Pension Schemes Bill (First sitting)

Committee stage
Tuesday 2nd September 2025 Public Bill Committees

The Committee consisted of the following Members:

Chairs: Sir Christopher Chope, Emma Lewell, Esther McVey, † Karl Turner

† Anderson, Callum (Buckingham and Bletchley) (Lab)

† Bailey, Olivia (Reading West and Mid Berkshire) (Lab)

† Bedford, Mr Peter (Mid Leicestershire) (Con)

† Bell, Torsten (Parliamentary Under-Secretary of State for Work and Pensions)

† Blackman, Kirsty (Aberdeen North) (SNP)

† Blake, Rachel (Cities of London and Westminster) (Lab/Co-op)

† Darling, Steve (Torbay) (LD)

† Edwards, Sarah (Tamworth) (Lab)

† Egan, Damien (Bristol North East) (Lab)

† Garnier, Mark (Wyre Forest) (Con)

† Grady, John (Glasgow East) (Lab)

† Jones, Gerald (Merthyr Tydfil and Aberdare) (Lab)

† Macdonald, Alice (Norwich North) (Lab/Co-op)

† Milne, John (Horsham) (LD)

† Murphy, Luke (Basingstoke) (Lab)

† Pinto-Duschinsky, David (Hendon) (Lab)

† Smith, Rebecca (South West Devon) (Con)

Claire Cozens, Anne-Marie Griffiths, Aaron Kulakiewicz, Committee Clerks

† attended the Committee

Witnesses

Rob Yuille, Assistant Director, Head of Long-Term Savings, Association of British Insurers (ABI)

Zoe Alexander, Director of Policy and Advocacy, Pensions UK

Patrick Coyne, Director of Policy and Public Affairs, The Pensions Regulator

Charlotte Clark CBE, Director of Cross-cutting Policy and Strategy, Financial Conduct Authority

Christopher Brooks, Head of Policy, Age UK

Jack Jones, Pensions Officer, TUC

Colin Clarke, Head of Pensions Policy, Legal and General

Dale Critchley, Policy Manager, Workplace Benefits, Aviva

Public Bill Committee

Tuesday 2 September 2025

(Morning)

[Karl Turner in the Chair]

Pension Schemes Bill

09:25

[The Chair]

We are now sitting in public and the proceedings are being broadcast. I remind Members to switch electronic devices to silent. Tea and coffee are not allowed to be drunk during sittings. We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication and a motion to allow us to deliberate in private about our questions before the oral evidence session begins. In view of the time available, I hope we can take these matters formally and without debate.

Ordered,

That—

(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 2 September) meet—

(a) at 2.00 pm on Tuesday 2 September;

(b) at 11.30 am and 2.00 pm on Thursday 4 September;

(c) at 9.25 am and 2.00 pm on Tuesday 9 September;

(d) at 11.30 am and 2.00 pm on Thursday 11 September;

(e) at 9.25 am and 2.00 pm on Tuesday 14 October;

(f) at 11.30 am and 2.00 pm on Thursday 16 October;

(g) at 9.25 am and 2.00 pm on Tuesday 21 October;

(h) at 11.30 am and 2.00 pm on Thursday 23 October;

(2) the Committee shall hear oral evidence on Tuesday 2 September in accordance with the following table:

09:25

The Committee deliberated in private.

Examination of witnesses

Rob Yuille and Zoe Alexander gave evidence.

09:27

[The Chair]

Before we hear from witnesses, does any Member wish to make a declaration of interest in connection with the Bill?

[Kirsty Blackman (Aberdeen North) (SNP)]

If the Government amendments in relation to the local government pension scheme go through, I have an interest as I am a deferred member of a local government pension scheme in Scotland.

[Rachel Blake (Cities of London and Westminster) (Lab/Co-op)]

I also wish to declare such an interest.

[Damien Egan (Bristol North East) (Lab)]

So do I.

[Gerald Jones (Merthyr Tydfil and Aberdare) (Lab)]

As do I.

[Mark Garnier (Wyre Forest) (Con)]

So do I.

[Sarah Edwards (Tamworth) (Lab)]

And I.

[The Chair]

We will now hear oral evidence from Rob Yuille, assistant director and head of long-term savings at the Association of British Insurers, and Zoe Alexander, director of policy and advocacy at Pensions UK. We must stick to the timings in the programme motion that the Committee has agreed. For this panel, we have until 9.55 am. Will the witnesses briefly introduce themselves for the record?

Rob Yuille: Hello. I am Rob Yuille. I am head of long-term savings policy at the ABI. We represent several of the largest defined-contribution workplace providers across group personal pensions and master trusts, insurers in the pension risk transfer market and retail pension providers. Between them, they serve tens of millions of customers and manage hundreds of billions of pounds in assets.

Zoe Alexander: My name is Zoe Alexander. I am director of policy and advocacy at Pensions UK. We are a not-for-profit organisation run for the benefit of our members. Our members serve 30 million savers, who invest more than £2 trillion in the UK and abroad.

[The Chair]

I call Mark Garnier, the shadow Minister.

[Mark Garnier]

Q Thank you very much for coming to give evidence. It can be a little intimidating, even for us, to see so many Government Back Benchers sitting across the table.

I will start with the most controversial point: the mandation of local government pension schemes when it comes to amalgamation and being forced to go into assets. There are two parts to my question. First, is it fundamentally right to entrust trustees with looking after the interests of the members of pension schemes and then, separately, to tell them how they should be investing that money? Secondly, are there any guardrails to protect pension fund members from being forced to invest in unwise investments?

Zoe Alexander: We are concerned about the precedent set by the reserve power in the Bill. We realise that it might not be used, and we hope that that will be the case. We hope that the work the industry has done to create the Mansion House accord and get DC schemes on track to invest more in the UK will fulfil its promise. The presence of the power creates a series of risks, and certainly enacting it would create a series of risks for savers in terms of its impact on investments, on price and, ultimately, on the value that is accrued to savers in the market.

We are looking for more guardrails on the power. We would like it to be constrained to apply specifically to the commitments in the Mansion House accord, and no more than that. We think that is appropriate, because the market and the Government have together set out what “good” looks like. If we agree on that, let us put that in the Bill and make it clear that that is the extent of the power.

We would also like the sunset clause on the power to be brought forward from 2035 to 2032. That would give more than enough time for the industry to deliver on the commitments in the Mansion House accord, and for the Government to assess progress and whether the power is required. We feel that keeping it on the statute book until 2035 would introduce undue political risk.

[Mark Garnier]

Q To summarise, you are saying that the general direction of the policy, which is to get more investment into the UK and therefore more infrastructure, is not in itself a bad thing.

Zoe Alexander: We absolutely support the general direction of the policy. Our members are very committed to investing more in the UK and they are doing a huge amount of work on that. They have already invested heavily in the UK, with huge investments from schemes such as the local government pension scheme. On the DC side, schemes are maturing; they need time to get to the scale of investment of schemes such as the LGPS, but they are on the journey and they are committed to doing that. We do not take this position because we do not agree that schemes should be investing more in the UK; it is to do with trustee discretion to make the decisions about where to invest.

[Mark Garnier]

Q Ironically, I met some annuity providers who are enthusiastic to invest in equities, but they told me that they are being prevented from doing so. For example, an investment in the equity of a wind farm is a very good asset, because there are predictable returns from it, contracts for difference in the price, and all the rest of it, but they are not allowed to invest in that because they are not allowed to invest into equities. Do you think there are better ways the Government can achieve its aims—that mandation is a bad way of achieving it, but that there are other, better ways that are being missed out in the Bill?

Rob Yuille: Yes, there are better ways. The specific point that you mentioned about prudential regulation rules are not for this Bill, but other measures that could be taken, essentially to make the UK an attractive place to invest, are the kind of things that the Government are trying to do. Along with the Mansion House accord, which we were delighted to take forward with Pensions UK and the City of London Corporation, we agree with the Government’s assessment that use of the reserve power should not be necessary and will not be necessary.

Firms are already investing in the UK. The Pensions Policy Institute’s latest statistics show that 23% of DC assets are in the UK, and annuity providers say that it is around two thirds, so we are talking about hundreds of billions of pounds in the UK. There is the appetite to invest in the home market, because they know it best, in the kind of projects that the Government are trying to drive forward and provide policy certainty about. We share the concern about the precedent it sets and the potential impact on scheme members, and we would propose another guardrail.

There is already provision for a review, were this power to be used, of the impact on scheme members, which is right, and the impact on the economy, which is also fair enough, but they should also look at the impact on the pensions market and the market for the assets that would be mandated, because there is a risk that it would bid up prices in those assets, and that it would create a bubble in them. There are guardrails, but more important, there are other measures, including things that the Government are already doing, that make this power unnecessary.

[Mark Garnier]

Q I have one final question. The key point, from the point of view of your members and the local government pension scheme, is that the interest of the members should not be trumped by the interest of the wider economy—their interest comes first. Is that right?

Zoe Alexander: That is right, but often those things are consistent, and our members would agree with that. Those things are not inconsistent.

Rob Yuille: I agree.

[Sarah Edwards]

Q I am interested in hearing a little more about unlocking surplus and some of the challenges, particularly in the way that it is described or calculated, and what the thresholds might be. Obviously, there is an opportunity, but there is also a balance around conflicts arising when an employer might wish to access the surplus. Perhaps you could comment on your understanding and interpretation of how the Bill deals with that issue.

Rob Yuille: The challenge is aligning it with scheme members’ interests so that they are not put at risk. If a surplus turns to a deficit, which it can do because it is by no means guaranteed, and if an employer then fails, there is actual detriment to those scheme members. As we know, economic conditions can change. It is an opportunity for employers, though—that is the purpose of it—and schemes can and do extract surplus now, often when they enter a buy-out with an insurer.

It does need guardrails, and the Bill includes the provision that it has to be signed off by an actuary and it is the trustees’ decision. That is important, but there is a related challenge about the interaction of the surplus and superfunds. Each of those is okay: you can extract a surplus, for the reasons that we have discussed, and you can go into a superfund if you cannot afford a buy-out. The problem is, if a scheme could afford buy-out, extracts a surplus and then no longer can, and then it enters a superfund, the scheme members are in a weaker position than they would otherwise be. There are a couple of things that could be done about that: either leave the threshold for extracting surplus where it is—which is buy-out level, rather than low dependency—or change the Bill so that the combination of surplus and superfund cannot be gamed to get around that. In any case, as you say, it is important to monitor the market, and for the regulators to be alive to potential conflicts of interest.

Zoe Alexander: Pensions UK is content with the idea of using the low dependency threshold for surplus release. We think the protections are sufficient. Providing that the actuarial certification is in place, the sponsoring employer is in a strong financial position and a strong employer covenant is in place, we think there are real benefits to be had from surplus release. We highlight the fact that some employers and trustees will be looking to move benefits from DB to DC using surplus release, or even to a collective defined-contribution scheme. We are interested in the potential of that to bolster the benefits of those types of scheme, and we would like Government to look at the 25% tax penalty that applies when doing that, because if those funds are kept within the pensions system, that is to the benefit of savers, so perhaps that tax charge need not apply.

[John Milne (Horsham) (LD)]

Q Do you think that the proposed value for money framework could have the unintended effect of causing excess caution or short-termism in investment decisions? If so, what mitigations would you suggest?

Zoe Alexander: There will of course be metrics in the value for money framework that look at the longer term, and looking at longer time horizons is really welcome. One concern at Pensions UK is about the intermediate rankings in the value for money framework meaning that schemes cannot accept new business. That may well result in schemes doing everything they can, at any cost, to ensure they do not drop from the top rating to the intermediate rating. That could cause damaging behaviours in terms of herding. We want to ensure that people in the intermediate ranking, whether that is within a couple of intermediate rankings—perhaps you have a top one and then a bottom one, but somewhere within that intermediate scale—you can continue to take on new business, and the regulator will perhaps put you on a time limit to get back into the green, back into the excellent rating. We think that if it is so binary that as soon as you drop into intermediate, you cannot take on new business, that will heighten the potential downside risks of investment behaviours that you are describing.

Rob Yuille: I agree with that. I strongly support the value for money framework—I think both our organisations do—and the intent to shift the culture away from just focusing on cost and to value for money more generally, but yes, there is that risk. There are multiple trade-offs here: it is about transparency and how much you disclose, versus unintended consequences of that. We want high performers but, for high performance, you need to take risks.

As well as what Zoe says, which we might build on, we do not want a one-year metric. One year is too short a period; pensions are a long-term business. There should be a forward-looking metric, so that firms can say how they expect to perform over the longer term and then regulators and the market can scrutinise it.

On the points that were raised about intermediate ratings, this is another area where there is a potential combination of two bits of the Bill. There is provision for multiple intermediate ratings. It was originally conceived as a traffic light system, so there would be three ratings. If there were four, it would be okay to say to schemes, “You are not performing; you need to close to new employers,” but if there are three, firms will do everything they can to play it safe and make sure they get the green. So the interaction of those is really important.

[John Grady (Glasgow East) (Lab)]

Q This question is for Ms Alexander. A lot of my constituents are driven mad by small pots; they have worked in different jobs and have no idea how much money they have saved for a pension, so please could you outline the benefits of the small pots reforms to people in my constituency, and the practical steps needed to make the small pots regime work—for example, by way of IT?

Zoe Alexander: The small pots reforms are absolutely critical. The problem of small pots was foreseen by the Pensions Commission years ago. We all knew we would face that problem with automatic enrolment, and I think people would agree that it has taken too long to grasp the nettle. We at Pensions UK are really delighted to see the measures in the Bill to deliver the multi-consolidator model. It is really important that the pot size is kept low, as is proposed in the Bill, at least initially, to solve the problem of the smallest pots in the market. Pensions UK has undertaken a feasibility study, working with Government, to look at how that small pots system might be delivered in practice. That work is publicly available. It gets quite technical quite quickly, so I will not go into the details of it, but we believe there is a feasible model of delivering the small pots solution at low cost—one that should not involve Government in a major IT build.

[Steve Darling (Torbay) (LD)]

Q We have already had some exploration of mandation and other opportunities around getting greater investment within the United Kingdom. I would welcome some more drawing out of how investing in UK opportunities could be amplified without the need for mandation.

Rob Yuille: We have both mentioned the Mansion House accord already. In addition to the ambition to which providers committed, there were a series of critical enablers. Several of those are in the Bill already—thank you for that—including value for money and the drive to consolidation. But there were other things in there as well, including the need for alignment by the Department for Work and Pensions and the Financial Conduct Authority of their rules and guidance in relation to the charge cap pipeline of infrastructure projects, which I know the Government are proceeding with separately; and the need to ensure that the whole market buys into the value-for-money framework. In the pension investment review, Government did not take forward regulation of intermediaries—employee benefit consultants and so on—and we think that they could keep that under review.

The Government are seeking to take other steps that will evolve over time, such as crowding in investments. There are examples such as the British Growth Partnership and the LIFTS scheme, where the Government are either convening or investing alongside providers, which we would like to see more of. Outside of DC, as has been mentioned already, it is about working with annuity providers on eligibility for certain assets.

[Kirsty Blackman]

Q There is a question around surplus release, and the power of trustees in relation to surplus release. It makes sense that there should be surplus release, but trustees may feel under pressure from employers to release the surplus when it might not be the right thing for scheme members. Do you think the Bill has got that balance right? How can that be monitored to ensure that trustees are not pressured when it is not the right thing for scheme members?

Rob Yuille: The most important thing is that trustees do have the power that is in the Bill—that power should stay there. Conflicts of interest were mentioned earlier; it is interesting what surplus release could do to make occupational schemes more like commercial schemes. With master trusts, commercial schemes and superfunds, if pension schemes could be run for the benefit of the employer by taking surplus, that gives rise to a different relationship and potential conflicts. The Pensions Regulator needs to be alive to that. In any case, TPR is becoming more like the FCA and the Prudential Regulation Authority as a regulator, and I think that needs to continue.

[Mr Peter Bedford (Mid Leicestershire) (Con)]

Q Many aspects of the Bill command cross-party support, but I want your view on where the Bill does not quite go far enough, and where it perhaps goes too far.

Zoe Alexander: I would probably lean towards talking about the local government pension scheme in that context. There are some parts of the Bill where we feel powers are being taken that may not be required; one is around requiring funds to choose a particular pool, and one is requiring particular pools to merge. We think that the LGPS is moving in a very positive direction. Obviously two pools have been closed, and funds are merging with other pools already. We are not sure that those powers are actually required. We think that the direction of travel is set and that the LGPS understands that, so we feel that those powers might be overstepping the mark.

Rob Yuille: I have no view on local government. I think what I am about to say should have cross-party support, or at least cross-party interest. It is a macro Bill about how the market and the system work, but it is also about people and the decisions that they need to make. We are glad to see the small pots provision in the Bill, but it is on an opt-out basis, similar to the default pension benefits solutions. People have decisions to make, such as whether to stay in or not, and they need to be supported in the decision making. We are proposing a textbook amendment that would enable schemes to communicate electronically in a way they currently cannot and in a more positive way—even where people did not have a chance to opt in to that kind of communication, which is seen and regulated as direct marketing. We know that there is cross-party interest in the ability to communicate more clearly with customers, specifically in relation to those provisions.

[Rachel Blake]

Q I want to probe the suggestion that the mandation sunset clause should come back from 2035. You alluded to your rationale for that, but can you expand on the argument about what difference that could make?

Zoe Alexander: If you put yourself in the position of pension scheme trustees, having the presence of the reserve power, which may or may not be exercised, to direct the way that you invest does not necessarily feel like a comfortable position to be in. We understand why the Government are taking that power. We understand the imperative to get more investment in the UK and we support that. Clearly, the longer the power abides on the statute book, the longer there is that risk hanging over those trustees. They may be required to invest in particular ways. We do not know where we will be politically in 2035. We do not know what Government will be in place. It pushes us potentially into another Government, another Parliament—it is the unpredictability. So we did talk with many of our members about this, and had lively debates about whether it should be 2030, 2032 or 2035. There was a really strong consensus around bringing it forward to 2032. We do not want it too early because it might pre-empt a decision that need not be taken. But 2035 felt too far away.

[Rachel Blake]

Q My understanding is that there is broad industry support. You have alluded to it in terms of recognising the direction and the purpose of the mandate. So there does not seem to be that much difference between those years, is my observation.

Zoe Alexander: I think the trustees we have spoken to, of the schemes in our membership, would disagree. It is a significant point to them, which they have asked us to pass on.

[Rachel Blake]

Q Mr Yuille, in terms of your analysis of why there is a higher rate of investment in the UK from international funds than UK funds, do you think that the direction of the Bill will address those causes?

Rob Yuille: I am not sure there is, first of all. Canadian and Australian schemes have a big presence here, but I am not sure that they invest more, especially compared with our bigger schemes or in percentage terms. But will the Bill help that? Yes, it will. Driving scale and consolidation, which was happening anyway but which the Bill will accelerate, will open up different types of investment opportunities for those firms. They will be more likely to have in-house asset capability and bargaining power to invest in those kinds of assets. One caveat, however, is that they will be able to invest globally—the same as Canadians and Australians—so it is not a given that they will invest more in the UK. The UK still needs to work hard to be an attractive place to invest.

[Callum Anderson (Buckingham and Bletchley) (Lab)]

Q I have a short question about scale tests. Both organisations have reflected a concern that the drive to consolidating may be undermining smaller schemes. How can we ensure that there are sufficient reassurances in the Bill that support better transition pathway rules?

Zoe Alexander: I am pleased to talk on this point. We are supportive of consolidation and we absolutely see the benefits of scale, but we are concerned that there are a very small number of very high value schemes in the market that are already adversely affected by the presence of the scale provisions in the Bill. EBCs are not sending business their way because they are under £25 billion or cannot necessarily show those that they are on a path to that number. It is really critical that the transition pathway is in place as early as it possibly can be, and also that EBCs are encouraged to understand the way that the market dynamics will work here. What we do not want is for really high-value schemes that are delivering great investment returns, that are really innovative and that may be investing very heavily in the UK to fail simply because of the scale test. We want those schemes to provide and to grow, in the interests of members.

Rob Yuille: I agree with that, but I would like to make a wider, related point about the route to 2030 and the importance of getting the sequencing right for—

[The Chair]

Order. That brings us to the end of time allotted for the Committee to ask questions. On behalf of the Committee, I thank our witnesses for their evidence. I apologise for having had to cut you off.

Examination of Witnesses

Patrick Coyne and Charlotte Clark gave evidence.

09:55

[The Chair]

We will now hear oral evidence from Patrick Coyne, director of policy and public affairs at the Pensions Regulator, and Charlotte Clark, director of cross-cutting policy and strategy at the Financial Conduct Authority. Again, we must stick to the timings in the programme order, which the Committee has already agreed. For this session, we have until 10.25 am. Would the witnesses please briefly introduce themselves for the record?

Patrick Coyne: Hello, everyone. My name is Patrick Coyne. I am the director with responsibility for pensions reform at the workplace Pensions Regulator. I am pleased to be here today to talk about the Bill, which we believe is a once-in-a-generation opportunity to make the system work for savers.

Charlotte Clark: I am Charlotte Clark. I am the director of cross-cutting policy and strategy at the FCA, where I have lead responsibility for pensions.

[The Chair]

Thank you. I call the shadow Minister.

[Mark Garnier]

Q Thank you very much for coming to give evidence. Can I get straight into a detailed question regarding the repayment of surpluses, starting with the local government pension scheme? I am advised that regulations 64 and 64A of the Local Government Pension Scheme Regulations 2013 currently allow for surpluses to be paid out of local government pension schemes, but the problem is that actuaries and trustees get nervous when a local government pension scheme is in surplus and are reluctant to allow the surplus to be paid. The provisions of the Bill therefore try to address something that has already been addressed, but they are not tackling the right problem.

Patrick Coyne: I think that question is more relevant to me. The reforms across the Bill could be good for savers, but they could also be good for the UK economy. What you are pointing to is a wider, systemic issue in the marketplace, where we have a patchwork quilt of regulation that has built up because the pension system is idiosyncratic, and in some cases 70 years old. The Bill is trying to give trustees the tools for the job. On surplus release, it is trying to give them a statutory override, to look across the piece and say, “When I am a well-run, well-funded pension scheme, is it right that I can extract surplus if it is safe to do so?” We think that is a really important principle.

[Mark Garnier]

Q I agree that is an important principle, but if you are a trustee, you are potentially personally liable for any deficits, and you could get yourself in trouble. I will come on to the defined benefit pension schemes in a minute, in relation to the same point. At the end of the day, if you have an actuary who is advising you, “It is fantastic that we are in surplus now, but markets change, we could have a stock market crash and we could be in deficit next week,” you may be more cautious than the Bill would perhaps like to encourage you to be. Do you think that is a fair criticism?

Patrick Coyne: Another important part of the Bill is making sure that we get implementation right. There will be a period now when we can consult, and all of us—Government, industry and the regulators—have a role to play to make sure that that happens. I would say that the Bill will actually prompt a discussion that might not have been had by many trustee boards over the last few years. If you look at the amount of surplus that has been released in recent years, it is in the tens of millions, not the billions. We now estimate that three quarters of schemes are in surplus on a low-dependency basis, which is an actuarial calculation of self-sufficiency. That means there could be up to £130 billion across the market. We think it is right that well-funded, well-governed schemes can consider releasing that surplus, if it is in the interest of members to do so.

[Mark Garnier]

Q Would you be happy if the full £130 billion was released, and therefore these pension funds were right down to the wire, even if they are still technically in surplus?

Patrick Coyne: I think it is highly unlikely that that scenario would happen. Our engagement with the marketplace tends to show that firms considering a different endgame option, which might include running on and releasing surplus, tend to be doing so on a basis where they have hedged their assets, so that they can manage economic volatility, and they are using growth assets above that limit to consider surplus release.

[Mark Garnier]

Q I will turn to DB pension schemes—where you have a sponsor company. For example, I have heard the British Telecom pension scheme described as a pension scheme with a telephone provider attached to it. One of the criticisms I have heard is that, because of the rules that were brought in as a result of Maxwell raiding the pension schemes many years ago, DB pension funds are reluctant to invest in equities, because they could end up going into deficit reasonably quickly. One of the intentions with the Bill is to get funds investing more in equities, but there are still elements left behind encouraging behaviour that does not follow the grain of the Bill. Those particular rules—I refer to them as the Maxwell rules—that defend against host employers raiding a pension scheme are having a wider detrimental effect, but that is not being addressed by the Bill.

Patrick Coyne: It is important that we have a regulatory framework that can cope with different economic conditions. Over a number of years, Parliament has introduced a number of pensions Acts to ensure that defined benefit schemes, which are mostly mature—mostly closed—are secure.

There is a real opportunity in the Bill to build on the fantastic success that we have had in creating a nation of savers—11 million more people putting something away for retirement—and turn that system into something that can provide an adequate income in older life. That means turning the focus of the DC system on to value for money. That is where I believe the real potential is.

[Mark Garnier]

Q You just triggered another question. Charlotte, can I quickly ask you about the retail distribution review? The retail distribution review came into effect on 1 January 2013. One of the criticisms at the time was that moving from a commission-based model, where IFAs were paid by commission, to being paid by cash, reduced the number of people seeking financial advice from something in the region of more than 50% to something in the region of 9%. RDR, although a very well-intentioned change brought by the FCA, has had the unintended consequence of making it more difficult for people who need that advice to get it from an IFA. Have you guys had a think about that within the FCA?

Charlotte Clark: It is not in this Bill, but there is a very large work programme going on at the moment around the advice guidance boundary review. As Patrick said, as pensions have changed—there have been big changes in the market over the last 10 years or so—more and more people have come to need support, particularly at the point of retirement, but also in thinking about how you build assets in pensions and more generally. All the targeted support work we are doing is about how you help people more to make these difficult decisions. This Bill is very much about, “How do you get the market right?” but at the same time, we want to make sure that savers have the right support to make the right decisions at the point of retirement or before.

[Mark Garnier]

Or, indeed, when they first start to work. As somebody once said, compound interest is the eighth wonder of the world.

[The Parliamentary Under-Secretary of State for Work and Pensions (Torsten Bell)]

Q I definitely agree about the eighth wonder of the world. Thank you for coming this morning. This is the Committee’s first sitting, and it is great to have both of you before us. One of the features on the DC side of our pension landscape is the two different regimes that we are operating. The Government’s policy intent is that, from the experience of the saver, they do not see a difference between the trust and the contract regime in so far as possible. That will certainly be true for their experience of the measures in the Bill on value for money and decumulation. Could you share a bit about how the FCA and the TPR are working together to make sure that is the case?

Patrick Coyne: Over a number of years, we have worked closely with the Financial Conduct Authority to ensure that when we deliver interventions within the pensions landscape, the outcomes are consistent. One way we have done that is through an update to a joint strategy. We also have almost daily calls with one another to ensure that when we consider interventions and how to enable the system to provide value for money and support people at retirement, we do so in a coherent and comprehensive way. We must really understand the different constituents of our marketplace, whether they be workplace versus non-workplace pensions, or, in the People’s Pension space, pensions analogous to the master trust offer.

Charlotte Clark: To add to Patrick’s point, we meet fairly regularly. There are various different forums and working groups. As you say, Minister, there is that sense that it does not matter where you save. Most people are probably saving in both the contract-based side and the master trust side, given that people have pots in lots of different places. It is important not that people understand where the regulation is, but that the regulation is consistent and there is no arbitrage between the two systems.

[The Chair]

I call the Liberal Democrat spokesperson, Steve Darling.

[Steve Darling]

Q We have heard a little about value for money from the previous witnesses. I would welcome some reflections from you on how that could be shaped appropriately to allow risk taking without dumbing down the returns for members, because the crucial thing is driving maximum return without too much risk taking. I would welcome some reflections on how the proposed value for money terms could be tweaked in the best interest of investors, because it could force down returns significantly if people are playing it too safe.

Charlotte Clark: I will talk a little about the value for money framework and then specifically about your concern on risk. The value for money framework, which is an area we are working on very closely, will have three aspects to it. One is costs. One is, as you say, investment performance and investment allocation, and one is service. All of those will be important aspects of getting the value for money assessment right.

On the investment side, I hear the opposite charge, actually, rather than dumbing down. There is a sense that a scheme could take too much risk so that it looked like value for money, but there is a trade-off between risk and return. If you are going to do that, and if you have high-risk assets in a downturn, there is a possibility of volatility. Within all these schemes, you still have trustees, independent governance committees and professional advisers who make sure that the investment allocation is right for the saver. That is almost the first part before you get to the value for money assessment. I do not think there should be a dumbing down of investment.

One of the other challenges, which links to the move into private assets that has been raised a couple of times, is the possibility of pension schemes getting more involved in things such as infrastructure. One thing that the industry has asked us to consider is whether, when you invest in those sorts of assets, there is a J-curve in terms of the returns; there might be a suppression at the beginning as projects get up and running. We have been looking at the Australian examples and we do not really see that happening in their data, but it is something we are considering and we are talking to the industry about how to get it right. We do not want the value for money assessment to stop people being able to invest in those sorts of assets.

Patrick Coyne: Just to add that the competitive pressure on the marketplace at the moment is on cost, and cost is not value. To illustrate that point, for the average saver, a 1% increase annually in investment returns would generate a pot that is 20% bigger at the end of a lifetime of saving. We have to move the competitive dynamic, but implementation, as Charlotte said, is critical.

[Steve Darling]

Q The other element I just want to touch on briefly is whether you have any thoughts on educating firms’ trustees about what value for money really is? Quite often, as you have alluded to, it is the cheapest investment, rather than the one that gives the maximum return, that they might be seeing from the HR department of a company, rather than getting a broader perspective. That would be really helpful. Any thoughts around that world?

Patrick Coyne: I think bringing consistent comparable metrics that matter to the marketplace in a format that people can trust can start to drive competitive pressures on what matters, which is holistic value. Trustees—and across the Bill—want to do the right thing. They want to act in members’ best interests, but they do not have the tools for the job. The starting point is to provide them with quality information to act on that intent.

[John Grady]

Q With DC—defined contribution—schemes, as you know, savers themselves have discretion about where they put their money. The issue we face, illustrated by Dimson, Marsh and Staunton’s regular review of asset returns, is that people are not saving in things that will get them a long-term return, are they? The other issue we face is that there has been a real shift from public markets to private markets over the past 25 years or so. If you are not investing in those, you are missing out on returns that mean more money when you retire. I was just wondering, Ms Clark, if you could just put into context the work you are doing on the advice guidance boundary review and wider advice to savers, and how that will help pension savers and, therefore, help these reforms succeed?

Charlotte Clark: It is important to say that most people who are saving in a pension are probably saving in the default. When you say that they are choosing their investment, most of them are not. Whether it is the trustees of that scheme or whether it is the independent governance committee of that scheme, most people are going into that default, so the importance of the default is really crucial. While it is important to really think about engagement and talk about the advice guidance boundary review and some of the work that is happening there, it is also important that some people will not want to make those decisions. It is only people like us who seem to care about these sorts of things. Getting other people engaged in their investment is quite a challenge.

You are right that we are doing quite a lot of work, largely around the ISA area and the at-retirement area. One of the challenges at the moment is people taking money out of their pension and then putting it in cash. That may seem like a really wise decision if you are 55, but if you do not need that money for 20 years, it may keep track with inflation but you are going to miss out on asset returns, equity returns or other aspects of investment. So, we are really thinking about how we engage with people about those sorts of discussions. How can we make sure they are getting the right support? It comes back to the targeted support programme, which goes live in spring next year. So, working with providers at the moment on how they can support people when they are making these sorts of decisions, and just think about whether, if it is not full financial advice—I understand that can be very, very costly—are there other areas where we can give people help that is not as kind of extreme as that but allows people to think about those decisions in the round?

Patrick Coyne: I would just add that one of the reforms in the Bill around guided retirement is reflective of that default conundrum we face. We have a brilliant system—11 million more savers—but nobody making an active choice. That means that when people approach retirement, only one in five has a plan to access and when they do, as Charlotte said, half are taking it as cash. That cannot be the right outcome. Within the Bill, introducing a guided retirement duty enables those institutional investors to start to guide individuals or cohorts of members into the right kind of products for them, with clear opt-outs for them to choose a different way. As Charlotte said, the type of support and new form of regulated advice could really help inform savers and make good choices at that point.

[Rebecca Smith (South West Devon) (Con)]

Q Obviously, a big part of the Bill is the assumption that mandation is a good idea. I would be interested to know to what extent you agree with the Bank of England Governor, Andrew Bailey, that mandating pension scheme investments is not appropriate?

Charlotte Clark: Following on from Zoe and Rob—I think they have articulated this issue really well—I do not think anybody disagrees with the direction of travel: trying to get more assets into private markets and higher return markets, and making sure there is more diversity within portfolios and that the scale of pension funds in the UK are using that in an effective way on investment. The issue of whether mandation is the right tool to use is ultimately one for you and the Government. There are obviously challenges, which Rob and Zoe have articulated, around how you do that, when you have a trustee in place whose responsibility is to the member, and making sure that is paramount in the system?

Patrick Coyne: I agree with that. I think it is fair to say that there is a degree of consensus in the marketplace, among Government, industry and regulators, that we need to make structural reforms to the marketplace and put value for money at the heart of the system. A big part of that is a move towards fewer, larger pension schemes, because of some of the factors that Charlotte just outlined—the ability to in-house your investments; the ability to consider a broader range of investments, which can sometimes be quite complex; and broader governance standards. Mandation is of course a matter for Parliament, but clearly structural reform is needed within the marketplace.

[Rebecca Smith]

Q We are not all Government Members in this room, so we are quite keen to hear what bits you think might work and what bits might not work. That is where the question came from.

As a supplementary question, do you think trustees and scheme managers should be provided with a safe harbour if they are required to invest in assets that underperform? I think that is probably what a lot of the public would be interested in as well. You do not want somebody to be mandated to put money into something that is doing worse than it was doing before it was moved.

Charlotte Clark: There is an exemption in the Bill, though, that basically says that if you are a trustee and you do not believe it is the right thing for your members then you should not put that money in. That is just going to be a very tricky assessment for the trustees or the scheme manager, and then for the regulators, at the point of addressing why they did not meet those levels. If they believe that it is not in the interests of the member, the Bill allows for that.

[Rebecca Smith]

Q Are there not going to be too many hoops to jump through to prove that the trustee is correct, if they have to prove it to a regulator? I suppose that is what the safe harbour means. Will the trustees have the benefit of the doubt, or are they going to have to be watertight in their belief that they are right, to make sure that they can stand up to the regulator?

Charlotte Clark: The level of that process would be something that we would put into secondary legislation and rules. We would really have to think through what that process looks like.

Patrick Coyne: Yes, absolutely. Implementation is critical here. This will be something that is done with wide consultation with the industry.

[Torsten Bell]

Q It is not right to say that mandation is at the centre of this Bill. There is one backstop power and there are a lot of clauses that we are going to spend a lot of the next few months—

[The Chair]

Order. We need questions to the witnesses.

[Torsten Bell]

The question to the witness is to expand a bit more on that point. In reality, this provides a “comply or explain” power. In terms of the point Charlotte was just making there, it is absolutely right about the ability of the trustees to say, “This is not in the interest of our members.” It might be worth talking a bit about how when we move forward the consultation will allow us to set out how that would work in practice.

Charlotte Clark: It is an area that we would need to work through in terms of the road map. At the moment, our focus is very much on getting the value for money framework right. How the mandation would work and the process around it—as the Minister says, first, we would consult on it. We would have to have a look to see what information was given and how we would monitor it in the period from now to 2030 or 2035. We would have to work through all of those aspects of the process. We would do that in conjunction with the industry, making sure that what we were asking for was information that it could readily provide and that we felt confident that we could make a good assessment around.

Patrick Coyne: Our engagement with the marketplace so far already shows that many are considering investment strategies that have significant proportions of diversified investments, so the market is already responding based on some of the Mansion House accord commitments.

[John Milne]

Q Do you think that the finance industry has a clear understanding of how to apply its fiduciary duty? Do you think the Bill makes that clearer or muddies the waters, or somewhere in between?

Patrick Coyne: I think that fiduciary duty is a powerful force for good. Across the Bill, this is about giving those trustees the tools for the job. I think there are a number of areas where that is true. Within the value for money framework, at the moment, it is very difficult for employers or schemes to effectively compare performance. As an anecdote, I was speaking to a provider recently. They were pitching for new business. They came in and pitched their investment data, and the employer said, “You’re the third provider today that has shown us they are the top-performing provider.” That cannot be right.

Then, when you are looking across the Bill towards the DB space, because of the funding reality that many schemes are facing at the moment, there is choice in end game options—so, “How do I enhance member outcomes at the same time as securing benefits?” Actually providing a statutory framework for super-funds as another option is a good first step, as is allowing the release of surplus, if it is in the members’ best interests to do so.

[Kirsty Blackman]

Q I have a question about the balance of decision making. Trustees are obviously required to steward and grow assets on behalf of scheme members. This Bill slightly changes the priorities in relation to value for money. There is potential for future mandation, in that it basically allows the Government, or the regulators, more say in what direction trustees are taking. In practice, it is relatively difficult for scheme members to influence decisions that trustees take. My reading of the Bill is that it does not increase scheme members’ power over the direction. For example, if they wanted to disinvest in something, or if they felt strongly about investing more in UK assets, they will not have any more power to do that. Am I correct in my reading of that? Do you feel that some scheme members feel that they should have more influence over what trustees do and the direction of travel?

Charlotte Clark: It is a good question. It is hard to get over the fact that the vast majority of people are very inert in the pension system. Of course, there are some who are not, specifically around ESG—environmental, social, and governance—investments, but most trustees take those things into account, and there has been clarification about how that aligns with things like the fiduciary duty. Obviously, within the contract-based scheme, there frequently are options, if somebody does not like something that is invested in within the default, to have their own investment strategy, if that is what they choose to do. Do I think this Bill changes that? I do not think so. I think what the Bill is essentially trying to do is use the power of scale and collectivism to get better returns and, really, a better service for most savers.

[Kirsty Blackman]

Q Do the majority of trustees already take into account what they think scheme members would think about certain investments anyway, or about ESG, for example?

Charlotte Clark: Almost certainly.

[Luke Murphy (Basingstoke) (Lab)]

Q I want to ask about Unison’s point about LGPS funds requiring equal member and employer representation on boards—I should declare an interest as a member of said trade union. According to Unison, the Bill will mean a lack of member voice on LGPS board governance. I wonder how you respond to that criticism?

Patrick Coyne: TPR’s responsibility is not for the asset pools, which are FCA-regulated entities, but we do have responsibility for governance across public sector schemes, including LGPS funds. It is really important to recognise the member voice within good decision-making, as Ms Blackman’s question indicated, but there are a number of ways to do that within standardised corporate governance boards and reporting functions, and that is something that we would look to explore over the coming months. With the LGPS boards, like the rest of the Bill, there is the ability, through greater scale, to start hiring better colleagues, introduce better systems and processes, and put in place better governance practices, and we would expect to see that come to pass.

[The Chair]

A last, short question.

[Sarah Edwards]

Q I just wanted to ask for your reflections on the current levels of funding in the UK compared with other funds. Canada is often touted as having a higher rate of funding. Can you comment on what you think some of the barriers might be? Why is that not happening, and do you think the Bill will address that?

Charlotte Clark: As Rob says, sometimes it is slightly overplayed. There is a lot of investment from UK pension schemes, whether they are DB or DC, within the UK. Why does Canada look like it invests a lot? It is a very mature system. We have two systems—one is in decline and one is in the ascendancy—whereas the Canadian system has been established for 40 years. The auto-enrolment system is essentially 10 years old, so they have a much more mature system. You see within those schemes that they have scale—they are very large and very mature schemes—and, in terms of things such as their investment approach, it is frequently internalised. They have been looking at private assets for longer than we have, particularly in the DC master trusts, auto—

[The Chair]

Order. That brings us to the end of the time allotted for the Committee to ask questions. On behalf of the Committee, I thank our witnesses for their evidence and apologise to hon. Members whom I am afraid time did not allow me to call.

Examination of Witnesses

Christopher Brooks and Jack Jones gave evidence.

10:25

[The Chair]

We will now take oral evidence from Christopher Brooks, head of policy at Age UK, and Jack Jones, pensions officer at the TUC. Once again, we must stick rigidly to the timings in the programme motion, as the Committee has previously agreed. For this session, we have until 10.55 am. Could the witnesses please briefly introduce themselves for the record?

Christopher Brooks: I am Christopher Brooks, head of policy at Age UK. We are the national charity for older people.

Jack Jones: I am Jack Jones, pensions policy lead at the Trades Union Congress.

[Mark Garnier]

Q Thank you. I am particularly interested to hear from the two of you, because one of the interesting things about this Bill is that we have had a lot of lobbying from the profession but very little on behalf of the members of these pension funds, who are so important. Mr Jones, if I may start with you, Unison made the point that there is a clear lack of member voice in the Bill. Do you think that is a fair criticism?

Jack Jones: I believe that was aimed specifically at the LGPS requirements, but yes, I would certainly agree with that, and it probably extends to some other areas of the Bill as well. Unison is not alone; all the unions involved in the LGPS scheme would agree that the pooling structures mostly have a clear lack of member representation on their governance boards. There is a real mishmash of governance arrangements and of reporting and transparency arrangements across the different pools at the moment.

We have some examples of quite good practice—there are pools with a meaningful number of member representatives on them, but they are few and far between. Many have no representatives or only have observers that do not have any voting powers. Member representation has an important role in the LGPS, with a long history of ensuring that members’ interests are represented when investment decisions are made. Moving away from that has taken something away from the scheme.

It is particularly important when looking at measures that will make investment decisions more remote from members by pooling into larger geographical areas and larger funds, and by requiring—or expecting—them to invest in more complicated assets with higher up-front fees. That is the point at which it becomes even more important to have oversight, to give reassurance that members’ interests are at the heart of all those decisions.

[Mark Garnier]

Q Could you expand a little on the technicalities of how that would work? Obviously, the trustees are there to represent the members, but they are merely a small board of individuals. If you take something like the British Telecom pension scheme—I do not know how many people are in it, but it is perhaps tens of thousands—how would a group of trustees find out what members are thinking about what they would like? You could have representation, but would you have polls?

Jack Jones: That is a good question, and it is a wider issue. Member representatives are there to ensure that people with skin in the game are around the table when decisions are made. They are there to reassure members that people like them—those who will be relying on the scheme for their retirement income—are involved in those decisions. Yes, they cannot represent the full range of any large scheme’s membership. A lot of interesting work could be done around how you find out what members think about how their money should be invested and how we then take that into account in decision making.

That is one area where, at the moment, there is potentially a little bit of a gap. The trustees have clear guidance that they can take into account non-financially-material ESG factors, but we hear a lot from unions that there is a very high level of wariness from schemes about actually doing that. They quite often point to their fiduciary duty and say, “Actually, our primary responsibility is towards the financially material factors.” They quite often ignore the guidance that says they can take into account other factors where they know it is in their members’ interest. Work needs to be done on what the best mechanism is to find out what Members think, but there is also a job to make sure that trustees know that they can and potentially should act on that.

[Mark Garnier]

Q You raise a very interesting point. Members could come up with an idea. For example, you mentioned ESG, which is a fine thing—I would not disagree with that—but sometimes it could be right to invest in something that a lot of people feel uncomfortable about, such as the arms trade or weapons manufacturers. Very sadly, they are having a bonanza at the moment, because of all the problems that are going on in Ukraine and Gaza. As I say, it is for very tragic reasons. None the less the pension itself could do very well out of investing in that, yet the members may decide it is a bad idea on ethical grounds to invest in something like munitions manufacturing.

Jack Jones: Well, it is the members’ money that is being invested. You have to make a balancing decision, but where you have clear evidence that the majority of members have these ethical beliefs that they want to see reflected in how their money is invested, you need to take that into account.

[Mark Garnier]

Q My last question—Chris, leap in at any point if you feel you have an answer—is about paying out surpluses, either to local government or defined benefit pension schemes. Lots of people have argued why it is a good idea and good for the country, and all that kind of stuff, but are there any concerns in the TUC or Age UK that it could put some of these pension schemes—particularly the private ones, the defined-benefit ones—into risk unnecessarily and the wrong thing could happen, even though the intention was well meaning.

Jack Jones: Clearly that risk is there, and it would have to be managed very carefully.

[Mark Garnier]

Q Do you feel the Bill covers that management?

Jack Jones: I think it puts a lot of responsibility on trustees to make that assessment. I think it is fair enough to set out the criteria under which trustees might consider surplus release—that is where you have sustained and high surpluses on quite a prudent basis. Whether you actually make that decision to release that surplus and whether you think that is in the members’ best interests relies a lot on trustees making that decision.

One particular weakness at the moment is around potentially allowing sole trustees to make that decision. This is usually where you have a closed DB scheme that, instead of having a fully constituted board with member representation, will have a sole corporate trustee appointed by the sponsor. There, the conflicts seem too great to possibly manage for that corporate trustee to make a decision on behalf of the members and say, “Yes, we think it is appropriate for surplus to be released.”

It would also be really useful for guidance to lay out the ways in which any kind of surplus release must benefit members as well as the sponsor. There is obviously the argument that if the sponsor then goes and invests that money in, for example, either higher pay or better contributions for DC members or investing in the business, that is in the members’ wider interests, but we need to recognise that although employers suffered quite a lot because of the really high deficits that we saw over a sustained periods by having to put in those employer deficit coverage contributions, members also suffered.

You saw schemes being closed and benefits being cut in various ways. We had reductions to accrual, changes to indexation and that kind of thing. Guidance should probably recognise that and say to the trustees, “If you are going to consider releasing surplus, it needs to be done in ways that both benefit the member directly by improving their benefits in some way.” It is a complex question: what is the best way of doing that? I would not want to prescribe that too much. However, the principle that trustees have to consider is how that money is used to actually improve benefits, as well as potentially to—

[Mark Garnier]

Q Christopher, do you have any thoughts on that, quickly?

Christopher Brooks: We do not work on final salary pensions, so I do not take a view on it.

[Torsten Bell]

Q As we have just heard, there is some cross-party agreement that the main purpose of the changes is ensuring that we drive up the returns to members—particularly financial returns, but also more generally. What do you think will make the most difference, from the perspective of the returns, particularly to DC savers? Balance between VFM; scale metrics; decumulation changes; small pots—all of these are about driving up returns for members. What are you most excited about?

Christopher Brooks: I think they all work together, so I would say it is a combination of them, but scale seems to be one of the main drivers. I am thinking about NEST in particular, which has been leading the way in terms of investing in private assets. It is able to negotiate a good deal, because of its scale. If you can drive that with similar outcomes across the marketplace, it will be really beneficial to members.

[Torsten Bell]

Q Could you explain a bit about what NEST has done in order to do that?

Christopher Brooks: NEST has essentially negotiated with the private finance industry, and is not paying the “two and 20” classic fee structure, so it is not paying the performance fees. It has incorporated it all into its existing charges. If the intention is to drive greater investment in private finance, that is the way to go about it. If that scale is replicated across the industry—across the 15 to 20, or however many, schemes remaining at the end of the consolidation process, which I fully support—then hopefully you would be in a position to replicate those types of outcomes for members across the board, in their DC savings.

Jack Jones: I would say something very similar. As a package, on the DC side, it is scale that potentially has the greatest power. It is probably important to look at the factors that would make sure that the scale results in the changes you want. It is interesting to look at NEST; it has scale, but it also has a business model and governance structure that incentivise it to go and build up its experience in investing in those markets, and to have an understanding of what its fiduciary duty is, which very clearly includes looking at the widest range of assets possible and investing in them. So I think it is scale, as long as you have everything else in place there to make sure that schemes are using that scale in ways that benefit members.

[The Chair]

I call the Liberal Democrat spokesperson, Steve Darling.

[Steve Darling]

Q Thank you both for coming. My questions are for Christopher Brooks. From your perspective at Age UK, what are the three wicked issues that the Bill could help tackle—the ones that come most often across your desk at Age UK, which people find a challenge in later life?

Christopher Brooks: That is a really good question. I think that first, I would flag the decumulation provisions, which are a really excellent idea. They are exactly what should be happening at the moment. Because it is a new regime, there are lots of challenges around designing and implementing it, which probably need quite a bit of thinking through, just to make sure we can get it right for members.

There are some tensions in that process: if you are defaulted into something at, say, 65, there would be some tensions around the point at which you should do certain things. I think the general consensus is that it will result in people purchasing an annuity further down the line—probably around, say, age 75 or 80. We have seen for many years, pre-freedom and choice, big issues with the annuity market, with people shopping around, or failing to shop around, to get a better deal. If you are encouraging people to do that at age 80, that is potentially a recipe for disaster. First, because people will be taking a decision that they are not familiar with, and it is alien to them. Secondly, at age 80, a number of people are experiencing cognitive decline, so it is going to be even more challenging than it would have been at 65. That kind of thing, exactly how it works, needs thinking through in more detail.

On that point, I still think that ultimately, if you are going to force people into the open market, you probably need some kind of clearing house, so that it removes the risk, because there will be scammers out there, listening to this session, I am sure, and rubbing their hands with glee at the thought of lots of people taking those decisions.

The second point is about the contractual overrides, which are clearly crucial to make the whole system work. I think we need to make sure that the best interests test is working for members. When I read the Bill initially, the thing that stood out most for me was that there seemed to be a lack of consumer protection at that point. When the provider undertakes the best interests test, if they are making an external comparison, they only have to compare with one other situation, one other scenario. That is what it says in the Bill. I do not think it is sufficient. I think the Bill should be amended, at least to say, “Make two comparisons,” or possibly to be a bit vaguer and say, “Make a reasonable number of comparisons,” so that it can be left open-ended and give a bit more scope for flexibility. That seems to be one area.

I think the best interests test needs to consider different classes of members as well. At the moment, it just looks at members as a whole, but there are different people in different situations within any scheme. For example, people approaching retirement are in a completely different position from people in their 20s or 30s, so any decisions about transfers need to make sure that all those interests are considered.

Probably the main point is about the independent assessor, who will then look at the best interests test and how it has been conducted and rubber-stamp it according to some FCA regulations yet to be written. We think quite strongly that the independent assessor should have some kind of fiduciary duty applied to them. I do not think there is any reason why this could not work, but at the moment they do not seem to be fully incentivised to act in the members’ interests or prioritise members’ interests above those of the scheme.

That is another really clear addition to the Bill that we think should take place. I think that would make the system so much more robust. There are potentially some really negative outcomes for members if they are transferred into inferior arrangements. I am sure it is not the intention of the Bill to do that, and it is probably not the intention of most providers, but it could still happen. I think putting some kind of fiduciary duty on the independent person would give this a lot more strength and make it fairly watertight for members.

[Damien Egan]

Q Christopher, a number of us are on the Work and Pensions Committee and we know that one of many big issues is people coming up to retirement and being prepared—even knowing how much they have got to take into retirement. How do you see this Bill—you have talked through some of the challenges—helping people to prepare for their future, know how much money they will have and make decisions at a better time?

Christopher Brooks: How the Bill tackles that is probably through the governance structures that will be put in place. When there is a fiduciary duty, the governance is reasonably strong. I believe it is stronger under a fiduciary duty than under the contract-based system. For example, the trustees are better placed than IGCs—independent governance committees. I think we will see IGCs potentially play a greater role in some of the transfers. That is an opportunity to make sure that IGCs can do their job more effectively and have better access to the necessary data, which was flagged previously by the FCA as not always being the case. Clearly they need to be independent, so it will not be appropriate to have employees of the firm sitting on them any longer. I believe a number of them do at the moment, but I do not think getting employees taken off will be an issue.

Once you are in retirement, you have a separate issue. Because the decumulation part of the Bill leaves a lot to the regulators to decide in the future, it has not been clearly specified how the governance will work, so there is an issue about making sure, when those regulations are written, that it does work well for people. There is clearly going to be a gap around information as well. We recently did some research with Aviva, and one of the recommendations was that we need some kind of intervention for people in their mid-70s about how they look after the rest of their lives and how they manage their pension. That kind of support is going to be crucial if people are expected to take a decision in their late 70s or early 80s with regard to annuitisation or how they draw down the rest of their money. There is a big gap there as well.

[Mr Bedford]

Q I think financial education is the key to ensuring pensions adequacy. To build on Damien’s question about ensuring that members are fully informed about their pension assets and what the returns are going to be, what they will provide, what are your thoughts on what support the Bill offers, or does not offer, to ensure members are fully informed on the key decisions they have to make?

Christopher Brooks: Providing information takes you so far, and it is really important to do that: there are some really big gaps, as we see with Pension Wise UK, which is a really good and well-liked service, but has a really low take-up. That is just an example, but we need to get more people into a position to access the information. However, they will then still need a lot of support, because pension decisions are really challenging for the vast majority of people.

[Mr Bedford]

Q Where is that support going to lie—with organisations such as Age UK, charities or the pension provider? Where do you see that balance sitting?

Christopher Brooks: It could lie either with Government and the Money and Pensions Service providing a widespread service, for example. It could lie with charities, or providers could be told to help people with these decisions—they could potentially commission charities. We are working with Aviva to look at running a pilot in the retirement space, which will hopefully go ahead soon and give us some insights into what kind of support people need. People think about their lives holistically, and they are not necessarily thinking about a pension as separate from their current accounts, so we need to think about how it works for people. That is the key thing.

Jack Jones: I think we look at this slightly differently. I am not convinced that any more financial education, guidance, or points at which we need to intervene in the system to ensure that people are equipped to make decisions is the way forward. This Bill recognises that, and the introduction of default retirement products is a recognition that everywhere else in the pension system, it works on the principle of default and generally works quite well. We have seen that that principle is really powerful; if people are defaulted into something, they will stay there, whether that is their contribution rate or the investment options. Defaults are really sticky; we rely on that and make use of it through auto-enrolment, to get people into saving schemes.

More and more, as we find ways in which that does not work, we need to go back and look at fixing the system a little bit so that it works better by default, rather than providing people with more education, because that is pushing against the grain of all of our experience of what works and what is effective. I think that Chris is right that it puts a lot on the governance structures and on the consumer protections there, but I think that is where this Bill has to work. It has to put in place something that will be appropriate for the vast majority of members, and that will work with the minimal amount of engagement—we have to have some kind of engagement on retirement, such as, “This is what I am going to retire and this is where my pension should be paid,” but not beyond that.

[David Pinto-Duschinsky (Hendon) (Lab)]

Q I want to build on the questions that the hon. Member for Mid Leicestershire and my hon. Friend the Member for Bristol North East were raising. Obviously, part of the challenge we face is around the proliferation of small pots; certainly, when I talk to my constituents about issues of long-term retirement planning, that is the consistent theme. The Bill obviously sets out a path to try to deal with some of that proliferation that has been caused since the introduction of auto-enrolment. What are your views on the extent to which the Bill provides the right framework for dealing with that kind of proliferation?

Jack Jones: As Zoe said earlier, we should be here already. It has taken us a long time to get to the point where we have an agreed solution. It looks as if the mechanics of it will work. I think we need to let that bed in and prove that it works. The main concern from our perspective is the £1,000 definition of a small pot. Obviously, from a lot of angles, £1,000 is a lot of money—but as a pension pot it really is not. Looking at this once you have proved the concept and you have a system that works and that hoovers up the smallest pots and those most likely to become orphaned is one thing, but I think if you are looking at helping people to avoid accumulating 10 medium-small pots over their career, we need to look at how to increase that over time.

Christopher Brooks: I agree with Jack. I think the Bill is really strong on small pots and the system that is envisaged will really help. I guess my only comment would be that £1,000 is not a huge amount of money, so maybe over time that amount could be raised, and some kind of indication that that is the intention might be helpful.

[John Milne]

Q Do you think there is evidence that fiduciary duties are not interpreted in a way that optimises outcomes for pensions savers? If so, would you support any change in legislation to help?

Christopher Brooks: Yes; I think a lot of schemes do not interpret it broadly, so they probably take things literally regarding financial materiality—that is obviously very important, but they could probably do more. I think there is a very strong case for reform in fiduciary duties, just to make it clear in the law what it actually means. It is more of an enabling tool for providers, I think, rather than anything restrictive. When there needs to be some direction for schemes to invest in particular ways, I think there is sometimes a bit of reticence. That is true of investing in the UK, maybe with some private finance and maybe with regards to climate change. The larger schemes no doubt do understand it, but all schemes need to understand that they can invest in these things and that that is possible.

I am no expert on this, but, as I understand it the fiduciary duty is all over the place in the law, and sort of hinges on bits of case law and bits of very old legislation, so clarifying that would be a really good move.

Jack Jones: I would agree with that. I think there could be statutory guidance to make it very clear to trustees what their fiduciary duty actually involves, and that it does go beyond that kind of narrow interpretation. As I say, you should take into account your members’ quality of life more generally—for example, investing in ways that support the UK, when that is where your members are, is something that is in their wider interests, and managing systemic risks such as climate change is obviously very material financially, but also has an impact on the kind of world they will be retiring into.

As I said before, we do hear fiduciary duty occasionally being used as a reason not to do the hard stuff and not to think through that. There is nothing inherently problematic there, but clarifying and making sure that trustees are fully aware of the breadth of fiduciary duty would be helpful.

[The Chair]

For the last question, I call Rachel Blake.

[Rachel Blake]

Q I want to go back to member and trustee transparency around surplus flexibility. Could you be more specific on what preparations and possible changes would be needed to give that confidence to trustees and members about any surplus flexibility?

Jack Jones: Like I said, I think the one specific measure is not allowing surplus extraction where you have a sole corporate trustee.

[Rachel Blake]

Okay, so that is the one specific measure.

Jack Jones: Yes, that is the one specific one. More generally, I think there should be guidance that makes it clear to trustees that they have to weigh up the benefits to members, or to make sure that any kind of surplus extraction benefits members through improved benefits, rather than just through improving the company or returning money to the sponsor in some way, which they may or may not then use to do things that would give the member more security in various ways as an employee. Those are the two areas.

[The Chair]

Thank you very much indeed. We have a couple of minutes, actually—

[Rachel Blake]

Can I follow up, then?

[The Chair]

Please do.

[Rachel Blake]

Q Do you foresee any risks or additional challenges to the regulator in overseeing some of those decisions that might be made by trustees on surplus flexibility?

Jack Jones: It sounds plausible, but we have not really looked at that yet. However, that is certainly something that we can do, and we will look at including that in our written submission.

[The Chair]

Order. That brings us to the end of the time allotted. I thank the witnesses for their evidence, and we will move now to the next panel. Thank you very much indeed.

Examination of Witnesses

Colin Clarke and Dale Critchley gave evidence.

10:54

[The Chair]

Q We will now hear oral evidence from Colin Clarke, head of pensions policy at Legal and General, and Dale Critchley, policy manager for workplace benefits at Aviva. Once again, we must please stick rigidly to the timings in the programme order that the Committee has agreed. For this session, we have until 11.25 am.

Please could the witnesses briefly introduce themselves for the record?

Colin Clarke: Good morning, everybody. I am Colin Clarke, and I am head of pensions policy at Legal and General.

Dale Critchley: I am Dale Critchley, and I am policy manager for workplace pensions at Aviva.

[The Chair]

I call the shadow Minister.

[Mark Garnier]

Q Thank you very much for coming along to give evidence this morning. I want to start with a general question: what do you see as the risks associated with surplus extraction? As we know, a lot of the funds are now in surplus, but we only need interest rates to start crashing back again—it is probably unlikely—and they could go back into deficit. Do you think the safeguards for surplus extraction are sufficient?

Colin Clarke: It is a very good question. There are risks that an employer could extract surplus so that it puts the scheme in a position where something might happen in the future that caused them to be underfunded. It is quite key that, although the Bill has some very high-level rule-making powers at the moment, the guidance that comes out alongside that makes very clear the circumstances in which it would be appropriate for trustees to be able to do that.

Scheme rules aside, trustees today are able to extract surplus, and they have to follow fiduciary duty, follow a process and get advice from independent advisers to make sure that what they are doing will not jeopardise the security of members’ benefits. The Bill itself is mainly to override any sort of constraints that trustees have within their rules that might prevent them from doing that. However, trustees would still have to follow the same process they would follow today to make sure that they are in a good position from a funding perspective, that they do not take anything out too hastily and that they look a few years ahead. It is not just a case of being able to extract surplus from an affordability point of view today; they need to be looking ahead to the long-term funding position as well.

[Mark Garnier]

Q One thing we have not talked about is what the surplus extraction will be used for. If a host company starts taking advantage of this and they invest in building the business, most people would probably agree that that is rather a good thing. However, if they pay out dividends, is that a good thing? If they do share buy-backs, is that a good thing for the host company? How do you think trustees should examine what the purpose is of the fund extraction, and whether it is a good idea or a bad idea—or even an unethical idea?

Dale Critchley: It is a trustee decision to take. I do not necessarily think that the trustees need to take into account what the employer is using the surplus for. They are looking at whether it is appropriate to return the surplus to the employer.

If you look at a case from 2023 that went to the ombudsman, Aviva was involved in the buy-out for a company that subsequently returned £12 million of surplus to the employer. The trustees, the ombudsman found, had acted quite rightly by taking into account the fact that the company had made considerable contributions, including considerable deficit contributions, over the years, and that it was right, in the trustees’ opinion, that once all of the benefits promised to the members had been secured, the excess was delivered back to the employer. I am not sure that that company or those trustees took into account what that company was going to use the money for; they just looked at whether or not it was appropriate to return the surplus to the employer.

[Mark Garnier]

Q But is that right? Do you think that is a good use? Ultimately, as we have discussed, there is always the tricky question about how a fund could go back into deficit again. The flipside of that is that deficit then appears on the balance sheet of the host company, so there is an incentive not to raid it too much. A lot of private equity is very good, but there are certainly accusations that some people can invest into a company through private equity and be quite punchy in terms of revving up the balance sheet of a company, taking out dividends and borrowing lots of money to pay back to the shareholders. If you start opening up the possibility that a pension fund could raid—to use the word “raid” is provocative, but you see what I mean—then an unethical investor could do the wrong thing, even though it is legal.

Dale Critchley: I am not a defined benefit pension scheme trustee, but I would expect the trustees to look at the members first of all: are the benefits secured that were promised to the members? Is there room to reasonably augment those benefits? However, to say, “We will only give you this surplus back if you use it for x” is, I think, overstepping the duty of the trustees.

[Mark Garnier]

Q That is interesting; I will go and have a think about that one.

Both of you manage annuity funds. For the record, I have had a chance to meet representatives of your organisations and have had long discussions about this. One of the interesting points that has come out of conversations with many people and organisations in your position is that, while the thrust of the opportunity of this Bill is to bring together pensions and make them more efficient, and another is to be able to unlock opportunity to invest into the UK and into various opportunities, yet there are some rules that are not being addressed. As one of your colleagues mentioned to me, Dale, an annuity fund is not allowed to invest into equities, yet investing into something like a wind farm would be an ideal opportunity to get a predictable return. Do you think the Bill is missing out on some of these measures that could be updated?

Dale Critchley: I do not think it necessarily needs any change incorporating into the Bill. It is a matter for the Prudential Regulation Authority to allow us to make the investments that back our annuities. We would be quite happy to take that up afterwards, but I think that could be achieved through a change to PRA rules rather than incorporation into the Bill.

[Mark Garnier]

Q Also, similarly on the equity point: with defined benefit pension schemes, as I mentioned a bit earlier, if you have a deficit, that then appears on the balance sheet. The behavioural outcome of that is that if you are a trustee or from the host company, you would want to avoid the risk—rather like with the BT pension fund, which I think is £7 billion in deficit, and which now restricts the ability of BT to raise money. The behavioural outcome is that you do not invest into something that has high volatility but long term growth, i.e. the equity market. The 1987 stock market crash was hideous at the time—I am probably the only one present who remembers that—but the long-term growth over the equity market proved that was just a mere blip. However, at that time a company would have had a deficit on its balance sheet. Should we change those rules about the deficits on the balance sheet in order to allow pension funds to invest into equity, which is really what we want to get out of this?

[The Chair]

Can I ask for short answers now, please, because we need to move on to other Members.

Colin Clarke: It is an interesting question. It is not something I am a huge expert on, to be honest, and it needs careful thought, because there could potentially be some unforeseen consequences that I have not considered. If there were going to be any suggestions to change any rules in that regard, there would have to be evidence gathered to understand what the potential implications of that would be.

[Torsten Bell]

Q I want to move to DC pensions, not just DB, given what you do. One of the larger changes in this Bill for your providing to savers is on the default pension benefit solutions. Would you give us an update on your internal thinking about how you plan to operationalise those requirements, if this Bill receives Parliament’s support?

Dale Critchley: Obviously, this is dependent on regulations, but DWP people have been very open in conversations. That has been really welcome, and we have a good picture of where we are headed. We launched a “flex first, fix later” solution called guided retirement. We are now looking at flexing that guided retirement solution to offer different flavours to fit the different cohorts and the amount of risk people can take in terms of fluctuations in their income, dependent upon guaranteed income from elsewhere, or the level of their fund. At one end, you might have a cohort of people who almost need a guarantee. We could go down the route of an annuity, but we are reluctant to do that, because we think that an immediate annuity purchase might put people off. We need to ease people into the idea of an annuity purchase, and that is where we are going. For those people who want more of a guarantee, it might be lower-risk investments and in a drawdown phase for a shorter amount of time. For people who can take more risk, it may be higher-risk investments in the drawdown phase and in drawdown for longer, with an annuity purchase later. That is where our thinking is at the moment.

[Torsten Bell]

Q So when you are thinking about segmenting, your main segmentation is size of pot and other pensions.

Dale Critchley: It is the ability to take risk.

[Torsten Bell]

Your metric for that is just other income sources plus size of pot?

Dale Critchley: It is those main two at the moment. We are also working with a guy called Shlomo Benartzi, who is a behavioural science expert, to look at the whole concept of defaults in retirement. It is one thing defaulting people into taking £120 a month from their salary; it is a very different thing to say, “I am now going to take the biggest amount of money you have ever seen in your life and use that to purchase an income.” That is what we want to test, because if the default is strong and if inertia works, we will get people moving away from the poor solutions they are choosing at the moment, but if people still think, “Well, I do not like the look of that,” they will go on to make the same poor decisions they are making now, and we will not achieve the policy aim. So we think we need to deliver what is right for customers and members, but also what is attractive to them—so looking at their wants as well as their needs.

[The Chair]

Could we have shorter questions and answers? Does Mr Clarke have anything to add?

Colin Clarke: We have been working a lot on the FCA’s targeted support proposals, which are very supportive of the measures proposed in the Bill. We have been doing a lot of research around member segmentation and looking at the different scenarios and outcomes, so potentially going a little bit further than looking just at age and pot value, and also looking at what sort of questions we need to ask people to ensure that they are guided to the solution that is appropriate for them.

I agree with Dale that decumulation defaults and accumulation defaults are completely different things. In accumulation, there is more of a “one size fits all” approach, because it is all about delivering the best returns for members, whereas when you get to decumulation, it is very personalised, and you do not want to put people into something where they cannot change their mind. It needs to be flexible; people have a wide variety of different needs, and we are doing a lot of research on member needs at the moment.

[The Chair]

I call the Liberal Democrat spokesperson, Steve Darling.

[Steve Darling]

Q Thank you both for coming. Reflecting on pensions systems around the world, what one silver bullet would you both say would help drive positive change through this Bill and strengthen it if applied to it?

Colin Clarke: That is a good question. Both our companies have recently been on various trips, to Australia, in particular, and there are various references in the Bill impact assessment to measures that are being or have been done there. One of the key learnings is around improving adequacy. In the round, there are lots of measures in the Bill that will help achieve that—for example, the introduction of the value for money test and the potential for better returns. One of the learnings we took away was around Australia’s “Your Future, Your Super” test, how they define value for money and how appropriate it is to set certain benchmarks. What are the risks if you do set those benchmarks, like the risk of investment herding and things like that? I think the value for money framework, if it is done right, has the potential to improve outcomes for members.

Contributions, obviously, is one big thing—I know that is not in the Bill. The Pensions Commission is going to be looking at that for adequacy in the round. I think that the measures around performance and value, and ensuring that the focus shifts away from cost to value, are among the key things that the Bill will seek to deliver.

[Alice Macdonald (Norwich North) (Lab/Co-op)]

Q My question is related to that. Aviva, in your written evidence, you spoke quite a lot about the value for money framework. Could you expand on what you think the benefits and challenges are? You also referred to the Australian regulator’s model, in terms of learning. You have already covered a bit of it, but if there anything you could add on what we could learn from that model about incentivising investments in the right areas, that would be great.

Dale Critchley: What we have heard from Australia is that the thing to avoid is regulator-defined targets, which will probably lead to herding, and can lead to schemes avoiding certain investments. For example, in Australia, property includes social housing and commercial property, but there is one benchmark for everything. So pension schemes do not invest in social housing, because they cannot achieve the benchmark through investing in social housing, as the benchmark is common across all property. Those are things to watch out for.

The other piece is that if you have set benchmarks, people will look to achieve the benchmark and not exceed it—they do not want to be the white chicken among all the brown chickens. Those are the things to avoid, in terms of the value for money benchmarks.

[Rebecca Smith]

Q This builds on something that was mentioned in the previous panel by Age UK—that a lot of the education that will need to be done to ensure that people understand what is going on, particularly with the small pots consolidation, could fall on Government, charities or providers. As pension provider representatives, what is your view on how far into the detail the Bill has gone in terms of who is responsible for that? We have seen in other, similar legislation an expectation put on businesses to provide the service, and it is often done at your cost rather than any sort of Government cost. I would be interested to know what you think about that.

Colin Clarke: I think it is right that the Bill, as I understand it, places the responsibility for member education and member communications on the provider, because ultimately the pension provider will be the organisation facilitating these things and making them happen. As was touched on in the previous panel, the availability of Pension Wise and other services like that is valuable, but I think pension providers ourselves have a responsibility to make sure that we deliver the right guidance and support for members.

Dale Critchley: The only thing I would add to that is that, if we start to edge towards guidance, we can come into an issue around marketing. If we sell the benefits of, for example, the default solution, rather than just say, “This is who the default solution is designed for,” and leave it to the customer to join the dots, we may have a better outcome, but it would be marketing, and we cannot do that, because of the privacy and electronic communications regulations. We would need member consent to deliver marketing communications, even though we are trying to help the customer.

[Rebecca Smith]

Q Are you effectively saying that if you put the customer first, which is ultimately what this entire piece of legislation is trying to do, then, at the moment, other regulations will stop that from happening, so we might want to look at that?

Dale Critchley: Yes.

[Rebecca Smith]

The privacy piece came up earlier this morning as well, so that needs looking at.

Dale Critchley: If we deliver something that looks towards targeted support, where instead of just saying, “This is the solution you will go in if you make no choice,” we say, “This is the solution we think is best for you, and you will go in if you make no choice,” that would edge towards marketing, and we could not say that.

[Sarah Edwards]

Q I want to pick up on the changes around DC, and the fact that there are quite a lot of different things—we have talked about value for money, changes in scale and, obviously, default retirement ages. From your perspective, is there a sequencing that needs to happen to make sure that they work, and is that provided for? What would your guidance be around that?

Colin Clarke: I do not think the Bill itself necessarily has the timescales in it, because it will be left to secondary legislation to look at when all these things actually fit together. A very helpful document was published alongside the Bill, with a potential road map. There is a logical order in which certain things have to happen. For example, the value for money test will require movement of members from historical defaults into something that will deliver better value. To achieve that, the contractual override for contract-based schemes would need to be in place in good time before the value for money exercise happens. Otherwise, there will be constraints that might inhibit the ability to do that.

Similarly, with small pots, a lot of the measures will lead to consolidation at scheme level. That will address some, but not all, of the small pots issue. The road map sets out small pots being at the end, and that is a sensible place to put them, because there will be a lot of other activity that happens first that will solve some of the problems. It does not make sense for small pots to be moved before they are moved again—you could see things moving around a couple of times.

On guided retirement, the potential timing of implementation is quite tight if it is going to be 2027 for certain schemes, when we do not have any secondary legislation yet. It is very important that that is consulted on as soon as possible so that we have clarity. Dale mentioned working on various different solutions. We have been doing something similar at L&G, and they may well be the right thing for members, but we know that we will have to fit them around regulations and make some adjustments, so having clarity on those early would be very helpful.

[John Milne]

Q From your perspective, what would be the main obstacles or difficulties in fulfilling the value for money requirement in the Bill?

Dale Critchley: From a practical perspective, producing all the data. We need clarity in the regulations and clear definitions, so that everyone is producing the same data in the same way so that it can be compared.

Setting practical considerations aside, one of the risks is that there is a disjoint between the market and value for money. Value for money is looking at value. We still see lots of evidence in the market in terms of looking at price—“We want the cheapest thing possible”—not necessarily the best value. There is a potential tension there.

Longer term, there is the risk we pointed out around herding: if you set benchmarks, that creates a behaviour which, instead of optimising outcomes for members, produces an average. An example of that is in the metrics around service that are currently being thought about. They are what I have described as 20th-century metrics. Rather than metrics that are looking to engage members to drive decisions through electronic engagement, they are measuring, “How long does it take to change someone’s address? Have you got their national insurance number?” We think we could stretch things further, but that creates some challenges for some providers.

Colin Clarke: One of the other things that the industry as a whole needs to consider is around capacity. The value for money framework, if it is managed and regulated effectively, is going to result, ultimately, in members being moved into things that have the potential to deliver better value. All those kinds of projects take a lot of work and a lot of resource, so it would need to be managed carefully to make sure that the industry has actually got the capacity to manage the high volume of traffic that is going to be going through as funds consolidate.

[The Chair]

Mr Bedford, we do have a little time if you wish to ask a question.

[Mr Bedford]

Q I want to go back to your point around the value for money implementation, which a few Members have already raised. Specifically, there is always this competing challenge between satisfying the metrics that are in there and delivering returns for your investors. How do you see that balance in the Bill? Do you see it being too much one way, or do you see it hindering the performance of investment?

Colin Clarke: At a high level, the Bill, as it stands, is primarily rule-making powers. A lot of the detail is going to be in the secondary legislation. In terms of rule-making powers, as it stands, I think the Bill has the right provisions in place. The detail is going to be around the actual assessments that you have to follow for determining whether something is delivering value, not delivering, intermediate and so on. For me, getting that detail right in the secondary legislation is going to be quite key, as is having clarity at an early stage on what that is, so that it can go through the proper consultation paper and we can look at the risks and at whether there are any unforeseen consequences. At a high level, we know that the Bill’s rule-making powers set the right framework for that secondary legislation.

[The Chair]

If there are no further questions from Members, I thank our witnesses for their evidence. That brings us to the end of our morning session. The Committee will meet again at 2 pm in the Boothroyd Room to continue taking oral evidence.

Ordered, That further consideration be now adjourned.—(Gerald Jones.)

11:20

Adjourned till this day at Two o’clock.