Pension Schemes Bill (Second sitting)

Torsten Bell Excerpts

Committee stage
Tuesday 2nd September 2025 Public Bill Committees

[Luke Murphy]

Q It does not appear to be easily definable. What the financial benefits to members of an investment will be is easier to define through the fiduciary duty, but what is popular locally feels like a bit of a value judgment.

Councillor Phillips: Like a lot of judgments.

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

Q Since we have gone to mandation and surplus, I encourage you to clarify that the reserve power and the surplus measures in the Bill do not affect the LGPS in any way. Those are not within the remit of the Bill.

Councillor Phillips: My understanding is that it is a back foot.

[Torsten Bell]

indicated dissent.

Councillor Phillips: It is not a back foot?

[Torsten Bell]

Q The reserve power is about automatic enrolment contributions; it has no impact on the LGPS. It is the same for surplus: the changes do not apply to the LGPS. Could you confirm that I am correct in saying that?

Councillor Phillips: Right.

--- Later in debate ---

[Mark Garnier]

That is very helpful; thank you very much.

[Torsten Bell]

Q Thank you both for joining us today. I want to ask you to reflect on the internal consistency of some of what you have said. Implicit in what you are saying is that pension schemes should have been investing in a wider range of private assets over the course of the past 10 years, and that that is what they should want to be doing in future—so in some ways we have not been living up to our fiduciary duties in the past, and we are now making changes to do that.

Given that that is your logic, the question is why that has not happened. If you go and ask actual pension providers why that has not happened, they will tell you they have a collective action problem and an industry focused exclusively on cost and not on returns, and that they struggle to deliver against that. If you have a collective action problem, you need to ask how we resolve that.

You then get to the fact that the Mansion House accord is entirely industry led, with numbers set by them—it is not about distortion to the market; you might want to reflect on that, given the comments you have just made. You also spoke about a lack of clarity, but the Mansion House accord provides clarity about the objectives: everyone can see them and they are set by the industry. When it comes to savers’ interests, you know that the Bill includes a carve-out for trustees to say, “This isn’t in my members’ interests, so we won’t be doing it.” Reflect a bit on the consistency of the argument you have made about the real progress you want to see on investment in a wider range of assets—because it is in savers’ interests and should have happened in the past but did not—and the changes in the Bill. I would gently suggest you might want to think about the consistency of that.

Sophia Singleton: We are not a mature industry—the defined contribution industry—and in the past we have not invested in these assets because there have been operational barriers, including the focus on cost.

[Torsten Bell]

That is not the view of the whole industry, which points to the collective action problem of an exclusive focus on cost, as much as it is a barrier—

Sophia Singleton: The value for money framework in the Bill is extremely helpful—

[Torsten Bell]

It is.

Sophia Singleton: —and we have said that we need to move the focus from cost to value, and we are seeing that very much come through in the culture within the industry, to be focusing on value. I have given evidence about funds recruiting investment teams to invest in these assets, because they are not simple to invest in for DC schemes. If you look at the experience in Australia through the covid pandemic, there were some real challenges that those schemes had to face relating to stale pricing, intergenerational fairness and cross-subsidies. They are not simple assets for DC schemes to invest in. The market is moving, going, and will get there. What we are saying is the mandation power is not needed to achieve that, because we are, with your help, getting to the right place.

[Torsten Bell]

Q Again, I would look at the actual history of what happened. The industry committed to private assets under the previous Government, and it is failing to deliver on that because of collective action challenges. You have to face up to this at the level of the sector as a whole; I am afraid you are giving answers that are very happy with the status quo, the way you are describing it. I would reflect that it is definitely a failure of fiduciary duty over the last 10 years not to have made more progress.

Helen Forrest Hall: Just to give my own perspective, there are a number of structural issues with the development of the sector. Defined benefit has been in run-off, which has driven a particular type of investment strategy. DC has not been at scale, and a number of us in the sector have been calling for consolidation for a long time. I think it goes without saying that we are having this conversation in the context of being very supportive of the vast majority of provisions in this Bill.

[Torsten Bell]

I was encouraging you to say that; you got there.

Helen Forrest Hall: Apologies; we are very, very supportive of the vast majority. This is basically the one substantive issue from our perspective. As Sophia has said, the value for money and consolidation elements in particular are incredibly helpful in removing some of the barriers that have existed, including for trustees. They technically have the ability to operate within their fiduciary duty, but sometimes the legislation and the structure of the industry get in their way. Things such as value for money and scale will really help with that. This Bill is incredibly enabling in the vast majority of its provisions. There are just a small number—mandation being one of them—where we have a bit of concern.

[John Milne]

Q Pension scheme funding ladders can go up, and they largely have done in recent years, but also they can go down. Do you think that the proposals and the framework in this Bill for surplus extraction have the right balance of risk versus actually achieving the objective?

Helen Forrest Hall: From a principles basis, yes, and just to address the funding point, they absolutely can. I know there will be a number of us in the room who have either experienced or been subject to the outcomes of what has happened when those significant events have taken place. In the context of where we are with DB now, a significant proportion of schemes are employing investment strategies that really do protect them against the kind of volatile market movements you might see.

The provisions in the Bill strike the right balance between, as I said earlier, giving trustees greater flexibility to exercise their fiduciary duty in discussion with employers, while also ensuring that they are considering the best interests of the members. One of the key considerations for trustees in that conversation is: how confident are we that our investment strategy would withstand significant market movements at the point when we might release a surplus? That is a key consideration.

We have seen that a number of pension schemes did not benefit from September 2022 in the way that others did, and that was because they had decided to protect themselves against that kind of market movement. There are things that schemes can deploy to give themselves that level of confidence.

Sophia Singleton: We were very pleased to see the stringent funding safeguards that are in the Bill in order to allow a surplus to be released. One thing I would say is that, as Helen says, it is giving the trustees the tools to properly exercise their discretionary power and, in a sense, fiduciary duty, but it has created an opportunity for trustees to negotiate and agree a win-win situation, in a sense. The conversations we are having with schemes is that they are now more likely to be able to feel comfortable in paying, and be able to pay out, discretionary benefits than they would have been before the Bill was in place. It gives schemes the opportunity to run on and for the employer to access the service, but also for members to have more access to discretionary benefits and to additional benefits.

--- Later in debate ---

[Mark Garnier]

Q I completely agree: I think it is absolutely right that the more money you have, the more negotiating power you have and the more you can diversify risk and all the rest of it. But part of what I am worried about is this: how is anybody going to prove to the regulator that they will have £25 billion of assets under management by 2035? Surely that is an incredibly difficult thing to prove.

Patrick Heath-Lay: I do not want to be flippant in my response, but our scale already means that we are over that limit, so I have not really put too much thought into how they will do it. I believe that there is enough, within the business plans of entities that might be affected, to be able to make some reasonable assumptions as to what ongoing contributions will be coming through the door and how they will respond to some of the opportunities that may arise in this market over the next few years, from organisations that are choosing to move because of the extent of change that is coming.

I emphasise that I still think that the package of measures and that scale test is the right thing to instil that movement, because I think savers will be better off, provided that it is harnessed in the right way. That is why I come back to this: value for money is the proof point, and we need to make sure that we centre on that as an industry. Being able to evaluate how these changes have created a more competitive market in key areas going forward is really quite important.

[Torsten Bell]

Q This morning we heard from Legal and General and from Aviva on how they are planning to operationalise the requirements in the Bill on default drawdown products. I thought it would be good to give you the opportunity to answer the same question: how are you thinking about that within your organisation?

Ian Cornelius: It is one of the elements of the Bill that we very much welcome. I think guided retirement solutions are overdue. Certainly, our members have been opted into a retirement savings scheme, and they end up with a pot of money rather than an income. I think their expectation is an income. In fact, in the research we have done with our members, they say that the most important things for them are to have a sustainable income, confidence that it will not run out and an element of flexibility, because their circumstances can change very quickly in retirement. I think the guided retirement solution moves us in that direction.

At NEST, we have been working on this for some time, as we recognise that it is a core issue for our members. We therefore want to introduce a guided retirement solution—it is very much a work in progress—that delivers that sustainable income, but also gives them a guarantee that it will not run out. That will be some sort of deferred annuity, purchased probably when they are 75, to kick in when they are 85. We are actively working on that and will be looking to introduce it in 2027, aligning with the expectation in the Bill.

Patrick Heath-Lay: It is very similar from our perspective. We should not underestimate how much onus the shift from final salary to DC has put on individual savers, in terms of the decision that they have to make, in a very complex world that they really do not understand. Even if you surface a lot of information, your constituents will still struggle to navigate those decision points. We also should not underestimate the onus they have taken on, in terms of the risk of their own fund, when you think about the productive finance agenda and other things here. I think it is absolutely the right move. It is a good development for us to bring about guided retirement journeys in a way that is either “Do it for me” or “Do it with me” for policyholders.

Similarly, we are thinking about drawdown and how we can facilitate or help people to understand the implications of the actions they may take with accessing their funds, and then, when they get to later life, some sort of deferred annuity as an approach. The really important aspect is the guidance and how we can help, but have certain obligations on ourselves, as providers, to make sure that we are accountable for the help that we are giving as we go through the process.

[Torsten Bell]

Q You have both been involved in the discussions with the industry on the wider move to private asset investments. As you talked about earlier, you are further along the journey than most. You know the numbers in the Mansion House accord. In lots of cases, I know you are planning to be significantly above those de minimis levels. Tell us a bit—for the industry as a whole, not just for your individual schemes—about how we should think about those numbers, as de minimis or as targets, or where people are going to be in 20 years’ time. In the end, that is what we are always thinking about; we are not thinking about the next five years.

Ian Cornelius: It is difficult to speak for the industry, but I can speak for NEST. At NEST, we are very committed to investing in private markets: 18% of our assets are invested in private markets, and 20% of our assets are invested in the UK.

[Torsten Bell]

And that compares to the Mansion House benchmarks of 10% and 5%.

Ian Cornelius: The Mansion House commitment is 10% into private markets, with half of that into the UK, so we are already well ahead.

[Torsten Bell]

Q Are you already doing that because you think that that is what is in savers’ interests?

Ian Cornelius: Absolutely. It is providing attractive returns, it diversifies risk and it also invests in the UK.

[Torsten Bell]

Q Given that you think that it is in savers’ interests to be well above the Mansion House targets, why have some people not got to those targets? Are they failing in their fiduciary duties? Why have they not got there yet?

Ian Cornelius: It is hard to speak for others, but scale is an important factor, as we have talked about. You need scale and sophistication to access these investment opportunities. NEST has that scale and is building that sophistication. It often involves quite innovative solutions and partnering. Partners want to partner with someone who has got scale and assets coming in at pace, and we have those things. There are some unique circumstances that have made it attractive for us. I will let Patrick speak for People’s, but it is on that journey as well.

Patrick Heath-Lay: Yes, we are, although we are much nearer the start of that journey. Again, it comes back to the scale point. Why is £25 billion or £30 billion about the right amount? Because it is about the right part that you can economically start investing in those items.

To answer your question, and to pick up a more general point, it is incredibly important that we work collaboratively on the issue, because, as an industry, there is not much point in us all sailing our own little boats around trying to find the right harbour to invest. There is a degree of collaboration that the industry, together with Government, can do to open up the opportunities where that investment needs to go and how it can be executed in the most efficient manner. The biggest risk with investing in private markets is that they are expensive. If the vehicles that are being used on a commercial basis are not sharing the economics of that investment well enough with savers, it will certainly not be an investment that we are interested in pursuing.

The other point is that putting down the foundations for this to be a pipeline of repeatable investment activity is critical. Because of its scale, NEST has got ahead of where we are today, but that is the phase we are in at People’s at the moment. There is over £1 billion a year from our scheme alone that will be invested in those markets on an ongoing basis. Given the scale that we are both experiencing, in terms of how we are scaling up, that will be an ever-increasing number, so it is important that we have reliable and very cost-effective routes by which we can deploy that capital.

Ian Cornelius: Going back to your original question, I think that the industry is moving in the right direction. The Mansion House accord had 17 signatories and we are seeing the right moves.

[Steve Darling (Torbay) (LD)]

Q Default solutions are an important part of the Bill. I suspect that, for the more modest savers, they will colour the outcomes for a lot of their pensions. How can the final offer in that area be enhanced so that we get the best outcomes? What tweaks would you make to the Bill to ensure that we are looking after those with more modest incomes, around these final solutions?

Ian Cornelius: There is no doubt that there is detail to work through across the whole Bill. One of the really interesting areas will be the interaction of targeted support and default solutions. There is now a consultation on targeted support, being led by the Financial Conduct Authority. That opens up lots of opportunities to provide an enhanced level of support to people who cannot afford to take advice. The fact is that financial advice is only available to about 9% of the population. Nearly all our members cannot afford to take financial advice, so they need that enhanced level of support, either to check that they are making the right choices—“Is the default solution the right one for me?”—or because they might have circumstances that mean that they want to explore something different. Targeted support is very welcome, and we look forward to engaging with the Pensions Regulator and FCA in making that a reality and making it work for low and moderate earners.

Patrick Heath-Lay: I am probably going to sound quite boring, but this is an area in which value for money and making sure the solutions are developed in the right way to support consumers can be really quite effective.

--- Later in debate ---

[Mark Garnier]

If I remember rightly, the Bill allows for the detail to come in afterwards, so we will have a bit of work to do when this is all over. Thank you very much.

[Torsten Bell]

Q We all have work to do; it is never all over. Chris, this question is mainly for you, as I am conscious that you have done lots of work over an extended period on the dashboard. Obviously, there are elements of the Bill that relate to that—mainly relating to the PPF—but not many. However, is there anything you want to tell the Committee about the lessons from it for when we come to the small pots work, which obviously is a central part of the Bill?

Chris Curry: I listened with interest to some of the earlier witnesses talk about dashboards, and there certainly are some lessons that we can learn from the pensions dashboards programme, as it has been evolving over the past few years, for small pots in particular.

There are two issues that I would pull out. The first is on the technology front. I think someone suggested that the next five years or so could be quite a tight timetable to build a technological solution and get it in place. You have to be very careful—you cannot underestimate just how much complexity there is and how long it takes to do these things—but I would say that the work that we have done on pensions dashboards is giving us a bit of a head start. That is not to say that we necessarily need to build on or use parts of the system that we have already built, but it has helped us understand a lot about, for example, how you can find pensions—the way you can use integrated service providers rather than having to go direct to all the schemes, and use a syndicated model to find where people might have their pensions.

It has helped the industry get a long way down the path to where it needs to be, as well. One of the big challenges for pensions dashboards is the quality of data. Enabling individuals to find their pensions means data quality: it needs not only to exist and be there; it needs to be accurate and it needs to be up to date. When you are thinking about an automatic consolidator or default consolidator for small pots, that is even more important. You are not just transferring information, but transferring money, so it is really important that the data is high quality. The work that is being done on pensions dashboards will get people in the industry a long way to having part of that in place as well.

There are definitely lessons that can be learned from how we progressed on the pensions dashboards programme. It has got us much closer to where we would be if we had had a completely blank page to start from, but there is still a reasonable amount of work to do, because it is working in a slightly different way.

[John Milne]

Q The Bill makes the notion of using pension money for macroeconomic benefit—investment in the UK—an explicit objective. Other countries seem to have done this already. Did they do so explicitly and deliberately, or was it just an accidental outcome of good investment decisions? Did it take a conscious effort to make it happen?

William Wright: I think it is a mix of both. It very much depends on what sort of assets we are talking about. For example, if we are thinking about the UK stock market or domestic equity markets, we tend to see that markets such as Canada and the Netherlands have an even lower allocation to domestic equities, whichever way you look at it, than comparable UK pensions have to the UK market.

Ultimately, this comes down to what you might call the accidental design of the UK system. It has evolved over 20, 30 or 40 years, whereas the systems with which we like to compare the UK system, or large parts of them, were actively designed anything from 30 or 40 to 50 or 60 years ago. We are now seeing the benefits of that active design in those systems. Their focus on scale enables them to invest in a far broader range of assets at a lower unit cost.

Going back to the value for money point, UK pensions have ended up in the worst of both worlds. Fee pressure, particularly in terms of winning and transferring new business between providers, is driving down fees, but the average fees on DC pensions today are very middle of the pack: 45 to 50 basis points a year. That is much higher than much larger schemes in Canada, such as the Canada Pension Plan Investment Board, the big Canadian reserve fund, and much higher than large UK schemes, such as the universities superannuation scheme, but they are stuck in the middle: they are actually paying higher fees, but because of the fee pressure they have a very vanilla, almost simple asset allocation. As Tim Fassam from Phoenix pointed out, that tends to steer people towards the lowest cost investment option. Active design, focusing on scale and sophistication, enables pension schemes to take a much longer term and much broader view of what they should invest in and where they should invest in it, whereas in the UK we have tended to accidentally move from one system to another.

--- Later in debate ---

[Mark Garnier]

Q This is tricky, though, is it not? Because there is no geographical definition of those six pools, Cornwall could, as I mentioned earlier, find itself investing in Leeds. That would be lovely for you in Leeds, but it would not be so great for people down in Penzance.

Rachel Elwell: Border to Coast, if we do have those 18, will stretch from the Scottish border to the southern coast. Even today, we have partner funds who are right across England, which is brilliant because those are people who have actively chosen to come together, form a partnership and work together.

Time permitting, if it is of interest to the Committee, we could talk a bit more about local investment and the way of getting investment that is truly local for each individual fund but also a way of crowding investment from other people into the slightly larger opportunities that might be in a region. Every investment we make is local—it impacts local people.

You do not need to only have, for example, Durham council investing in Durham. You want all of the LGPS and all asset owners to feel that they can do that. Some of the ways that we are working through doing local investment with our partner funds have really got an eye to the different ways in which you can crowd in versus something very specific that needs to be addressed in the region or locality.

[Torsten Bell]

Q It is lovely to see you again, Rachel. Thanks for making the time today. A few people have asked questions about the LGPS through the lens of member engagement. There are obviously some implications with the move into greater pooling for that. Given that you are running that and seeing it up close, it would be good to hear your reflections on how that currently operates, as you have seen it over the last few years.

Rachel Elwell: Again, for all of us working in the LGPS, that sense of purpose is really important. I know my partner funds do a huge amount to make sure they are engaging directly with members, running events, as well as the importance of member representation on the pensions committees and on the pension boards, whether that is through union representation, pensioner representation or other scheme member representation.

We also have two fantastic scheme member representatives on our joint committee, which is the body that comes together across all of the partner funds to oversee and engage with what we are doing on their behalf. They are really bringing that voice into our considerations as a board and the wider organisation—the wider partnership.

[Torsten Bell]

Q The other thing to touch on is that all the pools are moving towards FCA authorisation. What is your experience of that? Obviously, you are further ahead than most.

Rachel Elwell: This is before I was employed to bring it to life. This is a decision our partner funds made really early, because they recognised the real benefits that can come from being FCA regulated. This is really important. We will hopefully be managing over £100 billion on behalf of the LGPS, and a good proportion of that is managed directly within my team. We are managing that for, hopefully, 18 different customers—effectively, investors and our owners. We need to have those disciplines in place, and we need to make sure that we are following those regulations. We do not need another regulatory set. There are already some very good, strong regulations that exist, so we, as a partnership and as a company, think that is the right thing to do.

[Steve Darling]

Q Thank you for coming today. Reflecting on the Bill as a whole, what would you particularly like to see weakened or strengthened in the Bill? What particularly leaps out at you?

Rachel Elwell: There are some fantastic provisions in the Bill, particularly around implementing the good governance review, and the clarity of roles and responsibilities between the different parties within the LGPS. About five or six years ago, we, along with some of the other pools, commissioned some work looking at good practice internationally, so talking to about 15 others—from Australia, the Canadians, the Dutch, the Norwegians—and looking at the journey they had been on with this. They are about 15 years ahead of us, really, with that policy. We wanted to learn from what they had done.

There were various success factors, some of which Michelle shared with you earlier, but one of those was real clarity about the Government’s policy intent, and I think the Bill really does help with that. That will help us, in turn, engage with our pensions committees and partner funds to make sure that we are providing a holistic joined-up view. There are some areas in the Bill where, particularly for the LGPS, the detail will be in the regulations. I would just make a plea, given the timelines we are working towards, that we see the regulations sooner rather than later, please. I have already said that I think it would be helpful to maybe get a bit more clarity on the circumstances in which we may be directed by the Secretary of State.