Pension Funds

Torsten Bell Excerpts

Wednesday 23rd April 2025 Commons Chamber

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

Everyone deserves a secure retirement. For many, their occupational pension is an essential part of that. Having spent years paying into a pension scheme, it matters to all of us that they get a decent pension out. It must be decent in the sense of being adequate for their needs and decent in terms of providing the benefits that they were promised.

I am pleased that the hon. Member for Stratford-on-Avon (Manuela Perteghella) has secured this debate and spoken so well during it on a topic deeply relevant to all our constituents—after all, we are all either a pensioner or planning on becoming one at some point. I thank her and everyone else who has spoken. We have heard about a wide range of issues, relevant to different pension schemes and different pensioners. I will not comment in great detail on specific pension schemes, although I am sure that specific employers will have heard hon. Members’ points this evening.

I will respond in more general terms to the points that the hon. Member for Stratford-on-Avon and others have raised. She raised the issue of integrated pension schemes, which are sometimes called clawback schemes. I appreciate that that type of scheme can be controversial, thanks to the change in the private pension income involved. All of us sympathise with anyone who expected a straightforward income increase when their state pension kicked in, only to find that things were much more complicated than that. I have read and listened to representations on this issue myself.

As with all defined benefit schemes, integrated schemes are required to pay out the full value of the promised pensions to each member, as set out in their scheme rules. That provides certainty, security and a base on which savers can build their retirement plans. Integrating an occupational pension scheme with the state pension was a core design of some schemes, and that has pros and cons. It used to be a common feature of final salary schemes, covering almost half of schemes, according to one survey from the early 2000s, although it is far less common today, partly for some of the reasons that the hon. Lady set out.

The original aim was to provide a smooth level of pension income throughout retirement that started before the state pension age was reached, with a higher amount of occupational pension paid before state pension age, followed by a reduction in the occupational pension when the member received their state pension. The amount of the reduction is required to be set out in the pension scheme rules, and it is therefore very important that the rules are clearly communicated to those involved, as my hon. Friend the Member for Doncaster East and the Isle of Axholme (Lee Pitcher) made clear.

While the aims of integrated pensions are clear, it would, of course, be a big shock to anyone to see their occupational pension reduced upon receiving the state pension if they had not expected it. It is therefore important for employees to understand the pension benefits they can get from their scheme, and the Government place great weight on the importance of that clear communication, without which no one can plan properly for the future.

All schemes are required by law to provide every member with basic information about the scheme, either before they join or very shortly afterwards. That includes an explanation of the contributions in the case of some of the schemes mentioned today, which were on the employer side only, but also how benefits were calculated— exactly the integrated clawback mechanisms we are talking about this evening. If savers have not received clear communication in the form required by law, they must have avenues of redress. They can bring a complaint to their scheme’s internal dispute procedure, but if that does not resolve the issue, the Pensions Ombudsman is there to act.

There have been some calls tonight for the Government to compel the withdrawal of integration arrangements—those calls have been common for some time, and I have heard them. I recognise some of the arguments being made, but I owe it to this House to be clear that we cannot retrospectively change the benefits schemes offered to their members. Any legislative change would affect all integrated schemes, risking the future of some that are less well funded. However, I do want to engage with the question of pension fairness, which so many Members from across the House have raised this evening. While the law is very clear that men and women must be treated equally within any scheme, I understand the points that have been raised about the effects of those scheme rules, which are felt very unequally indeed.

The inequality of pensions more broadly is a big issue for society, particularly for women and lower earners over the years. I want to celebrate some progress that has been made, but also recognise how much more there is to do. On progress, the new state pension introduced after 2016 by the previous Government has made a significant difference in closing the gap between the average amounts received weekly by men and by women, to equalise those amounts in practice. The hon. Member for Strangford (Jim Shannon) mentioned the importance of the state pension—it is the bedrock of all of our pension savings—so that is progress that has been made. We have also seen significant progress on automatic enrolment, with 89% of eligible women now saving into a pension. That is a big change from the 2000s, when as few as 40% of women were saving into a pension pot.

However, there is much more to do. The gender pension gap, for which the Department for Work and Pensions now publishes figures the first time, is very large indeed. Some of that reflects some of the historical issues we have been discussing, but it also reflects our labour market. Women have lower employment rates, are much more likely to do part-time work, and are much more likely to be lower earners—for example, 3.9% of women work in low-paid work as opposed to 2.8% of men. Those underlying structural inequalities then manifest as pension inequality, which is one of the reasons why it is so important that reform of the state pension has moved towards a more equal treatment of women and men.

As for what the Government are doing about pension inequality, we will shortly set out a timeline for phase 2 of our pensions review, focusing on adequacy and, in particular, addressing some of these very important questions. Although people talk about pension adequacy on average across the whole population, it is very different for different groups, which is exactly why the pensions review will need to reflect on the questions raised. However, it also highlights the importance of some of the changes being brought through in the labour market by this Government, including through the Employment Rights Bill. That Bill will disproportionately benefit women, who are more often lower earners.

Turning to the question of indexation, some schemes do provide indexation above the legal minimum on a discretionary basis. Like the hon. Member for Surrey Heath (Dr Pinkerton), I sympathise with those members who had understood that they would receive ongoing discretionary increases, only to be let down. We take their concerns seriously; I have now met several groups of MPs on exactly this issue, and have asked the Department to work with the Pensions Regulator to understand why schemes are not making discretionary payments and to monitor trends.

Both trustees and employers need to think carefully about the effect of inflation on members’ benefits—that is especially true on the back of the exceptional inflation in recent years. Pension scheme trustees, after all, have a fiduciary duty to scheme members—a duty they should apply when considering discretionary increases. That is directly relevant to recently announced reforms on the use of surpluses in defined benefit schemes, as several Members have raised. Those reforms will make it easier for individual schemes to make decisions that improve outcomes for sponsoring employers and members. That could include discretionary benefit increases, where trustees can consider the situation of those members who would benefit from such rises and whether the scheme has a history of making such payments. Trustees will, in negotiation with the employer, be responsible for determining how members may benefit from any release of surplus.

I thank Members who have contributed this evening, in particular the hon. Member for Stratford-on-Avon. We all benefit from the opportunity to address this important topic. As the Minister for Pensions, it is my priority to ensure that people who work hard can enjoy the retirement they are owed. That is what this Government will always do.

[Richard Foord (Honiton and Sidmouth) (LD)]

My hon. Friend the Member for Hazel Grove (Lisa Smart) asked whether pensioners might be given more control over where their pension funds are invested. That issue has also arisen recently in terms of whether pension funds can be invested in defence companies in the UK. Will the Minister comment on that?

[Torsten Bell]

I thank the hon. Member for the reminder to respond to that point. He will know that trustees already have a responsibility to invest in the interests of their members and that the law requires trustees of significant schemes—with more than 100 members—to set out a clear statement of their investment principles. The hon. Member for Hazel Grove (Lisa Smart) mentioned some of the issues they will want to consider in that. That is how trustees provide clarity to their savers. There is also then scope for individuals, particularly in larger pension schemes on the defined contribution side, to make choices about where they invest their funds. We see that, for example, with the National Employment Savings Trust, the Government-backed pension scheme, where individuals make different choices on the grounds of ethical issues across the board, including defence, as mentioned by the hon. Member for Honiton and Sidmouth (Richard Foord). I thank him for his intervention and for reminding me to come back on that point before concluding.

It is important that we offer people secure retirements. That is the job of this Government, it is my job as the Pensions Minister, and it is what our pensions review is focusing on doing. It is what this Government will always do.

Question put and agreed to.