Pension Schemes Bill

Viscount Younger of Leckie Excerpts

Thursday 19th March 2026 Lords Chamber

[Lord Palmer of Childs Hill (LD)]

My Lords, I think that everybody in your Lordships’ House wants good investment, whichever side of the House we are on. If you are investing, with apologies, sometimes faith is not enough—you have to see what happens in the market. It is about the choices that are made.

These amendments would allow pension schemes to demonstrate a strong investment performance or innovation in members’ services and administration to be exempt from the scale requirements set out in the Bill, and would introduce greater flexibility on how scale is assessed, including recognising assets held across multiple arrangements.

The amendments reflect concerns that the Bill places disproportionate emphasis on size rather than outcomes, risks disadvantaging smaller or newer entrants and may reduce competition and innovation in the pensions market without clear evidence that larger schemes consistently deliver better returns for members. Amendment 77 would allow exemptions to scale requirements if the regulator deemed that there was no evidence of improved outcomes for members in the case of a proposed merger to meet the scale requirements. This would make sure that members’ interests are protected. On these Benches, we support Amendment 77, and if it comes to a vote, we will support it.

[Viscount Younger of Leckie (Con)]

My Lords, I thank all noble Lords who have amendments in this group, which broadly seeks to refine the Government’s scale requirement as set out in the Bill to reflect the fundamental principle that size is not everything. We have heard a lot about that in this short debate. For the sake of brevity, I shall limit my remarks to my Amendment 77. The scale requirement as currently framed is too blunt an instrument. It risks prioritising size over quality, process over performance and structure over outcomes—in other words, it risks innovative and high performing funds merely because they are small. These remarks have been echoed by the noble Baroness, Lady Altmann.

The central question we must always ask in pensions policy is: does this improve outcomes for savers? This was the essence of my noble friend Lord Fuller’s remarks. If the answer is no, then we should think very carefully before proceeding. When this power comes into force, it will bring into scope schemes that are already delivering strong outcomes—schemes that are well run, well governed and performing effectively for their members. In such cases, forced consolidation is not just unnecessary but may be actively harmful. It risks disrupting successful investment strategies, increasing costs and ultimately undermining the very outcomes that we are seeking to improve.

This amendment would introduce a vital safeguard. It would give the regulator the discretion to recognise where consolidation would not benefit members and to treat such schemes as meeting the scale requirement. It would ensure that the policy is applied intelligently and does not run roughshod over schemes that are already doing what the Government want. Crucially, it would also reinforce fiduciary duty: trustees and managers must act in the best interests of their members, not in pursuit of arbitrary thresholds set by the Government. This amendment would ensure that they are not compelled to take actions that run counter to that duty.

Scale should be a means to an end, not an end in itself. Where scale improves outcomes, it should be encouraged, but where it does not, where schemes are already delivering for their members, we should not force change for its own sake. This amendment would simply ensure that savers remain at the centre of the policy, and therefore when this amendment is called I will seek to test the opinion of the House.

[Baroness Sherlock (Lab)]

My Lords, Clause 40 delivers the Government’s commitment to ensure that DC workplace pension savers benefit from the advantages that flow from scale and consolidation. The framework that the Bill establishes for scale is integral to securing better member outcomes, improved access to productive investment and stronger in-house capability. Evidence shows that scale can bring the ability to invest in diversified assets as well as lower member fees and investment costs. There is also evidence that scale can enable greater investment and governance capability in running a scheme. As DC schemes become more complex, these things will drive improved member outcomes and support the delivery of an income in retirement.

We had a debate on various issues in Committee, and one of the questions was about scale and competition in the marketplace. I reassure the House that the Government have considered this. Our analysis suggests that, once the scale measures have taken effect, there will be 15 to 20 master trusts and GPP megafunds operating.

There are a number of amendments in this group, and I will try to say something briefly about each. First, on the amendments that seek to add further exemptions to scale, the Government’s policy in this area is to allow day one exemptions that are based on a scheme’s permanent design characteristics. In other words, it should be as clear as soon as the regulations are in place whether a scheme meets an exemption, rather than it being subject to regular assessment. That is important because it is about providing certainty and stability for members and employers.

Amendments 55 and 60, from the noble Baroness, Lady Noakes, would create an exemption to allow master trusts and GPPs to be excluded from the scale requirements where they deliver investment performance that exceeds the average achieved by all master trusts or GPPs that meet the scale conditions. While I hear the noble Baroness’s arguments, I am concerned that this would undermine the Government’s objective: a market of fewer, larger and better-run schemes where economies of scale deliver sustained benefits for members.

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Moved by

[Viscount Younger of Leckie]

77: Clause 40, page 45, line 31, at end insert—
“28BA Exemption from scale requirement(1) The Secretary of State may by regulations provide that the Regulator may determine that a relevant Master Trust or a group personal pension scheme is to be treated as meeting the scale requirement in section 28A or 28B if the Regulator is satisfied that the condition in subsection (2) is met.(2) The Regulator must be satisfied that there is no reasonable evidence that consolidation of the scheme into another arrangement would be likely to improve outcomes for members.(3) In determining whether the condition in subsection (2) is met, the Regulator must have regard to—(a) net risk-adjusted investment performance;(b) governance quality and operational capability;(c) whether the scheme benefits from integrated, pooled or cross-scheme investment arrangements not reflected solely in the total value of assets counted under section 28A(4) or 28B(4); (d) whether the scheme invests wholly or substantially in a default arrangement operated by another scheme or manager meeting the scale requirement;(e) whether the scheme derives material investment benefit from participation in a wider asset management group of substantial scale.(4) Regulations under this section may make provision about—(a) the duration, renewal and withdrawal of a determination under subsection (1);(b) reporting and disclosure requirements.”

[Viscount Younger of Leckie]

My Lords, I have spoken to my amendment and as warned in my remarks, I wish to test the opinion of the House.

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[Lord Palmer of Childs Hill (LD)]

My Lords, this degrouped set of amendments is very narrow in drafting but, we believe, important in principle. Amendments 105A, 114 and 115 would require the Secretary of State and the reviews and regulations under these clauses to have regard to innovation and competition in the design and operation of pension schemes and in the treatment of non-scale default arrangements.

On these Benches, we strongly agree with the proposition that pension legislation should not inadvertently—this is the problem—freeze the market in favour of the largest existing players. Whenever the Bill pushes schemes towards fewer, larger structures, we believe that Parliament must ask what happens to specialist providers, digital entrants, more tailored propositions and competitive pressure generally. A market that is tidy—tidy is not always right—for Ministers but closed to challengers does not necessarily serve savers well.

This concern was expressed repeatedly in Committee. The critique of the Bill’s scale provisions has been not simply that small is beautiful but that innovation can come from schemes that do not yet meet an arbitrary threshold and that competition itself is one of the mechanisms by which member outcomes improve. I have spoken in this vein on earlier parts of this Bill, warning against an overemphasis on size, which may crush newer entrants and reduce competitive discipline in the market.

There is nothing radical about asking Ministers to have regard to innovation and competition. It is a modest discipline, not a veto. It would not prevent consolidation where consolidation is justified; it would simply ensure that regulations and reviews must notice what might be lost as well as what might be gained. In our view, it is an entirely reasonable request. A well-functioning pensions market should be safe, well-regulated and member-focused, but—this is important—it should also remain open to new ideas and new providers. These amendments would do something to help that balancing view, which is why we on these Benches support them.

[Viscount Younger of Leckie (Con)]

My Lords, I thank my noble friend Lady Noakes for her amendments in this group and I am grateful for the helpful remarks made by my noble friend Lady Neville-Rolfe and the noble Lord, Lord Palmer.

These amendments recognise an important point: a rigid, one-size-fits-all approach risks crowding out innovation, flexibility and ultimately better outcomes for savers. Schemes are not identical, nor are their members, and it is entirely right that providers should be able to design different default arrangements to meet different needs.

Amendment 105A is especially important in this regard. It would require regulations concerning the operation of the scale provisions in Clause 40 to have regard to innovation and competition. The Government have said time and again that they are pursuing a growth mission and that growth will underpin their ability to fund day-to-day spending. Yet what we have seen instead is very different: an ever-greater reliance on taxation to plug the gap, something that is not only economically damaging but ultimately unsustainable for the country.

The noble Lord, Lord Palmer, put it well. If the Government are serious about growth, then they must be serious about fostering innovation and competition in sectors such as pensions. Recognising and ensuring that innovation is not stifled is a practical and constructive way to support that mission.

This amendment does exactly that. It ensures that, in shaping the regulatory framework, the Government actively consider the importance of a competitive and innovative market—one that delivers for savers and contributes to wider economic growth. For those reasons, the Government should accept this amendment. Should my noble friend Lady Noakes wish to test the opinion of the House, we would be glad to support her.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Noakes, for introducing her amendments. The Government think it essential that pension schemes remain competitive post scale and we expect that schemes with scale, as well as market disruptors, will continue to innovate and drive competition. We actively encourage competition through the provision of the new entrant pathway to allow new innovative schemes to enter the market.

The scale measures place a requirement for a main scale default arrangement at the centre of the scheme, to deliver scale and the benefits that that can bring. Amendments 114 and 115 relate to measures on consolidation and addressing fragmentation within schemes that are in the market. There is currently significant fragmentation within the market, with high numbers of default arrangements that do not ultimately serve member outcomes.

While I recognise that much of the fragmentation is a product of history in contract-based schemes, we have seen that the number of default arrangements is increasing across the market and in a number of master trusts. We do not want to see the same issues arising over time as exist in GPPs, where members are in too many default arrangements that do not offer value.

Let me be clear: the measures in Chapter 4 do not cap or limit the number of default arrangements, nor do they impact on the ability of a new entrant to enter the market. What we want to see is default arrangements being created where this meets and continues to meet genuine member or employer need in tandem with the scale measures. That is why we are introducing measures to prevent new default arrangements from being operated without regulatory approval and carrying out a review into current arrangements to establish where they should be consolidated or the reasons for them to continue.

Amendment 114 seeks to require the review of default arrangements to consider the extent to which arrangements contribute to innovation and competition. I agree with the spirit of this amendment, but I do not think that it is necessary. The review must already consider the circumstances where it is appropriate for non-scale default arrangements to continue operating and it is right that competition and innovation will be part of that work. The review will consider how competition and innovation have driven the operation of non-scale default arrangements and what they are expected to deliver for members.

Amendment 115 seeks to require that regulations under Clauses 42 and 44 will have regard to competition and innovation. Again, I agree with the intention behind the amendment, but it is unnecessary. I shall explain why. It is reasonable to expect that the regulations that set out the criteria in which regulators can approve new default arrangements will include innovation and competition. Indeed, we expect these arrangements to meet a specific need or offer something different to the market. It is also reasonable that these will be considerations in setting out where non-scale default arrangements will have to be consolidated. However, as the Bill sets out, those regulations already have to take into account the conclusions of the review, and that will consider competition and innovation.

Amendment 105A seeks to require regulations across the scale measures to have regard to innovation and competition. I reiterate the Government’s support for an innovative market, and we expect providers to continue to innovate. The amendment is not needed to achieve that but, although well-intentioned, the duty that the amendment would introduce ignores the policy objectives of the scale measures and the benefits they are expected to bring. To be clear, the benefits of scale include lower charges, diversified investments and improved governance. We are already creating space in the market for innovation through the new entrant pathway and, as previously outlined, we still expect the market to be competitive.

More than that, though, we need to remember something crucial about the nature of the DC market. A competitive market is vital but we also have to recognise that the ultimate beneficiaries—the members—do not select their scheme. That is done by the employer. Employers are the decision-makers on pension provision. They are the buyers in this market and they will try to do the best for their workforce, but ultimately, of course, their focus will be on current rather than past employees. We therefore need to drive schemes to deliver for all members, not just those who are actively contributing, and too narrow a focus on competition and innovation will not do that. The needs of members should be paramount.

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Moved by

[Viscount Younger of Leckie]

107: Clause 40, page 54, line 18, after “28B,” insert “28BA,”
Member's explanatory statement
This amendment is connected to another amendment in the name of Viscount Younger to insert new section 28BA into the Pensions Act 2008.

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[Baroness Altmann (Non-Afl)]

My Lords, Amendments 112 and 113, which I shall not press to a vote, are designed to ensure that we try to keep the needs of pension scheme members at the heart of all the policy changes that we make. For me, pensions have always been about people; they are not just about money.

In relation to the clause that concerns restricting the creation of new non-scale default arrangements, these amendments seek to permit default arrangements below scale—for example, where a company seeks to identify different types of member and put together a default arrangement that is specifically suited more to that type of member than to the traditional one-size-fits-all policy that pension schemes so often seem to be based on, and that certainly do not suit many of the members who are put into them.

I hope that the Minister will help me understand why the Government want to have just one default arrangement—potentially with just one common investment strategy—rather than encouraging more of a pension market that can serve individual groups of members with different needs. That could include those who are in poor health and who might need a different approach, or those who may not know when they are going to retire and therefore a life-styling fund that takes them out of higher return investments would not be appropriate for them.

The idea of pension companies asking members about themselves, beyond just looking at their chronological age, seems to be rather alien. However, I hope it could become much more common, given the digital enabling that is available to pension companies. That would allow them to ask two or three relevant questions, including about someone’s health or whether they have a final salary pension alongside this scheme that they could rely on instead. That is the intention behind these amendments, and I look forward to the Minister’s response.

[Viscount Younger of Leckie (Con)]

My Lords, this amendment speak to a principle that we on these Benches have returned to throughout our consideration of the Bill: the framework we are putting in place must reflect the reality of outcomes, not simply a rigid set of predetermined requirements. This amendment recognises that many schemes quite properly design different default arrangements for different cohorts of members. That is not a weakness; it is a strength. It reflects an understanding that savers are not all the same, and that good outcomes often require a degree of tailoring.

Where such schemes are performing well and delivering strong outcomes for their members, they should not be penalised simply because they do not conform to a single uniform model. In that sense, this amendment is important. It does not undermine the objective of improving scale where that is beneficial, but it ensures that we do not lose sight of the ultimate goal, which is—returning the same theme—better outcomes for savers.

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Baroness, Lady Altmann, for introducing her amendments. I covered quite a bit of this ground in my response to the previous group, which was quite long, so I will not repeat that—I hope that the noble Baroness will not mind.

As I set out in the previous group, Chapter 4 of the Bill relates to default arrangements and the fragmentation in schemes that are in the market. To reiterate, the measures in this chapter do not cap or limit the number of default arrangements, nor do they impact on the ability of a new entrant to enter the market. I previously mentioned innovation, which features in the new entrant pathway, but what we want to see is default arrangements being created to meet member needs. That is why we are introducing a range of measures for them to need regulatory approval before they begin to operate.

On Amendment 112, I understand that the intent is to allow a scheme to have

“several non-scale regular arrangements”.

However, it is not clear what is meant by a “regular” arrangement in the description, as it is not defined.

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[Baroness Altmann (Non-Afl)]

My Lords, I have the pleasure of supporting these amendments. I am very pleased that the Government have made the decision to improve flexibility and help the working of these new superfunds. We do not yet know quite how they will go, so I thank the Government and fully support the amendments.

[Viscount Younger of Leckie (Con)]

My Lords, I shall speak briefly to this group of amendments. At the outset, I recognise that a number of these amendments are either technical or consequential. It is entirely right that the Bill should be internally consistent and operable in practice.

However, Amendment 117 raises a more substantive issue on which I would be grateful for some clarification from the Minister. This amendment alters the way in which the protected liabilities threshold for superfunds is determined, moving to a model in which the threshold is defined as a percentage set out in regulations. I know that we are on the cusp of closing proceedings on the Bill today, but I am afraid that I have a number of questions on this.

First, will the Minister set out clearly what problem this amendment seeks to address? What deficiency has been identified in the current approach? Secondly, what assurance can the Minister give that this change will not weaken the level of protection afforded to members? Is there any scenario in which this more flexible, percentage-based approach could permit lower funding levels than would otherwise have been required? Thirdly, how does the Secretary of State intend to determine the appropriate percentage? Will there be a minimum floor or is this entirely to be left to future regulations? Finally, given the importance of this safeguard, can the Minister explain why it is not being set out in the Bill and what level of parliamentary scrutiny will apply to the regulations that determine it?

Flexibility can be valuable, but when it comes to member protection it must be accompanied by clarity and by robust safeguards. I look forward to the Minister’s response.

[Baroness Sherlock (Lab)]

I am grateful to the noble Baroness, Lady Altmann, for her support. I know that she recognises the problem that this is designed to solve and why the Government have done this.

In response to the noble Viscount, Lord Younger, obviously I completely failed, but I thought that my speech explained the problem that this was designed to solve. Let me try again. If I say it again slowly, that might help—that is a comment on my speed, not on his comprehension, if I may say so.

The Bill is establishing a permanent supervisory framework for superfunds—there is only an interim arrangement at the moment. There are two different issues. A breach of the technical provisions threshold can result in the scheme’s buffer being released to the trustees, whereas on the other hand, if you breach the protected liabilities threshold then that can result in the superfund being wound up. If those end up being breached in not the traditional order, the superfund could end up being obliged to wind up, when in fact it could meet its liabilities other than because of this issue. That is the problem. I have tried to explain it more simply, and I apologise that I did not do so more clearly at the start. We discussed the problem in Committee, when the noble Baroness, Lady Bowles, tabled an amendment and we had a conversation about it. That is the problem we are trying to solve.

I said at the time that it cannot necessarily be in members’ interests to force a superfund to wind up when its technical provisions are lower than its protected liabilities, if it could otherwise meet its liabilities. I said that there was an option to use a clause in the Bill to deem that a threshold had not been breached, but if it is potentially going to be a more common problem, it makes more sense to deal with that in the way we have. The way we have set the threshold is about providing flexibility to make sure that schemes are not wound up unnecessarily.

We currently do not expect to set the threshold below PPF levels of benefits—I suspect that that is what the noble Viscount was aiming at. That is not what we intend. The focus is on ensuring the best possible member outcomes and protecting the PPF. Until the evidence gathering is complete, it would not be appropriate for me to speculate on precisely where that will be set, but I can say to him that that is the case.

On how it will be provided, there will be regulations. The superfund regulations will therefore be subject to the affirmative procedure. When those come back here, there will be every opportunity for the House to discuss them. I hope that answers the noble Viscount’s questions. If there is nothing else, I beg to move.