Pension Schemes Bill

Thursday 18th December 2025 Lords Chamber

Second Reading

13:14

Moved by

[Baroness Sherlock]

Northern Ireland and Welsh legislative consent sought. Relevant document: 42nd Report from the Delegated Powers and Regulatory Reform Committee

[The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, it is a privilege to open the Second Reading of the Pension Schemes Bill. I am grateful to noble Lords for the engagement we have already had, and I look forward to working constructively together as the Bill progresses through this House. I also very much look forward to the maiden speech of the noble Baroness, Lady White of Tufnell Park.

Pensions are really important, and the Bill will transform our pensions landscape for the better. It will play its part in delivering growth, as well as helping to raise living standards in every part of the UK. It will assist the pensioners of the future to feel more confident about the economy in general, as well as their own futures.

Pensions are the promise we make to millions of people that their years of hard work will be rewarded with security and dignity in retirement. UK pension schemes invest hundreds of billions of pounds in our country. The reforms outlined in the Bill will make those pounds work harder for pensioners by making schemes more efficient—more money invested, and less on overheads and administration.

The first Pensions Commission laid the groundwork for a new pensions landscape, with a simpler state pension and automatic enrolment into retirement savings. This transformed private pension saving in the UK. The Bill, along with the work of the pensions investment review, moves our private pensions system forward. Bigger, better pension schemes will drive better returns, as well as tackling inefficiencies in our system.

The new Pensions Commission is looking at the issue of adequacy across the state and private pensions systems, with a clear objective of building a strong, fair and sustainable pension system. I look forward to this debate on the Bill, which is all about making every pound saved work harder for members, unlocking investment for our economy and restoring confidence in the promise of a decent retirement.

I will now outline the main measures in the Bill. First, the Bill addresses the fragmentation of the Local Government Pension Scheme, which is currently spread across 87 funds in England and Wales. This fragmentation limits efficiency and scale. Through these reforms, all assets in the Local Government Pension Scheme, or LGPS, will be managed through FCA-regulated investment pools, ensuring professional oversight and better value for money. Administering authorities will set clear targets for local investment, working with strategic authorities to align with regional growth plans.

Of course, LGPS members’ pensions and benefits are protected, as they are guaranteed in statute and are not affected by the performance of investments. These reforms are about the LGPS being well governed and well invested to deliver efficiency and value for money.

Next, the Bill introduces powers to enable more trustees of well-funded defined benefit, or DB, schemes to share some of the £160 billion of surplus funds to benefit sponsoring employers and members. This will enable employers to drive growth through investment and higher purchasing power, but it will be subject to strict safeguards. The measure will allow trustees, working with employers, to decide how surplus can benefit both members and employers, while maintaining security for future pensions.

The defined contribution, or DC, workplace pensions market prioritises competition on cost rather than on the overall value. The Bill introduces a value-for-money framework to enable a shift in focus away from cost towards a longer-term consideration of value. This new framework looks to standardise how value is assessed, in a transparent, consistent and comparable way. It will require schemes to disclose standardised metrics, undertake a holistic assessment of value, and take improvement actions where needed.

Automatic enrolment has been a huge success, ensuring that millions more people are now saving for their retirement. However, frequent job changes mean that individuals are often enrolled into a new pension scheme by each employer, leaving them with multiple small pots over their working life, often with very small amounts saved. This has created a challenge across the workplace pensions market, with current estimates suggesting that within the system there are more than 13 million pots worth less than £1,000 each. This is hugely expensive for pension schemes to administer, with an estimated cost of £240 million a year, ultimately resulting in poorer value for members.

Through the Bill, we are taking powers to introduce automatic consolidation of these dormant small pension pots through a multiple default consolidator model. Opportunity for member choice will be built in; members can choose a consolidator scheme or choose to opt out entirely if they wish. This will simplify the system, reduce costs and support members so they can better track their retirement savings.

There is strong evidence that larger pension schemes mean better outcomes for members through efficiencies of scale, stronger governance and better investment opportunities at lower cost. The Bill will therefore drive scale by accelerating the consolidation of multi-employer DC schemes.

From 2030, schemes used for auto-enrolment must reach at least £25 billion in assets in a single main scale default arrangement, or £10 billion on a transition pathway with a credible plan to reach £25 billion within five years. This is about harnessing the power of scale: larger schemes can negotiate better deals, access more diverse investments and deliver better outcomes for savers.

On asset allocation, earlier this year, the Mansion House Accord was signed by 17 major pension providers, which, between them, manage about 90% of active savers’ DC pensions. This initiative was led by industry, and the signatories pledged to invest 10% of their main default funds in private assets, such as infrastructure, by 2030. The purpose of this voluntary commitment is, as the signatories put it,

“to facilitate access for savers to the higher potential net returns that can arise from investment in private markets as part of a diversified portfolio, as well as boosting investment in the UK”.

The Bill includes a backstop provision that would permit the Government, with Parliament’s approval, to require DC pension providers of auto-enrolment schemes to invest a fixed percentage of their default funds in specific asset classes. The Government do not anticipate exercising the power, unless they consider that the industry has not delivered the change on its own. There are also strong safeguards around it.

All workplace pension schemes are required to have a default arrangement, where contributions are invested if members do not choose an investment option. Most members go into a default arrangement and remain there throughout their scheme membership. There are currently thousands of different default arrangements in pension schemes, creating fragmentation, inefficiency and poorer outcomes for members.

The Bill introduces new requirements to review those default arrangements, with a power to make regulations as needed, following the review, to require default arrangements to be consolidated into a main scale default arrangement. There is also a power to make regulations for new default arrangements to be subject to regulatory approval. That will ensure that savers benefit from economies of scale and improved governance by reducing the fragmentation in the pensions market.

Many pension schemes, especially legacy ones, are not delivering good outcomes for savers. As contract-based schemes rely on individual contracts between firms and members, firms usually need individual members’ consent to make any changes, even when the change would improve outcomes for members. Obtaining this consent is often difficult and costly, especially when members are disengaged, even when a scheme offers poor value. This leaves members stuck in poor-value schemes.

To address that, the Government are introducing the contractual override power in the Bill. It will allow the providers of FCA-regulated DC workplace pensions to transfer members to a different pension arrangement, make a change which would otherwise require consent, or vary the terms of members’ contracts without the need for individual member consent, but only when the legal and regulatory requirements are met. That includes rigorous consumer safeguards such as the best interests test, which must be met and certified by an independent expert before a contractual override can take place.

At retirement, DC scheme savers face complex financial decisions. They need to evaluate the different options to suit their own individual circumstances, assess risks and uncertainty in financial products, and factor in their own estimation of their life expectancy. We know that savers do not always use the support available: only 16% used a regulated source, such as Pension Wise or a professional financial adviser.

The Bill puts new duties on trustees to develop and provide one or more default pension plans at retirement to help members access their savings without these complex decisions. These plans will provide a straightforward income solution for most members, with opt-out rights for those who prefer alternatives. Trustees must design plans based on member needs, communicate options clearly and publish a pension benefits strategy, which will be overseen by the Pensions Regulator. The Bill also requires the FCA to make rules that deliver default pension plans in relation to pension schemes regulated by the FCA, ensuring consistency and better outcomes for savers.

Superfunds are commercial consolidators that offer a new route for employers to secure the legacy liabilities of closed DB schemes that cannot secure an insurance buyout. Building on the current interim regime, the Bill establishes a permanent legislative framework for superfunds. It introduces an authorisation and supervisory regime with robust governance, funding and continuity arrangements, so that members of those schemes can have the confidence that their pensions are properly protected. Superfunds may invest more productively because of their scale, expertise and buying power, so they are good for members, employers and the wider economy.

Part 4 contains a range of important measures. Following the Virgin Media court case, certain DB pension benefit alterations could be treated as void if schemes cannot produce actuarial confirmation that they met the minimum standards in place at the time. This affects schemes that were contracted out between 1997 and 2016. The court judgment has the potential to cause pension schemes significant cost and uncertainty, even where the schemes did, in fact, meet the minimum standards required. To resolve that, the Bill allows schemes to ask their actuary to confirm that past benefit alterations would not have caused the scheme to fall below the relevant minimum standards.

The Chancellor announced in the Budget that the Government will introduce pre-1997 indexation into the Pension Protection Fund and the Financial Assistance Scheme—the PPF and the FAS—to address the long-standing issue faced by members. As noble Lords will be aware, those are the compensation schemes that provide a safety net for members of DB schemes. Currently, payments in respect of service before 1997 are not uprated with inflation, and affected members have seen the real value of their compensation decrease significantly in recent years.

The Bill will pave the way to introduce increases on PPF and FAS payments for pensions built up before 6 April 1997. These will be CPI-linked and capped at 2.5%, and will apply prospectively for members whose former schemes provided for these increases. That will help those members’ pensions keep pace with the cost of living. This is a step change that will make a meaningful difference to over 250,000 members. Incomes will be boosted by an average of around £400 for PPF members and £300 for FAS members after the first five years. Our changes strike an affordable balance of interests for all parties, including eligible members, levy payers, taxpayers and the PPF’s ability to manage future risk. The Bill makes some other changes to the PPF and the FAS that will benefit the members of these schemes and the levy payers supporting the PPF, including around terminal illness and the levies.

Finally, some noble Lords may have seen that the Delegated Powers and Regulatory Reform Committee published its report on the Bill last night. I emphasise that the Government recognise the importance of getting the right balance when taking delegated powers and using them appropriately. The pensions industry is highly technical and rapidly evolving, and there is a complex interaction between legislative requirements, regulatory oversight and changes in practice or innovation. In pensions legislation, it is common for a mix of requirements and principles to be set out in primary legislation, with finer detail, which is liable to frequent development, to be set out in secondary legislation. That allows for a quicker response to developments in the industry, including to protect scheme members. We think we have the right balance in the Bill, but I thank the committee for its report and will respond in due course.

This Bill will initiate systemic changes to the pensions landscape, with the aim of building a pensions system that is fit for the future—one that is strong, fair and sustainable, and that delivers for savers, employers and the economy. At its core, the Bill is about making sure that people’s hard-earned savings work as hard for them as they have worked to save, while galvanising the untapped benefits that private pensions can offer the economy at large. I look forward to our discussions today. I beg to move.

13:28

[Baroness Stedman-Scott (Con)]

My Lords, I too look forward to the maiden speech of the noble Baroness, Lady White. I have every confidence that she will make a great contribution, including to the work of the House generally. Having had some interface with her at the DWP, I am very confident that will happen.

Although the Bill is not perfect, I hope the Minister will take comfort from the broad cross-party consensus that exists around many of its core measures. Across your Lordships’ House, we share a common ambition: having a pensions system that delivers strong returns for those it serves.

In 2010, we inherited from the previous Labour Government a private pensions system that was not fit for purpose. The shift from defined benefit to defined contribution had left millions behind and, in 2011, just 42% of people were saving into a workplace pension. The cornerstone of reform was auto-enrolment—a Conservative innovation and an undeniable success. Today, around 88% of eligible employees are saving for retirement, with most opt-outs made on the basis of sound financial advice.

Workers deserve dignity in retirement, not merely a safety net. That is why, before the last election, the Government rightly focused on two enduring challenges: value for money and pensions adequacy.

Let me begin by acknowledging what the Bill gets right. We welcome progress on the pensions dashboard, which will help savers access their information more easily and plan for retirement. We also support the Bill’s emphasis on consolidation, including larger pension funds, the consolidation of the Local Government Pension Scheme, and the long-overdue merging of small, stranded pots—all of which have the potential to improve efficiency and value for money, provided that risks are properly managed. Finally, we welcome the humane and necessary measures to improve access to pensions for those facing terminal illness. Taken together, these provisions represent steps in the right direction.

However, while there is much to commend, there are also areas where we believe the Bill falls short, and in ways that matter deeply to the millions depending on it. The most striking omission in the Bill is the absence of any meaningful progress on pension adequacy. The uncomfortable truth is that too many people are simply not saving enough to secure a decent standard of living in retirement: a situation made all the more difficult in the current economic circumstances.

Auto-enrolment was never intended to be the finished article. It was a foundation, not the building itself. Yet the Bill proceeds as though the task were complete. The central question of whether current savings levels are sufficient is not confronted but deferred: pushed into the second stage of the review. This is not reform: it is a holding space, in which difficult but necessary decisions risk being postponed rather than resolved.

Adequacy should have been the organising principle of this legislation. Instead, it has been quietly parked for another day. In its place, the Government have focused on taxing pension contributions, increasing the cost of employment, and layering additional regulation on to the terms and conditions of work. We are regulating, taxing and constraining the very mechanisms through which retirement savings are generated, yet we have failed to address the most basic and consequential question of all: are people saving enough to retire with security and dignity?

A further missed opportunity is the failure to support the self-employed with new and innovative ways to save affordably for their retirement—more than 4 million people who drive our economy, create jobs and take risks, yet too often face retirement with no provision at all. Only around one in five self-employed workers earning over £10,000 a year currently saves into a pension. This is not a marginal problem; it is a structural gap in our pensions system. We need practical and pioneering solutions to support this growing group, and the Bill should have set that direction. We have spoken directly to the self-employed in preparation for this legislation, and in Committee we stand ready to assist the Minister by bringing that engagement and evidence to bear.

Our wider engagement also brought into sharper focus the Bill’s treatment of public sector pensions. This Bill is, in our view, decidedly LGPS-light. We will therefore table amendments to address that omission, ensuring that the scheme operates with greater clarity, flexibility and accountability. At the heart of our concern is the need for a more transparent, simpler and reformed approach to reviewing employer contribution rates for local authorities. This is not about loosening discipline or weakening the scheme. It is about prudent financial management and giving councils the tools they need to govern responsibly. This is what local authorities deserve and it is good financial governance.

The Bill shows no enthusiasm for addressing excessive prudence and the record surpluses within the Local Government Pension Scheme. We are not naive enough to suggest that the LGPS surpluses can be extracted or treated in the same way as those of private defined benefit schemes. But, under the Chancellor’s revised fiscal rules, those surpluses are now treated as assets offsetting public debt. That may be fiscally convenient but it represents a missed opportunity to enhance councils’ resilience. In appropriate circumstances, those surpluses could—and should—be used to support reductions in employer contribution rates. However, too often, overly cautious actuarial methodologies, excessive prudence and a lack of transparency have locked councils into contribution rates that are simply too high.

Proportionality and openness in how assumptions are set and decisions are reached are pivotal. Without transparency, those assumptions cannot be properly challenged through due diligence, and Section 151 officers cannot fully discharge their statutory duties. We must therefore ensure that interim reviews of employer contributions are more accessible, transparent and accountable, through clearer statutory trigger conditions, published policies, improved actuarial transparency and strengthened statutory guidance.

Kensington and Chelsea demonstrated precisely that approach in the aftermath of the Grenfell tragedy. Yet, across the country, councils are still forced into an exhausting and uncertain process to navigate the existing regulatory framework simply to secure interim contribution reductions after a formal valuation. We look forward to engaging constructively with the Government to ensure that councils are properly supported in delivering services while fully meeting their LGPS obligations.

Finally, I turn to what I regard as the most troubling element of the Bill: the proposed reserve power to mandate pension fund investment strategies within master trusts and group personal pension schemes used for automatic enrolment. Mandation is not a neutral tool; it is the quiet nationalisation of pension investment strategy. It is a fundamental shift in who ultimately controls investment decisions. Automatic enrolment has succeeded because it is trusted. Mandation threatens that trust: automatic enrolment is trusted by employers, by industry, and above all by millions of ordinary savers who have neither the time nor the confidence to manage complex financial decisions themselves.

It is therefore deeply concerning that this power is targeted specifically at automatic enrolment default funds. These are the schemes used disproportionately by those with the least means and the least financial confidence: the very people who rely most heavily on the integrity and independence of the system we have built over decades.

This is where the injustice bites. Those with the fewest means and the least financial confidence are the ones Labour’s mandation would trap. The savviest can opt out; the poorest get locked in. That is the injustice of mandation. Those savers need our protection, not a situation in which their pension outcomes become indirectly shaped by ministerial preferences, however well intentioned. Conservatives built automatic enrolment; Labour now stands a chance of threatening it.

We built automatic enrolment on a simple settlement: the state sets the framework, but trustees make the investment decisions. The Bill risks blurring that line. At stake here is trustee independence and fiduciary duty, principles that sit at the very heart of pensions policy. Trustees are bound, both legally and morally, to act in the best financial interests of their beneficiaries. Pension schemes exist to serve savers, not to serve the shifting political priorities of the day.

In this context, I am reminded of the warning offered by the respected pensions expert Tom McPhail, who invoked Chekhov’s famous dramatic device: the gun on the wall. If the gun is hung on the backdrop of the stage in the first act, it will be fired by the third. Once a Government arm themselves with a power, no matter how benignly it is presented, history suggests that it will eventually be used. If the Government do not intend to use the power, why is it in the Bill?

Rather than relying on the logic of “mandation as a backstop”, I urge the Minister and her team to step back and address the underlying reasons why pension funds are not investing more in the UK in the first place. Low domestic investment is not simply a collective action problem, as the Government suggest. It reflects real structural barriers, and the Government should compile the relevant evidence and report back on how those obstacles might be removed.

Will the Minister undertake to do this? There are better and far less constitutionally troubling ways to unlock long-term investment. I offer her just one example. Solvency rules continue to constrain insurers from investing in productive UK assets that offer stable long-term returns. Reforming those outdated rules could, according to Aviva, unlock billions of pounds over the next decade. That is how we should be driving growth, by removing barriers to investment and not by inserting the state into decisions that properly belong to independent trustees acting solely in the interest of savers. It is therefore striking that the Government have chosen to expend so much political capital on a mandation policy that commands little support beyond the DWP and lacks a wider consensus across the industry. Can the Government provide assurances that savers in auto-enrolment pension schemes will not subsequently discover that their pension providers have been instructed to invest in specific entities such as Thames Water?

I close by reaffirming our commitment to work constructively with the Government. Stability and confidence in the pensions market are paramount. It is in that spirit that we approach this Bill. Where improvements can be made, we will table amendments. We will engage in good faith to ensure that the detail is right and that the framework ultimately serves savers, schemes and the wider economy. We broadly support the direction of travel that the Government are pursuing. However, as today’s debate has made clear, there remain important questions around the detail, the intent of forthcoming regulations and what has been omitted from the Bill.

When closing today’s debate, my noble friend Lord Younger of Leckie will expand on these points, set out further concerns and put several direct questions to the Minister. We hope that the Government will reflect carefully on those issues as the Bill progresses. I look forward to working with the Minister in the weeks and months ahead and to continuing this constructive, robust dialogue as we seek to strengthen the legislation.

13:42

[Lord Sharkey (LD)]

My Lords, I join the Minister and the noble Baroness, Lady Stedman-Scott, in saying how much I look forward to the maiden speech of the noble Baroness, Lady White, especially since I too live in Tufnell Park.

It is always a pleasure to follow the Minister. We welcome an important set of proposals for reform. We would support many of these proposals, but several merit serious examination and probing in Committee. As things stand, I should say upfront that we cannot support the mandation proposals in the Bill. I hope that we can constructively modify these proposals during the Bill’s passage through the House.

The Minister will know that stakeholders have expressed significant concerns about risk to member security, trustee independence and long-term saver outcomes that may be contained in the Bill’s proposals. For example, there are worries that easing access to DB surpluses of employers could undermine member benefits. Phoenix has noted that surplus release thresholds will be set in secondary legislation. It believes that a post-release funding level is essential to protect members and limit covenant risks. It opposes lowering the threshold to “low dependency” and believes that surplus should only be released above buyout affordability. Some MPs and the ABI have called for stricter oversight, including retention of the three “gateway tests” to prioritise buyouts over superfunds.

The ACA also recommends that trustees have a formal role in assessing and agreeing any rule changes and in determining any refund of a surplus to an employer. The CEO of TPR, Nausicaa Delfas, whose name I googled—it means “burner of ships”—is on record as saying that:

“Where schemes are fully funded and there are protections in place for members, we support efforts to help trustees and employers consider how to safely release surplus if it can improve member benefits or unlock investment in the wider economy”.


It is not entirely clear how those two outcomes may be traded off, but I would be grateful if the Minister could say more about government thinking on member protection in release and distribution of surplus. I know that my noble friend Lord Thurso, who cannot be here today because he is undergoing a medical procedure in Inverness, will also wish to test the Government’s thinking in this area in Committee.

Then there is the critical question of mandated asset allocation. This Bill, as everyone knows, contains a reserve power to authorise DC master trusts and group personal pensions used for automatic enrolment to invest a minimum proportion of assets in “productive” investments, including UK assets. On the face of it, this cuts directly across trustees’ fiduciary duties and members’ best interest tests. It risks political direction of asset allocation. Does anyone really believe that the Government would be better at allocating funding than the markets? This mandation may well create significant market distorting effects if, for example, the demand for such “productive” assets outpaces their availability.

There is also the risk that such a power may be extended over time to influence allocation on an even larger scale than might be currently envisaged. It is worrying that the Governor of the Bank of England has been reported as saying that he does not favour mandation. The Institute and Faculty of Actuaries has said in a written submission:

“The criteria for Master Trust authorisation were intended to produce a safe and reliable savings environment and we do not believe the concept of qualifying assets belongs there”.


This power to mandate

“introduces a commercial conflict between pension providers and trustees over asset allocation, weakening the fiduciary accountability of the trustees … It is also premature to give the Government a sweeping power it does not expect to make use of (we note the percentage of mandated assets cannot be increased after 2035 but that might encourage a government to ‘use it or lose it’.) We would urge Parliamentarians to consider the implications of a future government—of any configuration—having a power to define qualifying assets as any project that the government of the day can meaningfully define, charging the capital costs to the auto-enrolled pension savings of the nation … Should mandating schemes to invest in accordance with Government direction proceed, it needs to be made clear what the respective responsibilities of Government and trustees are”

as the finances work themselves through.

I would be very grateful if the Minister could set out for us how mandation and fiduciary duty can be reconciled without complicating or diluting the proper exercise of fiduciary duty. Perhaps a definition of “productive” would be a useful start. My noble friend Lady Kramer, who is attending a funeral this afternoon, had intended to speak to this point and wanted to ask for a detail and risk profile of assets that will qualify as “productive”.

Most people contribute through auto-enrolment into default funds. They have few resources and should not be in high-risk investments—and certainly not without their permission. Ministers have promised statutory guidance to help resolve the issue of potential conflict between mandation and fiduciary duty. On Report in the Commons, Torsten Bell said

“I intend to bring forward legislation that will allow the Government to develop statutory guidance for the trust-based private pensions sector”.—[Official Report, Commons, 3/12/25; col. 1043.]

He did not specify what kind of legislation or when. The Minister has told us that this guidance will not amount to direction and will have the usual force, or lack of force, present in the many existing “have regards” that exist in the financial services arena. She has also told us that this draft guidance will not be available before Committee begins. This is surely not ideal.

Can the Minister reassure us that, at the very least, this draft guidance will be available before the end of Committee stage? We need to be able to discuss the details of the guidance before we agree to legislation. That is especially the case if the Government intend to rely on the use of SIs, which would of course deprive Parliament of any effective means of scrutiny at all. May I ask her to take another look at the timing, so that we may be able to take guidance properly into account in our discussions of mandation?

Perhaps the Minister can also explain why the mandation currently has sunset provisions for expiry in 2035 if no regulations are in fact made. Why not use, for example, the Mansion House targets to generate a significantly earlier cut-off?

Then there are questions of value for money and consolidations, which have been discussed already. The ABI, as I am sure the Minister knows, pushes for regulatory mechanisms to force consolidation only when it clearly benefits customers. I heard the Minister endorse that approach. The key word here is “clearly”—what does this mean? What will be the test, and who will be doing the testing?

As important as any of these things is the question of pensions adequacy or inadequacy. It is very disappointing that the Bill does nothing to tackle such things as low contribution rates, self-employed exclusion and early savings barriers. The question of whether people are saving enough is probably easy enough to answer, but what to do about it is entirely absent from the Bill. We will want to discuss this further.

Finally, there is no substantive mention of climate issues in the Bill and no reference to, for example, the Paris Agreement. There is an obvious asymmetry here. The Bill provides for increasing investment in productive assets, which are to be defined. It says nothing about which assets should be avoided or minimised. Industry analysts caution that, if the mandation favours domestic growth sectors without, or which do not have strong, climate screening, schemes could be nudged into assets misaligned with the 1.5 to 2 degrees pathway. That would certainly conflict with the spirit, if not the letter, of the Paris Agreement, and it would damage everybody and every enterprise.

Proposed new Clause 19, brought forward at Third Reading in the Commons by my honourable friend Manuela Perteghella, addresses this issue. This new clause, not voted on, would have required the Government and the FCA to make regulations and rules restricting exposure of some occupational and workplace pension schemes to thermal coal investments, and to regularly review whether the restriction should be extended to other fossil fuels. We will bring forward a similar amendment in Committee.

This is a very important Bill with some obviously welcome proposals but also some deep causes for concern, especially as regards mandation and the failure to address pension inadequacy. We look forward to a constructive discussion with the Government and detailed examination of the Bill.

13:53

[Lord Vaux of Harrowden (CB)]

My Lords, it is about five years since we last saw a Pension Schemes Bill in this House, and it is good to see so many familiar faces, albeit sitting in different places in the Chamber. It is also good to be welcoming some new faces to our small band of pension enthusiasts, and I am particularly looking forward to hearing the maiden speech of my noble friend Lady White of Tufnell Park.

This is a big Bill, and there is a lot in it, much of which is to be welcomed and is not particularly controversial. I am going to restrict my comments to two areas of the Bill, one of which I think we will hear quite a lot about.

First, I understand and agree with the reasons and the desire to consolidate small dormant pension pots, but I have some concerns about the details. We are all aware of the problem of lost pensions, whereby a person has forgotten about a pension, perhaps from a long-ago short period of employment. This is one of the problems that the much-delayed pensions dashboard is designed to solve. Compulsorily moving a small pot from one provider to another risks increasing that problem: it will be much more difficult to track down a pension that you dimly remember if it has been moved, perhaps with any correspondence having been sent to an out-of-date address.

The definition of “dormant” is also slightly concerning: a pension pot will be considered dormant if no contributions have been made into the pot during the last 12 months and the individual has taken no steps to confirm or alter the way the pension pot is invested. I have a couple of pension pots that would be considered dormant under that definition, but that is simply because I am happy with the choices I made in the past; I would not consider them to be dormant. In the opposite direction, £1,000 seems a rather low definition of small, although I see it can be changed by regulation.

I am not clear when the Secretary of State intends to make the relevant regulations, but to avoid making the problem of lost pensions worse, I would suggest that it should not be done until the first pensions dashboard is fully operational and accessible to the public. As I understand it, that will not be until late 2027. Perhaps the Minister could provide a brief update on that. Also, there should be a clear requirement that any such transfer, carried out in a situation where no response has been received from the individual, should be clearly flagged on the dashboard to help people track them down.

The second issue I want to raise is more important. Here, I fear that a trend is beginning to emerge already—and that, most unusually, I am going to find myself in disagreement with the noble Baroness, Lady Altmann. This is the power for the Government to mandate the asset allocation of a master trust or group personal pension scheme. Pension schemes should be managed for the benefit of the beneficiaries. The trustees have a fiduciary duty to that effect. The Government mandating that a proportion—and there is no limit to this in the Bill—should be directed into types of assets and locations chosen by them rides a coach and horses through that principle. Who will be liable if such investments are not suitable or go badly wrong? I do not see any indemnification of trustees here. What makes the Government think that they know better than a professional qualified pension manager as to what is best for scheme members? The track record of government investing is not stellar, to say the least.

Of course, the reason for this is to push more pension funds into UK assets, often described as “productive assets”. Like the noble Lord, Lord Sharkey, I have that in inverted commas here, but even that makes little sense in this respect. Let us look at the sorts of assets that the Bill refers to. The first is private equity. Now, private equity may be a good place for a pension fund to put some of its money. Over time, returns have generally exceeded public markets and bonds, primarily because of the use of leverage, but I would love to understand why the Government think this would be a good thing for the country.

What private equity does is buy existing assets, then leverage them up with high levels of debt, thereby gearing up the possible returns that can be made on normal levels of growth. That reduces the corporation tax payable by the company because debt interest is tax-deductible, and the debt is often located in overseas low-tax jurisdictions. Typically, then, overheads and costs are reduced as far as they can be to make the company appear more profitable for sale after three to five years, and that often has the effect of reducing investment in the company and often leads to job reductions.

So where is the benefit to the country from this? If noble Lords do not believe me, I give them Thames Water, left underinvested and indebted by Macquarie, which took out billions in the process, or Debenhams, where the three private equity owners collected £1.2 billion of dividends financed by debt and property sales that left the company to go bust. Others we could mention would be Southern Cross Healthcare and Silentnight, where, ironically, pensioners also lost out, and we have the current anti-competitive situation with veterinary practices. Of course, this is a generalisation, and there are exceptions, but the idea that PE generates growth is doubtful at best—venture capital, development capital, growth capital, yes; PE, not so much. Why do the Government think it would be a good idea to force pension funds to invest in private equity?

Amazingly, the Bill does not actually set out that allocations must be made into UK assets. The wording is drafted so widely that the only assets globally that cannot be prescribed are assets listed on a recognised exchange; nor does it set any limits to what percentage should be allocated into the assets the Government prescribe. In theory, 100% could be allocated. The only safeguard in the Bill—contrary to the Minister’s comment that there are many safeguards—is that the Secretary of State must review the effects of any such regulation within five years of the regulations coming into force. We should note that this is not an independent review; it is a review by the Secretary of State, the very person who made the regulations. That does not fill me with huge confidence. Anyway, if things have gone wrong after five years, what can be done? Is the Secretary of State to be liable for the losses that scheme members have incurred because of the Government overriding the fiduciary duty?

We are an outlier in terms of our pension funds investing in their own country’s productive assets, especially when compared with countries such as Canada and Australia, so I understand why the Government wish to change that, but the way to achieve that is first to understand why it is not happening now. I would be interested to hear from the Minister why she thinks that is. I suspect it is down to a number of issues, including demographic issues, the attractiveness of our markets versus others, regulation, taxation—Gordon Brown’s dividend stealth tax has a lot to answer for—and, I am sure, others. The better solution, surely, is to identify and deal with the barriers that exist to make UK productive assets a more attractive investment prospect, not to take the frankly lazy and inefficient route of mandating without addressing the underlying reasons. Neither Canada nor Australia mandates. Rather, they promote domestic investment in infrastructure and projects through collaboration, not by forcing specific allocations. We should learn from those examples.

The Minister has been clear that the Government do not expect to use this mandation power. This raises a wider point of principle, one that the Minister and I have debated in other contexts in the past, which is that the Government should not give themselves powers that they do not intend to use. As the noble Baroness, Lady Stedman-Scott, said, there is a tendency to use them regardless at some point, even if it is another Government who use them. This is becoming a bit of a trend, and one that I feel should be strongly resisted. There are two potential solutions to this part of the Bill. Either we need to clarify the whole fiduciary duty principle and improve safeguards, or we should remove the power altogether, and I must say that I favour the latter.

With that, I look forward to working with Members from all around the House, as ever, and the Minister on the Bill. In the meantime, I wish everyone a very happy Christmas.

14:01

[Baroness Altmann (Non-Afl)]

My Lords, it is a pleasure to follow the noble Lord, Lord Vaux, and to take part in this Bill, which is a historic measure proposed by the Government with noble intentions. I need to declare my interests as an adviser to NatWest Cushon and a non-executive director of Capita Pension Solutions. I too look forward to the maiden speech of the noble Baroness, Lady White, who has so much success and experience to offer the House. I thank the Pension Protection Fund, CityUK, Pensions UK, the Institute and Faculty of Actuaries, and the Pensions Action Group for their helpful briefings and information for this speech.

The Bill introduces reforms that aim to improve pension outcomes for members of defined benefit schemes, defined contribution schemes and local government schemes and to increase investment in UK productive assets via the route of consolidation into a few larger asset pools or by ensuring default arrangements for direct pension funds in a way that the Government will mandate. I certainly support the aim of increasing UK investments by UK pension funds and the aim of improving pension outcomes. I warmly welcome many of the Bill’s provisions, but I believe that some of the assumptions underlying these reforms could prove dangerously false and that there is a real risk that there will be a lack of innovation in future as smaller, newer providers drop out or do not even start, while the Government could and should be bolder in encouraging pension schemes to support UK growth than the measures in the Bill provide for.

Using both unlisted and listed investment seems to make far more sense than just requiring a specific exposure to private unlisted assets. I hate to disappoint the noble Lord, Lord Vaux, but I think we are on a similar page when it comes to the Government’s specific proposals. Many of our listed companies are selling at attractive ratings or discounts to their real asset value.

There are many aspects of the Bill that my remarks today could cover, but I will have to try to concentrate on a few and leave the rest for Committee. The aim of increasing UK pension fund support for UK growth is right and long overdue. However, much more could be done with the Bill. According to the Government’s workplace pensions road map, the UK has the second largest pension system in the world, and it is clearly the largest potential source of domestic long-term investment capital. Taxpayers provide £80 billion a year of reliefs to add to individual and employer contributions, but most of that money helps other countries, not ours. If taxpayers were presented with the question, “Would you like £80 billion of your money to build roads and fill potholes in other countries, rather than keeping it here in Britain?”, I am not convinced that they would answer in the positive.

UK pension funds have stopped supporting British companies, large and small. I believe that the future of British business can be successful and I believe in Britain, but it seems like our own pension funds do not. Even the parliamentary pension scheme has about 2.8% of its equity exposure in the UK. The Bill does not address that, as the Government are focusing on DC and local government schemes. One of the proposals that I would like to put to the Government is to see whether there are ways in which, instead of mandating specific areas that the Government want pension funds to invest in—which happen to be, in my view, some of the riskiest areas that they could support—the Government should require, let us say, at least 25% of all new contributions into pension schemes to be put into UK assets, listed or unlisted.

The UK listed markets have become exceptionally undervalued in a global context because our pension funds no longer support our markets. We used to have a reliable source of long-term domestic investment capital. If schemes want taxpayers to put huge sums into their pension funds each year, and if managers and providers wish to continue to receive such sums, is it so unreasonable to ask that they put, as I say, maybe just one-quarter of those contributions into the UK? That could include unlisted assets, listed assets or infrastructure—that would be up to trustees to decide—and if they wanted to put more than 75% overseas, they could go ahead, but should not expect taxpayers to give them money to do so. That seems to me to be not mandation but a proper incentivisation, using the incentive mechanism that we already have of tax relief, which does not have to support Britain at all.

We find ourselves in constrained fiscal circumstances. New Financial recently showed that each bit of the UK pension system has lower allocations to domestic equities as a percentage of assets, as a percentage of their equity allocation and relative to the size of the local market than other countries. What is wrong with Britain? I believe in Britain, and there are reasons to expect that pension schemes—after all, 25% of the pension is tax free—should do far more now to protect and boost our growth. This would not have to wait until 2030, either; it could happen immediately.

If I may, I want to cover the question of relying on consolidation as the answer to driving better returns, and what that might do to the marketplace. Defined contribution workplace schemes and the LGPS are supposed to somehow automatically generate better long-term returns by being bigger. Well, there is a case for that, and some studies would support it, but the figure of £25 billion that must be reached by default funds, and the £10 billion by 2030 that is required, are totally arbitrary. There is no rationale that says that is the right number, yet we are putting it in primary legislation. That is most unwise. What if there is a market crash between now and 2030, for example? What is magic about that number?

Can the Minister say what evidence there is that scale is a reliable future predictor of returns? What consideration have the Government given to the damage to new entrants by favouring these large-scale incumbent funds? The risk of schemes herding and all doing the same thing with such large pools of capital, especially in global passive funds, could distort markets. What consideration has been given to that? What level of confidence is attached to the predictions that the Government have made for improvements in outcomes?

I have heard from new entrants to the market, such as Penfold, which say they are now unable to get new business because they are growing fast but may not reach the £10 billion by 2030—and of course people cannot recommend that employers now invest in them. That company has innovative financial methodologies and is offering a new way of reaching out to pension scheme members, as are Cushon and Smart Pension, which may be further down the line in reaching the target. I have concerns that the Bill will stop new competition and new entrants coming in. An oligopoly is not normally the best way for a market to succeed.

I am particularly puzzled by the explicit exclusion of closed-ended listed companies within the Bill. Part 2 says that none of those investment trusts that have invested in precisely the types of investment that we need, and that the Government want to encourage to boost the UK economy, are excluded from the Bill. I do not understand why the Government would be doing this. I know that they want to encourage long-term asset funds, which are open-ended structures, but there are enormous reasons for and benefits from having closed-ended structures when holding such illiquid assets and long-term growth assets. These are proven companies that have produced very good returns in net asset value yet have shrunk to discounts, due partly to macro factors but also to regulatory overkill, which needs urgently to be reviewed.

Investment in just UK infrastructure and renewables by this investment company sector has exceeded £18 billion. Overall, in the kind of assets that the Government want to encourage—funding solar and wind projects, energy efficiency initiatives, social housing, biotech, property and private equity—these companies have put more than £60 billion to work. But they are now struggling to survive and having to buy back their shares, rather than invest in the kind of growth assets that they could otherwise be selling and managing for pension funds in this country.

I hope that the Minister will help us understand whether the Government are going to reverse this particular exclusion and recognise the benefits of this long-standing, world-leading investment sector. Unquestionably, it can be part of the answer in this scenario. I also urge the Government to clarify what fiduciary duty means. I know that there have been many calls for that to be put into statutory guidance, and I would support this.

Finally, as regards the Pension Protection Fund and the Financial Assistance Scheme, I welcome the flexibility that is being put in to allow the levy to be changed. I welcome the change in the terminal benefits. I welcome the acknowledgment of the injustice of the pre-1997 frozen payments, with the oldest people both in the Pension Protection Fund and particularly in the Financial Assistance Scheme, suffering most. I also welcome the flexibility that will mean that, where a scheme is unsure whether the previous rules would have granted increases on the pre-1997 benefits, it will be assumed that they will. The terminal illness increase, from six to 12 months, is again very welcome. But I would urge the Government to look carefully at how we can recognise the injustice to the pre-1997 members, such as Terry Monk, Alan Marnes, Richard Nicholl and John Benson, who gave years of their lives to achieve better outcomes in the Financial Assistance Scheme, and promote the PPF, which has been such a success. I have also heard from Carillion workers who were in the Civil Service pension scheme and have ended up in the PPF, losing their pre-1997 benefits. This injustice hurts, especially in light of the Government’s generosity to mineworkers and the British Coal Staff Superannuation Scheme, which has been given a 30% to 40% increase to pensions that is effectively publicly funded. I hope that the Government will think again about potentially one-off increases, or some other way of helping the pre-1997 members who lost their benefits.

14:16

[Lord Willetts (Con)]

My Lords, I welcome many features and proposals in this substantial and significant Bill. It does, of course, draw on the work of the previous Government, and indeed continues progress on pensions that has long been conducted on a cross-party basis. I think back to my time as shadow Work and Pensions Secretary 20 years ago, when I worked with the then Pensions Minister James Purnell as he investigated auto-enrolment; I then served in the coalition Cabinet with Sir Steve Webb implementing these proposals. I remember also many years of debating with my noble friend Lady Altmann, and I agree with a lot of what she has just said. I look forward to the maiden contribution from the noble Baroness, Lady White, and I rather suspect that during her time in the No. 10 Policy Unit she may have also been engaged in some of these debates.

The Bill comes before the proposals from the re-established Pensions Commission, and I hope that it will have the flexibility to make it possible to implement ideas that emerge from the Pensions Commission. There is a still a crucial question hanging over the original Pensions Commission work, and it is great to see the noble Baroness, Lady Drake, in her place. She knows that I agonise over whether there was a scenario where defined benefit pension schemes could have been saved 20 years ago. They had become very onerous, and over decades successive Governments had added to the regulations to make the defined benefit promise more and more generous and more and more cast iron. Eventually, they had become so onerous that companies closed them to new members, so what had always been intended as an intergenerational contract was made so generous that it became a once-off special offer for the members of those schemes when they closed. It is possible that a significant reduction in the burdens on employers might have enabled some version of those schemes to survive. That is relevant to today’s debate on measures such as collective DC, which is an attempt to recreate some of those strengths. We went instead to pure DC, and younger employees have not been able to enjoy anything like the pension promise of older members of company schemes.

We did some work on this at the Resolution Foundation back in 2023. I cannot remember what has happened to the chief executive at the time, but perhaps I can quote some figures from our intergenerational audit in 2023. We estimated that millennials born in the early 1980s will reach the age of 60 with, on average, £45,000 less in pension assets than boomers born 20 years earlier. That is the challenge of boosting the pensions savings of the younger generation, which I hope is the cross-party basis for this legislation.

A particularly acute example of how this generational unfairness can work is that some of those defined benefit schemes closed to new members were in deficit. The company plugged the deficit gap by using revenues generated by all of its workers, including the younger workers, which it put into the defined benefit scheme available only to some of the workers. We now have some very interesting examples of what happens when these schemes find themselves now, thank heavens, in surplus. The recent Stagecoach deal is a very interesting example; it has been widely welcomed in the media, and in many ways it is good news. However, the Stagecoach pensions scheme closed to new members in 2017. After that, the younger workers had no opportunity to join it. There will now be a distribution of the surplus. I hope the Minister might comment on the feasibility of some of the uses for that surplus, which are not in the current provisions. We heard from my noble friend Lady Stedman-Scott about the importance of pension adequacy. Would it be acceptable for one use of the surplus to be to pay increased auto-enrolled employer contributions into the pension schemes of employees of Stagecoach who joined post 2017 and were therefore not in the earlier scheme? Some of their work will have generated the revenues that created the surplus. Would helping them through the successful auto-enrolment model not be one way forward? Another use, which is being talked about, is funding a collective DC pension arrangement to help get those schemes going. I very much hope we will move beyond the single CDC we have at the moment with Royal Mail. Pensions UK has an interesting proposal for some tax waivers for extra contributions going into CDC, especially out of pension surpluses. Again, I hope the Minister might be able to give that a welcome.

The closure of DB schemes and the creation of pure DC was the background to some of the big shifts we have been talking about. There has been a massive shift from equities into bonds and away from UK assets into assets held abroad. We are talking about this as if it is just rational capitalism working and trustees exercising their discretion, but I have a lot of sympathy with the points that my noble friend Lady Altmann made, because the British model is a very unusual model. I believe it is largely to be explained, not by some higher economic rationality, but by the strange features of the closure of DB and moving to pure DC. It means that the percentage invested in UK equity fell from 50% 20 years ago to 5% now. That makes us a complete outlier across the OECD for the willingness of our pension funds to invest in UK assets.

This is not what the pension fund members and contributors expect. As we know from recent polling published by the London Stock Exchange, when you do a survey of 1,000 current members of workplace pension schemes and ask them how much of their pension contributions they think are going into British business, their estimate is 41%—nearly 10 times larger than what is actually happening. If you ask them whether they think their pension scheme should invest more in British industry, even if this would involve some sacrifice in their future pensions, 61% say yes.

Most funded pension schemes in other advanced western countries are much more deeply rooted in their own national economy and realise that part of what they are trying to do is create the environment in which their national pensioners thrive in a healthy economy in a generation’s time. It is absolutely right to have this debate now in Britain and, for me, having been involved—and still being involved, in different ways—in the science base and research, it is deeply frustrating that we have one of the world’s great research bases and one of its great financial centres but we have totally failed to link the research base with the commercial investors in the City. That needs to change.

Successive Chancellors have been trying to do this, and of course we have had the Mansion House compact and now have the Mansion House Accord. There is now a fraught debate about mandation, and I realise all the delicacies about it. I personally think that the recent proposal from the London Stock Exchange is a very interesting way forward: not specifying the asset allocation by type of asset but saying that, whatever asset allocation has been decided upon, 25% should go into UK assets—absolutely not with full mandation but expecting this as a provision for UK DC default funds. So I hope the Minister will say that the Government are considering this proposal from the London Stock Exchange, now backed by 250 founders and chief executives of UK companies. I hope she will assure the House that, if that proposal were to go forward, this Bill would provide the necessary legislative framework, which I am assured is not an ambitious set of changes. There are things that can be done to secure a far greater understanding of the value of investing in British industry and other British assets than we have seen over the last few years.

I will briefly raise one other issue involving the other Pensions Commission: the investigation of pension age. I hope the Minister may be able to say something about this, because the clock is ticking. There was a half-hearted partial announcement of the decision that the pension age should go up further under the previous Government, which has not been followed up. My view is that that debate has got totally trapped in a preoccupation with life expectancy and using projected life expectancy as the only metric—what I call RIP minus X—or formula that has to be used. What pension age you set is not simply a mechanical calculation around life expectancy but an important fiscal decision. As in all other decisions, there are other factors, including long-term public expenditure costs and the likely income of pensioners from other sources.

I hope therefore that we will not find that we look back on this debate and ask why we missed another opportunity to prepare the ground and properly consider whether, given the fiscal constraints that any Government face, we should also be considering increases in the pension age.

14:28

[Baroness Warwick of Undercliffe (Lab)]

My Lords, I too look forward to the maiden speech of the noble Baroness, Lady White of Tufnell Park. I was delighted to discover that we are both honorary alumni of the University of Bradford.

An adequate pension must be the goal for everyone to ensure a happy and secure retirement. This Bill aims to achieve higher returns for pension savers. As many millions more people are now in pension schemes through automatic enrolment, it is imperative that we ensure they get good value for the money they are saving from their hard-earned incomes. At the same time, those savings must provide the best possible support in their retirement.

Both the previous and current Governments recognised that, if we are to achieve the growth our country needs, domestic markets must be stimulated to invest in the UK. This inevitably led to a review of the pension system. The pension sector is a major allocator of capital, which has a direct impact on the efficiency of the wholesale financial markets in driving innovation and investment in our economy.

The pension systems in most other advanced economies invest significantly more in their domestic economies than does the UK, as has already been said, where pension savings, as we should remind ourselves, are also supported by tax relief of over £70 billion per annum. The UK has deep savings pools, yet we have seen a reduction in domestic investment in the UK. The UK has one of the largest pension systems in the world. As the parliamentary Under-Secretary of State for Work and Pensions reminded us in another place, it is our largest source of domestic capital, underpinning not just retirement of millions of people but the investment on which the country’s future prosperity depends. It makes so much sense to seek better to harness that capital, to invest in a more diverse range of assets that would benefit the UK economy, but also not to place savers at risk. This Bill is a serious and most welcome attempt to address both issues of concern: domestic capital investment in the UK and improving the outcomes for millions of workers saving for their retirement.

The pension sector’s role as a major allocator of capital will come increasingly from defined contribution schemes. There is momentum behind the need to focus on the DC pension sector’s ability to deliver good value for pension savers. In addressing these twin challenges of improving the outcomes for pension savers and achieving sustainable economic growth, there is general agreement that we need market consolidation, to see fewer pension providers operating at scale, and to deliver higher returns to savers and greater investment in UK productive assets. The Bill introduces the enabling powers to achieve that structural reform and greater consolidation in the market. But that raises major issues in respect of regulation and the governance standards required in both the management and administration of those schemes and the oversight of them by those with the fiduciary duty to protect the scheme members.

The case for consolidation is compelling, but will the Government give further consideration to the governance and regulatory requirements that need to be placed on those fewer scale pension providers managing billions, even trillions of assets over time so that downside risks are controlled and the desired outcome is achieved?

On the specific issue of trustees in these consolidated schemes, in another place, Liam Byrne MP called out the risk that in creating scale through fewer and bigger pension funds, there would still be a failure to deliver desired levels of investment in the UK. He called for greater legal clarity on trustees’ fiduciary duties, their ability to consider systemic factors and their impact on members pension savings when taking investment decisions. The Minister, Torsten Bell, advised that the Government will bring forward legislation to clarify that trustees can take systemic factors into account. Can the Minister advise the House as to the timescale for bringing forward that legislation?

The Bill aims to improve the returns workers receive on their retirement savings. We know that the DWP, the regulator and the FCA are working together to create a disclosure framework for assessing value for money that is to apply across the whole DC market, enabling consistent and comparable assessments of workplace pension schemes. To fully implement that framework, however, will require primary legislation in addition to the provisions in this Bill. When do the Government anticipate fully rolling out a new framework for assessing value for money?

I turn to the issue of accessing pension savings on retirement. In a DC world, UK savers are not well supported at retirement in making the complex decisions they face. They must manage their own longevity, inflation, and investment risk, and many struggle. Which? rightly points out that these decisions may have severe consequences and can mean that an individual outlives their savings. So it is good news that the Bill requires trustees of pension schemes to provide their scheme members with default retirement solutions that are relevant to their needs, and to help them manage the risks they face when they move into retirement. But we have to ensure that those solutions are fit for purpose. Are the Government actively considering additional guidance and regulation on the assessment of the value and benefit for members of the default retirement solutions to be provided by the schemes?

There are now many millions of small pension pots, as workers move from employer to employer, and the numbers are increasing. It is a major inefficiency in the pension system, as the Minister herself pointed out. The welcome advent of the pensions dashboard will help savers to take action to consolidate their pension pots. Characteristically, however, inertia means that many will not. The Bill provides for very small pots to be automatically transferred into qualifying consolidator schemes, which should reduce administration costs and deliver better returns for consumers through lower costs and charges. Can the Minister say what the Government’s current thinking is on the timetable for implementing the necessary regulation to allow this to happen?

There are several other important changes in the Bill which other noble Lords have already raised, but I finish by highlighting one of the changes to the PPF—the Pension Protection Fund—compensation. The decision to introduce legislation to enable prospective annual increases on pre-1997 compensation to PPF and FAS members is welcome. It could benefit more than a quarter of a million PPF and FAS members, but I am concerned that it will leave an unfairness, because no retrospective increases are applied to pre-1997 accrued pensions. The prospective increases will not apply to those members whose schemes did not provide increases to pre-1997 pensions prior to entering the PPF, and there is no recognition in any form of the major past loss of pension value, particularly given the incidence of high inflation and the acute financial impact on those affected. In its foreword, a recent PPF levy policy document concludes:

“The likelihood of the PPF encountering significant funding problems in the future … is low and is expected to continue to reduce over time … if funding problems did arise, these could be resolved over a multi-year period with our investment returns likely to be the most significant contributor”.


I go back to the points made by my noble friend Lady Drake on 23 April, when she raised this issue. Taking into account the considerable confidence in the funding level and investment returns, that £32.2 billion of assets, £19 billion in liabilities and reserves of £13.2 billion are held by the PPF, and the reduction in the levy to zero, the level of fairness set in the striking of the balance between levy payer and PPF/FAS member does not appear right. As my noble friend said:

“Not only has the levy in quantum declined hugely; the levy has also declined as a proportion of the PPF’s funding mix. Roughly one-third of the funding comes from the assets transferred to the PPF from those members’ pension schemes. Similarly, another third comes from the investment returned on assets, and 11% comes from assets recovered by the PPF on behalf of those schemes. Less than a quarter—23%—of the funding comes from the levy, and that is going to fall”.—[Official Report, 23/4/25; col. GC 32.]


Can the Minister take back to the Government consideration of an ad hoc payment to those members of the PPF with pre-1997 service, in recognition of the considerable real loss of pension that they have experienced? Such a payment should be well within the funding levels of the PPF. Payment of the prospective increases to pre-1997 pensions accrued to those whose original scheme may not have made provision for such increases.

14:38

[Baroness Coffey (Con)]

My Lords, there is a lot in this Bill. Some of it is to be welcomed—there are quite a few crackers in it. However, there are also large elements of it that feel—dare I say it at this time of Christmas?—like a little bit of a turkey. It is such a skeleton Bill that it is more appropriate for Halloween than the time in which we find ourselves.

I am not the only person here who believes that. I must say that the report from the DPRRC is one of the most damning that I have seen on a piece of primary legislation coming to your Lordships’ House. Indeed, the committee says that

“we have found it exceedingly difficult to provide meaningful comment on the Bill precisely because it is so skeletal”.

This extent of delegated powers—there are nearly more delegated powers than there are clauses—does not feel like the right place to be. Of course, I know that trying to work with the pension industry and see the scope of what it is trying to achieve means that a bit of flexibility may be needed, but it is important that we do not just, candidly, hand things over to almost a ministerial diktat, which I am afraid that parts of this Bill do.

I was Secretary of State when the previous Pension Schemes Act was passed in Parliament, and my noble friend Lady Stedman-Scott took it through this House; in fact, it started in this House. It built on—and this Bill continues to build on—the idea that where consensus comes together, we can get a very good product. Indeed, that continuity of thought is important, not just for the pensions industry but for the current and future pensioners that we seek to serve.

It has been useful to see the variety of consultations there has been, going back even to 2015, including about local government funds, and the actions taken when consolidation started to happen. There was a consultation in 2022 about other aspects of small pot consolidation. The clause I probably welcome the most is about value for money. It is really important that we make sure that we address these issues. In particular, the power to effectively shut down underperforming funds is good because, regardless of how little or how much people put in, many people are putting into their pensions all the time but do not necessarily realise quite how little will come out at the end of it. We will see more communication with the pensions dashboard, but the value-for-money framework will be a critical part of that.

There has been quite a lot of talk about trustees, and I know that a number of bodies have been trying to see if we can move to having solely professional trustees. That would be a mistake. I appreciate that is not what the Bill is calling for, but one of the challenges is that trustees, driven by a certain type of asset adviser, have been attracted to low-cost and low-risk pension schemes, but too often that has led to low return. So many of the gradual changes we have seen and that will start to come through in response to some of this legislation will be able to address that. That is vital and I will support measures to achieve it.

However, there is an underlying issue here about the mandation clause. From my experience in government, I remember a meeting in Downing Street with a bunch of pension providers, which was mainly driven by insurers. People had been told that they could not raise the issue of Solvency II being a problem. One or two were brave and did so, and were later chastised by Treasury officials. Nevertheless, it was important that they did. I understand the frustration of Government Ministers at the very top of government. People saying “We need investment” is all well and good, but why do they not put some of their money into it? I include the Local Government Pension Scheme in that. Ultimately, our traditional approach is one of state pensions not being particularly generous and trying to incentivise people to put into the private pension market, as well as what has happened historically with the defined benefit industry. That is why we have the system that we do, which has grown to the extent that it has so far—so much so that, as has been recognised, trillions of pounds in assets could be deployed to greater use, but it still must be for the benefit of current, future and, indeed, deferred pensioners.

Further, there is a missed opportunity in this Bill. Having two different regulators for pensions is a wasted opportunity. I know that the two bodies, the FCA and the Pensions Regulator, have been working on joint strategies, but fundamentally we still have significantly different rules on what can or cannot happen with pension funds, depending on how they are regulated. That just does not make sense.

This is the moment to try to change that. Frankly, the FCA has enough to do. Under their different rules, TPR allows a particular investment but the FCA does not, although it may seem to be a very similar product. We should not leave that element of complexity to be solved via delegated powers but take the opportunity to fix it in this Bill. That will need primary legislation and I hope that, although she may not welcome it—and, as I am trying to get it all out of the Treasury and the FCA, they certainly will not welcome it—the Minister will try to get it into one regulator to make a difference for the prosperity of our pensioners.

I am conscious that this is a missed opportunity in how pensions can help our planet. I strongly promoted the concept of planet, prosperity and people. These are mutually beneficial and there is no doubt that investment by the industry can play a part. That is why we put in place world-leading, pioneering regulations making the link to the TCFD and net zero. However, crucially, they did not mandate how investments were to be made or the drawing from a variety of assets but, basically, put a much greater duty of transparency on what was happening in the long term. The same needs to happen with nature and the TNFD. I will explore that in Committee.

In terms of what we want to achieve from this, I think your Lordships will share with the Government the outcome of having a good, robust and fully functioning pensions industry that generates prosperity, but let us not go down this tricky route of mandation. In particular, the DPRRC singles out that Ministers keep saying, “We don’t intend to use it”. In that case, let us not legislate for it. Let us make sure that we keep that blunt instrument away and continue to have a productive pensions industry. Nest, which was originally provided for in legislation prior to 2010 and came into effect within the last decade or so, has been a fantastic source to drive and make sure that we have private asset allocations. Let us celebrate that, work out why it worked so well and, as I have already suggested, make sure that we get rid of the stuff that is massively underperforming when prospective pensioners do not realise it.

It is going to be an interesting time in Grand Committee. I am afraid there will be a lot of amendments—this is not the only Bill I will be tabling amendments to—but I hope the Government will think again on the themes we will get into. If a lot of this is just about getting investment in Britain, the Government will need to answer why they scrapped the British ISA, which was a ready-made model. It is almost because it was not invented here. Fortunately, on the pensions journey, there is normally good cross-party consensus, but I fear that mandation has blown that out of the water. Nevertheless, let us see if we can try to fix it.

14:48

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Coffey, and to hear nature-positive sentiments from the Conservative Benches. We are hearing a wide range of perspectives in that space, and I am glad to hear those. I declare my position as a vice-president of the Local Government Association and the National Association of Local Councils.

I echo the noble Lord, Lord Vaux of Harrowden, in enjoying seeing so many familiar faces on the pensions trail. My first ever Committee was on the Pension Schemes Bill some six years ago. It is also nice to welcome new faces such as the noble Baroness, Lady White of Tufnell Park. I very much look forward to her speech as someone who, when in London, stays just across the border in Kentish Town. I also join the noble Lord, Lord Vaux, in his expressions of concern about any forced investment in private equity. It is an extractivist, exploitative model which benefits a few at the cost of the many and does not have the long-term perspective that we surely need when talking about pensions.

I will start by looking at the context. We are starting from when the Chancellor initiated a pensions review in August 2024, led by the DWP and HMT, aimed at bolstering investment in the UK and dealing with pension adequacy—or rather, the significant levels of pension inadequacy that so many now suffer from.

Picking up the point about pension age raised by the noble Lord, Lord Willetts, although from an opposite perspective, I note that when the state pension age rose from 65 to 66, between December 2018 and October 2020, the percentage of 65 year-olds in income poverty more than doubled from 10% to 24%. A quarter of a million more 60 to 64 year-olds are now in poverty than in 2010, when the state pension age began rising. These figures are from a report by the Standard Life Centre for the Future of Retirement. According to the research, the poverty rate for 60 to 64 year-olds increased from 16% to 22% from 2009 to 2024. There are now 8 million people in their 60s in the UK, up from 6.7 million in 2010, and that is expected to peak at 8.7 million in 2031. Many of those are pre-pensioners now, but they are very soon going to be pensioners. Some are pensioners already, and we have a huge poverty problem there. The noble Lord, Lord Willetts, said that this has to be a fiscal consideration. I am afraid we have to look at it much more broadly and consider the state of public health in the UK, whether many of those people are indeed fit to work, and the huge inequality of health at age 60, 65 or 70 that operates across different communities and social groups.

We also have to acknowledge that 2.8 million pensioners are now living in households below the minimum income standard. I note that the House of Commons Work and Pensions Committee said in July:

“No older person should be unable to have a minimum, dignified, socially acceptable standard of living”.


The Green Party concurs with that. I know the Minister will be interested that women make up 67% of those pensioners in poverty. There has been some improvement in the situation with the new state pension but, as the committee noted in July, there are “blind spots” in policy-making. The reality of women’s lives is still insufficiently recognised. I cannot see anything in this Bill that deals with that, but I would be interested if the Minister could contribute anything on it.

Staying with the context, because it is important that we think about where we are before we get to the detail, according to ONS data we now have 44% of adults aged 16 and over actively contributing to a pension pot. This compares to 34% a decade earlier. Obviously, auto-enrolment is a really important factor, but according to the recent Scottish Widows 2025 Retirement Report, 39% of working-age adults are not on track to achieve what the Pensions and Lifetime Savings Association deems a minimum lifestyle in retirement, and that is a 1% increase since 2024, so we are headed in the wrong direction.

The Minister said this is all about security and dignity in retirement. Before we start talking about private pensions, we have to acknowledge that the financial sector’s private pensions are not going to meet everybody’s needs. There are great risks with the financial sector in this age of shocks, and we have to acknowledge that the state pension must be the anchor of security, certainty and freedom from fear for everybody in our society.

Picking up the point made by the noble Baroness, Lady Coffey, on our Delegated Powers and Regulatory Reform Committee report, there are a couple of extra facts from that report that I think are telling and concerning. At 149 pages, the Bill’s delegated powers memorandum is nearly as long as the Bill itself, which is 161 pages. The number of delegated powers in the Bill—119—nearly exceeds the number of clauses, which is 123.

I have spent quite a bit of time on context because I think it is important, but I turn now to a couple of points that I expect to raise in Committee and possibly later. One of those is the term “fiduciary duty”. Lots of people have been asking me, “What are you doing in the last week before Christmas?” and I have said, “I am going to be talking about fiduciary duty for pension schemes”. I have then got lots of blank looks.

But this is something I have actually long been familiar with as a Green, as we have been struggling over many years to ensure that local pension schemes in particular are able to avoid investing, say, in the merchants of death, big tobacco, because that is bad for pensioners in a broader context, or able to avoid investing in fossil fuels because of their health and environmental impacts, and also because of the financial risks of the carbon bubble. So things like “fiduciary duties” roll off my tongue so easily.

Noble Lords will know that this was debated very strongly in the Commons. They have started the work in some ways but have left us with an unfinished piece of work. In response to the amendment in the Commons supported by 34 MPs, including all four Green MPs, the Pensions Minister has now committed to legislate to bring forward statutory guidance—again—on fiduciary duty. However, as I understand it—I am happy to be corrected by the Minister—the statutory guidance provided by the Government would not apply to the whole range of pension schemes and would not provide the legal clarity that schemes would need to wish to act on these issues. Any statutory guidance of course need not be followed and is at risk from potential future Governments.

Although this sounds technical, it is of course terribly important. I note that Liam Byrne in the other place said that there is currently confusion—and what the Government are proposing does not seem to deal with that confusion. With confusion comes caution. Then, we see trustees understandably following the safe path, rather than the one they can actually see is the right path.

The noble Baroness, Lady Coffey, has covered a lot of what I was going to say about nature, so I will not repeat that. But it is worth looking at this from my perspective of six years in this place. I am delighted to see the noble Baroness, Lady Hayman, in her place, because she has been a leader in finally getting successive Governments to put climate and nature into Bills. To get the climate and nature bit in because the Government initially left it out has become almost the standard part of the role of your Lordships’ House. That is something I am sure we will return to.

I have one final point to make on the Bill. The Financial Conduct Authority has, to be charitable, a chequered regulatory history. The Minister said that the FCA would have this extra responsibility and that extra responsibility, which is deeply concerning. I am interested in the suggestions from the noble Baroness, Lady Coffey, on how we might look at that regulation. I do not have a view on that yet, but I would be interested in the debate.

I note that, a year ago, the All-Party Parliamentary Group on Investment Fraud and Fairer Financial Services—I declare I am a Member—published a report on the effectiveness, or not, of the FCA, and blamed it for doing too little, too late, and doing nothing to prevent or punish alleged wrongdoing, with errors being all too common. That is really important, given that we are giving it oversight over some significantly increased powers for trustees, where trustees will not be referring back to members of the scheme.

Finally, I come to the fun bit. Given that this is the last contribution from a Member of the Green group for this session before Christmas, I sincerely thank all the staff—the doorkeepers, clerks, Library, catering, security and cleaning staff—for the many hours they have laboured for us, all too often hours very late in the evening. To offer a wish for all of them and all of us, my hope for 2026 is that we might see more sensible working hours for your Lordships’ House and for all our staff.

14:58

[Baroness Noakes (Con)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Bennett of Manor Castle. But, not for the first time, she will find that I disagree with practically everything she has just said.

I have a few problems with the Bill, which has a number of sensible things in it. I will focus on aspects of the Bill that are being sold as supporting UK business investment and hence the Government’s growth mission.

I have big concerns about pension scheme money being seen as available for investment in ways that the Government choose but which conflict with the views of trustees, who have a duty to act in members’ best interests. I am as patriotic as anybody, but I do not think it is right to allow the Government to require investment in the UK. There have been times when investing in the UK was a terrible idea financially. I can remember the 1970s, when the only reason anyone held assets in the UK was the existence of exchange controls—we could not get money out. I say to my noble friend Lady Altmann that forcing or incentivising pension schemes into listed UK assets does absolutely nothing to enhance UK growth. These are existing assets; they have nothing to do with new investment.

The Government’s proper role is to create the economic environment where businesses want to invest. That requires confidence in the economic future, taxes that are predictable and low, and regulatory burdens that are kept in check. Anti-business and anti-growth Budgets, and changes to employment laws, are the main drags on investment in the UK at the moment, and no amount of playing around with pension fund assets will change that. With the exception of scale-up financing, which is a problem in the UK, there is no evidence that funds are not available to back profitable business investment in the UK. The powers in the Bill need to be judged against that background.

The part of the Bill that concerns me most, in line with many other noble Lords who have spoken, is Chapter 3 of Part 2, which deals with scale and asset allocation. These provisions go much too far. I get the benefits of scale, both in terms of cost efficiency and the ability to diversify into alternative asset classes. However, I do not think that there is any conclusive evidence that £25 billion is a magic threshold. I am concerned that the Bill will have the effect, after first having consolidated the market, of ossifying the pensions landscape. As I have said many times in your Lordships’ House, I am a believer in competition and markets.

Large players love regulations that create barriers to entry, because they insulate them from market disrupters. The Bill says that subscale players—new entrants—have to be regulated. Risk-averse regulators are not the best people to judge growth potential or the power of innovation. The Bill should encourage new entrants into the pensions market, even if that means a prolonged period of operating below scale. We need to look at how the long term for pensions investment can be protected and I will want to explore that in Committee.

The real shocker, of course, is asset allocation. Put simply, I believe that mandating asset allocation is wrong in principle and carries a significant risk of moral hazard. Pension trustees have a clear fiduciary duty to act in the best interests of their members. The Government should have no right to say to trustees that they must invest in particular things, especially if that conflicts with trustees’ views. I do not doubt the sincerity of the Government’s desire to get pension schemes to invest in a wider range of investments to improve returns for their members: that is broadly what scale facilitates. The danger comes with eliding that desire to facilitate higher returns for members with wanting to direct the investment into particular things, which may or may not turn out to deliver those higher returns. Legally requiring certain types of investment will inevitably result in calls for the Government to pick up the tab if the returns from those sorts of investments fall short. The moral hazard implications of these provisions for mandation are huge.

I am also disturbed to read proceedings in another place where some MPs wanted to direct pension schemes assets into their pet projects; they talked about social housing, hospitals and net zero. Such investments may well be socially desirable but there is no confidence that they will yield high returns for members of pension schemes. If the Bill does not rule out that kind of mandation, I am sure that it should. At the end of the day, trustees need to seek the best possible returns for their members, because it is investment performance that drives the retirement income of defined contribution members.

The drafting of the mandation clause is also a horror story; I will not weary the House with a commentary on that today, but I give notice that I shall want to examine it in Committee. I am sure that in Committee we will also want to look at capping the percentage which could be mandated—if indeed we wish to keep mandation at all, which I suspect we will not.

The other area that I wanted to talk about today is Clause 9, which creates a welcome ability to extract surpluses from defined benefit schemes. While only a tiny number of private sector DB schemes are still open to new members, very many employers are still burdened with schemes which have been long closed to new members or indeed to future accrual. Gordon Brown’s tax raid in 1997, followed by the prolonged period of low interest rates, meant that for the last 25 years, employers have had to pay large amounts to support the funding status of their defined benefit pension schemes. Recently, the good news is that some of those have swung back into surplus. It is only right that there should be an opportunity for those employers, who have borne this burden for such a long time, to get some of that surplus back. Doubtless, trustees will want to argue for further benefits for members in return for returning surpluses, but I hope that they will be mindful of the fact that the corporate sector has borne significant costs of keeping the defined benefit pension promises intact over many years, and they deserve a major share of those surpluses.

The Government have portrayed this as supporting business investment in the employing company, which it might do if the business environment is right for those companies to invest, but it may also be entirely rational for those companies to return excess money to their shareholders because that would be the best outcome for those shareholders. There is a provision in Clause 10 which allows conditions to be set on making payments. I shall want to ensure in Committee that this power cannot be used to direct what companies do with liberated pension surpluses once it has been agreed that it is safe for those surpluses to be removed from the pension scheme.

The Bill focuses on pension schemes, but it does not deal with many of the other problems that continue to exist in the pensions world. The Pensions Commission will tackle some but not all of those problems. In particular, around £1.3 billion of unfunded public sector pension obligations will weigh very heavily on future generations—that is currently largely hidden from sight at the moment. Into that category I would also put the continuation of the triple lock. This Bill is not the end of the pensions story.

15:08

[Lord Davies of Brixton (Lab)]

It is always a pleasure to follow the noble Baroness, Lady Noakes; I still worry on those occasions when I find myself agreeing with what she says. No doubt we will have interesting debates in Committee.

It is a real pleasure to take part in this debate, which is a perfect start to the festive season. I declare my interest as recorded in the register as a fellow of the Institute and Faculty of Actuaries, and I look forward to the maiden speech of the noble Baroness, Lady White of Tufnell Park.

I thank all the individuals and organisations that have written to me about the Bill. They have raised too many issues to deal with them all today, but I and others will seek to raise them in Committee.

I welcome this Bill. It is the first leg of the route to better pensions that was set out in the Government’s pensions road map. It seeks to make existing provision work more effectively and to ensure that people derive the maximum benefit from their pension savings. These objectives are to be welcomed. The second leg of this journey will be the outcome of the Pensions Commission. Part 2 will address the adequacy of retirement incomes and the fairness of a system that currently contains persistent inequalities. I welcome my noble friend the Minister repeating that it will look at state as well as private pensions.

It is worth pointing out, particularly given the welcome presence of the noble Lord, Lord Willetts—though he is not in his place—that this Bill marks the effective end of personal pensions and sets out how we can move to a better system of collective provision, leading to improved, fairer and appropriate outcomes for members.

Taking the various proposals in turn, the Bill takes important steps to remove inefficiencies in the current system. They include the consolidation of small dormant pension pots, contractual overrides for FCA-regulated schemes and the resolution of the issues that have arisen from the Virgin Media judgment through the validation of certain amendments. Each of these changes affects individual member’s rights without their active involvement and therefore must be handled with care, supported by appropriate regulation and professional oversight. These measures will require careful scrutiny in Committee.

Next, the Bill requires defined contribution schemes to offer default retirement arrangements for members. I welcome this initiative and consider it to be the most significant part of the Bill—potentially, as it is still unclear how these arrangements will operate in practice. The Bill provides broad regulation-making powers. We have now had the helpful report from the Delegated Powers and Regulatory Reform Committee, but the details, as the committee emphasises, will depend on what is in the regulations. I therefore hope that we will be able to explore these issues in Committee and identify the main parameters that will apply to these default arrangements.

Turning to the value-for-money proposals, I have some reservations about what they can achieve. Greater and clearer disclosure based on defined parameters is undoubtedly desirable. However, value for money is not a simple or uniform concept. It varies significantly from individual to individual, reflecting different circumstances, attitudes to risk and personal needs. The problem is that there is no simple metric that can adequately capture this diversity. While charges are relatively straightforward to identify and compare, investment returns are inherently uncertain and can be assessed only by reference to the past. Beyond these factors, value for money is also shaped by the quality of the scheme administration, the level of service provided to members and the effectiveness of communication and support. Crucially, it also depends on how benefits are adopted and delivered and whether they meet differing members’ needs. Bringing these factors together, deciding how to weight them and reaching meaningful conclusions of value to members is highly complex. Therefore, while everyone is in favour of the concept of value for money—no one favours its opposite—its practical delivery is far more challenging than the Bill appears to acknowledge. The fear is that the process will simply end as a justification for making higher charges and hence lower benefits.

As a number of previous speakers have explained, the Bill contains provisions relating to pension scheme investments, which the Government consider a central element of the Bill. Other noble Lords have addressed, and will address, this in some detail, but I will make a couple of points.

I have no objection in principle to mandation, unlike other speakers. However, it is very important that the Government understand the implications of directing how members’ money is invested. Doing so carries responsibilities; this is where I found myself agreeing with the noble Baroness, Lady Noakes. I do not think that that aspect has been sufficiently recognised by the Government. I am also concerned, as other Members have mentioned, about the provisions that would be inserted into the Pensions Act 2008 by Clause 40 that refer to specific classes of investment that will be the subject of mandation. I do not believe that this belongs in the Bill.

I have a general concern about the Government in effect providing investment guidance—so much can go wrong—but my particular concern is the appearance of private equity in that clause. Private equity has a mixed performance record and presents significant liquidity and transparency challenges for pension provision. Where members have pension rights, illiquidity raises a question about who ultimately carries the risk that is inevitably involved: is it the member, the scheme or other members? I think the point was made by the noble Lord, Lord Vaux of Harrowden.

There are, of course, other issues that require careful consideration, alongside broader concerns, such as climate and systemic risk. I am sure these will be touched on by other Members.

I turn to my two principal concerns about the provisions in the Bill: first, the provisions relating to the release of surplus, and secondly, the provision for pension increases where no statutory guarantee currently exists. On the release of surplus, ministerial Statements have suggested clearly that members are intended to share where surplus is released—I have a series of quotes, but I am running out of time. If that is the case then this objective should be set out clearly in the Bill. This is particularly important as there is a requirement under the existing legislation that the release of surplus should be for members’ benefits, and that is being removed. The Government justify this on the grounds that trustees’ responsibility to members is sufficient. I am afraid my experience in the industry tells me that that is not correct. It needs to be in the Bill if that is the Government’s intention.

Also, where employers are involved in the process of releasing surplus, it is absolutely right that it should involve the independent recognised trade unions that represent the affected employees. This is established practice elsewhere in pensions legislation, where unions must be notified and, in some cases, consulted before decisions are taken. This should clearly apply. If it applies to benefit and changes, it should apply in the case of surplus release.

I turn to my other area of concern: pension increases. It is important to understand the context. Prior to 1997, there was no general statutory requirement for increases in payment, other than those associated with contracting out. However, by the mid-1990s, particularly after the Scott and the Goode reports, it had become standard practice for pensions in payment to be increased annually by at least a minimum amount. In some schemes, this was set out in the rules; in others, it depended on trustee discretion. Which approach was adopted was largely a matter of chance. Either way these increases were funded, members paid for them during their working lifetime as part of their pension contributions, and they had a reasonable expectation that they would receive increases when they retired.

Although scheme finances have fluctuated since then, in general schemes now have sufficient resources to pay increases. It is therefore reasonable to expect them to provide those increases, whether guaranteed or discretionary. This reflects the reasonable expectation members acquired when they accrued benefits in the 1980s and 1990s. This applies in two overlapping contexts. The first is to benefits provided by the Pension Protection Fund and the Financial Assistance Scheme, where the original legislation in both cases excluded any allowance for pre-1997 increases, regardless of rules or practice. The second aspect is members of active schemes: the scheme is continuing, but they no longer receive the discretionary benefits to which they have a reasonable expectation given their service in the 1980s and 1990s.

I welcome the provisions in the Bill relating to the PPF/FAS. They are clearly a response to the current financial state of the PPF. Without the surpluses in the PPF, I doubt that these measures would have come forward, so they are welcome. However, as I have explained, making a distinction between those for whom the rules say they are going to get increases and those for whom the practice was making discretionary increases is invidious. All affected members should receive the same increases. The benefits from these schemes have never been or been intended to be an exact copy of the benefits that were provided by the schemes that were lost. They were always a broad-brush approach to what is fair to provide.

Given the current financial circumstances, it is absolutely fair that all members should benefit from those surpluses. The Bill provides for employers to share in those surpluses by the suspension of the PPF levy. Employers are sharing in the surplus; members should also, whatever the precise details of their entitlement to past increases. Crucially, none of these members is getting any younger and many, sadly but inevitably, will benefit from the Government’s proposals for only a limited period. For 28 years they have suffered a loss and they are now going to benefit from the change in policy but, for many of them, it will be for far too short a period.

Finally, I turn to the circumstances of defined benefit schemes that are continuing to run. Many are in a healthy financial state but are failing to provide discretionary increases for members’ benefits that were accrued before the statutory requirement was introduced in 1997. I believe that it is now reasonable to expect schemes in general to provide these members with discretionary increases, and we need to investigate ways in which we can make sure that that will happen in Committee. I look forward to hearing my noble friend’s response to these and other points that have been made in the debate.

15:24

[Lord Ashcombe (Con)]

My Lords, like other noble Lords, I very much look forward to the maiden speech of the noble Baroness, Lady White of Tufnell Park. I declare an interest as an employee of Marsh, the sister organisation to Mercer, a pension and investment advisory and management company.

I welcome many parts of the Bill. The Government’s ambition to reduce fragmentation, lower costs and secure better outcomes for savers is clear, and I am sure that Members across the House share the desire for a system that functions more effectively. Some measures in the Bill will undoubtedly support that aim.

However, from my discussions with those in the industry, it is clear there are substantial concerns about elements of the Bill. The central purpose of the Bill, as I see it, is to create scale that unlocks access to a broader range of asset classes, including private markets and UK-based investments. Scale is not an end in itself; it is a mechanism to strengthen negotiating power, secure better pricing and deliver improved outcomes for savers. Equally important, it is the potential for operational efficiencies that reduces costs and complexity across the system.

It is crucial, however, that the Bill does not become entangled in prescribing or favouring any particular business model. The pensions market is dynamic and diverse, with multiple viable routes to achieving the Government’s objectives. Flexibility is essential if innovation and competition are to flourish, allowing the best solutions to emerge in a live market environment.

I welcome the amendments made at Third Reading in the other place, which removed from the Bill detailed structures concerning the relationships between product lines and their contribution to the main scale default arrangement. That is a positive step. These issues are complex and better addressed through secondary legislation, where they can be explored with the nuance they require, and which is difficult to capture fully in primary legislation. However, these future regulations will have a profound impact on the efficiency, pace of change and cost across the pension system. It is therefore essential that the Government commit to a full and transparent consultation. I invite the Minister to assure the House that examples included in the Bill will not become exclusionary, and that the regulatory framework will be developed in a way that supports, rather than hinders, the delivery of the policy’s core objectives.

The policy in the evolving legislation must engage constructively with market realities and good industry practice. If that engagement does not occur, the result could be inefficiencies and additional costs that bring no tangible benefit to savers. We must avoid creating a system that is overly rigid or prescriptive and risks stifling innovation, increasing administrative burdens and potentially causing some large funds to lose auto-enrolment eligibility through no fault of their own.

In practice, many pension providers operate multiple product lines, such as group personal pensions and master trusts, while making investment decisions and negotiating prices at an overarching level across these products. That is not fragmentation; it is a sensible and efficient approach that leverages scale and expertise to the benefit of savers. The regulatory framework must recognise and support this reality.

For that reason, I urge the Minister to confirm that the approach to regulation will be principles based. The MSDA and common investment strategy tests must avoid creating unnecessary fails or imposing constraints that do not deliver real value for savers. A principles-based approach would provide the flexibility needed to accommodate different business models and market practices while ensuring that the policy’s objectives were met.

I turn to the Local Government Pension Scheme. I note with concern the significant reserve powers delegated to the responsible authority. While these powers are intended to provide flexibility, there is a risk that political motivations could influence the management of LGPS assets. What protections will be in place to ensure that these reserve powers cannot be used, or threatened, to pursue political objectives regarding LGPS investment decisions?

Alongside the introduction of governance reforms, it is paradoxical that the draft secondary legislation and guidance appear to control and limit external scrutiny and challenge of the enlarged pools. Independent external challenge is a vital component of robust governance, ensuring transparency and accountability.

Another area of concern is the balance between rules-based and principle-based legislation. While clarity is important, again, the current draft secondary legislation appears overly prescriptive and directive.

Almost all noble Lords have hit on the point about mandation. Many in the industry, including Mercer, signed the Mansion House Accord, but the Government should be aware that voluntary support for that accord does not equate to support for mandation, which I know the industry strongly believes poses a conflict with fiduciary duty. I hope that the Minister understands that and will consider it as the Bill moves forward.

In closing, it is vital that secondary legislation governing group personal pensions, the LGPS and the wider Bill remains flexible and not overly prescriptive. Multiple models and approaches can effectively achieve the policy aims. I hope that the Government recognise these market realities and will ensure that regulations support innovation, efficiency and practical implementation while delivering the intended outcomes. Striking this balance is essential to avoid unnecessary burdens and secure the best possible results for savers across all pension schemes.

15:31

[Baroness Penn (Con)]

My Lords, we have had a wide range of expertise in the speakers today, although I suspect that the noble Lord, Lord Davies of Brixton, might be the only one of us who could not think of a better Christmas present than a pensions Bill. I am also conscious that my remarks stand between the House and the much anticipated maiden speech from the noble Baroness, Lady White of Tufnell Park, to which I too am looking forward, so I will try to be brief and focused.

I want to touch on three areas but before that, like many others, I welcome many aspects of this Bill, including on consolidation and value for money. However, there are important areas of detail that the Government need to provide for us to understand how they will better work; in particular, around the requirements on scale and value for money, and what they mean for competition and market dynamism, as the noble Baroness, Lady Altmann, and my noble friend Lady Noakes have spoken to. There is also the risk that, at some point, scale no longer promotes investment in innovation and scale-ups, as those businesses would no longer be able to meet the minimum investment thresholds for very large funds.

The first area I want to focus on, which may be no surprise, is mandation. I am not convinced about the decision to include a mandation power in the Bill, as others have said. I will not repeat those arguments, but if I was convinced of the case for mandation, I would not be convinced of how it is being legislated for in the Bill as it stands. We are told that it has a sunset clause, but that is not the case. The 2035 deadline is only for increasing the maximum allocations set out by regulation and before this sunset moment, as I read it, there is no maximum limit on what proportion of investments can be mandated. I ask the Minister: why not? If the Government want to use the existence of this power to drive delivery against the Mansion House Accord, why not set a maximum level of mandation in line with those commitments made in the accords? There is also absolutely no clarity on what assets may be mandated for investment, only that they are not listed assets. In doing so, the Government have excluded a potentially important class of productive asset, as raised by the noble Baroness, Lady Altmann, and surely to be raised by the noble Baroness, Lady Bowles. I would also like to hear from the Minister whether the Government intend to change course here.

As to what can be included within mandation, the answer appears to be: absolutely anything else. There are examples, of course, as to what the Government want to do but no legal limits whatever, and the prescribed assets can be altered at any time by regulation, in perpetuity. Normally, the argument for such an approach is to maintain flexibility. But given this is a power that the Government themselves say they do not want to use, surely the case for constraining it to the limits of what the Government intend could not be stronger. If a future Government wanted to go further than this, it would also seem reasonable to put forward further primary legislation to do so, because it is important not to think about the use case one might agree with, but the one that one might disagree with.

I can think of credible cases being put forward for mandating for portions of assets significantly above 5% or 10% for investment in net zero or defence, to name two examples. I make no judgment on the values of these: rather, I ask whether, even if noble Lords might support one of those use cases or scenarios, they would support the other.

In explaining the need for the power that the Government do not expect to use, the Pensions Minister has said that its existence will provide clarity to industry. But, for clarity, we need more detail than is included in the Bill: the definition of a qualifying asset and the percentage required. To provide that clarity, you would need to provide draft regulations. Is that the intention of the Government, will we see them during the course of the Bill and can the noble Baroness set out a timeline for us?

If the Government do not wish to use mandation, perhaps I might ask the Minister what feedback she has had from pension providers on the barriers to investing in the UK economy, and what action the Government are taking to address those, both to increase the pipeline of investment opportunities but also, specifically, regulatory barriers that have been raised by providers. Are the Government committed to looking at those also, and over what timeline? I also ask the Minister what happens if valuations change, over time or in response to a specific shock? There is a lot of detail to be looked at with regard to how the mandation powers will work, as well as the principle of them.

The second area I want to touch on is fiduciary duty. This was something that noble Lords discussed in some detail during the passage of the Financial Services and Markets Act, during which I committed to this House that the Government would consider the work of the Financial Markets Law Committee and host their own round tables to consider whether further action was needed. One of those round tables did take place, but I am afraid further ones did not. The Financial Markets Law Committee reported in 2024, however, and made it clear that, in its view, it is proper for pension fund trustees to consider climate change, along with other factors, when discharging their fiduciary duties. As the Pensions Minister conceded in the Commons, however,

“more clarity about the ability of trustees to take into account such factors would help”.—[Official Report, Commons, 3/12/25; col. 1043.]

The Minister committed to bringing forward legislation that will provide statutory guidance in this area. Could the Minister confirm whether that legislation will be in this Bill and, if so, when we can expect to see those amendments, and also the timescale for the statutory guidance to be produced? Given that there will continue to be different interpretations of the underlying law in this area, I ask the Minister why an amendment in primary legislation would not be preferable to address the issue?

Finally, in the same discussions around fiduciary duty during the Financial Services and Markets Bill, the issue of deforestation-linked finance was discussed, including in relation to pension funds. Could the Minister update the House on the Government’s plans to bring forward regulations under Schedule 17 of the Environment Act 2021 to ban the import of forest-risk commodities and conduct a subsequent review to assess whether the financial regulatory framework is adequate for the purpose of eliminating the financing of illegal deforestation, and to consider what changes to the regulatory framework may be appropriate in this context? The EU’s framework on deforestation-linked finance is coming into force this month, so it would be a timely moment for the Government to set out their plan in this area.

Finally, the Bill does nothing to address pension adequacy, as we have heard. My noble friend Lady Stedman-Scott and the noble Lord, Lord Sharkey, have highlighted in particular the issue of self-employed people and pension adequacy. I will be focusing in particular on the women’s pension gap, which remains at over 30%. My understanding is that there has been little progress on narrowing that gap over the years, and what progress has been made is as a result of men’s contributions falling, rather than any improvement in contributions from women, and I do not think that is the right way to be narrowing the gap. We are storing up huge inequalities in retirement unless further action is taken. Can the Minister reassure me and this House on the action that the Government are planning in this area, both potentially through the commission but also alongside and in advance of its work.

15:40

[Baroness White of Tufnell Park (CB) (Maiden Speech)]

I rise to address your Lordships’ House for the first time. I want to start by saying a little bit about myself. I am a child of the Windrush generation. My mother came from Jamaica to London aged 19. In fact, my grandfather sold a field to fund her passage. My father arrived as a 26 year-old and they met and married here in London. I spent most of my childhood in Leyton, east London, and it was something of a dilemma whether to take the name of the place I grew up or the name of the place that I have chosen to live with my husband and two boys, Tufnell Park. Noble Lords will see that I chose the latter.

At a time when the national discourse is so full of division, I hope that the successful integration of the West Indian community into the UK serves as a reminder of those close, common bonds that tie together so many communities, many from the previous British Empire. Thanks to this country, I was able to get a free education at Cambridge and then in London—an education my parents did not get. My mother left school as a 10 year-old and my father as a 15 year-old. It has enabled me to enjoy what is charitably described as a rather eclectic career between the public and the private sectors. I have a rather wide range of interests across public policy, economics and business and I hope your Lordships will be tolerant of those over the coming years.

I am both humbled and privileged to be making my maiden speech as part of the Pension Schemes Bill debate. For me, pensions are both personal as well as professional. They are personal as I creep ever closer to pension age myself, but also because I am scarred by my father’s experience. Probably the single worst financial decision he made was leaving the British Rail defined benefit pension scheme and joining the little-known SERPS many years into his working career.

It is professional because, as the noble Lord, Lord Willetts, mentioned, I have spent quite a lot of my career working on pensions. I was trying to remember the first time, which was the Goode report in the aftermath of the Maxwell pension scandal. The equalisation of the state pension age was when I was at the Treasury. The reform of SERPS was when I was at No. 10, and I am currently advising one of the big Canadian pension schemes.

As we have heard already in the debate, the country desperately needs to increase its productivity and growth. It is the only way, sustainably, to raise living standards in this country across communities—living standards which, extraordinarily, have not budged in real terms since the great financial crisis of 2008. As is well known, we lose too many companies to the US, where growth capital is more plentiful. Again as the noble Lord, Lord Willetts, has already said, this is no accident. It is rooted in past regulation, which was well intentioned and aimed to de-risk defined benefit schemes. But it has had the result, as we have heard, of dramatically reducing the proportion of pension assets going into UK equities, from around 50% to, broadly speaking, 5% today.

Plans put forward by this Government and championed by the former Government to require UK pension funds to invest more of their funds in the domestic economy and within domestic businesses are, in my view, a positive and important step. We have heard already that several UK funds have voluntarily made commitments through the so-called Mansion House Accord, and it is welcome that the Bill provides a legislative backstop to ensure that what is promised is actually delivered. I note the controversy that this particular set of legislative recommendations has raised already in the House, and I look forward to being part of the debate in the future.

In a similar vein, the consolidation of the myriad diffuse local government schemes should improve efficiency—efficiency not just for its own sake but to release more funds to invest in the UK. However, the move falls short of the creation of the sort of mega funds in Australia and Canada that have driven a more wholesale move of public sector pensions into private funds.

I thank your Lordships. Joining the House is one of the privileges of my life, and I look forward, over the coming months, to listening, learning and, over time, contributing in some small way. Like others today, I take a moment to thank the many Members of the House of Lords and its staff. I am spatially dyspraxic, so finding my way around over the last few months has not been without its challenges, and the team has been incredibly kind, patient and generous. I thank them.

15:47

[Lord Wood of Anfield (Lab)]

My Lords, it is a pleasure and an honour to follow the noble Baroness, Lady White, and her excellent maiden speech. I congratulate her on her appointment and her debut outing here in the Chamber and say how much all of us look forward to her future contributions. I am sure her family, not for the first time, is extremely proud of her today.

On that subject, if noble Lords ever worry about the limited breadth of their professional experience, I advise them not to look at the noble Baroness’s CV. In her extraordinary career so far, she has—strap in for a minute—studied at the University of Cambridge and University College London. She worked at Her Majesty’s Treasury twice, at the British embassy in Washington, as a senior official at Downing Street, at the World Bank, at the Department for International Development, at the Ministry of Justice—I have not finished yet—and at the Department for Work and Pensions, before becoming the third chief executive of Ofcom and then the sixth chair of the John Lewis Partnership. She then became the chair of Frontier Economics and a senior managing director at a Canadian pension fund. That is exhausting just to read. I think I am right in saying, however, that her first job after studying was in a church in Birmingham. She has spoken publicly and movingly about the importance of faith to her and her family.

If noble Lords talk to former colleagues of the noble Baroness, Lady White, some of whom are here today, they will find universal agreement that she is someone who faces professional challenges in her career with calmness, humanity to those around her, sound judgment, expertise and a warm inviting intelligence that most of us can only admire. She once told an interviewer:

“You often learn more from things that did not quite go to plan than things that did”.


As a former adviser to Gordon Brown for many years, alongside my noble friend the Minister, I can only endorse those as the wisest of words. We are truly fortunate to have the noble Baroness, Lady White, in our midst, and I am sure everyone agrees that this House’s work will be the richer for her wide-ranging experience, expertise and generosity.

Like the noble Baroness, I strongly welcome aspects of this Bill—most of it, in my case—and the way in which it has been welcomed across the political divide, almost. It will make a positive difference to savers, increasing the value of their savings through pot consolidation and driving greater scale, improving the range of guided retirement products and strengthening the value for money framework—all issues on which other noble Lords have spoken with much greater expertise than I can.

I want to focus my comments on the ambition in this Bill to make UK pension funds a greater driver of investment in UK infrastructure companies and communities, as the noble Baroness, Lady White, said. There is a wide consensus, whatever your view on the measures in the Bill, that we have a big problem in this country with the interface between pension funds as value generators for their clients and their investment contribution to the UK’s real economy.

The statistic has been cited a number of times that, 25 years ago, UK pension funds allocated half their assets to UK equities. That figure is now under 5%. This alarming fall is not for want of scale or size, as many colleagues have mentioned. The UK has, as the noble Baroness, Lady Altmann, remarked, the second largest pool of pension capital in the world. Indeed, UK DC pension assets are set to grow from around £500 billion in 2021 to £1 trillion by 2030. That is a 100% increase in under a decade, with growth predicted to accelerate further after that date. Yet DC pension funds have only 9% of their overall equity allocation in the UK. The global average is 30%. Across all types of domestic pension funds’ equity portfolios, UK equities make up 15% of the total. In Australia, the figure for domestic equities is 52%; in Japan, it is 48%.

We know a lot about why we have become such a worrying outlier in this respect. The £1.5 trillion corporate DB sector has been derisking for some time, as it has approached meeting its liabilities. At the same time, DB schemes have pivoted, for reasons of value generation, from a UK-biased equity approach 30 years ago or so to a global market cap approach in the past 20 years.

One side effect of this move is that the proportion of overseas investors in UK equities has risen to well over 50%, and, because of scarce domestic capital, UK companies have therefore become more reliant on debt for financing expansion. This combination of a growing reliance on debt finance and foreign capital is a matter of concern. As the noble Baroness, Lady Altmann, has written, it is a matter of concern from the point of view of national economic security. There is no simple response to this, but this Bill takes some first important steps to reconfiguring the structure of the industry, the regulatory environment that fund managers face and the incentives that confront them.

One key challenge is to create larger, more powerful and more strategic investment capacity. The last Government made welcome progress on this, and the current Chancellor’s Mansion House Accord, as many colleagues have said, has built further on that. The Bill builds on that accord by gripping the issue of generating scale and simplicity where there is currently too much fragmentation. Like other noble Lords, I welcome the LGPS consolidation, strengthening asset pooling and improving administering authorities’ governance structures. I welcome the requirement for master trusts to reach a minimum size of £25 billion, but I share the concern of the noble Baroness, Lady Altmann, and echo her question to the Minister to assure us that this threshold will not be to the detriment of innovation and new entrants, and to tell us how these two objectives that we all share can be reconciled. The noble Baroness, Lady Penn, also mentioned this.

Lastly, there is the issue of pension mandation, undoubtedly the most contentious issue. It raises issues about the tension between government policy, regulation and fiduciary duties. Again, whatever your view on mandation, our starting point has to be that we have a real problem on our hands here—and the public agrees. The noble Lord, Lord Willetts, mentioned data from a survey on this showing that two-thirds of all UK savers think pension funds should increase investment in UK companies, even if returns are lower. Why do we not listen to them?

The Government in this Bill are taking a reserve power to mandate pension fund investment, but are accompanying it with ministerial protestations that they do not intend to use that power. At the very least, I thank the Government for giving me an excellent case study that I can present for the coming years when I teach my students in the real-world use of game theory. More seriously, I think that I understand the logic of taking the power to do something when you have no intention of using it. The spectre of a big stick locked away in a cupboard, but still on view, is designed to have an incentivising effect on fund managers to reorient their strategies to start to take UK investment much more seriously. Critics might say you cannot have your big stick and eat it, to mix my metaphors—that you cannot have a power and then credibly say that it will never be used, or, to flip it the other way round, that you cannot hope that taking the power will have a chastening effect on the industry while also saying that you will never use it.

My own explanation for what the Government are doing here—I am sure that my friend the Minister will have a better explanation—is that it is a strategy based on sequencing the necessary changes. So, first, the fund industry needs to be defragmented, consolidated and scaled up, which this Bill is primarily about. Secondly, collective reorientation of the UK pension fund industry is incentivised through these reforms but also the accompanying reserve power. Thirdly, alongside the strategic capacity that is being built up, the Government know that they have work to do to make investment in UK equities and non-listed destinations more attractive, which involves lots of measures. By the way, one down payment on these measures that is to be warmly welcomed is the Chancellor’s decision in the Budget to introduce a three-year stamp duty holiday for new listings on the stock exchange. We will see whether this works. For my own part, I am a subscriber to the view of the noble Baroness, Lady Altmann, that 25% of new contributions should be invested in UK public markets.

This Bill is a building block in the attempt to make progress through what we might think of as pressured voluntarism rather than straightforward compulsion, and I welcome that very much. However, we need to be clear that this is a change that, from a UK plc point of view and a public finances and public services point of view, must happen one way or the other.

15:56

[Lord Kirkhope of Harrogate (Con)]

My Lords, before I make my few remarks, I also congratulate the noble Baroness, Lady White, on her most excellent maiden speech. I declare my interest as a trustee and a director of pension funds for a number of years. I acknowledge that this Bill is, in general, a good idea; however, as has been said by many people—I hate to repeat it again—it is a complex multifaceted set of proposals, and the devil is in the details. As I said, I have read this in almost every report so far at this stage of the Bill.

To most working people, their pensions are prospectively there simply to support them when they retire. Good employers, whether in the public or private sector, know that pension provision is often measured carefully when job opportunities are considered. Whether it is a defined benefit plan or a defined contribution plan is quite often a matter of good luck rather than good management and is often determined as a result of historic tradition in the particular industry or business.

In this legislation, the Government have the good general intentions of assisting members in DC schemes, including the enhancement of opportunities to get better returns through increasing the size of schemes and returning surpluses to employers. They also want to encourage schemes to invest in UK asset classes, thus hoping to help the economy, which I am sure is a laudable aim, particularly at present. All well so far, but let me at this early stage of our deliberations just put down one or two markers for later debate.

Increasing DC schemes to £25 billion—an arbitrary figure—has some real downsides. I suspect that this will reduce competition due to consolidation, leaving less choice and barring entry for new schemes, and will increase vulnerability, especially to cyber attack. DC schemes have been the preferred formula now for over 20 years and master trusts for only about 10 years and, of those, only a handful have achieved that magic £25 billion.

Next is the question of surpluses in DB funds. When interest rates were low, many employers put billions into schemes to repair a large number of deficits. They became less competitive than employers who did not have any DB schemes. I therefore hope that, in the Bill’s changes, we might find ways in which some of these surpluses could be returned to be utilised to fund capital expenditure, and I hope the Minister might be able to agree to that.

There are examples of surplus sharing and, in that context, I mention the Aberdeen Group’s adoption of the Stagecoach pension scheme less than two weeks ago—perhaps already mentioned by noble Lords. Members there will get two-thirds of future surpluses and Aberdeen one-third. I have no doubt that this will give great pleasure to bus drivers all over the UK but, like so many other aspects of pensions, there must be safeguards. It is the trustees who must always decide to distribute surpluses and they must act independently of employers, remembering that the basic principle is always to act in the best interest of the members. The intentions in the Bill for the allocation of surpluses in DB schemes seem to extend quite widely and to include enhancement of contributions in DC schemes. This crossover needs some care and further explanation.

Superfunds should be respected as an alternative destination, but advisory costs can be enormous. Also, actuaries must follow their obligations under Technical Actuarial Standard 300 and give advice on alternatives when consideration is taking place to transfer pension scheme obligations to insurers under buyout contracts. Improving the superfund regime is all well and good, but the Government must deal with the barriers around adviser intransigence and those potentially enormous costs. Without that attention, the idea of growing superfunds is a non-starter, as is evidenced by there being only one such fund in the UK at present.

Regarding encouragement to invest in UK assets, I also retain great reservations on mandation powers. As I said at the beginning, in theory it is a good idea that investing to help the UK should be given greater priority, but I remain concerned about the conflict of interest that might arise. This issue was raised by my honourable friend Mark Garnier at Second Reading in the other place. I go back to the strict obligation on trustees to always perform their role in the best interests of beneficiaries. That might suggest a new concentration on UK investment, but not necessarily. We need some more help for trustees for this responsibility. In response, the Minister in the other place suggested an opt-out if there were to be material detriment to members in taking such preferential decisions. I suggest that that would not satisfy the need for trustees to consider a wide list of things in determining those best interests of members.

On the powers for the ombudsman, we need to delve further into the intentions of the Government. Moving the ombudsman to become a form of court or tribunal changes to some extent the nature of its work. The relationship between the regulator, trustees and the ombudsman is currently very clear. We need a better explanation of their future respective roles and powers. My experience is that, although the Pensions Regulator imposes and controls duties and reminds pension trustees of their obligations, it is always, of course, ultimately up to the trustees themselves to decide what they believe is a proper course. Putting the regulator or the ombudsman into an enhanced role will not only diminish the absolute responsibility of trustees; it could also put those bodies into invidious situations of decision-making between themselves. No doubt there are also substantial resource issues to consider.

Lastly, I mention the pensions dashboard to the Minister, which has no doubt been referred to. A progress report would be welcome, as would an assurance that, as was clearly stated by the Minister at Second Reading in the other place, it will be completed and ready by autumn next year.

No doubt we can perfect matters as the Bill proceeds, as is the way with this House. The intentions are fine; the logistics and implementation to meet those intentions may well take quite a lot of work.

16:03

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I declare my interests as a director of the London Stock Exchange and of Valloop Holdings Ltd. I also have experience engaging with local authorities and their pension funds, in relation to both funding proposals and policy. I congratulate the noble Baroness, Lady White of Tufnell Park—she is no longer in her seat—on her excellent maiden speech. I welcome her to this House and look forward to her future contributions.

Like other noble Lords, I welcome much of this Bill, and my reflections are directed at what is missing or where small but significant adjustments could deliver real benefits for scheme members. I shall give some examples. When engaging with local authority fund managers on social impact investing, I found that while they valued local options, they also wanted diversity through investing in similar localised assets but beyond their immediate region. An amendment to reflect that flexibility, perhaps in Clause 2, concerning local and localised investments, may be worth considering.

On scale tests and value for money, should there not be some kind of linkage? Presently, some of the best performers in the DC market have assets under £10 billion. If such schemes deliver outstanding benefit for members, as demonstrated in value for money assessments, should they not be allowed to continue? Other issues in this space include whether the definition of “hybrid” is wide enough and whether the focus on forward looking metrics risks dismissing past performance, which surely still has relevance.

I also hope that some solution can be found for the many schemes in the charity and social housing sector that are disallowed from using retrospective confirmation measures due to an ongoing legal review. Concerns also remain about the PPF’s recent pre 1997 increases in the wind up trigger for DB superfunds, which create issues for funding levels and viability. Additionally, gateway test 1—that if a scheme is funded to buyout level it cannot enter a superfund—seems to prevent schemes augmenting member benefits via a superfund. Is that fair?

I turn to trustees’ fiduciary duty. It is undeniable that the Government have opened a Pandora’s box by taking the power of mandation, even if it is intended as a reserve power. I happen to think it is about time Pandora’s box was opened, emptied and hope allowed to get out, at least on interpretation of fiduciary duty. However, it is essential that this be done in primary legislation. Regulatory guidance or an SI is not enough. We are already seeing banks stung for compensation on car loans when lenders followed flawed guidance from the FCA.

Systemic issues such as the resilience of the UK economy and ESG are not abstract considerations; they directly affect pension scheme members’ long term retirement outcomes. Climate breakdown, financial crises and economic instability all influence the value of investments, the type of investments that need to be made in future and the returns available to members over time. They also determine how far pensions will stretch when drawn. These factors should already be integral to fiduciary considerations, requiring trustees to balance risk mitigation with support for long term stability. Yet trustees remain concerned about how to demonstrate alignment with member outcomes, even though investment results of any kind can never be guaranteed. Clarifying in this Bill that systemic factors are legitimate concerns would help.

At the same time, by naming and favouring certain vehicles, the Bill risks going too far and putting trustees in jeopardy. It could cause herding, market distortions and valuation bubbles and discriminate between comparable structures while failing to provide a safe harbour for trustees regarding financial benefit. The only way to achieve definite financial benefit would be through tax penalties for failing to meet mandated allocations, a possibility noted by the noble Baroness, Lady Altmann.

We have already seen the dangers of herding in both DB and DC schemes, driven by regulatory and advisory consensus. Advice focused on global indices, coupled with regulatory encouragement, led to a retreat from UK equities, an overreliance on gilts and the use of nested leverage through repo borrowing, culminating in the LDI crisis. The only accepted defence that trustees have is that they take advice, but it is from unregulated advisers. While many are excellent, some were noticeably reticent when this House’s Industry and Regulators Committee investigated LDI. We found it striking that such influential advice was not regulated, unlike advice to individuals. This should be addressed, perhaps by making it a designated activity under FSMA.

I turn now to the discrimination against listing. The Government mandate investment into private assets but exclude that investment from being via listed entities, despite their ability to provide superior liquidity. Not all listed entities operate in the same way, and I am going to have to explain that later. It is openly acknowledged that the Mansion House provisions reflected in this Bill are tailored to LTAFs, the new long-term asset funds, which are themselves a variation on the EU’s LTIFs—the long-term investment funds developed during my time as chair of the EU’s ECON Committee. At that time, the UK rejected implementing LTIFs, with the Treasury assuring me that we did not need them because we had listed investment funds, also known as investment companies and trusts, which were better. Yet, under this Bill, they are explicitly excluded, even when investing in the prescribed assets, as the alt sector does.

This exclusion is extraordinary. Before the mistaken, and now nearly corrected, regulatory cost disclosure and cost cap debacle, listed investment funds were favoured by local authority pension funds precisely because they financed local UK infrastructure such as schools, hospitals and renewables, and provided venture capital to growth companies. Those local authority pension funds were major investors at IPO and follow on stages, often for the local infrastructure they were subscribing to. Many retail investors hold listed investment funds in their portfolios for similar reasons.

I have recently been told that somewhere in the Treasury there is a belief that listing and then trading shares is not new money. Interestingly, the noble Baroness, Lady Noakes, whom I very much respect and often find myself in common cause with, also made that point. That is not the proper story if you are looking at a listed investment fund. Listing is what keeps the underlying investment funding in place so that it is not sold out for redemptions, as happens with open ended funds like LTAFs. In fact, the way in which money is raised and then put into investments is a similar procedure to that of an LTAF or any other open-ended fund. The only difference is a clever trick: instead of having to sell off the investments if somebody wants to get liquidity and withdraw their shares, the shares can be traded on the market and there is no damage to the underlying investment. That does not seem to have been recognised in the provisions in the Bill.

It is interesting that even some LTAF providers have contemplated investing in listed investment companies because they want the liquidity, and that will enable them to stay listed in productive assets for longer while still having the safety of being able to trade and get their money if they need more money for paying pensions, so why discriminate against them? The fact is they are complementary investments. They are often going to be smaller and local-sized, as opposed to massive. They can be used in combination with LTAFs and it is very foolish and stupid thing to exclude them. I will certainly be tabling an amendment to try to adjust that.

Overall, it is about time that the Government’s discrimination and denigration of listed investment companies end. I say “denigration” because there is damage done to these companies by this wording in the Bill. How many times has this House talked about having to improve the state of our stock exchange, both for listed companies of the operating variety and for listed funds? What do we do at every turn? The Government and the Treasury do not understand and, here, seem to be undoing a lot of the good work they have tried to do in all the listing reviews.

The Bill contains important reforms, but it must not undermine fiduciary duty, encourage herding or exclude proven vehicles that deliver value. With constructive amendments, we can ensure that it strengthens pensions while saving members’ long term outcomes and delivering for the UK economy.

16:15

[Lord Bourne of Aberystwyth (Con)]

My Lords, it is a great pleasure to follow the noble Baroness. She speaks with great experience and knowledge, and I certainly very much agree with the points she made on fiduciary duties and the need for clarity on them.

I congratulate the noble Baroness, Lady White of Tufnell Park, who is not in her place at present, on a maiden speech of great humour and informed with important principles and pointers to what we should be seeking in this legislation. We will certainly look forward to her future contributions in your Lordships’ House.

I want to make some generalised points about the Bill—echoes, inevitably, of what has been said previously in the debate. But I would also like to focus on four specific areas: first, mandation of investment; secondly, fiduciary duties; thirdly, addressing the wrongs suffered by the pensioners of the former Allied Steel and Wire company; and fourthly, the Delegated Powers and Regulatory Reform Committee report. The Minister, whom I greatly respect, referred to this in opening but dismissed it somewhat breezily—possibly not; maybe I am being unfair. There are some important concerns there that we have to address.

The Bill proposes many sensible reforms. It is a largely good piece of legislation. The creation of megafunds delivering lower-cost, diversified investments and better returns is sound and sensible. The consolidation of the Local Government Pension Scheme is also very sensible. There is much to welcome in this legislation.

My fundamental concern, along with many others who have spoken from around the House—almost universally—is the objection to defined contribution schemes and the Government’s backstop power to mandate investment. This really concerns me. It is potentially in conflict with the fiduciary duties of pension trustees. I would like to hear in the Minister’s response what the Government are proposing for that potential conflict.

Government-dictated investment risks undermining trustees’ fiduciary duty and risks distorting markets. Far more preferable, surely, is the voluntary approach that we have in the Mansion House Accord—built on reforms of July 2023 and based on, later again, the approach of my right honourable friend, the then Chancellor, Sir Jeremy Hunt MP—a voluntary agreement of 17 of the UK’s largest workplace pension schemes, signing up to committing at least 10% of their default funds to private markets by 2030, with a minimum of 5% in UK private assets. That is surely the preferred approach. It may well be the Government’s preferred approach, but I have real concerns about the backstop approach that is also in this legislation. The approach in the Mansion House Accord is expected to unlock up to £50 billion for high-growth UK companies and major infrastructure. That seems to be the sensible way forward, and it is based on the approach of Australia, for example, and other states.

Another area I want to touch on, which has also been touched on by the noble Baroness, Lady Bowles, is the fiduciary duties and the need for clarity here. These duties are in many ways similar to the duties that company directors owe to their companies. The fiduciary duties of company directors are in many ways based on case law, but there is also a statutory framework since the Companies Act 2006, which is very important to underpin the case law that is vital in interpreting the duties. It seems sensible to have a statement of duties on which the case law then elaborates and on which it rests.

There is a need to set the duties of pensions trustees in a broader context. How do they take account, for example, of the impact of climate change, the local community and the views of pension savers? The Government talk of guidance, but in my view there is a very strong case for the introduction of a statutory framework, as we have in company law.

I also want to raise the case of the wrongs suffered by pensioners of the former Allied Steel and Wire company, and indeed others, who have lost out because of the pre-1997 pension compensation not being index-linked. Allied Steel and Wire, a company largely based in Cardiff at the time, went into liquidation in 2002, affecting around 1,000 workers in Cardiff but also in Belfast and Sheerness.

A pensions action group was set up 2003, after the collapse, by those who had lost not just their jobs but their occupational pensions. These workers’ pensions are not protected by the Pensions Act 2004, which helped members of defined benefit schemes that went into liquidation but after 6 April 2005—so obviously it preceded that. In fairness, a government scheme, the Financial Assistance Scheme, was set up and helped to provide some relief for these pensioners—up to 90%—but it was not inflation-proofed. This led to the erosion of the pensions’ value over time. As the pensions built up before April 1997 were not linked to rising prices, that failure for index-linking meant that they have suffered massively and continue to suffer.

I know the incoming Government promised to re-examine the situation, but the Minister will realise that there is still real hurt among these pensioners that this has not been recognised in proper compensation. These pensioners played by the rules; they deserve the pensions they invested for. It seems the Pension Protection Fund has a considerable surplus, which could be used to right this very obvious wrong, and I hope the Government will take this unfinished business on board.

Lastly, the Delegated Powers and Regulatory Reform Committee report, to which my noble friend Lady Coffey and the noble Baroness, Lady Bennett of Manor Castle, referred, outlines some very serious concerns. There are almost as many delegated powers, 119, as there are clauses in the Bill, 123—that is serious. It is a pretty damning report, I have to say. It refers to a licence for the Minister to make subordinate legislation. I feel that is something we will inevitably have to return to as we go through Committee and Report, and I would be very interested in hearing what the Minister has to say on that.

I otherwise welcome the legislation. There is a lot to be welcomed in it—it is good legislation—but I have those reservations.

16:23

[Baroness Hayman (CB)]

My Lords, I declare my interests as a past chair and present director of Peers for the Planet. It is a great pleasure to follow the noble Lord in what he has just said. We have worked together on these issues before, and I feel somehow that on the issue to which I will return, fiduciary duty, we have the very good beginnings of a cross-party amendment with him, me and the noble Baroness, Lady Bowles—and I hope we will recruit from the Labour Benches as well.

The noble Lord, Lord Sharkey, some hours ago—not long hours, interesting hours—mentioned the absence in the Bill of any reference to the Paris Agreement and the Climate Change Act. The noble Baroness, Lady Bennett, mentioned the previous Pension Schemes Bill, in which we both participated six years ago.

That Bill, thanks to a cross-party amendment and great support from the noble Baroness, Lady Stedman-Scott, who was the Minister at the time, included references to the Paris Agreement and the Climate Change Act. I am assured that it was the first piece of pensions legislation in the world that mentioned those things, and it has been followed by many pieces of pensions legislation in many jurisdictions since then. Therefore, I am hopeful that we may make some progress on this.

As the Pensions Regulator has said, pension schemes are

“uniquely placed to understand that short-termism in the face of systemic risk is not the right approach for … pension savers”.

Successive Governments have recognised that the UK’s long-term prosperity will depend on our ability to lead the transition to a greener financial system. However, financial experts, such as the Institute and Faculty of Actuaries and the Pensions Regulator, warn that many schemes continue dramatically to underestimate climate and environmental risks. The Pensions Regulator has stressed that climate change and nature loss are not “abstract concerns” and that

“awareness of and managing systemic risks is … a core part of effective trusteeship”.

The Chancellor recognised the centrality of the issue in her Mansion House speech last year. In letters to the Bank of England and financial regulators, she said:

“The climate and nature crisis is the greatest long-term global challenge that we face”.


She recommended that they

“consider how these risks could impact financial stability over the near and longer-term”.

She also reaffirmed her commitment to make the UK a global leader in sustainable finance.

There are clear benefits to placing the UK at the centre of global financial flows that will drive the economy of the future, creating high-quality jobs and enabling the investment we so urgently need in the face of ongoing economic and cost of living pressures. The pension sector must be central to that endeavour. With the third-largest stock of pension assets in the world, the UK has the capacity to set a global benchmark for responsible investment. The £3 trillion held in UK pensions represents an enormous opportunity to align long-term investment with long-term risks and long-term economic stability.

However, significant exposure to environmental and supply chain risks and fossil fuels leaves savers at risk of holding stranded assets or seeing significant reductions to their pension pots in the years ahead. This is neither in members’ interests nor in our national interests. Therefore, in our discussions on the Bill, I will be very interested to hear how pension schemes investments can align with our climate and nature goals.

As the Bill stands, it remains silent on how the major pension reforms it contains will support the delivery of our nature and net-zero targets, despite the risk to both savers and our economic prosperity that institutions, such as the International Energy Agency and the Climate Change Committee in this country, have highlighted. UKSIF has estimated that approximately £88 billion-worth of UK pensions are directly invested in fossil fuel assets, and that, even if the limited decarbonisation pledges made so far by countries are fulfilled by 2040, £15 billion of UK pensions are at risk of loss due to stranded assets.

The Bill offers a practical, incremental opportunity to put a direction of travel in statute on the need to move away from investment in carbon-intensive assets in a managed and orderly way. It could send a clear signal about the long-term risks we face and help pension schemes to prepare for the transition in a considered way.

One of the measures we could take, and something that I will certainly be focusing on, as I said, as we go through the remaining stages of the Bill, is the clarification of fiduciary duty. For too long, many pension schemes’ trustees have reported confusion about what they should take into account when making investment decisions, particularly when those decisions involve long-term structural risks such as climate change, nature loss and other systemic factors. This can lead to unnecessary and unjustified caution and reinforce a bias towards short-term financial returns, even when the long-term risks are clear.

I think we all absolutely understand and agree that trustees of pensions have a fundamental responsibility to act in their members’ financial interests. However, the clarification of fiduciary duties in legislation, far from detracting from that responsibility, would enable trustees to fulfil it more effectively. So, while I welcome the commitment made on Report in the other place for guidance on this issue to be brought forward, guidance alone falls short of providing the legal certainty that is needed, as the noble Baroness, Lady Bowles, said so clearly.

Guidance can be challenged, ignored, and reversed without primary legislation. The legal ambiguity to which trustees are currently exposed will remain, even if in a slightly lesser degree, if there is only guidance on which to rely. Legislative clarification would dispel that uncertainty and future-proof the system to ensure that pension schemes are better able to recognise and to manage the systemic risks of climate change and nature loss. It would support trustees to act in the long-term interests of all beneficiaries and address issues of intergenerational fairness that are becoming of increasing importance as the longer-term consequence of the climate and nature crisis becomes clearer. It could also lead to better returns and increase new investment in the areas we need to future-proof our economy: clean energy, clean transport, clean infrastructure and, crucially, to unlock the economic opportunity of investing in nature-positive solutions.

I very much look forward to pursuing those issues as the Bill proceeds through your Lordships’ House.

16:32

[Viscount Trenchard (Con)]

My Lords, I too congratulate the noble Baroness, Lady White of Tufnell Park, who is not in her place, on her excellent and well-informed contribution. It is a great pleasure to follow the noble Baroness, Lady Hayman, who just made a most interesting and informative speech.

I thank the Minister for introducing the Bill today. Reforms to the structure of the pension schemes market introduced over the last 14 years have been generally beneficial. In particular, I am sure the Minister will agree that introduction of auto-enrolment into a pension scheme is the principal reason why the number of people saving into such a scheme has increased from 42% of the workforce back in 2011 to 88% today. That is a huge change and one of which the last Government can feel proud. Of course, the 8% of income invested into these schemes is not enough, but it is a start on which we can build.

While current economic conditions necessitate a review of the triple lock, it has been successful in restoring the relative position of pensioners in our society and has lifted 200,000 pensioners out of poverty. As my honourable friend Mark Garnier said at Second Reading in another place,

“the previous Government had turned their attention to two central issues: first, getting the best value for money out of our pension schemes and, secondly, pensions adequacy”.—[Official Report, Commons, 7/7/25; col. 722.]

There are some positive measures in the Bill which I welcome, but I want first to remind the House that it was a Labour Government who did enormous damage to our defined benefit pension system, which was previously a jewel in our financial services crown and the envy of the world.

Shortly after his appointment as Chancellor in 1997, Gordon Brown launched a stealth tax raid on our pensions by abolishing dividend tax credits. The removal of the dividend tax credit has been estimated to have cost occupational pension schemes over £3 billion annually. This led to increased contributions required from employers and employees to maintain pension levels. The consequences of the change were, first, reduced investment in UK companies. Following the abolition, pension funds have been less incentivised to invest in British companies, with their ownership of UK-quoted shares dropping from about 50% in 1997 to just 4% in recent years. This shift is one of the main reasons for the failure of the London Stock Exchange to value new listed companies competitively or to provide the necessary investment to support economic growth.

Secondly, the abolition of the dividend tax credit resulted in the double taxation of corporate earnings, since dividends are paid out of post-tax income whereas loan interest is deductible from corporate tax. This harmful move effectively destroyed many final salary-linked pension schemes by making them too expensive for companies to run. It has been estimated that the tax rate destroyed around £200 billion of the value of the nation’s pensions. Besides the abolition of the dividend tax credit, which was a fatal blow to DB pensions, the continuing restriction of the tax-free allowance for dividends provides an additional disincentive to investment in equities. The dividend allowance was £5,000 per annum in 2016-17 but was reduced to only £500 in 2024-25. Besides that, the income tax rate applied to dividend income has been increased by 2%. A higher rate taxpayer now pays 35.75%.

Take the example of an entrepreneur who has established a successful small business. He does not take a salary but pays himself through dividends when his company can afford it. The company has paid 20% corporation tax, and the 35.75% dividend tax means that the income that the business owner takes out of the business that he has built is now taxed at a rate of 55.75%. Leaving the entrepreneur aside, for years, dividend tax has been a second-tier concern—something that mainly affected company directors and high net-worth investors. That is no longer the case. Dividend tax is now a mainstream issue and hits ordinary people with modest portfolios who have never thought of themselves as investors in the past. If you hold shares outside an ISA, receive dividends from your own company or invest through funds and ETFs, dividend tax now matters.

There have been ongoing discussions about the potential reinstatement of the dividend tax credit to stimulate investment by pension funds into listed equities. That would encourage more domestic investment and help to restore London’s previous status as the best stock market for innovative new technology and other companies to list on. In Australia, as I am sure that the Minister is aware, dividend tax credits have been reintroduced as part of the dividend imputation system. This is designed to prevent double taxation of company profits.

Does the Minister recognise that it is a missed opportunity not to introduce a measure which would be warmly welcomed by the City and would certainly help the London Stock Exchange recover its lost position? Have the Government considered reintroducing dividend tax relief, and if not, why not? Surely this kind of radical measure is exactly what our financial services industry needs. Reintroducing tax credits on dividend payments and cutting stamp duty on UK share purchases are among the 10 recommendations that the Pensions and Lifetime Savings Association has made for using investment and fiscal incentives to encourage pension schemes to allocate more of the nation’s savings to British assets.

I welcome the measures in the Bill which seek to consolidate and build on auto-enrolment and the encouraging progress towards the pensions dashboard, which will greatly assist people’s access to their pension information and help them plan more effectively for their financial future. As the noble Baroness said, larger schemes generally perform better than smaller ones. I believe that the measures enabling the consolidation of small pots and the creation of superfunds are sensible, although regulations must ensure that protection for scheme members is not weakened.

The Association of British Insurers, the Society of Pension Professionals and other industry groups in the main support many of the measures contained in the Bill, including the value for money framework. Will the Minister introduce a requirement that it will be regularly reviewed to ensure that it operates as intended? Referring to the point on the consolidation of small pots, I suggest that the definition of small pots should be revised to £5,000 rather than £1,000, because the latter is too small.

The biggest problem with the Bill, as well explained by my noble friend Lady Stedman-Scott and others, is the proposal to empower the Government to mandate asset allocation within large multi-employer defined contribution schemes. I am not aware that the Government is a well-qualified fund manager with a spectacular track record, and it is absolutely not right to interfere with trustees’ fiduciary duties. It is all the more unacceptable because it applies only to those very large schemes and will therefore affect only pensioners of relatively modest means. This is unfair. This Government are pickpocketing the pensions of poorer people. Fund managers and the trustees who appoint them are under a legal duty to prioritise the financial well-being of savers. Their job is not to obey political whims but to invest prudently, grow pension pots and uphold the trust placed in them by millions of ordinary people. While I hold the noble Lord, Lord Wood of Anfield, in the highest regard, I am afraid I do not agree with his view on this matter. It may be that many pensioners would like to invest in UK assets, even if the returns are low, but they should take action separately to achieve that end.

The fiduciary duty is not a technicality; it is the bedrock of confidence that the entire pension system rests on. Rather than impose new regulations and take powers to do things that they are not qualified to do, I would like to see the Government free up insurers from solvency rules which prevent them owning equity in productive assets. Indeed, following the Mansion House Accord, the pension sector is already moving towards greater investment in productive assets. Seventeen of our largest workplace pension providers have already committed to invest 10% of their main default funds in private assets by 2030. Mandation is not required to achieve this trajectory. To attempt to define and enforce allocation thresholds risks concentrating activity too narrowly, crowding investment into specific asset classes and inadvertently restricting investment in broader activities.

The Government seek to take a power that is unnecessary. Their possible intervention in the market creates operational ambiguity. How schemes and pension providers will prove compliance with requirements lacks clear thresholds and enforcement logic, and creates reputational risk for pension schemes. The clause offering opt-out in cases of material financial detriment is too vague. The best solution to the problem is for the Government to drop this reserve power from the Bill entirely. If the Minister will agree today to do this, it will save us all a lot of time and trouble. I look forward to hearing what the Minister has to say about this.

Concerning local government pension schemes, I welcome the proposal to consolidate the pensions of 86 different authorities, which should contribute to enhanced performance. But, as my noble friend Lady Stedman-Scott explained, surpluses should be used to reduce the burden of contributions going forward, particularly as councils are faced to go through deeply damaging and expensive reorganisation.

Lastly, I am happy that the Bill attempts to find a solution to the problem of defined benefit surpluses. As drafted, it does not provide sufficient safeguards. In this area and others, I look forward to working with noble Lords to improve the Bill in the months ahead. I entirely agree with what my noble friend Lady Noakes had to say on this matter. I look forward especially to hearing the Minister’s winding-up speech.

16:45

[Lord Evans of Guisborough (Con)]

My Lords, I should preface my remarks by declaring an interest in that I am a member of the Local Government Pension Scheme. I am, of course, much too young to be drawing any benefits from that scheme as yet.

It is a great pleasure to follow my noble friend Lord Trenchard, who gave us a good, detailed critique of the Bill and made a number of constructive suggestions. Indeed, it is even more of a pleasure to be following—well, everybody, really. The Minister pointed out the generosity of the Whips this morning; when I looked at the list, I discovered they had been even more generous in giving me basically the last slot of the last debate of the year, at least from the Back Benches—the Front Benches can follow up afterwards. Bearing that in mind, I will keep my remarks mercifully brief and focus on a couple of the contributions that people have made during this extremely informative and interesting debate.

First, I congratulate and thank the noble Baroness, Lady White of Tufnell Park, for her excellent maiden speech. It was interesting and, I think, will be inspiring to people from outside this place who see that clip. I know that she will bring a great deal of expertise to us here, and I look forward to her future contributions.

Secondly, I thank my noble friend Lady Noakes, who raised the spectre of the dead hand of regulation, as it has been referred to at times in the past, and the concern that if we regulate schemes too much, we will discourage new schemes or even make it impossible for them to open up and operate, which will harm competition. We have already seen this in recent years with the situation that pertains to challenger banks in the UK, because a lot of the financial rules that were set up after the market crash made it very difficult for new banks and new financial institutions to gather the capital and put in place the administration they needed to start up. I believe that the Treasury has relaxed some of those rules recently to enable more people to take part in the financial market. I hope that the Government will reflect on that and not repeat mistakes that have been made in the past.

I shall refer briefly to the contribution from my noble friend Lady Altmann, who gave us an informed and passionate plea to encourage pension providers to invest more of the money they have in UK assets. I was quite persuaded by that, but saying to investors, “We’d like you to invest a percentage of your assets and you get to decide, with all your expertise, knowledge and experience, what you invest them in”, is very different from being asked to give the Minister permission to make a much more detailed investment decision on their behalf, with what, in effect, is other people’s money. I think that is what we are being asked to do in the Bill.

I hope we will revisit the whole mandation issue and help to moderate it or even remove it from the Bill altogether. I would go out on a limb and say that I would trust the Minister to make investment decisions on my behalf, but that does not mean that I would trust future Ministers and future Governments to do so. That is not just about the sort of people with the sort of ideas who might occupy those posts in the future; it is also about the sort of challenges that the Government may face and the sort of temptations that this legislation may lay open to them at a time when future years are looking difficult and unpredictable.

I mostly welcome what is in the Bill. There has been a tendency today to focus on the things we do not like about it; that is the job of scrutiny. Back in the 1990s, I worked for a visionary entrepreneur, and he used to say that in the future there will be no such thing as security of employment but there will be security of employability. He was running a training company, so your Lordships can maybe understand why he said that, and we have moved a long way towards embracing the new jobs market since then, but the pensions market needs to catch up. A lot of the measures in the Bill will help us to do that.

16:50

[Lord Palmer of Childs Hill (LD)]

Yes, my Lords, we are getting towards the end. I thank all noble Lords who have who have spoken. My particular thanks and congratulations go to the noble Baroness, Lady White of Tufnell Park, who made a marvellous first speech, which I am sure will be one of many.

There is much to welcome in the Bill; let us start positively. My noble friend Lady Kramer—as noble Lords know, she cannot participate today because she is at a funeral—is seeking the detail and the risk profile of the assets that will qualify under the Mansion House compact. Most people contributing through auto-enrolment into default funds have few resources and should not be in high-risk investments, certainly not without their permission.

My noble friend Lady Bowles, with great expertise, emphasised that fiduciary duty must remain the overriding principle of pension governance. She warned that mandating specific investment vehicles risks undermining trustees’ discretion, encouraging herding and discriminating against proven structures such as listed investment funds. Drawing on lessons from the LDI crisis, she argued that statutory preference cannot guarantee financial benefit and may expose pension members to unnecessary risk.

My noble friend further highlighted the Bill’s unjustified exclusion of listed investment companies and trusts, despite their track record in financing UK infrastructure and growth businesses. She also cautioned that lobbying pressures appear to have shaped the preference for long-term asset funds and urged that legislation should not be dictated by sectoral interests. Her message was clear: fiduciary duty must not be subordinated to lobbying or legislative preference, because it is pension members who will ultimately bear the cost.

My noble friend Lord Sharkey raised many important matters, many of which I will mention, including mandation, DB surpluses and DC master trusts. My noble friend Lord Thurso, who cannot be present—he is up in Inverness—was particularly keen to ensure proper guardrails and governance in relation to DB surplus release, mandation and adherence to the stewardship code, as well as seeking to improve the lot of pre-1997 pensioners who have not benefited from inflation uplifts. He will pursue these matters. Noble Lords can therefore see a lot of amendments lining up.

We will need to consider any action in the Bill to remedy pre-1997 pension erosion. The absence of discretionary increases for pre-1997 pensioners has clearly resulted in an erosion in the real value of their pensions. That is not the only injustice that has impacted on many pensioners. I draw attention to the AEA Technology Pensions Campaign’s work fighting for pensioners who were misinformed by the Government and ended up losing out as a result, as recognised by the Committee of Public Accounts in its June 2023 report on this issue. Although that is not the only example of injustice in our pensions system, it illustrates the challenges many pensioners have faced uniquely. Therefore, we will look to scrutinise these elements of the Bill in detail.

Legislation to formalise the framework around defined benefit superfunds is long overdue and is in the Bill. A main question is how the gateway test for DB funds—in other words, which DB schemes are allowed to enter them—compares with other options such as a buy-out. I hope the Minister can elaborate when she replies on when a new option is created, so that what might be considered the appropriate schemes use it and the wrong schemes do not.

The Bill provides for master trusts to have a default retirement solution so, having built up a pension pot, schemes need to assist in managing it. Can the Minister provide details on how the new advice or guidance will work in practice? The noble Baroness, Lady Stedman-Scott, made that point. Broadly speaking, extraction of surplus funds from DB schemes as if in surplus is mostly paid in by the employer. At present, it is difficult to access the surplus. Can the Minister elaborate on, and perhaps estimate, whether these new powers will be taken up? Will they just be there to be looked at?

Creating defined contribution megafunds sounds okay, but can the Minister elaborate on schemes being too big to fall, and whether new entrants will struggle to enter the market? We need to have the value-for-money framework elaborated on. In Australia, where there are league tables, there is evidence of investment herding, as mentioned in another context, where everyone invests in the same way. That is hardly a dynamic, competitive market, which is what seems to be one of the purposes of the Bill.

We will, I am sure, discuss mandation at length. Mandation is a reserve power to force pension schemes to invest at the whims of the Government, but I state clearly that I oppose this, as it crosses a dangerous line. It is fine saying that the Government do not plan to use the power, but we have to provide for the actions of future Governments: for instance, a Government who do not believe in climate change, a point made by the noble Baronesses, Lady Stedman-Scott and Lady Hayman.

The Bill’s idea of auto-consolidating small pots of less than £1,000 sounds good, but it is a big effort resulting in very little change and not much happening until 2030. Perhaps I have that wrong, but it was a point raised by the noble Lord, Lord Vaux, and I wanted to emphasise it.

The pensions system is evolving. We see what is happening; we are trying to let it evolve in the correct way. There are few easy solutions and, as noble Lords have mentioned, there will be a lot of scope for amendments to the Bill to make it absolutely right. I hope we can work collaboratively, throughout the House, on improving the Bill so that it can be built on and relied upon by pensioners, pension funds and everybody else.

16:58

[Viscount Younger of Leckie (Con)]

My Lords, it is a pleasure to follow the noble Lord, Lord Palmer, who, like me, has become a regular on the pensions circuit here. As this debate draws to a close, I thank all noble Lords who have contributed with such seriousness and expertise this afternoon. For my part, I will try to touch on the key themes raised but, before I do, I would like to pay my own tribute to the noble Baroness, Lady White of Tufnell Park, because she gave an assured, charming and exceptional speech. She comes with a distinguished career record and I have no doubt that we will be hearing much from her here in future.

The seriousness of this debate was exemplified by my noble friend Lady Stedman-Scott, who set out with great clarity our central concerns raised by this Bill. Those concerns, however, point to a wider issue with the legislation itself. This is a framework Bill, light on detail and heavy on intention, which has left your Lordships debating concepts and hypotheticals rather than the Government’s concrete plans. That is not only unsatisfactory but disappointing. These points were made by my noble friend Lady Coffey. Certainty in legislation comes from detail on the face of the Bill. When that detail is repeatedly altered, deferred and subject to numerous government amendments—by the way, there are over 50—even the limited certainty we believed we had is further diminished. I look forward to the Minister’s response, not just on the preparation of the Bill, or perhaps lack of it, but, as has been raised, on the report from the Delegated Powers and Regulatory Reform Committee.

Nowhere is the lack of certainty more evident than in the proposed value-for-money framework. This was one of the first themes raised, not least by the noble Baroness, Lady Warwick, the noble Lord, Lord Davies of Brixton, and my noble friend Lady Penn. This element of the Bill is thin, almost skeletal, yet it is pivotal—again, my noble friend Lady Coffey spoke about this. In practice, much of what this legislation seeks to achieve will stand or fall on how the value-for-money framework is designed and applied. If it is to drive genuine improvement rather than box-ticking, its methodology must be transparent, robust and genuinely comparable across schemes. Cost alone cannot be allowed to dominate decision-making at the expense of outcomes. A scheme that is cheap but delivers persistently poor returns is not offering value to savers, however attractive its headline fees may appear.

Against that background, I have two specific questions for the Minister. First, do the Government envisage the value-for-money framework operating as a standardised pro forma, with clearly defined and comparable metrics covering costs, net investment performance, and cost-to-return ratios applied consistently across schemes? Secondly, how will the Government ensure meaningful comparability between very different types of schemes? In particular, what steps will be taken where schemes meet fee thresholds but nevertheless deliver consistently weak investment outcomes? My noble friend Lord Trenchard touched on this.

This feeds into a wider concern about the order of priorities in the Bill. Rather than committing to the notion of the reserve power—so-called mandation, which I will touch on later—the Government should have concentrated first on getting value for money right. That should have been the central driver of this legislation. If value for money is properly defined, transparently measured and rigorously applied, it can strengthen outcomes for savers without trampling on the fiduciary duties of trustees. We have heard quite a bit about that this afternoon.

As the Minister for Pensions himself has said, trustees must remain free, and indeed obliged, to act in the best financial interests of their members, but I say that this should be guided by evidence and judgment rather than direction by mandate. We should be confident enough to demonstrate the benefits and drawbacks of widely used default strategies, such as global passive equities, which underpinned many DC schemes’ investment approaches. That case should be made openly and empirically, yet the Government have underplayed the extent to which a robust value-for-money framework could drive improvement without compulsion. If value is genuinely improved and transparently measured, much else should follow.

My noble friend Lady Stedman-Scott has already clearly set out the Opposition’s wider concerns about mandation. I will not repeat them at length, but the subject was raised by my noble friends Lord Ashcombe and Lady Noakes, the noble Lord, Lord Vaux, and a number of noble Lords. However, I wish to raise one further point that reflects a broader theme running through today’s debate: the need to strike the right balance between flexibility and discipline. My noble friend Lord Ashcombe spoke on this.

Beyond the constitutional and fiduciary issues already raised, there is also a practical market risk that should not be overlooked. This matter was raised by the noble Lord, Lord Sharkey, and the noble Baroness, Lady Bowles, about market distorting effects, as the noble Lord put it. Mandation risks inflating asset prices if multiple funds are required to allocate to the same asset classes at the same time. I believe that the noble Baroness, Lady Altmann, raised this matter too. Markets may also interpret Government direction as an implicit signal of future price support, potentially amplifying distortions rather than improving capital allocation.

Against that background, I have two specific questions for the Minister. First, have the Government assessed the risk that mandated investment could lead to asset price inflation or wider market distortion? If so, what conclusions have they reached? Secondly, how do the Government intend to ensure that mandated allocations remain aligned with changing economic conditions, particularly in cases where schemes may reach a mandated threshold only after the relevant asset class is no longer aligned with economic need or the Treasury’s broader objectives?

There are a few further questions on this important subject. The noble Lord, Lord Davies, asked this as well. If, after mandation, or, in the case of mandation, if investments underperform or indeed fail, who takes responsibility, the Government or trustees? My noble friend Lady Penn asked how the qualifying assets will be defined. I think other Peers may also have asked that. The noble Baroness, Lady Bowles, asked some important questions in this sphere, so I am looking forward to the response from the Minister.

I should say also that I noted the constructive advice and ideas from the noble Baroness, Lady Altmann, on how the Government could better encourage pension funds to invest in the UK, short of introducing the reserved power. There were also some suggestions from my noble friend Lord Trenchard.

Next, let me touch on the treatment of surpluses in defined benefit schemes. I agree that surpluses can present opportunities, but they are not windfalls: they exist to absorb future shocks, manage demographic risk and ensure that promises made to members are kept. Flexibility in how surpluses are treated is sensible, but only if it is underpinned by robust safeguards. None of us wishes to see surpluses eroded by ill-judged extraction or quietly diverted into activities that weaken long-term scheme resilience. In that context, the forthcoming guidance from the Pensions Regulator will be pivotal. Can the Minister confirm when that guidance will be published, whether it will be subject to consultation and how Parliament will be able to scrutinise the balance it strikes between prudence, flexibility and long-term security?

Much of today’s debate has also rightly returned to auto-enrolment. The question of paucity of pensions adequacy has been highlighted by the noble Lords, Lord Sharkey and Lord Davies of Brixton, and my noble friend Lady Penn. Introduced by a Conservative Government, auto-enrolment has been one of the quiet successes of the past decade. I would like to remind the House that the operational aspects of this were progressed and tested going back as far as 2012. Participation among eligible employees now stands at around 88%. I would argue that this is a remarkable achievement. But success should not breed complacency, because upwards of 8.5 million people remain undersavers, and the question of adequacy remains unresolved. There is still work to be done, as the noble Baroness, Lady Bennett, said.

Crucially, auto-enrolment is highly sensitive to labour market conditions. Every percentage point increase in unemployment pushes more people out of workplace pension saving altogether. Against that backdrop, the recent “benefits Budget” is concerning. Unemployment is rising and, with it, the number of people falling out of pension saving. I therefore ask the Minister whether the Government have undertaken updated modelling on the impact of higher employment on future pension adequacy, whether those projections differ from earlier assumptions and whether they will be published so that Parliament can properly understand the long-term consequences of the Government’s policy choices.

As many noble Lords have noted, pension engagement remains the missing leg of the stool. Millions are saving, but fewer than half have checked the value of their pension in the past year. This is not simply apathy; it reflects a system that has become increasingly complex and opaque to ordinary savers. The pensions dashboard, which has been mentioned this afternoon, is therefore not a technical adjunct. It is central to enabling informed decision-making, and various questions have been raised about that. Can the Minister confirm when the revised staging timeline will be published, whether clear delivery milestones will be set out and how Parliament will be able to track progress so that savers can have confidence that this long-delayed reform will finally be realised?

Engagement, however, is also constrained by the current regulatory environment. In consultation with industry, we heard compelling evidence that FCA and the TPR regulation makes genuine member education extraordinarily difficult to design. The boundary between advice and marketing has become so blurred that most communications fall into a grey area, leaving schemes with very few compliant touch points for meaningful engagement. If we are serious about improving outcomes, the Government must enable better education and clearer communication. Perhaps the Minister could comment on this and what work is under way to review these constraints and how the Bill supports rather than frustrates the goal of informing saving.

I turn to salary sacrifice, because this decision strikes at the heart of pensions adequacy, individual engagement and, ultimately, trust in the system itself. The recent disappointing Budget has taken a sledgehammer to a mechanism that has for many years made pension saving both affordable for workers and sustainable for employers. For millions of people saving at or near the minimum auto-enrolment rate, salary sacrifice is not a perk but the difference between saving and not saving at all. Removing this relief will mean lower take-home pay, lower pension contributions and, over time, materially smaller pension pots. This is a short-sighted political choice—one that appears designed to plug immediate fiscal pressures while storing up greater dependency on the state in retirement.

The impact on employers is equally concerning. By reimposing employer national insurance on previously sacrificed earnings, the Government are increasing the cost of labour at precisely the wrong moment. For many medium-sized firms, this will translate into tens of thousands of pounds in additional annual costs—money that could otherwise have supported wages, investment or workforce expansion. The decision to charge both employer and employee national insurance on salary-sacrifice contributions above £2,000 introduces a sharp and, I believe, irrational cliff edge. The OBR estimates that 76% of the burden will fall on employees. Once again, private sector workers bear the cost, while public sector employees in defined benefit schemes remain largely insulated.

The figures are stark. An employee earning £45,000 and saving 5% through salary sacrifice will be £58 worse off in the first year and more than £15,000 worse off over the course of a working lifetime. In the light of this, can the Minister confirm whether the Government have undertaken a sector-by-sector distributional analysis of these changes, whether they will publish an assessment of the long-term impact on pension adequacy and future welfare expenditure and whether she accepts that this measure operates in effect as a tax on work and on responsible long-term saving?

Some noble Lords have rightly raised the broader macroeconomic implications of pension reform. UK pension funds and insurers together hold around 30% of the gilt market—this point was made earlier. If mature defined benefit schemes are nudged away from gilts into equities, the consequences for debt management, interest rates and mortgage markets could be profound. It would therefore be reassuring to hear from the Minister whether the Debt Management Office and the Bank of England have been consulted on these potential effects and whether their views will be made available to Parliament.

I realise that time is marching on. I hope the Government will reflect carefully on all the concerns raised across your Lordships’ House today and respond with the assurances that savers and schemes alike are entitled to expect—we owe them nothing less. However, in the spirit of Christmas, and as this is the season of good will—I am feeling more Christmassy now than I did before the Question this afternoon—I say to the Minister that, despite everything I have said, and in a rare outbreak of festive generosity, there are parts of the Bill that we agree with, such as the PPF changes and the terminal illness time extension. As others have said, we will work constructively with the Government in the weeks and months ahead. I look forward to the Minister’s response and wish Peers and staff in the House a very happy Christmas.

17:13

[Baroness Sherlock (Lab)]

My Lords, I am grateful for the incredible range of thoughtful and constructive contributions we have heard during today’s debate. I should declare that I am a member of the parliamentary pension scheme; otherwise, I have a private pension.

I am so grateful to have heard the maiden speech of the noble Baroness, Lady White. I realise we have quite a bit in common: we are children of migrants, I too have spatial dyspraxia—I have never yet found my way around here—and we both engage with a church. I am afraid that there it ends; no one will ever ask me to chair John Lewis, which may be just as well for anybody who likes shopping there. She may have had an eclectic career but, now that she has joined this House, it will get a lot more eclectic still. It is a joy to have her on board and, if there is more of that to come, I look forward to it.

The range of views around of the House reflects the significance of the Bill for savers, employers and the pensions industry. The level of interest underscores how important pensions are to savers and the UK economy, and we need to help people get the best from their savings. There were some fascinating discussions in the debate today. I could have listened to the noble Lord, Lord Willetts, and my noble friend Lord Wood for a lot longer, and I shall not be able to do justice to what they said. But I shall go back and read it very carefully and I hope that we can continue to have some really interesting conversations.

There were a lot of questions, and I will not be able to respond to all of them. I shall do my very best, but I have only 20 minutes and it may be that noble Lords have to listen back to this at half-speed, if I am not careful.

I will start with adequacy, as that is where the noble Baroness, Lady Stedman-Scott, began. I was grateful to the noble Lord, Lord Willetts, for setting out that this has been very much a cross-party journey that we have been on together, and I hope that we can keep it that way. I am sure that the noble Baroness did not mean to presume that auto-enrolment started with the last Conservative Government, when in fact it was legislated by the previous Labour Government—and there was also the Pensions Commission. I am sure that she did not mean to say that. What we have done is provide some remarkable continuity in the journey, and I hope that we can carry on doing that.

I was delighted by the work done by the last Pensions Commission, on which my noble friend Lady Drake served with such distinction—and I know that she will serve with equal distinction on the next Pensions Commission. That is the place where adequacy will be addressed fully. The Government are committed to that—it is a key priority for us—but it is also important that we get the market into the right shape so that, if savers are saving more, they will get the returns on their money.

I turn to the issue of surplus. I listened very carefully to the noble Baroness, Lady Noakes, and my noble friend Lord Davies, and thought, “I can’t make them both happy on this front”. That is generally true, I think, but it is illustrated particularly on the subject of surplus. I shall say two things. First, to the noble Viscount, Lord Younger, I say that we are very careful about what surplus extraction will do. Schemes are currently enjoying high levels of funding, with three in four in surplus on a low-dependency basis. They are also more mature, with the vast majority having a hedge to minimise the risk of future volatility with investment strategies: they are protected against interest rate and inflation movements. The DB funding code and underpinning legislation introduced in 2024 require trustees to maintain a strong funding position.

The decisions to release surplus are of course subject to trustee discretion and underpinned by strict safeguards, including the requirement for a prudent funding threshold, actuarial certification and member notification. Of course, as part of any agreement to release surplus funds, trustees are in a good position to negotiate, and it will be down to trustees to negotiate with their employers about the way in which surplus is released.

My noble friend Lady Warwick rightly pressed me on the questions of scale. As outlined in the impact assessment for the Bill, there is a range of evidence showing that scale can help deliver better governance, with economies of scale, investment expertise and access to a wider range of assets all helping to improve outcomes. We may not be heading for the sunlit uplands of Aussie megafunds, described by the noble Baroness, Lady White, but we are pushing in that direction. In response to her question, we will ensure that the governance and regulatory requirements needed for these much bigger pension schemes will be robust. We will develop those with the industry going forward.

On the question of whether the scale measures are going to be tougher on smaller schemes, the problem is that our evidence shows, across a range of studies, that scale is what makes the difference. We are asked why there is a magic number of about £25 billion. The evidence from a number of studies shows that a greater number of benefits can arise from a scale of £25 billion to £50 billion of assets under management, including investment expertise and sophistication and the balance sheet to provide a more diverse portfolio to savers. We have not seen sufficient evidence that other approaches will enable the same benefits for savers and the economy, so we do believe that scale is the best way to realise benefits across the market for savers. However, there will be a transition pathway to enable those schemes that are not there now to have a route to scale where they have a credible plan to achieve it in five years, and we will consult the industry on what a credible plan may look like as part of the development of regulations.

A number of noble Lords, including the noble Baronesses, Lady Altmann and Lady Noakes, and the noble Lord, Lord Ashcombe, as well as my noble friend Lord Wood, mentioned the position of new entrants. The potential for future market innovation is really important; we are very conscious that scale requirements could, if not done correctly, prevent this future innovation. So the Government have provided for a new-entrant pathway, designed specifically to provide a route for this future innovation. We will monitor future movement in the market to ensure that the pathway is working as intended. In addition to innovation, these schemes will be required to have the strong potential to grow to scale over time.

I dive in briefly to the reserve power and asset allocation. I am clearly not going to satisfy the House today; we will have plenty of time in Committee to discuss this. But I shall make a few points now about it in general and the interaction with fiduciary duty. Questions were raised by the noble Baronesses, Lady Stedman-Scott, Lady Penn and Lady Noakes, the noble Lords, Lord Sharkey and Lord Vaux, my noble friend Lord Davies, the noble Lords, Lord Bourne of Aberystwyth and Lord Evans—and I am going to stop saying these names now.

There is widespread recognition of the benefits that a diverse investment portfolio can bring for savers. That is exactly why the signatories to the Mansion House Accord are committing to invest in private markets. This reserve power will help to ensure this change happens, but we have built in a number of safeguards. Let me just knock one thing on the head. I say to the noble Lord, Lord Ashcombe, that this asset allocation power does not apply to the LGPS. Following an amendment in the House of Commons, the Bill no longer allows a responsible authority, such as the Secretary of State, to direct asset pool companies to make specific investment decisions. I hope that reassures the noble Lord on that point.

On the wider question, the making of regulations under this power will be subject to a raft of safeguards contained in the Bill. To respond to the noble Viscount, Lord Younger, I say that the Government anticipate that we will not have to use this power if all goes well. Were the Government ever to use it, there are a series of safeguards, and we would have to consult and produce a report. We would at that point look at developing how it would be done. Let me briefly touch on the safeguards: first, the power is time limited, and I say to the noble Baroness, Lady Penn, that it will expire if it has not been used. Any percentage headline asset allocation requirements enforced beyond that date will be capped at their current levels. Secondly, and crucially, the Government are required to establish a savers’ interest test in which pension providers will be granted an exemption from the targets where they can show that meeting them would cause material financial detriment to savers. Finally, the regulations will obviously be subject to parliamentary scrutiny but, before that, the Government will need to consult and publish a report on the impact of any new requirements on savers and economic growth both before exercising any power for the first time and within five years of it being exercised.

I am going to have to rush through. I turn to the points raised by the noble Baronesses, Lady Altmann and Lady Bowles, about qualifying assets and investment trusts. I can see that the noble Baroness, Lady Bowles, feels very strongly about this—I listened carefully to the points that she and the noble Baroness, Lady Altmann, made. I say to the noble Baroness, Lady Bowles, in particular that the Government recognise the role that investment trusts play in the UK economy and in supporting the Government’s growth agenda, and we are committed to supporting this important sector. We put that on the record very clearly. However, when it comes to qualifying assets in a reserve power, we have aimed to stick closely to the scope of the Mansion House Accord, which itself is limited to investments made by unlisted funds. That is consistent with our general approach to this part of the Bill, where we deliberately ensure that the powers are suitably targeted and contain guardrails. In other words, they are not intended to be open-ended but should be capable of serving as a backstop to the commitments that pension providers have voluntarily made.

There were a number of points made by my noble friend Lord Davies about consumer protections. I reassure him that consumer protection is a priority for the Government, and ensuring that there are strong consumer safeguards is something we take very seriously. That is why the Bill introduces a number of robust consumer protections, including in the contractual override process, in small pots and in DB surplus. I look forward to discussing these in more detail with him and others in Committee.

My noble friend Lady Warwick raised the question of VFM. I am grateful to the noble Baroness, Lady Coffey, for welcoming that; my noble friend Lord Davies raised it as well. The noble Viscount, Lord Younger, asked about the interaction in different parts of the scheme. The pensions road map, which I am sure he has had the opportunity to read, shows very clearly how the different measures that we are proposing connect and how they are all necessary. They are all key parts of a machine necessary to achieving the Government’s objective of moving the pensions landscape forward. I can tell him that the next step will be a joint consultation by the FCA and the Pensions Regulator, which will be published early next year. This will then inform our draft regulations on value for money, which we intend to consult on during 2026. We expect the VFM framework to be implemented in 2028, with the first set of VFM metrics published in March 2028. The first VFM assessment reports and ratings will then be published in October 2028. On that basis, we would expect to see poor performing schemes starting to exit the market from November 2028.

On the pre-1927 indexation in the Pension Protection Fund and FAS, I listened very carefully to the comments that have been made by my noble friend Lady Warwick, the noble Lord, Lord Bourne of Aberystwyth—I thank him for his thoughtful reflection—and many other colleagues. We are laying the groundwork for the first major step forward in this area, and I think that some credit should be given to the Government for doing that. However, I understand that this will not go as far as many had hoped.

We need to recognise that the PPF maintains a substantial financial reserve. It is not a surplus; it is a financial reserve to protect against future risks. The cost of retrospection and arrears is significant and would greatly reduce that reserve. Any change that reduces the PPF’s reserves will, by definition, reduce the vital security the PPF provides to its current and future members. The PPF has very successfully navigated the past 20 years. It is well regarded as a prudent fiduciary acting in the best interests of pension savers, and we need to ensure that it can continue to do so.

I am going to disappoint my noble friend Lord Davies on the matter of pre-1997 indexation in wider DB schemes. I need to tell him clearly that the Government have no plans to change the rules on pre-1997 indexation for DB schemes. These rules ensure consistency across all schemes, and changing them would increase liabilities and costs. Over three-quarters of schemes pay some pre-1997 indexation because of scheme rules or as a discretionary benefit, but reforms in the Bill, as we have mentioned, will enable more trustees of well-funded DB pension schemes to share surplus with employers and deliver better outcomes for members, which may include discretionary indexation.

I turn to the questions on fiduciary duty, raised by many noble Lords, including the noble Baronesses, Lady Hayman, Lady Bowles and Lady Penn, the noble Lords, Lord Sharkey and Lord Bourne of Aberystwyth, and my noble friend Lady Warwick. It is often said that fiduciary duty is the cornerstone of trust-based pension schemes and that trustees should invest in the best interests of their members. That principle remains fundamental. The Government believe that the current legal framework gives trustees flexibility to adapt and protect savers’ interests. However, at the same time, we acknowledge the calls for more clarity on considering systemic factors, such as climate risk and members’ living standards, when making investment decisions.

My colleague the Minister for Pensions set out in the Commons that we intend to develop guidance for the trust-based private pension sector to provide this clarification. I know that he plans to come forward shortly with more details on what the guidance will look to cover. He has already confirmed how he intends to start engaging with a wide range of stakeholders in producing the guidance, starting with a series of industry round tables early in the new year.

Through guidance, the Government are trying to address a barrier that some trustees say they face when investing in savers’ best interests. Guidance has the potential to support climate and sustainability goals, and our wider goal to improve saver outcomes and unlock pension investment in UK growth. We are still in the early stages of undertaking consultation and exploring options on this, and we will provide further updates in due course.

The noble Lord, Lord Bourne, and the noble Baroness, Lady Penn, asked why we do not just change the primary legislation. It is the Government’s view that introducing statutory changes to refine investment duties could risk creating rigid and complex obligations, which would reduce the ability of trustees to respond to changing investment landscapes and circumstances. On the questions of how and when, we are exploring possible options for taking this forward if and when parliamentary time allows.

The noble Baronesses, Lady Bowles and Lady Coffey, raised the position of trustees, and others also alluded to it. Successful implementation of the Bill’s reforms will rely on highly skilled trustees operating independently, applying good governance and focusing on delivering the best outcomes for savers. That is why we launched a consultation on stronger trusteeship and governance earlier this week. It aims to bring all schemes up to the required standard and explore what changes might be needed to raise the bar for all trustees. The industry has welcomed the consultation and there seems to be a consensus that high-quality trusteeship and governance is vital to ensuring good outcomes for pension scheme members. I encourage anyone with an interest in this area to respond to the consultation.

A number of other points were raised. The noble Baroness, Lady Coffey, talked about the need for a single regulator. I say simply that the Government recognise the importance of clarity and co-ordination in the regulation of workplace pensions. The FCA and the Pensions Regulator work effectively together, including through joint working groups and consultations. They have shared strategies and guidance, and regular joint engagement with stakeholders. The Government keep the regulatory system under review.

The noble Lord, Lord Ashcombe, made some interesting points. The Government are committed to appropriate regulation, and to do that we need to engage regularly with stakeholders and industry to make sure that we get it right. There are some genuine questions, which we will go on to debate in Committee, about getting the balance right between primary legislation, secondary legislation, regulation, supervision, governance and guidance. We need space to be able to engage with industry, because any regulations we produce have to work and the details of the scheme will have to be worked through. That will inevitably mean that there will be times when the House will want more detail than we are able to give. One of the challenges is that it should not be possible both to criticise the Government while they are trying to make their mind up on everything at the same time in some areas and to criticise them for not being open to consultation. We will see how it goes and continue to consult extensively with industry and other stakeholders as we move through this.

A few more points were raised. The noble Lord, Lord Kirkhope of Harrogate, asked about the Pensions Ombudsman. It is important to clarify that the measure on the Pensions Ombudsman neither increases nor widens their powers, nor that of the TPO, beyond what was originally intended. This is reinstating the original intent of the ombudsman’s powers in pension overpayment dispute cases, which were debated in Parliament when the ombudsman was established in 1991. There was a High Court ruling; we are amending the existing legislation because that ruling stated that the TPO is not a competent court in pensions overpayment cases. The aim is to reinstate the original policy intent and reaffirm the government view and that of the pensions industry. I hope that reassures the noble Lord. It restores the original policy intent—that is all. It is not designed to try to widen it. I hope that is an encouragement to him.

On the question of small pots, the noble Lord, Lord Vaux of Harrowden, and the noble Viscount, Lord Trenchard, queried the pot limit. We had to choose somewhere. The initial pot limit of £1,000 will address 13 million stock of small pots, which we think strikes the right balance between achieving meaningful levels of pot consolidation and reducing administration costs for pension providers without distorting the market. However, the Secretary of State will keep the threshold under review to ensure that it remains appropriate as the market continues to develop following the reforms made in the Bill.

A number of noble Lords asked about the position on pensions dashboards. The Government have committed to regular updates to the House—we will be doing another one of those—but let me put some headlines on the record for now. The House will be glad to know that good progress has been made with the pensions dashboards. The first pension provider successfully completed connection to the pensions dashboards ecosystem on 17 April this year, forming a crucial step towards making dashboards a reality. More than 700 of the largest pension providers and schemes are now connected to the dashboards ecosystem; over 60 million records are now integrated into dashboards, representing around three-quarters of the records in scope.

Further, state pension data is now accessible, representing tens of millions of additional records. The pensions dashboards programme is confident that pension providers and schemes in scope will connect by the regulatory deadline of 31 October 2026. When we have assurances that the service is safe, secure and thoroughly user tested, the Secretary of State will provide the industry with six months’ notice ahead of the launch of the Money Helper pensions dashboard.

A number of noble Lords mentioned the gender pensions gap, including the noble Lord, Lord Vaux, and the noble Baroness, Lady Bennett. Auto-enrolment has delivered substantial progress in increasing pension participation among women, which has meant, as the noble Baroness said, that workplace pension participation rates between eligible men and women in the private sector have now equalised. However, it is absolutely right that gaps remain in pension participation and wealth, reflecting wider structural inequalities in the labour market. A gender pay gap leads to a gender pensions gap. Women now approaching retirement still have, on average, half the private pension wealth of men. The Pensions Commission will consider further steps to improve pension outcomes for all, especially women and groups identified as being at greater risk of undersaving for retirement.

That is probably about as far as I can go. I am really grateful to be part of a House with so much interest and knowledge in a subject that not everybody—noble Lords will be shocked to hear—finds as interesting as those of us here today do. However, we do, and I look forward to lots of really interesting discussions in Committee. This Bill marks a decisive step in modernising the pensions system, strengthening security for members, driving better value and enabling innovation across the sector. It combines ambition with safeguards, ensuring schemes can deliver improved outcomes while maintaining confidence and trust. I look forward to working with noble Lords—after they have had a very happy Christmas—and to continuing constructive engagement. I commend the Bill to the House.

[Baroness Penn (Con)]

The Minister has made a valiant attempt to answer all questions. Can she commit to writing to the noble Lords in this debate on the questions she did not reach, and to that letter reaching us before we start Committee?

[Baroness Sherlock (Lab)]

This is the last sitting day before we finish. I will look at what I can put in writing before we get to Committee. I have never been asked so many questions in such a short period—and I have talked to church youth groups. I will see what we can do on that front.

Bill read a second time.

Commitment and Order of Consideration Motion

Moved by

[Baroness Sherlock]

That the bill be committed to a Grand Committee, and that it be an instruction to the Grand Committee that they consider the bill in the following order:

Clauses 1 to 118, the Schedule, Clauses 119 to 123, Title.

Motion agreed.

[Lord in Waiting/Government Whip (Lord Katz) (Lab)]

My Lords, I beg to move that the House do now adjourn and, in doing so, wish everyone in the House, and all those working in the House, chag sameach, a very happy Christmas, a restful break and a happy new year.

House adjourned at 5.34 pm.