want to ask about the different assessments being made at this point. We are now, effectively, on Clause 15 onwards. We have the ratings coming through. My noble friends on the Front Bench will explain why they do not agree with certain elements. There is merit, however, in trying to work out whether something is taking a nosedive and whether it is it fixable, but we need to be more specific about a reasonable period, and then a prescribed number of VFM periods needs to be put in the Bill, which it is not at the moment.

Thinking through what has been suggested, I am trying to understand how this will work. Clause 13, which we have discussed briefly, has a certain amount of potential calculations. We then have the trustees doing their own assessment, and then we jump forward to Clause 18 and the Pensions Regulator may check. This is all feeling quite random. Normally when we do ratings, the CQC or Ofsted make that judgment, so I am trying to understand how this will work in practice. Are the guidelines going to be fixed—for example, the average or the benchmark across all pension schemes is this, or the FTSE 100 index has changed this much, or the costs are this percentage? It would be helpful to start to get a proper pitch. I appreciate that the consultation may have gone out, but there must be thinking in the Government’s mind, not just the regulator’s, on what “good” looks like. There are risks, as identified by my noble friends, that we may be overburdening to the point that the minutiae become an industry in their own right. I am surprised to see the penalties put in primary legislation, which is unusual nowadays, although I agree that we need a better sense of how that compliance element, as set out in Clause 18, will work alongside the other amendments. My noble friend is right to say that we need to keep this straightforward and simple for people to be able to understand.

[Lord Palmer of Childs Hill (LD)]

These are obviously probing amendments. They are all to do with the jargon: if we are arguing about the jargon, how much more confused will the normal punter be in trying to understand the jargon. This group focuses on how value for money is expressed, enforced and communicated.

We support the principle that members should be able to understand whether their scheme is performing well. However, value-for-money ratings also carry significant power. They will influence trustee behaviour, in particular, as well as employer decisions and market structure. That makes proportionality and precision essential.

I am particularly concerned about overreliance on short-term performance metrics. Saving for a pension is, or certainly should be, inherently long-term. Schemes should not be penalised for temporary underperformance driven by market cycles or responsible long-term investment strategies.

We also question whether compliance mechanisms become blunt instruments. Labelling schemes “poor value” without clear context may drive consolidation for the wrong reasons, reducing competition without improving outcomes. Clear language matters—I use the word “jargon” once again—but so does nuance. Members need information they can trust, not simplified labels about market complexity.

I have some questions for the Minister. How will this regime distinguish between persistent structural failure and short-term variation? How will it use this intermediate rating? How will it encourage genuine improvement rather than defensive behaviour by trustees? Trustees are meant to be very careful; they will be cognisant of the intermediate position. I will be interested to hear the Minister’s views on that.

--- Later in debate ---

In conclusion, I thank noble Lords for their constructive interest in these amendments and the development of the VFM framework. It is the Government’s view that the current provisions, including the detail in the consultation and that which I have set out, strike the right balance between flexibility and accountability and allow for sufficient consultation on the technical detail. These provisions are essential for delivering value for money and maintaining public confidence in our pension schemes. I therefore ask the Baroness to withdraw her amendment.

[Baroness Coffey (Con)]

I am keen to get a sense of what the Government think the current spread is between the different ratings. For example, what proportion might be red? Is there any sense of this at all?

[Baroness Sherlock (Lab)]

I am absolutely not going to answer that. If there is answer which is known to me, then I will be happy to share it with her, but it certainly not known to me.

--- Later in debate ---

I hope that the Minister will accept that the power should have some constraints on it in order to avoid the possibility that it could be used for what I will loosely call “improper purposes” at a later stage.

[Baroness Coffey (Con)]

My Lords, this is an interesting part. It recognises a lot of our labour market, where people are working with multiple employers over a variety of time periods. Even those young people who were on the Kickstart scheme will have got contributions to a pension scheme, which they may completely forget about once they go to their next, perhaps longer-term, job.

I remember a few years ago the lovely people over in the Department for Culture, Media and Sport. They have a “good purposes” fund where they go after dormant assets all over the place and take them away, with a general promise that the money will come back if somebody tries to get it. I seem to recall telling them to jog on when it came to pension funds, although some negotiation might have been arranged.

I am just trying to understand how all of this is going to fit together. That is why I think Amendment 83 is particularly helpful; basically, it says that the pensions dashboard must be in place. This is about making an informed choice. One of the things I am trying to understand is whether Clause 22(3)(b), which my noble friends on the Front Bench have suggested should be removed, is passive and non-engaged. Will the trustees running the scheme be required to make some effort to try to contact that person so that it does not just slide away without people even realising?

In terms of the other aspect, I assume, under Amendments 80 and 81, it is right to try to get into some more detail about prescribing, which could perhaps be further enhanced by just getting to understand in Clause 25 what the Minister is thinking at this point, especially when it suggests that the trustees or managers of a scheme can determine whether it is the best interests for this to transfer or not. Are we talking about, say, people who are in prison, people who have gone abroad or people who are on a career break? It would be helpful to have a sense of what Ministers are thinking in terms of having this variety of powers, first, to be able to do it, but then to say, “Actually, we’ll leave it to the managers or trustees of the scheme to determine whether it is that person’s best interests”. I would be grateful for some understanding, again, of how this might work in practice, but the solution will definitely be Amendment 83 and I hope that the Minister will give that consideration for Report.

[Lord Palmer of Childs Hill (LD)]

My Lords, this is an appropriate time to stand, because Amendment 83 is signed by the noble Lord, Lord Vaux, and by me. In the absence of the noble Lord, Lord Vaux, today, and having discussed the matter with him, I speak on my behalf and his to Amendment 83. As has been stated, it is intended to deal with the risk that consolidating small pots might worsen the problem of lost or forgotten pensions.

We are all aware of the problem of people losing track of small pension pots: a problem that has increased in recent years as people tend to move between jobs more frequently, and may therefore end up with several small pensions, perhaps from many years ago. Chapter 2 of the Bill allows the Government to make regulations to consolidate small, dormant pension pots. I, and indeed the noble Lord, Lord Vaux, and the noble Baroness, Lady Coffey, support this as we believe that providing additional scale to small, dormant pots should enable greater efficiencies and a reduction in costs.

However, a possible unintended consequence could be to make it more difficult for a person to trace a forgotten pot if it is moved to a consolidator without their knowledge: for example, if any notice is sent to an old address. The introduction of a pension dashboard, as enabled by the Pension Schemes Act 2021, was intended to make it easier for people to identify pensions that they have lost track of or even forgotten. This has been somewhat delayed, but progress does, at last, seem to be happening. The connection deadline is October 2026, so hopefully people may start to be able to access the dashboard in the not-too-distant future.

In order to avoid making the problem of lost pensions worse, Amendment 83, in the name of the noble Lord, Lord Vaux, and myself, simply says that the regulations that would mandate the consolidation of a dormant, small pot could not be made until the dashboard had been available for at least three months. The three months is designed to give a bit of time to ensure that it is actually working and that any teething issues have been resolved. I think it prudent to ensure that we do not cause unintended consequences from what is otherwise a good policy, I hope the Minister will be sympathetic to the intention of the course outlined in Amendment 83.

[Baroness Altmann (Non-Afl)]

My Lords, I support the amendments in this group, particularly Amendment 83, which has received wide support. I think it is really important, as is the idea of lengthening the 12-month period for so-called dormant pots, and Amendment 81 from the noble Baroness, Lady Bowles, where, for example, a woman may take time off to care for children or other loved ones and intends to return, but her pension will have been moved before she gets back. Those are distinct possibilities under this scheme. We are talking about moving somebody’s savings—or investments; I am doing it myself—from one place to another, just because they have not done anything with their pension for a while. The pension fund is not meant to have anything done with it when you are younger; it is meant to just sit there and stay there.

Of course, the big problem that needs to be solved here is the costs to providers of administering all these very small pots. But the aim of the dashboard itself is meant to be to help people move their pots from one place to another. It seems to me that this particular section of the legislation is trying to deal with something that is meant to be dealt with by a different policy area. The consolidators, of course, will be attractive to providers to establish, and the money saving from not administering these small pots will also be attractive to the providers. But have the Government given any consideration to the idea of making, for example, NEST the consolidator? That is a Government-sponsored scheme. It has obviously had to have reasonable charges. Any transfers do not incur an upfront fee. That would run less of a risk of having consolidators that end up perhaps not performing well.

[Baroness Coffey (Con)]

I understand what the noble Baroness is saying about NEST. It is a brilliant organisation. But my recollection is that it does charge 2% on the transfer of assets into it. That is not something we should be particularly encouraging.

[Baroness Altmann (Non-Afl)]

No. I was just saying, if you transfer assets in, that 2% charge does not apply and will not apply. Otherwise, obviously, it would be uneconomic. But I understand that the idea of NEST is that the transfer in of a pension from another provider does not incur the upfront charge of, I think, 1.8%. So that would not be an issue. It is just a 0.3% flat fee. I hope the Minister will be able to respond on that element. There is a residual risk to government in moving somebody’s long-term assets from one provider to another if the other provider eventually proves not to deliver good value.

Pension Schemes Bill

Baroness Coffey Excerpts

Committee stage
Tuesday 3rd February 2026 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, I have three very simple questions. First, why in some areas is the delegated legislation by negative resolution and in some cases by affirmative resolution? In Clause 49, regulations under subsections (1)(b) and (6)(a) are by negative resolution, as are some in Clause 50. I would just like to understand why.

Secondly, I am very aware that people will differ, as has been said. Some will want to take their money earlier than others, perhaps because they are using their pension as some sort of early day fund, or perhaps because they have a serious illness and do not expect to last long. Is that variation provided for? I would like that assurance.

Thirdly, if somebody has two pensions—perhaps one saved under auto-enrolment, which is what we are talking about, and another, perhaps because they worked in the public sector, a defined benefit scheme—how is the pension provider covered by these clauses going to allow for that difference of need?

[Baroness Coffey (Con)]

My Lords, Clause 49 is quite interesting. Clearly, we have been on a journey for some time. Going back 35 years, Maxwell raided his pension fund, completely screwing over his employees at the time, which led to the 1995 Act as a consequence. There were other items in there as well, but that brought in a much more controlling approach to aspects of pensions.

One of the liberations that happened in the previous pensions Acts a decade ago was that people did not have to do a particular thing with their money. I know this is money that was topped up by aspects of tax relief and the like but, ultimately, instead of being forced in a particular direction with an annuity in a different way, people had a choice. I am conscious that various scams happened when people were transferred from one to another. I hope those people will find a special place in hell; they have deprived people of the money that they had rightly gathered over the years and scammed them out of it. But ultimately this did give a choice to people, with all that money, about how they wanted to spend their retirement—instead of somebody else telling them what to do.

I am concerned that this clause, in effect, requires a guaranteed solution. I appreciate that my noble friend Lady Noakes has talked particularly about removing the need for there to be a regular income as part of this solution, but if benefit solutions are going to be required by this legislation, there should not just be a choice of a minimum of one. There should be at least two, so that people can still have that choice. That is why in Clause 49(1)(a), I think that “one or more” should be “a minimum of two”, if that is going to be the way that we go.

The other thing that is not clear to me—perhaps I just have not spent enough time reading this—is what happens if people do not want the default pension. What choice do they have? It does not feel as though they have any choice at all. I am trying to understand something: what is the real problem that Ministers and the Government are trying to address here? Do not get me wrong—we want to make pensions as simple as possible for people. I know that my former employer used to set up a particular approach, saying that it was easy and that you could buy into it, but it was your choice what you did. That is why I am concerned about Clause 49 in particular. I hope that, by the time we get to Report, the Minister will have reconsidered whether ripping away freedoms is the right way for the people whom the Bill is intended to support.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Viscount, Lord Younger, for introducing this debate, and to all noble Lords.

Let me briefly outline the problems that the chapter on guided retirement is seeking to address. The landscape is changing. I will not get into the detail of how we have gotten to where we are with my noble friend Lord Davies, but the reality is that we are now in a position where fewer than a million people in the private sector are saving into a DB pension, whereas more than 15 million are saving into DC schemes. Of course, unlike in DB schemes, DC members carry the risk themselves; what you get out depends entirely on what you put in and how it performs. The result is that DC savers face risks: the risk of savings not lasting through later life; the risk of market fluctuations; and the risk of inflation eroding purchasing power. They also face decision‑making risks, as retirement choices can be complex and poor decisions can have lasting effects. Clause 49 enables the Government to respond to those risks, putting savers first. Our objective is the vast majority of DC savers no longer having to make complex decisions about how to secure a sustainable income in later life, although—I say this in response to the noble Baroness, Lady Coffey—the freedom to choose absolutely will remain.

Let me explain how we envisage this happening. When DC members approach their scheme to access their savings, they will be presented with the default pension solution; in acknowledgement of my noble friend Lord Davies, let us call them “default plans” from this point onwards. At this point, the member will have the option to say yes to the default plan or say, “No, I want to choose a different way to use my assets”; that could be an alternative in their own scheme or elsewhere. We will explore this, including how schemes can give appropriate support, in our consultation. The interaction should not be a surprise to members at this point because we will ensure that, through appropriate communications, members hear about the concept of a default plan from very early on in their pension journey.

Clause 49 will require pension schemes to design and develop pension plans based on the generality of their membership, by which we mean gaining insight of what the vast majority of their members want from their pension assets. The noble Viscount, Lord Younger, wanted to know how they are meant to do this. We know that many schemes already have member panels; we expect these, as well as other channels to obtain member insight, to continue. The Government will not specify unless necessary but the regulator will work with schemes, through guidance, on how to identify the needs of their members. The Government will also consult on whether there should be minimum standards for gathering information so that the solutions reflect the generality of the scheme membership.

We anticipate that the evidence from scheme members will indicate that there is no one common set of aspirations, so we are giving the scheme the ability to introduce more than one default plan. Where there is more than one default plan, there will be a simple triage to determine which one the member is offered. Again, the benefit of this approach is that no member will have to make a complex decision on how to take their pension payments, except to request that they want to start receiving payment. As has been mentioned, the default plans must provide a regular income during retirement. We will consult on the detail, but it will be for trustees to determine exactly how they achieve this; there is scope for product innovation.

The clause also makes provision, as has been noted, for exemption where that would not be appropriate. I will turn to Amendment 178, which relates to this, in just a moment but, crucially, savers will retain the choice to access their pension another way. We know that retirement is not a linear experience and that circumstances change both at and after retirement. Life events such as deciding to work part-time, health conditions and bereavement can all factor in and have an impact on household incomes. That means that gathering insights and engagement with members will be important, alongside well-designed and flexible plans.

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Moved by

[Baroness Coffey]

180A: After Clause 57, insert the following new Clause—
“Review: transfer of the Financial Conduct Authority’s pension regulation functions to the Pensions Regulator(1) Within six months of the day on which this Act is passed, the Secretary of State must publish a review to assess the viability of transferring the Financial Conduct Authority’s pension regulation functions to the Pensions Regulator.(2) The review under subsection (1) must include an assessment of whether the Pensions Regulator should take on responsibility for the regulation of defined contribution pensions, except for self-invested personal pensions, in place of the Financial Conduct Authority.(3) The Secretary of State must lay the report under subsection (1) before Parliament.”Member’s explanatory statement
This probing amendment explores moving to one regulator, the Pension Regulator, for all pensions (both defined contribution and defined benefit) that are not self-invested private pensions (which would stay with the Financial Conduct Authority).

[Baroness Coffey (Con)]

My Lords, noble Lords may want to consider Amendment 180A an amuse-bouche before we get back into the real meat and honey, as it were. I am grateful to the noble Baroness, Lady Altmann, for having also signed this amendment. We have already made it clear that the Pensions Act 2008 set out the requirements for auto-enrolment into pension schemes, which was commenced and brought into effect in 2012. As such, all employers are now required to provide a workplace pension scheme and to make contributions.

The question I pose in this amendment is not whether pensions should be well regulated—that is a given—but whether the current regulatory architecture best supports effective supervision, good member outcomes and long-term system stability in this emerging ecosystem of pensions. I contend that it would do so only if occupational pensions, though not self-invested pensions, were regulated solely by the Pensions Regulator without the overlapping or parallel oversight of the Financial Conduct Authority. This is fundamentally an issue of regulatory design.

The Pensions Regulator was established with a clear statutory mandate: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund; and to promote the good administration of work-based pension schemes. Its regulatory approach is deliberately scheme-centric, focusing on governance, funding, the employer covenant, trustee capability and long-term risk management. By contrast, the Financial Conduct Authority’s framework is product and transaction centric. It is designed around the regulation of firms that either make, distribute or advise on financial products, with a particular emphasis on conduct at the point of sale, disclosure and consumer choice.

The FCA’s tools, culture and regulatory philosophy—whether that is speed, competition, disclosure or transactional fairness—are shaped, in effect, by retail finance. That approach is fine, but I suggest to the Committee that it is not so well suited to not only the current pensions world but the evolving world of pensions that this Bill, in particular, is accelerating. Let us be clear: the FCA’s consumer duty is to the individual. That is not what we see with workplace pensions more broadly, where we have the trust-based approach.

The ongoing involvement of the FCA in pensions risks creating, if it has not done so already, regulatory overlap without regulatory coherence. I am aware that there are statements of co-operation but, particularly with the evolution of the pensions world for employees through the Bill, this should lead us to consider a change in the regulatory approach. The contract-based approach is evolving and, as we have already debated, will now be able to be overridden. For that reason, I come back to the question of whether we should think about the Pensions Regulator being the sole regulator, apart from for self-invested personal pensions; I can see that the consumer duty element under those individual schemes is well suited to the FCA.

The danger of dual regulation is real, costly and can be confusing. The uncertainty is evident. In having two different ways, there are some conflicts over how certain assets or schemes can be treated. There is the risk of misclassifying pensions as short-term financial products, rather than what could be really long-term social contracts. We know that people often remain disengaged from their pensions. Their outcomes therefore depend far more on scheme design, trustee competence and the long-term investment strategy.

I think that the Pensions Regulator understands this reality much better. It recognises that good outcomes come from strong governance, clear fiduciary duties and long-term risk management in not only defined benefit schemes but defined contribution schemes. As I have already mentioned, I am conscious that, although there is collaboration, the risk of regulatory drift is still real. This would be solved by moving, in essence, to having one regulator for all occupational pension schemes.

The Pensions Regulator has already shown that it can evolve. It has strengthened its focus on value for money, professional trustee standards, consolidation and other elements on which it is doing well. A single regulator would deliver clarity, coherence and confidence, which is why I have tabled this amendment seeking a review. More specifically, in subsection (1) of the proposed new clause, I suggest

“a review to assess the viability”.

I say “viability” deliberately but then, in subsection (2), I offer a little leeway on that review, including whether the Pensions Regulator should take it on. This may feel to many like dancing on the head of the pin but, actually, we are seeing these two regimes in parallel. In effect, we are starting to see almost the removal of the contract-based approach. As a consequence, we should grab the challenge and make this change.

I am conscious that the Minister may ask, “Why did you not do this when you were in power?”, which is a fair question. But as my noble friend Lady Stedman-Scott will know from the time we were doing the 2021 pension scheme, when we were bringing in certain measures, including dashboards, once the Treasury gets hold of something it does not want to let go. Let us not pretend otherwise.

We are coming on to a debate shortly about superfunds. I am not going to reveal every battle that we had then; nevertheless, it was certainly a challenge. That is no disrespect to my other noble friend Lady Neville-Rolfe, because she was a great Treasury Minister. But it is a case of making sure that this Bill, in particular, is accelerating what is happening. It is going back, in effect, almost to a paternalistic or maternalistic approach, so it makes sense to at least review this change now. I hope the Minister will give it careful consideration. I beg to move.

[Lord Fuller (Con)]

My Lords, the advantage of Committee is that we can bat around some batty ideas without troubling the scorers too much. I am not going to violently disagree with either of my noble friends or the noble Baroness, Lady Altmann, in this respect, but it oversimplifies the pensions landscape. I totally endorse the idea that we need to have a fresh look at the regulatory environment within which pensions operate, because things have not gone right.

There has been a regulatory groupthink. The example of the LDI, the liability-driven investments disaster, is a case in point, because the LDIs anchor schemes that are in deficit and can never climb out of that. That is sort of how they work. The regulator has bamboozled and misdirected trustees over many years not to focus on maximising the returns, so that there is sufficient money in a scheme to pay the pensions as they fall due over its lifetime—that would be a good long-term objective. No, the regulator has forced them to look, three years at a time, at how they can focus on the deficit, not on the term. There has been a failure of regulation and that needs to be remedied.

The amendments in the names of my noble friends and the noble Baroness, Lady Altmann, focus on the Pensions Regulator, which we have heard is much more corporate-focused, and the FCA, which is much more individually aligned, but they fail to see the wider landscape. Any review, in my opinion, should consider the Bank of England because, ultimately, it directed the whole industry and the other regulators to go down the LDI route. That finished and grievously damaged so many private schemes on that false altar of deficit focus rather than asset maximisation.

Then there is a triumvirate. There is the Government Actuary’s Department, which I accept is not occupational; it is for public schemes, but it sets the tone. Then there is His Majesty’s Treasury, which has just been mentioned, and the Pension Protection Fund. I agree with the thrust of the amendments that have been tabled, and we are only in Committee, but I would widen the scope of the report to include those other actors—the Bank of England, the Government Actuary’s Department, the Pension Protection Fund and His Majesty’s Treasury—so that we can see regulation in the round, because unless we do so, we will not cover up those regulatory cracks that some schemes have fallen down.

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[Lord Palmer of Childs Hill (LD)]

My Lords, what worries me is that the noble Baroness, Lady Coffey, says we should grab the challenge. I am not sure that I am ready to grab the challenge and not convinced that we should abandon, in any way, the Financial Conduct Authority. I wonder what representations have been made by the FCA on this. I would like to hear how the FCA feels about the Pensions Regulator taking over and what has happened in the past.

[Baroness Coffey (Con)]

I can assure the noble Lord that the FCA will not give anything up. In fact, it would probably rather swallow the Pensions Regulator.

[Lord Palmer of Childs Hill (LD)]

Maybe that would be a good thing. I am not convinced that the regulator pushing away from primary legislation to regulation is necessarily the way forward. I am not convinced that what has happened to date has failed. Therefore, I am not sure why we want to change this without adequate proof. The idea that the FCA wants to swallow up everything else is fairly normal in the gladiatorial forum that we have. I would like to see what the FCA and others have to say about this before we make a final decision.

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[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Lord, Lord Fuller, for clarifying his view and apologise if I misrepresented it. I will not respond at any length but will simply say that there is already considerable join-up between the actors in this space. I do not feel it is necessary to have a single review just to work that out.

[Baroness Coffey (Con)]

I thank noble Lords for contributing to this debate. Certainly, in speaking to pension providers that are regulated by both TPR and the FCA, this brings additional complexity, which is another reason for this to come in. I appreciate that my noble friend Lord Fuller suggested this could be a batty idea. It is not a new idea. The 2013 report by the Work and Pensions Select Committee chaired by Dame Anne Begg—its Labour chair—called for it then. It was linked to the fact that we were starting auto-enrolment. The whole landscape for people, particularly those new to pension contributions and the like—and indeed for existing people—was shifting to workplace occupation-based pensions, which are all regulated by TPR. So I think it was going for simplicity in that regard.

My noble friend is particularly cross about an aspect of the Pensions Act 2004. I would have invited him to perhaps table an amendment to the Bill with his objections to the statutory funding objective, which is the element that particularly irks him. It replaced the minimum funding requirement, but that is a debate for another day, rather than trying to resolve it all now. I thought the Minister did well, particularly in reading out her brief and keeping the Treasury happy. That is no bad thing for any Minister in a Government but, of course, I beg leave to withdraw my amendment.

Amendment 180A withdrawn.

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[Baroness Bowles of Berkhamsted (LD)]

My Lords, everyone—apart from insurers, perhaps, who prefer buyout and the regulatory cash bonus it brings them—is in favour of superfunds. They should improve member benefit security. They can enhance members’ benefits, as the noble Baroness, Lady Noakes, just said. They can return cash to employers when appropriate, supporting UK businesses. They can also invest more in productive finance than a buyout or a DB scheme can.

However, numerous barriers make it difficult for superfunds and my Amendments 182 and 183 seek to address two of them. Amendment 182 seeks to remove gateway test 1, which is the test that prevents a scheme that can afford a buyout entering a superfund. The policy of pushing everything to buyout is intended to address risk, but it is not always in the members’ best interests; that could be considered more. Discretionary benefits, which can often include things on which expectations are based, may be lost. For example, spouses’ entitlements and increases in pensions are often discretionary; I know that that is the case in parliamentary schemes.

In a buyout, discretionary benefits are likely not to be paid, but a superfund could pay them. There seems to be some underlying assumption that superfunds do not serve risk reduction, but that does not reflect the extremely secure funding position that superfunds are held to by the regulations. Additionally, the test is unstable because funding levels vary. A scheme can start the process unable to afford buyout, and therefore be deemed able to go into a superfund, but if later on it could afford buyout part-way through, it would be required to reverse out and would be forced into a buyout. That can mean a lot of wastage of cost and time, as well as worse-off pensioners. Removing the test would give schemes more flexibility in the course they pursue, and may be better for the economy. If they chose a superfund, it would mean that more schemes could keep money invested in pensions and pay out more generously, rather than that extra money being lost in the insurance companies.

Amendment 183 is about the wind-up trigger and the protected liabilities threshold. This in, in essence, the point at which a superfund’s funding drops to such a level that it must close and enter the PPF. The recent PPF indexation means that the protected liabilities threshold is now above the low-risk trigger—that is, the technical provisions threshold—which is upside-down from the policy design, where the low-risk trigger is intended to be a less critical warning scenario than the wind-up trigger and is the point at which the scheme funds must be boosted by investor money.

This upside-down formulation will make it harder for superfunds to attract investor capital and will probably push pricing up closer to buyout levels, narrowing the slice of the market that superfunds can operate in. That is good if you are shareholders in insurance companies but, again, not for pensioners, who lose benefits. The amendment proposes a “lower of” formulation for the definition of the protected liabilities, which would set it at lower and more reasonable levels.

There could be other ways to fix this or remove the protected liabilities threshold entirely and rely on trustee powers in distressed situations, which is normal practice for regular DB schemes. But staying in the upside-down formulation does not seem right and risks stifling the nascent superfund model. I appreciate that this is a recent development because of the indexation and possibly one that the Government did not originally foresee, but it none the less needs tackling.

[Baroness Coffey (Con)]

My Lords, I support Amendment 182 tabled by the noble Baroness, Lady Bowles of Berkhamsted. Gosh, superfunds—that has been quite a journey. It must be about six years ago that I apparently received a letter from Andrew Bailey, who I think was running the Prudential Regulation Authority at the time. I never actually received it, but I read it in the FT and on Sky. It told me that it all seemed very unfair compared with the Solvency II reform, which is what insurers had to go by. That is why I am strongly concerned about Clause 65(2)(a) being in this Bill.

I think we are seeing the hand of the ABI again here, trying to basically squeeze out other activity when we should be focused on what is in the best interest of the pension scheme members. We also want to try to make sure that we do not have never-ending firms going into the PPF. The superfunds, which I recognise the Government have embraced through this, are definitely a good option but are different to having an insurer buyout, even with some of the changes that have happened away from Solvency II to whatever version of Solvency UK. There has been more reform with less risk around some of the margins in that regard.

So I encourage the Ministers to think again about whether subsection (2)(a) is really the right approach for the outcomes they seek. Otherwise, why bother? Why bother having a superfund if you can get only the equivalent of what it is to get the insurer buyout?

I could go further, but I am conscious that the dinner business break is bringing exciting business and that the Committee wishes to finish by a certain time. So I will leave superfunds for another time, perhaps in the Bishops’ Bar. But, with that, I support my noble friend in Amendment 182.

[Baroness Stedman-Scott (Con)]

I will speak to Amendment 181 tabled by my noble friends Lady Noakes and Lady Altmann, and Amendments 182 and 183, tabled by the noble Baroness, Lady Bowles of Berkhamsted, and my noble friend Lady Altmann. I will also address the broader issue of the role of superfunds within our defined benefit pensions landscape.

At the outset, I want to be clear that my understanding is that the Government remain committed to creating a thriving and credible superfund market. That ambition is welcome because superfunds have the potential to support two important public policy objectives. First, they support member outcomes; properly regulated superfunds can improve security for members and, in the case of a run-on superfund model, they offer the additional prospect of enhanced benefits over time through the sharing of surplus and investment upside.