Pension Schemes Bill

Debate between Viscount Younger of Leckie and Baroness Altmann

Committee stage
Thursday 5th February 2026 Grand Committee

[Viscount Younger of Leckie (Con)]

My Lords, I will speak to Amendments 187A, 188A, 189A and 203ZA tabled by the noble Baroness, Lady Altmann. She has long been a formidable and principled advocate for pension savers and much of the Committee will be sympathetic to the underlying concerns that she raised in her remarks. In particular, her consistent focus on member protection, governance and long-term security has materially shaped the debate on pensions policy over many years—and rightly so.

However—the Committee might expect me to say this—while I share the noble Baroness’s objectives, I am not persuaded that the amendments, as drafted, strike the right balance in this instance. I listened carefully to her remarks and her constructive suggestions as to how such payments could be made in the form of lump sums, whether through several lump sums or another way. As ever, she is constructive and positive, and I accept that. These amendments would use the Pension Protection Fund and the Financial Assistance Scheme to make retrospective lump-sum payments to compensate for unpaid historical indexation. We think that that would represent a significant shift in principle.

I listened carefully, as I always do, to the remarks from the noble Lord, Lord Davies of Brixton, who called retrospection a red herring. I was not absolutely sure what he meant by that. As I see it, retrospection is just that: retrospection. I think that it describes the payments in the way that it is meant to do. However, the PPF was designed as a forward-looking safety net, not as a mechanism for reopening past outcomes or making retrospective compensation payments. The Minister, to be fair to her, made this clear in her closing remarks in previous groups.

Such an approach would raise serious concerns about cost, complexity and consistency. Although we are somewhat clearer about costs from the helpful remarks from the Minister in the previous group, I am still uncertain—as, I think, other Members of the Committee are—about what the overall costs would be and what the impact would be on the levy and on other contributors. That uncertainty makes me cautious about supporting these amendments, which risk turning a clearly defined insurance mechanism into an open-ended compensation scheme. I suspect that the Minister—without wanting to steal her thunder—may take a similar view in her response, judging from her remarks in the previous group.

[Baroness Altmann (Non-Afl)]

The noble Lord just said that this would impact on the levy, but if there is a one-off payment, it would not affect the scheme going forward. Therefore, it should not impact the levy at all; it is a lump-sum payment rather than an increase in the base pension payable going forward.

[Viscount Younger of Leckie (Con)]

As ever, that is a very helpful clarification, but I will leave it up to the Minister to answer that. I stick with my view that we are not persuaded by these amendments. Perhaps there is more debate to be had. I have said all that I need to say; I am afraid that I am unable to support these amendments.

--- Later in debate ---

[Viscount Younger of Leckie (Con)]

My Lords, I will speak to Amendment 203 in the name of the noble Lord, Lord Davies of Brixton, and I am grateful to him for his tour d’horizon on the history behind this issue with the uprating, going back through several parties and Parliaments. Like the noble Baroness, Lady Altmann, I fully understand why members find this proposal attractive. The idea that pensions should keep pace with inflation feels intuitively fair, of course, but we think that mandating inflation increases for all pre-1997 service in live defined benefit schemes would be a step too far.

This amendment would dictate in statute how trustees and employers must use scheme resources and any surplus. We believe that this is overly prescriptive and risks being actively anti-business. Many employers are already using DB surpluses constructively, and that includes improving DC contributions for younger workers, supporting intergenerational fairness, and strengthening scheme security through insurance-backed arrangements and special purpose vehicles. We think that these are sensible negotiated outcomes, reflecting the needs of both members and sponsors.

It is also important to remember that employers have carried DB risk for decades. When funding assumptions proved wrong, when markets fell or when longevity rose faster than expected, it was employers who stepped in, often for many years, through additional contributions and balance sheet strain—that might be an understatement. I choose to use a casino analogy, not to make light of a serious subject but to illustrate the basic logic of risk sharing. Here goes.

In a defined benefit scheme, the employer and members effectively walk into a casino together. Trustees place bets on behalf of the scheme on how much risk to take in the investment strategy, what funding assumptions to use, how quickly to de-risk, how to price longevity and inflation exposure. Members benefit if those bets perform well because the scheme is safer and more likely to deliver the promised pension in full. But, crucially, if those bets go wrong—that is, if markets fall, inflation spikes, people live longer than expected or the assumptions prove too optimistic—the bill lands not on members but on the employer. The sponsoring employer is legally on the hook to repair the damage, often through years of additional contributions, cash calls at the worst possible moment and significant strain on the balance sheet. That is what the employer covenant means in practice: it is the backstop when the world does not behave as forecast, which, as we know, it often does not.

So, if we accept that the employer is the party that must cover the losses when the scheme is underwater, surely it cannot be right to argue that, when the scheme comes in above water—when investment returns are strong, funding improves and a surplus emerges—the employer must be barred in principle from any share of that upside. That is not risk sharing; it is risk asymmetry. Heads, the members win; tails, the employer loses. In any rational system, if one party is compelled to underwrite the downside, that party must be permitted—subject, of course, to trustee oversight and member protection—to share in the upside. If we legislate for a system where the sponsor carries all the risk but is denied any benefit when outcomes are good, surely we distort incentives. We make sponsorship less attractive and encourage employers to close schemes faster, de-risk more aggressively or avoid offering good provision in the first place.

This is a crucial point. The fair outcome is not that employers take everything or that members do. It is that surplus is discussed and allocated jointly by trustees and employers, balancing member security, scheme sustainability and the long-term health of the sponsoring employer. That is partnership. Legislation should support that balance but not override it; that is a crucial point.

Mandating automatic inflation uplift would also have wider consequences: higher employer costs; increased insolvency risk, ultimately borne by the PPF; knock-on effects on wages, investment and employment; and, potentially, higher PPF levies. For PPF schemes, uplift is manageable because the employer covenant has gone and Parliament controls the compensation framework. Imposing similar requirements on live schemes, however, risks destabilising otherwise healthy employers. In short, uplift should be an option, not a statutory obligation. As I said earlier, decisions should rest with trustees and employers together and not be compelled by legislation.

That said, focusing on choice does not mean ignoring power imbalances, because in some schemes genuine deadlock leads trustees to sit on surplus and de-risk further. That may be understandable, but I think it is fair to say it is inefficient. Government should be looking at how to enable better use of surplus by agreement, not mandating outcomes. Much more needs to be done on breaking deadlocks, but we believe that Amendment 203 is not the right way to do it.

[Baroness Altmann (Non-Afl)]

May I just correct the record? I believe that the Goode committee may indeed have recommended limited price inflation up to 5%, and I apologise to the Committee.