Pension Schemes Bill (Sixth sitting)

(Limited Text - Ministerial Extracts only)

Committee stage
Tuesday 9th September 2025 Public Bill Committees

Division 11

Ayes: 3

Noes: 9

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

I beg to move amendment 92, in clause 38, page 41, line 8, leave out “of the totality”.

This amendment is consequential on Amendment 94.

[The Chair]

With this it will be convenient to discuss Government amendments 93 to 96 and 133.

[Torsten Bell]

It is wonderful to have you in the Chair, Ms Butler. Amendments 92 to 96 are minor amendments that clarify that any asset allocation percentage requirements should be calculated as a percentage of default funds, rather than as a percentage of the total assets of a scheme. That is how the Mansion House accord works and how these powers are intended to operate.

Amendment 133 simply ensures that the Government can remove redundant provisions from primary legislation should the sunset provisions—which as a result of Government amendment 228 will now appear in clause 101—cause the power we have been discussing to expire. I commend the amendments to the Committee.

Amendment 92 agreed to.

Amendments made: 93, in clause 38, page 41, line 9, after “in” insert “default”.

This amendment confines the application of the asset allocation requirement to default funds of a relevant Master Trust or a group personal pension scheme.

Amendment 94, in clause 38, page 41, leave out lines 10 to 14 and insert—

“(2) Regulations under subsection (1) may prescribe a percentage by reference to—

(a) all of the assets of the scheme that are held in default funds, or

(b) a prescribed description of the assets of the scheme that are so held.”.

This amendment clarifies that a percentage may be prescribed under section 28C(1) in respect of either all the default funds of a scheme or a particular subset of those default funds.

Amendment 95, in clause 38, page 41, line 15, leave out “or (2)”.

This amendment is consequential on Amendment 94.

Amendment 96, in clause 38, page 41, line 18, leave out from “description” to end of line 19.—(Torsten Bell.)

This amendment is consequential on Amendment 93.

Amendment proposed: 275, in clause 38, page 41, line 31, at end insert—

“(5A) A description of asset prescribed under subsection (4) may not be securities in any UK water company.”—(Mark Garnier.)

This amendment would ensure that the prescribed percentage of asset allocation would not include assets in the water sector and fund trustees will not be compelled to allocate scheme assets to the water sector.

Question put, That the amendment be made.

Division 12

Ayes: 2

Noes: 9

Amendment made: 97, in clause 38, page 41, leave out line 40.—(Torsten Bell.)

This amendment removes the “common investment strategy” element from the definition of “default funds” to avoid confusion with how that term is used in section 28A and 28B.

[Torsten Bell]

I beg to move amendment 98, in clause 38, page 42, line 12, leave out “relevant Master Trusts or” and insert—

“the trustees or managers of relevant Master Trusts or the providers of”.

This amendment clarifies that legal obligations fall on the trustees or managers of relevant Master Trusts or on the providers of group personal pension schemes (rather than on the schemes themselves).

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 99 to 105.

New clause 32—Impact Assessment for defined benefit schemes’ asset allocation changes—

“(1) Before implementing any regulatory or policy change for defined benefit schemes’ asset allocation, the Secretary of State must assess the impact of such a change on schemes’ asset allocations.

(2) To determine the impact of a change outlined in subsection (1), the Secretary of State must consult with—

(i) the Debt Management Office,

(ii) industry stakeholders, and

(iii) such individuals or organisations as they deem appropriate.

(3) If the assessment under subsection (1) determines that a change could result in schemes shifting away from owning gilts to equities, the Secretary of State must publish an impact assessment before the implementation of the change.”.

This new clause requires an impact assessment for defined benefit schemes’ asset allocation changes.

[Torsten Bell]

I will start with the Government amendments and then turn to new clause 32. The amendments relate to proposed new section 28C and specify more detail about the role of the regulator in over- seeing the granting and withdrawal of approvals under this section, including a penalty-making power where a provider does not comply with the relevant requirements, and a clarification to ensure that subsection (14) on the interaction of these provisions with scheme documentation operates as intended.

New clause 32 would require the Secretary of State to conduct an impact assessment—and I appreciate, as I am sure the Opposition will come to shortly, that it is an impact assessment for a particular purpose—before implementing any regulatory or policy change for defined-benefit schemes’ asset allocation. First, let me reassure the hon. Member for Wyre Forest that the Government have no plans to make such changes to defined-benefit schemes’ asset allocation. I reiterate that the reserved powers contained in the clause only relate to defined-contribution workplace schemes. There are no plans to change defined-benefit asset allocations through the Bill. Therefore, the new clause is not considered necessary, and I encourage the hon. Member not to press it. I am sure he will want to make some wider points about the changes in asset allocation within defined-benefit schemes, and their impact on the wider economy.

[Mark Garnier (Wyre Forest) (Con)]

I rise to speak to new clause 32, which looks at the effects of some of the changes on the UK gilt market. Defined-benefit pension schemes are major holders of UK Government bonds, with pension funds holding around 28% of the gilt market —the UK Government bond market—as of early 2022. Those investments provide stable, long-term funding for the UK Government and are essential to the functioning of the debt market.

Significant shift by DB schemes away from gilts and into equities—which, in itself, is not a bad thing, as long as it does not happen in a disorganised way, which could be prompted by policy changes—may reduce the demand for gilts, potentially increasing yields and destabilising the market. At the end of the day, if 28% of the ownership of the gilt market is taken away, somebody else needs to be found to buy it. Otherwise, there will be a falling market. We all know what a gilt crisis looks like for pension funds. The 2022 gilt crisis highlighted the market’s vulnerability to large and sudden sales by pension funds, which triggered a fire-sale spiral and required Bank of England intervention to stabilise prices. It was not a good day. The Debt Management Office and market experts have noted that the gilt market is highly reliant on pension fund investment, and any structural reduction in demand could impact Government borrowing costs and market stability.

The Office for Budget Responsibility has highlighted concern about the impact of a low gilt allocation scenario, which is likely if the Bill achieves the outcomes that the Government want. A low gilt allocation scenario would mean that pension sector allocation of gilt holdings would drop to 10% of GDP by around 2040, down from around 30% today. That in itself, all other things being equal, would result in an extra £22 billion of debt interest payments on the current gilt market. We are highly concerned that a wholesale move from the gilt market by the pension industry places even more burden on the Treasury to manage debt payment. As the deficit continues to grow, the Government must have laser focus on the impact on the gilt market in relation to how they fund Government debt.

The new clause introduces a requirement for an impact assessment before any regulatory or policy changes that could materially alter DB schemes’ asset allocations away from gilt. It should mandate consultation with the Debt Management Office and industry stakeholders to monitor and mitigate risk to market stability. We are not trying to stop the Government persuading pension funds into equities or other alternative investments, but we need a proper conversation with the Debt Management Office about what that means for the cost of Government borrowing, which could potentially be significant.

[Torsten Bell]

I will not speak for long. The hon. Member is absolutely right to say that defined-benefit schemes have been material buyers of gilts over a long period. The market is perhaps deeper and more robust than what some of his remarks might imply. There is a range of participants in our gilt markets. However, I take the point that pension schemes are one of them. Contributions such as those from the Office for Budget Responsibility are valuable in that debate, and I reassure him on two fronts. First, I know that he did not mean it quite like this, but the deficit is not growing this year; in fact, it is falling by around 1% of GDP, marking us out from some other countries. Secondly, he is absolutely right to say that the DMO should and does engage with market participants across a wide range of matters. However, on that basis, and on the basis that the Bill does not envisage changes in DB schemes’ asset allocations, I ask him to withdraw the new clause.

Amendment 98 agreed to.

--- Later in debate ---

[Kirsty Blackman (Aberdeen North) (SNP)]

I rise to support amendment 276. It is similar to some of the points that I brought up earlier, which were also brought up in the oral evidence session, about the consistency and existence of that pipeline and the fact that it needs to be there. Reviewing in advance of a decision being made on mandation would be the sensible thing.

I mentioned earlier the issue with chickens and eggs—which comes first?—and I think the amendment brings more of a focus in primary legislation on ensuring that the pipeline exists in order that these companies and organisations can meet their commitments under the Mansion House agreement. It is all well and good for them to have the Mansion House agreement, but if the opportunities are not there and are not investment-ready, it will be difficult for them to meet those targets. This is a sensible amendment, and I am more than happy to support it.

[Torsten Bell]

Before I come to the detail of the amendment, I should re-emphasise the point made by my hon. Friend the Member for Tamworth about the volume of amendments to clause 38 in particular, which is why I asked for the amended clause with track changes to be circulated to the whole Committee. I hope that Members have found that useful.

Turning to the amendment, I have a lot of sympathy for what my hon. Friend is trying to achieve. It is important that we monitor progress on the Mansion House commitments and continue to stay focused on the strength of the pipeline. There are parts of the Bill that would already facilitate that, including data collection that is consistent with monitoring the Mansion House progress, and the strength of the pipeline, which was obviously relevant to consideration of the saver’s interest test, and thus left in the Bill. I suggest that, given our sympathy with the idea of this amendment but its interactions with several other existing parts of the Bill, we commit to reviewing it with a view to deciding whether we should come back with something similar on Report, if the hon. Lady is content with that.

[Sarah Edwards]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 105, in clause 38, page 43, line 7, at end insert—

“(and for that purpose, a provision of the trust deed or rules of the scheme is ‘in conflict’ with provision under this section so far as the former does not allow for the assets of the scheme to be managed in such a way as to meet the conditions for approval under this section)”.

This amendment clarifies the application of section 28C(14).

Amendment 106, in clause 38, page 43, line 8, leave out subsection (15).—(Torsten Bell.)

This amendment is consequential on Amendment 129.

[Torsten Bell]

I beg to move amendment 107, in clause 38, page 43, line 9, at end insert—

“28CA Information

(1) Regulations may make provision about information that the trustees or managers of a relevant Master Trust or the provider of a group personal pension scheme must give to the Regulatory Authority about the allocation of assets of the relevant Master Trust or group personal pension scheme.

(2) The regulations may make provision about—

(a) the types of information that must be given;

(b) when it must be given;

(c) the form and manner in which it must be given.”

This new section would allow regulations to require the provision of information about asset allocation to the Secretary of State and the Regulatory Authority.

The amendment is supplementary to a provision in the introduced Bill, proposed new section 28C(10)(d), which permits the Government to make regulations about the provision to regulators of information relating to the allocation of assets by the relevant pension providers. The amendment ensures that, in the event that the regulator does not possess crucial information that the Government require in order to design the possible asset allocation framework, or to write the report on saver and growth impacts that they will be legally required to produce, the Government can obtain that information via the regulators.

[Kirsty Blackman]

I want to ask the Minister why the amendment has been tabled. Have the regulators asked for it so that they can get the information they need, or has the provision been identified by the Government? Basically, what consultation is being done to ensure that the amendment makes sense and is doing what people need it to do?

[Torsten Bell]

The direct answer is that, yes, the amendment comes from discussions with regulators, to make sure that the flow of information is sufficient to live up to Parliament’s intent and that meaningful reports on the saver and growth impacts can be provided.

Amendment 107 agreed to.

[Torsten Bell]

I beg to move amendment 108, in clause 38, page 43, line 19, at end insert “, and

(b) has a credible plan in place for meeting the scale requirement within the meaning of section 28A(2)”.

This amendment makes it a condition of approval for transition pathway relief that a Master Trust has a credible plan in place for meeting the scale requirement.

[The Chair]

With this it will be convenient to discuss Government amendments 109 and 131.

[Torsten Bell]

This group of amendments deals with the transition pathway relief, which we touched on earlier in the context of support for innovation within the pension landscape.

First, amendments 108 and 109 amend proposed new section 28D so that, to be approved on the transition pathway, a master trust or group personal pension scheme respectively must produce a credible plan for meeting the scale requirements, before the end of the pathway. I should clarify what I said earlier, sorry—this is the transition pathway; we are not talking about the new entrant pathway.

In addition, via amendment 131, we are inserting new subsection (15A) into clause 38, to ensure that the pathway will expire five years after the scale requirements come into force. We accept that in certain circumstances schemes may need more time to reach scale, but we want the end destination—going back to our conversation about scale and certainty that scale will be achieved—to be clear. I commend these minor amendments to the Committee.

[Mark Garnier]

I thank the Minister for talking through the amendments. We understand the intention behind them, but we are worried that, as can often be the case, there may be an unintended consequence: the creation of a closed shop for master trusts. We do not want suddenly to find that, in trying to make a transition pathway, we end up making things more difficult because it has been interpreted in the wrong way. We are minded to oppose the amendments, but perhaps the Minister could instead give us his thoughts on how we can ensure that they do not get used the wrong way and that we do not end up with a closed shop of master trusts.

[Steve Darling (Torbay) (LD)]

I echo what the shadow Minister has just highlighted. We all want the reform that the Bill introduces, but we do not want what results from this process to be set up forever, with a lack of opportunity for change; I will talk a little further about that when we come to new clause 3. Some reassurance from the Minister that there is an opportunity for new entrants and innovation would be extremely welcome.

[Torsten Bell]

I apologise for my slip of the tongue at the start of my speech. This group of amendments deals with transition pathway relief. Here, in many cases we are talking about existing schemes that may not meet the £25 billion threshold, but which have a plausible path to that scale requirement over the following five years—I think that is a point of consensus across the Committee. That is what we are engaging with here. It is a reasonable approach to avoid a cliff edge, for exactly the reason that the shadow Minister set out.

[Mark Garnier]

I completely understand that. The question is, what is plausible? One man’s plausible might be another man’s impossible. That is the bit that we are worried about: how to ensure that someone is not squeezed out who otherwise could be in it.

[Torsten Bell]

I completely recognise that. Let me say a few words about how we have tried to balance those tests. We want to see the industry get to scale, and we want clarity about what the end point is, but we want to provide a pragmatic approach to how we get there. Balancing that is what drove us to the five-year approach, which is different from some of the earlier discussions in the pensions investment review about an earlier, harder deadline of 2030.

Within the Bill there is flexibility for regulators where people are just approaching the deadline or in other situations, to avoid difficult situations where people’s authorisation is put into question at short notice. That is important, but so is providing the clarity that they will be required to get to scale. It cannot be a never, never. It needs to be a pathway to a destination; it cannot just be a hope.

I think that we have taken a pragmatic, balanced approach, but I appreciate that others will have their views. There will be those in the industry who will worry that they may not be on track to meet those scale requirements, but that is in the nature of the beast of our saying that the industry needs to change. I appreciate that that will mean some change for some organisations. We have tried to be flexible and to take a pragmatic approach.

Amendment 108 agreed to.

Amendments made: 109, in clause 38, page 43, line 28, at end insert—

“, and

(b) has a credible plan in place for meeting the scale requirement within the meaning of section 28B(2).”

This amendment makes it a condition of approval for transition pathway relief that a group person pension scheme has a credible plan in place for meeting the scale requirement.

Amendment 110, in clause 38, page 43, line 33, leave out “authorisation” and insert “approval”.

This amendment is to ensure that new section 28D of the Pensions Act 2008 refers correctly to an approval under new section 28A or 28B of that Act.

Amendment 111, in clause 38, page 44, line 15, after “20(1A)” insert “or section 26(7C)(c)”.—(Torsten Bell.)

This amendment corrects an omission so that new section 28E of the Pensions Act 2008 works effectively for group personal pension schemes.

[Torsten Bell]

I beg to move amendment 112, in clause 38, page 44, line 20, at end insert—

“(za) the scheme in question does not yet have any members,”

This amendment ensures that relief under section 28E is only available to schemes that are not yet operational.

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 113 to 115.

New clause 3—New market entrants: scale and asset allocation—

“(1) In making regulations under Chapter 3, the Secretary of State must have regard to the need to identify and mitigate barriers faced by new market entrants in the defined contribution pensions market.

(2) The Secretary of State must consider how regulations will—

(a) foster a competitive environment that supports innovation among new and existing providers;

(b) ensure fair access to the market for schemes with strong potential for growth and an ability to innovate, including those not yet meeting prescribed scale thresholds.”

This new clause would require the Secretary of State to consider the effect of regulations under Chapter 3 on scale and asset consolidation on new market entrants.

--- Later in debate ---

[Torsten Bell]

These amendments clarify aspects of the approval criteria for prospective new entrants into the multi-employer DC market after the scale requirements come into force. Amendment 112 requires that a new prospective provider must have no current members—it must actually be new to the market. We want to ensure that the route is used only by those for whom it is intended, rather than as a loophole around the main intent of the Bill.

Amendment 113 requires that new entrants have strong potential to grow in order to meet the scale requirements under section 28A, and that the prospective scheme in question has an innovative product design. I think we will come to the question of product shortly, but to skip ahead, the regulations would allow us to talk about innovation in the nature of the service, not just in the product. That is a question for us to take away in the design of those regulations. That is not in the Bill itself, but it is an important clarification.

The remaining amendments in this group are consequential on amendment 113. They will offer greater clarity to potential applicants to this pathway, and I commend them to the Committee.

I thank the hon. Member for Torbay for tabling new clause 3 and acknowledge his wish that the pathway for new entrants into the DC multi-employer market be as supportive as possible for new providers. We of course agree with that sentiment. We want to see fewer, bigger schemes, but not a lack of competition in the longer run, even though we are a long way from that.

From an innovation viewpoint, the new clause is not necessary to achieve that aim. Competition will come from the possibility of innovation, but must also flow into the building of scale, which is the overall intent of the legislation. Given that the spirit of the new clause is achieved by the new entrants pathway, I ask the hon. Gentleman not to press it to a vote.

[Steve Darling]

It is a pleasure to serve under your chairmanship, Mr Turner.

Will the Minister put a little more flesh on the bone in respect of the ladder of opportunity for new entrants? We need to make sure that we do not end up with a system with large schemes and nobody being able to get into the super-league of opportunity that we have currently. We want to see innovation over time and hoped that, through the new clause, we could bake that into the system. We can have aspirations for how future Ministers deal with these matters, but we must give confidence to the industry in respect of future entrants, so that it continues to be a vibrant industry that drives investment and growth for people’s pensions. That is essential. We would be extremely grateful for some more flesh on the bone.

--- Later in debate ---

[John Milne (Horsham) (LD)]

To add briefly to the comments of my hon. Friend the Member for Torbay, I emphasise that with new clause 3 we are taking a non-prescriptive approach. It says that

“the Secretary of State must have regard to the need to identify and mitigate barriers faced by new market entrants in the defined contribution pensions market.”

It is a very gentle ask. We are all very aware of the issues today, but will they still be in everybody’s mind in the future?

[Torsten Bell]

I will come back on the question about the word “product” and definitions. I reassure the Committee that I will go away and make sure that is clear if it is not clear enough already.

The core Liberal Democrat question is, are we baking innovation in? It is a good question for us all to be asking. I think the answer is yes. To broaden the conversation out slightly, we want to see innovation from existing providers as well. We anticipate that there will still be 15 or so large providers in the 2030s. That is still a highly competitive market. Not just looking at costs but also at customer service and all the rest in the value for money regime should be a spur to that innovation. That is a key part of the set of clauses we were discussing last week.

I should explicitly note that the scale tests do not cover the most obvious innovation that is likely to come in the market in the coming years, which is CDC schemes. By their nature, if they are to be successful, they will get to scale anyway, but to make their path easier and to be clear that we do see a role for CDC innovation moving forward, those are not part of these requirements. The innovation pathway exists for exactly this reason, as we have discussed.

Several Members have raised a question about consultation. I confirm that there is a requirement for a public consultation, which should certainly learn lessons that go beyond the experience of the pensions industry to the wider financial services sector—lessons of competition entry. We talked about that in the banking sector earlier, but the same thing would apply, for example, to other parts of the insurance sector and others. We will take that away. We are very conscious at the moment, in our wider approach to regulation, of providing earlier authorisation, where that can be done. I suspect we may come back to that in the superfunds discussion later this week.

Amendment 112 agreed to.

Amendments made: 113, in clause 38, page 44, leave out lines 21 and 22 and insert—

“(a) the scheme in question has strong potential to grow so as to meet the scale requirement under section 28A,

(aa) the scheme in question has an innovative product design, and”.

This amendment ensures that the eligibility conditions for new entrant pathway relief are more precisely articulated.

Amendment 114, in clause 38, page 44, line 34, leave out from “of” to “(including” in line 35 and insert “ “strong potential to grow” and “innovative product design” ”.

This amendment is consequential on Amendment 113.

Amendment 115, in clause 38, page 44, line 36, leave out from “has” to end of line 37 and insert “strong potential to grow or an innovative product design”.

This amendment is consequential on Amendment 113.

Amendment 116, in clause 38, page 45, leave out lines 1 and 2.—(Torsten Bell.)

This amendment is consequential on Amendment 129.

[Torsten Bell]

I beg to move amendment 117, in clause 38, page 45, line 4, leave out “may” and insert “must”.

This amendment, together with Amendment 118, means that regulations about suspending the requirement for approval under section 28C have to have effect at any time when section 28C has effect as a result of regulations under that section.

[The Chair]

With this it will be convenient to discuss Government amendments 118 to 124.

[Torsten Bell]

This is a group of minor amendments, mostly aiming at improving the clarity of proposed new section 28F, for example by removing duplication. I draw Members’ attention to the most significant amendments, which are amendments 117 and 118. They make clear that the Government must introduce the savers’ interest exemption mechanism if they are to introduce asset allocation requirements. That is a “must” rather than a “may” because the Government’s intention is that there must always be a savers’ interest exemption.

[Kirsty Blackman]

I have a brief comment on Government amendment 117. Because there were so many amendments, it was quite difficult to ensure that the Minister went through all of them with a fine-toothed comb. The explanatory statement for this one does not make any sense to me—it perhaps makes sense to other people. Reading the explanatory statement was deeply unhelpful, and I ended up being more confused than I was before. I appreciate the intention—what the Minister said amendment 117 was for—and the way that he described the rest of the amendments in this group, but I am pointing out for future reference that it would be helpful if we could understand the explanatory statements.

[Torsten Bell]

Noted.

Amendment 117 agreed to.

Amendments made: 118, in clause 38, page 45, line 9, at end insert—

“(1A) The Secretary of State must make regulations under subsection (1) so that they have effect whenever regulations under section 28C(1) or (2) have effect.”

See the explanatory statement for Amendment 117.

Amendment 119, in clause 38, page 45, line 14, leave out “the scheme or”.

This amendment means the asset allocation requirement can only be suspended where it would cause material financial detriment to the members of a scheme.

Amendment 120, in clause 38, page 45, line 15, leave out from “the scheme” to end of line 17.

This amendment simplifies the description of what may be done by regulations under new section 28F(1).

Amendment 121, in clause 38, page 45, line 17, at end insert—

“(aa) may make provision about the basis on which the Authority may or must form such a view, including about the evidence which the Authority may or must take into account;”.

This amendment clarifies that the regulations can circumscribe the basis on which the FCA or TPR can reach a view on the material financial detriment test in subsection (2)(a).

Amendment 122, in clause 38, page 45, line 23, at end insert—

“(c) must provide for the Authority’s determination on an application to be referred to the Upper Tribunal.”

This amendment ensures that decisions on an application for the suspension of the asset allocation requirement will be referable to the Upper Tribunal.

Amendment 123, in clause 38, page 45, leave out lines 24 to 26.

This amendment is consequential on Amendment 121.

Amendment 124, in clause 38, page 45, line 28, after “as” insert “material”.

This ensures that regulations under subsection (4) can also make provision about what kind of detriment is classed as “material”.

Amendment 125, in clause 38, page 45, line 30, leave out subsection (5).—(Torsten Bell.)

This amendment is consequential on Amendment 129.

[Torsten Bell]

I beg to move amendment 127, in clause 38, page 45, line 31, at end insert—

“28G Risk notices

(1) The Regulatory Authority (‘the Authority’) may give a risk notice to the trustees or managers of a relevant Master Trust if the Authority considers that—

(a) there is an issue of concern in relation to the relevant Master Trust, and

(b) the relevant Master Trust will, or is likely to, cease to meet the conditions for approval under section 28A or 28C if the issue is not resolved.

(2) A ‘risk notice’ is a notice that requires the trustees or managers of a relevant Master Trust to submit to the Authority a plan (a ‘resolution plan’) setting out proposals for resolving the issue of concern.

(3) A risk notice must—

(a) identify the issue of concern;

(b) specify the date by which the resolution plan is to be submitted.

(4) If the Authority is not satisfied that the proposals in a resolution plan are likely to be adequate to resolve the issue of concern, the Authority may give a further notice to the trustees or managers requiring them to submit a revised plan by a date specified in the notice.

(5) The trustees or managers must implement the proposals in a resolution plan if the Authority—

(a) is satisfied that the proposals are likely to be adequate to resolve the issue of concern, and

(b) notifies the trustees or managers accordingly.

(6) The Authority may direct the trustees or managers to comply with the requirement imposed by subsection (5).

(7) Where the trustees or managers are required by subsection (5) to implement the proposals in a resolution plan, they must—

(a) submit to the Authority, before the end of a period specified in regulations, a report setting out what progress they are making in implementing the proposals (a ‘progress report’);

(b) submit further progress reports to the Authority at intervals specified by the Authority.

(8) Resolution plans and progress reports must be provided in the manner and form specified by the Authority.

(9) A reference to a resolution plan in subsections (4) to (8) includes a reference to a resolution plan as revised under subsection (4).

(10) Regulations may—

(a) specify information that a risk notice must contain;

(b) provide that the date referred to in subsection (3)(b) or (4) must fall before the end of a period specified in the regulations.

(11) Section 10 of the Pensions Act 1995 (civil penalties) applies to a trustee or manager of a relevant Master Trust who fails to comply with—

(a) a notice under subsection (1) or (4),

(b) a direction under subsection (6), or

(c) a requirement imposed by subsection (7).”

This amendment allows the Regulatory Authority to issue risk notices to the trustees or managers of a relevant Master Trust or the provider of a group personal pension scheme if there were an issue in relation to the scheme relating to the quality requirement.

[The Chair]

With this it will be convenient to discuss Government amendments 128 and 126.

[Torsten Bell]

These amendments relate to compliance and enforcement. Government amendment 127 allows the Pensions Regulator to issue risk notices to the trustees or managers of a relevant master trust or the provider of a group personal pension scheme if there were an issue in relation to the scheme relating to the quality requirement. This will require the relevant master trust to develop a resolution plan to address the regulator’s concerns. The regulator may then direct the relevant master trust to implement the measures in that plan.

Amendment 128 allows regulations to make provision for the imposition of penalties where a relevant master trust or GPP scheme accepts contributions from an employer when it should not. It will allow the regulator to issue penalties of up to £100,000 in relation to each employer from which contributions continue to be accepted. It will also give the provider the right of appeal against the penalty.

Amendment 126 enables the FCA to monitor and enforce compliance of any FCA-regulated person in scope of chapter 3 of part 2 of the Bill. It also provides that the Treasury may make regulations to enable the FCA to take action for monitoring and enforcing compliance of any FCA-regulated person with any provision under chapter 3. I commend the amendments to the Committee.

[Kirsty Blackman]

It looks like these amendments came up because of conversations with the regulator, which is looking to ensure that it can use the powers that the Bill intends to create. This is not the first time we have had amendments that have been suggested by the regulator. I would appreciate it if the Minister could go away, and, perhaps when he is making regulations or bringing forward future legislation on pensions, ensure that he has more in-depth chats with the regulator in advance, so the original legislation can be drafted in a way that will work for the regulator, rather than having to be amended after Second Reading.

[Torsten Bell]

Point noted.

Amendment 127 agreed to.

Amendments made: 128, in clause 38, page 45, line 31, at end insert—

“28H Penalties

(1) Regulations may make provision about the imposition by the Regulatory Authority of a penalty on the trustees or managers of a relevant Master Trust or the provider of a group personal pension scheme where the scheme—

(a) fails to meet the condition in section 20(1A) by virtue of not being approved under section 28A or 28C, and

(b) accepts contributions from an employer in relation to a jobholder on the basis that it is an automatic enrolment scheme in relation to that jobholder.

(2) Regulations may make provision about the imposition by the Regulatory Authority of a penalty on the provider of a group personal pension scheme where the scheme—

(a) fails to meet the condition in section 26(7A) or (7B), and

(b) accepts contributions from an employer in relation to a jobholder on the basis that it is an automatic enrolment scheme in relation to that jobholder.

(3) The regulations must provide—

(a) that a penalty must not exceed £100,000 in relation to each employer from which contributions are accepted as mentioned in subsection (1)(b) or (2)(b), and

(b) that there is a right of appeal against the imposition of the penalty.”

This amendment allows regulations to make provision for the imposition of penalties where a relevant Master Trust or a group personal pension scheme accepts contributions from an employer in relation to a jobholder on the basis that it is an automatic enrolment scheme in relation to that jobholder.

Amendment 126, in clause 38, page 45, line 31, at end insert—

“28I Enforcement by the Financial Conduct Authority

(1) The Treasury may make regulations to enable the Financial Conduct Authority to take action (in addition to any action it may otherwise take under the Financial Services and Markets Act 2000) for monitoring and enforcing compliance of any FCA-regulated person with any provision of or under this Chapter.

(2) The regulations may apply, or make provision corresponding to—

(a) provision made by or under this Part in relation to the Regulator, or

(b) any provision of the Financial Services and Markets Act 2000,

with or without modification.

(3) In this section, ‘FCA-regulated person’ means an authorised person (within the meaning of the Financial Services and Markets Act 2000).”

This amendment allows monitoring and enforcement functions to be conferred on the FCA in relation to the compliance of FCA-regulated persons with provisions of or under Chapter 1 of the Pensions Act 2008, including the new provisions on scale and asset allocation.

Amendment 129, in clause 38, page 46, line 9, leave out subsection (14) and insert—

“(14) In section 99 (interpretation of Part)—

(a) the existing words become subsection (1);

(b) in that subsection, at the appropriate places insert—

‘“group personal pension scheme” means a personal pension scheme which is available, or intended to be available, to employees of the same employer or of employers within a group, but does not include—

(a) a stakeholder pension scheme (as defined in section 1 of the Welfare Reform and Pensions Act 1999), or

(b) any pension scheme that requires all its members to make a choice as to how their contributions are invested;’;

‘“Regulatory Authority” has the meaning given by regulations under subsection (2);’;

‘“relevant Master Trust” has the meaning given by section 20(4);’;

(c) after that subsection insert—

‘(2) The Secretary of State may by regulations define “Regulatory Authority” for the purposes of this Part.’”

This amendment consolidates certain interpretative provisions. It also amends the definition of “group personal pension scheme” so that only schemes where all members select their investment approach are excluded.

Amendment 130, in clause 38, page 46, line 19, leave out “26(7A), 28E” and insert—

“26(7A), (7B), (7C) or (7E),”.

This amendment, together with Amendment 132, ensures that regulations relating to the new scale and asset requirements are subject to affirmative parliamentary procedure.

Amendment 131, in clause 38, page 46, line 20, at end insert—

“(15A) The following provisions of the Pensions Act 2008 (which relate to transition pathway relief) are repealed at the end of the period of 5 years beginning with the day on which they come into force—

(a) paragraph (c) of Condition 1 in section 20(1A);

(b) section 26(7C)(b);

(c) section 28D;

(d) the word ‘28D’ in section 143(5)(a).”

This amendment provides for transition pathway relief to cease to be available 5 years after the commencement of the scale requirement.

Amendment 132, in clause 38, page 46, line 20, leave out “28C,” and insert—

“28C (other than subsection (10)(d))), 28D, 28E, 28F, 28H, 28I,”.

See the explanatory statement for Amendment 130.

Amendment 133, in clause 38, page 46, line 21, leave out subsection (16) and insert—

“(16) If this section is repealed under section 101(5A) (repeal where asset allocation requirement uncommenced) in respect of the insertion of the provisions mentioned in that subsection, the Secretary of State may by regulations amend this section in consequence of that repeal.

(17) Regulations under subsection (16) are subject to the negative procedure.”—(Torsten Bell.)

This amendment is related to Amendment 228. It allows for regulations to be made tidying up the various references to the asset allocation requirement in clause 38 in the event that the power to commence that requirement is never exercised.

Question put, That the clause, as amended, stand part of the Bill.

Division 13

Ayes: 10

Noes: 3

Clause 38, as amended, ordered to stand part of the Bill.

Amendments related to section 38

[Torsten Bell]

I beg to move amendment 134 in clause 39, page 46, line 36, after “2008” insert—

“in relation to the scale requirement in section 28B or the asset allocation requirement in section 28C,”

This amendment, together with Amendment 135, ensures that provisions in or under the Pensions Act 2008 are added to section 204A of the Financial Services and Markets Act 2000 (meaning of “relevant requirement” and “appropriate regulatory”) only so far as they relate to the scale requirement or the asset allocation requirement.

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 135 to 137.

Clause stand part.

Clause 40 stand part.

[Torsten Bell]

As amended, the clause introduces consequential amendments relating to clause 38 to ensure that the changes needed for the asset allocation and scale measures appropriately wire into existing legislation. The clause does this by making amendments to the Financial Services and Markets Act 2000 and the Pension Schemes Act 2017. The clause makes an insertion into section 1A and an amendment to section 204A of the 2000 Act. It ensures that the FCA’s statutory functions are extended, which would include its new enforcement functions for clause 38 in relation to scale and asset allocation.

The second part of the clause adds new authorisation criteria for master trusts into the 2017 Act. These new criteria will require trustees of a master trust to satisfy the Pensions Regulator that they have a sufficient investment capability and continue to have a main scale default arrangement. Introducing these criteria will enable implementation of the Government’s policy objective, set out in the final report of the pension investment review, to ensure schemes utilise the benefits of scale to deliver better investment outcomes.

The clause sets out factors that the Pensions Regulator will be required to consider in deciding that the master trust authorisation criteria are met and enables further detail to be set out in regulations. The effect of these additions to the authorisation regime are essential as they help to drive capability within master trusts. I commend clause 39 to the Committee.

Government amendments 134 and 135 ensure that the necessary extension of the FCA’s authorisation functions under FSMA encompass only its new role in overseeing the scale and asset allocation requirements and does not extend to other non-relevant requirements in the Pensions Act 2008. It has a constraining effect.

Government amendment 136 makes it clear that the addition to section 5 in part 1 of the Pension Schemes Act 2017 regarding decisions on application is about the scheme meeting the scale requirements under condition 1 of section 20(1)(a) of the Pensions Act 2008. Government amendment 137 gives the Secretary of State the ability to set out the meaning of terms in specific areas. I urge Members to support Government amendments 134 to 137.

Clause 40 deals with the application of scale and asset allocation measures to Crown schemes. The substantive provisions in chapter 3 take the form of amendments to the Pensions Act 2008, the Pension Schemes Act 2017 and the Financial Services and Markets Act 2000. These Acts already deal with application to the Crown in their own way, and it is not the intent of the Government to disrupt or confuse these settled positions. Accordingly, after consideration, we seek to delete this clause. To be clear, I do not commend the clause to the Committee.

Amendment 134 agreed to.

Amendments made: 135, in clause 39, page 46, line 38, after “2008” insert

“in relation to the scale requirement in section 28B or the asset allocation requirement in section 28C,”

See the explanatory statement for Amendment 134.

Amendment 136, in clause 39, page 47, line 10, leave out “quality” and insert “scale”

This amendment changes a parenthetical description so that it is clearer.

Amendment 137, in clause 39, page 47, line 27, leave out from “(2)” to end of line 32 and insert—

“(4) The Secretary of State may by regulations—

(a) make provision about the meaning of terms used in subsection (2);

(b) specify further factors that the Pensions Regulator must take into account in deciding whether it is satisfied about the matters mentioned in subsection (1).

(5) The first regulations that are made under this section are subject to affirmative resolution procedure.

(6) Any other regulations under this section are subject to negative resolution procedure.”— (Torsten Bell.)

This amendment expands the power currently in the new section 12A(3) of the Pension Schemes Act 2017, created by clause 39(11) of the Bill, so as to allow the Secretary of State to make provision about the meaning of terms in new section 12A(2) of the Pension Schemes Act 2017.

[Torsten Bell]

I beg to move amendment 138, in clause 39, page 47, line 32, at end insert—

“12B Scale requirement

(1) The Secretary of State may by regulations make provision about how the Pensions Regulator is to decide whether it is satisfied that a Master Trust scheme that has its main administration in the United Kingdom meets Condition 1 in section 20(1A) (scale requirement) of the Pensions Act 2008.

(2) The regulations may, among other things, specify matters which the Pensions Regulator must take into account in making its assessment.

(3) The first regulations under this section are subject to affirmative resolution procedure.

(4) Any subsequent regulations under this section are subject to negative resolution procedure.”

This amendment inserts in the Pension Schemes Act 2017 a power to make regulations about how the Pensions Regulator is to decide whether a Master Trust meets the scale requirement.

It is with some relief that I reassure Members this is the last amendment to this section of the Bill. Government amendment 138 amends one of the new authorisation criteria for master trusts that the Bill inserts into the Pension Schemes Act 2017, which provides that a master trust scheme must meet the scale requirement. It grants the Government the power to make regulations about how the pensions regulator should satisfy itself that a master trust scheme has met the scale requirements. I commend the amendment to the Committee.

Amendment 138 agreed to.

Clause 39, as amended, ordered to stand part of the Bill.

Clause 40 disagreed to.

Clause 41

FCA-regulated pension schemes: contractual override

[Torsten Bell]

I beg to move amendment 140, in clause 41, page 48, line 22, after “2008” insert “or section 3(2), 5(2) or 7(3) of the Pensions (2) Act (Northern Ireland) 2008 (c. 13 (N.I.))”

This amendment extends the application of the contractual override measure to Northern Ireland pension schemes.

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 141 to 146.

Clause stand part.

[Torsten Bell]

We now come to the contractual override part of the Bill. This group of amendments expands the scope of clause 41 to apply to Northern Ireland pension schemes. Just like in Great Britain, many pension scheme members in Northern Ireland will be in arrangements delivering poor value and outcomes. However, due to a lack of engagement from members, there is often little providers can do to address that. Extending these changes to Northern Ireland will help to solve that. These amendments will create better outcomes for pension scheme members in Northern Ireland, and I therefore ask the Committee to support these amendments.

Amendments 143 and 144 add another layer of consumer protection to the already rigorous consumer protections we have included in the Bill. Currently a provider is required to receive certification from an independent person with sufficient expertise that the best interest test has been met. To clarify, that test requires the provider that wishes to use the contract override to carry out an assessment that it is in the interests of scheme members that the override take place. That test then has to be certified by an independent person. This is about strengthening that independent person test. The amendments require the Treasury to make regulations defining “independence” by specifying requirements which must be met by an independent person before they can be appointed, and ensure that the independent person has no conflict of interest. The FCA is then required to include the provisions made by these regulations in its rules. The amendments make an important change to the Bill by ensuring there will be clear rules on who can undertake this important role, and I therefore commend them to the Committee.

Clause 41 inserts proposed new part 7A, on what we call the contractual override mechanism—referred to as a unilateral change—into the Financial Services and Markets Act 2000. This will enable providers of FCA-regulated, defined-contribution workplace pension schemes —note we are talking about FCA-regulated, defined-contribution workplace schemes only—to override the terms of a pension scheme without the consent of members and either transfer members to a different pension scheme, make a change that would otherwise require consent, or vary the terms of members’ contracts, but only when certain clear conditions, including most importantly the best interest test, are met. This will establish broad equivalence with the trust based market, where these changes are already available, so trustees already have these powers within the trust-based market. It will also create better outcomes for consumers, deliver on a long-awaited industry ask, and help drive scale and consolidation within the sector, achieving the consolidation we talked about in relation to the previous clause. It is an important enabler of those changes.

The clause also amends sections 105, 168 and 429 of FSMA to ensure that the contractual override mechanism can work as intended, and to ensure that the appropriate parliamentary procedures apply to regulations that are made under this part, and that amend or repeal primary legislation. I commend the clause to the Committee.

Amendment 140 agreed to.

Amendments made: 141, in clause 41, page 48, line 24, leave out from “member”” to end of line 25 and insert

“means an active member within the meaning of Part 1 of the Pensions Act 2008 (see section 99 of that Act) or Part 1 of the Pensions (2) Act (Northern Ireland) 2008 (c. 13 (N.I.)) (see section 78 of that Act).”

This amendment is consequential on Amendment 140.

Amendment 142, in clause 41, page 48, line 33, leave out from “arrangements”” to end of line 34 and insert

“means direct payment arrangements within the meaning of section 111A of the Pension Schemes Act 1993 or section 107A of the Pension Schemes (Northern Ireland) Act 1993.”— (Torsten Bell.)

This amendment is consequential on Amendment 140.

[Sarah Edwards]

I beg to move amendment 278, in clause 41, page 49, line 26, at end insert

“and only after VFM assessments are available to the Trustees as part of the decision making process.”

This amendment would restrict external transfers until VFM assessments are available to ensure that Trustees can carry out their fiduciary duty.

The amendment relates to contractual override. It may have been covered in the new drafting of the clauses, as it was tabled on the previous text. The Minister may have seen this potential eventuality, and it may be provided for elsewhere, but we have spoken at length in Committee about the importance of pensions adequacy and about the landscape moving towards a higher membership of defined-contribution schemes.

The amendment is an attempt to bridge the gap presented by the delay between the regulations’ implementation, and to ensure that investments are made not on the basis of low-cost, low-risk funds prior to the regulations being implemented, which potentially would lock down investments. It is another small addition that clarifies the importance of the value for money framework, which the Bill is championing, and it adds to the requirement of consent in the provision by adding focus on ensuring that value for money assessments are available prior to the transfer, as an extra protection for trustees to carry out their fiduciary duty.

[Torsten Bell]

I thank my hon. Friend. She is right that it is important that we think through how to line up the value for money work with the question we are now turning to on contractual overrides. I will come back to distinguish between the data that comes through the value for money process and the actual formal assessments themselves, which is what is referred to in the amendment. We agree that the value for money data is vital for ensuring consumer protections, and it is why the implementation of the contractual override mechanism is already being timed so that it is in conjunction with the value for money framework. The very keen can read that in the road map we set out in June, which gets into exactly those questions.

To go into a bit more detail—and I appreciate that my hon. Friend already knows this—the data for the value for money assessment will be available ahead of the formal assessments, and it is on that basis that people will be able to go ahead with some forms of contract override—for example, when they are moving members within parts of the individual providers, so they would have all the information that they require.

My hon. Friend raised a specific question about when people are being transferred between schemes. Should that always wait for the full value for money assessments? I will give her another commitment that I will take that away and consider it. There may be some circumstances in which that information is available, and we do not wish to unduly constrain providers, but it is a reasonable point for us to be discussing. As I say, she is right to raise the point about the interaction between the value for money data, including its visibility to other people, and the contractual override. If she is happy to withdraw the amendment, I will consider whether we can provide further clarity on the point on Report.

[Sarah Edwards]

On that basis, I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Mark Garnier]

I beg to move amendment 257, in clause 41, page 53, line 7, at end insert—

“117GA FCA guidance

(1) The FCA must issue guidance on contractual overrides.

(2) Guidance on contractual overrides must include—

(a) when and how overrides can be used;

(b) how to demonstrate transfers are always in members’ best interests; and

(c) how contractual overrides are independently certified.”

Amendments 255, 256 and 257 ensure that contractual override powers are operational in advance of the first value for money assessments.

The amendment is very similar to amendment 278, which was tabled by the hon. Member for Tamworth. The industry has highlighted to us a concern that the Government’s proposed sequencing will not provide enough time between contractual overrides becoming permissible and VFM assessments being conducted, which will totally undermine the effectiveness of consolidation and value improvement. Pensions UK has encouraged the Government to accelerate that and to bring forward the implementation to allow schemes to make progress on consolidation sooner, so that the override is in place well in advance of the VFM framework.

We drafted amendment 257 with the idea that if transfers took place before the VFM framework was implemented, further guidance from the FCA would be required on how and when overrides could be used. However, we welcome the compromise set out in amendment 278, which would ensure that external transfers do not take place until VFM assessments are available. Frankly, that amendment is better-crafted than ours. If we had done them the other way around, I would have deferred to the advice of the hon. Member for Tamworth on whether she wanted to move the amendment. She was right to withdraw her amendment, and we will withdraw ours, but I urge the Minister to write to us both on the outcome of this matter before Report. It would be useful to have his comments beforehand so that we can challenge him on Report, and possibly move the amendment again—who knows?

[Torsten Bell]

As the hon. Member has asked so kindly, I assure him that I will write to him and to my hon. Friend the Member for Tamworth ahead of Report.

[Mark Garnier]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 143, in clause 41, page 53, line 8, leave out “Powers to make” and insert “Treasury”.

This amendment is consequential on Amendment 144.

Amendment 144, in clause 41, page 53, line 25, at end insert—

“(1A) The Treasury must by regulations require the FCA to include provision of a description specified in the regulations in general rules made in compliance with section 117E(4)(a) (how to determine whether a person is independent), alongside any other provision included in such general rules.

(1B) Regulations under subsection (1A) must in particular require the FCA to include in such general rules provision designed to ensure that the independent person does not have a conflict of interest.”

This amendment requires the Treasury to make regulations about the requirements that need to be met by an independent person appointed under section 117E.

Amendment 145, in clause 41, page 53, line 38, leave out from “benefits”” to end of line 39 and insert

“means money purchase benefits within the meaning of the Pension Schemes Act 1993 (see section 181(1) of that Act) or the Pension Schemes (Northern Ireland) Act 1993 (see section 176(1) of that Act);”.

This amendment is consequential on Amendment 140.

Amendment 146, in clause 41, page 54, line 3, leave out from “scheme”” to end of line 4 and insert

“means a personal pension scheme within the meaning of the Pension Schemes Act 1993 (see section 1(1) of that Act) or the Pension Schemes (Northern Ireland) Act 1993 (see section 1(1) of that Act);”.—(Torsten Bell.)

This amendment is consequential on Amendment 140.

Clause 41, as amended, ordered to stand part of the Bill.

Clause 42

Default pension benefit solutions

[Torsten Bell]

I beg to move amendment 147, in clause 42, page 55, line 9, leave out “eligible members” and insert “each eligible member”.

This amendment clarifies that trustees or managers are required to make a default pension benefit solution available to every eligible member of the scheme.

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 148 to 155.

Clause stand part.

[Torsten Bell]

We now move from the contractual override provisions of the Bill to the default pension benefit solutions. This is a material change to our pension landscape, as the defined contribution landscape has matured, as I will come to. Again, I am glad that there has generally been cross-party consensus on the issue.

Clause 42 is pivotal in ensuring that members of defined-contribution pension schemes are provided with default options for pension benefit solutions when they want to access their pension assets, thereby reducing the complexity for individuals of securing an income in and through later life. These solutions must be designed to provide a regular income to members during retirement. The clause makes provision for an exemption where that would not be appropriate. We intend to set out in regulations what is meant by

“designed to provide a regular income”

and by “retirement”.

Members will have access to pre-designed benefit solutions that are tailored to meet the needs of the scheme’s membership. The intention is that, normally, individuals need not make a decision about how they would take their pension benefits, except to confirm that they want to start receiving payment. The clause also provides for periodic reviews to be prescribed to ensure that the solutions remain appropriate.

Not only will this measure support our commitment to enhancing the pension system robustness and ensuring that members normally benefit from a later-life income with the necessary communications of governance alongside it, but it will potentially provide the trustees with a level of assurance in relation to the investment strategy, enabling decisions about investment in longer-term assets, which will support the opportunity for investment in productive assets, including in the UK. The Opposition spokesperson, the hon. Member for Wyre Forest, raised that point in another context, but in this part of the DC landscape in particular, this provision means that schemes will not need to move all assets into safer assets as people approach retirement, if they are clear about the product that people will be in during their retirement.

Government amendments 147 to 155 are minor. They provide clarity on what is a default pension benefit solution, who is an eligible member and what is a relevant scheme, and they provide for the negative parliamentary procedure for subsequent regulations relating to when, and in what circumstances, default pension benefit solutions need to be reviewed.

--- Later in debate ---

[Kirsty Blackman]

If you will give me a bit of leeway, Mr Turner, I promise to speak only once on default pension benefit solutions. I might stray slightly outwith clause 42.

I am looking for clarity from the Minister on default pension benefit solutions. We have heard a lot of concern about how communications cannot be made to members, how there are possible issues with advertising and how members are communicated with. Can the Minister confirm that he is taking that concern seriously and has ensured that, under the General Data Protection Regulation and other data protection legislation, schemes can communicate legally with members in order to provide pension benefit solutions without being traced by the Information Commissioner’s Office or marketing regulators? Providers have raised that concern regularly.

I made it clear on Second Reading and in the oral evidence sessions that I think this proposal is a good thing. It is a massive concern that so many people are taking a lump sum without any plan for what that might look like or how the rest of the money will enable them to continue to live their life as they would like. I am really pleased that we are moving towards a better situation. However, we have not asked providers to do this before; it is something new. Providers will have to upskill themselves to make this change, both in their conversations with scheme members and in assessing whether the solutions that they provide are the correct ones.

Pension providers and insurers are used to putting people in boxes and saying, “This is a box of people for whom this solution might work.” However, some providers may not be used to clumping people together like that and providing solutions that will work for as many of them as possible. I do not think that there is a different way to do it. However, I would appreciate reassurance from the Minister that this will be kept under review; that there will be a significant amount of conversation with providers, as well as with scheme members who are receiving advice or a direction to a default scheme; and that regulators will keep an eye on whether the suggested default pension benefit solutions are appropriate for as many people as possible.

Of particular interest to me is the review timescale. What will happen to ensure that the proposal is working as intended? As I say, I think it is the right thing to do, but I want to make sure it works. I want people to have the best possible outcomes in retirement. If the position is marginally better than it is today, that will be good but not great. It would be lovely if it were way better, and if people were being suggested or guided to the solutions most appropriate for them. We do not just want to move from people dumping everything in a bank account to some people not doing so. It would be great to know that the solutions provided were working for a majority of people.

I would welcome any comfort that the Minister can give me on the review period and on what reassurance Parliament will have that people are being offered the solutions. As I say, provided that I get decent answers from him, I will be quite happy not to talk again for this entire portion of the Bill. I am sure that people will be delighted to hear that.

[Torsten Bell]

I thank the hon. Lady for rightly raising the important question of communication to members. I draw the Committee’s attention to clause 44, which explicitly aims, in quite some detail, to engage with that question. It contains requirements on providers—again, with the detail to come in regulations—about how they set out their general policy, but also how they communicate to particular individuals as they head towards retirement and, potentially, enrolment in a default solution.

It is absolutely right to say that this measure is new for providers, for regulators and for the industry in the UK, and we should always have that in mind. We should take some comfort from the success of automatic enrolment in doing something new. Other countries had moved to auto-enrolment solutions ahead of us, and the same is true here to a degree. In Australia, there is a similar pattern: it has got further ahead in terms of the average size of pots, has seen some of the negative outcomes that we can potentially see in the data in the UK, and has then moved to a version of this and is working that through. We will be able to learn from its experience, as well as just working this through ourselves.

The hon. Lady asked how the measure will be taken forward. We aim to launch a public consultation in the spring and summer next year. These requirements would come in earlier than some of the wider changes that the Committee has discussed—on small pots, for example, which will come far later, and on value for money. We think it is urgent that we get on with this, because we are approaching a situation in which DC pots will be significant for some members, but I completely appreciate her point that it is a large change for the industry.

Clause 44 requires some direct communications with members. I reassure the hon. Lady that there is nothing in the GDPR or other data protection requirements that would prevent providers from communicating in that way. They will not require consent from members to do it, which is important, because otherwise it would not be effective. There are wider questions about direct marketing—communications that are not about setting out the actual situation—in this space, and I am considering those. They are tied up with questions about targeted support and the rest, but it is important for us to continue thinking about this in the pensions space, where there is a history of downsides to direct marketing. We want to make sure that this is not that, but provision of information about the working of a scheme of which someone is a member.

[Kirsty Blackman]

Once this measure beds in—once we have people being moved to default benefit solutions, or those boxes and the solutions have been created—how will it be kept under review? Will there be a process for review five years down the line, when a significant number of people have been moved to default benefit solutions, to ensure that it is working as intended and that any potential problems that Australia perhaps did not come across can be ironed out?

[Torsten Bell]

I thank the hon. Lady for that question. There is not a formal requirement on the Secretary of State to carry out a review as we are going. My honest view is that any regulator and Secretary of State will want to actively monitor what happens. I very strongly expect that this will be discussed at great length at every single pension conference around those years, because all the providers will be talking to each other about how they are taking these things forward.

The hon. Lady will remember the discussion last Tuesday with some providers, including the National Employment Savings Trust and People’s Pension, about how they are already planning to bring these solutions forward. Although they are new for the industry, most providers had already been thinking about this, because they know that it would be the right thing to do even if there were not a Government requirement to do it, and because I have been clear with them for quite some time that this is the direction of travel in both the trust market and the GPP market.

I am not sure that we need a rigid, set date for a review, but I will take away the hon. Lady’s wider question about what reassurance we can offer that people will be actively monitoring what has happened rather than just watching and seeing what happens. I can certainly write to the regulators, for example, to make it clear that that will be our expectation.

Amendment 147 agreed to.

Amendments made: 148, in clause 42, page 55, line 11, at beginning insert

“at least in such circumstances or”.

This amendment allows for regulations to provide that particular events (as well as times or intervals) trigger a requirement to review default pension benefit solutions.

Amendment 149, in clause 42, page 55, line 13, leave out “relevant” and insert “pension”.

This amendment ensures that the definition of “pension benefit solution” is capable of operating in relation to a pension scheme that is not a relevant scheme (such as a collective money purchase scheme).

Amendment 150, in clause 42, page 55, line 25, leave out

“as a default pension benefit solution,”

and insert

“of the scheme as the pension benefit solution under which—

(i) the eligible members of the scheme generally, or

(ii) a subset of those eligible members,

will receive pension payments unless they choose to receive pension payments under a different pension benefit solution,”.

This amendment clarifies the definition of “default pension benefit solution”.

Amendment 151, in clause 42, page 55, line 40, at end insert

“;

(d) such other factors as may be prescribed.”—(Torsten Bell.)

This amendment allows other factors to be added by regulations to the factors that trustees or managers of a relevant scheme have to take account of in determining what default pension benefit solutions the scheme should make available.

[Steve Darling]

I beg to move amendment 279, in clause 42, page 55, line 40, at end insert—

“(4A) The trustees or managers of a relevant scheme, in determining whether to adopt or vary a default pension benefit solution, must—

(a) issue a written notice of the proposal to all members of the scheme, including—

(i) the expected impact on benefits and investment strategy, and

(ii) a written attestation that a market-wide assessment of all available options was undertaken;

(b) ensure a consultation period of at least 60 days has elapsed;

(c) confirm that fewer than 10 per cent of eligible members have objected in writing.”

This amendment adds the “without member opposition” safeguard to defined contribution schemes when changes to default pension benefit solutions are considered. It also requires a whole of market assessment to ensure the best solutions are chosen for members.

It is a privilege to move the amendment, because as Liberal Democrats we want to make sure that pensioners are at the heart of the Bill, as do many colleagues of different parties in this room, I am sure. For us, it is about driving a positive culture of engagement. The expectations that these proposals would place on managers or trustees would drive a positive engagement culture, as well as putting guardrails and protections around investments. I would welcome the Minister’s reflections on how the Bill would tackle our aspiration for the positive engagement culture that I am sure all Members in the room wish to see achieved through the Bill.

[Torsten Bell]

The amendment is absolutely right that trustees should consider a wide range of options when they are developing their default pension benefit solutions. As I have just remarked to the hon. Member for Aberdeen North, I suspect that that will be a big focus for trustees and scheme managers in the years ahead. Clause 48 does make provision for trustees or managers to consider the needs and interests of scheme members. I would emphasise that as the priority, as opposed to considering every option already on the market, because we are looking for them to develop the right solutions. In most but not all cases, that will be in-house; we will come back to some of the cases where they will not be doing that. We do not want to make it sound like an off-the-shelf situation in lots of cases, although I appreciate that doing their job will require them to look across the market.

I have a slight worry about setting a hard 10% of membership expressing an objection as a way of vetoing an approach. First, in many cases, there will not be a single default solution for members within a scheme; there will be a number of them for different cohorts within that scheme, not least based on the size of pots or their wider situation. We do not want a subset of a scheme to be able to vote down the solutions for everybody within the scheme, which is what the amendment would allow. The amendment would also allow those who are a very long way from retirement to shape the outcomes for those who are about to come to retirement.

My most important point, however, is that individuals have an absolute right to opt out. Although we talk in terms of default, just as we talk about automatic enrolment, the purpose is that this is a softer default than automatic enrolment. That is partly because we are expecting multiple defaults, not a single one where everyone is required to save at least a certain amount, but also because people will be able to opt out and have a range of different defaults.

I hope that I have provided reassurance that the Bill already includes important safeguards, and that trustees and scheme managers will already need to consider the issues that the Liberal Democrat amendment rightly puts on the table.

[Steve Darling]

I thank the Minister for his positive feedback. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 152, in clause 42, page 56, line 1, leave out

“are to assess the needs and interests of its”

and insert

“of a scheme are to assess the needs and interests of the scheme’s”.

This amendment corrects a minor verbal inconsistency.

Amendment 153, in clause 42, page 56, line 14, leave out “money purchase benefits” and insert

“benefits falling within paragraph (a) of the definition of ‘money purchase benefits’ in section 181(1) of the Pension Schemes Act 1993”.

This amendment restricts the definition of “eligible member” of a relevant scheme so that it does not include members who are accruing or entitled to collective money purchase benefits.

Amendment 154, in clause 42, page 56, line 16, leave out “established under a trust”.

This amendment amends the definition of “relevant scheme” so schemes that are not established under a trust may fall within the definition.

Amendment 155, in clause 42, page 56, line 25, at beginning insert “(1)(b) or”.—(Torsten Bell.)

This amendment provides for negative parliamentary procedure for regulations that prescribe when or in what circumstances default pension benefit solutions need to be reviewed.

Clause 42, as amended, ordered to stand part of the Bill.

Clause 43

Transferable members

[Torsten Bell]

I beg to move amendment 156, in clause 43, page 56, line 29, leave out—

“a member of the scheme”

and insert—

“eligible members of the scheme (whether comprising the members of the scheme generally or a subset of those members)”.

This amendment clarifies how the exclusion in clause 43(1) operates.

[The Chair]

With this it will be convenient to discuss Government amendments 157 to 160 and 165.

[Torsten Bell]

We have now reached clause 43—the clause that deals with the situation I mentioned briefly earlier, which is where a scheme thinks that it is in the best interests of its members that the default solution is provided by another scheme or provider, and it sets out how that should take place. Amendments 156 to 160 and 163 and 165 all relate to the operation of providing pension benefit solutions via transfers to another scheme. The intention of the amendments is merely to provide helpful clarifications or to otherwise ensure that the clauses operate in line with the policy intent.

Amendment 156 clarifies that trustees or managers may choose to offer to transfer all the scheme’s members to another scheme for the purpose of providing a pension benefit solution, or just a subset of those members—as I said before, there may be a different cohort within each scheme with the right default for them. Amendment 158 clarifies that it will be for trustees or managers of a relevant scheme to determine whether it is reasonably practical for the scheme to provide a default pension benefit solution. Amendment 160 clarifies that trustees or managers of a relevant scheme may offer to transfer members to another scheme if they have determined that the other scheme would provide a better outcome for those members than they would provide within their own scheme—again, the interests of members should come first.

Amendments 157 and 159 are consequential amendments. Amendment 163 clarifies that trustees or managers of a relevant scheme must arrange for transfers to take place and not just facilitate them. That ensures that members should be supported through the whole process—we do not want schemes thinking their job is done as soon as they have set out that process, and leaving members to wrestle with it. These are minor but important technical amendments. They do not alter policy. I ask the Committee to support them.

Amendment 156 agreed to.

Amendments made: 157, in clause 43, page 56, line 30, leave out from “such” to end of line 31 and insert—

“members are referred to in this Chapter as ‘transferable members’.”

This amendment is consequential on Amendment 156.

Amendment 158, in clause 43, page 56, line 32, leave out from “that” to “to design” in line 33 and insert—

“the trustees or managers of the principal scheme have determined that it is not reasonably practicable for them”.

This amendment makes the first condition in clause 43(2) subject to the determination of the trustees or managers.

Amendment 159, in clause 43, page 56, line 33, leave out “that member” and insert “the members concerned”.

This amendment is consequential on Amendment 156.

Amendment 160, in clause 43, page 56, line 36, leave out from “have” to end of line 38 and insert—

“determined that a qualifying pension benefit solution of a qualifying scheme (other than the principal scheme) will provide a better outcome for the members concerned than any default pension benefit solution that the trustees or managers of the principal scheme could design and make available to them.”—(Torsten Bell.)

This amendment clarifies the application of the second condition in clause 43(3).

[Torsten Bell]

I beg to move amendment 161, in clause 43, page 57, line 1, leave out “and willing” and insert “to and agrees”.

This amendment is consequential on Amendment 174.

[The Chair]

With this it will be convenient to discuss Government amendments 162 to 164, 175, 174 and 176.

[Torsten Bell]

In cases where trustees or managers of a relevant scheme have determined that it is not reasonably practical to provide a solution themselves, or that better member outcomes could be achieved if another scheme delivered a solution, they can arrange for the transfers to be made. That is what clause 43 permits. Whether a member is receiving a default solution in-house or being transferred to another scheme to receive that solution, the policy intent is that the member experience should be broadly similar—there should not be a difference in their experience of it. Amendment 164 seeks to ensure that there is parity in the requirement placed on schemes. In particular, the amendment requires schemes to ensure that a scheme receiving transferable members is able to provide a pension benefit solution that meets the needs and interests of the scheme’s membership.

Amendment 174 aims to ensure that no scheme will be left in a position where it is unable to comply with the wider guided retirement provisions due to factors outside their control. There is a requirement on schemes to provide guided retirement under the Bill, but if there are factors outside their control that make that difficult, we want to have a backstop that is provided by introducing a power to designate schemes of last resort, which could be used to facilitate transfers from any relevant pension scheme for the purpose of providing a qualifying pension benefit solution. Hon. Members will think of the similar approach that NEST provided in auto-enrolment world—although we are not intending to need it in this case—where employers would always have a scheme they could go to, given that there was a requirement on them to enrol employees.

Amendments 161, 162 and 174 merely provide helpful clarifications or otherwise ensure that clause 43 operates in line with the policy intent. Amendment 176 applies the negative parliamentary procedure to regulations relating to highly technical aspects of the policy. These amendments, taken together, provide for small targeted changes to clause 43, and I encourage hon. Members to support them.

Amendment 161 agreed to.

Amendments made: 162, in clause 43, page 57, line 7, at beginning insert

“at such times or in such circumstances as may be prescribed,”.

This amendment allows for regulations to specify when transfer arrangements need to be entered into.

Amendment 163, in clause 43, page 57, line 8, leave out “facilitating relevant transfers” and insert

“effecting a relevant transfer to that scheme”.

This amendment clarifies that schemes will be required to arrange with receiving schemes to carry out relevant transfers (not just to facilitate them).

Amendment 165, in clause 43, page 57, line 9, leave out

“steps required by the regulations”

and insert “prescribed steps”.

This amendment corrects a verbal inconsistency.

Amendment 164, in clause 43, page 57, line 9, at end insert—

“(5A) In carrying out the step in subsection (5)(a), the trustees or managers of the principal scheme must have regard to the matters mentioned in section 42(4) (and for that purpose references in those paragraphs to “the scheme” are to the principal scheme).

(5B) Section 42(5) applies for the purposes of subsection (5A) as it applies for the purposes of section 42(4).

(5C) The trustees or managers of the principal scheme must, at least in such circumstances or at such times or intervals as may be prescribed, review the suitability of any qualifying pension benefit solution in respect of which they have identified a qualifying scheme as mentioned in subsection (5)(a).”—(Torsten Bell.)

This amendment ensures that schemes are subject to similar duties in respect of their “transferable members” to the duties to which they are subject in respect of other eligible members.

[Torsten Bell]

I beg to move amendment 167, in clause 43, page 57, line 10, leave out “In subsection (5)(a)(ii)” and insert “In this Chapter,”.

This amendment reflects the fact that “qualifying pension benefit solution” is, as a result of other amendments, now used more widely in the Chapter.

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 166 and 168 to 173.

Clause stand part.

[Torsten Bell]

We now move to the substance of clause 43 and the proposed amendments. Clause 43 allows schemes to partner with another for the purpose of delivering a suitable pension solution to their membership—or cohorts of their membership. It allows those transfers to qualifying pension benefit solutions when either providing an in-house solution is not reasonably practicable, or a solution offered by another scheme is deemed to provide a better outcome for members. It requires trustees or managers of the principal scheme to identify qualifying schemes that provide solutions that meet the requirements of their membership. That could, for example, include transferring members to a collective defined-contribution scheme. Power is also taken to limit or prohibit the charging of transfer fees. This clause is vital overall, as it provides the flexibility that I have discussed in the course of debate on the previous group of amendments and allows trustees to deliver the best outcomes for their members.

Amendment 154 removes a drafting error and clarifies that all occupational pension schemes that provide defined-contribution benefits are included in the definition of relevant scheme, not just those established under a trust. Whether a pension scheme member is receiving a default solution in-house or being transferred to another scheme to receive a qualifying solution, as I said earlier, the policy intent is that they have a similar experience.

Amendments 166 to 169 and 173 ensure that there is a parity of requirements on schemes in those cases. Amendments 170 and 171 are consequential amendments, while amendment 172 corrects a minor inconsistency in language. I commend them and the clause to the Committee.

Amendment 167 agreed to.

Amendments made: 166, in clause 43, page 57, line 10, after “solution”” insert

“, in relation to a qualifying scheme,”.

This amendment is consequential on Amendment 167.

Amendment 168, in clause 43, page 57, line 12, leave out “receiving”.

This amendment is consequential on Amendment 167.

Amendment 169, in clause 43, page 57, line 15, leave out

“eligible members of the receiving”

and insert “members of the”.

This amendment is consequential on Amendment 167, and also reflects the fact that a qualifying scheme need not necessarily be a relevant scheme, so the reference to “eligible members” (which is defined by reference to “relevant schemes”) is not right in all cases.

Amendment 170, in clause 43, page 57, line 16, leave out “eligible”.

This amendment reflects the fact that a qualifying scheme need not necessarily be a relevant scheme, so the reference to “eligible members” (which is defined by reference to “relevant schemes”) is not right in all cases.

Amendment 171, in clause 43, page 57, line 17, leave out “eligible”.

This amendment reflects the fact that a qualifying scheme need not necessarily be a relevant scheme, so the reference to “eligible members” (which is defined by reference to “relevant schemes”) is not right in all cases.

Amendment 172, in clause 43, page 57, line 21, leave out “But”.

This amendment makes a minor verbal change in light of other amendments to clause 43.

Amendment 173, in clause 43, page 57, line 23, leave out “subsection (5)” and insert “this section”.

This amendment reflects the fact that, as a result of other amendments, “qualifying scheme” is used more widely in the section.

Amendment 175, in clause 43, page 57, line 35, at end insert—

“(9A) Regulations may make provision about the conditions in subsections (2) and (3), including about the basis on which the determinations mentioned in those subsections are to be made.”

This amendment allows for regulations to make provision elaborating on the conditions in subsections (2) and (3).

Amendment 174, in clause 43, page 57, line 35, at end insert—

“(9B) Regulations may require a pension scheme of a prescribed description to agree to receive a transfer in respect of the accrued rights of a transferable member where—

(a) the principal scheme has been unable, having used reasonable endeavours, to identify a qualifying scheme that is able and willing to do so, and

(b) any other prescribed conditions are met.

(9C) A requirement under subsection (9B) may only be imposed on a pension scheme that is one or both of the following—

(a) a Master Trust scheme within the meaning of the Pension Schemes Act 2017;

(b) a consolidator scheme within the meaning of Chapter 2 of Part 2 (consolidation of small dormant pension pots).”

This amendment allows for regulations to require certain schemes to act as schemes of last resort in cases where the principal scheme cannot find a qualifying scheme that is willing to receive a transfer.

Amendment 176, in clause 43, page 57, line 40, at beginning insert

“Regulations under subsection (5C), (10) or (11) are subject to the negative procedure; and other”.—(Torsten Bell.)

This amendment applies negative parliamentary procedure to regulations under subsection (5C), (10) or (11).

Clause 43, as amended, ordered to stand part of the Bill.

Clause 44

Provision and gathering of information

[Torsten Bell]

I beg to move amendment 177, in clause 44, page 58, leave out line 2 and insert

“Where only one pension benefit solution is available to the members of a relevant scheme,”.

This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 178 to 195.

Clause stand part.

[Torsten Bell]

Clause 44 relates to the provision of information to members about the solution or solutions that they offer them. We discussed the clause earlier with the hon. Member for Aberdeen North. The clause requires schemes to communicate and describe the default pension benefit solutions available and the circumstances for those for whom it would be suitable. Powers are taken to make further provisions in secondary legislation. The key policy behind the clause is to ensure that scheme members are well informed about their pension options. The Bill requires all communications issued by schemes to be in clear and plain language, which will help members to make better decisions regarding their retirement income.

The clause allows trustees or managers to request relevant information from their members to determine what an appropriate default solution would be for their membership. Pension schemes will also have the ability, and potentially be required, to gather information from their members to ensure that where a scheme has multiple default pension benefit solutions, the member receives communications about the one deemed most appropriate for them. For example, what wider pension provision people have is important when they think about what is the right solution for them.

Amendment 177, 179 to 181, 183, 186, 187, 190 and 192 to 195 ensure that clause 44 operates in relation to qualifying pension benefit solutions, as well as default pension benefit solutions. That change will mean that the same communication requirements will apply irrespective of whether a scheme member is being transferred to another pension scheme to receive a pension benefit solution or staying with the same scheme. Amendments 178, 182, 184, 185, 188, 189 and 191 provide minor language changes to improve consistency across the Bill.

Clause 44 is essential for promoting informed decision making among scheme members.

Amendment 177 agreed to.

Amendments made: 178, in clause 44, page 58, line 3, leave out “the member” and insert

“each eligible member of the scheme”.

This amendment corrects a minor verbal error.

Amendment 179, in clause 44, page 58, line 5, leave out “member’s default”.

This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.

Amendment 180, in clause 44, page 58, line 8, leave out “default”.

This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.

Amendment 181, in clause 44, page 58, line 9, leave out from beginning to “the trustees” in line 10 and insert

“Where more than one pension benefit solution is available to the eligible members of a relevant scheme,”.

This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.

Amendment 182, in clause 44, page 58, line 10, leave out “the member” and insert

“, each eligible member of the scheme”.

This amendment corrects a minor verbal error.

Amendment 183, in clause 44, page 58, line 12, after “solution” insert

“or qualifying pension benefit solution”.

This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.

Amendment 184, in clause 44, page 58, line 14, leave out “option” and insert “solution”.

This amendment makes a clarificatory change to the tag used in clause 44(2).

Amendment 185, in clause 44, page 58, line 17, leave out

“the default pension benefit solution”

and insert “the specified solution”.

This amendment is consequential on Amendment 184.

Amendment 186, in clause 44, page 58, line 18, leave out “member’s default”.

This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.

Amendment 187, in clause 44, page 58, line 27, leave out from “of” to “is” in line 29 and insert

“a default pension benefit solution or qualifying pension benefit solution and an explanation that such a solution”.

This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.

Amendment 188, in clause 44, page 58, line 29, leave out “an” and insert “a regular”.

This amendment makes the language of clause 44(4)(b) consistent with clause 42(3)(b).

Amendment 189, in clause 44, page 58, line 31, leave out “eligible members” and insert “each eligible member”.

This amendment makes a minor clarificatory change.

Amendment 190, in clause 44, page 58, line 32, leave out

“the default pension benefit solutions offered by the scheme”

and insert

“the pension benefit solutions available to the eligible members”.

This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.

Amendment 191, in clause 44, page 58, line 34, leave out paragraph (b).

This amendment is consequential on Amendment 190.

Amendment 192, in clause 44, page 58, line 38, leave out from “describing” to end of line 40 and insert

“a particular pension benefit solution that the trustees or managers consider to be suitable for the eligible member in question;”.

This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.

Amendment 193, in clause 44, page 59, line 2, leave out “default”.

This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.

Amendment 194, in clause 44, page 59, line 10, leave out “default” and insert

“, or in the case of transferable members identifying,”.

This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.

Amendment 195, in clause 44, page 59, line 11, leave out “default”.—(Torsten Bell.)

This amendment ensures that clause 44 operates in relation to qualifying pension benefit solutions as well as default pension benefit solutions.

Clause 44, as amended, ordered to stand part of the Bill.

Clause 45

Information etc in connection with selection of benefit solution

[Torsten Bell]

I beg to move amendment 196, in clause 45, page 59, line 27, leave out “offer” and insert “provide or make available”.

This amendment allows for regulations either to require information to be provided directly to members or to require it to be made available to them.

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 197 to 202.

Clause stand part.

[Torsten Bell]

The purpose of the clause is to help improve pension engagement so that individuals can make better decisions themselves if they want to do so. As I said earlier, this is about softer defaults than we have in the case of automatic enrolment. The clause grants a power to make regulations requiring schemes to offer and provide information to assist members in the selection of their pension benefit solutions. The clause also includes a regulation-making power that could require schemes to monitor rates of decumulation —that is the drawdown of the pension pot used by members—and issue warnings if they believe that that should be changed. That could be used to help prevent individuals from inadvertently running out of money in later life, or it could even be used to recommend increasing withdrawals. Again, we have talked a lot about Australia. I do not know whether we are feeling patriotic at the moment, but one of the lessons from Australia is that in many cases one of the dangers is insufficient drawdown, and people under-consuming in later life. In either case, this approach could potentially help to prevent people from living in poverty during retirement, either because they are not spending enough or because they are drawing down too much early on.

The Government’s broader objective is that individuals need not make any decisions about how their savings are invested or how they should take their pension benefits, except to confirm that they want to start receiving payment. That is a big change from the status quo, which is very complicated at the point someone approaches retirement. However, I want to emphasise that individuals will retain their pension freedoms and are able to opt out of any default, should they wish to do so.

This provision allows for members to receive information to enable engaged and engageable members to make informed decisions. The clause includes a power to require that the information provided is based on members’ individual circumstances, where those are known to the scheme. The intention is that relevant general information will be provided to individuals. The policy behind this clause is to help bridge knowledge gaps and enhance members’ understanding of their options.

I turn to the associated amendments. Amendments 196 and 201 provide clarity that information may be sent directly to scheme members or made available to them, for example via websites. Amendments 198 and 199 clarify that schemes may be required to provide information to their members on any of the options available to them under pension freedoms, not just those available under the default scheme. Amendment 202 clarifies that schemes may tailor the information provided to scheme members using information already held by the scheme. Amendment 197 requires that information provided to scheme members under clause 45 must be

“in clear and plain language”.

Finally, amendment 200 removes some unnecessary wording.

The amendments are all technical in nature. They are not intended to change, but to enhance the deliverability of the policy.

Amendment 196 agreed to.

Amendments made: 197, in clause 45, page 59, line 28, after “information” insert

“expressed in clear and plain language”.

This amendment requires that information required by regulations under clause 45 be in clear and plain language, mirroring the requirement in clause 44(6).

Amendment 198, in clause 45, page 59, line 30, leave out “default”.

This amendment, together with Amendment 199, ensures that clause 45 operates in respect of pension benefit solutions other than default pension benefit solutions.

Amendment 199, in clause 45, page 59, line 31, leave out “default”.

See the explanatory statement for Amendment 198.

Amendment 200, in clause 45, page 59, line 32, leave out

“(for example as regards the rate of income withdrawal)”.

This amendment removes the suggestion that members would decide the rate of income withdrawal, since that would be determined by the scheme.

Amendment 201, in clause 45, page 59, line 33, leave out “given” and insert

“provided or made available to a member”.

This amendment is consequential on Amendment 196.

Amendment 202, in clause 45, page 59, line 35, leave out

“obtained under powers conferred by section 44”.—(Torsten Bell.)

This amendment removes the reference to clause 44 from clause 45(2), so that information given by virtue of clause 45(1) may be based on information that the trustees or managers hold otherwise than by virtue of clause 44.

Clause 45, as amended, ordered to stand part of the Bill.

Clause 46

Pension benefits strategy

[Torsten Bell]

I beg to move amendment 203, in clause 46, page 60, line 8, leave out “default”.

This amendment ensures that clause 46 operates in respect of qualifying pension benefit solutions as well as default pension benefit solutions.

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 204 to 208.

Clause stand part.

[Torsten Bell]

This clause is the one most relevant to the Liberal Democrat amendment 279 that we discussed earlier, because it requires trustees or managers of relevant pension schemes to formulate, review and, where appropriate, revise their pension benefits strategy. This is where they will need to show that they have considered the range of options set out in that Lib Dem amendment.

The production and review of such a strategy will hold occupational pension schemes to account for how they have identified the requirements of their membership and how they have used that information to design the default pension benefit solution, or solutions, that they have put in place, or to identify an appropriate qualifying pension benefit solution elsewhere.

Additionally, schemes will need to set out in their strategy their plans for how they will communicate effectively with their members—another issue that has been at the centre of our discussions today. There is also a requirement for the scheme to review their strategy, and Government have taken a power to specify minimum intervals for review. Regulations may also set out further requirements for evidence of how the scheme has complied with any of the requirements set out in this chapter. The strategy must be published and made available to both the regulator and members of the scheme, which will enable effective monitoring, analysis and evaluation at an aggregate level.

Government amendments 203 and 204 will ensure that clause 46 operates in respect of qualifying pension benefit solutions as well as default pension benefit solutions. Amendment 205 adds effective communication to the list of things that must be addressed in the strategy. Amendments 206 and 207 correct an error in the Bill as drafted. Amendment 208 allows regulations to require that the information about compliance with provisions of the chapter be published alongside a benefit strategy. Amendment 210 removes a provision made redundant by other amendments.

Amendment 203 agreed to.

Amendments made: 204, in clause 46, page 60, line 9, leave out from beginning to “pension” in line 10 and insert

“design, or in the case of transferable members identify,”.

This amendment ensures that clause 46 operates in respect of qualifying pension benefit solutions as well as default pension benefit solutions.

Amendment 205, in clause 46, page 60, line 12, leave out paragraph (c) and insert—

“(c) communicate effectively with eligible members of the scheme with regard to pension benefit solutions and comply with any regulations under section 45.”

This amendment adds effective communication to the list of things that a pension benefits strategy must address.

Amendment 206, in clause 46, page 60, line 25, leave out “and” and insert “or”.

This amendment corrects an error.

Amendment 207, in clause 46, page 60, line 26, leave out “be authorised to”.

This amendment corrects an error.

Amendment 208, in clause 46, page 60, line 35, at end insert—

“(3A) Regulations may require the trustees or managers of a relevant scheme to publish, alongside a pension benefits strategy (or revised pension benefits strategy), prescribed information or evidence as to whether and how they have complied with the requirements imposed by virtue of this Chapter.”—(Torsten Bell.)

This amendment allows regulations to require that information about compliance be published alongside a pension benefits strategy.

[Torsten Bell]

I beg to move amendment 209, in clause 46, page 60, line 36, leave out subsection (4).

This amendment leaves out a penalty provision that government amendments to Clause 47 would make redundant.

[The Chair]

With this it will be convenient to discuss the following:

Government amendment 211.

Clause stand part.

Clauses 47 and 48 stand part.

Government amendments 212 and 213.

Clause 49 stand part.

--- Later in debate ---

[Torsten Bell]

Clause 47 allows for a compliance framework to be developed to ensure that trustees or managers of pension schemes comply with the requirements of chapter 5 of the Bill and take their responsibilities seriously; hon. Members will by now be used to seeing parts of this at the back of sections of pension legislation.

It is worth noting up front that amendment 211 replaces the penalty provisions in clause 47 with a new mechanism for introducing enforcement powers via regulations. The regulations could allow for the Pensions Regulator to issue compliance notices, third-party compliance notices and penalty notices. These types of enforcement notice are not unusual, and they appear in other pensions legislation, such as the pensions dashboard regulations and the regulations on climate change governance and reporting.

Penalties will be limited to no more than £10,000 in the case of individuals and up to £100,000 in other cases, such as corporate trustees. We have introduced these changes to ensure consistency with other clauses in the Bill, including the provisions related to value for money and small pots consolidation; we discussed the size of those penalties recently.

Clause 47 will enable the regulator to remove and replace trustees in the event of non-compliance. Amendment 209 will remove a penalty provision in clause 46 that is made redundant by amendment 211. Clause 48 makes it clear that the measures in this chapter apply to pension schemes run on behalf of the Crown, another standard provision. Clause 49 provides the definitions for terms used in chapter 5 of the Bill, including many of the important ones I have run through today. Amendments 212 and 213 add the definitions of “pension benefit solution” and “qualifying pension benefit solution” to the list of defined terms in clause 49. They do not change the definition of these terms elsewhere in the clauses.

Amendment 209 agreed to.

Clause 46, as amended, ordered to stand part of the Bill.

Clause 47

Enforcement and compliance

Amendment made: 211, in clause 47, page 61, line 4, leave out subsections (1) to (5) and insert—

“(1) Regulations may make provision with a view to ensuring the compliance of any person with any provision of or under this Chapter.

(2) The regulations may in particular—

(a) provide for the Pensions Regulator to issue a notice (a ‘compliance notice’) to a person with a view to ensuring the person's compliance with a provision of or under this Chapter;

(b) provide for the Pensions Regulator to issue a notice (a ‘third party compliance notice’) to a person with a view to ensuring another person's compliance with a provision of or under this Chapter;

(c) provide for the Pensions Regulator to issue a notice (a ‘penalty notice’) imposing a penalty on a person where the person—

(i) has failed to comply with a compliance notice or third party compliance notice, or

(ii) has contravened a provision of or under this Chapter;

(d) provide for the making of a reference to the First-tier Tribunal or Upper Tribunal in respect of the issue of a penalty notice or the amount of a penalty;

(e) confer other functions on the Regulator.

(3) The regulations may make provision for determining the amount, or the maximum amount, of a penalty in respect of a failure or contravention.

(4) But the amount of a penalty imposed under the regulations in respect of a failure or contravention must not exceed—

(a) £10,000, in the case of an individual, and

(b) £100,000, in any other case.

(5) Any penalty payable under the regulations is recoverable by the Regulator.

(5A) In England and Wales, any such penalty is, if the county court so orders, recoverable under section 85 of the County Courts Act 1984 or otherwise as if it were payable under an order of that court.

(5B) In Scotland, a penalty notice is enforceable as if it were an extract registered decree arbitral bearing a warrant for execution issued by the sheriff court of any sheriffdom.

(5C) The Regulator must pay into the Consolidated Fund any penalty recovered under this section.”—(Torsten Bell.)

This amendment replaces the provisions in subsections (1) to (5) of clause 47 about fixed penalty notices with a power to make regulations providing for compliance notices, third party compliance notices and penalty notices.

Clause 47, as amended, ordered to stand part of the Bill.

Clause 48 ordered to stand part of the Bill.

Clause 49

Interpretation and general

Amendments made: 212, in clause 49, page 62, line 13, at end insert—

“‘pension benefit solution’ has the meaning given by section 42(2);”.

This amendment adds “pension benefit solution” to the list of defined terms in clause 49.

Amendment 213, in clause 49, page 62, line 19, at end insert—

“‘qualifying pension benefit solution’ has the meaning given by section 43(6);”.—(Torsten Bell.)

This amendment adds “qualifying pension benefit solution” to the list of defined terms in clause 49.

Clause 49, as amended, ordered to stand part of the Bill.

Clause 50

Corresponding provision in relation to FCA-regulated schemes

[Torsten Bell]

I beg to move amendment 214, in clause 50, page 62, line 33, leave out from beginning to end of line 8 on page 63 and insert—

“137FBD FCA general rules: guided retirement

(1) The FCA must make general rules for the purpose of ensuring that default or qualifying pension benefit solutions are made available to members of relevant pension schemes.

(2) In determining what provision to include in the rules, the FCA—

(a) must have regard to provision made by, and any provision made under, Chapter 5 of Part 2 of the Pension Schemes Act 2025 (guided retirement: schemes regulated by the Pensions Regulator), and

(b) must aim to ensure, so far as possible, that the outcomes achieved by the rules in relation to relevant pension schemes correspond to those achieved by that Chapter, and any regulations made under it, in relation to pension schemes to which that Chapter applies.

(3) In this section—

‘default or qualifying pension benefit solution’ means a pension benefit solution which—

(a) is designed for delivering money purchase benefits under a pension scheme to some or all of the members of the scheme,

(b) is designed to provide a regular income for the members concerned in their retirement (whether or not together with other benefits), and

(c) meets any other prescribed conditions;

‘FCA-regulated pension scheme’ means a pension scheme whose operation—

(a) is a regulated activity, and

(b) is carried on in the United Kingdom by an authorised person;

‘money purchase benefits’ has the same meaning as in the Pension Schemes Act 1993 (see section 181 of that Act);

‘pension benefit solution’, in relation to a pension scheme, means a contractual or other arrangement for making pension payments in respect of members’ accrued rights;

‘pension scheme’ has the meaning given in section 1(5) of the Pension Schemes Act 1993;

‘relevant pension scheme’ means an FCA-regulated pension scheme that is—

(a) an auto-enrolment scheme,

(b) a workplace personal pension scheme that is not an auto-enrolment scheme, or

(c) a pension scheme of a prescribed description,

and for that purpose ‘auto-enrolment scheme’ has the meaning given in section 117A(3) and ‘workplace personal pension scheme’ has the meaning given in section 117A(5).”

This amendment adjusts the requirement for the FCA to make rules corresponding to Chapter 5 of Part 2. It ensures that the FCA has the flexibility to make provision that is different from that contained in Chapter 5 of Part 2 provided that the FCA’s rules aim to achieve corresponding outcomes to that Chapter.

[The Chair]

With this it will be convenient to consider clause stand part.

[Torsten Bell]

We now turn to clause 50, the last clause in this part of the Bill. The overriding objective of this clause, together with amendment 214, is to make corresponding provision in relation to FCA-regulated schemes. Clause 50 inserts into the Financial Services and Markets Act 2000 new section 137FBD, which will deliver default pension benefit solutions to FCA-regulated pension schemes, ensuring that members on both sides of the market benefit from default solutions.

Amendment 214 is a technical amendment that refines the requirement on the FCA to deliver those solutions for members of FCA-regulated pension schemes and ensures consistency between FCA and TPR-regulated schemes—a key objective of the Government. It clarifies that the FCA must make rules to ensure that default pension scheme solutions are made available to members of FCA-regulated schemes and, in making those rules, must have regard to provisions made by the rest of chapter 5 of part 2, which we have been discussing and which sets the framework for the TPR to provide those solutions.

The FCA must also aim to ensure, as far as possible, that the outcomes achieved by its rules correspond to those achieved under chapter 5, and any regulations made under it regarding TPR-regulated pension schemes. The amendment therefore seeks to ensure that, from a member’s perspective, default pension benefit solutions are provided consistently across the market, whether they are a member of a TPR or an FCA-regulated pension scheme, while giving the FCA the flexibility to deliver that outcome in a way that suits its methods of regulating pension schemes. DWP, the FCA and The Pensions Regulator will work together to develop and deliver default pension benefit solutions, further boosting fairness and consistency across the market.

Amendment 214 agreed to.

Clause 50, as amended, ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Taiwo Owatemi.)