Pension Schemes Bill (Third sitting)

Debate between Torsten Bell and John Milne

Committee stage
Thursday 4th September 2025 Public Bill Committees

[Torsten Bell]

That is a factually accurate description of the situation. The hon. Lady is not the first person to have raised that point with me, and I understand the wish for greater certainty about how funds will be used. My view is that looking for that certainty through legislation is wishful thinking. Funding sitting within companies is fungible. The monitoring and enforcement of those things would not be practical in any sense. I am sure that part of the discussion between trustees and firms will be about exactly the kind of points that the hon. Lady is raising, particularly for open schemes, where there is a large overlap between employees and scheme. Members will be part of the discussion, but I do not think that that is practical for legislation. I am liberal enough, although I am certainly not a Liberal Democrat, to think that that is quite hard for legislation to manage, and that it is the role of trustees and employers to work through that.

On the hon. Lady’s wider point, I offer her some reassurance that the Pensions Regulator is taking very seriously its job of providing guidance for trustees about how they think about the questions of surpluses. I think that will offer her quite a lot of reassurance, particularly about how members benefit—she has focused on how employers benefit—from release.

Amendment 25 agreed to.

Amendments made: 26, in clause 8, page 8, line 2, at end insert—

“(4A) Any power to distribute assets to the employer on a winding up is to be disregarded for the purposes of subsections (2) and (3); and a resolution under subsection (2) may not confer such a power.”.

This amendment ensures that the scope of section 36B is confined to powers to pay surplus otherwise than on the winding up of the scheme.

Amendment 27, in clause 8, page 8, line 6, at end insert—

“(5A) Regulations may provide that this section does not apply, or applies with prescribed modifications, in prescribed circumstances or to schemes of a prescribed description.”—(Torsten Bell.)

This amendment, which inserts provision corresponding to section 37(8), allows for the application of section 36B to be modified in particular cases (for example, in the case of sectionalised schemes).

Clause 8, as amended, ordered to stand part of the Bill.

Clause 9

Restrictions on exercise of power to pay surplus

[John Milne (Horsham) (LD)]

I beg to move amendment 5, in clause 9, page 8, line 18, at end insert—

“(2AA) Without prejudice to the generality of subsection (2A), regulations made under that subsection must include provision that takes into account the particular circumstances of occupational pension schemes established before the coming into force of the Pensions Act 1995 which, prior to that Act, possessed or were understood to possess a power to pay surplus to an employer.”.

This amendment would allow schemes where people are affected by pre-97 to offer discretionary indexation where funding allows, with appropriate regulatory oversight.

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[Torsten Bell]

I absolutely would. I have been making exactly those points to anyone who will listen.

[John Milne]

I thank the Minister for his comments. Over the coming weeks, as he will be aware, we will be discussing several amendments that relate to the same issue. It will be interesting to see whether we can reach a satisfactory solution. In the meantime, we will press our amendment to a vote, because we feel that the issue has remained unresolved for such a long time that it needs everything we can give it to get it across the line, but we hope that in the next couple of weeks of debate we can find the best possible solution.

Question put, That the amendment be made.

Pension Schemes Bill (Fourth sitting)

Debate between Torsten Bell and John Milne

Committee stage
Thursday 4th September 2025 Public Bill Committees

[Torsten Bell]

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

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

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

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

[John Milne]

I thank the Minister for his reply, and I thank hon. Members for their contributions. One thing we all absolutely agree on is the importance and centrality of this issue. If there is one area in which I feel the Bill could have gone further, it is this one.

It is a scary thing to look to the future and see all the trends in where we are heading with pension adequacy. The number of people who will have zero or a very small pension is deeply frightening, particularly when we lay alongside that the fact that many of those people will not own their own house and will still be paying private market rent. The state pension is not designed for that.

It is a crucial issue. I appreciate both the Minister’s objection in principle and the practical objections from him and the hon. Member for Aberdeen North, but we will still push the amendment to a vote. That is more to lay a marker than anything else; I appreciate that our chances of winning the vote are small. We want to lay as much emphasis on the issue as possible. Whether or not it ends up as part of the Bill, perhaps under new clause 1, we want it highlighted.

Question put, That the amendment be made.

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[John Milne]

I rise to support what my hon. Friend the Member for Torbay said. As has been emphasised, we are not talking about making things mandatory. It is about making things possible, because there have been cases in which managers take a rather narrow view of fiduciary duty and almost deliberately exclude other considerations. It is about removing that blockage. We feel that the requirement in the amendment is of value and hope that the Minister will consider it.

It is also worth saying that very often one cannot definitively say that one investment will be better than another. There are all the projections and estimates. If it was that clear, every single fund would have the same 10 investments and that would be the end of it, and it would be a very small industry. It is often a matter of assertion, or a calculation. It is often not a case of choosing a lesser return; any return is conjectural in the first place.

[Torsten Bell]

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

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

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

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

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

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[Torsten Bell]

To ensure consistency, comparability and transparency of the value that arrangements provide, it is essential that all arrangements undertake the same process in the same way and that there is sufficient oversight of the process by the regulator. That is why clause 17 sets out the range of ways in which the regulator may make provision for ensuring compliance with the value for money framework.

The Pensions Regulator will be able to issue compliance and penalty notices to trustees, managers and third parties in breach of their VFM obligations. These notices enable the regulator to set out the steps that must be taken to ensure compliance with the VFM requirements. Financial penalties can be imposed, to a maximum of £10,000 in the case of an individual and up to £100,000 in other cases. Those figures align with other powers we have taken in part 2. There is also provision for the withdrawal of a penalty notice and for the Pensions Regulator to challenge an incorrect VFM rating.

Clause 18 makes it clear that the provisions in this chapter apply equally to pension schemes run by or on behalf of the Crown and to Crown employees. This is the standard approach in legislation to ensure that Crown-operated schemes are covered by the same rules, unless explicitly excluded. Clause 19 is the interpretation clause, which sets out the meaning of the terms used in the VFM clauses 10 to 17. I commend these clauses to the Committee.

Question put and agreed to.

Clause 17 accordingly ordered to stand part of the Bill. 

Clause 18 ordered to stand part of the Bill.

Clause 19

Interpretation of Chapter

Amendment made: 35, in clause 19, page 20, leave out lines 13 and 14.—(Torsten Bell.)

This amendment is consequential on Amendment 28.

Clause 19, as amended, ordered to stand part of the Bill.

Clause 20

Small pots regulations

[John Milne]

I beg to move amendment 262, in clause 20, page 21, line 12, leave out “£1,000” and insert “£2,000”.

This amendment changes the value of small pot consolidation from £1,000 to £2,000.

The purpose of this amendment is to accelerate the consolidation of small, dormant pension pots and to enable more pots to be included. In other words, the amendment would support the Government’s intention to simplify retirement savings by reducing the number of scattered small pots and helping members to keep track of their savings and to avoid losing their pensions altogether. It would serve to improve the efficiency of providers, which in turn could reduce costs for savers.

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[Torsten Bell]

That is for all regulations except for the setting of the threshold number.

[John Milne]

I thank the Minister for his response—

[Torsten Bell]

To being probed.

[John Milne]

Yes, it sounds rather unpleasant. We will think more about this subject, and I am sure we will discuss further, but I thank him for the clarification. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Mark Garnier]

I beg to move amendment 259, clause 20, page 21, line 23, leave out from “procedure” to end of line 29

This amendment would make all regulations on consolidation of small dormant pots in DC schemes to the affirmative procedure all times they were made rather than just after first use.

The hon. Member for Aberdeen North asked an interesting question about the application of the affirmative procedure to regulations on the pot size. Our amendment seeks to address the use of the affirmative procedure in the wider legislation that goes with this.

As we continue to table amendments urging extra parliamentary scrutiny, I feel myself becoming slightly depressed at the prospect of having to see too much of the Minister, even though he is undoubtedly a lovely chap, in Delegated Legislation Committees as we consider every single change. It is important though, because at the end of the day Parliament needs to scrutinise what is going on, so it is a good thing that the size of the pot is subject to the affirmative procedure.

It is okay, but not ideal that for anything that could be to do with the wider legislation, the negative procedure applies. Members having to look for a very material change going through in a written ministerial statement or whatever and then raise it is not necessarily such a good thing, given that this is fixing 13 million of these pots. That is an awful lot of them. If we increased the threshold to £2,000, would that number be 26 million? A lot of people that could be affected by this.

This was largely a probing amendment to see what the Minister has to say. We are unlikely to divide the Committee on it. None the less, I am very interested to hear what the Minister has to say about the affirmative procedure.

Pension Schemes Bill (First sitting)

Debate between Torsten Bell and John Milne

Committee stage
Tuesday 2nd September 2025 Public Bill Committees

[Torsten Bell]

The question to the witness is to expand a bit more on that point. In reality, this provides a “comply or explain” power. In terms of the point Charlotte was just making there, it is absolutely right about the ability of the trustees to say, “This is not in the interest of our members.” It might be worth talking a bit about how when we move forward the consultation will allow us to set out how that would work in practice.

Charlotte Clark: It is an area that we would need to work through in terms of the road map. At the moment, our focus is very much on getting the value for money framework right. How the mandation would work and the process around it—as the Minister says, first, we would consult on it. We would have to have a look to see what information was given and how we would monitor it in the period from now to 2030 or 2035. We would have to work through all of those aspects of the process. We would do that in conjunction with the industry, making sure that what we were asking for was information that it could readily provide and that we felt confident that we could make a good assessment around.

Patrick Coyne: Our engagement with the marketplace so far already shows that many are considering investment strategies that have significant proportions of diversified investments, so the market is already responding based on some of the Mansion House accord commitments.

[John Milne]

Q Do you think that the finance industry has a clear understanding of how to apply its fiduciary duty? Do you think the Bill makes that clearer or muddies the waters, or somewhere in between?

Patrick Coyne: I think that fiduciary duty is a powerful force for good. Across the Bill, this is about giving those trustees the tools for the job. I think there are a number of areas where that is true. Within the value for money framework, at the moment, it is very difficult for employers or schemes to effectively compare performance. As an anecdote, I was speaking to a provider recently. They were pitching for new business. They came in and pitched their investment data, and the employer said, “You’re the third provider today that has shown us they are the top-performing provider.” That cannot be right.

Then, when you are looking across the Bill towards the DB space, because of the funding reality that many schemes are facing at the moment, there is choice in end game options—so, “How do I enhance member outcomes at the same time as securing benefits?” Actually providing a statutory framework for super-funds as another option is a good first step, as is allowing the release of surplus, if it is in the members’ best interests to do so.

Pension Schemes Bill (Second sitting)

Debate between Torsten Bell and John Milne

Committee stage
Tuesday 2nd September 2025 Public Bill Committees

[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.

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[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.

Oral Answers to Questions

Debate between Torsten Bell and John Milne

Monday 12th May 2025 Commons Chamber

[Torsten Bell]

My hon. Friend raises an important point. Although we celebrate the success of auto-enrolment, as the hon. Member for Mid Bedfordshire (Blake Stephenson) has just done, we must complete the job. We need bigger and better pension funds that are better able to deliver returns for their members, support our economy and invest in infrastructure and private assets in the months and years ahead.

[John Milne (Horsham) (LD)]

10. What estimate her Department has made of the potential impact of changes to the eligibility criteria for personal independence payment on the number of people receiving that payment who will move into employment.