Pension Schemes Bill (Seventh sitting)
Thursday 11th September 2025
(1 day, 15 hours ago)
Public Bill CommitteesPension Schemes Bill 2024-26 View all Pension Schemes Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 11 September 2025 - (11 Sep 2025)
The Parliamentary Under-Secretary of State for Work and Pensions (Torsten Bell)
It is a pleasure to serve under you today, Ms Lewell. As we come to the first clauses dealing with superfunds, I start by setting out the background. Superfunds provide a route for employers to secure the liabilities of closed defined-benefit schemes that are unable to afford insurance buy-out. Their purpose is to better protect members from potential losses in the event of employer insolvency, and to release employers to focus on and invest in their core business, helping to drive economic growth. Superfunds already operate within the framework of pensions legislation and the interim guidance issued by the Pensions Regulator. That interim regime has enabled us to learn what works well, but it is now time to put the regulatory framework for superfunds on a permanent footing.
Clause 51 provides an overview of part 3 of the Bill and sets out the structure and content of the legislative framework for superfunds. Clause 52 defines a superfund scheme as a
“trust-based occupational pension scheme”
that is
“not supported by a substantive employer covenant”
but by a “capital buffer” made of private capital instead. Clause 53 sets out that superfund sections are to be treated as separate schemes, meaning that any potential failure would be contained within that section. Clause 54 prohibits unauthorised superfund activities.
Clause 55 allows the Pensions Regulator to authorise superfunds if it is satisfied that they are likely to meet the ongoing requirements set out in chapters 4 and 5 of the Bill. It will enable the regulator to assess the superfund’s organisation, staff, plans, policies and procedures to ensure that it has robust governance and continuity arrangements. Clause 56 makes it clear that the Pensions Regulator must make an authorisation decision within six months of receiving a completed application, with the potential to extend that period by up to three months. The new legislative regime will protect scheme members and enhance the confidence of stakeholders and market participants.
Mark Garnier (Wyre Forest) (Con)
The Opposition support the clauses and welcome the action to legislate formally for defined-benefit superfunds. Securing this in a legislative framework will give trustees and sponsors greater confidence when considering this new consolidation option for defined-benefit schemes. The measures build on the consultation conducted under the previous Government, as well as the intention that the former Chancellor of the Exchequer, my right hon. Friend the Member for Godalming and Ash (Sir Jeremy Hunt), laid out in his 2023 Mansion House speech.
Superfunds are capital-backed consolidators that allow defined-benefit schemes to shift liabilities away from the sponsoring employer, thereby enhancing the security of members’ benefits. By transferring pension obligations to a superfund, companies can reduce long-term liabilities and refocus on core operations, while maintaining strong protection for retirees. Superfunds offer a new endgame strategy for DB schemes unable to secure an insurance buy-out, helping to safeguard member benefits in underfunded or marginal schemes. These measures all seem reasonable, and as I said, this work started under the previous Government, so we wholeheartedly support it.
Question put and agreed to.
Clause 51 accordingly ordered to stand part of the Bill.
Clauses 52 to 56 ordered to stand part of the Bill.
Clause 57
Prohibition of unapproved superfund transfers
Question proposed, That the clause stand part of the Bill.
Torsten Bell
Chapter 3 sets out the criteria for approving superfund transfers. The clause protects the integrity of the superfund regime that we are aiming to put in place through the Bill by making it clear that the penalty for committing an unauthorised superfund transfer may be a fine, imprisonment for up to two years, or both. I commend the clause to the Committee.
Question put and agreed to.
Clause 57 accordingly ordered to stand part of the Bill.
Clause 58
Approval of superfund transfers
John Milne (Horsham) (LD)
I beg to move amendment 268, in clause 58, page 67, line 34, leave out subsection (a) and insert—
“(a) that, as at the date of the application, the financial position of the ceding scheme is—
(i) not strong enough to enable the trustees to arrange an insurer buy-out, or
(ii) not affordable for the next 36 months following an assessment, certified by the scheme actuary, of all funding options to become strong enough;”.
This amendment expands the onboarding condition to give an alternative to a single day snapshot of a scheme’s funding position.
The Bill tests a scheme’s funding position on a single snapshot day. We feel that is too rigid and could unfairly exclude schemes. A scheme might just miss the mark on that day, even though funding prospects over the next three years are realistic and affordable. The amendment would allow actuaries to certify affordability over a 36-month horizon, providing a fairer and more flexible test. It would protect members by ensuring viable schemes are not shut out, while still requiring strong actuarial oversight. That is especially important in an environment where economic conditions and markets can move significantly and take scheme funding positions with them.
Schemes have not always enjoyed the present funding levels, and today’s surplus is tomorrow’s deficit. We should have regard to that fact and approach the legislation in a manner that reflects it. In the assessment over a longer time period, the trustees would also be able to consider and respond to the situation in relation to dividends, changing investment strategies and expected scheme contributions, among other key factors. In summary, the purpose of the amendment is not to block the superfund option for schemes, but rather to ensure that the legislative framework is set squarely on the basis of protecting DB scheme member benefits and the security and soundness of the pensions system.
Kirsty Blackman (Aberdeen North) (SNP)
We have discussed other parts of the regime—for example, new entrants and their ability to scale up, and the longer-term prospects for that—which were perhaps a bit more flexible than this part. Although I am not entirely convinced that the exact wording of the amendment provides the best way to go about it, if the Minister gives some reassurance and a commitment to consider the possibility of not just taking a snapshot day, and to look at the potential ability to scale up or grow, I would be more comfortable with the legislation than I am currently.
Torsten Bell
I thank the hon. Members for Torbay and for Horsham for the amendment. It is sensible to discuss one of the key questions in the design of superfunds policy. My main reassurance is that this exact option, or options in this space, were part of the extensive consultation on superfunds. That is important to understand. They were in the consultation, and a wide range of views were expressed in the responses, many of them pointing to the clear practical difficulties of providing the legislative test to assess whether a scheme could afford an insurance buy-out in future, as opposed to its exact position at the time of the assessment.
For reasons I will come on to, that does not mean that it is not important to look ahead to whether a scheme is likely to be able to buy out in the future, but we have taken the view, following the consultation, that that should not be the test on the face of the Bill. That is because, when it comes to projections looking ahead, both the cost of an insurance buy-out and the scheme funding levels can fluctuate significantly. Forecasts ask for more judgment to be exercised compared with an assessment of what the buy-out market is offering at the time it is carried out. It is about the current funding levels. Clause 58 already states that schemes can transfer a superfund only when they are currently unable to secure members’ benefits with an insurer.
I will offer two elements of reassurance to the hon. Member for Horsham. First, we need to be clear about the role of the legislation, which is as I just set out, and the role of the trustees, who are the ones who would approve a transfer to a superfund. Trustees will absolutely be looking ahead and thinking about the kinds of issue that the hon. Member highlighted. Do they wish to see a superfund transfer or a buy-out transfer in future? Is it plausible that they would get one? They will be relying on the guidance of the TPR and the clear intent in the legislation, which is that superfunds will provide an additional option, not replace the core approach of most defined-benefit schemes’ goal, which is an insurance buy-out. I therefore do not support putting the proposed test on the face of the Bill. Also, as the hon. Member for Aberdeen North pointed out, there are issues with the drafting of the amendment, which requires trustees in legislation to do what they will, in practice, be doing anyway.
The second point of reassurance I can offer is that the Bill sets out a power to substitute another condition to replace this condition, if needed. We will consult the industry to assess what, if any, further requirements might be added to satisfy members before the regime comes into effect. I hope that on that basis, the hon. Member will be happy to withdraw his amendment.
John Milne
I thank the Minister for his reassurance, but urge him to keep this in mind. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Kirsty Blackman
I beg to move amendment 277, in clause 58, page 67, line 34, leave out from “application” to end of line 36 and insert
“the Trustees agree, after due consideration, that it is the best option for their fund’s members;”.
This amendment would prevent a fund from having to carry out an insurance buy-out option.
The amendment asks a reasonable question about the duties of the trustees, and the possibility that they will be overwritten by the legislation and taken away from trustees. I would appreciate some reassurance from the Minister on whether the trustees will still have a duty to act in the best interests of scheme members once the legislation goes through, and whether the amendment tabled by the hon. Member for Tamworth would make things better for trustees, with them better able to act in the best interests of pension scheme members.
Torsten Bell
I will answer the hon. Lady’s question directly, and then come to the amendment more broadly. The best way to think about this amendment is that it asks us to remove one of the core framings of the superfund regime, which is that it is not replacing buy-out, where that is available, to trustees. The amendment enables trustees to do what they like, including moving to a superfund even if they could have moved to an insurance buy-out. That is not the policy intention of this Government, nor was it the policy intention of the previous Government. It also does not align with most of the responses to the consultation.
As I said earlier, the job of the legislation is to provide clarity regarding the overall framework, which is that superfunds exist for those schemes that are not able to afford an insurance buy-out. Within that, it is for trustees to make wider judgments, as they do all the time. Directly to the hon. Lady’s question, trustees’ duties to take the decisions that deliver the best outcomes for their members, as a short hand, is totally unaffected by this. This is just a constraint on what the superfund regime is there for, and not because we do not want to see arbitrage between an insurance regulatory regime and a superfund’s regulatory regime. I hope that provides some clarity.
Kirsty Blackman
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Torsten Bell
I beg to move amendment 215, in clause 58, page 68, line 1, at beginning insert
“that it is reasonable to expect”.
This amendment adjusts the onboarding condition in relation to the capital adequacy threshold. The Regulator now needs to be satisfied, as at the time it decides the application, that it is reasonable to expect that the threshold will be met immediately following the superfund transfer (rather than that the threshold definitely will be met at that time).
Torsten Bell
Amendment 215 simply clarifies the policy intent behind the clause. It reflects the reality that pension schemes’ funding is fluid and difficult to predict. Amendment 216 makes the clause clearer and ensures consistency with amendment 215. Amendment 217 introduces a power to enable the Government to consult industry and the regulator on an appropriate timeframe in which to assess whether the technical provision threshold has been met. Amendment 218 is consequential to amendment 217.
Amendment 219 allows the Secretary of State to make special provisions to modify or disapply the onboarding conditions, which we have just been discussing, in subsection (2) in the instance of a merger, division or restructuring of superfund sections. Amendments 220 and 221 set out parliamentary procedures for the powers introduced by amendments 217 and 219 respectively. I hope that hon. Members feel able to accept these amendments.
Amendment 215 agreed to.
Amendments made: 216, in clause 58, page 68, line 3, leave out
“there is a very high likelihood”
and insert
“it is reasonable to expect”.
This amendment adjusts the onboarding condition in relation to the technical provisions threshold for consistency with the change made by Amendment 215.
Amendment 217, in clause 58, page 68, line 5, leave out from “period” to end of line and insert
“specified in regulations made by the Secretary of State;”.
This amendment allows for regulations to set the period by reference to which the onboarding condition relating to the technical provisions threshold is assessed.
Amendment 218, in clause 58, page 68, line 22, leave out paragraph (b).
This amendment is consequential on Amendment 217.
Amendment 219, in clause 58, page 68, line 32, at end insert—
“(5A) The Secretary of State may by regulations modify subsection (2) in its application to a superfund transfer of a kind described in section 53(3) (merger of sections etc).”
This amendment allows for regulations to make special provision about how the onboarding conditions apply (or do not apply) in relation to a superfund transfer within clause 53(3) (under which a restructuring of sections within a superfund can itself be treated as a superfund transfer).
Amendment 220, in clause 58, page 68, line 42, at end insert—
“(7A) Regulations under subsection (2)(d) are subject to the negative procedure.”
This amendment provides for negative parliamentary procedure to apply to regulations made by virtue of subsection (2)(d) as amended by Amendment 217.
Amendment 221, in clause 58, page 68, line 43, at end insert—
“(8A) Regulations under subsection (5A) are subject to the negative procedure.”—(Torsten Bell.)
This amendment provides for negative parliamentary procedure to apply to regulations made by virtue of the provision inserted by Amendment 219.
Torsten Bell
This is an important clause whose role is to set out the criteria for the Pensions Regulator to approve each transfer to a superfund, having dealt with the authorisation of superfunds separately. Those include that the superfund has been authorised by the regulator and that the ceding employer scheme has no active members; we are talking about closed defined-benefit schemes.
The clause also sets out onboarding conditions, which are designed to ensure that members’ benefits are well protected. Superfunds are secure, but not as secure as an insurance buy-out. Schemes with sufficient funds to buy out benefits with an insurer may therefore not enter a superfund. Other onboarding conditions require that the trustees of the ceding scheme make the assessment in the interests of scheme members that the transfer to a superfund will make it more likely that the members’ benefits will be paid in full, and that the capital adequacy threshold is met—which is the main answer to the earlier question from the hon. Member for Aberdeen North. Those and other measures, alongside a known and up-front capital buffer, will ensure that there is a very high probability that members’ benefits will be paid.
Affirmative regulation-making powers will allow greater specificity about the onboarding conditions, including the financial metrics of the capital adequacy threshold and the information that must be provided to the regulator to satisfy the onboarding conditions. I commend clause 58 to the Committee.
Kirsty Blackman
I have a quick question, which may also be relevant to other clauses that we discussed earlier, but which I did not bring up at that point. It is about the consistency of consultations and regulations from the Department for Work and Pensions and the Financial Conduct Authority, particularly when consultations are taking place and there are scheme members and prospective pensioners who expect their pension to work in the same way as others and do not have a clue what the arrangements are—for example, whether it is regulated by the FCA or anyone else. Can we still expect parity of service and clarity?
I am aware that the different structures may require slightly different regulations. I want reassurance from the Minister on ensuring that scheme members see a consistent level of service that makes sense in the regulatory frameworks. I also want reassurance that larger organisations running different types of scheme can easily work within and respond to both types of consultation because there is enough consistency applicable across different regulatory mechanisms, within the constraints of the law and depending on the scheme type. I have been asked by insurance and pension industry professionals to raise that with the Minister, and any reassurance that he can give would be appreciated.
Torsten Bell
The first reassurance I can give is that this part of the Bill requires only one regulatory framework, because it all sits within the Pensions Regulator and within the defined benefit part of the landscape, as I am aware the hon. Member for Aberdeen North knows.
On the hon. Member’s wider point, which is relevant to many parts of the Bill, I absolutely agree and will offer a two-part reassurance—we will also come to a new clause later that directly gets at this issue. I entirely agree that having two regulatory regimes is no excuse for having different consumer experiences across the two halves of the regime. To address that, I have made sure that the Bill supports the same outcomes, and have stress tested that considerably, but also made it clear that, as a Government policy agenda, our goal is that that should be the case, full stop, including in some areas where it has not been historically. That is absolutely what we need to keep working towards. We should all have that in our heads.
When it comes to the regulations, it is also our clear intention that the FCA and TPR should be working very closely together, as we discussed with the value for money regulations, for example.
Question put and agreed to.
Clause 58, as amended, accordingly ordered to stand part of the Bill.
Clause 59
Special provision for certain schemes coming out of assessment period
Question proposed, That the clause stand part of the Bill.
Torsten Bell
Just to clarify, there is significant support from the industry for clause 59 in general terms. This is in part because of the successful rescue of the Debenhams pension scheme out of the Pension Protection Fund assessment—it had not entered the PPF; had it done so, there would have been a significant cut in members’ benefits—by the currently sole operating superfund, Clara Pensions. PPF assessment following employer insolvency is designed to ensure that member benefits are protected. Some schemes that come out of PPF assessment are too well funded to stay in the PPF, because they could achieve better member outcomes than might be offered by the PPF.
The clause amends the onboarding conditions in these instances, to allow trustees of a scheme in PPF assessment to seek to secure their liabilities with a superfund at less than full benefits, but more than would otherwise have been secured through a buy-out that was available, given the level of their assets at that point. Based on the evidence from the PPF’s purple book, we anticipate that, on average, five in 10 so-called PPF-plus schemes could benefit each year. Trustees can continue to buy out the level of benefits that the scheme can afford with an insurer, but this clause provides them with the option of entering a superfund, where they consider doing so to be in the interest of members.
Clause 60 specifies that an application must be made in the manner and form specified by the Pensions Regulator. The approval process enables the regulator to protect schemes and their members during the application process, and aligns with the regulator’s systems and processes and its experience with other authorisation and supervisory regimes. I commend clauses 59 and 60 to the Committee.
Question put and agreed to.
Clause 59 accordingly ordered to stand part of the Bill.
Clause 60 ordered to stand part of the Bill.
Clause 61
Governance and structure
Torsten Bell
One of the new features of a superfund regime is that there is a responsible body for the superfund that carries out key parts of its operations. Clause 61 sets out a clear framework of policies and procedures that the responsible body of a superfund must ensure is in place, so that the pension scheme is managed and administered effectively and members’ benefits are protected.
The clause will operate alongside the requirements for an effective system of governance and internal controls, which the scheme trustees are already subject to under the Pensions Act 2004. It places an overarching obligation on the responsible body to ensure that the appropriate governance-related policies and procedures are in place across the operating model of the superfund as a whole, to ensure that the responsible body upholds the same standards as scheme trustees in the interests of scheme members. This is in recognition of the greater potential for conflicts of interest than would be seen in a traditional defined-benefit scheme.
The clause further requires the responsible body to ensure that the superfund meets prescribed conditions as to its structure, including but not limited to its compliance with tax legislation. The detailed structural requirements for superfunds will be set out in regulations, following consultation and in response to innovations in the market.
Clause 62 sets out the management documents that must be prepared and maintained as part of the ongoing requirements for an authorised superfund. The documents include a business plan, a governance manual, a continuity strategy, and a fees and expenses policy. That suite of documentation is designed to ensure the good management of superfunds, and it builds on the requirements and learnings from other authorisation regimes, such as master trusts and collective defined-contribution schemes.
Question put and agreed to.
Clause 61 accordingly ordered to stand part of the Bill.
Clause 62 ordered to stand part of the Bill.
Clause 63
Duty to monitor financial thresholds
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 64 stand part.
Government amendment 222.
Clauses 65 to 68 stand part.
Torsten Bell
This group of clauses introduces requirements for superfunds that concern funding and investment. Clause 63 places a duty on the responsible body of a superfund to protect members’ benefits by having robust policies and procedures in place to monitor the financial thresholds.
Clause 64 defines those financial thresholds, which are key components of the regulatory regime and follow the example of the Solvency II supervisory ladder of interventions, tailored to the unique characteristics of superfunds. That means that there is a series of clear and known consequences, both positive and negative, that could happen in superfunds as a direct response to changes to their funding levels. The financial thresholds are designed to protect the security of members’ benefits. When certain thresholds are breached, there are mandatory actions that must be taken to protect members.
Government amendment 222 is minor and technical, and seeks to provide certainty and clarity to the operators and administrators of superfunds that they can use the buffer funds both to invest the buffer in the hopes of generating growth, and to pay expenses, fees and—importantly, for the Treasury half of my job—any taxes that are owed.
Clause 65 requires that arrangements must be made to transfer capital buffer assets to the scheme’s trustees in specific circumstances. That is the important protection, because it is the capital buffer that provides the equivalent of the employer covenant protection that we see in traditional defined-benefit schemes. The release of the buffer to the trustees as part of an approved response plan—which we will come to in clause 81—is fundamental to the protection of members’ benefits.
Clause 66 ensures that the capital buffer cannot be released to anyone other than the scheme’s trustees, except where the liabilities of the scheme have been satisfied, or where the release is a permitted profit extraction. It is important that permitted profit extraction takes place only when the security of the scheme has been materially improved, above the superfund’s initial capital adequacy requirements, which are obviously significant.
Clause 67 requires the responsible body of the superfund to have an investment strategy for the capital buffer, prepared in accordance with any requirements specified in regulations made by the Secretary of State.
Clause 68 requires the responsible body of the superfund to appoint an appropriately qualified, independent person to verify the valuations of the capital buffer at least once a year.
Question put and agreed to.
Clause 63 accordingly ordered to stand part of the Bill.
Clause 64 ordered to stand part of the Bill.
Clause 65
Capital buffer: compulsory release to trustees
Amendment made: 222, in clause 65, page 73, line 2, leave out “for market value consideration” and insert
“—
“(a) in the ordinary course of the investment of the capital buffer, or
(b) in payment of fees, expenses, taxes or other charges incurred (in each case) in connection with the management or administration of the capital buffer”.—(Torsten Bell.)
This amendment clarifies the circumstances in which the capital buffer is regarded as “released” for the purposes of Part 3.
Clause 65, as amended, ordered to stand part of the Bill.
Clauses 66 to 68 ordered to stand part of the Bill.
Clause 69
Key functions
Question proposed, That the clause stand part of the Bill.
Torsten Bell
This series of clauses sets out requirements for the approval or certification of key superfund personnel. Trustees and actuaries, among others, are already held to account by strict codes of practice and legislative frameworks. These provisions seek to ensure that those working within the responsible bodies of superfunds are also held to an appropriately high standard of conduct.
Clause 69 requires a superfund to have at least one individual responsible for each key administrative function. Clause 70 requires approval from the regulator for individuals looking to hold a key function. This is to ensure that the individual appointed to the role is suitable. A fit and proper test will be conducted to confirm that the named individual has the knowledge and experience for the responsibility that they are undertaking.
Clause 71 requires the responsible body of a superfund to conduct due diligence and be satisfied that any individual carrying out work associated with a key function is suitable. The responsible body must issue a certificate to the individual that it is satisfied with their suitability and must maintain a register of all such certificates. This approach intends to echo the responsibility that trustees assume when delegating tasks toward the carrying out of a key function in a pension scheme.
Clause 72 requires the regulator to approve the superfund scheme trustees. Regulations will specify the information and background checks that the regulator should undertake to ensure that the trustees are fit and proper. Members should note that civil penalties apply to any breaches of clauses 70 to 72. I commend clauses 69 to 72 to the Committee.
Question put and agreed to.
Clause 69 accordingly ordered to stand part of the Bill.
Clauses 70 to 72 ordered to stand part of the Bill.
Clause 73
Events to be notified to the Regulator
Question proposed, That the clause stand part of the Bill.
Torsten Bell
We now come to the clauses relating to information and reporting requirements for superfunds.
Clause 73 requires the trustees of a superfund to notify the Pensions Regulator if certain events occur that might indicate the need for further investigation by the regulator—for example, a material deterioration in the investment performance of the scheme. Clause 74 requires the superfund trustees to regularly update the Pensions Regulator on the financial position of the superfund. This will enable effective monitoring by the regulator. These regular reports are additional to existing valuation and reporting requirements under the existing defined-benefit scheme funding framework.
Clause 75 allows the regulator to request information from the responsible body of a superfund to monitor its compliance with ongoing requirements that the regulator may specify. Similar powers to request such returns exist in the master trust and CDC authorisation regimes. Clause 76 allows the regulator to appoint someone to prepare a report about a suspected breach of the requirements. This provision is similar to both section 71 of the Pensions Act 2004 and the FCA’s arrangements for the procurement of a report by a skilled person. As in the 2004 Act, the responsible body—the “person” issuing a notice—must bear the cost of the report. Clause 77 requires the responsible body of a superfund to provide information to the superfund trustees to enable them to comply with relevant legislation, including their obligations to report under clause 74. This is about making sure that trustees have access to information that the responsible body may hold.
Members should note that civil penalties apply to the responsible body for breaches of clauses 73, 75, 76 and 77. I commend clauses 73 to 77 to the Committee.
Question put and agreed to.
Clause 73 accordingly ordered to stand part of the Bill.
Clauses 74 to 77 ordered to stand part of the Bill.
Clause 78
“Event of concern” and “period of concern”
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 79 to 81 stand part.
Government amendments 223 and 224
Clauses 82 to 87 stand part.
Torsten Bell
We turn now to chapter 5, which is concerned with “events of concern”—events that require closer regulatory scrutiny. These are events such as breaches of financial thresholds, an unauthorised extraction of capital or a material risk of insolvency. An “event of concern” will result in a “period of concern”, which will end once it has been resolved by the regulator or the superfund winds up.
Clause 78 sets out the list of circumstances in relation to a superfund that give rise to an event of concern. Subsection (4) provides an affirmative power to adjust the period and circumstances of financial thresholds not being met. This is because different risks may emerge as the market evolves and further events of concern may be needed.
Clause 79 requires a relevant person to notify the Pensions Regulator when an event of concern occurs or is likely to occur. Members may find it helpful to note that this provision replicates existing measures for defined-contribution master trusts.
Clause 80 requires the superfund or the trustees to produce a response plan to address the event of concern. The response plan must be approved by the Pensions Regulator. If it is not satisfied that the response plan is sufficient, it can request a new plan. Clause 81 specifies the required content of any response plan.
Government amendment 223 is technical. It ties the direction-making powers of the regulator explicitly to the requirements placed upon a given member of the superfund group or trustee of the superfund scheme in clause 80. Clause 80(1) requires the submission of a response plan to an event of concern, while clause 80(3)(b) requires the revision of any response plan if the regulator is not satisfied. Government amendment 224 clarifies the limits of the regulator’s powers to direct superfunds to take corrective action during the event of concern.
Clause 82 lists the specific powers that will be granted to the Pensions Regulator during periods of concern to ensure the timely and effective resolution of any event of concern. A member of the superfund group must comply with a direction given to them by the regulator.
Clause 83 grants the regulator the power to make a direction to pause only if it is satisfied that doing so is necessary to protect the interests of superfund members. Members should note that this direction-making power is standard and reflects those in the regulator’s master trust and CDC authorisation regimes.
Clause 84 allows the regulator to issue a fixed penalty notice to a person if it considers they have failed to comply with some of these requirements. The penalty must not exceed £100,000.
Clause 85 allows the regulator to issue an escalating penalty notice for failure to comply with a requirement, if it has already issued the person a fixed penalty notice under clause 84 in respect of that failure. The penalty is to be determined according to regulations and must not exceed £20,000 per day.
Clause 86 enables the regulator to withdraw authorisation from a superfund if it considers that the superfund has failed to comply with its ongoing requirements. Superfund pension schemes are defined-benefit occupational pension schemes and will be subject to the employer debt provisions under section 75 of the Pensions Act 1995.
Superfunds will include a statutory employer. If that employer becomes insolvent or the scheme enters wind-up, a debt will be triggered from the employer in the normal way under section 75 if the scheme cannot secure member benefits through an insurer buy-out. That is an additional protection that matches how that is carried out in traditional defined-benefit schemes.
Clause 87 enables employer debt to be paid, or partly paid, by funds released from the capital buffer rather than directly by the statutory employer itself.
Question put and agreed to.
Clause 78 accordingly ordered to stand part of the Bill.
Clauses 79 to 81 ordered to stand part of the Bill.
Clause 82
Regulator’s direction-making powers during period of concern
Amendments made: 223, in clause 82, page 84, line 9, leave out
“if no response plan has been approved”
and insert
“if a person has failed to comply with section 80(1) or (3)(b) (requirement to propose response plan or revised response plan)”.
This amendment limits the direction-making power in clause 82(1)(c) so that it can only be exercised where a person has failed to produce a response plan or a revised response plan as required by clause 80.
Amendment 224, in clause 82, page 84, line 16, at end insert—
“(1A) A direction under subsection (1)(c) may not require the provision of financial support to the superfund scheme.”—(Torsten Bell.)
This amendment provides that the direction-making power in clause 82(1)(c) cannot be used to require a person to provide financial support to the superfund scheme.
Clause 82, as amended, ordered to stand part of the Bill.
Clauses 83 to 87 ordered to stand part of the Bill.
Clause 88
Power to extend superfunds legislation to similar structures
Question proposed, That the clause stand part of the Bill.
Torsten Bell
This is the last grouping that covers the superfund regulatory regime. Clause 88 allows regulations to extend the superfund regime, with or without modification, to structures that share similar characteristics to superfunds. To fall within scope of the power, the structures must hold defined benefit liabilities and not be supported by a substantive employer covenant. The clause could be used, for example, to address schemes that provide benefit security through something other than a capital buffer, such as an insurance product.
Clause 89 is designed to ensure that superfund schemes, despite their special characteristics, fit within the legislative framework applicable to occupational pension schemes. Superfund schemes present particular issues because there is no traditional employer and it will not necessarily be obvious, when the scheme is established, who its eventual members will be. The intention, however, is for them to be regulated as occupational pension schemes and to be structured in a way that works with the relevant legislative frameworks.
Clause 90 makes two specified amendments to legislation in consequence of part 3. The first amendment clarifies how the employer debt legislation will apply where a superfund pension scheme is sectionalised. The second amendment will remove the requirement for a certificate of broad comparability when trustees transfer to a superfund after a scheme comes out of PPF assessment. In such circumstances, trustees will still be required to consider whether the transfer was in the interests of members, and the test in clause 59 will need to be satisfied. This will provide protection for transferring members.
Clause 91 enables transitional provision to be made in relation to a superfund that is already operating under the regulator’s interim regime, which I mentioned earlier. Clause 92 provides definitions for key terms. The Secretary of State may by affirmative regulations amend the definition of “superfund group”. This will provide the flexibility to deal with variation in those group structures and ensure that appropriate entities are captured within the regulatory regime. I commend clauses 88 to 92 to the Committee.
Question put and agreed to.
Clause 88 accordingly ordered to stand part of the Bill.
Clauses 89 to 92 ordered to stand part of the Bill.
Clause 93
Alienation or forfeiture of occupational pension
Question proposed, That the clause stand part of the Bill.
Torsten Bell
Before a 2022 High Court ruling, it was widely accepted that the Pensions Ombudsman had the status of a competent court, so that a Pensions Ombudsman determination alone would be sufficient for a pension scheme to recoup an overpayment from a member’s pension. The ruling called that into question. Clause 93 simply reinstates the original policy intent that the ombudsman’s determination in pension overpayment dispute cases is sufficient. That is what was debated in Parliament when the ombudsman was established in 1931. Without this legislation, a large additional burden would be imposed on an already stretched county court system.
Turning to clause 94, being diagnosed with life-limiting illness can cause unimaginable suffering for a person and their loved ones. Those nearing the end of their life should be able to access the financial support that they need at that difficult time. I am pleased that we are now able to introduce this clause to amend the definition of terminal illness in the Pension Protection Fund and financial assistance scheme legislation.
Terminal illness is currently defined as where a member’s death from a progressive disease can be reasonably expected within six months. Clause 94 extends that to within 12 months. These new arrangements may enable a few more affected members to claim a payment, but they will mostly enable members to receive payments at an earlier stage of their illness. That small change could make a big impact for affected members at a very difficult time.
Clause 95 covers another aspect of the Pension Protection Fund: its levy. Improved scheme funding of the PPF means that it is far less reliant on the levy than it was previously. For the 2025-26 financial year, the levy has been set at £45 million, its lowest rate. However, the current legislation restricts the PPF board from increasing the levy by more than 25% of the previous year’s levy. That has made it risky for the PPF to reduce the levy significantly, even when it is not needed, because it could take several years to restore it to the previous levels if required. Clause 95 gives the board greater flexibility to adjust the levy by amending the safeguard. The new safeguard will be to prevent the board from charging a levy that is more than the sum of the previous year’s levy and 25% of the previous year’s levy ceiling.
Clause 96 focuses on pensions dashboards. Current legislation does not allow the PPF to provide to pensions dashboards information about the compensation that people can expect, or for the display of that information. The clause expands the scope of pensions dashboards to include information relating to compensation from the PPF and financial assistance from the financial assistance scheme, and it could benefit around 140,000 people. I commend clauses 93 to 96 to the Committee.
Mark Garnier
I will be incredibly brief. We have heard a number of details from the Minister. Clauses 93 to 96 contain what we believe are sensible and welcome amendments that reflect current market and scheme conditions. In particular, the changes related to the Pension Protection Fund are positive. With a strong funding position in many defined benefit schemes recently and the PPF’s healthy reserves exceeding £14 billion, these legislative changes are timely. The industry strongly supports the option for a zero levy, which reduces financial pressure on well-funded schemes. The Opposition wholeheartedly support these clauses.
Steve Darling (Torbay) (LD)
The Liberal Democrats welcome the direction of travel. As the shadow Minister identified, the industry has demanded some elements of the clauses, but they are mostly about supporting consumers. The end users of these services should be a key element of what the Bill is about.
Kirsty Blackman
I agree with the point that the Liberal Democrat spokesperson just made. The clauses represent good decisions both for those who work in the industry and for members of the public—people paying into pension schemes and hoping to get an adequate pension when they retire.
I want to comment on a few things included in the clauses. The Work and Pensions Committee report that was published a couple of years ago asked for several of the changes that are being made here, and I appreciate that the Government are now moving towards making a significant number of them in what is the most major piece of pensions legislation we have seen in years. I do appreciate the changes being made.
I am incredibly supportive of the changes to the terminal illness criteria, which create consistency with other Government legislation on the definition of terminal illness. As the Minister said, if this allows more people to access payments earlier and can improve their quality of life when they know how very short their remaining time is, it will be incredibly helpful. It will enable those individuals to access additional payments and funding more easily and quickly, so that they can make the most of the short time they have left. I appreciate that change.
The pensions dashboard changes are sensible, because people will be able to see the widest possible range of things when they log into the dashboard. It will do what it says on the tin, which is to bring everything together in one place, rather than people having to go somewhere else.
Lastly, I do not disagree on the PPF levy changes; I think this is the right decision. However, there is a significant surplus, and there are other things that could have been done with it; we will discuss new clauses 18 and 19 later. I thought the Government’s response to the Work and Pensions Committee report that I mentioned was sensible when it came to the PPF levy changes: “Yes, we agree this needs to be changed and we will look into it.” The response on the pre-1997 lack of uplift for members in the PPF and the FAS was not so helpful. It was more like, “Well, this is an impact on the Government’s balance sheet.” That is genuinely what the Government’s response says.
I am concerned that there are two very different ways of looking at the answers to those questions. In both cases, the answer could have been: “There is a significant surplus. We agree we should do something about it.” Changes could then have been made to support people who are in some cases really struggling to make ends meet, as was mentioned in last Tuesday’s witness session. That could have made a significant difference to their lives. If the Government had committed to allowing or encouraging the PPF to apply an inflationary uplift and provide support—even if they did so in a particularly progressive way, to support folk with the lowest earnings—that would have made the biggest possible difference to people who are genuinely struggling right now.
Torsten Bell
I thank all hon. Members for the consensus around these amendments. We will return to the question of indexation shortly with some of the new clauses. I also want to correct the record. In the exciting debate on the Pensions Ombudsman, I mentioned 1931 but meant 1991. It is not quite as old as I suggested, so I am glad that is now noted.
Question put and agreed to.
Clause 93 accordingly ordered to stand part of the Bill.
Clauses 94 to 96 ordered to stand part of the Bill.
Clause 97
Amendments of Pensions Act 2004
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendments 229, 230, 232, 231 and 233 to 239.
Schedule.
Torsten Bell
Clause 97 introduces the schedule of amendments that are being made to the Pensions Act 2004. These amendments extend the regulatory functions of the Pensions Regulator to include superfunds and other matters in the Bill. Amendments 229 to 239 ensure that a similar effect is achieved in relation to the guided retirement, value for money, scale and asset allocation provisions, and the small pot measures.
I particularly draw Members’ attention to paragraph 16 of the schedule, which amends section 127 of the Pensions Act 2004 to extend the duty of the board of the pension protection scheme to superfund schemes. It is important that members of superfunds receive the same protection as members of other occupational schemes.
Paragraph 18 of the schedule amends section 224 of the Pensions Act 2004 to require that superfunds’ actuarial reports, produced in years between triennial valuations of scheme assets and liabilities, must be sent to the Pensions Regulator. This is an additional requirement for superfunds, which will allow for greater oversight by the regulator of their funding positions.
Question put and agreed to.
Clause 97 accordingly ordered to stand part of the Bill.
Amendments made: 229, in schedule, page 100, line 16, leave out “Part 2 or 3 of” and insert—
“Chapter 1, 2, 3A or 5 of Part 2 of, or any provision of Part 3 of,”.
This amendment confines the application of section 13 to specific Chapters of Part 2. The reference to Chapter 3A is to the Chapter referred to in the explanatory statement to NC15.
Amendment 230, in schedule, page 100, line 27, at end insert—
“(1A) Before paragraph (da) insert—
‘(dza) sections 28A to 28F of the Pensions Act 2008 (scale and asset allocation);’”
This amendment ensures that the powers of the Pensions Regulator to inspect premises conferred by section 73 of the Pensions Act 2004 are exercisable in relation to the Regulator’s functions under the new scale and asset allocation measure inserted in the Pensions Act 2008 by Chapter 3 of Part 2 of the Bill.
Amendment 231, in schedule, page 100, line 31, leave out “(value for money)”.
This amendment is consequential on Amendment 232.
Amendment 232, in schedule, page 100, line 31, leave out “Chapter 1” and insert “Chapters 1, 2, 3A and 5”.
This amendment ensures that the powers of the Pensions Regulator to inspect premises conferred by section 73 of the Pensions Act 2004 are exercisable in relation to Chapters 2, 3A and 5 of Part 2 of the Bill. The reference to Chapter 3A is to the Chapter referred to in the explanatory statement to NC15.
Amendment 233, in schedule, page 100, line 32, leave out “(superfunds)”.
This amendment is consequential on Amendment 232.
Amendment 234, in schedule, page 101, line 16, leave out “any” and insert “or by virtue of any”.
This amendment, which relates to Amendment 235, ensures that functions under regulations made under the provisions mentioned in section 80(1)(c) are also captured by that provision.
Amendment 235, in schedule, page 101, leave out line 22 and insert—
“‘Chapter 1, 2, 3A or 5 of Part 2 of, or any provision of Part 3 of, the Pension Schemes Act 2025’”.
This amendment extends the offence in section 80 of the Pensions Act 2004 to false or misleading information provided in connection with the Pensions Regulator’s functions under or by virtue of Chapters 1, 2, 3A or 5 of Part 2 of the Bill. Chapter 3 of Part 2 is already covered, as it amends existing legislation already mentioned in section 80(1)(c). The reference to Chapter 3A is to the Chapter referred to in the explanatory statement to NC15.
Amendment 236, in schedule, page 101, line 25, leave out “any” and insert “or by virtue of any”.
This amendment, which relates to Amendment 237, ensures that functions under regulations made under the provisions mentioned in section 80A(2)(c) are also captured by that provision.
Amendment 237, in schedule, page 101, leave out line 31 and insert—
“‘Chapter 1, 2, 3A or 5 of Part 2 of, or any provision of Part 3 of, the Pension Schemes Act 2025’” —(Torsten Bell.)
This amendment extends the civil penalty provisions in section 8A of the Pensions Act 2008 to false or misleading information provided in connection with the Pensions Regulator’s functions under or by virtue of Chapters 1, 2, 3A or 5 of Part 2 of the Bill. Chapter 3 of Part 2 is already covered, as it amends existing legislation already mentioned in section 80A(2)(c).
Amendment 238, in schedule, page 102, line 10, after “legislation” insert—
“—
(a) after paragraph (d) insert—
‘(ea) Part 1 of the Pensions Act 2008 in relation to the scale requirement in section 28B or the asset allocation requirement in section 28C,’;”
This amendment ensures that the scale and asset allocation provisions in Chapter 3 of Part 2 can be the subject of a Regulator code of practice under section 90 of the Pensions Act 2004.
Amendment 239, in schedule, page 102, line 12, leave out “Part 2 or 3 of” and insert—
“Chapter 1, 2, 3A or 5 of Part 2 of, or any provision of Part 3 of,”.—(Torsten Bell.)
This amendment confines the references in section 90(6) of the Pensions Act 2004 to specific Chapters of Part 2.
Schedule, as amended, agreed to.
New Clause 11
Sharing of database where FCA makes corresponding rules
“(1) This section applies if the Financial Conduct Authority makes rules, in relation to persons regulated by it, that correspond to value for money regulations.
(2) The Secretary of State may by regulations make provision for the purpose of enabling or facilitating the use of the database mentioned in section 11(2)(d) for the publication or sharing of information—
(a) that relates to persons to whom the rules made by the Financial Conduct Authority apply, and
(b) that corresponds to metric data,
including provision conferring functions on a person appointed as mentioned in section 11(2)(d).
(3) Regulations under subsection (2) are subject to the negative procedure.”—(Torsten Bell.)
This new clause, intended to be inserted after clause 17, allows for the same value-for-money database to be used for FCA-regulated schemes as for schemes regulated by the Pensions Regulator.
Brought up, read the First and Second time, and added to the Bill.
New Clause 12
Interpretation of Chapter
‘(1) In this Chapter—
“the appropriate authority” , in relation to the making of regulations, means—
(a) where the only pension schemes to which the regulations apply are FCA-regulated pension schemes, the Treasury;
(b) where the only pension schemes to which the regulations apply are not FCA-regulated pension schemes, the Secretary of State;
(c) in any other case, the Treasury and the Secretary of State acting jointly;
“the appropriate regulator” , in relation to a pension scheme, means—
(a) in relation to an FCA-regulated pension scheme, the FCA;
(b) in relation to any other pension scheme, the Pensions Regulator;
“approved main scale default arrangement” , in relation to a pension scheme, means a main scale default arrangement in respect of which the pension scheme is approved under section 28A or 28B of the Pensions Act 2008;
“consolidating” a non-scale default arrangement into an approved main scale default arrangement means ensuring that any assets held subject to the non-scale default arrangement are instead held subject to the approved main scale default arrangement;
“the FCA” means the Financial Conduct Authority;
“FCA-regulated” , in relation to a pension scheme, has the meaning given in subsection (2);
“main scale default arrangement” , in relation to a pension scheme, has the same meaning as in section 28A and 28B of the Pensions Act 2008;
“money purchase benefits” has the same meaning as in the Pension Schemes Act 1993 (see section 181 of that Act);
“non-scale default arrangement” , in relation to a pension scheme, means an arrangement—
(a) which is not an approved main scale default arrangement, and
(b) subject to which assets of the scheme must under the rules of the scheme be held, or may under those rules be held, if the member of the scheme to whom the assets relate does not make a choice as to the arrangement subject to which the assets are to be held;
“operate” , in relation to a default arrangement, has the meaning given in subsection (3);
“pension scheme” has the meaning given by section 1(5) of the Pension Schemes Act 1993;
“the provider” of a pension scheme means—
(a) in relation to an FCA-regulated pension scheme, the person mentioned in subsection (2)(b);
(b) in any other case, the trustees or managers;
“the trustees or managers” , in relation to a pension scheme, means—
(a) in the case of a scheme established under a trust, the trustees of the scheme, and
(b) in any other case, the persons responsible for the management of the scheme.
(2) A pension scheme is “FCA-regulated” if the operation of the scheme—
(a) is carried on in such a way as to be a regulated activity for the purposes of the Financial Services and Markets Act 2000, and
(b) is carried on in the United Kingdom by a person who is in relation to that activity an authorised person under section 19 of that Act.
(3) The provider of a pension scheme “operates” a non-scale default arrangement or main scale default arrangement if any assets held for the purposes of the scheme are held subject to the non-scale default arrangement or main scale default arrangement.’—(Torsten Bell.)
This new clause makes provision about the interpretation of the new Chapter referred to in the explanatory statement to NC15.
Brought up, and read the First time.
The Chair
With this, it will be convenient to discuss the following: Government new clause 13—Crown application.
Government new clause 14—Amendments of the Financial Services and Markets Act 2000.
Government new clause 15—Regulations restricting creation of new non-scale default arrangements.
Government new clause 16—Regulations about consolidation of non-scale default arrangements.
Government new clause 17—Review in relation to non-scale default arrangements.
Torsten Bell
These new clauses deliver proposals that are contained in the final report of the pension investment review by adding a new chapter in part 2 of the Bill.
Clause 38 set out the requirements for master trusts and group personal pensions to demonstrate that they have sufficient scale, and this new chapter merely supports that delivery. There are too many default arrangements without scale in some schemes, and this fragmentation does not benefit savers. To prevent further fragmentation, new clause 15 allows for regulations to be made to restrict the creation of new non-scale default arrangements. This is not a ban on new default arrangements; there will be circumstances where they will be in savers’ interests. However, any new non-scale default arrangements will need to obtain regulatory approval before they can accept any moneys into them.
We must also deal with the existing fragmentation, and new clause 17 requires a review to be established jointly by the DWP and the Treasury on non-scale default arrangements. This review will look at the scale of the issue and why action has not been taken to consolidate these non-scale default arrangements where it would benefit savers for that to take place.
We anticipate that the review will commence in 2029, once the value for money and contractual overrides are in place. They will provide the tools needed for providers to take action before the review commences. Those tools will help to reduce fragmentation. The FCA and the Pensions Regulator will be required to provide information and assistance to the review. Once the review has been completed, it will be required to publish its findings, and these will inform further steps to support consolidation.
Torsten Bell
I beg to move, That the clause be read a Second time.
I thank all Members for their patience. The new clause amends part 1 of the Pensions Act 2008. It is essential to address a current gap in the pension system to ensure that employers share timely and accurate data with pension schemes, beyond the current one-off requirement for employers to provide that information to schemes at the point when the employee is enrolled into the scheme.
Improving data records will help to improve member communications and will support pension schemes to operate more efficiently and effectively. Poor data contributes to wasted administration costs because it often requires manual interventions to verify identities and match records, which is especially important to facilitate the small pots framework that we have discussed previously.
Finally, the new clause extends the relevant pre-existing compliance provisions in the Pensions Act 2008 to these new duties, ensuring that the regulator will have suitable enforcement powers. In summary, the new clause supports better governance through improved data quality.
Question put and agreed to.
New clause 20 accordingly read a Second time, and added to the Bill.
New Clause 22
Additional powers for certain scheme managers
“(1) Scheme regulations may make provision for the purpose of conferring any power or powers falling within subsection (2) or (4) on a specified scheme manager for a scheme for local government workers in England and Wales.
(2) Scheme regulations under this section may make provision conferring on the scheme manager (in relation to carrying out its functions as a scheme manager)—
(a) any specified power or powers of a local authority under Part 6 of the Local Government Act 1972, or
(b) any power or powers corresponding to one or more of the powers of a local authority under that Part.
(3) The power to make provision by virtue of subsection (2) is not exercisable if, or to the extent that, the scheme manager already has the powers of a local authority under Part 6 of the Local Government Act 1972 (otherwise than by virtue of scheme regulations under this section).
(4) Scheme regulations under this section may make provision conferring on the scheme manager (as part of its functions as a scheme manager) power to provide any administrative, professional or technical service for any other person who is a scheme manager for a public service pension scheme.
(5) In subsection (4)—
(a) ‘public service pension scheme’ means a scheme for the payment of pensions and other benefits to or in respect of persons of a description set out in section 1(2) of PSPA 2013, and
(b) ‘scheme manager’ (in the third place it appears) means any person who is, for the purposes of PSPA 2013, a scheme manager for any such scheme.
(6) The power to make provision by virtue of subsection (4) is not exercisable if, or to the extent that, the scheme manager already has the power to provide services referred to in that subsection (otherwise than by virtue of scheme regulations under this section).
(7) Scheme regulations under this section may amend or modify any Act passed before or in the same Session as this Act.
(8) In this section ‘specified’ means specified in scheme regulations under this section.”—(Torsten Bell.)
This new clause enables regulations to confer additional powers specified in subsection (2) or (4) on a specific scheme manager. Most but not all of the scheme managers already have those powers, so the intention is to enable the others to be given any of the powers that they do not already have.
Brought up, read the First and Second time, and added to the Bill.
New Clause 23
Sections (Validity of certain alterations to salary-related contracted-out pension schemes: subsisting schemes) to (Powers to amend Chapter 1 etc: Great Britain): interpretation and scope
“(1) The following provisions of this section have effect for the purposes of this section and sections (Validity of certain alterations to salary-related contracted-out pension schemes: subsisting schemes) to (Powers to amend Chapter 1 etc: Great Britain).
(2) ‘GB scheme’ means an occupational pension scheme that was a salary-related contracted-out scheme in England and Wales or Scotland; and for this purpose an occupational pension scheme was a salary-related contracted-out scheme in England and Wales or Scotland at any time if the scheme was contracted-out at that time by virtue of satisfying section 9(2) of the Pension Schemes Act 1993 (as it then had effect).
(3) ‘Scheme actuary’, in relation to a scheme, means—
(a) the person for the time being appointed as actuary for the scheme under section 47 of the Pensions Act 1995 (professional advisers), or
(b) if there is no person so appointed, a fellow of the Institute and Faculty of Actuaries appointed by the trustees or managers of the scheme to carry out the functions of the scheme actuary under section (Validity of certain alterations to salary-related contracted-out pension schemes: subsisting schemes).
(4) ‘Section 37(1)’ refers to section 37(1) of the Pension Schemes Act 1993 (prohibition of alterations to rules of contracted-out schemes in certain circumstances).
(5) ‘Regulation 42’ refers to regulation 42 of the Occupational Pension Schemes (Contracting-out) Regulations 1996 (SI 1996/1172) (requirements for alterations to rules of contracted-out schemes).
(6) An alteration purporting to have been made to the rules of a GB scheme is a ‘potentially remediable alteration’ if—
(a) by virtue of section 37(1) and paragraphs (1) and (2) of regulation 42 (as they had effect at the time), the alteration could not be made unless the requirements of paragraph (2)(a), (b) and (c) of regulation 42 (as they then had effect) had been met,
(b) it was treated by the trustees or managers of the scheme, after it was purportedly made, as a valid alteration,
(c) no positive action has been taken by the trustees or managers of the scheme on the basis that they consider the alteration to be void (and so of no legal effect) by reason of non-compliance with the requirements of paragraph (2)(a) and (b) of regulation 42, and
(d) it is not excluded from the scope of remediation under sections (Validity of certain alterations to GB salary-related contracted-out pension schemes: subsisting schemes) and (Validity of certain alterations to GB salary-related contracted-out pension schemes: wound up schemes and other special cases) (see subsection (8)).
(7) In subsection (6)(c) ‘positive action’, in relation to a purported alteration, means—
(a) notifying any members of the scheme in writing to the effect that the trustees or managers consider the alteration to be void (by reason of non-compliance with the requirements of paragraph (2)(a) and (b) of regulation 42) and that the scheme will be administered on the basis that it has no legal effect, or
(b) taking any other step in relation to the administration of the scheme, in consequence of the trustees or managers considering the alteration to be void, which has (or will have) the effect of altering payments to or in respect of members of the scheme.
(8) An alteration purporting to have been made to the rules of a GB scheme is excluded from the scope of remediation under sections (Validity of certain alterations to GB salary-related contracted-out pension schemes: subsisting schemes) and (Validity of certain alterations to GB salary-related contracted-out pension schemes: wound up schemes and other special cases) if any question relating to the validity of the alteration, so far as relating to the requirements of paragraph (2)(a) and (b) of regulation 42—
(a) has been determined by a court before this section comes into force in legal proceedings to which the trustees or managers were a party;
(b) was in issue on or before 5 June 2025 in legal proceedings to which the trustees or managers were a party, but has been settled by agreement between the parties at any time before this section comes into force, or
(c) was in issue on or before 5 June 2025 in legal proceedings to which the trustees or managers were a party, and remains in issue when this section comes into force.”—(Torsten Bell.)
This new clause is intended to form part of a new Chapter 1 in Part 4 to address issues arising from the decision of the Court of Appeal in Virgin Media Ltd v NTL Pension Trustees. This decision called into question the validity of past alterations to salary-related contracted out occupational pension schemes. It appears that a number of schemes were purportedly altered without the prior actuarial confirmation required (under regulation 42(2)(b) of the Occupational Pension Schemes (Contracting-Out) Regulations 1996) being given. In other cases inadequate records mean that the current trustees or managers of some schemes cannot tell whether the necessary confirmation was given. The new Chapter will provide for the retrospective validation of such alterations where certain conditions are met, dealing with Northern Ireland pension schemes separately. The new clause also provides that alterations whose validity was in issue in legal proceedings commenced on or before 5 June 2025 are outside the scope of remediation under the new Chapter. That was the date on which a published ministerial statement indicated that the Government proposed to take retrospective legislative action to address issues arising from the Virgin Media case.
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss the following:
Government new clause 24—Validity of certain alterations to GB salary-related contracted-out pension schemes: subsisting schemes.
Government new clause 25—Validity of certain alterations to GB salary-related contracted-out pension schemes: wound up schemes and other special cases.
Government new clause 26—Power to amend provisions of Chapter 1 etc: Great Britain.
Government new clause 27—Sections (Validity of certain alterations to NI salary-related contracted-out pension schemes: subsisting schemes) to (Power to amend Chapter 1): interpretation and scope.
Government new clause 28—Validity of certain alterations to NI salary-related contracted-out pension schemes: subsisting schemes.
Government new clause 29—Validity of certain alterations to NI salary-related contracted-out pension schemes: wound up schemes and other special cases.
Government new clause 30—Powers to amend Chapter 1 etc: Northern Ireland.
Torsten Bell
These new clauses are intended to help schemes affected by the implications of the Virgin Media v. NTL pension trustees court judgments, which found that certain benefit changes could be void if a scheme cannot produce actuarial confirmation that they met the requirements at the time. That has created significant uncertainty about affected schemes’ liabilities and funding requirements.
The new clauses apply to private and public sector defined-benefit pension schemes that were contracted out between 1997 and 2016 under the reference scheme test, which imposed certain legal requirements upon them. The new clauses let schemes ask their actuary to confirm retrospectively that a past change to benefits would not have stopped the scheme from meeting these legal requirements at the time, rather than requiring the scheme to produce actuarial confirmation of the same facts at the time that the change was actually made. They will help members and schemes get the certainty they need.
I want to assure the Committee that these new clauses do not change the underpinning standards that were required. They are not a retrospective pardon for benefit changes that did not meet the legal standards within existing schemes. If a scheme did not obtain written confirmation at the time, and cannot obtain retrospective confirmation, the benefit changes can be held to be void, as provided for under current law.
New clause 23 defines the language and parameters of the other clauses of this section of the Bill. New clause 24 gives the trustees or managers of a scheme the power to ask the scheme actuary to confirm that a previous change to benefits would not have stopped the scheme from meeting legal requirements at that time.
New clause 25 introduces an approach for schemes whose liabilities have already been transferred to the Pension Protection Fund or to the financial assistance scheme. Any benefit changes will be deemed to have been made with actuarial confirmation in those cases. This different approach is needed because individual schemes no longer exist when they have entered the PPF, and there is no longer a scheme actuary. The PPF and FAS would also not have the information required on individual schemes to enable an actuary to provide retrospective confirmation. This ensures that the level of compensation or assistance will continue to be paid to members at current levels.
New clause 25 also introduces an explicit provision for wound-up schemes that deems that benefit changes made to the scheme were compliant with the requirement to have confirmation from an actuary. This will make sure that the benefits provided to members, for example through an annuity, will not be incorrect as a result of any historical failure to obtain a written actuarial confirmation.
The legal recourse for members would otherwise be against the former scheme trustees, because they cannot have recourse against the provider of the annuity. However, we think it would be unreasonable for these trustees to be potentially personally liable in a situation where they could not obtain a retrospective actuarial confirmation because the scheme and its records no longer exist.
New clause 26 provides a regulation-making power to provide for specified alterations to be excluded from the scope of the retrospective confirmation route and to make consequential amendments to the legislation. The power is not intended for immediate use but is included to future-proof the legislation. The clause also contains a separate power to amend existing primary legislation. I want to assure the Committee that the power is narrow, enables consequential amendments to be made, and is subject to the affirmative procedure.
New clauses 27 to 30 make mirroring provisions for Northern Ireland, at the request of the Northern Ireland Executive. I commend the new clauses to the Committee.
Question put and agreed to.
New clause 23 accordingly read a Second time, and added to the Bill.
New Clause 24
Validity of certain alterations to GB salary-related contracted-out pension schemes: subsisting schemes
“(1) This section applies to any potentially remediable alteration purportedly made to a scheme other than one to which section (Validity of certain alterations to GB salary-related contracted-out pension schemes: wound up schemes and other special cases) applies.
(2) If the conditions mentioned in subsection (3) are met in relation to it, the alteration is to be treated for all purposes as having met the requirements of paragraph (2)(a) and (b) of regulation 42 before it was purportedly made, and so as having always been a valid alteration so far as those requirements are concerned.
(3) The conditions are—
(a) that the trustees or managers of the scheme have made a request in writing to the scheme actuary for the actuary to consider whether or not, on the assumption that it was validly made, the alteration would have prevented the scheme from continuing to satisfy the statutory standard, and
(b) that the scheme actuary has confirmed to the trustees or managers in writing that in the actuary’s opinion it is reasonable to conclude that, on the assumption that it was validly made, the alteration would not have prevented the scheme from continuing to satisfy the statutory standard.
In this subsection ‘the statutory standard’ means the statutory standard for a contracted-out scheme under section 12A of the Pension Schemes Act 1993 as it had effect at the time the alteration was purportedly made.
(4) A scheme actuary who has received a request under subsection (3)(a) in relation to a potentially remediable alteration to a scheme—
(a) may take any professional approach (including making assumptions or relying on presumptions) that is open to the actuary in all the circumstances of the case;
(b) may act on the basis of the information available to the actuary, as long as the actuary considers it sufficient for the purpose of forming an opinion on the subject-matter of the request.
(5) A condition mentioned in subsection (3) may be met by action taken before (as well as action taken after) this section comes into force.
(6) Subsection (7) applies to a scheme if —
(a) there is an assessment period in relation to the scheme within the meaning of Part 2 of the Pensions Act 2004, or
(b) the scheme is operating as a closed scheme under section 153 of that Act.
(7) The powers of the Board of the Pension Protection Fund under section 134 and section 155 of the Pensions Act 2004 to give directions includes power to give a direction to the trustees or managers of the scheme requiring them—
(a) to make a request under subsection (3)(a) above in relation to a potentially remediable alteration to the scheme, and
(b) to take any necessary action to enable or facilitate the making of a decision by the scheme actuary as to whether to give the confirmation described in subsection (3)(b) above in relation to that alteration.”—(Torsten Bell.)
This new clause enables the trustees or managers of a scheme to ask the scheme actuary to consider the position of an alteration when it was (purportedly) made. If the actuary confirms that it is reasonable to conclude that at that time the alteration would not have prevented the scheme from continuing to meet the statutory standard for contracted-out schemes, then the alteration is retrospectively deemed by subsection (2) to have been validly made, so far as the requirements of regulation 42(2)(a) and (b) are concerned.
Brought up, read the First and Second time, and added to the Bill.
New Clause 25
Validity of certain alterations to GB salary-related contracted-out pension schemes: wound up schemes and other special cases
“(1) This section applies to any potentially remediable alteration purportedly made to the rules of—
(a) a scheme which has been wound up before this section comes into force,
(b) a scheme for which the Board of the Pension Protection Fund has, before this section comes into force, assumed responsibility in accordance with Chapter 3 of Part 2 of the Pensions Act 2004 (see section 161 of that Act), or
(c) a scheme which is a qualifying pension scheme for the purposes of regulation 9 of the Financial Assistance Scheme Regulations 2005 (SI 2005/1986) and in respect of which payments are required to be made under section 286 of the Pensions Act 2004.
(2) The alteration is to be treated for all purposes as having met the requirements of paragraph (2)(a) and (b) of regulation 42 before it was purportedly made and so as having always been a valid alteration so far as those requirements are concerned.”—(Torsten Bell.)
This new clause deals with cases where it would not now be practicable for the confirmation described in NC24(3)(b) to be obtained in relation to a potentially remediable alteration. In such cases the clause retrospectively deems the alteration to have been validly made so far as the requirements of regulation 42(2)(a) and (b) are concerned.
Brought up, read the First and Second time, and added to the Bill.
New Clause 26
Power to amend provisions of Chapter 1 etc: Great Britain
“(1) The Secretary of State may by regulations amend any of sections (Sections (Validity of certain alterations to GB salary-related contracted-out pension schemes: subsisting schemes) to (Powers to amend Chapter 1): interpretation and scope), (Validity of certain alterations to GB salary-related contracted-out pension schemes: subsisting schemes) and (Validity of certain alterations to GB salary-related contracted out pension schemes: wound up schemes and other special cases) for the purpose of providing for purported alterations of any specified description to be outside the scope of remediation under either or both of sections (Validity of certain alterations to salary-related contracted-out pension schemes: subsisting schemes) and (Validity of certain alterations to salary-related contracted-out pension schemes: wound up schemes and other special cases).
(2) In subsection (1) ‘specified’ means specified in the regulations; and a specified description of purported alterations may be framed by reference to features of the alterations or of the schemes purportedly altered by them (or a combination of both).
(3) Regulations under subsection (1) are subject to the negative procedure.
(4) The Secretary of State may by regulations make incidental, supplementary, consequential or transitional provision in connection with any provision of this Chapter (other than this section and section (Powers to amend Chapter 1 etc: Northern Ireland)).
(5) Regulations under subsection (4) may amend any Act passed before or in the same Session as this Act.
(6) Regulations under subsection (4) are subject to the affirmative procedure if they contain provision made under subsection (5); otherwise they are subject to the negative procedure.”—(Torsten Bell.)
This new clause enables regulations made for England and Wales or Scotland (a) to specify further categories of alterations in respect of which the clauses validating otherwise void alterations do not apply and (b) to make incidental, supplementary, transitional or consequential provision relating to any provision of the new Chapter addressing the validity of alterations to pension schemes.
Brought up, read the First and Second time, and added to the Bill.
New Clause 27
Sections (Validity of certain alterations to NI salary-related contracted-out pension schemes: subsisting schemes) to (Power to amend Chapter 1): interpretation and scope
“(1) The provisions of this section have effect for the purposes of this section and sections (Validity of certain alterations to NI salary-related contracted-out pension schemes: subsisting schemes) to (Powers to amend Chapter 1 etc: Northern Ireland).
(2) ‘NI scheme’ means an occupational pension scheme that was a salary-related contracted-out scheme in Northern Ireland; and for this purpose an occupational pension scheme was a salary-related contracted-out scheme in Northern Ireland at any time if the scheme was contracted-out at that time by virtue of satisfying section 5(2) of the Pension Schemes (Northern Ireland) Act 1993 (as it then had effect).
(3) ‘Scheme actuary’, in relation to an NI scheme, means—
(a) the person for the time being appointed as actuary for the scheme under Article 47 of the Pensions (Northern Ireland) Order 1995 (SI 1995/3213 (N.I. 22)) (professional advisers), or
(b) if there is no person so appointed, a Fellow of the Institute and Faculty of Actuaries appointed by the trustees or managers of the scheme to carry out the functions of the scheme actuary under section (Validity of certain alterations to NI salary-related contracted-out pension schemes: subsisting schemes).
(4) ‘Section 33(1)’ refers to section 33(1) of the Pension Schemes (Northern Ireland) Act 1993 (prohibition of alterations to rules of contracted-out schemes in certain circumstances).
(5) ‘Regulation 42’ refers to regulation 42 of the Occupational Pension Schemes (Contracting-out) Regulations (Northern Ireland) 1996 (SR 1996 No. 493).
(6) An alteration purporting to have been made to the rules of an NI scheme is a ‘potentially remediable alteration’ if—
(a) by virtue of section 33(1) and paragraphs (1) and (2) of regulation 42 (as they had effect at the time), the alteration could not be made unless the requirements of paragraph (2)(a), (b) and (c) of regulation 42 (as they then had effect) had been met,
(b) it was treated by the trustees or managers of the scheme, after it was purportedly made, as a valid alteration,
(c) no positive action has been taken by the trustees or managers of the scheme on the basis that they consider the alteration to be void (and so of no legal effect) by reason of non-compliance with the requirements of paragraph (2)(a) and (b) of regulation 42, and
(d) it is not excluded from the scope of remediation under section (Validity of certain alterations to NI salary-related contracted-out pension schemes: subsisting schemes) Validity of certain alterations to NI salary-related contracted-out pension schemes: wound up schemes and other special cases) (see subsection (7)).
(7) In subsection (6)(c) ‘positive action’, in relation to a purported alteration, means—
(a) notifying any members of the scheme in writing to the effect that the trustees or managers consider the alteration to be void (by reason of non-compliance with the requirements of paragraph (2)(a) and (b) of regulation 42) and that the scheme will be administered on the basis that it has no legal effect, or
(b) taking any other step in relation to the administration of the scheme, in consequence of the trustees or managers considering the alteration to be void, which has (or will have) the effect of altering payments to or in respect of members of the scheme.
(8) An alteration purporting to have been made to the rules of an NI scheme is excluded from the scope of remediation under sections (Validity of certain alterations to NI salary-related contracted-out pension schemes: subsisting schemes) and (Validity of certain alterations to NI salary-related contracted-out pension schemes: wound up schemes and other special cases) if any question relating to the validity of the alteration, so far as relating to the requirements of paragraph (2)(a) and (b) of regulation 42—
(a) has been determined by a court before this section comes into force in legal proceedings to which the trustees or managers were a party,
(b) was in issue on or before 5 June 2025 in legal proceedings to which the trustees or managers were a party, but has been settled by agreement between the parties at any time before this section comes into force, or
(c) was in issue on or before 5 June 2025 in legal proceedings to which the trustees or managers were a party, and remains in issue when this section comes into force.”—(Torsten Bell.)
This new clause makes provision for Northern Ireland corresponding to NC23. Northern Ireland generally has its own pensions legislation which is separate from the legislation applying to England and Wales and Scotland.
Brought up, read the First and Second time, and added to the Bill.
New Clause 28
Validity of certain alterations to NI salary-related contracted-out pension schemes: subsisting schemes
“(1) This section applies to any potentially remediable alteration purportedly made to an NI scheme other than one to which section (Validity of certain alterations to NI salary-related contracted-out pension schemes: wound up schemes and other special cases) applies.
(2) If the conditions mentioned in subsection (3) are met in relation to it, the alteration is to be treated for all purposes as having met the requirements of paragraph (2)(a) and (b) of regulation 42 before it was purportedly made, and so as having always been a valid alteration so far as those requirements are concerned.
(3) The conditions are—
(a) that the trustees or managers of the scheme have made a request in writing to the scheme actuary for the actuary to consider whether or not, on the assumption that it was validly made, the alteration would have prevented the scheme from continuing to satisfy the statutory standard, and
(b) that the scheme actuary has confirmed to the trustees or managers in writing that in the actuary’s opinion it is reasonable to conclude that, on the assumption that it was validly made, the alteration would not have prevented the scheme from continuing to satisfy the statutory standard.
In this subsection ‘the statutory standard’ means the statutory standard for a contracted-out scheme under section 8A of the Pension Schemes (Northern Ireland) Act 1993 as it had effect at the time the alteration was purportedly made.
(4) A scheme actuary who has received a request under subsection (3)(a) in relation to a potentially remediable alteration to a scheme—
(a) may take any professional approach (including making assumptions or relying on presumptions) that is open to the actuary in all the circumstances of the case:
(b) may act on the basis of the information available to the actuary, as long as the actuary considers it sufficient for the purpose of forming an opinion on the subject-matter of the request.
(5) A condition mentioned in subsection (3) may be met by action taken before (as well as action taken after) this section comes into force.
(6) Subsection (7) applies to a scheme if —
(a) there is an assessment period in relation to the scheme within the meaning of Chapter 3 of Part 3 of the Pensions (Northern Ireland) Order 2005 (SI 2005/255 (N.I. 1)) , or
(b) the scheme is operating as a closed scheme under Article 137 of that Order.
(7) The powers of the Board of the Pension Protection Fund under Article 118 and 139 of the Pensions (Northern Ireland) Order 2005 to give directions include power to give a direction to the trustees or managers of the scheme requiring them—
(a) to make a request under subsection (3)(a) in relation to a potentially remediable alteration to the scheme, and
(b) to take any necessary action to enable or facilitate the making of a decision by the actuary as to whether to give the confirmation described in subsection (3)(b) in relation to that alteration.”—(Torsten Bell.)
This new clause makes provision for Northern Ireland corresponding to NC24.
Brought up, read the First and Second time, and added to the Bill.
New Clause 29
Validity of certain alterations to NI salary-related contracted-out pension schemes: wound up schemes and other special cases
“(1) This section applies to any potentially remediable alteration purportedly made to the rules of—
(a) a scheme which has been wound up before this section comes into force,
(b) a scheme for which the Board of the Pension Protection Fund has, before this section comes into force, assumed responsibility in accordance with Chapter 3 of Part 3 of the Pensions (Northern Ireland) Order 2005 (see Article 145 of that Order), or
(c) a scheme which is a qualifying pension scheme for the purposes of regulation 9 of the Financial Assistance Scheme Regulations 2005 (SI 2005/1986) and in respect of which payments are required to be made under section 286 of the Pensions Act 2004.
(2) The alteration is be treated for all purposes as having met the requirements of paragraph (2)(a) and (b) of regulation 42 before it was purportedly made and so as having always been a valid alteration so far as those requirements are concerned.”—(Torsten Bell.)
This new clause makes provision for Northern Ireland corresponding to NC25.
Brought up, read the First and Second time, and added to the Bill.
New Clause 30
Powers to amend Chapter 1 etc: Northern Ireland
“(1) A Northern Ireland Department may by regulations amend any of sections (Sections (Validity of certain alterations to NI salary-related contracted-out pension schemes: subsisting schemes) to (Powers to amend Chapter 1 etc: Northern Ireland): interpretation and scope), (Validity of certain alterations to NI salary-related contracted-out pension schemes: subsisting schemes) and (Validity of certain alterations to NI salary-related contracted-out pension schemes: wound up schemes and other special cases) for the purpose of providing for purported alterations of any specified description not to be within the scope of remediation under either or both of sections (Validity of certain alterations to NI salary-related contracted-out pension schemes: subsisting schemes) and (Validity of certain alterations to NI salary-related contracted-out pension schemes: wound up schemes and other special cases).
(2) In subsection (1) ‘specified’ means specified in the regulations; and a specified description of purported alterations may be framed by reference to features of the alterations or of the schemes purportedly altered by them (or a combination of both).
(3) A Northern Ireland Department may by regulations make incidental, supplementary, consequential or transitional provision in connection with any provision of this Chapter (other than section (Powers to amend Chapter 1 etc: Great Britain) and this section).
(4) Regulations made under this section are subject to negative resolution within the meaning given by section 41(6) of the Interpretation Act (Northern Ireland) 1954.
(5) The power of a Northern Ireland Department to make regulations under this section is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).”—(Torsten Bell.)
This new clause enables regulations made for Northern Ireland (a) to specify further categories of alterations in respect of which the clauses validating otherwise void alterations do not apply and (b) to make incidental, supplementary, transitional or consequential provision relating to any provision of the new Chapter addressing the validity of alterations to pension schemes.
Brought up, read the First and Second time, and added to the Bill.
New Clause 1
Universal Pension Advice Entitlement
“(1) The Secretary of State must by regulations establish a system to ensure that every individual has a right to receive free, impartial pension advice at prescribed times.
(2) Regulations under subsection (1) must provide for individuals to be offered advice—
(a) at or around the age of 40; and
(b) at a prescribed age, not more than six years before the individual's expected retirement age.
(3) The regulations must make provision about—
(a) the content and scope of the free, impartial pension advice, which may include, but is not limited to, guidance on—
(i) pension types (including both defined contribution and defined benefit schemes),
(ii) investment strategies,
(iii) charges,
(iv) consolidation of pension pots, and
(v) retirement income options;
(b) the qualifications, independence, and impartiality requirements for any person or body providing advice;
(c) the means by which individuals are notified of their entitlement to receive the advice and how they may access it;
(d) the roles and responsibilities of pension scheme trustees, managers, and providers in facilitating access to advice;
(e) the sharing member information with prescribed persons or bodies subject to appropriate data protection safeguards.
(4) Regulations under this section may—
(a) make different provision for different descriptions of pension schemes or different descriptions of individuals;
(b) confer functions in connection with the provision or oversight of the advice on—
(i) the Pensions Regulator,
(ii) the Financial Conduct Authority,
(iii) the Money and Pensions Service, or
(iv) other prescribed bodies;
(c) require the provision of funding for the advice service from prescribed sources.
(5) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”—(John Milne.)
This new clause makes provision by regulations for everyone to receive free, impartial pension advice at age 40 and again around five years before their expected retirement.
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss the following:
New clause 40—Targeted Advice Access for Under-Saving Cohorts—
“(1) The Secretary of State must make regulations to provide enhanced access to pension advice or guidance for cohorts identified as under-saving for retirement.
(2) Regulations may make provision for—
(a) identifying under-saving groups, including but not limited to—
(i) women,
(ii) ethnic minority groups, and
(iii) others affected by long-term pay or pension gaps;
(b) mechanisms to fund and deliver targeted support;
(c) reporting and evaluation requirements to assess take-up and effectiveness.
(3) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”
This new clause allows for the creation of targeted pension advice or guidance interventions for groups at risk of under-saving for retirement.
New clause 41—Cap on cost of advice for pension holders—
“(1) The Secretary of State may by regulations introduce a cap on the cost recoverable for providing pension advice per pension holder under any scheme operating free or subsidised advice.
(2) The cap may vary depending on—
(a) the value of the pension pot;
(b) the type of pension scheme;
(c) the complexity of advice required.
(3) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”
This new clause enables the introduction of a cost ceiling for advice provision to members of pension schemes.
New clause 43—Auto-Enrolment into Pension Wise Guidance Sessions—
“(1) The Secretary of State must make regulations requiring that individuals reaching prescribed ages are auto-enrolled into Pension Wise guidance appointments.
(2) The regulations may provide for—
(a) opt-out procedures;
(b) the prescribed ages or pension milestones at which auto-enrolment occurs;
(c) the means by which schemes notify members and facilitate appointments.
(3) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”
This new clause aims to increase engagement with Pension Wise by auto-enrolling members into guidance sessions at key decision points, with the ability to opt out.
John Milne
We have tabled a number of amendments designed to improve people’s access to advice. As I said in a previous sitting, for me, the biggest missing link in this Bill is the absence of action on pensions advice. Relatively few people are able—or perhaps willing— to access paid advice, and that situation is not likely to change. We have to find another way.
The purpose of new clause 1 is to help people to properly understand their pension options through universal access to free, impartial advice at key life stages. We previously debated how that might be funded—slightly ahead of time—but this is purely about the principle of that advice.
Most people find pensions very complicated. It is hard to persuade people to engage with the issue at a young enough age, and it is even harder for someone to grasp what would constitute an adequate pension many years before they might have to draw on it. The Work and Pensions Committee, of which I am a member, has repeatedly highlighted this issue and examined ways to improve things.
The intention of new clause 1 is to ensure that everyone—not just the financially literate or well advised—can make informed decisions about retirement. Advice would be offered at or around age 40, which is a critical moment for mid-life planning and pension consolidation, and again within six years of expected retirement, to support decisions about drawdowns, annuities and retirement income options. That change is designed to give people confidence and clarity about their pensions, and to avoid poor decisions that would undermine retirement security.
Rachel Blake (Cities of London and Westminster) (Lab/Co-op)
I have read the new clause with interest, and listened carefully, and I am sure that this Committee is united in wanting there to be good advice on pensions. It would help me to better understand the proposal if the hon. Member could describe why he thinks the Money and Pensions Service is not already providing that, and why he thinks there is a gap that would justify this type of measure.
John Milne
I thank the hon. Member for her question. We have to look at performance: over the years, most people—the great majority of people—have not been getting any advice. Those who do tend to be better off because they have more private pensions, so they are obviously far more engaged, but the majority of people, especially now we have many on auto-enrolment, have minimal engagement. There are some very good services on hand—such as Pension Wise advice, which is free; I will come on to that in another measure—but, overall, people are simply not accessing that advice.
We are keeping the wording of the new clause reasonably open to establish the principle. There are many ways to solve the problem, and we will come to some of those in other new clauses. We are hoping to get agreement on the principle, though there are many ways to crack this particular egg.
Moving on to new clause 40, this is about targeted advice access for under-saving cohorts. Its purpose is to put the focus on groups of people who have historically been among the worst served by our current pension system.
John Grady (Glasgow East) (Lab)
Has the hon. Gentleman considered some of the reforms that the FCA is considering, such as the advice guidance boundary review? I understand the thrust of what he is trying to do—to ensure that people get proper pension advice. Hopefully, everyone would agree with that, but I wonder how it fits in with the wider context of the work that the FCA is doing.
John Milne
This is really about trying to place the Minister’s attention on this important issue—we will not press the new clause to a vote. It is about focusing the Minister’s mind on the task at hand. The undersaving groups include, but are not limited to, women, ethnic minority groups and others affected by long-term pay or pension gaps. The new clause would provide mechanisms to fund and deliver targeted support.
New clause 41 is designed to put a cap or ceiling on the amount of free advice accessed by any individual saver. It is a subset of new clause 1. Some individuals have very complicated financial affairs, which threaten to take a disproportionate amount of effort to decipher, in the event that we were to provide free advice. Those individuals will tend to be much better off and with multiple pension pots, which is precisely why they will end up needing more advice. Placing a ceiling on the advice available would ensure that the free advice was targeted only at those who needed it most.
New clause 43 is a potential solution to the information deficit that we are trying to address. It would enable auto-enrolment into Pension Wise as the vehicle for giving advice. We tabled it as a probing amendment to provoke the Minister’s consideration. The purpose of the new clause is to help people properly understand and engage with their pension by auto-enrolment into Pension Wise advice at key stages, with the freedom to opt out. Pension Wise guidance is free, impartial and has very high satisfaction rates—94%—among those who have used it, yet uptake remains strangely low, which is an excellent illustration of exactly why the whole advice area needs urgent attention.
Government data shows that of those who have accessed defined-contribution pension pots, only 14% have done so after receiving Pension Wise advice. That is despite various efforts, including a stronger nudge to encourage taking guidance before pots are accessed. Wake-up packs and other communications have shown limited effectiveness, and the evidence shows that savers will need more than passive information; they need action-oriented support.
If anything, the situation is getting worse. The proportion of pensions accessed after receiving guidance or advice has reduced by around 9 percentage points since 2021-22. Evidence from the DWP’s 2022 research shows that although most people start saving for retirement in their 20s and 30s, many do not start planning for retirement until their 50s. Auto-enrolment into guidance would therefore significantly increase take-up and improve retirement outcomes for many. Defined-contribution scheme members, in particular, often lack clear information about their options; Pension Wise would help fill that gap.
New clause 43 leaves flexibility for the Secretary of State to determine the appropriate ages, processes and notification methods. We recognise that it would be a significant move, and that there would be technical issues to solve. That is why we have tabled it only as a probing new clause, to explore whether the Government will look at trials or further measures to boost guidance uptake. Auto-enrolment into a pension scheme has been a great success, so perhaps the next logical step is auto-enrolment into advice. Why not try it?
Mark Garnier
I am keen to speak to these Liberal Democrat new clauses, because we have a fundamental problem. Research by Pensions UK shows that more than 50% of savers will fail to reach their retirement income targets set by the 2005 Pensions Commission, and closing the gap between what people are saving and what they will need must be a pressing concern of any Government. So, we need the second part of the pensions review to be fast-tracked, with a laser-like focus on pensions adequacy.
This takes me back to when I first became a Member of Parliament some 14 or 15 years ago. The big issue at the time in the independent financial advisers market was the retail distribution review. My hon. Friend the Member for West Worcestershire (Dame Harriett Baldwin) and I held our first Backbench Business debate on the retail distribution review, and it is recorded in Hansard that we predicted this would be a problem as a result—fewer independent financial advisers being available to give advice.
There were three key elements of the retail distribution review. They were very well-intended, and let us not beat about the bush: there were reasons why they were brought about. One of them was intended to raise the professional standards of independent financial advisers, and I think we would all agree that that has to be a good thing. The advisers complained at the time because they did not want to take exams. If they had been in the business for 40 years, why would they feel that they needed to take an exam? But why should they not improve their standards? There were issues to do with lifetime liability—advisers’ taking responsibility beyond seven years for advice that they had given, which was very contentious. Also there was clarity on the models of advice being given.
However, the key element that caused the problems was where independent financial advisers, prior to that moment, were being paid a commission on the product that was being sold, which potentially led to product bias. If a commission was being paid at 2.5% on one product and 1% on another, the independent financial adviser would have a material interest in selling that higher-commission product, even if it was a worse product. That could have been dealt with by having a maximum commission rate on all the products; it could have been set at 100 or 150 basis points, which would have dealt with that problem. We saw this issue in the London stock exchange until 1986, when there were fixed rates of commission, so nobody could undercut another broker by providing cheaper dealing measures. We therefore knew it could work.
The direct result of all this was that when the retail distribution review was brought in by the FCA in January 2013, we saw a massive drop in the 35,000 independent financial advisers. That has since recovered, and we now have around 36,000 advisers. The important point is that a financial adviser who goes out to persuade somebody to take advice on their pension now needs to charge a fee. Before that, to the person receiving the advice, the financial adviser would appear to be doing it for nothing. There would be an agreement, so it would be transparent and they would know exactly what was going on.
However, the point is that now, if I am being asked to put money into a pension fund and I know I am paying the 1.5%, the fact that the commission is coming out of the money going in feels much less restrictive than being sent a bill for £1,500 or £2,000. That is much more difficult to meet, even though it comes to the same point in the end. The result of this is that, whereas about 50% of people used to put money into pensions and receive financial advice, the number is now 9%.
There are an awful lot of newly elected Members of Parliament here. After 10 or 15 years, they will find themselves in a Bill Committee making these points and saying, “We told you this would be a problem. We told you so, yet here we are trying to resolve a problem that we knew was going to happen, and we allowed it to.” I am very cynical about Parliament sometimes, as all Members will be eventually. The important point is that the Liberal Democrat new clauses are an attempt to deal with the problems that we knew would come about. Auto-enrolment is brilliant—we really like auto-enrolment—but there are various things coming in under this Bill. We have to be careful that the things we bring in with the best intentions do not end up creating bigger problems due to unforeseen circumstances.
If the Liberal Democrats pressed new clause 1, we would happily support it, as it is a good amendment. It will be interesting to see if that comes through, but this is something we have to get right. People need to get advice because far too many people are going to go barrelling into their 67th birthday, or whatever it is, and suddenly discover that they have run out of money, and that is not a good place to be.
Kirsty Blackman
I really appreciate the trip down memory lane that the hon. Member for Wyre Forest has taken us on. I wish I had the tenacity to hold on to “I told you so” for 14 years. I am going to say it all the time anyway, even though I will not be able to hold on as long as he has.
Turning to the Liberal Democrats’ new clauses 1, 40 and 43, I am aware that the Government, and the people of these islands, are looking at the sufficiency and adequacy of pensions and ensuring that people can have adequate pensions when they reach retirement age. I appreciate that the review is being undertaken and that work is being done, but this is about an additional way to ensure that people think about that as early as possible. I have a colleague who says “EMILY”, which stands for “Early money is like yeast”, and it is the same in election campaigns as it is in pensions. The earlier people boost their pension fund the more it grows, because of the magic of compound interest.
It is great that we have auto-enrolment at a relatively early age—albeit not early enough—so that people can begin to grow their pension pot. However, I do not think people understand the importance of putting as much money as they can into their pension pot as early as possible, as has been said, particularly when they are in their mid to late 20s and have so many competing interests—trying to get on the housing ladder, or paying for their university debts or for small children, who cost an inordinate amount of money. When people have all those competing interests at the same time, funding their own pension can fall down the list of priorities. However, if they were aware of how important it is to put that funding in as early as possible and how much it would mean to them in retirement, they might make slightly different choices.
There are an awful lot of good things in these new clauses that could be explored. Around 40 is a sensible age at which advice could be provided, as new clause 1 suggests, because that would give people enough time to make some changes. Giving people more advice when they are initially auto-enrolled would also be incredibly sensible. They might not read it then, but they might. The more we can do to provide people with advice, the better, because then they will have the opportunity to take it up.
As the pensions dashboard comes online, that may create a higher level of interest in finding out what everything looks like. Earlier in Committee, I made some points about DC pots and the difficulty in translating that number into what someone’s annuity, or their monthly or weekly payment, looks like, and that only increases and compounds the problem. People do not understand what this means for them in retirement, because it is difficult to do those sums without advice. It is not easy to try to work out, and even if people are given advice at 40, although it may take into account their circumstances at that point, these could drastically change by the time they reach retirement age. They may have a very different level of annuity from that which was suggested, even with the same predicted pension pot growing in the expected way.
On targeted advice for cohorts that are saving less, with the review of adequacy it would help if the Government would commit to ensuring that undersaving groups are strongly considered, so that all the advice and tactics—whether automatic appointments or ensuring that people are given access to the pensions dashboard—are in place for the highest engagement.
Lastly, on the auto-enrolment sessions, I have spoken about how when people hit 50 they are posted a bowel cancer screening test, and when people are of an age for vaccines they are given an appointment and just need to go along. People are posted a letter or sent an email saying, “This is the time and date for your smear test,” and they go along. We recognise that preventive measures are important. People are much more likely to take up that vaccine or smear test and are much more likely to also go to that session if we make it as easy as possible.
The Liberal Democrat spokesperson, the hon. Member for Horsham, mentioned the Pension Wise service. It has an incredibly high level of satisfaction. If only any of us on this Committee or our parties had that level of support from our constituents—we would be absolutely dancing to get that level of positivity. The Pension Wise service has that level of positive feedback because people recognise and appreciate the advice. However, that advice is given once, or only after a certain point. My understanding is that a 25-year-old cannot phone, ask for an appointment and get an understanding of where things are looking for them and where that protection is. However, sending people an actual appointment and telling them that this is the time is something. They can then choose to cancel that appointment. Obviously, some people will not turn up; we see some people not turning up for vaccines. It does not stop us sending invitations to those vaccine appointments because we know they increase uptake.
I have heard this Government—or maybe the previous one—complain about increased costs if there is an uptick in the number of appointments. There would obviously be an increase in costs and pressure on the service should more individuals engage. However, more people having a sufficient pension and being able to take informed decisions—pay more, or withdraw their DC pension in a sensible way, rather than just putting it into a bank account, which we have heard is what a significant number do—will save the Government money and contribute to the economy. If we increase the number of people with better access to more money in retirement we will grow the economy. Although there is likely to be spending associated with increasing the provision of advice, it would make such a positive difference to those individuals and the economy that it could not be a bad thing.
I do not know whether today is the time to add the requirement for those appointments. If the Government were willing to consider the possibility of sending out appointment invitations, that would help. I would still support the amendment, but it would help. I know the review is taking place. If the Government committed to considering that as part of the review, that would be helpful—of course, if they could commit to just doing it, that would be better. Doing so would give us all an assurance and understanding that they are not just putting blockers in the way because it is been suggested by somebody else. We would like the Government to seriously consider it. If they are not willing, they should reply to MPs about why it is not possible and why they think it will not increase uptake.
Hon. Members who spoke about the cost of advice are absolutely correct. It is not that people do not want advice—some may not want advice and will not care, others will just take whatever they happen to get when they hit retirement age and some do not have the capacity to understand the advice if they were to seek it out—but some simply cannot afford advice. They do not have the money today to pay for that advice. There is a group of people who cannot pay for advice now because we are in a cost of living crisis. Their electricity bills and so on have gone up and the price of food is still suffering from inflation. Those people may not have a couple of thousand pounds—perhaps significantly more—lying around to pay for that advice. The people who will have the most in retirement are the most likely to grow their pensions further because they are the only ones who can afford the advice. As the hon. Member for Horsham said, we need more people to know about Pension Wise, so that they can get some advice and make good decisions.
I would appreciate it if the Minister would seriously consider all the amendments that have been tabled by the Liberal Democrats.
Ordered, That the debate be now adjourned.—(Taiwo Owatemi.)