Pension Schemes Bill

Viscount Younger of Leckie Excerpts

Monday 20th April 2026 Lords Chamber

[Viscount Younger of Leckie (Con)]

My Lords, in speaking to Motion B1, I welcome that the Government have committed to a review of Regulation 64A of the Local Government Pension Scheme Regulations 2013. That is an important and necessary step, and their further commitments today are most welcome.

However, if the GAD review is to be meaningful, it must first focus on the factors that directly drive employer contribution rates. In particular, it should examine the effectiveness of consultation between fund actuaries, administering authorities and scheme employers.

Secondly, the GAD review must examine outliers in valuations. There is increasing evidence that some funds are applying discount rates that are significantly more prudent than those implied by gilt yields or insurer pricing, despite the Local Government Pension Scheme being an open, funded and asset-backed scheme.

Thirdly, Section 151 officers are rightly expected to scrutinise expenditure rigorously, including pension contributions, just as they would any other area of spending. When budgets are tight and local taxpayers are under strain, those responsible must be able to understand the methodologies being used, weigh the trade-offs and, where necessary, challenge the conclusions reached by fund actuaries.

It was with these concerns in mind that amendments were tabled in Committee, as the Minister is aware. Where such issues arise of the kind that I have outlined there is currently little recourse. Employers may be forced to wait up to three years for the next valuation cycle before any action can be taken. That is a considerable period to carry contribution rates that may be excessive or difficult to justify. The principle in our amendment is simple: the review identifies the problem and the interim review under Regulation 64A provides the remedy.

On these points, I am glad that the Government have broadly recognised the concerns I have raised in my amendment. I shall listen to the remainder of the debate on this group, but I am more reassured now that this is a priority for the Government and that they are aware of the concerns that we have been outlining. I thank the Minister for his movement on this.

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank the Minister for explaining things in great detail from the Government’s perspective.

I will speak to Motion B1, which the Minister said has already been met. The Local Government Pension Scheme already has mechanisms to review and amend employer pension contributions and funding practices; for instance, under Regulation 64A of the Local Government Pension Scheme Regulations 2013. There is even an existing GAD reporting mechanism under the Public Service Pensions Act 2013, which reports on compliance, consistency, solvency and long-term cost efficiency, with such reports having been carried out in 2018, 2019 and 2024. Therefore, we on these Benches think that the Government’s efforts should be focused—as they are, I think—more on implementing the recommendations of those reports, rather than duplicating efforts. We will probably abstain on Motion B1; we recognise its importance but think it is already being met.

Motion C is a government Motion, so I come to Motion D. Amendment 13 would extend the period before a pension pot is classified as dormant, increasing the threshold from one year to three years. We supported this increase earlier in the passage of the Bill, as it would provide greater flexibility for savers such as mothers, those on sabbatical or mature students. Motion D1, from the noble Baroness, Lady Altmann—

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[Lord Palmer of Childs Hill (LD)]

My Lords, prior to this debate we had a Statement showing what can be done in haste, when you should stop and think, in the appointment of Lord Mandelson as the ambassador to the United States of America. I use that analogy here, because one year to move pots is a miniscule amount of time.

The noble Baroness, Lady Altmann, said that two years would also be short but would be more appropriate. I hear that she has decided not to press this Motion. If she had, we on these Benches would have supported it because one year is not enough, just as a flick of the Prime Minister’s eye was not enough to appoint Lord Mandelson as the ambassador to the United States. We need two years. I understand that it is not going to happen here today but, before the Bill is finalised, I ask the Minister and her colleagues in the House of Commons to consider tweaking it to make one year two years. It would please a lot of people and would be a safeguard for people with small pots, who are the least interested in how their pensions work until they find that they are not what they thought they were, they cannot find them or whatever it is. The point about the pensions dashboard was well made.

I welcome the consultations that we have had with Government Ministers. In many ways, we have worked together on this Bill, and we have managed to make some of the points about which we feel strongly. On the pots, I hope that one year could be two years. It does not have to be done now; it could be done quietly, with no fuss at all.

Motion J1, the Conservative Motion, would insist on Amendments 77 and 85. We on these Benches supported these amendments on Report, because we agreed that it would be important for the Government to comment on this issue. However—and I think this shows what I was saying before—we have been convinced by the arguments made by the Government on the content of these amendments overlapping with existing reporting mechanisms. We are happy that that has happened.

I hope that the Government Ministers will take cognisance of the fact that we are not making problems just for the sake of debate in this Chamber. We think that, for small pots, it should be one year, not two. We will be talking in the next lot of amendments on mandation and we hope to convince the Government on that and on the size and range of pension funds.

We will not be voting on the Motion by the noble Baroness, Lady Altmann. If the Conservative Benches call a Division on Motion J1, we will probably quietly abstain.

[Viscount Younger of Leckie (Con)]

My Lords, I thank the noble Baroness, Lady Altmann, my noble friend Lady Neville-Rolfe and the noble Viscount, Lord Thurso, for their Motions in this group. In the interest of brevity, I shall focus my remarks only on Motion J1.

My noble friend Lady Neville-Rolfe is fundamentally asking the important question of whether we are being sufficiently clear about the long-term sustainability and transparency of the system as it currently stands. The central concern is this: unlike funded schemes, these pensions are not backed by accumulated assets. They are paid out of current taxation, and that means that the cost is not contained within a fund but passed forward, year by year, to future taxpayers. As the number of public sector employees grows, and as people live longer, those obligations grow with them.

There is also a question of incentives. Decisions about expanding the public sector workforce or adjusting pay inevitably carry pension implications that stretch decades into the future, yet those costs are often diffuse, uncertain and ultimately borne by the Exchequer. Without a clear and accessible understanding of the long-term consequences, it is difficult, if not impossible, for decision-makers to weigh those trade-offs properly. A review would allow us to bring together the evidence, to test the assumptions and to ensure that policy is being made on the basis of a clear and realistic understanding of the facts.

For those reasons, including the four key reasons outlined by my noble friend, I believe that there is a strong case for the review proposed, and I am very pleased to support this Motion.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords for their questions and comments. I spoke at some length at the start, and I think I answered most of the questions pre-emptively—or tried to—so I will not dwell on them.

On a couple of specifics, and to reassure the noble Baroness, Lady Altmann, and the noble Lord, Lord Palmer, as I stressed, the Bill says a minimum of 12 months simply because we want to be able to respond to any changes. If there is evidence that we need to make it longer, we can; if there is evidence we need to extend it later, we can do so in secondary legislation. It is set up to do that, and I can give her that assurance.

I am not going to get into America. For me, as parallels go, whether we have one or two years’ opt-out and who is the ambassador to the United States are probably slightly separate categories of decisions. Noble Lords will forgive me if I do not go there.

In response to the noble Lord, Lord Vaux, the two policies operate independently but the intention is that dashboards will be available before the small pot consolidation. I reassure the noble Lord, with the small pots he has scattered around, that he will be written to and given the opportunity to opt out, so that they will not be consolidated without his knowledge or against his will. I hope he will look out for that in due course and can then make appropriate decisions.

The noble Baroness, Lady Neville-Rolfe, asked about the presentation of information. The Treasury is exploring options to present pension liabilities on a constant basis. It is important to be clear that any such presentation would be supplementary. It would not affect the underlying liability, as the noble Baroness knows well, or the way they are presented in financial statements, but it would help to add an extra level of clarity to those who are reading them. I think I have made all the arguments around affordability and the nature of them.

I have one final word for the noble Viscount, Lord Younger, who feels there is no way for decision-makers to make appropriate judgments about the affordability of pension schemes without a review such as this. I think he should have more confidence. The coalition Government, of which his party was the leading member, reformed almost all the public service pension schemes and created a new system, and that is what we now have. A lot of work was done then and is being done now. The measures of affordability that I have described are such that the schemes have that corrective factor straight in them. The fact that the information is out there and published will, I hope, be enough. I therefore urge noble Lords not to press their Motions.

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Moved by

[Viscount Younger of Leckie]

As an amendment to Motion F, at end insert “and do propose Amendments 37B and 37C in lieu—

37B: Clause 40, page 45, line 31, at end insert—
“28BA Exemptions 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 only if the Regulator is satisfied that the condition in subsection (2) or (3) is met.
(2) The Regulator may make a determination under subsection (1) where the trustees or managers of the scheme have demonstrated, on the basis of robust and independently verifiable evidence, that there is no reasonable prospect that consolidation of the scheme into another arrangement would be likely to improve outcomes for members.
(3) The Regulator may make a determination under subsection (1) where the trustees or managers of the scheme have demonstrated, on the basis of robust and independently verifiable evidence, that they are delivering good outcomes for members as a result of innovation.
(4) For the purposes of subsection (3), a relevant group personal pension scheme is to be treated as meeting the innovation condition if the managers of the scheme can demonstrate that it provides specialist or innovative services.
(5) The Secretary of State may by regulations make provision for the definition of “specialist or innovative services” for the purposes of this section.
(6) In determining whether the condition in subsection (2) is met, the Regulator must have regard to evidence demonstrating that the scheme delivers outcomes for members that are at least equivalent to, or better than, those reasonably expected from consolidation into a scheme meeting the scale requirement, including—
(a) net risk-adjusted investment performance;
(b) independently assessed governance quality and operational capability, including compliance history, trustee expertise, and administrative performance;
(c) whether the scheme derives material and demonstrable benefits for members 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), and whether those arrangements are likely to result in outcomes for members that would not be materially improved through consolidation;
(d) whether the scheme invests wholly or substantially in a default arrangement operated by another scheme or manager meeting the scale requirement and that arrangement demonstrably determines the majority of member investment outcomes;
(e) whether participation in a wider asset management group of substantial scale provides direct and measurable benefits to members, including reduced costs, improved diversification, or enhanced access to investment opportunities.
(7) In making a determination under subsection (1), the Regulator must be satisfied that any benefits identified under subsection (3) are material and demonstrably in the interests of members.
(8) Regulations under this section may make provision about—
(a) reasonable evidential requirements and assessment processes for applications under subsection (1);
(b) the duration, renewal and withdrawal of a determination under subsection (1);
(c) reporting and disclosure requirements.””