Pension Schemes Bill

Viscount Trenchard Excerpts

2nd reading
Thursday 18th December 2025 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, I too congratulate the noble Baroness, Lady White of Tufnell Park, who is not in her place, on her excellent and well-informed contribution. It is a great pleasure to follow the noble Baroness, Lady Hayman, who just made a most interesting and informative speech.

I thank the Minister for introducing the Bill today. Reforms to the structure of the pension schemes market introduced over the last 14 years have been generally beneficial. In particular, I am sure the Minister will agree that introduction of auto-enrolment into a pension scheme is the principal reason why the number of people saving into such a scheme has increased from 42% of the workforce back in 2011 to 88% today. That is a huge change and one of which the last Government can feel proud. Of course, the 8% of income invested into these schemes is not enough, but it is a start on which we can build.

While current economic conditions necessitate a review of the triple lock, it has been successful in restoring the relative position of pensioners in our society and has lifted 200,000 pensioners out of poverty. As my honourable friend Mark Garnier said at Second Reading in another place,

“the previous Government had turned their attention to two central issues: first, getting the best value for money out of our pension schemes and, secondly, pensions adequacy”.—[Official Report, Commons, 7/7/25; col. 722.]

There are some positive measures in the Bill which I welcome, but I want first to remind the House that it was a Labour Government who did enormous damage to our defined benefit pension system, which was previously a jewel in our financial services crown and the envy of the world.

Shortly after his appointment as Chancellor in 1997, Gordon Brown launched a stealth tax raid on our pensions by abolishing dividend tax credits. The removal of the dividend tax credit has been estimated to have cost occupational pension schemes over £3 billion annually. This led to increased contributions required from employers and employees to maintain pension levels. The consequences of the change were, first, reduced investment in UK companies. Following the abolition, pension funds have been less incentivised to invest in British companies, with their ownership of UK-quoted shares dropping from about 50% in 1997 to just 4% in recent years. This shift is one of the main reasons for the failure of the London Stock Exchange to value new listed companies competitively or to provide the necessary investment to support economic growth.

Secondly, the abolition of the dividend tax credit resulted in the double taxation of corporate earnings, since dividends are paid out of post-tax income whereas loan interest is deductible from corporate tax. This harmful move effectively destroyed many final salary-linked pension schemes by making them too expensive for companies to run. It has been estimated that the tax rate destroyed around £200 billion of the value of the nation’s pensions. Besides the abolition of the dividend tax credit, which was a fatal blow to DB pensions, the continuing restriction of the tax-free allowance for dividends provides an additional disincentive to investment in equities. The dividend allowance was £5,000 per annum in 2016-17 but was reduced to only £500 in 2024-25. Besides that, the income tax rate applied to dividend income has been increased by 2%. A higher rate taxpayer now pays 35.75%.

Take the example of an entrepreneur who has established a successful small business. He does not take a salary but pays himself through dividends when his company can afford it. The company has paid 20% corporation tax, and the 35.75% dividend tax means that the income that the business owner takes out of the business that he has built is now taxed at a rate of 55.75%. Leaving the entrepreneur aside, for years, dividend tax has been a second-tier concern—something that mainly affected company directors and high net-worth investors. That is no longer the case. Dividend tax is now a mainstream issue and hits ordinary people with modest portfolios who have never thought of themselves as investors in the past. If you hold shares outside an ISA, receive dividends from your own company or invest through funds and ETFs, dividend tax now matters.

There have been ongoing discussions about the potential reinstatement of the dividend tax credit to stimulate investment by pension funds into listed equities. That would encourage more domestic investment and help to restore London’s previous status as the best stock market for innovative new technology and other companies to list on. In Australia, as I am sure that the Minister is aware, dividend tax credits have been reintroduced as part of the dividend imputation system. This is designed to prevent double taxation of company profits.

Does the Minister recognise that it is a missed opportunity not to introduce a measure which would be warmly welcomed by the City and would certainly help the London Stock Exchange recover its lost position? Have the Government considered reintroducing dividend tax relief, and if not, why not? Surely this kind of radical measure is exactly what our financial services industry needs. Reintroducing tax credits on dividend payments and cutting stamp duty on UK share purchases are among the 10 recommendations that the Pensions and Lifetime Savings Association has made for using investment and fiscal incentives to encourage pension schemes to allocate more of the nation’s savings to British assets.

I welcome the measures in the Bill which seek to consolidate and build on auto-enrolment and the encouraging progress towards the pensions dashboard, which will greatly assist people’s access to their pension information and help them plan more effectively for their financial future. As the noble Baroness said, larger schemes generally perform better than smaller ones. I believe that the measures enabling the consolidation of small pots and the creation of superfunds are sensible, although regulations must ensure that protection for scheme members is not weakened.

The Association of British Insurers, the Society of Pension Professionals and other industry groups in the main support many of the measures contained in the Bill, including the value for money framework. Will the Minister introduce a requirement that it will be regularly reviewed to ensure that it operates as intended? Referring to the point on the consolidation of small pots, I suggest that the definition of small pots should be revised to £5,000 rather than £1,000, because the latter is too small.

The biggest problem with the Bill, as well explained by my noble friend Lady Stedman-Scott and others, is the proposal to empower the Government to mandate asset allocation within large multi-employer defined contribution schemes. I am not aware that the Government is a well-qualified fund manager with a spectacular track record, and it is absolutely not right to interfere with trustees’ fiduciary duties. It is all the more unacceptable because it applies only to those very large schemes and will therefore affect only pensioners of relatively modest means. This is unfair. This Government are pickpocketing the pensions of poorer people. Fund managers and the trustees who appoint them are under a legal duty to prioritise the financial well-being of savers. Their job is not to obey political whims but to invest prudently, grow pension pots and uphold the trust placed in them by millions of ordinary people. While I hold the noble Lord, Lord Wood of Anfield, in the highest regard, I am afraid I do not agree with his view on this matter. It may be that many pensioners would like to invest in UK assets, even if the returns are low, but they should take action separately to achieve that end.

The fiduciary duty is not a technicality; it is the bedrock of confidence that the entire pension system rests on. Rather than impose new regulations and take powers to do things that they are not qualified to do, I would like to see the Government free up insurers from solvency rules which prevent them owning equity in productive assets. Indeed, following the Mansion House Accord, the pension sector is already moving towards greater investment in productive assets. Seventeen of our largest workplace pension providers have already committed to invest 10% of their main default funds in private assets by 2030. Mandation is not required to achieve this trajectory. To attempt to define and enforce allocation thresholds risks concentrating activity too narrowly, crowding investment into specific asset classes and inadvertently restricting investment in broader activities.

The Government seek to take a power that is unnecessary. Their possible intervention in the market creates operational ambiguity. How schemes and pension providers will prove compliance with requirements lacks clear thresholds and enforcement logic, and creates reputational risk for pension schemes. The clause offering opt-out in cases of material financial detriment is too vague. The best solution to the problem is for the Government to drop this reserve power from the Bill entirely. If the Minister will agree today to do this, it will save us all a lot of time and trouble. I look forward to hearing what the Minister has to say about this.

Concerning local government pension schemes, I welcome the proposal to consolidate the pensions of 86 different authorities, which should contribute to enhanced performance. But, as my noble friend Lady Stedman-Scott explained, surpluses should be used to reduce the burden of contributions going forward, particularly as councils are faced to go through deeply damaging and expensive reorganisation.

Lastly, I am happy that the Bill attempts to find a solution to the problem of defined benefit surpluses. As drafted, it does not provide sufficient safeguards. In this area and others, I look forward to working with noble Lords to improve the Bill in the months ahead. I entirely agree with what my noble friend Lady Noakes had to say on this matter. I look forward especially to hearing the Minister’s winding-up speech.

Pension Schemes Bill

Viscount Trenchard Excerpts

Committee stage
Monday 12th January 2026 Grand Committee

[Viscount Trenchard (Con)]

My Lords, I support this amendment, which was so well introduced by my noble friend Lord Younger and so well spoken to by the noble Baroness, Lady Bowles of Berkhamsted. The Bill is very complicated. It is not absolutely clear to me what it means. It is also, as my noble friend Lord Younger explained, a skeletal Bill without a clear purpose to improve the outcomes for savers. In particular, looking at the value-for-money part of the Bill, it is not clear how this is going to work, what the metrics will be and how they will be assessed.

I think it is right to table this amendment in order to understand the purpose of the Bill. I am not clear that the Bill is primarily intended to improve the outcomes for pensioners or to find ways to fund government initiatives to make certain investments with pension savings that the trustees and managers might not have decided to make, which may require them to compromise on what should be their complete and clear duty to exercise their fiduciary responsibilities.

Can the Minister tell the Committee how the Bill is certain to improve outcomes for pensioners beyond what they would have been without government interference in the management of these funds? The Bill interferes with the trustees’ fiduciary duties not only with the mandation powers to direct investments, which apply only to very large DC schemes—the kind to which less well-off pensioners have contributed—but with the powers to require the 93 local government pension schemes to pool their funds together. How is this going to work if, at the same time, the Government are forcing many local authorities to merge or demerge under local government reorganisation?

I look forward to hearing the Minister’s response and approach to this amendment.

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank everyone for their contributions. I do not intend to go on at length.

It is a novel view, is it not, that a Bill should have a purpose? This ought to be applied to many other Bills to show what their purposes are. This Bill has a wide range of powers affecting consolidation, investment, surplus extraction, defaults and retirement outcomes, but nowhere is a clear statement of purpose listed. I do not think that is symbolic; it is very useful. I have a simple question for the Minister: what is lost by clarity? We are looking here for a piece of clarity that does not undermine the Bill in any way but sets out what people are meant to see and expect from the Bill. It would set a pathway for other Bills to set out their purposes. From these Benches, I support this amendment.

Pension Schemes Bill

Viscount Trenchard Excerpts

Committee stage
Monday 26th January 2026 Grand Committee

Even if that was to happen, £25 billion is not large enough for an individual scheme because no scheme would sensibly invest more than 10% in infrastructure. That is only £2.5 billion in each scheme. It is just not enough. It is not going to touch the sides. They need to bulk up into bigger schemes, but the Bill prevents the LGPS in particular, and by extension the other schemes, participating in more than one pool. We know what the Government are trying to achieve, but this is not the way to deliver it.

[Viscount Trenchard (Con)]

My Lords, I will not go into too much detail. I should, because I was not here last week, declare an interest, in that I am a director of a Guernsey-based, open-ended protected cell company and a London-listed, closed-ended investment company. Neither of them begins to approach the necessary size to qualify under the scale criteria that this Bill introduces.

I agree entirely with the points made by my noble friends Lady Noakes, Lady Neville-Rolfe and Lord Fuller and the noble Baroness, Lady Altmann. Scale is nothing to do with this. I find it quite extraordinary that the Government assume that big is good and small is bad. All big funds were once small: they started with nothing and built up. There is also some evidence that, if you get really big, you become a big complacent and do not have to be quite as sharp as you do when you are making a small fund bigger and more successful and establishing its reputation.

Interfering with the fiduciary duties of pension fund trustees in this way is risky, bad, potentially dangerous and unlikely to be in the interests of the pension beneficiaries, so I strongly support all the amendments in this group. I do not think that the minimum size of a master trust should be specified in the Bill. Trustees will have their own criteria for the maximum proportion of funds that they may own in any one fund, and for the maximum percentage of their funds’ assets that may be invested in any one fund. I think these are better ways to achieve the obvious need to reduce risk, and pension fund trustees are the right people to deliver them.

[Lord Ashcombe (Con)]

My Lords, I remind the Committee of my interest as an employee of Marsh, which owns Mercer, a pension and investment advisory management company.

I did not intend to speak on this group but I do not believe that financial size is the be-all and end-all. In my world, working for a very large insurance broker, we think we have advantages in the marketplace. However, it would be remiss of me to ignore not only the smaller operations but the many small boutique entities that are experts in a very narrow and small field. It is very unlikely that they will ever become one of the large operations. Although size can be useful, the smaller experts are essential to the marketplace and, you might argue, keep the larger operations honest.

I do not believe this picture is anything different from that of the pensions industry. These amendments address the benefits of the new and smaller entities being a necessary part of the market, and should be welcomed.

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[Lord Remnant (Con)]

My Lords, I will comment briefly on the amendments in this group, tabled by several noble Lords, relating to the suitability of private markets and a potential cap on the allocation of funds to those markets. Equity and debt markets often now tend to be positively correlated; in other words, they move in the same direction. That was not normally the case in the past, when negative correlation brought better balance to a portfolio and to its risk and reward characteristics. So-called alternative investments—of which private markets form a part—that fall outside the traditional investments of stocks, bonds and cash can offer a sensible diversification.

The Mansion House Accord refers to the higher potential net returns that can arise from investment in private markets, but that comes with higher risks, less liquidity and, typically, less regulation. Given the disadvantages of the open-ended nature of the vehicle that would deliver such investments, to which I referred on an earlier group—and given that private markets, however defined, should be part only of a portfolio’s allocation to the alternatives class—I would certainly be in favour, as a matter of principle and practice, of a cap not exceeding the 10% mooted by my noble friends Lady Coffey and Lady McIntosh of Pickering. I cannot envisage any well-run, prudently managed and appropriately diversified pension fund wishing to exceed such a percentage in normal circumstances.

[Viscount Trenchard (Con)]

My Lords, briefly, it is not appropriate for legislation to tell the trustees of pension funds, in any case, that they can make investments in some types of structure but not in others. It should be entirely up to the trustees, in exercising their fiduciary duties, to determine what investments they make and the structures through which they make them to deliver a maximum level of risk that they are happy to accept.

The Government will succeed in realising their target of increasing pension fund investment in UK infrastructure by adopting fiscal and economic policies that encourage growth. We will then see a natural return to the much higher levels of UK equity investment by pension funds that used to obtain many years ago. If the Government require, nevertheless, some potential or possible mandation, it is right that there should be a cap. But, as my noble friend Lord Remnant said, it is inconceivable that any pension fund manager would be likely to invest more than 10%—I would say considerably less than that—in asset classes traditionally defined as alternative assets.

[Viscount Younger of Leckie (Con)]

My Lords, briefly, this group again underlines a central point that we have been making: mandation should not be in the Bill. Time and again, we have heard concerns about the risks of picking winners and the unintended consequences that inevitably follow. I raised these issues on the previous group, and the noble Baronesses, Lady Bowles and Lady Altmann, have today and previously put those concerns firmly on record.

However, I am grateful to noble Lords for their thoughtful efforts to limit or mitigate the impact of the mandation power. I thank my friend, the noble Baroness, Lady Altmann, supported by my noble friends Lady McIntosh of Pickering and Lady Penn in particular, for their remarks on these issues. However, our view remains unchanged and, for reasons already rehearsed at length, asset allocation mandates have no place in this legislation. There is no compelling evidence that they are either necessary or effective in increasing productive investment in the UK.

If we are serious about addressing the barriers to UK investment, we must be honest about where those barriers lie. They include governance and regulatory burdens; risk-weighting and capital requirements; liquidity constraints and scheme-specific funding; and maturity considerations. None of these challenges is addressed, let alone solved, by mandation. If, notwithstanding these concerns, the reserve power is to be retained, significantly stronger safeguards are essential: a clear cap on the proportion of assets that may be mandated; more robust reporting and evidential requirements before regulations are made; explicit conditions for access to any transition pathway relief; a strengthened savers’ interest test; and rigorous post-implementation review. The question of when and on what basis the power should be sunsetted is one that we will return to on the next group, but the fundamental point must be clear: mandation is the wrong tool and the Bill risks embedding unjustified and anti-competitive discrimination between equivalent investment vehicles, driven not by evidence or public interest but by a narrow and self-interested approach. I will address those issues in more detail in a later group but, for now, I look forward to hearing the Minister’s response to the specific amendments raised.

However—before she gets up—I wish to turn to Amendment 118 in my name. It probes the power that allows regulations made under new Section 28C to include assets of various classes under the broad heading of private assets and to permit the future inclusion of additional asset classes. I appreciate the support of the noble Baroness, Lady Altmann, on this part.

I touched on this matter in some detail in the previous groups, so I will not repeat those arguments here. However, this amendment once again draws attention to our concern about the specific types of asset that the Government have chosen to list on page 46 of the Bill. It remains an issue about which we are deeply concerned, and one on which we will continue to work closely with other noble Lords though to Report.

Pension Schemes Bill

Viscount Trenchard Excerpts

Committee stage
Tuesday 3rd February 2026 Grand Committee

[Baroness Noakes (Con)]

My Lords, in moving Amendment 168, I shall speak also to Amendments 169 to 171 in my name; I thank my noble friend Lady Neville-Rolfe for adding her name to three of those four amendments.

Last week, I promised the Minister that we would return to the issues of new entrants, competition and innovation. I make no apology for returning to these themes, because they are fundamental to a healthy pension provision market. The Government have decided that they wish to accelerate the consolidation of pension providers into a smaller number of larger players because they believe that this will enhance the returns that pension savers will get. I think that that is arguable, but I am not going to relitigate that case today; some of us tried to make it last week, and I know that we will return to it on Report.

Instead, I want to focus on how that market can be future-proofed so that it will deliver for savers in the long term. The Government should be interested in this because I am fairly sure that they will not want to contemplate a further significant market intervention, such as the one in this Bill, a few years down the line when they find that the performance of the oligopolists they have created starts to disappoint.

I know that the value-for-money regime in the Bill might well deal with the worst performers, but getting rid of poor performers will not be good enough to make the pension provision market develop in a positive direction. For several reasons, the pension provision market is one where customer choice is not a force for significant change, so we have to look elsewhere. Healthy markets are those in which innovation can challenge existing market norms, often by identifying underserved or badly served customers and by using technology to transform cost bases. Competition within established markets is rarely enough to achieve disruption, which is why the focus has to be on new entrants. This is the story of practically every business sector. It certainly encompasses all aspects of financial services, and pension provision is no exception; for example, cloud-native pension platforms are potential current disruptors in the DC pensions space.

We have already had some conversations about new entrants in the context of the new entrant pathway and the transitional pathway. The noble Baroness, Lady Altmann, and I have tried to argue that new entrants are going to struggle to survive because of the rules of the two pathways, because of the timescales involved in getting from innovation to significant size, and because of the interaction between the financing of growth and the requirements of the scale provisions. I still live in hope that we will be able to persuade the Minister about that.

Three amendments in this group are aimed at the provisions in Clause 42, which concern default arrangements. The aim of my amendments is to ensure both that new entrants are encouraged and that competition and innovation can thrive. Clause 42 is, astonishingly, headed “Regulations restricting creation of new non-scale default arrangements”. Unsurprisingly, my Amendment 168 takes aim at this notion of restricting new non-scale default arrangements. It would replace the purpose of the regulation-making power, which is to restrict the ability of a pension scheme provider to begin operating a non-scale default arrangement, with the more neutral “in connection with”. I could have gone further—indeed, I probably should have gone further—and replaced “restricting” with “encouraging”, or at least something more positive.

My central proposition is that new pension providers should be welcomed with open arms and not be assumed to be something to be squashed. It may well be that not all new entrants are successful—the Bill has provisions that will allow them to be consolidated if they are not—but starting with the presumption that they are bad news and need to be controlled and restricted is completely wrong. Amendment 169 would add some words to Clause 42(2)(f) so that the regulations on new non-scale default arrangements can confer a function of encouraging competition on regulators. The wording is almost certainly not quite right but, for the purposes of Committee, I am trying to ensure that the regulators can be given a role in creating and developing competition in the markets in which pension providers operate.

It gets a bit complicated here. As I read it, the Pensions Regulator has no function, power or objective in relation to pension provision markets, including competition. This is in stark contrast to the FCA, which has a strategic objective to ensure that the markets it regulates function well. It also has an operational competition objective and a secondary objective to promote competitiveness and growth. It is quite possible that the FCA’s statutory objectives will, in effect, ensure that they act in a pro-competition way when exercising powers granted under the regulations in Clause 42. I hope the Minister can tell the Committee how the Government see Clause 42 of this Bill interacting with the FCA’s existing statutory framework.

It is, however, clear that TPR operates in a wholly different statutory framework, which is undesirable, as later amendments will explore, and could lead to different outcomes under this Bill in the different pension provision markets that they regulate. I ask the Minister how the Government can justify one regulator having quite clear competition and pro-market powers while the other regulator does not. Will this produce different outcomes in the exercise of the powers?

Amendment 170 would add a new subsection (2A) to Clause 42 so that the regulators

“must have regard to the desirability of encouraging innovation”

in pension provision. While the FCA’s legislation does not specifically reference innovation, as I have explained, it has several references to competition and competitiveness, which are generally interpreted to include innovation as a key driver. TPR’s legislation has nothing about innovation. I believe that, as a minimum, the regulator should have something like a statutory “have regard” duty to innovation to ensure that it keeps that in sharp focus as it carries out its regulatory functions in relation to new providers.

Lastly, Amendment 173 would require the review of non-scale default arrangements, which Clause 43 requires, to consider the extent to which non-scale default arrangements contribute to competition, which I hope is self-explanatory. I hope the Minister can also explain the timetable for the Clause 43 review, since no timing appears in the Bill, which itself is a rather extraordinary way to legislate.

The contrast between the type of regulation that this Bill is trying to create and that in the FCA and Prudential Regulation Authority more widely is stark. For some time, both the PRA and the FCA have had a special focus on fostering start-ups. They have regulatory sandboxes to allow innovative ideas to be tested outside the normal regulatory framework. Just today, they have announced new arrangements to help scale-ups to achieve their potential. This Bill feels positively prehistoric in its approach to squashing new entrants into the market and I hope that the Government will think again. I beg to move.

[Viscount Trenchard (Con)]

My Lords, I would like to add my voice in support of Amendment 168 and the other amendments to which my noble friend Lady Noakes has spoken.

It seems quite counterproductive for legislation to discourage innovation and the introduction of new types of investment based on different strategies in order to widen the choice available to the trustees of our pension funds. Anything that seeks to restrict new entrants is by definition counter competitive and likely to lead ultimately to worse, not better, outcomes.

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I just want to stress why we are here and why all these measures have had to be taken to reach a system that works for individuals and delivers the sort of pensions that people expect to receive. What people really want is a pension that just works. Personal pensions were conceived with the idea that people would be engaged and take all the decisions. That has just failed, and this section of the Bill is about ensuring that pensions just work, without the imagination of personal pensions introduced 40 years ago.

[Viscount Trenchard (Con)]

My Lords, I want briefly to say how strongly I support Amendment 176, so eloquently proposed by my noble friend Lord Younger. The noble Lord, Lord Davies, ignores the fact that the pension reforms of the last 15 years have led to a massive increase in the number of employees saving for retirement. I entirely agree with him that we are not there yet—not by a long chalk. There is much more to do. But for him to say that we are here to discuss this Bill as a result of the failure of the last Government to manage a proper pension scheme is unfair.

The point is made by my noble friend Lady Noakes in her Amendment 177, where she seeks to omit paragraph (b) because it assumes that all retirees are in the same boat with the same needs—just a guaranteed income for the rest of their life. She is absolutely right that different pensioners need different default schemes according to their needs—depending on whether they have debt or no debt, and whether they have heirs and successors to whom they are going to leave their assets. All these things are different, and personal choice plays a big part in that.

It is also important to consider, as my noble friend mentioned, the necessity for the regulators to be aligned. The Pensions Regulator has no objective to drive competitiveness and growth, compared with the FCA, which has such an objective. This difference is quite a problem. Without alignment of objectives, trust-based and contract-based schemes could be subject to different expectations. Savers could face inconsistent retirement experiences depending on the type of scheme and competitive distortions could arise between regulatory regimes. Clarity on timing, standards and supervisory approaches is critical. I look forward very much to hearing what the Minister has to say.

[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?