(1 day, 11 hours ago)
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“Review of impact of this Act on retirement incomes(1) The Secretary of State must, within five years of the passing of this Act, carry out a review of the impact of the provisions of this Act on actual and projected retirement incomes.(2) Further reviews must be carried out at intervals of not more than five years thereafter.(3) Each review must consider—(a) the impact of the provisions of this Act on actual and projected retirement incomes, and(b) whether additional measures are required to ensure that pension scheme members receive an adequate income in retirement.(4) The Secretary of State must prepare a report of each review and lay a copy of that report before Parliament.”
Viscount Younger of Leckie (Con)
I hope noble Lords have had a restful recess. It is a pleasure to open the first debate on the final day in Committee on this Bill, and I look forward to hearing further and final contributions from noble Lords on this stage of the Bill.
Today, we continue to discuss important issues relating to pension schemes which of course ultimately matter greatly to the millions of individuals who are saving for, or who have saved for, their pensions, and who rely hugely if not wholly on these funds until the end of their lives. With that thought in mind, I turn first to Amendment 207, tabled in my name, which calls for a review of the impact of this legislation on retirement incomes.
When one reflects on the debates we have had in recent weeks, it is clear that they have been concerned not with procedure for its own sake but with the underlying architecture of the pensions system. The question before us has been whether the framework we are constructing will in practice enable schemes to deliver outcomes for their members. The provisions in this legislation are intended to change behaviour and outcomes: if they were not, there would be little purpose in legislating. The Government do not bring forward measures of this scale merely to rearrange, streamline or clarify administrative detail; they do so because they believe the system can and must function better.
So the objective, surely, should be clear: pension schemes should deliver stronger, more reliable outcomes for their members over the long term. Costs should be considered, but they must not become a proxy for value. The true measure of success is whether savers receive adequate and sustainable incomes—for example, the tax decisions by the Government of the time, or for inflation. Above all, schemes must operate with a single disciplined focus to act in the long-term interest of those whose savings they are entrusted to manage. If the Bill, on becoming an Act, succeeds in that ambition, it will deserve praise; if it falls short, as some noble Lords have cautioned it might, we must be able to say so clearly and respond accordingly. Amendment 207 would therefore simply ensure that we have the opportunity to assess whether the legislation has improved adequacy of income in retirement, and if not, to consider what further measures may be required.
I hope noble Lords will agree that this is a measured and sensible provision. It simply asks Ministers and departments to assess objectively what is working, to identify where improvement may be required, and to report their conclusions transparently to Parliament. In a policy area as long term, complex and consequential as pensions, that degree of accountability is essential.
I now turn to Amendment 211, which is more technical but no less important. It would require Ministers to undertake a full and transparent review of why employee and employer pension contributions are treated differently for the purposes of income tax and national insurance. If two forms of pension contributions are treated differently by the tax system, the Government should be able to explain why, clearly, publicly and with evidence. Tax design should be intentional, not simply the accumulated product of historical accident or, indeed, incremental drift.
The truth is that drift is not unique to any one Administration; it is often perceived as a feature or function of government itself. Complex systems evolve over decades; measures are introduced for sound reasons at the time, adjusted in response to fiscal pressure, amended again in the light of political compromise, and gradually layered one upon the other. In essence, “It seemed the right approach at the time” is a mantra, or even a cliché, which Governments in general find difficult to scrutinise as time marches on.
Reflection in government is not easy. Departments are occupied with immediate pressures, and many probably agree with me that those pressures have never been as great as they are at present. Chancellors face short-term fiscal constraints and Ministers must respond to events. In such circumstances, stepping back to ask first-principles questions can be difficult, yet it is precisely that discipline that Parliament should require.
In truth, we are all susceptible to accepting inherited structures without always interrogating whether the original rationale still holds. That is not a criticism; it is a recognition of institutional reality. But where differential tax treatment affects incentives, savings behaviour and long-term retirement outcomes, we have a responsibility to ask why the distinction exists and whether it remains justified. Amendment 211 offers a challenge to this Government: a transparent review would simply ensure that the current approach rests on deliberate policy choice.
At present, employer contributions receive more favourable treatment for national insurance purposes than employee contributions. That differential treatment shapes behaviour. It affects how remuneration is structured, how salary sacrifice operates and ultimately how pensions are accumulated. Pension saving is not a loophole; it is a public good. It reduces future dependency on the state, supports long-term investment and reflects the principle that income saved for retirement should not be taxed more heavily than income spent today. A structured review would require Ministers to demonstrate the behavioural impacts of the current system, its effect on savings rates and its interaction with automatic enrolment. It would ensure that we are not driven by short-term revenue considerations at the expense of long-term saving and fiscal sustainability.
This issue is especially relevant in light of the National Insurance Contributions (Employer Pensions Contributions) Bill, to which my noble friend Lady Neville-Rolfe, who is not in her place, and my noble friend Lord Altrincham have been responding on behalf of His Majesty’s Opposition. Many of the arguments advanced in that debate bear directly on the substance of this amendment. Recent decisions to increase the tax burden associated with pension saving, including the reduction in the availability and attractiveness of salary sacrifice arrangements, will have consequences across this space. These measures do not operate in isolation: they alter incentives, shape behaviour and affect the very architecture of workplace saving.
It is immediately apparent to pension providers, employers and practitioners that such changes do not, in practice, fall solely on the highest earners. They bear down on those in the middle of the income distribution and, in some cases, below it. Those impacted include young professionals in high-cost cities and mid-career workers seeking to close gaps in their retirement provision, typically earning between £30,000 and £60,000 a year. Given that the average salary in the United Kingdom is just over £37,000, it is difficult to describe individuals within that range as high earners. They are lower-income and middle-income earners, doing precisely what successive Governments have encouraged them to do: to save consistently and prudently for their retirement.
If we reduce the incentives for employer pension contributions through national insurance changes, we must, at the very least, understand the wider implications for pension accumulation, automatic enrolment participation and long-term adequacy of retirement incomes. We should not allow pension policy to become a vehicle for short-term fiscal expediency, nor should we undermine confidence in long-term saving through uncertainty or opacity. Stability and clarity are essential if individuals are to commit a meaningful share of their income to retirement provision over decades.
So Amendment 211 does not seek to dictate an outcome; it seeks an explanation. It asks the Government to set out clearly the rationale for differential treatment within the pensions framework and to consider whether that treatment remains justified in light of our shared objectives: retirement adequacy, fairness between different earners, and sustainable economic growth.
A natural extension of that argument is my Amendment 213, which calls for a review of employment rates and pension adequacy. With the Pensions Commission, under the chairmanship of the noble Baroness, Lady Drake, reporting in 2027, we recognise that the Government have chosen then to opine and report on the structure of the pensions market before turning to questions of pensions adequacy as a stage two exercise. That is their sequencing decision. However, adequacy cannot remain a secondary consideration indefinitely. If the commission is to revisit the long-term sustainability of the system, it must also grapple with who the system is working for and who it is not. During previous discussions in Committee, the Minister pledged to write about the timeliness of stage two and adequacy. How is she getting on with that reply, and where are we on the timeline on adequacy?
Amendment 211 would specify that the review must consider the pension adequacy of workers who are in part-time or insecure work, the pension adequacy of those who take career breaks and parental leave, and the impact of regional labour market disparities on pension outcomes. If pension policy continues to assume linear, full-time, uninterrupted employment, it will systematically underserve large sections of the population.
In conclusion, adequacy matters. I will not rehearse the statistics relating to those who are not saving enough, but the figures are stark. I have spoken at length, as have others in this Committee, about the risks of drifting into a system that is technically sound in structure but insufficient in outcome. A pension system that does not deliver adequate retirement incomes will, in time, recreate the very pressures on the state that automatic enrolment was designed to reduce.
We believe that these amendments are modest. They ask for transparency, analysis and review, not prescription. They aim to ensure that fairness and adequacy sit alongside structural reform. For these reasons, I commend these amendments to the Committee and I beg to move.
Lord Kirkhope of Harrogate (Con)
My Lords, I will intervene briefly in support of my noble friend’s amendment—not on the specifics but because, having read again the 42nd report of the Delegated Powers and Regulatory Reform Committee, which refers directly to this legislation, it has become ever more obvious that this skeleton, which has taken up an enormous amount of time and is in itself highly complex, leaves an enormous number of question marks. It leaves an enormous number of doubts and concerns, most of which the Government are placing at their own disposal through secondary legislation, which is at this point equally uncertain.
Therefore, it seems absolutely essential that, when there are proposals such as those we have just heard from my noble friend—to review the commencement of the legislation, or to have reviews on a five-yearly basis, or indeed in any other ways, of some of the more complex areas—the Government should concede that that is appropriate in a Bill of this kind. I do not think I have ever read in my time here such a clear statement as that made by the Delegated Powers and Regulatory Reform Committee about the nature of legislation. It would be serious enough if it were dealing with a Bill with very few clauses and of little import, but this is of such a substantial nature. The report we have read condemning the nature of the Bill for not having the flesh around those skeletal bones is notable and important. The Government should therefore be much more amenable to the sort of sensible proposals being made in the amendments of my noble friend.
I do not wish to speak further on this, but it seems terribly important that—whether it is dealt with now or at a later stage—there be an understanding that the Bill is entirely dependent upon future secondary legislation. Standing alone is, I am afraid, an unacceptable set of provisions.
Lord Davies of Brixton (Lab)
There can be no objection in principle to having a review; all public policies should be open to review. The objections are practical, such as whether it would be a waste of time for the people who would have to undertake the review, who might have better things to do. Undertaking reviews can lead to planning blights; measures that need to be carried forward are held back because of some form of review being undertaken that is not central to the measures currently in the Bill.
Lord Davies of Brixton (Lab)
This is about impartial pensions advice. Had I heard the noble Lord’s speech, I would have said that I did not accept his arguments. What I want is a pensions system that works without people needing advice. Proper pensions advice is extremely expensive, and on the idea that everyone will get at least twice during their working life full and adequate pensions advice—no, we do not want to encourage that. I would encourage a pensions system that works properly.
Then we have the Police Pension Scheme. I have talked to those campaigning on the issue on a number of occasions and I totally agree that it is entirely unfair that the spouses of some members of the scheme, when those members retire and die, will receive a pension—until they are accused of cohabiting or decide to get married. That happens only in the public sector; virtually no private sector schemes do that sort of thing, and the only ones that do are those that have carried over those rules from the public sector. To be honest, that is nasty. People naturally resent losing the money, and then become open to tittle-tattle and intrusive investigations; that is just wrong. Clearly, there is a cost involved, because there is a carryover to other public service schemes—but it is just wrong; it is treating people badly for no good reason other than history.
I hope that the Government will be able to make a positive response on Amendment 215. I do not have a lot of hope, but I am eternally hopeful. I apologise for jumping in ahead of the noble Lord, Lord Palmer.
Lord Palmer of Childs Hill (LD)
My Lords, I say to the noble Lord, Lord Davies, that no apology is needed.
This is a wide-ranging set of review and process amendments. The noble Viscount, Lord Younger, explained what I think he described as his “modest” amendments—indeed, they are. The noble Lord, Lord Kirkhope, said that this was all set up for secondary legislation; we ought to take that point into account.
These amendments are linked by a common theme: whether the Government are willing to build a stronger evidence base for future pensions policy and to improve the basic safeguards for savers. Several of these amendments ask Ministers to review pension adequacy, contribution rules, labour market impacts and public understanding, while others seek an independent look at specific injustices or practical improvements to data accuracy.
These amendments are probing, but they raise real policy gaps. Taken together, they test whether Ministers are prepared to move beyond structural reform and address the practical foundations of trust in pensions, adequate incomes, fair treatment, accessible information and correct records. I hope that, in replying, the Minister will explain which of these issues the Government accept in principle and whether they believe that the existing powers, regulators and reviews are already sufficient. I expect that to happen. The Bill changes structures and powers, but savers also need fairness, clarity and accurate data. When Ministers resist new duties, they should set out a clear alternative route and timetable. I hope that the Minister will do so.
The noble Lord, Lord Davies of Brixton, made important points. We will disagree, but I shall pursue the amendments in my name. Amendment 214 in my name would establish a universal entitlement to free and impartial pension advice at key stages of life. It would ensure that everyone, not just the financially literate or well advised, can make informed decisions about retirement. Such advice would, I hope, be offered around the age of 40—a critical moment for mid-life planning and pension consolidation—and again within six years of expected retirement to support decisions on drawdown, annuities and retirement income options, which are a mystery to many people at that or any stage of life.
The advice would include essentials such as pension types—DB or DC schemes—investment strategies, charges and fees, consolidating multiple pension pots and retirement income choices, and would be practical, comprehensive and relevant. The advice would have to be qualified, independent and impartial. Trustees, managers and providers would have a role in facilitating access. Data sharing would be permitted, but with strong data protection safeguards.
This amendment in my name would also offer flexibility, in that responsibility could be placed with established bodies such as the Pensions Regulator, the Financial Conduct Authority and the Money and Pensions Service. It would be funded from prescribed sources to ensure sustainability. The regulations will be subject to the affirmative procedure, ensuring proper parliamentary scrutiny. Amendment 214 is designed to ensure that people have confidence in and clarity on their pensions, which, I assure noble Lords, many people do not have; to avoid poor decisions that undermine pension security, which many people make; and to make sure that everyone, not just those who can pay for private advice, gets the help they need.
The purpose of my Amendment 215 is to require the Secretary of State to commission an independent review into provisions in police pension schemes that result in the forfeiture, reduction or suspension of survivor pensions. It focuses on cases where survivor pensions are affected by remarriage—as mentioned by the noble Lord, Lord Davies—civil partnership or cohabitation.
Why is this review needed? These provisions can have significant financial, social and emotional impacts on survivors and their families. This would ensure fairness and consistency with other public sector pension schemes—the Armed Forces, the NHS and the Civil Service—and would address potential inequities or outdated rules that disproportionately affect survivors. This review would ensure an independent—that is the point—and transparent process, as well as stakeholder consultation, reporting and accountability. The review panel must publish its findings and recommendations within 12 months. The report must be laid before both Houses of Parliament, ensuring transparency and parliamentary oversight.
This amendment is designed to act to assess the fairness and impact of current survivor pension rules in police schemes and to identify practical reforms that protect survivors’ rights while maintaining scheme integrity, to ensure that the system is consistent, equitable and transparent. I look forward to hearing whether the Minister addresses my points about these amendments.
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
I am grateful to all noble Lords who introduced and spoke to these varied amendments. The range of subjects covered here shows the interest across the whole pensions landscape, but at heart is the objective that we all share of putting members first.
There was a theme around adequacy in Amendments 207 and 213 from the noble Viscount, Lord Younger of Leckie. Amendment 207 seeks to introduce a statutory requirement for the Secretary of State to conduct a review of the Bill’s impact on retirement incomes five years after it is passed, and to have subsequent reviews at intervals not exceeding five years from the first assessment. Amendment 213 wants a statutory requirement for the Secretary of State to conduct a review of the relationship between employment rates, earnings patterns and pension adequacy. Although both amendments raise key issues around pension adequacy and proper monitoring, the Government’s view is that the proposals risk the duplication of work already being undertaken. I shall explain why.
There are many different strands to this Bill, which will be implemented in phases over the next several years. For example, the first small-pots consolidation will not take place before 2030, so obviously any review in the next five years will not have allowed many of the reforms any time to take effect. It is for that reason that a comprehensive impact assessment was produced, setting out not only the potential impacts but also plans to evaluate the Bill in further detail, including developing new research projects to address evidence gaps.
The Government already carry out and publish analysis of projected future retirement incomes, which provides estimates of the number and proportion of working-age individuals aged 22 to state pension age who are undersaving for their retirement. The modelling that underpins that analysis uses a number of economic factors, including employment levels based on the OBR long-term forecasts, which are regularly reviewed and updated.
Separately, the Government have revived the Pensions Commission. I say to the noble Viscount, Lord Younger, that adequacy is absolutely not a secondary issue. As I have explained repeatedly in Committee, we are doing these things in the order that is appropriate to the matters. The Bill makes sure that steps are taken so that the market works well to make sure that increased savings will get appropriate returns for the savers.
The Pensions Commission’s legacy under the last Labour Government was of course to create a system of workplace pension saving via automatic enrolment, which has transformed workplace pension saving for millions of workers. There was cross-party support for this. But the Government recognise that millions are still not saving enough for their retirement, which is exactly why we revived the Pensions Commission to finish the job we started 20 years ago.
I will respond to the noble Viscount, Lord Younger. As indicated previously in Committee, the commission will produce an interim report this spring, setting out the evidence base and strategic direction for its work on assessing the UK’s pension system. It will set a direction based on the purpose that the Government have given it to identify remedies to address pension adequacy, fairness and risk before preparing its final recommendations in early 2027 for the Government to consider.
Viscount Younger of Leckie (Con)
My Lords, I am very conscious that I spoke at some length in my opening speech, so I will be brief in closing and do not intend to question the Minister too much on the points that she made. I will say only that, as my noble friend Lord Kirkhope rightly said, pensions are complex and need to be well thought through. This is a skeleton Bill, which we have pointed out in many of the debates, but I understand that, as the Minister said, it is important to look long term.
I have only one question. I may not be the only one who is confused about the timings of the commission. I think the Minister said that an interim report is being produced by the commission this spring and leading through to early 2027 pensions adequacy will be included in that report and the commission will set out options for the Government to comment on. I am putting words into the Minister’s mouth. I wonder whether she can confirm exactly where we stand on pensions adequacy. It may be that that will be in the letter that is being written, which might come my way.
Baroness Sherlock (Lab)
A letter is being prepared and will be sent after Committee. I want to put on record the timings and to be very clear about them. The interim report will be published this spring, and the aim is for the final report to be in early 2027. I will put any further detail in the letter to the noble Viscount.
Viscount Younger of Leckie (Con)
I am sorry to labour this like a long-playing record, but will pensions adequacy be included in that report? Or are we looking for something further?
Baroness Sherlock (Lab)
The Pensions Commission is there to look at the adequacy and sustainability of the pension system; that is its job.
Viscount Younger of Leckie (Con)
I would be grateful if the Minister would let me look at the letter, anyway; it is important to see that in detail.
To conclude, I want to pick up on Amendment 214 in the name of the noble Lord, Lord Palmer, concerning a universal pension advice entitlement. The context for this amendment is certainly well understood. The structure of pension provision has altered fundamentally over recent decades, and most private sector workers are now members of defined contribution schemes rather than defined benefit schemes. As we know, defined benefit schemes provided a predictable income for life; by contrast, defined contribution schemes require individuals to determine contribution levels, investment choices, consolidation of pension pots and the manner and timing of drawing retirement income. The risks associated with investment performance and longevity now rest primarily with the saver rather than the sponsoring employer.
In that environment, the case for improved engagement is compelling. Without appropriate support, individuals might under-save, remain invested in default arrangements without appreciating the degree of risk involved or make irreversible decisions at retirement without a full understanding of the consequences. There are also wider public policy implications. Inadequate retirement provision can increase reliance on means-tested benefits, intensify pressure on the state pension and contribute to intergenerational fiscal strain. In that sense, the noble Lord, Lord Palmer, has identified a matter of genuine structural importance.
However—this chimes with the Minister and the noble Lord, Lord Davies—there are practical considerations that cannot be ignored. The amendment refers to free and impartial pension advice. In regulatory terms, advice is distinct from guidance. Regulated advice requires authorisation by the FCA, entails suitability obligations and carries legal liability. To extend personalised regulated advice as a universal entitlement would require significant capacity, funding and oversight, and it would not be a modest undertaking. I reiterate that I agree with the noble Lord, Lord Davies of Brixton, and the Minister. The complexity of the system is real but so too are the operational and financial implications of delivering such an entitlement at scale, although I appreciate the noble Lord, Lord Palmer, bringing this up; it has been a valuable debate.
With that, I will dwell on what has been said in this debate in Hansard to work out what we might bring back on Report but, for now, I beg leave to withdraw my amendment.
“Review of pension communications and financial promotion rules(1) The Secretary of State must, within 12 months of the day on which this Act is passed, conduct a review of all legislation and regulatory rules governing marketing, financial promotion and member communications in relation to occupational and personal pension schemes.(2) The review must consider whether existing rules unduly restrict pension providers from—(a) communicating risks, warnings, and comparative information to scheme members;(b) providing guidance on fund choice, consolidation, and value for money;(c) supporting informed member decision-making without constituting regulated financial advice.(3) The Secretary of State must lay a report of the review before both Houses of Parliament.”
Viscount Younger of Leckie (Con)
My Lords, I shall speak to the two amendments in this group, Amendments 208 and 210, tabled in my name. The proposed new clause in Amendment 208 would create a permissive power for Ministers to help employers to understand and navigate the different pension options available to them, including the choice between salary sacrifice and ordinary contributions.
Since the introduction of automatic enrolment, employers must provide workplace pensions as a default. This comes with an opt-out for employees, although opt-out rates are very low, happily. This reform has rightly been regarded as a success: participation has increased dramatically and millions more people are now saving for retirement. But although participation has improved, the structure through which those pensions are delivered remains complex. Employers may offer standard employee and employer contributions; operate salary sacrifice arrangements, whereby pension contributions are made before tax and national insurance; choose between different occupational schemes; use master trusts; or establish single-employer schemes. Each of those options carries different financial implications, administrative consequences and regulatory requirements.
For large firms with human resources departments and access to professional advisers, navigating these choices is manageable. However, for small and medium-sized enterprises, often it is not. This amendment simply gives Ministers the power to publish comparative guidance, provide decision-making tools, issue best practice principles and clarify regulatory compliance requirements. It does not mandate a particular scheme, it does not impose a new burden; it equips employers with information, and in short, reduces confusion.
Lord Palmer of Childs Hill (LD)
My Lords, I forgive the technicalities. This group—I will not speak at length on it—focuses on employer communications and decision-making. These are not peripheral issues. Poor communications, which there often are, and unclear boundaries between information, guidance and advice, can directly affect member outcomes. Amendment 208 asks for a review of the legislation and regulatory rules on marketing, financial promotion and member communications, while Amendment 210 would support employers through guidance and tools when choosing and operating workplace pension arrangements.
There is a legitimate policy question here around whether the current rules strike the right balance between consumer protection and practical communication that helps people make informed choices. I hope that the Minister will clarify whether the Government believe that there are avoidable barriers that prevent providers and employers from communicating useful non-advisory information to members and workers. They should be able to give that information easily and freely. Good pension outcomes depend on not only product design, on which we tend to focus, but understandable communications and workable employer support.
I hope that these amendments will try to improve the communications part of the scenario. I do not think that they are mind-bogglingly important, but they would, I believe, improve the system for pensioners, which is what we all, I hope, want to do.
Baroness Sherlock (Lab)
My Lords, I am grateful to noble Lords who have spoken. I absolutely agree with the noble Lord, Lord Palmer, that these are important issues. I hope to persuade him that the right action either has been taken or is being taken.
I appreciate the purpose behind the new clause proposed in Amendment 208 from the noble Viscount, Lord Younger. It aims to ensure that pension providers can communicate effectively with their members and provide appropriate guidance. The new clause would require the Government to review legislation and rules that might restrict pension providers from communicating with their members about a range of topics. I should say at the start that there is good reason to protect people from unsolicited marketing in many circumstances. Not only can irrelevant marketing be a nuisance but of course there are people who would exploit an increase in legitimate marketing as an opportunity for fraud or scams. In 2019, the last Government banned companies from making unwanted and unsolicited phone calls to people about their pensions.
At the same time, I recognise the need for clarity to help pension providers navigate the regulatory framework when communicating with their members. That is particularly important given the increased emphasis on pension providers supporting members directly through both guided retirement and, as raised by the noble Viscount, Lord Younger, the targeted support regime. The targeted support, as I have explained previously, could include helping people to make decisions about their pension.
The FCA and the Information Commissioner’s Office published a statement in December to provide clarity on the interaction between direct marketing rules and targeted support. That statement details how firms can promote their targeted support service to those who have opted out of direct marketing, while still complying with the relevant regulations. The statement also emphasises that financial services providers can send neutral, non-promotional and factual messages about important financial matters to all customers, even if they have opted out of marketing communications. That includes warning a pension member that they are undersaving for retirement or drawing down on their pension unsustainably.
However, in developing targeted support, the Government identified some specific issues in how the direct marketing rules in place for workplace pensions would interact with the new regime. The Government will be taking forward secondary legislation to address this, enabling these providers to deliver targeted support communications which amount to direct marketing to members who have not opted out of receiving it. This reflects that workplace pension providers have fewer opportunities to obtain consent for direct marketing, limiting the level of engagement they have with their members.
Turning to value for money communications, I am confident that the Bill already empowers us to achieve these aims. The Government have carefully considered the necessary requirements under the VFM framework. Clause 14 enables the provision of detailed requirements for member communications and interaction, including ensuring that guidance can be tailored to meet the needs of all members. The Government have already engaged in the process of reviewing the legislation and the rules identified in the amendment where appropriate and will continue to do so in a transparent manner.
Amendment 210, which is also from the noble Viscount, Lord Younger, seeks to require the Secretary of State to consider what steps are needed to help employers make the decisions they must make in relation to workplace pensions. While this is a positive aim, I do not think the proposal is necessary. Reasonably extensive guidance is already available to employers to support them to fulfil their pension duties. New statutory requirements are not needed in order to maintain or improve that information as the market evolves.
The Pensions Regulator has published guidance on workplace pension scheme selection, with supporting resources on what to look for in a scheme, including matters such as cost, tax treatment and different ways of making contributions. The FCA has also made guidance available to employers about providing support for employees, which includes pensions among other relevant areas. The DWP has guidance on default fund investment options, which sets out best practice concerning scheme design, governance and member communications. In response to the comment from the noble Viscount, Lord Younger, about smaller employers, that was developed particularly with those employers, including SMEs, which have been newly brought into the pensions world following the rollout of automatic enrolment.
Pensions UK also has its own independent guidance for employers, including its pension quality mark accreditation for high-quality schemes. These sources provide a wealth of information for employers and are regularly supplemented as the market evolves. There is not a need for new statutory requirements.
Once again, I highlight the VFM proposals in the Bill, which will enable the Secretary of State to place duties on trustees and managers to publish standardised performance information. This will help members and employers make informed decisions when choosing a scheme. It will also increase competition across different schemes on quality, not just cost, and could remove poor performing schemes from the market entirely, helping employers avoid low-quality options automatically.
The Government are committed to supporting members and employers to make the best decisions about pensions, but this amendment is not needed to allow the Government to continue to do that, and it does not in fact require the Secretary of State to take any steps if they do not consider them necessary. Overall, we believe there are some cases where more advice and support are needed for members, which is why we are introducing guided retirement and targeted support. We will always consider the interaction of new policies with a wider regulatory framework, but equally it is important to keep guardrails against unsolicited marketing and scams. We also believe that sufficient support is already available for employers in their decision-making, and powers are already available should more be needed. I hope that has reassured the noble Viscount and that he can therefore withdraw his amendment.
Viscount Younger of Leckie (Con)
My Lords, I am grateful to the noble Lord, Lord Palmer, for his remarks and support, and to the Minister for the details she provided in her response, which I appreciate. While I am of course disappointed that the Government are not able to accept these amendments today, I recognise that this is a matter of balance and practical implementation, rather than fundamental disagreement.
On Amendment 210 in particular, I appreciate that there is already a careful line between acting in members’ best interests and avoiding what might be construed as advertising or product steering. The noble Baroness made that distinction too. This is precisely why I believe that a structured review would be valuable, to ensure that we are getting that balance right as the system evolves. Picking up on an offer—I think it was an offer—from the Minister, I would be happy to work with her and the Government between now and Report to consider how this might be framed in a constructive and proportionate way, but I acknowledge what she said in her closing remarks.
More broadly, on helping employers, particularly smaller firms—the Minister also mentioned this—to navigate pension arrangements with greater clarity, I accept that work is under way through regulators and guidance bodies, but as the system grows more sophisticated, there is merit in ensuring that political focus and strategic direction remain strong. If employers are central to delivering retirement security, then supporting them effectively is surely not optional but integral to the success of the framework. However, with that, and in the spirit of continued engagement, I beg leave to withdraw the amendment.
Lord Sharkey
“Fossil fuels and climate change risk(1) The Pensions Act 1995 is amended as follows.(2) In section 41A (climate change risk), after subsection (6) insert—“(6A) Regulations under subsection (1) must, within 1 year of the Pension Schemes Act 2026 receiving Royal Assent, prohibit the trustees or managers of schemes of a prescribed description from holding relevant assets.(6B) The relevant assets in subsection (6A) are issuance by issuers which, in relation to thermal coal—(a) derive 10% or more of annual revenue from its production, transport or combustion,(b) produce annually 10 million tonnes or more, or(c) have 5GW or more of power generation capacity.(6C) Within 2 years of the Pensions Act 2026 receiving Royal Assent, and every 3 years thereafter, the Secretary of State must carry out and publish a review on whether the definition of relevant assets should be extended to include—(a) issuance by issuers which, in relation to thermal coal, derive a smaller proportion of revenue, produce a smaller amount or have a smaller amount of power generation capacity than the proportion and amounts specified in (6B),(b) some or all new issuance by issuers of a prescribed description deriving a prescribed proportion or amount of their revenue from the extraction, transport, trading or combustion of prescribed fossil fuels, or(c) some or all new or existing issuance by issuers of a prescribed description investing a prescribed proportion or amount in exploring for, or expanding the extraction of, prescribed fossil fuels. (6D) Regulations under subsection (1) may implement the conclusions of the review referred to in (6C).”(3) In subsection (8), at end insert—““thermal coal” means coal and lignite used in the generation of electricity and in providing heat for industrial or residential purposes;“issuance” means all investable assets, including equity and debt.”(4) The Financial Conduct Authority must make general rules with effects corresponding to the provisions of subsection (1) for providers of pension schemes to which Part 7A of the Financial Services and Markets Act 2000 (inserted by section 48 of this Act) applies.(5) The Secretary of State must make regulations with effects corresponding to the provisions of subsection (1) for scheme managers of the Local Government Pension Scheme.(6) The rules and regulations under subsections (4) and (5) must come into force no later than the date on which regulations pursuant to section 41A(6A) of the Pensions Act 1995 (as amended by this Act) come into force.”Member’s explanatory statement
This new clause would require Government and the FCA to make regulations and rules on climate risk grounds restricting exposure of some occupational and workplace personal schemes to thermal coal investments and to regularly review whether the restrictions should be extended to other fossil fuel investments.
Lord Sharkey (LD)
My Lords, Amendment 212 is in my name and those of the noble Baronesses, Lady Hayman, Lady Griffin of Princethorpe and Lady Bennett of Manor Castle. I thank them for their support and look forward to their contributions. I also thank the Better Pensions Coalition for its input and advice—I should probably say “guidance” rather than “advice”, since no money changed hands.
This amendment has a simple purpose: it seeks to restrict pension investments in companies that undertake certain significant levels of climate-damaging activity Specifically, it would require the Government to legislate to exclude firms with high thermal coal exposure from pension scheme portfolios within one year of Royal Assent. It would require regular reviews on whether to extend the exclusion, and would permit the Government to legislate to implement the outcomes of those reviews. The amendment sets out to do this by amending Section 41A of the Pensions Act 1995, which was inserted by Section 124 of the Pension Schemes Act 2021 under the previous Conservative Administration.
Section 41A allows the imposition of regulation on trustees of pension funds in order to secure
“effective governance of the scheme with respect to the effects of climate change”.
The location of this clause means that all exclusions must be legislated for on climate-risk grounds, not on ethical grounds or approval or disapproval of certain investments. That is why the primary focus of our amendment is the risk to savers’ retirements generated by climate change. It is the case that savers are at risk, not just from fossil fuel assets that have become stranded as the cost of low-carbon energy falls, but from their pension schemes’ investments in fossil fuels funding increased global emissions, contributing to runaway climate change, which would damage returns and the value of their other investments.
There are no safe-haven assets that will be immune from the 2.6 degrees centigrade global warming we are currently steering towards. The Institute and Faculty of Actuaries has assessed that the current suite of global climate policies could shrink the global economy to half its current size. Alltech finance research indicates that UK pension portfolios could face valuation declines of between 25% and 50% under plausible climate scenarios. Pension savers risk a much more expensive retirement and poor quality of life from continued fossil use. The cost of housing, energy and food is likely to be much higher, partly because their pensions have funded dangerous levels of climate change.
The amendment starts with thermal coal, the most damaging and least necessary fossil fuel. Here in the UK, of course, we ended the use of coal on the power grid in 2024, but despite that, UK pension funds risk undermining this progress by funding the continuous expansion of coal overseas. New research recently published by Finance Innovation Lab has found that pension schemes hold around £10 billion in thermal coal and that this could be responsible for around 17 million tonnes of greenhouse gases each year. Ironically, that is the same as the entire reduction in emissions from the UK power network under successive Conservative and Labour Administrations between 2019 and 2025. In other words, the UK’s main climate policy achievement at home, replacing coal-fired power with clean energy, may have been cancelled out by pension scheme investments in coal overseas, using contributions from savers, employers and taxpayers.
Pension schemes also continue to hold many more billions, around £88 billion at the last estimate, in fossil fuel companies as a whole, including those involved in new coal and gas and oil exploration. This has some of the characteristics of a collective action problem. The International Energy Agency has warned that there is no scope for additional fossil fuel production if the world is to stay within safe climate limits. Schemes fear missing out on short-term returns that other schemes may be generating, so each scheme staying invested and funding further oil, gas and, especially, coal investment is jeopardising long-term returns for themselves and for everybody else.
The UK pension sector is the largest in Europe. It has the potential to move markets, hasten the global exit from coal and, in due course, to do the same thing for oil and gas expansion. I make it clear that our proposed amendment does not sacrifice member returns. Any decisions to require exclusion must be made on climate risk grounds in accordance with the provisions of Section 41A of the Pensions Act 1995, not on the basis of ethical or political objections, as I said. The amendment cannot be used by the Government to mandate or forbid other types of investment because only the investments set out clearly in proposed new subsections (6B) and (6C) are in scope. Any attempt by the Government to use our amendment to exclude a wider range of investments without demonstration of the climate risk would be unlawful. I should also mention at this point that steelmaking would be unaffected by our amendment: the ban would be limited to thermal coal. Over time, we will need to phase out coking coal as well, but this can take place when it can be done without disrupting the sector.
We have seen in our discussions in Committee that the Government would like to have a reserve power to mandate pension investment into private markets for member returns and wider economic benefits. For Peers who are opposed to the principle of mandation, as I am, I reassure noble Lords that the power to exclude contained in our amendment is very tightly constrained. It would permit a direction to exclude only on climate risk grounds, in accordance with the terms of Section 41A. The Government, as we have seen, are proposing a reserve power to allow direction on almost any grounds, as long as they produce a report first. Our amendment is limited to coal and other fossil fuels. The Government’s reserve power allows the direction of investment into any sector, jurisdiction or asset class, as long as it is not listed.
The Government may claim that the consolidation proposed in the Bill will help reduce investment in fossil fuels, but that seems unlikely on the basis of current behaviour. Industry research due to be published next month by Corporate Adviser Intelligence will show that seven of the largest 19 schemes used for automatic enrolment—including household names such as Aviva, Royal London and Scottish Widows—remain invested, via their default fund, in one or more of thermal coal, tar sands and Arctic drilling.
Transition plans also do not look likely to address our concerns. Labour’s manifesto proposed that schemes should be required to produce and implement Paris Agreement-aligned transition plans but, 18 months on, there does not appear to be a decision on whether to proceed with that. As I understand it, there is slated to be a consultation on policy detail in 2026 and there may be regulations in 2027, with plans perhaps to be produced in 2028—so probably no action before the next general election. But the Government have made strong commitments, both at COP and in their own targets, with the aim of an effective 40% reduction in greenhouse gas emissions between 2020 and 2030. Transition plans will be great for the 2030s and 2040s, but those plans can be built only on the emissions reductions that we achieve in this decade.
We need faster action to be able to achieve our targets. Our amendment will deliver some of that, and I beg to move.
Baroness Hayman (CB)
My Lords, I declare my interests as a director of Peers for the Planet and a previous chair of that organisation. In this group of amendments, we address long-term systemic risks and how pension schemes both assess and manage them. All three of the amendments that we are discussing recognise that it is pension savers who will pay the heaviest price if the financially material risks to their savings and standards of living posed by climate change and biodiversity loss are not properly accounted for.
I have added my name to Amendment 212, which was just introduced so cogently by the noble Lord, Lord Sharkey. It is important because, as he said, UK pension schemes and savers remain overexposed to the risks of stranded assets from fossil fuels—in particular, coal. New research by the Finance Innovation Lab suggests that UK pension funds have at least £10.5 billion invested in companies that are extracting or burning coal, which could pose significant risks to pension savers. To date, pension schemes have not been required to take mitigating actions, so the sector has not moved quickly enough or at the scale needed to insulate savers from the emerging market and physical risks linked to those very carbon-intensive investments.
I also welcome the constructive intentions behind Amendment 218E in the name of the noble Baroness, Lady Coffey, and I look forward to hearing her speaking on it later. This amendment seeks to solve a major blind spot in the pension system by equipping trustees with the tools to understand how nature loss may affect asset values, as well as how global efforts to restore nature may reshape markets.
I now turn to my cross-party amendment, Amendment 218A. I thank the noble Lord, Lord Sharkey, and the noble Baronesses, Lady Penn and Lady Griffin of Princethorpe, for their support in adding their names. I am grateful to the Minister and her officials for a useful and interesting meeting ahead of today’s debate, although I hope that she may be a little more optimistic in her response to my amendment today. I am also grateful for the briefings I have received from UKSIF, Unison and ShareAction, and I pay tribute to the Financial Markets Law Committee for both its work on fiduciary duty and its extremely valuable 2024 report.
That report highlighted the way in which the gap left in legislation relating to fiduciary duty causes confusion and uncertainty and can result in trustees interpreting duties in overly narrow ways. I do not want to repeat my Second Reading speech, but there is now a widespread acceptance that the current lack of clarity around fiduciary duty is a real problem for pension scheme trustees—for example, in how trustees balance maximising short-term returns, potentially at the expense of considering other material factors over the longer term, which can have real-world implications for members’ interests further down the line. Even the Treasury, in its recently updated Green Book, recommends that the business case for proposals with a lifetime beyond 2040 should now be appraised against warming scenarios of both two degrees and four degrees centigrade, a possibility under which scientists say that the risks to economic growth and financial stability go up and into uncharted territory.
Baroness Griffin of Princethorpe (Lab)
First, I welcome the Bill wholeheartedly. In this group of amendments, we have cross-party political working, which I am very proud of. Every child in the world deserves to breathe clean air.
I speak first to Amendment 212,
“fossil fuels and climate change risk”.
This new clause would require government and the FCA to make rules and regulations on climate risk grounds, restricting exposure of some occupational and workplace personal schemes to thermal coal investments, and to review whether the restrictions should be extended to other fossil fuel investments. I will not repeat what my friend, the noble Lord, Lord Sharkey, has said, but as noble Lords will recognise, this amendment does something that we have heard rather a lot about recently—taking powers to direct the investment of pension schemes—but in a narrowly defined way, with parliamentary and industry scrutiny, and with safeguards to prevent the power being misused.
In reality, the Government and Parliament, as noble Lords have said, have been directing pension scheme investments for decades. When the Brown Government established the automatic enrolment scheme, Nest, they set a policy of 0.3% annual charge, which forced even a very large scheme such as Nest to choose investments which fitted within that tightly constrained charging envelope. When the coalition introduced a charge cap on all schemes used for automatic enrolment, the 0.75% ceiling drove the smallest schemes to exit, moved smaller schemes into overwhelmingly passive investments and limited asset and private market allocations for all but the largest schemes. Theresa May’s Government legislated for trustees to publicly report their investment policies in relation to environmental, social and governance considerations—quite rightly so.
Each of these policies has been explained on the basis that they are in consumers’ and the wider public’s interest, as in Amendment 212 of the noble Lord, Lord Sharkey, to which I proudly added my name. The amendment is in the consumer’s interest, because the immediate power of direction in this amendment would be limited to thermal coal. Pension schemes do not routinely publish sector-level investment data, but early analysis suggests that schemes still invest somewhere around £30 billion in companies with thermal coal interests. While noble Lords have been talking about the long-term investment profile of social housing or infrastructure and its appropriateness for pension funds, this coal, as the noble Lord, Lord Sharkey, so clearly said, is an ultimate short-term investment. Even the International Energy Agency’s most pessimistic scenario shows that coal demand is peaking. These investments will fail in due course but, in the meantime, they do harm to the returns of other investments in their portfolios, as well as everybody else’s portfolios, by contributing to local air pollution and global climate change.
That is why ending these investments is in the wider public interest. The £30 billion UK pension fund investment in thermal coal supports the equivalent of about 10 gigawatts of thermal coal-fired power overseas. This, with some basic arithmetic, means that UK pension schemes’ thermal coal investment emits more greenhouse gases than the whole of the UK power network.
In this way, UK pension schemes have been undermining the progress made by successive UK Governments in phasing out coal, by contributing to fund the expansion of coal overseas. I do not intend that to be a criticism of the funds. Governments have not nudged them away from coal specifically, but they have been willing to nudge and direct in other areas, including in this Bill, and they should be willing to do so here in respect of thermal coal. I kindly request that my noble friend the Minister agrees to accept this gentle nudge.
I was pleased to add my name in support of Amendment 218A in the name of the noble Baroness, Lady Hayman. As she said, in response to a similar amendment on Report in the House of Commons, the Pensions Minister indicated that
“guidance will encapsulate those wider factors set out in his new clause … including what we mean by systemic risks and standards of living. There is good support in the industry for providing that clarity”.—[Official Report, Commons, 3/12/25; col. 1043.]
It is really positive that the Government have accepted the principle that bringing further clarity to fiduciary duties is needed to tackle confusion and uncertainty among trustees around how they should best carry out their responsibilities to deliver for members.
I am delighted that my union, UNISON—the largest in the UK with a membership of over 1.3 million—has written in support of this amendment. The amendment recognises that there are wide-ranging benefits in giving legal backing to pension managers who wish to act in their members’ best interests by considering long-term systemic considerations such as sustainability. Moving in the direction of refining investor duties to allow these types of systemic-level risks to be properly quantified and acted on will help future-proof the pension system in the long-term interest of savers. For those of us not yet at pensionable age in the UK, that is quite attractive.
However, issuing guidance is unlikely to provide the level of assurance required by trustees. That is because, as my noble friend knows, pension funds need only have regard to guidance, which does not represent a stable enough foundation for interpreting duties; nor does it insulate pension funds should they find themselves defending decisions in the courts. Without clear timeframes, trustees will be left unsure as to whether guidance could be changed in the future and how they should prepare for it. Leaving these matters solely to guidance risks perpetuating the current status quo, where trustees feel they do not have permission to act in response to system-level risks for savers. Accepting this amendment would, I hope, bridge the gap between the Government’s commitment to date and their objective of removing obstacles for pension managers. I hope that my noble friend will accept it.
Baroness Coffey (Con)
My Lords, I have tabled Amendment 218E, which is about recognising biodiversity risk. In the previous Pension Schemes Act, we introduced additions to the 1995 Act to allow regulations to come forward regarding climate change. The significant difference between that and Amendment 212 is that it in no way mandated an approach to investment but recognised the risk that would be there. We have brought together a well-established architecture, with the TCFD, the Task Force on Climate-related Financial Disclosures, and now the TNFD, the Taskforce on Nature-related Financial Disclosures. I pay tribute to David Craig for the immense work that he has done throughout all this. I think I am right in saying that well over 700 investors around the world, with approximately £22 trillion-worth of assets, are committed to start using the TNFD once we have the proper hierarchy agreed. Being positive about it is not unique to this country; we are seeing that around the world.
One of the reasons why I decided to table this amendment now is because, while I appreciate that it has taken time to get to where we are, I do not know when next there will be a pension schemes Bill. Let us hope that there will not be one for a while, because we know that the industry needs stability.
These are serious risks, as was highlighted in the Chamber today when the noble Baroness, Lady Hayman of Ullock, answered my noble friend’s question about the TNFD and the UK’s nature security assessment. It is not just about environmental risk—it has been made very clear by the Government that we need to think about that in the long term—it is also about a balance between food security and geopolitical security. I accept that not all of those are issues that we should use our pension assets and schemes around the world to try to manage. That is not their role, but it is their role to think about the return on investment and what instability might do to pensioners’ projected payments in the future.
Baroness Penn (Con)
My Lords, I will speak in support of Amendment 218A. Before I do so, on Amendment 212, the noble Lord, Lord Sharkey, made a valiant attempt to square the circle of opposing some forms of mandation while supporting others, but it did not quite get me over the line. So I do not support that amendment.
However, I am interested in my noble friend’s Amendment 218E on the TNFD. We have spoken many times in the House about nature and climate being two sides of the same coin, and we now have a framework that enables organisations to understand nature risk properly. It therefore seems logical that it is integrated into our thinking on pensions.
Although I acknowledge my noble friend’s concerns, the reason why I support Amendment 218A is that, at its heart, its point is to clarify that pension schemes trustees can take systemic-level risks into account when carrying out their fiduciary duty. We could have debates on other aspects, such as taking members’ views into account, but the amendment is attractive because it still has fiduciary duty at its heart rather than seeking to overrule it. That is a beneficial approach because it does not put those of us in Committee, or the Government, in the position of taking those views and making those decisions for people—that remains with the trustees, which is, I think, appropriate.
The noble Baroness, Lady Hayman, eloquently made most of the points to be made in relation to Amendment 218A. The Government agree that we need to clarify that fiduciary duty can include a consideration of systemic risk; that point was accepted by the Pensions Minister in December. So the question then becomes: what form should this improved guidance take? Should it be legislative or statutory? I think that it should be legislative because so much of the understanding of fiduciary duty relies on the interpretation of case law. Therefore, we need a clearer legal underpinning of our understanding of this duty for it to be robust and for trustees to use it, which is the barrier that we are already trying to solve.
I would like to understand from the Minister why the Government have a preference for statutory guidance over legislative change. In the past, the Government have pointed to the importance of flexibility and consultation—those are allowed for through this amendment, but it would have the added benefits of proper parliamentary scrutiny and consultation with outside bodies.
I also want to ask the Minister about the scope of the Government’s proposed approach; this was touched on by the noble Baroness, Lady Hayman. Why is it limited to occupational trust-based schemes, if that is the case? We have about half of pension assets in local government pension schemes and personal pensions, so why would this not extend to those?
Finally, I wish to press the Minister on timing. We have heard about transition plans in this debate. Work on those has been under way for a long time, and we have heard about the extended timeline, which may extend even further—one never knows. We have heard about the TNFD and the time it takes to get momentum behind this. We have heard about the fact that we were debating these issues three years ago in the then Financial Services and Markets Bill. We had one of our round tables before the election was called and I think that the Government have had further round tables to try to corral their efforts to address this issue.
However, the point remains: there needs to be a legislative basis for this statutory guidance. That is my understanding. We now have a pensions Bill. Let us hope that we do not have another one. We hear the phrase, “We will bring forward proposals when parliamentary time allows”—well, this is that parliamentary time. I am sure that the Government have lots of other things they want to do with future Bills in future Sessions of Parliament. May I encourage the Minister to seize this time? If she does not agree with Amendment 218A, at least on the statutory guidance, bring forward the legislative basis so that the Government can get on with the thing they say they want to do.
Baroness Bennett of Manor Castle (GP)
My Lords, I will speak in favour of all the amendments in this group, particularly Amendment 212, to which I have attached my name. As has already been widely noted, it has broad, cross-party support. I would have attached my name to Amendment 218A had there been space and to Amendment 218E had I caught up with it; I will certainly talk to the noble Baroness, Lady Coffey, should she be thinking about bringing it back on Report, having at Second Reading praised the noble Baroness’s contributions in that direction.
Like that of the noble Baroness, Lady Hayman, my speech at Second Reading majored on the fiduciary duty issues, which this group very much gets to the heart of. I was very interested in the comments made by the noble Baroness, Lady Penn, on the TNFD. It is great to hear such broad political support for that; I hope that it is something we can take forward.
I will mostly focus on Amendment 212. Noble Lords might expect me, as the Green, to get up and talk about the climate emergency—that is standard—but what I am really getting up to talk about today is financial risk. I am talking about the carbon bubble, which is a very severe risk, among many other risks, that all pension savers face. There is a strong economic case for green pensions reform. UK pension schemes have been estimated to hold at least £88 billion in fossil fuel companies and £10 billion in thermal coal alone. Here, I will drop in statistics relating to the biodiversity point: UK pension schemes hold £300 billion in companies linked to deforestation, more than 85% of leading schemes have been found to lack credible climate action plans, and only 4% of pension assets are invested in climate solutions, the things that could be providing the long-term future.
One of the issues that this amendment brings forward is the fact that there is a lack of monitoring of this situation by both the Government and the Pensions Regulator. There were a number of Written Questions in the other place in September about the risks of stranded assets, contribution to fossil fuels expansion and investments in fossil fuels. The Government’s response was that they did not have any estimates on these matters. Subsequent Written Questions led to the understanding that the Pensions Regulator also has no estimates on these matters. There is already some data on this, which is being captured by independent organisations—but I am afraid that is really not good enough. The carbon bubble is something the Government really need to have a handle on.
As some other speakers have already said, we know that many of the largest pension schemes, including some of the biggest names, continue to be invested in thermal coal, as well as other very marginal fossil fuel extraction, which will swiftly become uneconomic as global demand tails off. That is already happening with thermal coal. The International Energy Agency’s Electricity 2026 report, out earlier this month, suggested that global demand for coal has already peaked. China and India, as well as Europe, all saw declines in 2025, yet these investments are still happening.
It is common for the idea to be floated that pension schemes should not exit these investments, despite holding them solely for short-term benefit and for the ruination of other holdings in pension savers’ portfolios, but should try to engage in the companies concerned. However, this has not had any discernible impact. After decades of so-called engagement, no coal mining firm has set strong decarbonisation targets, and it is very hard to see how they might actually do so.
Many oil and gas firms are nominally signed up to far away 2050 targets. I am sure we have all heard the phrase that having a 2050 target is the same as having no target at all. Barely any have anything like a fast enough transition to come anything close to being Paris-aligned. We saw with BP and Shell how quickly firms row back from hard-won targets when their CEOs change or a few shareholders start to grumble. What we are talking about here, I stress, is an approach to protect pension savers’ financial interests. When the UK Government’s policy is moving towards decarbonising the economy, UK pension policy should not be undermining that, particularly when it comes to thermal coal overseas.
Lord Pitt-Watson (Lab)
My Lords, in contributing here, I should say my background is in responsible investment, with Hermes Fund Managers. It still on occasion offers me an office, from time to time. Since this is about responsible investment, as you can imagine, I could not more strongly support the principles of what we are debating here if I tried. I also absolutely welcome the cross-party nature of this: my noble friend Lady Griffin speaks from a trade union representing beneficiaries of pension funds. However, I am just not sure that these three amendments get us where it is that we want to get to.
To start with the trustee issue raised by Amendment 218A, of course trustees should take into account systemic issues in their investment and stewardship, and they should do so in the interests of the economic, environmental and social interests of their beneficiaries. We make a mistake if we separate those interests because they go together. If we want evidence of the significance of that, we might look at research from Columbia University suggesting that 85% of the return you get from your pension fund will be systemic and only 15% will be from idiosyncratic things that your fund managers have done.
Lord Fuller (Con)
My Lords, in the opening remarks in this debate, somebody said that there was uncertainty in the fiduciary duty. I can tell noble Lords that there is no uncertainty in the fiduciary duty except from those trying to muddy the waters and sow confusion.
When it comes to investing money, investment managers are trying to juggle several different points. I think that the noble Lord, Lord Pitt-Watson, made that point very well—they are trying to manage long-term versus short-term risks; UK-EU versus US, the rest of the world and emerging markets; equities versus bonds; property versus private equity; and new technology versus established activities. It is hard enough to balance all those competing objectives with different timescales without then having to follow all this stuff. With regard to biodiversity, we cannot measure it as it is today, and if we cannot measure it how on earth are we going to issue the compliance notice contemplated in proposed new Section 41F?
What we have heard today is a lot of “the sky is going to fall in” whataboutery, which denies the simple truth that the people with the most expertise in decarbonisation are those most involved in energy production. They have the experience and capital, and the greatest incentive to change the way they do things. To prevent people investing in companies that are involved in energy production is denialism of the worst sort. I have been a member of the LGPS Scheme Advisory Board since its inception about 13 years ago; my term ends next month. I have seen it all: pressures for ethical investors, saying that you cannot invest in oil, arms or sugar, and you cannot invest in the supermarkets because they sell sugar.
Where does it end? There would be no data centres because they are built on a field that might have had some biodiversity or because they use energy. This overly simplistic approach leads to what the noble Lord, Lord Pitt-Watson, spoke about. It is not responsible investment but irresponsible investment. There is no confusion in my mind between fiduciary duty and risk management, yet these amendments seek to conflate those two totally separate issues into one thing. I will give an example. Through the work we have done in the Local Government Pension Scheme, a Mr Lynk lobbied very strongly on the grounds of fiduciary duty that the LGPS should disinvest from certain Middle East investments. That was wrong, and we fought it because we clarified what fiduciary duty was. I am glad that we did. We cannot afford to have those waters muddied once more.
I am a member of the Norfolk local government pension scheme—a scheme with £6 billion in assets under management and probably more than 120,000 members when you take into account actives, deferreds and pensioners. I often sit on the bus from my home in Brooke going into Norwich. If I go after 9.30 am, just about every single person on that bus is a pensioner. A great majority of those pensioners will be in receipt, simply through the demographics of Norfolk, of a Norfolk County Council pension or will be a beneficiary of one of the other admitted bodies or councils. The LGPS manages for millions of people. The pensions are not large. Those pensioners rely on that modest pension of between £3,000 and £5,000 on average. That is fiduciary duty—ensuring that their pensions are paid in full, on time, for the rest of their natural lives.
What I am seeing here today is virtue signalling. It is diverting away from the absolute need to have the beneficiary at heart. If there are risks through coal production, biodiversity or whatever, let them be taken into account in risk management. They are not fiduciary duty. It is either a wilful or an accidental misunderstanding to conflate risk management with fiduciary duty. When you are a pension trustee or an investment manager, you are working for the beneficiary. That process, that idea, is being lost by the amendments in this group. On that basis, I cannot support any of them.
Lord Thomas of Cwmgiedd (CB)
My Lords, I briefly rise in support of the aims of the amendment in the name of the noble Baroness, Lady Hayman. I urge that we get on—as the noble Baronesses, Lady Hayman and Lady Penn, have so eloquently said. Listening to the debate, I do not think that there is any dispute that trustees have a fiduciary duty. No one wants to change that, as I understand it. But the refinements and an understanding of that duty in the modern age are unclear.
In 2014 and 2017, the Law Commission tried to clarify these but did so in a way that ultimately did not help. In 2023, the Financial Markets Law Committee, which I chair—although I am speaking purely in a personal capacity—decided that we ought to look at this issue because it was of such fundamental importance to the operation of the financial markets and to make sure that people understood the implications of fiduciary duties as regards various factors that they could take into account. In a report that was produced two years and a few days ago, the Financial Markets Law Committee, which had assembled a group from right across the pensions industry and those interested, produced a report that was unanimous in the view that it was permissible, as an exercise of fiduciary duties, broadly to take into account sustainability and climate change risk. It has tried to set out in some detail the reasons why it reached that view and why it was important that this was understood.
Baroness Stedman-Scott (Con)
My Lords, I am grateful to all noble Lords who have contributed to this debate. I recognise that these amendments are brought forward in a spirit of good will and genuine concern, and I thank all noble Lords for that. I turn first to Amendment 212 in the name of the noble Lord, Lord Sharkey, and to the amendment tabled by my noble friend Lady Coffey.
It is important that we approach this discussion with clarity about the framework that already governs occupational pension schemes. From my understanding, there is already a substantial and detailed regulatory architecture in place. First, schemes are required to maintain a statement of investment principles since the reforms introduced in 2019 and 2020. That statement must explicitly address financially material considerations, including environmental, social and governance factors. It must set out how climate change is taken into account, describe stewardship policies, including voting and engagement, and explain how such risks are integrated into investment decision-making. This is no longer optional; it is embedded in the core governance documents of the scheme.
Secondly, larger schemes are required to publish an annual implementation statement. This must explain how the policies set out in the statement of investment principles have in fact been followed. In other words, schemes must not merely declare their approach to environmental, social and governance matters but demonstrate how that approach has been put into practice. This has moved the framework from being purely policy-based to being demonstrably action-based.
Thirdly, schemes with £1 billion or more in assets, together with authorised master trusts, must comply with climate risk reporting aligned with the Task Force on Climate-related Financial Disclosures framework. This includes governance of climate-related risks, strategy for transition, scenario analysis, metrics and targets, such as carbon intensity, and annual public reporting. These are not light-touch obligations; they are detailed, prescriptive and public-facing requirements. Taken together, this represents a significant body of regulation. It requires trustees to consider financially material risks, including climate-related risks. It requires them to disclose how those risks are managed and to report publicly on progress and metrics.
Against that background, we should be cautious before layering additional statutory requirements on top of what is already a comprehensive regime. Trustees have fiduciary duties to act in the best interests of members, they must take into account financially material considerations, they are accountable to the Pensions Regulator and they operate within a framework that has been progressively more demanding in recent years. Trustees should retain the ability to determine, within that framework, which investments are in the best interest of their members.
Our task in this House is to ensure there is clarity, coherence and proportionality in regulation, and that we identify genuine gaps, rather than duplicate existing obligations. My aim in engaging on these amendments is precisely that: to ensure that we debate this matter with a clear understanding of the substantial framework that already exists, and to probe carefully whether there are specific technical deficiencies that require further legislative interventions. This is an important area, but it is equally important that we legislate with precision and with full awareness of the structure that is already in place.
Baroness Sherlock (Lab)
My Lords, I am very grateful to the noble Baronesses, Lady Hayman and Lady Coffey, and the noble Lord, Lord Sharkey, for introducing their amendments, and all noble Lords for contributing to a very interesting discussion. I will start with Amendment 212 from the noble Lord, Lord Sharkey.
While I recognise the aim behind this amendment, the Government believe that decisions about whether to invest, divest or engage must rest with trustees, who are already legally required to invest in the best financial interests of their members and to consider climate-related risks as part of that duty.
Baroness Sherlock (Lab)
I cannot get two sentences in before I am interrupted.
Lord Sharkey (LD)
I am sorry, it will not happen again, but the Government are trying to do precisely what the Minister said they should not do: they are trying to mandate investments.
Baroness Sherlock (Lab)
My Lords, I am simply not going to relitigate that all over again. Okay, I will give it two minutes, since the noble Lord has raised it. If he is referring to asset allocation mandation, as I made very clear during our debates on that subject, the trustees’ fiduciary duty should guide them, were those provisions ever to come into operation. If the trustees believe that they were not in the interest of their members, we would expect their duties to guide them to make representations and seek an exemption under the savings interest exemption test. That, along with all the other safeguards around it, deals with that question. Now, let me try and focus on climate for today; I have no doubt we will have plenty of other opportunities to discuss mandation, and I look forward to those.
Under the existing regulatory framework—I think that the noble Baroness, Lady Stedman-Scott, put it very well—trustees of UK pension schemes must already set out their policies on financially material environmental, social and governance factors, including climate change, within their statement of investment principles. They then have to publish annual implementation statements showing how those policies have been applied in practice. Since the Pension Schemes Act 2021, the larger schemes also have to publish annual reports aligned with the Task Force on Climate-related Financial Disclosures framework, the TCFD. Those disclosure requirements ensure that trustees have the information they need to make informed investment or divestment decisions.
The Government are strengthening these reporting frameworks to equip businesses and investors with the tools, standards and clarity they need to plan credible transitions and seize the opportunities of a net-zero economy. For example, last year DESNZ advanced an important manifesto commitment and consulted on transition plan requirements for UK financial institutions. Alongside that, DBT consulted last year on new UK sustainability reporting standards. My own department, DWP, working with the Pensions Regulator, is currently reviewing trustees’ TCFD requirements to assess the impact of the current climate disclosure regime, including a comprehensive stakeholder survey exploring the impact of TCFD requirements on governance, strategy, scenario analysis, risk management, member outcomes, engagement, reporting costs and future reporting. To support that, the regulator will present its findings on the practicalities of introducing transition plans for pension schemes to us this spring. These future reporting reforms are intended to modernise disclosures and provide schemes with critical insights into companies’ decarbonisation plans, which is information trustees can then use to judge whether investment or divestment is the appropriate course of action.
We should acknowledge the scale of the voluntary action that is already under way. Around two-thirds of UK pension funds now have net-zero commitments, many of them ahead of 2050. Funds are backing these commitments for significant investment: the London Pensions Fund Authority has allocated £250 million to its environmental opportunities fund; Border to Coast is investing in new UK wind and solar projects; and Nest has committed almost £1.3 billion to renewable energy infrastructure.
There is no single correct approach to managing climate-related risk. Trustees can, and do, divest where appropriate—for example, the Church of England Pensions Board announced its divestment from Shell plc and other remaining oil and gas holdings in 2023, following more than a decade of engagement. However, we recognise that some pension funds could, and should, be doing more. We will continue to support and challenge the sector in rising to that task. The right levers are better governance, better data and better transparency, not hard-wired requirements to decarbonise that remove trustee judgements and risk unintended harm to savers’ long-term outcomes.
Amendment 212 would prohibit schemes holding certain fossil fuel-related investments, even where companies have credible decarbonisation plans. The Government believe that such rigid prohibitions risk rushed divestment and would undermine trustees’ ability to exercise informed judgement. For those reasons, the Government cannot support this amendment.
Baroness Bennett of Manor Castle (GP)
It is very easy to cherry-pick individual schemes that have taken action but, as I said in my initial comments, the Financial Innovation Lab says that there are still more than £10 billion in thermal coal investments. Some industry research due to be published shortly by Corporate Adviser Intelligence shows that seven of the largest 19 schemes used for automatic enrolment, including Aviva, Royal London and Scottish Widows, remain invested, via their default fund, in one or more of thermal coal, tar sands and Arctic drilling. Another, SEI, reported that it has excluded these sectors but, last summer, it still had holdings in Glencore, which mines around 100 million tonnes of coal a year.
So, although there are these nice examples, such as those just provided by the Minister, surely the Government must look at this as an overall whole and see not just some good case studies but the norm and the rule right across the industry.
Baroness Sherlock (Lab)
It is probably worth me being really clear on the Government’s position. We recognise the high financial and climate risks associated with thermal coal investment. We support strong climate risk governance and expect trustees to integrate climate considerations into decision-making. We welcome industry-led reductions in coal exposure, as well as broader alignment with net-zero goals where we see them. However, we want to see more. As I have just said, we want specifically to challenge schemes to do more; I was offering examples of where things are going. Exposure is expected to decline over time, driven by market forces, global moves towards cleaner energy and evolving investment practices, but we still think that it is essential that trustees and managers retain the flexibility to make responsible long-term investment decisions in the best financial interests of their members.
I turn to Amendment 218A from the noble Baroness, Lady Hayman. I thank her for taking the time to come and discuss these issues with me; it was a very helpful meeting. The question of whether pension trustees may take long-term factors into account in their investment decisions is manifestly not a new one. I will not rehearse the full history, but we should acknowledge the considerable body of work that already exists in this space; in case I did not want to do so myself, the noble and learned Lord, Lord Thomas, helpfully reminded us of some of that. We had major contributions from the Law Commission in both 2014 and 2017. More recently, in 2024, as the noble and learned Lord said, the Financial Markets Law Committee produced its comprehensive report. Alongside these, there have been several respected legal opinions, including Eversheds’ work on behalf of NatWest Cushon and that of Sackers for ShareAction, which relates directly to this amendment.
Across all these analyses, one central principle emerges with complete consistency: a trustee’s primary duty is, and must remain, to invest in the best interests of scheme members. However, what is equally clear is that a degree of uncertainty persists, although I take the noble and learned Lord’s point on whether or not it should. Trustees can, and do, reach different interpretations of how their duties apply when considering factors that extend beyond immediate financial returns, such as climate risk, demographic pressures and impacts on members’ future living standards. Although these matters are often long term in nature, they can be financially material and are plainly relevant to both savers and the wider economy. We recognise the need to give trustees greater confidence in this area.
However, the Government do not agree that creating a new statutory duty in primary legislation is the right or necessary approach. The current legal framework already allows trustees to consider ESG factors, systemic risks and long-term impacts where they are financially material. That position has been consistently affirmed.
Baroness Coffey (Con)
I have been listening carefully to the Minister. She will be aware that this is a replication of what happened in a previous Bill. The two issues that she raises are not identical, although there may be some interlinking in certain ways. I am slightly concerned at the suggestion earlier that more primary legislation is not needed.
Baroness Sherlock (Lab)
Let me explain. We are concerned that replicating the climate provisions of Sections 41A to 41C of the biodiversity Act 1995 on a separate statutory track risks creating overlapping or potentially inconsistent strategies, metrics, scenarios and governance. Trustees could find themselves operating parallel regimes that could cut across one another, generating unnecessary process burden without necessarily improving outcomes for savers.
Crucially, there is also a sequencing issue. Although the evidence base on nature-related financial risk is advancing rapidly, nature data remain less mature than climate data, and the international baseline is still being established. Last November, the ISSB announced the beginning of nature-related standard setting, with the intention that these will become the global baseline. More than 30 jurisdictions worldwide have already adopted, or are preparing to adopt, these sustainability standards. Introducing a UK-specific statutory duty ahead of those developments would risk locking schemes into a domestic framework that could quickly be superseded internationally.
As I noted in our earlier discussion on Amendment 212, the Government are progressing their commitment to credible transition plans, beginning with companies. We believe that it would be premature to legislate for a separate, pension-specific biodiversity regime in advance of those cross-economy frameworks and the ISSB’s nature baseline. Our approach is to sequence reforms so that pension disclosures plug into a consistent, interoperable flow of corporate information, rather than obliging trustees to build bespoke and potentially temporary architecture. As part of our forthcoming statutory guidance on trustee investment duties, we will consider including concrete, good-practice examples of how schemes can identify, assess and manage biodiversity and broader nature-related risks, including supply chain deforestation, nature dependency mapping, data sources and stewardship escalation, as well as how to treat nature-related impacts where they are financially material.
The Government’s role is to enable and accelerate this momentum with coherent, internationally aligned frameworks; it is not to create parallel statutory silos. For these reasons, although we fully share in the intent behind Amendment 218E—I acknowledge the work done by the noble Baroness, Lady Coffey—we do not believe that this approach is correct. This has been a very good debate but I hope that, in the light of my remarks, noble Lords will feel able to withdraw or not press their amendments.
Lord Sharkey (LD)
The fact is that some, though not all, pension funds are invested in climate-changing activities. We need to do something about that, and we need to do it soon.
The other point I ought to pick up is, again, to do with statutory guidance. I have frequently asked when we will see the guidance, but the only thing I know for certain is that it will not be before this Bill becomes law. Parliament seems to be being bypassed in all this—and in all the secondary legislation that will be necessary to make this mean anything at all. It is reasonable for guidance to explain how pension schemes should go about considering certain matters, but it is not reasonable for what those matters are to go unscrutinised by Parliament and to be changeable at the whim of a Minister. Parliament will be unable to hold the Government to account. Why is it that, in the face of such concerns about guidance and fiduciary duty, as well as the obvious inherent dangers to the proper exercise of fiduciary duty, the Government choose to exclude Parliament?
I beg leave to withdraw my amendment.
“Independent review into injustices in occupational pension schemes(1) The Secretary of State must, within three months of the day on which this Act is passed, commission an independent review into injustices experienced by members of occupational pension schemes as a result of the actions or omissions of employers, scheme sponsors, or scheme administrators.(2) The review must examine, in particular—(a) cases where employers or scheme sponsors failed to adequately support, inform, or protect members in relation to their pension rights or entitlements;(b) the adequacy, accuracy, and timeliness of information provided to scheme members, including information relating to—(i) scheme changes,(ii) benefit reductions or losses,(iii) transfers, mergers, or scheme restructurings, and(iv) risks to accrued pension benefits;(c) the extent to which regulatory oversight, governance arrangements, or fiduciary duties failed to prevent detriment to members;(d) the impact of such failures on affected members, including financial loss, inequality, and hardship in retirement;(e) whether particular groups of members were disproportionately affected, including—(i) lower-paid workers,(ii) women,(iii) disabled people, and(iv) those with non-standard or interrupted working patterns;(f) the effectiveness of existing routes to redress, including complaints procedures, the Pensions Ombudsman, and the courts;(g) potential options for remedy or redress, including—(i) changes to legislation or regulation,(ii) improvements to governance or communication standards, and(iii) mechanisms for compensation or restoration of benefits, together with an assessment of the likely financial implications.(3) The review must be conducted by an independent person or panel appointed by the Secretary of State with relevant expertise in—(a) pensions law and administration,(b) public policy and regulation, and(c) administrative justice and consumer protection. (4) In conducting the review, the person or panel must—(a) consult with affected scheme members and pensioner groups;(b) invite and consider written and oral evidence from stakeholders, including—(i) trade unions,(ii) employer and industry bodies,(iii) pensions experts, and(iv) relevant regulatory and advisory bodies;(c) have regard to relevant findings of Parliamentary committees and public bodies.(5) The person or panel appointed under subsection (3) must submit a report of its findings and recommendations to the Secretary of State within 12 months of the date on which the review is commissioned.(6) The Secretary of State must—(a) lay the report before both Houses of Parliament as soon as reasonably practicable after receiving it;(b) within six months of laying the report, publish a statement setting out the Government’s response to the review and any actions it proposes to take.”Member’s explanatory statement
This new clause would require the Secretary of State to commission an independent review into injustices experienced by members of occupational pension schemes where employers or scheme sponsors have failed to properly support, inform, or protect members, and to consider options for reform or redress.
Lord Palmer of Childs Hill (LD)
My Lords, this group concerns defined benefits, fairness and redress. Amendment 216 in my name asks for independent reviews into serious, alleged injustices affecting scheme members. It is broad and seeks an independent review into injustices in occupational pension schemes caused by actions or omissions of employers, sponsors or administrators, including failures of communication, governance and redress mechanisms. A number of campaigners and victims of injustices have reached out to share their stories; we hope that the Government will take this amendment forward in order to send a clear message to those campaigners that the Government will listen to them and rectify any wrongs that exist.
I turn to Amendment 218 in my name. I have had lots of information from the noble Baroness, Lady Altmann, who cannot be with us today; I will try to incorporate that into what I say, so noble Lords will get two speeches for one here. In our earlier debate in Committee on the amendment designed to assist members of the AEAT pension scheme’s closed section, who were advised to transfer all of their accrued pre-1997 pension rights into a new private sector pension scheme on the privatisation of part of the UK Atomic Energy Authority, the Minister stated in her response—she will remember this—that the case around AEAT pensions “has been fully considered”. She specified that there had been
“reviews by three relevant ombudsmen, debates in the Commons in 2015 and 2016 and a report by the NAO in 2023. This matter has also been considered by previous Governments in the period since AEAT went into the PPF, all of whom reached the same conclusion”.—[Official Report, 5/2/26; col. GC 668.]
It is clear that the Minister and the Committee were being told that thorough investigations had found that there was no case for remedying the loss of promised government protection of these pension rights. That is just not correct, I am afraid. It is important to set the record straight today; I hope to do so, guided by the noble Baroness, Lady Altmann, who has given me some notes on this as well.
There has been no ombudsman investigation of the core issue, which is the closed-section AEAT pensioners, now mainly in their 70s to 90s, who were misled on privatisation in 1996 by a GAD document to transfer the historic Treasury-backed—that is the point; they were Treasury-backed—public sector UKAEA benefits into the new privatised-company AEAT scheme. They were not informed that the new scheme did not have the same security, despite reassurances in both Houses of Parliament that their pensions were safe.
Viscount Thurso (LD)
My Lords, I rise to support my noble friend, particularly in respect of Amendment 218, to which I have added my name. I do so because I have something of an interest: for most of its existence and until quite recently, the superannuation fund of the United Kingdom Atomic Energy Authority was based in Thurso. A number of my former constituents were beneficiaries of that fund and a small number of them ended up becoming beneficiaries of the AEAT plc fund, when that came into existence. It has always struck me that something remarkably close to mis-selling went on at the beginning and that we really have a moral duty to try to correct it.
I, too, looked at the comments that the Minister made in her speech on 5 February. As my noble friend pointed out, she said that the case around AEAT pensions had “been fully considered”. What sprang to my mind when I read those words was the scene in “Independence Day”, when the President is telling everybody that there is no such thing as Area 51 and Defense Secretary Nimziki says that that is not, strictly speaking, true.
Looking at the Minister’s comments that came afterwards that there were three ombudsmen involved, as my noble friend said, the ombudsmen were all asked and all declined, because of vires, to give an answer. Looking at the parliamentary scrutiny, that was two Westminster Hall debates, one by Sir Geoffrey Clifton-Brown and one by Sir Oliver Letwin, I think. As anybody who has done a Westminster Hall debate knows, that is not proper parliamentary scrutiny. Of much more importance were the NAO and PAC reports, which came to the conclusion that there was a case to answer. Indeed, the last Pensions Minister in the previous Government, Paul Maynard, accepted that something should be done and suggested that something would be done, but the election has intervened.
The core issue is that the Government Actuary’s Department, in its publications, gave the distinct impression that the quality of the pension for those who transferred would have an equivalent security to the quality of the pension that had the Crown guarantee with UKAEA. That is clearly not the case, which is the core issue around all this.
As an aside, and in parenthesis, there have been occasions when a Crown guarantee has in these circumstances been transferred across. I was in fact responsible for one when I was chairing VisitScotland and we took the Scottish staff out of the BTA scheme and obtained a Crown guarantee to let that happen, so it is perfectly possible.
This amendment gives an elegant redress that the Government can use to look at, as my noble friend says, a very small number of remaining pensioners suffering under this. I commend it to the Government. In summary, this seems to me to be something that, were it in the private sector and sold by a bank on the high street, would be called PPI, frankly. That is the level of it, in my humble judgment. Therefore, first, there is a duty to do something about a clear mis-selling. Secondly, it has not been properly scrutinised up until the NAO and PAC reports. Consequent on those reports, a previous Government Minister indicated that they would look at doing something about it. For all those reasons, we should now take this opportunity to right a manifest wrong.
Lord Davies of Brixton (Lab)
These two amendments are grouped together. There are clear common themes between them, the most obvious one being dissatisfied scheme members: dissatisfied pensioners concerned that they have ended up worse off than they might reasonably have expected. I thank the noble Lord, Lord Palmer of Childs Hill, for his excellent description of both problems, and in broad terms I support the spirit behind these amendments. Of course, both of them call for a review, but in truth we do not really need a review; we know that wrong was done here and we are really asking for the Government to accept some responsibility for providing an element of redress.
Amendment 216 is actually about a thing called integration in pension schemes. This was a technique used widely in the 1970s, 1980s and 1990s, where the occupational pension had a target taking account of the state pension, integrating the state pension into the benefit model. Where the retirement age of the scheme was, for example, 60—we had schemes with a retirement age of 60 in those days—it was integrated by paying more money between 60 and 65. We are talking about a man here. That was when the state pension would come into payment. At that point, the scheme pension would be reduced to allow for the fact that they are now getting this pension from the state.
That is an issue of scheme design, and my view is that the rules of the scheme should be set through collective bargaining. The problem is that that sort of arrangement is much more obvious to someone like me with a lot of experience. I sometimes would claim that my superpower is understanding scheme rules. It is absolutely clear to me, but I can well understand that an ordinary member of the scheme would not immediately have that understanding. Of course, it is quite possible that they see their pension being cut when they get to state pension age. In some schemes, it is actually cut before they get to state pension age now, because the rules still refer to a reduction at 65 and the state pension is not payable until 66, so there are big problems.
Of course, it is possible to look at it the other way around: the member is actually getting a bigger pension after state pension age, and that is to their advantage. This goes to the central point, which is a lack of understanding among scheme members. Were they misled into giving more credit to the scheme? Clearly, for the particular campaigning groups we have heard from—under Amendment 216, there are a number of different groups—their case rests on the argument that the way the rules worked was not adequately explained to them, and they need compensation for how they were misled.
Baroness Stedman-Scott (Con)
My Lords, I begin by thanking the noble Lord, Lord Palmer, for bringing forward these two amendments. I hope noble Lords will forgive me if I am relatively brief. At this stage, I am not sure that there is a great deal to add beyond listening carefully to the Minister’s reply and reflecting on it.
Turning to Amendment 216, the intention behind the proposed new clause is plainly serious and honourable. It goes to the heart of many of the issues that the noble Lord explored in speaking to the more specific provisions in Amendment 218. It seeks to ensure that, where members of occupational pension schemes have suffered detriment as a result of the actions or omissions of employers, sponsors or administrators, those injustices are properly examined. That instinct is entirely understandable.
When failures occur, whether through poor governance, inadequate communication or regulatory weakness, the consequences can be profound. Members may discover losses only years later, often at or near retirement, when there is little opportunity to recover. For some, that can mean genuine hardship. It is therefore right that this House remains vigilant and does not dismiss concerns about injustice lightly. The proposed new clause is also right to emphasise information failures, governance weakness and access to redress. Transparency, fiduciary duty and effective routes to remedy are fundamental to maintaining trust in the pension system.
However, while the intention is sound, we must consider carefully whether this is the right practical solution. First, there are already several mechanisms in place to investigate and adjust injustice. The Pensions Regulator exercises oversight and enforcement powers, the Pension Ombudsman provides an independent route for complaints and can issue binding determinations and parliamentary committees have repeatedly examined systemic issues in pension governance. Before establishing a further independent review, we should ask whether there is a clearly defined gap in the existing framework.
Secondly, the proposed new clause is framed in very broad terms. It calls for a
“review into injustices experienced by members … as a result of the actions or omissions”
across the occupational pension landscape. That could encompass decades of case history, multiple regulatory regimes and a wide variety of scheme structures. There is a risk that the scope becomes so expansive that it proves difficult to deliver focused and actionable conclusions within the proposed timescale.
We must also be mindful of expectations. A statutory independent review, particularly one examining injustice and potential options for compensation, may raise hopes of large-scale financial redress. If the eventual conclusions are more limited, or if remedies carry significant financial implications, it may lead to further disappointment among those affected.
If there are clearly identifiable categories of members who have fallen through gaps in the system, or areas where regulatory architecture has demonstrably failed, those issues should indeed be examined with care and precision. In short, the intention behind the proposed new clause is principled and compassionate. It recognises that pensions are about security and dignity in later life, and that injustice in this sphere can have lasting consequences. The question for us is whether a broad, independent review, commissioned within three months and covering the full occupational landscape, is the most effective and proportionate way to achieve that objective. I look forward to the Minister’s reply.
Viscount Thurso (LD)
The noble Baroness has answered the broad point in my noble friend’s first amendment, but there is the narrow point in AEA Technology, which seems to meet exactly what she said: namely, that there is a specific gap that members have fallen through, where Ministers in this place and the other place are both giving cast-iron assurances and documentation and still there is a problem. Does she accept that this needs particular attention?
Baroness Stedman-Scott (Con)
I made it very clear we have to look at where things have fallen through a system and where people have been severely impacted, and we have to look at it compassionately. My question was whether this is the right method and vehicle to do this, not whether we should look at it.
Baroness Sherlock (Lab)
My Lords, I am grateful to the noble Lord, Lord Palmer, for introducing his Amendments 216 and 218. Amendment 216 would require the Secretary of State to establish an independent review into injustices experienced by members of occupational pension schemes due to the actions or omissions of employers, scheme sponsors or scheme administrators. Amendment 218 would require the Secretary of State to establish an independent review into pension losses former employees incurred when AEAT went into administration and their scheme entered the PPF.
Speaking to both amendments, the Government recognise the importance of pensions security in retirement, and member protections for those saving into pension schemes. We understand the hardship it can cause when people do not receive what they expect to receive in retirement. We also recognise the importance of strong member protections to ensure trust and confidence in our pensions system.
Amendment 216 refers to injustices, but it does not define these, so the remit for such a review is potentially very wide and would be difficult to achieve. The Minister for Pensions has met with a number of representatives from schemes to ensure that their issues are heard. This Government have listened and are taking action. For mineworkers, the Chancellor announced in the 2025 Budget that the investment reserve fund of the British Coal Staff Superannuation Scheme will be transferred to its members.
As covered in an earlier debate, the Government are also introducing increases in compensation payments from the PPF and the FAS that relate to pensions built up before 6 April 1997. This has been a concern for members of several schemes, including AEAT. I recognise the difficult position members have found themselves in and am pleased to say that members whose former schemes provided for these increases will benefit from these changes.
We also recognise the importance of members having a route to raise concerns or complaints with their scheme when things go wrong. Where a member has a concern about a scheme that cannot be resolved through the internal dispute resolution process, they can go to the Pensions Ombudsman. Where its remit allows, the Pensions Ombudsman provides an independent, impartial service to resolve pension complaints and disputes, offering a route to settle issues fairly and ensure that members’ rights are upheld.
The Pensions Regulator was set up to ensure that pension schemes and employers fulfil their duties to occupational pension scheme members. It makes sure that employers enrol their staff into a pension scheme and pay contributions into that scheme. It also makes sure that workplace pension schemes are run properly, so that people can save safely for their later years.
Central government and regulators are working actively with industry representatives to identify scam activity and put appropriate safeguards in place to prevent scams. To avoid members becoming victims of scams, pension schemes must carry out due diligence on transfers. All sides of the House agreed the introduction of the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021, introduced in November 2021. Those regulations limit a member’s statutory right to transfer if concerns are identified. In certain circumstances, the transfer will be paused, while in others, the transfer will not be able to proceed.
Lord Palmer of Childs Hill (LD)
My Lords, I thank the Minister for her customary comprehensive reply, but I do think the Government have to think outside the box. The idea that “It’s not me, guv” is not really good enough. Yes, it is long and complex, but an elegant redress could be affordable, and virtually cost-neutral, for the Government. Precedence exists and a solution to right what I still think is a wrong must be explored by the Government.
Let us not forget that those employees were promised protection by the Government and, despite assurances, I do not think they have got it. Instead, they have found that government protection was worse than no protection at all. I had hoped that the Government today could provide sufficient assurances to the victims of what I see as an injustice, and specifically answer whether they are planning to right the wrongs outlined in the NAO and PAC reports. I have not received those assurances.
I hope, trying to further this in a positive manner, that the Minister might meet with me and representatives of AEAT, who are more on the ball than I am on this subject, to discuss the issue. I see this as quite probably coming back on Report. It is not going to die here today. On that basis, I beg leave to withdraw the amendment.
Baroness Neville-Rolfe
“Review of public service pension schemes(1) The Secretary of State must, within 12 months of the day on which this Act is passed, conduct and publish a review of the long-term affordability, intergenerational fairness, fiscal sustainability, and accounting treatment of public service pension schemes.(2) In conducting the review under subsection (1), the Secretary of State must have regard to—(a) the current and projected cost to the Exchequer of such schemes,(b) their affordability in the context of long-term public finances,(c) the impact of such schemes on different generations of taxpayers and scheme members,(d) the implications of demographic change, including longevity and workforce participation, for the sustainability of such schemes, and(e) the manner in which the liabilities associated with such schemes are recorded, disclosed, and accounted for within the public sector balance sheet and related fiscal reporting frameworks.(3) In preparing the review, the Secretary of State must consult—(a) the Office for Budget Responsibility,(b) the National Audit Office,(c) His Majesty’s Treasury, and(d) such other persons or bodies as the Secretary of State considers appropriate.(4) The schemes to which subsection (1) applies are—(a) the NHS Pension Scheme,(b) the Teachers’ Pension Scheme, (c) the Civil Service Pension Scheme,(d) the Armed Forces Pension Scheme,(e) the Police Pension Scheme,(f) the Firefighters’ Pension Scheme, and(g) any other public service pension scheme designated by the Treasury by regulations as operating on an unfunded or pay-as-you-go basis.(5) The review must be laid before both Houses of Parliament.(6) Nothing in this section affects any pension entitlement accrued in respect of service.”Member’s explanatory statement
This new clause would require the Secretary of State to conduct and publish a review of the long-term affordability, intergenerational fairness, fiscal sustainability, and accounting treatment of public service pension schemes.
Baroness Neville-Rolfe (Con)
My Lords, Amendment 217 would require the Secretary of State to conduct and publish a review of public sector pensions. I am very grateful to my noble friend Lady Noakes for her support and am only sorry that she has other commitments this evening.
I have always worried about the cost and sustainability of such pensions. I am a beneficiary of a modest one myself from my years in the Civil Service, and it is generously uprated every year.
Interestingly, there is a lacuna in the work the Government are undertaking on pensions. We have the Pension Schemes Bill, which we are busy scrutinising and which addresses problems with local government pensions and value for money in private schemes; we have the Pensions Commission review, led by this House’s eminent pensions expert, the noble Baroness, Lady Drake; and we have another independent review of the state pension age in progress. I expect that that review, like the one I conducted some years ago, will recommend an increase in the pension age in due course, and ways to encourage people to stay in employment for longer—for many good reasons.
However, there is a glaring gap. As far as I can see, none of these initiatives will address the sustainability of unfunded public sector pensions, their accounting treatment, or how best to tackle the issue of intergenerational unfairness that is an almost inevitable result of the fiscal unsustainability of these schemes. They include pension provision for some of the most important public services: the NHS pension scheme, the teachers’ pension scheme, the Civil Service pension scheme, the Armed Forces’ pension scheme, the police pension scheme and the firefighters’ pension scheme.
The numbers are big. There are over 3 million active members in the NHS, teachers’, Civil Service and Armed Forces schemes, 2.2 million deferred members and 2.8 million pensioners. That is a total of 8 million individuals. As populations grow older, the proportion receiving gold-plated defined benefit pensions will grow if nothing is done.
This is a virtually forgotten area of inquiry, perhaps because all of the policymakers and public sector trade unions are beneficiaries. However, since I tabled my amendment, there has been a useful report on the subject by Policy Exchange. I have also discussed the problem with the Centre for Policy Studies and with the economist Neil Record. I am glad that my noble friend Lord Moynihan of Chelsea is speaking today, as he has addressed this subject in his book, Return to Growth. As we will no doubt hear, he is very passionate about the unfairness that this represents.
Most people are aware that Britain has a huge national debt, which already sits at £2.9 trillion—97% of GDP—and is growing. However, as Neil Record has argued, there is a second national debt, the public sector pension debt, reflecting the cost of public sector workers’ defined benefit pensions. This is kept out of the limelight but, on government figures, the past five years’ average public sector pension liability as a percentage of GDP is 74%. That is on a scale that approaches the order of magnitude of the actual national debt. At the heart of the problem is the fact that this is a very long-term issue, like the actual national debt, with reform virtually impossible to reconcile with the electoral cycle.
I need to explain some of the complexities. On the surface, things look fine. In 2025-26, according to PESA 2025, there was a total of £58.6 billion-worth of public sector pensions being paid to about 3.5 million pensioners—that is a CPS estimate. This compares to a total of employer and employee contributions of £57.3 billion, which has dramatically risen in recent years. So, apparently, all is well.
But I am afraid that is not the case. The sums paid in pension contributions by employees do not go towards their pensions but to pay the pensions of those already retired. There are no savings to pay future retirees. I know that the figures in the OBR’s Fiscal Risks and Sustainability report of July 2025 are lower than Mr Record’s, but it is partly a question of how you do the calculations. Estimates on longevity and long-term public sector salaries are particularly difficult to predict.
My main point today is that, on any credible estimate, the numbers are frighteningly large. Something must be done. Moreover, the situation is getting worse, as commitments grow over time. It is unfortunate and regrettable that the scale of the problem is not properly reflected in the national accounts, although this is very difficult to unravel, even for those who are reasonably financially literate.
It is hidden by a combination of the accounting conventions and the moves in interest and gilt rates, which have made things look temporarily much healthier than they are. One of the most important variables in pensions is the interest rate applied to notionally invested contributions. Higher interest rates result, according to standard accounting conventions, in lower pension costs, and, of course, vice versa. However, when the facts are unravelled, even if no new pension commitments are made from this point—that is, if all the current schemes were closed to new accruals—existing public sector pension payments will continue to rise until the early 2060s, which, on best estimates, will by then amount to some £130 billion a year, with no capping mechanism of any sort.
You will struggle to find any acknowledgement of this in our national accounts. The Government use a long-standing convention called SCAPE—superannuation contributions adjusted for past experience. I will not go into the detail, but it is uniquely vulnerable to manipulation and, according to informed opinion, has been manipulated with the use of artificial rather than market-based interest rates.
I have also discovered an allegation that there has been a surprising adjustment in the NHS arrangements—the largest of the public sector pension schemes. So, when employer contribution rates were raised, as they certainly needed to be, from 14.3% to 20.6%, the then Government decided to finance the gap of 6.3%—allegedly temporarily—by paying that amount directly from the Treasury rather than charging the NHS employing organisations. In 2024-25, the gap rose to 9.4%, or £6.6 billion per annum, which the Government have now decided to fund permanently. Although there is no overall impact on the public finances, this sets a poor precedent of obscurity in an already obscure system. So, can the Minister kindly let us know the justification for this decision to fund this gap permanently?
Lord Moynihan of Chelsea (Con)
My Lords, defined benefit schemes have been described as an immoral bet upon an uncertain future. Long service in the public sector can mean getting, as my noble friend stated, a pension of two-thirds of lifetime salary. That is inflation adjusted, and for as long as ye shall live. Some noble Lords in this Room will be beneficiaries of these or similar schemes, and I therefore hope that my remarks will not be received ungenerously and will not be taken amiss, because we cannot afford these schemes. The cost of them will inevitably, and soon, spiral out of control.
As long ago as 2010, the very reasonable and thoughtful noble Lord, Lord Hutton, was brought in to address this major problem. His inquiry had nine advisers; seven of them, I think, were in receipt of these public sector schemes. There was no representative of the taxpayer who pays for these schemes. The expert Neil Record was asked to be an adviser but was then disinvited. I put in two 20-plus page submissions to the Hutton commission but received zero acknowledgement. The outcome of the exercise was a few valuable tweaks but, allegedly by pre-agreement, no change in the overall money expected to be paid out.
The Hutton review’s conclusion that these schemes were a good thing was not entirely surprising. The report admitted that these schemes were costing us 1.9% of GDP but asserted that the cost would settle at 1.2%. Did it? It did not. In 2024, current costs were still 1.9% of GDP, but the OBR now says they will decline to 1.4%. Again, will it? It will not. Anyway, even 1.9% of GDP is outrageous. This is an extra pension for life, enjoyed by a privileged 20% of the population that they have awarded to themselves, and that the remaining 80% of the population who actually pay the taxes that fund this 1.9% of GDP scheme do not and will not get.
One Hutton report conclusion is that the Government must honour these promises in full, yet countries around the world have already reneged on public sector pension obligations. It is important to understand why they are having to do this and why we might have to. In the UK, current outgoings from these schemes are, as my noble friend said, £57 billion a year. Where does that money come from? There is no pot of funds accumulated to pay it. It comes from the money being paid in from currently employed public servants, assertedly to fund their future benefits. Just now, entirely coincidentally, the money paid in is also more or less £57 billion. That is right; there are two entirely separate £57 billion amounts—money paid in by one group and paid immediately out to another.
Let public servants currently employed beware that the money they are paying in, that most of them believe is to fund their future pensions, instead goes straight out to others. It does not have to fund a penny of their future pension. It is a Ponzi scheme just like Bernie Madoff, no different. While the flows currently appear to be in balance, that is just a momentary coincidence. Soon, as more public servants retire, outgoings will start getting increasingly larger than incomings. The £57 billion paid in each year will stay much the same or even decline if the number of public servants employed declines.
By 2060, as my noble friend Lady Neville-Rolfe said, the amount paid out will have risen to over £130 billion a year, which is a £37 billion gap. The £130 billion paid out in 2060 would be as low as that only if we were to stop all these schemes right now. If we do not, future money paid out will rise exponentially with the gap widening even further. That is what happens with a Ponzi scheme: it becomes unsustainable eventually. The present value of commitments to date is somewhere between £1.5 trillion and £2 trillion—not much smaller than our entire GDP. If we keep the schemes going, who knows what that number will rise to over time? It could be £4 trillion or more, a colossal sum.
What happens when people start to live even longer? When these schemes were set up, the average retiree lived just three or four years beyond retirement. Now people live to over 80—15, 20 or more years beyond retirement. That is why these schemes are now entirely unaffordable. When we start to live even longer than we do now, as we will, the cost will become astronomical. But the commitments to keep paying as long as ye shall live are being made right now, at a time when we have no idea what medical advances will be made and nor, therefore, what we will end up having to pay. That is what makes these schemes so reckless: a risky, unknowable future with undercooked analysis that passes an enormous, concealed cost to future taxpayers.
What would a moral, future-proof scheme look like? Much like what I proposed to the Hutton commission all those years ago in 2010. First, we must all be in it together, with no one law for the public sector elite and another for the rest. Secondly, therefore, the only defined benefit scheme should be for state pensions. Thirdly, accordingly, all public sector schemes should be moved instanter to defined contribution. Fourthly, all obligations—funded and unfunded—should be owned up to, not hidden as now, and published as part of the reported national debt. Fifthly, steps should be taken to fully fund existing commitments and not take them out of other pensioners’ contributions. If things get worse, perhaps let us say there should be a 75% tax rate on all public sector pensions above £30,000 a year.
Most private sector companies closed their defined benefit schemes in the 1990s and 2000s. Had they not, their companies would have gone bankrupt. The public sector has long been in precisely the same situation. As I say, a possible impediment to change is that almost all MPs, and indeed some Members of this House, are beneficiaries of similar schemes. Just one MP, Jacob Rees-Mogg, always turned the benefit down, as a matter of principle. We need both our elected and unelected legislators to show that same magnanimity of spirit in rectifying this situation.
Lord Davies of Brixton (Lab)
I am glad that we are having this debate now, but only as a taster for a proper debate at a proper time—I am quite surprised that the clerks accepted this amendment as being within the scope of the Bill. I have no objection to a debate on public service pensions; I encourage one. I feel totally comfortable with having a debate on public service pensions, because I think they are eminently defendable. I accept very little of what the noble Lord has said, and the doom and the gloom that has been expressed, and a proper opportunity to have that debate would be very welcome, but I shall focus on the need for a review.
Of course, as we have been told, my noble friend Lord Hutton of Furness undertook an independent review of public service pensions in 2010-11. That review was established by the coalition Government; they set it up, they accepted its recommendations and they gave a guarantee. In a Written Statement on 20 December 2011 about Civil Service pension arrangements, the noble Lord, Lord Maude of Horsham, who was then an MP and Minister for the Cabinet Office, gave
“a guarantee, outside of the scheme designs parameters”—
that is what the benefits were—
“of no further reform for the next 25 years”
I do not know what people think a guarantee means, but to me it means no more changes for 25 years. Of course, the Statement was repeated in your Lordships’ House and the noble Lord, Lord Wallace of Saltaire, repeating the Statement, also gave a guarantee for the next 25 years. I mentioned to both noble Lords that I would be quoting their words in this debate, and it would be worth asking them what they think the word “guarantee” means. A guarantee was given to public service workers as part of their terms and conditions of employment. It was not just a policy objective; it was part of their terms and conditions of employment. I think that to make changes without breaking the guarantee would be an extremely bad approach to the settlement.
I agree with very little of what was said criticising public service pensions, but I think there is a need specifically to understand the arrangements. First, retirement age will increase in line with state pension age. That is an adjustment mechanism. The more important adjustment mechanism is that there is a cap on employer costs, and it is members who stand the risk of having their benefits cut if the cost escalates. None of that was reflected in the remarks made so far. That cap, as has been explained, is calculated using a discount rate, and that discount rate is determined in a way that adjusts for economic changes. As mentioned, a higher discount rate reduces the cost of future benefits. At the same time, a lower discount rate increases the cost of benefits. If the cost of benefits increases, as part of the settlement that was reached, members’ benefits have to be cut or their contributions increased. That is the nature of the settlement that was reached in 2011. I think it is totally wrong to mislead the Committee about the nature of the deal that was done. Am I allowed to say “mislead”?
Lord Moynihan of Chelsea (Con)
I hope the noble Lord will withdraw that word. I do not recognise what he is saying. My noble friend was talking about the NHS. Was it NHS workers who were required to put in that extra money?
Lord Davies of Brixton (Lab)
It is interesting. I thank the noble Lord for his intervention. Okay, I withdraw the word “mislead” and I apologise for using it, but the full picture was not given to members of the Committee about the nature of the public service pension arrangements. Member contributions are adjusted and have been adjusted because of increasing costs. In fact, at the valuation before last, because of the way the economic indicators work, the cost actually fell, and the last Government had to push through urgent legislation in order to stop members’ benefits being increased. I will not use the word “fiddle”, but the terms were adjusted to protect the employer rather than giving additional benefits to members, so if anyone has a complaint about the way this system has worked, it is the members, even before we get to the problem of the 10-year guarantee that arose.
As I said, I would welcome the opportunity of a proper debate defending the way in which public service pensions are provided in accordance with the Hutton report as agreed by the coalition between the Conservatives and the Liberal Democrats. The one thing on which I agree with the noble Lord is that we need pension arrangements in which we are all together. I agree totally. Given that the underlying question is what sort of incomes we want people to have in retirement and whether we want them to be adequate, I think the objective should be to offer people in the private sector the opportunity to accrue pensions on the same terms as those provided to people in public service. I will be setting that all out in my submission to the Pensions Commission.
Viscount Thurso (LD)
My Lords, I was not going to take part in this short debate, but I am drawn into it by some of the comments that the noble Lord made. In respect of future funding, it is an absolutely valid point that we should have regard to the liability we are accruing, and we should work out how we want to fund it. That is open for debate, and I do not take issue with it in any way, shape or form. But the central point is that we employ public service workers on a contract which is in part what we pay them now and in part what they will get in the future. There is an obvious trade-off between the fact that they will be earning less during their working lifetime but probably for a better pension.
Indeed, I look to my sons, if I may. One is a police constable in Scotland. Before he became a police constable, he ran a hotel and got a degree in hotel management. He is now being paid about two-thirds of what he would have earned as a hotel manager, where he would have been funding his own pension on auto-enrolment. He is doing what he loves doing and has chosen it because he looks at what he will get in retirement as part of the package for the service he gives now. My other son is a primary school teacher in south London, who also has a degree in hospitality and ran a hotel. As somebody in the hospitality industry, I am doing my best to talk the industry down, but I do not mean to do that. The point I mean to make is that they both decided they had vocations and both have given up a considerable amount of current earnings to do something in public service that they like.
So, although I agree entirely that we should look at funding, I disagree that defined benefit schemes are inherently wrong. I am a trustee of the Parliamentary Contributory Pension Fund. MPs put in roughly 11%; the Treasury puts in 10%; it is fully funded and all the liabilities are covered. The noble Lord said—I wrote it down—that 20% of the privileged have awarded themselves a pension. I take issue with that. Tell it to the police constable being spat at in the aftermath of Covid on the streets of Aberdeen. Tell it to the primary school teacher who is there for 12 or 14 hours looking after a disabled child and getting them to where they ought to be. Tell it to a nurse who is working a second shift on A&E. If we want public service workers, we either pay them today and tomorrow with a good pension or we up the cost of the public sector by 30% today. It is one or the other.
Baroness Bowles of Berkhamsted (LD)
My Lords, I will say only a couple of things. The first is that this is asking for a review and transparency. It is necessary for us to know the liabilities that are stacked up; there is no getting away from that. My experience in this came in the financial crisis, when I was in Europe and chair of the Economic and Monetary Affairs Committee. We were doing battle with the IMF and the troika and all the cuts that were happening to pensions—for instance in Greece, where they halved all the defined benefit pensions. Over time, the courts have reinserted a lot of them, so they have come back again. That reflects the point about bargains and promises being made—although we have heard today about promises being made and then not happening for some of the erstwhile public sector that unfortunately went through a privatisation.
I see nothing wrong with a review and nothing wrong with the cost of these things being more public knowledge, and I am also for a considered look at whether they have to phase out in the future, whether we have to pay more for these jobs and whether we have to have something that is more together. Although different people might be on different sides of the argument, the fact is that if the crunch time comes—if we have to have the IMF in—I know where the finger will be pointing first, because “been there, done that”. So, let us have a review.
Baroness Stedman-Scott (Con)
My Lords, I support Amendment 217, tabled by my noble friend Lady Neville-Rolfe. This amendment does not seek to diminish the value of public service, nor to undermine the pensions of those who dedicate their careers to the NHS, our schools, the civil service, the Armed Forces, the police or the fire service. Rather, it asks for something far more modest and necessary: transparency, long-term thinking and honesty about sustainability.
The amendment would require the Secretary of State to conduct and publish a review of the long-term affordability, intergenerational fairness, fiscal sustainability and accounting treatment of our major public service pension schemes, including the NHS pension scheme, the teachers’ pension scheme, the Civil Service Pension Scheme, the Armed Forces pension scheme, the police pension scheme and the firefighters’ pension scheme. My noble friend Lady Neville-Rolfe has outlined clearly and forensically the challenges of the concerns about the sustainability of unfunded public sector schemes. These are not new, but they are becoming more pressing. In 2023-24, total employer and employee contributions amounted to £49.9 billion. Total payments to pensioners were £55 billion. That left a shortfall of £5.1 billion, met directly from general taxation. In other words, today’s taxpayers are already topping up the system.
According to the Policy Exchange, unfunded public sector pension liabilities now stand at approximately £1.4 trillion: around 45% of GDP and approaching half the size, or more, of the official national debt. These are not hypothetical sums; they are long-term promises underwritten by future taxpayers. Unlike funded private sector schemes, most public sector pension contributions are not invested to generate returns; they are returned to the Treasury while current pensions are paid from current spending. This means future liabilities depend on future taxation. The burden is simply rolled forward. That may be sustainable—but it may not be. Surely this Committee is entitled to know which it is.
My noble friend Lady Noakes in her foreword to the Policy Exchange report set out clearly that transparency and realism are essential if we are to protect both pensioners and taxpayers. A mature system does not fear review; it welcomes it. I ask the Minister: do the Government believe the current trajectory of unfunded public service pension liabilities is sustainable over the next 20 or 30 years, what assessment has been made of the intergenerational fairness of asking younger taxpayers—many without access to defined benefit pensions themselves—to underwrite these commitments, how does the Treasury account for these liabilities in long-term fiscal planning, and are they fully reflected in measures of public sector net worth? Finally, if the Government are confident in the system’s sustainability, why resist a formal review that would provide clarity and reassurance?
This amendment would not prescribe reform; it simply asks for a comprehensive review and publication of the facts. If the costs are sustainable then let us demonstrate it, and if adjustments are needed then let us confront them honestly.
Baroness Sherlock (Lab)
My Lords, I thank the noble Baroness, Lady Neville-Rolfe, for introducing Amendment 217, which would require the Secretary of State to produce and publish a review of public service pension schemes, focusing on different aspects of the cost, affordability and accounting treatment of these schemes. I remind the Grand Committee that I am a member of the parliamentary pension scheme, and therefore of my appreciation of the work of the noble Viscount, Lord Thurso.
The noble Baroness is quite right to focus on the affordability of these schemes and what this means for intergenerational fairness, given that unfunded public service pension schemes pay out over £60 billion in pensions and lump sums each year and are often the single largest liability in the whole of government accounts.
However, as has been indicated already, and as the noble Baroness will know only too well, her party conducted a major review during the coalition Government, in the form of my noble friend Lord Hutton’s Independent Public Service Pensions Commission. That led to major reforms, including the new schemes to which all active members of the main schemes are contributing today, with a move from final salary to career average design, higher pension ages and higher member contribution rates. Due to the McCloud judgment and the resulting choice exercise for affected members, those members may have been building up only since April 2022, meaning that these major reforms are only now fully bedding in for all members. As my noble friend Lord Davies noted, the then Government committed to the 25-year guarantee, in effect committing to no further major reforms to public service pension schemes until 2040.
The proposed review would be conducted by the Secretary of State for Work and Pensions. However, I note that statutory public service pension schemes are the responsibility of the Chancellor of the Exchequer, and I know that the Treasury works closely with the OBR and the NAO on this policy area already.
The centrality of the questions that the amendment would require the review to consider means that much of this information is regularly published already. For example, the OBR publishes a forecast of the cash-flow cost of public service pensions over the coming years as part of its forecast at every fiscal event, including spending on pensions and lump sums, income from pension contributions and the net balancing payment to or from the Exchequer. The OBR also publishes long-term projections of spending on public service pension schemes as a share of GDP as part of its fiscal risk and sustainability reports. As noted, the most recent forecast from September 2024 projects that spending will decline from 1.9% of GDP to 1.4% of GDP over the next 50 years.
Demographic changes as a result of longevity or migration are taken into account in the OBR’s long-term analysis. The sensitivity of scheme liabilities to longevity is central to the four-yearly valuation reports used to set employer contribution rates across schemes. Both the valuation reports and the whole of government accounts contain detail on different accounting treatments of scheme liabilities and how to interpret the resulting headline figures. Given that all this information is regularly published already, and the reforms to public service pension schemes that have already been implemented, a government review into the affordability of these schemes would merely collate existing information in one place.
Let me address some of the specific questions that were raised, turning first to the treatment of pensions and the whole of government accounts. In recent years, liability has decreased significantly, falling from £2.6 trillion in 2021-22 to £1.4 trillion in 2022-23 and £1.3 trillion in 2023-24. The whole of government accounts report is fully transparent in explaining that these changes were driven by an increase in the applicable discount rate rather than changes in the amount of pension being accrued by scheme members. The whole of government accounts reports present this liability in accordance with the international financial reporting standards. There are no plans to change that approach and nor do we think there should be.
However, I am aware that members of the PAC have asked whether this liability could be presented on a more permanent basis, to show how it would change in the absence of changes to the discount rate, to aid user understanding. The Treasury is currently exploring options to present pension liabilities on a constant basis. To be clear, any such presentation would be purely supplementary and would not affect the underlying pension liability calculations or the way those are presented in the financial statements.
The noble Baroness, Lady Neville-Rolfe, asked why the Government are funding the gap permanently. The answer is that current contributions reflect the cost of current employment—pensions to be paid in the future. Current contributions are not intended to be and do not relate to current pensions in payment, which were earned years or indeed decades ago. So current pension costs reflect pensions earned. This is therefore not an appropriate basis to consider affordability. Traditionally, the central measure for Governments has been pensions as a proportion of GDP.
On whether it is right to be paying these kinds of pensions, I am very grateful to the noble Viscount, Lord Thurso, for his stirring defence. It is really important to recognise that, sometimes, this is discussed as though all public sector employees are calling in huge salaries and doing little for them. He defended how so many people in the public sector are driven by vocation and a calling into public service: they do things to serve and often have lower salaries than they might have elsewhere. I pay tribute to all those who are in that position.
It is true that, compared with the private sector, remuneration in the public sector is weighted towards pension. This is why public service pension schemes are so central to the Government’s fiscal forecasts. However, the noble Viscount is quite right: public sector remuneration has to be considered in the round, across pay and pensions. That is why pension provision is specifically taken into account as part of the pay review body process across the major public service workforces.
It is also important to distinguish between the generosity and cost of the schemes and their DB design. My noble friend Lord Hutton noted in his review for the coalition Government that they are a large employer capable of bearing the risks inherent in a DB design. It is thus in a different position from other employers. In a sense, cutting public service remuneration, whether from pay or pensions, would allow any Government to score savings for the Exchequer, but the fact is that reward packages for each public sector workforce have to be designed to maintain the required levels of staffing and to deliver the required public services.
Finally, it is worth remembering that the changes made following the Hutton review were significant. As I said, the scheme design changed from final salary to career average; pension ages were increased to state pension age for most schemes and to 60 for the police, firefighters and the Armed Forces; member contribution rates were increased across schemes, except for non-contributory Armed Forces schemes; and other aspects of scheme design were modernised, for example, in supporting flexible retirement. At the time, it was estimated that those reforms would save £400 billion over 50 years. Separately from the Hutton reforms, the then Government also switched the indexation of the scheme from RPI to CPI, in line with other forms of spending.
This has been a very interesting debate but, as I have said, most of the information that has been sought in the review is out there already, so such a review is not currently worth while. I hope the noble Baroness can withdraw her amendment.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful for the support I have received this evening, particularly from my noble friend Lady Stedman-Scott and the noble Baroness, Lady Bowles, who, like me, cares a lot about transparency and favours a review. I listened with care to what the Minister said, and will look carefully at Hansard, but I do not think that the arrangements are very easy to understand, nor do I think that the OBR or government accounts are easy to understand or transparent.
I tabled my amendment because I wanted to air the problem of the unsustainability of public sector pension schemes as I see them. My noble friend Lord Moynihan described the current schemes as a Ponzi scheme, which was very strong, but he is right that we have a sustainability issue. That is in part caused, as has been mentioned, by the happy fact that we all now live longer. We face this issue in all our pension discussions and we cannot hide from it.
The noble Lord, Lord Davies of Brixton, helpfully agreed that a debate on these issues is needed. He and I go back, and we debate these things, which is very useful, but I was surprised to hear that a 25-year guarantee can be given by any Government. However, as has been said and is true, contributions by employers and employees in the public sector have increased as a result of Hutton, but we still have an unsustainable situation, so we need new thinking and certainly a review. I have been careful not to make any recommendations today, but to highlight the issues as I see them. It is wrong that this important Bill sidesteps the issue that is storing up problems—for our children and our grandchildren—from the pay-as-you-go schemes that we have.
Baroness Coffey
“Pensions dashboards(1) Within six months of the day on which this Act is passed, the Financial Conduct Authority must make rules to enable private sector pension dashboards to receive data and operate.(2) In the Pensions Dashboards Regulations 2022 (S.I. 2022/1220), in Regulation 4, omit paragraph (3).”Member’s explanatory statement
This probing amendment seeks to require the Financial Conduct Authority to open up data to private sector-run pension dashboards within six months. It also repeals the requirement for the Secretary of State to give notice specifying the “Dashboards Available Point” at least six months in advance of that point.
Baroness Coffey (Con)
My Lords, it is a pleasure to speak to the Committee about pensions dashboards.
I am conscious that this has been quite a long journey in terms of trying to get the pensions dashboard in the Pension Schemes Act 2021 initiated. I am aware that, at the time, the House of Lords was keen that there should not be a private dashboard, but the House of Commons gave its strong view. As a consequence, the Bill went through without specifying that DWP and MaPS had to produce a public sector pension dashboard first because we were concerned—I am still concerned—that the longer people do not know what is going on with their pensions, the shorter the time they may have to make informed choices or, at least, to consider and understand what their pension and retirement will look like in future. That is why I have tabled this amendment.
Two things come out of that. One is that, in essence, what is required is for the Financial Conduct Authority to sort out all the different bits in order to allow private sector pension dashboards to get the necessary data and to be allowed to start operating. Indeed, Pensions Dashboards Regulations that were passed a couple of years ago were amended to remove the dashboard’s available point.
Let me go on a slight journey; I do not intend to delay the Committee for very long, but I am really concerned about progress. I am aware of the reset that happened and the issues around what triggered it, which I do not think are public, but we are nevertheless in a situation where we should be making more progress than we are. It is notable that, in a Written Ministerial Statement in October 2024, the then Pensions Minister, Emma Reynolds, changed the Government’s policy from what had been the case; in effect, it had been neutral on what was happening around trying to get these dashboards going. She put in place a policy, which is still live in government today, saying that we must make sure that the DWP/MaPs dashboard comes out first and is well tested, and then we will start. We are still committed to doing the private sector-run dashboards but not to any particular date.
I am grateful to the Minister for putting on a recent briefing and to the chief executive of MaPS and the team coming to do that, but I have to say that I was somewhat alarmed that it still feels as if we are a long way off. I appreciate the connection deadline has not changed. It was great in a recent parliamentary Answer to see the progress of data provided, but it started to get me concerned about exactly the issues I considered several years ago: that once we get into MaPS and DWP starting to decide what are the best ways to do some of this communication and what user testing works well, they end up missing out on the opportunity of what the private sector does every day in terms of clear communication. That does not mean to say we are looking for a cowboy scheme—far from it as there is still the Financial Conduct Authority—but that we make more rapid progress than is happening now.
I know some of the pensions schemes people are happy to no longer have the six months. I know from the latest update from the programme board as part of the advisory group in December 2025 that despite acknowledging that the Government were clear that there would not be a private sector dashboard allowed anywhere near to the launch date of the public sector dashboard its number one issue was trying to make sure that that was available as quickly as possible.
I am conscious of things that seem to go awry. There had been amber ratings for a while, then, all of a sudden, there was a red rating on the pensions dashboard. Nevertheless, we are still making slow progress, and I feel that we should open this opportunity to make sure we have pension dashboards available as quickly as possible. With the best will in the world, MaPS is not moving quickly enough. I do not believe we will have a MaPS/DWP dashboard until some time in 2027.
The original intention when MaPS took this over— in 2023 I think—was that the connections would be completed by then. I fully understand the history on that. This is the opportunity to get on with this. We have spent a lot of time in this Bill saying we want to make sure people have better returns and better understanding of what is happening with their money in different ways. For me, the dashboards are a key part of that, and at the moment, it feels that while the Government have not deliberately decided to go slowly, we are going slowly as a consequence of their policy choices. It is vital that members of pension schemes know their situation so they can make the necessary choices.
I am sure the Government recognise that they did not communicate all the way back in 2005 and then were found to have caused maladministration in terms of the WASPI women as a consequence. We are not getting into a debate on compensation or something like that, but it is important we let people know as soon as possible, and that is why I have tabled this amendment today. I beg to move.
Lord Davies of Brixton (Lab)
I urge the Minister in her reply to stress the need for caution in this area. I am afraid I understand what the noble Baroness, Lady Coffey, is saying: we do seem to have been waiting a long time for the dashboard. However, I have always had questions about the private sector dashboard, and I think they can be answered only as and when the MaPS dashboard is up and running. The problem at heart—and it may be a caricature—is about the point of a private sector dashboard. It could all too easily be a way of getting hold of data. It is the old saying that you are not the customer, you are the product. That is the fear with the private sector dashboard, which is why we have to get the public sector dashboard up and working. We know what the issues are. It may be necessary to have private sector dashboards, but I am still not totally convinced.
Viscount Younger of Leckie (Con)
My Lords, I will speak in broad support of Amendment 218D, tabled by my noble friend Lady Coffey.
Let me start by recording my thanks to the Minister, the Pensions Dashboards Programme team and MaPS for the recent briefing session afforded to noble Lords, which was thorough; I felt that it was constructive, and, if I may say so, reassuring in so many respects. We heard that some three-quarters of workplace and personal pension memberships—that is, around 60 million people—are now connected to the ecosystem. This is no small achievement; we should acknowledge that. We were told that the October 2026 connection deadline remains on track, which is of course welcome.
Connecting schemes to the system is one stage, while ensuring that the dashboard operates effectively for consumers is another. Delivering the money helper dashboard, important though that is, is not the same as establishing a fully functioning marketplace that includes private sector dashboards. These are separate phases of the programme and ought to be treated as such.
In that context, we were taken through the money helper dashboard and its intended customer journey. It is a significant and necessary first step—no one disputes that—but it is explicitly designed to be the foundation, not the finished structure. The question that therefore arises is a straightforward one: what is the clearly defined pathway from that foundation to the wider ecosystem that Parliament was originally invited to envisage?
As my noble friend Lady Coffey said, the Government have confirmed, most recently in October 2024, that the money helper dashboard will be made available to the public before any private sector dashboards are permitted to launch. I understand this sequencing to some extent. It is sensible to test the system, assess customer behaviour and ensure that it is secure and reliable. To that extent, I understand the approach that the noble Lord, Lord Davies, has taken; he used the word “caution”. However, mine is a slightly different point—it chimes with those from the noble Baroness and my noble friend Lady Coffey—which is that there should be at least a plan and a timetable.
The Government have stated their commitment to private sector dashboards in principle. A commitment in principle must now be matched by clarity in practice, which is why I think that my noble friend’s amendment is very much necessary. When do the Government expect private dashboards to be authorised? If a firm date cannot yet be provided, can the Minister at least set out the framework within which that decision will be taken? What are the stages? What are the criteria? What is the intended sequence of regulatory approvals? Over what period do the Government expect those steps to be completed?
We are told that private dashboards will proceed only once the service is judged to be reliable, safe and secure, and once, of course, it has satisfied the FCA, the Department for Work and Pensions, the Pensions Regulator and MaPS. This is entirely proper, but does that mean that no indicative timetable can be offered until every test has been passed? Surely not. Is there no internal planning assumption or projected window? How are industry participants expected to prepare if there is no sense of when authorisation might realistically occur? Is there not a risk that the programme becomes defined solely by the October 2026 connection deadline? What sits beyond that date? What is the Government’s intended next milestone? Without a clear forward plan—this is my point—how can Parliament assess progress?
My noble friend’s amendment does not seek to override safeguards. It simply seeks clarity and discipline. The proposal that the FCA should open the gateway to private dashboard operators within six months of the public dashboard going live would establish a reasonable and clear expectation. If the Government disagree with that period, what alternative do they propose? What is their preferred timetable?
There is also a practical issue, which cannot be ignored, because the successful introduction of private dashboards will depend heavily on data quality; that has been mentioned. What is the Government’s current assessment of the accuracy and completeness of data across connected schemes? Where are the known weaknesses, and what remedial action is under way? How frequently is data quality being tested and reported?
I know that this is a familiar question that has been asked as we have been taken through the progress on the dashboards programme—I have been very grateful for the updates—but what engagement is taking place with schemes and providers to ensure that preparation extends beyond technical connection and moves towards operational readiness? Are the communications with industry focused only on meeting connection deadlines, or do they also address the standards required for a competitive, consumer-facing environment?
In conclusion, this programme has significant potential, but potential must be matched by a structured plan. Parliament is entitled to understand not only where the programme stands today but where it is going and on what timetable. My noble friend Lady Coffey is right to press for that clarity and, unapologetically, I have asked a lot of questions that chime with her. I await the Minister’s response with interest.
Baroness Sherlock (Lab)
I am grateful to the noble Baroness, Lady Coffey, for introducing her Amendment 218D and drawing attention to pensions dashboards. The Government recognise the important role pensions dashboards will play in increasing people’s engagement with their pensions, and we note the purpose behind the amendment. Obviously in practice it would require the FCA to make rules within six months of the Bill receiving Royal Assent to enable private sector pension dashboards to receive data and operate. It would also repeal the requirement for the Secretary of State to give notice specifying the dashboards’ available point at least six months in advance of that point.
I know that many noble Lords here are supporters of pensions dashboards and are keen that they are launched as soon as possible, so it has been good to be able to update noble Lords on the progress that has been made. I know some noble Lords were able to come to the presentation, but for those who were not, I just say that over 700 of the largest pension providers and schemes are now connected to the dashboards ecosystem, and over 60 million records are now integrated into dashboards. That represents around three-quarters of the records in scope. The state pension has now connected, adding tens of millions of state pension records.
My noble friend Lord Davies is right to say that we need to get this right. It is important that pension dashboards are launched only when they are safe, are secure and have been properly user tested. When noble Lords attended the demonstration, they could see that pensions dashboards provide a great opportunity for consumers. In order to realise that opportunity fully, we need to make sure that the service offers them a positive experience and meets their needs. Consumers need to be able to understand the information a pensions dashboard is showing them and the limitations of that information. They need to be supported by broader pensions guidance to help them with any potential actions after viewing their information. User testing is key to getting this right.
I am pleased to be able to advise the Committee that user testing of the MoneyHelper Pensions Dashboard is under way. Low-volume testing began last year and will ramp up during the course of this year. Only once we have confidence from this testing that the service is ready for widespread public use will the Secretary of State give six months’ notice for launch. The Government have previously confirmed that the delivery of the MoneyHelper Pensions Dashboard will be prioritised, to be followed at a later date by the launch of private sector dashboards. That will allow the launch of private sector dashboards to be informed by learning from the launch of the MoneyHelper Pensions Dashboard—for example, on volumes of users.
The noble Baroness, Lady Coffey, is more or less saying, “Why is it taking so long and what has happened?” She is right that there was a reset between March 2023 and March 2024 and the programme is currently rated amber, but the fact is that delivering pensions dashboards is a very complex task. The digital architecture will facilitate the search of millions of pension records held by thousands of pension schemes and providers, each with a different IT system and different ways of calculating values. It is important we get it right. Dashboards have to be safe and secure and must meet the need of consumers before they are launched. While the scale of the task of making dashboards a reality is huge, the fact is that delivery partners are making good progress. The pensions dashboard programme is confident that schemes and providers in scope will be able to connect by the regulatory deadline on 31 October 2026.
In terms of private sector dashboards, I can reassure the noble Baroness, Lady Coffey, that the Government are fully committed to delivering private sector dashboards and that MaPS is working closely with potential dashboard providers, the DWP and regulators on a pathway for their development and implementation. The FCA has already consulted on and finalised the rules that will apply to dashboard providers after they are authorised and connected to the live environment. MaPS is also engaging actively with the industry and launched a call for input in January this year seeking feedback on how best to support the delivery of private sector dashboards. While the Government recognise the innovation that private sector dashboards will bring to the industry, the date for the dashboards’ available point cannot be specified at this stage. The decision to launch private sector dashboards must be subject to many factors, including securing a sufficient level of coverage, being assured of the safety, security and reliability of the service and testing the user experience.
The noble Viscount asked whether we can confirm a date. It is too early to confirm a launch date because it is vital that the foundation on which dashboards are built, the whole ecosystem, is safe and secure and works for both the pensions industry and individuals.
Once the service is secure, operationally reliable and thoroughly user tested, the Secretary of State will provide six months’ notice ahead of the launch of the MoneyHelper Pensions Dashboard for public use. The requirement to provide six months’ notice in each case through the dashboards available point is intended to provide the pensions industry with notice to provide for the launch of private sector dashboards, which will help support a positive user experience.
I understand that noble Lords want to get this done quickly, but I would say two things. Pursuing speed at the expense of security and user experience would be a mistake, one that Governments have learned over the years. We need to get this right. Secondly, the noble Baroness, Lady Coffey, wants something out there as soon as possible—so do I. Prioritising the public sector dashboard is the fastest way to get something out there. We are pursuing that. We all want this to be done as soon as possible, but we can do it only when we are confident it can be secure and meet users’ needs. I hope that is enough reassurance for her to withdraw her amendment.
Baroness Coffey (Con)
Of course I will withdraw the amendment, but I do not want to give the Minister any suggestion that I have any assurance from what I saw at that briefing, in terms of user testing. I do not want to go into detail, because that is not relevant for this Committee, and I am more than happy to meet to discuss.
What I will say is that it is clearly making certain amounts of progress, technically. But I am concerned about aspects of the user testing, which were laid out to us, because that is what is taking very long. This is something that the Government and MaPS are not very good at. I have plenty of experience of that from my time running DWP, in terms of aspects of its communications, particularly on something technical such as this. That is why I am concerned, and why I brought this to the attention of the Committee today. That said, I seek leave to withdraw the amendment.
“Alignment of regulations with Technical Actuarial StandardsThe Secretary of State has a duty to ensure that regulations under this Act align with Technical Actuarial Standards issued by Financial Reporting Council, requiring trustees to compare bulk annuity, superfunds and run-on strategies for defined benefit pension schemes before making irreversible decisions about scheme assets.”Member’s explanatory statement
This amendment seeks to ensure a joint approach between Government departments and their related regulators including the PRA, FCA and TPR, to help align their respective responsibilities for solvency, consumer interest, member protection and promoting growth.
Baroness Bowles of Berkhamsted (LD)
My Lords, I am introducing Amendment 219A on behalf of the noble Baroness, Lady Altmann. She regrets that she is unable to be here, but I think she is somewhere on a plane at the moment, and I know she considers this a matter of great importance.
The amendment seeks to enhance the framework for defined benefit pension schemes by ensuring that regulations under the Bill align with the Financial Reporting Council’s technical actuarial standards. The current version of those is TAS 300, version 2.1. However, the amendment does not identify a specific technical standard but explains what the required standard covers in order to ensure that future versions of the standard which produce the prescribed calculations would also be covered by the wording of the amendment.
The wording of the particular technical actuarial standard, particularly paragraph 5, requires trustees to compare key strategies, such as bulk annuities, superfunds and run-on approaches, before making irreversible decisions about scheme assets and members’ pensions. Annuity buyouts are no longer necessarily risk-free, as official warnings regarding the lack of Treasury underpin for the Financial Services Compensation Scheme and the rise in offshore takeovers of annuity companies have highlighted. My remarks today reflect upon the thoughtful contributions from noble Lords in earlier debates on similar amendments. I will first address the points raised previously.
I appreciate the concerns expressed about avoiding unnecessary legislative intrusion into actuarial professional standards. Indeed, far from diminishing the role of actuaries, this amendment recognises their crucial expertise in guiding trustees. TAS 300 sets out robust principles for actuarial work, including requirements for clear advice on bulk transfers, risk assessments and the impact on member benefits. It covers essential areas such as whether a scheme can afford discretionary increases, how much surplus might be distributed and whether members might be better off with a run-on strategy rather than buying annuities. By embedding alignment with these standards in regulations, we would simply ensure that this high-quality actuarial insight is carefully considered by trustees to make better-informed choices without mandating outcomes.
The noble Lord, Lord Davies, rightly highlighted the FRC’s independent role in enforcing standards through disciplinary measures. The amendment does not seek to duplicate or override that. It would better align the actuarial advice with trustee decision-making. Currently, the FRC’s oversight seems weak and generally unenforced. The FRC plays a vital role in setting and enforcing standards, but its resources are too stretched across a broad remit. Only a small fraction of its annual budget, estimated at £200,000, is allocated to actuarial professional supervision, with no dedicated budget for investigations. This is at a time when we are expecting the profession to advise trustees on matters affecting the proper stewardship of £1.1 trillion of the national wealth in pension assets.
Existing trustee discretion does not seem to provide sufficient safeguards. Actuarial reports under TAS 300 are apparently not always presented to trustees unless specifically requested. Even when they are, they can sometimes become routine exercises rather than the rigorous analyses intended. This is not a criticism so much as a recognition of practical realities in a busy field. By making consideration of these reports a regulatory requirement before irreversible commitments, such as surplus payouts or buyouts, happen, trustees would gain a valuable tool to weigh options thoroughly, aligning with the Bill’s goals of better governance and better member outcomes.
The real power of this amendment lies in the potential value it could unlock for stakeholders, particularly scheme members, unions and workers. Defined benefit scheme surpluses exceed £240 billion on prudent measures. Independent financial modelling indicates that, for every £1 billion transferred to insurers via buyouts, expected excess cash flows of £150 million to £250 million accrue over 10 to 15 years—value that would bypass members and sponsors entirely. A run-on approach rather than a buyout could instead share these gains between employers and members.
The Stagecoach pension scheme offers another example. Its trustees developed and used TAS 300 reports to evaluate options for the scheme. This resulted in them seeking to run on and ultimately replacing the original sponsor, Stagecoach, with a stronger sponsor in Aberdeen Group plc. The analysis supported and enabled the use of a run-on strategy, which enhanced member benefits with an immediate 1.5% pension uplift and stronger inflation protection worth over £50 million for members, all within supported risk and investment guardrails. In addition, Aberdeen Group plc agreed that two-thirds of future surpluses will go towards further improving pensions, directly benefiting bus drivers and other workers.
This ground-breaking transaction has attracted widespread attention and support across the pension industry. It has also ignited greater expectations among many schemes that endgame considerations must properly include serious focus on improving member outcomes, shifting the narrative towards more equitable and productive use of surpluses.
This amendment would improve the Bill by embedding a proven standard into its framework, ensuring that actuarial expertise illuminates decisions that safeguard retirements and support growth. It respects the profession while empowering trustees, members and unions. The stakes, potentially billions in additional pensions for hardworking people, demand that we act. I urge the Government to support it, and I beg to move.
Baroness Stedman-Scott (Con)
My Lords, I shall speak to Amendment 219A, tabled by the noble Baroness, Lady Altmann, and moved by the noble Baroness, Lady Bowles. This amendment would ensure a more structured and joint approach between government departments and their related regulators, including the PRA, the FCA and the Pensions Regulator, so that their respective responsibilities for solvency, consumer interests, member protection and the promotion of growth are properly aligned.
I understand very clearly where the noble Baroness is coming from. Indeed, I am reminded of our earlier debate in Committee when I spoke to Amendment 206 alongside my noble friend Lady Coffey’s Amendment 180A. At that time, we touched on an issue that remains unresolved—the fact that very similar pension products could be treated differently, depending on whether they fall within the remit of the Pensions Regulator or the Financial Conduct Authority. That observation is not controversial—it is simply a reflection of how our current regulatory architecture has developed over time. Different bodies created at different moments for different purposes now oversee parts of what, to the saver, appears to be the same market. It is therefore entirely reasonable to ask whether greater alignment would improve clarity, consistency and outcomes. There may well be areas where closer co-ordination would be beneficial.
I shall not rehearse in full the arguments that I made previously, but I continue to believe that a formal co-ordination protocol offers three important virtues. First, it provides flexibility. A protocol can evolve as the regulatory landscape changes, allowing co-operation to deepen or adjust without the need for immediate structural overhaul. Secondly, it allows for escalation. If problems persist or new risks emerge, the framework for co-ordination could be tightened, strengthened or made more prescriptive. Thirdly, and perhaps most importantly, such a protocol can generate the evidence base for future reform. If, over time, it becomes clear that more fundamental consolidation of regulatory functions would better serve consumers and markets, the experience of structured co-ordination would provide the practical foundation of that decision. In that sense, this amendment is not about precipitating institutional change but about coherence; it is about ensuring that solvency, consumer protection, member outcomes and growth are pursued not in isolation but in a balanced and mutually reinforcing way.
For those reasons, I believe that the amendment from the noble Baroness, Lady Altmann, raises an important and constructive point for the Committee to consider.
Baroness Sherlock (Lab)
My Lords, I am grateful to the noble Baroness, Lady Bowles, for introducing Amendment 219A on behalf of the noble Baroness, Lady Altmann. As we have heard, it would require regulations made under the Bill to be aligned with the technical actuarial standards.
I say at the start that I share the concern that governing bodies work together to ensure that members are protected and that schemes work to secure the best outcomes. It is also important that trustees have considered the range of options available to them before making decisions on their schemes’ direction of travel and committing funds to any particular option. However, I assure the Committee that there is already a lot of collaboration between the Government and regulators on a formal and informal basis. Trustees, in line with their duties, are considering the options for their schemes in the round.
This amendment would require trustees themselves to comply with the criteria for technical actuarial standards. These are intended for actuaries to comply with, who must operate according to the standards set by the Financial Reporting Council. Actuaries will then provide advice to trustees in response to trustee requests, highlighting the risks, assumptions and options available to them.
Actuarial analysis plays an important role in informing the process. It provides a clear assessment of the risks, underlying assumptions and range of options available for a given request. But it is advisory in nature and does not, in itself, determine the final decision. Trustees will then draw on this information to inform their decisions about the effective operation and governance of the scheme. It will be considered alongside other advice that trustees may consider appropriate to obtain, including investment, legal and covenant advice. But trustees are ultimately the decision-makers, and they remain fully accountable for the choices that they make on behalf of their members.
Trustees already consider the correct endgame for their schemes. The risks and opportunities facing schemes differ according to a range of factors, including the maturity of the scheme and the strength of the employer covenant. Under the funding code, trustees are required to set out their funding and investment strategy, describing how they intend to meet members’ benefits over the long term—their long-term objective. The funding code requires trustees to assess the key risks to delivering their funding and investment strategy, to explain how these risks are monitored and to set out the steps being taken to mitigate them. Trustees must also assess the employer covenant, as the employer’s financial strength is central to supporting the scheme.
The Pensions Regulator has set out guidance for schemes to consider their long-term objective and options, including buyout, superfunds and run-on, which sets out clear expectations of trustees. It will be updating the guidance and will work with the FCA and, where appropriate, the PRA and FRC to ensure alignment across all guidance relating to considerations of alternative options. Requiring alignment between regulations and professional standards could have unintended consequences, including reducing flexibility for trustees and requiring a succession of further legislative changes to maintain alignment as these standards evolve over time. It could also result in the actuarial profession being the driver behind the content of regulations, when this should clearly be a matter for government policy.
It is crucial that trustees remain in the driving seat when making decisions for schemes, which this amendment would have the effect of removing. I am grateful to the noble Baroness, Lady Bowles, for giving us the opportunity to have this debate, on behalf of the noble Baroness, Lady Altmann, but I hope she feels able to withdraw the amendment for the reasons that I have outlined.
Baroness Bowles of Berkhamsted (LD)
I thank the Minister and other noble Lords who have spoken. I will not delay your Lordships very long because, as I said, these thoughts are from the noble Baroness, Lady Altmann. However, her key point, as I understand it, is to ensure that adequate attention to those alternatives is given. Largely due to funding circumstances, the checks to make sure that that happens are not necessarily there. I have raised and highlighted this, and I hope that more attention is given to it as a consequence.
I will withdraw the amendment, for now, but I do not know whether the noble Baroness, Lady Altmann, will wish to proceed with it again on Report, so I cannot guarantee that it will not come round again. I think this is important and my personal feeling is that not enough attention has been given to continuations instead of buyouts. The dash for a buyout has been very fashionable, but maybe the tide will begin to turn and attention to this kind of thing might help to do that. If it gives us better outcomes, that is good for everything.