Pension Schemes Bill

Viscount Thurso Excerpts

Monday 16th March 2026 Lords Chamber

Moved by

[Viscount Thurso]

14: Clause 10, page 11, line 12, 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.”Member's explanatory statement
This amendment would allow schemes where people are affected by pre-1997 arrangements to offer discretionary indexation where funding allows, with appropriate regulatory oversight.

[Viscount Thurso (LD)]

My Lords, I wish to test the opinion of the House.

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Moved by

[Viscount Thurso]

22: After Clause 10, insert the following new Clause—
“Report on fiduciary duty and discretionary indexation of pre-1997 benefits(1) The Secretary of State must, within 12 months of day on which this Act is passed, publish a report on whether the fiduciary duties of trustees of occupational pension schemes should be amended to permit discretionary indexation of pre-1997 accrued rights, where scheme funding allows.(2) The report must consider—(a) the impact of current fiduciary obligations on trustees’ ability to award discretionary increases to pre-1997 pension benefits;(b) the potential benefits of permitting such discretionary indexation for affected pensioners;(c) the funding conditions and thresholds under which discretionary indexation could be considered sustainable;(d) the appropriate level of regulatory oversight and guidance required to ensure that discretionary increases are granted in a fair, transparent, and financially responsible manner;(e) international approaches to indexation of legacy pension benefits;(f) the legal and actuarial implications of amending fiduciary duties in this context.(3) In preparing the report, the Secretary of State must consult—(a) the Pensions Regulator,(b) the Financial Conduct Authority,(c) representatives of pension scheme trustees, members, and sponsoring employers, and(d) such other experts or bodies as the Secretary of State considers appropriate.(4) The Secretary of State must lay a copy of the report before both Houses of Parliament.”Member's explanatory statement
This new clause requires the Secretary of State to report on whether the fiduciary duties of trustees of occupational pension schemes should be amended to permit discretionary indexation of pre-1997 accrued rights, where scheme funding allows.

[Viscount Thurso (LD)]

My Lords, as the Minister indicated earlier, we left much of the meat for this debate around pre-1997 indexation to this group, not anticipating the events that happened outside, which I know we all regret. Knowing who was involved, who was a friend, I very much hope that the outcome is the best it may be.

This amendment, which is similar to one we moved in Committee, basically looks at the situation of those people who, for one reason or another, have not had their pensions uprated for inflation. Basically, it sets out that:

“The Secretary of State must, within 12 months of day on which this Act is passed, publish a report”.


When I discussed this with the Minister, I think we agreed that having a review is not necessarily the best way forward, but the problem is finding a way to bring this to the attention of government in a manner that might result in some sort of outcome for those affected. The problem we were discussing around surpluses was very much around how a surplus is made, who can have it, and so on. I would just like to go back to the argument I was making in relation to the fact that defined benefit schemes to me are a contract between the employee and the employer.

I know that in Committee, on a different group much later on, one of the noble Lords present commented that, in his view, a DB scheme is just a giant Ponzi scheme. I thought that comment was a bit uncalled for and indicated that he neither fully understands the evil impact of a Ponzi scheme nor the benefit of a properly constructed DB scheme. In a DB scheme where there are sufficient contributions from the employee and the employer and well-run trustees follow a good investment strategy, the great likelihood is that, at the end of the day, a good solid pension will be paid.

What we are discussing here is really whether trustees who are in a position to do so can in fact share the benefits of a surplus. In some circumstances, that is written into the contract between the employee and the employer, as in the case of the PCPF, which is the one I know—it is absolute and we have to pay it; it is uprated by CPI, and that is in our investment objectives and we invest in order to achieve that. There were a number of schemes where the scheme rules did not actually mandate that to happen, but if you read the literature produced for many of these schemes at the time, it made clear that the anticipation was that that would happen. The amendment seeks to highlight the fact that a great many people could reasonably have expected to receive a pension that broadly kept pace with the cost of living but which today is substantially less than it might have been.

As I woke up this morning, listening to the “Today” programme and the ministerial rounds that were going on, I could not help but note that what was on the grid for today was how much the Government are concerned by the cost of living, so it is apt that this amendment is being discussed today. I completely accept that this amendment may not move the dial hugely and that it may be somewhat imperfect, but I think we owe it to those who are now in some considerable hardship to make at least some effort to try and get them back to where they might have been.

Finally, in looking at all the different economic inputs that go into growth, one of the most important is the ability for the consumer to spend. One of the things I learnt when I was still in business was the power of grey purchasing power, as it was known in marketing terms in those days. The pensioners who were earning their pension in the 1960s, 1970s and 1980s and who retired in the 1990s had that strong purchasing power and spent a great deal of money on activities that supported the economy. Therefore, I think there is merit—moral merit, if you like—in looking after these people, and there is also sound economic merit in looking after these people. Having rehearsed all the detailed arguments before, I leave it there. I beg to move.

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[The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, I am grateful to the noble Viscount, Lord Thurso, for introducing his Amendment 22. Many members of defined benefit, or DB, schemes have seen inflation erode the value of their pensions, as he said. That is especially true where any uplift on older benefits depends on decisions made at the level of the scheme. I want him to know that I hear those concerns loud and clear. I have heard them expressed by affected pensioners, as many Members will, and I understand the strength of feeling among them.

As the House will know, schemes take different approaches to indexation: some schemes have to provide increases under their rules; some do not require them at all; and a significant number allow discretionary increases, but usually only where both trustees and the sponsoring employer agree. This amendment focuses on the role of trustees in relation to pre-1997 discretionary indexation. The fact is that, in many schemes, such indexation can be awarded only where the sponsoring employer provides consent, which reflects the scheme rules. It means that trustees may be unable to award uplifts where employers are unwilling to agree, even in well-funded schemes.

I recognise why many schemes give employers a central role. Employers ultimately stand behind the scheme and may have legitimate concerns about future affordability and their long-term liabilities. But the result is that when employers are unwilling to support discretionary increases, even when the scheme is in a strong funding position, trustees are, effectively, prevented from acting. I understand that that limitation creates concern, especially in schemes that appear well-funded and may be running surpluses but are not providing discretionary uplifts on older benefits.

However, although I understand the challenge, we cannot accept Amendment 22 because—the noble Viscount identified this himself—it would require a statutory review of trustees’ fiduciary duty in a complex area. Fiduciary duties underpin trustees’ responsibilities to protect all members and ensure the long-term solvency of their scheme. Changes that go beyond trustees freely acting in line with their fiduciary duties on this issue and removing trustee discretion, or removing the employer from any decisions, could have significant consequences for scheme funding, employer sustainability and member security. In any action they take, the Government have to consider all schemes, not only those that are well funded or have historically paid discretionary increases. Mandating a statutory review thus risks creating uncertainty for all trustees and employers, while we are undertaking wider work on surplus and helping schemes make endgame choices.

The key point, as I know the noble Viscount, Lord Thurso, recognises, is that the difficulty in the hard cases is not typically that trustees lack the willingness or the legal ability to act. They are often acutely aware of the pressures their members are experiencing. However, I agree it would be helpful to develop a clearer understanding of the factors that prevent some well-funded schemes awarding discretionary increases, particularly where employer consent is not forthcoming. I am aware that the Pensions Regulator has been considering how it might build its evidence base in this area, and any insights from that work would be helpful in informing future thinking.

The Government recognise the importance of this issue. As I indicated in earlier debates, the wider package on surplus, including giving trustees the ability to agree surplus payments to employers, is intended to support more balanced negotiations so that both members and employers can benefit. I hope that has given at least an explanation to the noble Viscount, Lord Thurso, as to the position that the Government are in but, for all those reasons, although I recognise the concerns he has raised, I hope he can withdraw his amendment.

[Viscount Thurso (LD)]

My Lords, I am grateful for the comments of the noble Viscount, Lord Younger, and only sorry that I was not persuasive enough to get him to join my side. I am also grateful to the Minister, because the tea and sympathy has actually gone further than I might have expected. What she said in her response is very encouraging. It indicates that the Government are very much in listening mode on this. If we can find a way to encourage some of those schemes, particularly the BP scheme which I mentioned in Committee, to share those surpluses, and if the Government have a mind to perhaps put a bit of a wind behind that then that would be very good. In the light of that, I beg leave to withdraw my amendment.

Amendment 22 withdrawn.

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As I say, I will not press these amendments. However, I hope the discussion and thought processes behind what I suggest can be taken on board by the Minister as a genuine attempt to try to help members understand pensions better and ultimately improve pension outcomes.

[Viscount Thurso (LD)]

My Lords, I rise briefly to offer support from these Benches, particularly for Amendments 24 and 25 and more broadly across all the amendments that the noble Baroness indicated.

In particular, I was taken by Amendment 24 and the idea that value for money regulations should include, among other things, the

“accuracy of recorded contributions … reliability of valuation data”

and the “efficiency of administration”. As any poor civil servant who is currently trying to get hold of a pension administered by Capita is finding out, these things are not a given. Making sure that the small number of quite large firms in the marketplace actually deliver with the necessary competence is a really important part of whether pensioners get value for money. As I say, I broadly welcome and support the amendment.

[Lord Lucas (Con)]

My Lords, it is a long time since I was managing big pension funds in the 1980s. In those days, we were in the happy position of considering it a bit underweight if you had less than half your money in British stocks; now, it is 5%. It is extraordinary for politicians to have done that to the economy—and it is because of us that it has dropped. The way we have framed our regulations and organised how pension funds are assessed has, over time, resulted in that extraordinary diminution. This has left us with a stock market that is cash negative and a City that is immensely weaker than it would be. We will address this later, but the solutions to that problem perhaps lie in this part of the Bill.

If we communicate better with pensioners and say to them, “Do you really trust the country you live in, are part of and benefit from so little that you want only 5% of your pension in it?”, I think we would get a positive response to the idea that perhaps that figure should be higher. Through the mechanisms in this part of the Bill, we could ask pension fund managers to respond to that, and I hope that we would be able then to get away from the bits in the Bill about compulsion and direction that are causing difficulty to my noble friends, whose concerns I share. I think we would get a good response if we informed members of pension funds, as my noble friend said, so that they could take good decisions, and then empowered them to say that they want to back their own, with a good chunk of their money going to improve, invest in and support this country and take it forward. This bit of the Bill would be a good place to do that.

I hope the Minister can confirm that, in the governance aspects of this, it will be expected that pension fund managers should vote their shares. It is extraordinary that we have moved to a position where the owners of companies just do not vote—they do not use that power to decide what their opinion is on what companies have been doing; they merely buy and sell. That is a huge diminution in the mechanism by which companies are held to account. We need people to vote and to take an interest. Having a direction on pension funds that they should participate and be a real part of the corporate governance process would be a useful thing to come out of this Bill.