Pension Schemes Bill
(1 day, 6 hours ago)
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19:13 - Division on Motion A1 (as an amendment to Motion A) - Ayes: 234 / Noes: 152 - Motion A1 agreed.
Baroness Sherlock
That the Commons amendments now be considered forthwith.
Baroness Sherlock
That this House do not insist on its Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88, and do agree with the Commons in their Amendments 88A, 88C and 88E to 88P to the words restored to the Bill by the Commons disagreement to Lords Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88.
“(6A) Regulations under this section may not have the effect of requiring, as a condition of a scheme's approval under subsection (1)—
(a) more than 10% (by value) of all of the assets of the scheme that are held in main default funds to be qualifying assets, or
(b) more than 5% (by value) of all of the assets so held to be of a UK-specific description.
(6B) In subsection (6A)(b) “UK-specific description” means a description framed by reference to whether an asset is located in the United Kingdom or meets any other condition linked to economic activity in the United Kingdom.”
“(12A) The power to make regulations under subsection (1) may only be exercised once.”
“(16A) The following provisions are repealed at the end of 2035—
(a) in section 204A of the Financial Services and Markets Act 2000 (meaning of “relevant requirement” and “appropriate regulator”)—
(i) in subsection (2)(aza), the words “or the asset allocation requirement in section 28C”;
(ii) in subsection (6)(aza), the words “or the asset allocation requirement in section 28C”;
(b) in section 90(6)(ea) of the Pensions Act 2004, the words “or the asset allocation requirement in section 28C”;
(c) the relevant asset allocation provisions of the Pensions Act 2008.
(16B) For the purposes of subsection (16A), the “relevant asset allocation provisions” of the Pensions Act 2008 are the following—
(a) in section 20(1A) (asset allocation requirement: Master Trusts)—
(i) in the opening words, the words “and Condition 2”;
(ii) Condition 2;
(b) in section 20(1B) (exemptions), the words “or 2(b)”;
(c) in section 20(1C) (protected period)—
(i) in paragraph (a), the words “or Condition 2”;
(ii) in paragraph (c), the words “or the conditions for approval under section 28C”;
(d) in section 26 (quality requirement: UK personal pension schemes)—
(i) subsection (7B);
(ii) in subsection (7D), the words “or (7B)”;
(iii) in subsection (7E)(a), the words “or sixth”;
(iv) in subsection (7E)(c), the words “or the conditions for approval under section 28C”;
(e) in section 28 (certification that quality requirement or alternative requirement is satisfied)—
(i) in subsection (4)(a), the words “or 2”;
(ii) in subsection (4)(b), the words “and sixth”;
(iii) in subsection (4)(c), the words “or 2”;
(f) section 28C (approvals in respect of asset allocation);
(g) section 28G (suspension of asset allocation requirement: savers’ interest test);
(h) in section 28H (risk notices), in subsection (1)(b), the words “or 28C”;
(i) in section 28I (penalties)—
(i) in subsection (1)(a), the words “or 28C”;
(ii) in subsection (2)(a), the words “or (7B)”;
(j) section 30A (review of exercise of powers under section 28C);
(k) in section 143(5)(a) (orders and regulations)—
(i) the word “(7B)”;
(ii) the words “28C (other than subsection (10)(f))”;
(iii) the word “28G”.
(16C) In consequence of the repeals under subsection (16A), at the end of 2035—
(a) in section 73(2)(dza) of the Pensions Act 2004 (inspection of premises), for “28G of the Pensions Act 2008 (scale and asset allocation)” substitute “28F of the Pensions Act 2008 (scale)”;
(b) in section 28(4)(b) of the Pensions Act 2008 (certification that quality requirement or alternative requirement is satisfied), for “conditions” substitute “condition”.
(16D) The Secretary of State may by regulations make transitional or saving provision in connection with any repeal or amendment under subsection (16A) or (16C).”
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, I do not get to say “forthwith” often enough. That is a great start to the day. I thank all noble Lords for their continued scrutiny of this important Bill. We are now looking today at the remaining areas of disagreement.
Let me start with the reserve power. Amendment 15 and those connected with it sought to remove the reserve power on asset allocation from the Bill. Noble Lords will be aware—indeed, we just heard—that the other place has considered this House’s amendments and has once again disagreed with the amendments that would remove the reserve power from the Bill. In doing so it has tabled further amendments in lieu, and I will come to those in a moment. However, I want first to acknowledge the level of interest in the House on this issue.
Noble Lords have engaged with these provisions with great care, and I am genuinely grateful for the quality of scrutiny that has been brought to bear at every stage from Committee through Report and to our exchanges between the two Houses. I know that many noble Lords remain concerned about the reserve power and I do not dismiss those concerns out of hand, but I must also be candid with the House about where we stand. The elected House has now considered the case for the reserve power on two occasions, and on both occasions it has concluded that the power should remain in the Bill. However, the Government have not simply dug in; they have responded to the concerns raised in this House with substantive changes to the legislation. In a moment, I will set out what those changes now amount to, because the cumulative picture is important.
I will briefly restate the case. There is a well-evidenced collective action problem in the defined contribution market. The industry itself has been clear that a key barrier to delivering on its commitments are market dynamics that continue to focus on minimising cost rather than maximising long-term value for savers. The industry wants to diversify in its savers’ interests but risks being undercut by competitors which see a commercial opportunity. The reserve power exists to address that problem, and that problem alone.
In the first round of these exchanges, the Government tabled three amendments in lieu, delivering two concessions that responded directly to arguments made in this House. The first, which had been pressed by the noble Viscount, Lord Younger of Leckie, and the noble Baronesses, Lady Stedman-Scott and Lady McIntosh of Pickering, was the statutory cap. Regulations may not require more than 10% of default fund assets to be qualifying assets or more than 5% to be of a UK-specific description. That writes the Mansion House Accord targets into primary legislation so that no future Government can use the power to go further.
The second, responding to the type of concern raised by the noble Baroness, Lady Bowles, and other noble Lords about the breadth of the power, was the asset class neutrality requirement, which ensures that regulations must cover each of the named private market categories and cannot concentrate requirements in any one class. Those amendments represent meaningful constraints on the reserve power, of a kind for which this House has previously signalled strong support. I stand by them.
Today, the Government, with the support of the other place, propose to go further, in three ways. First, we have tabled an amendment to bring forward the existing sunset date for the reserve power from 2035 to 2032. The Mansion House Accord commits the industry to reaching its targets by 2030. Bringing the sunset forward aligns the power more closely with that timeline. If the power has not been exercised by the end of 2032, it falls away entirely, and if it has been exercised, the percentage requirements set under it may not be raised after that date.
The second amendment ensures that the power to set the headline percentage may be exercised only once. Combined with the statutory caps, this means that any future Government have at most a single opportunity to set the asset allocation requirement, and only up to the levels to which the industry itself has committed under the accord.
Thirdly—I ask the House to consider carefully the significance of this step—the other place has agreed an amendment providing for the full repeal of the asset allocation regime at the end of 2035. I want to be precise about what that means, because it goes beyond the sunset of the enabling power. Even if the power has been exercised and requirements are in force, the entire framework—the approval requirements under Section 28C, the savers’ interest test, the associated penalty and review provisions and any asset allocation requirements which have been brought into effect—is repealed from the statute book at the end of 2035. I therefore hope that noble Lords who have expressed objections to this power being a permanent feature of our pensions legislation will recognise that the Government have listened to them.
I will set out what the reserve power now looks like taken in the round. It is capped at the accord targets; it cannot be used to compel investment in a single hand-picked asset class; the headline percentage can be set only once; the power lapses in 2032 if not used; and, if it were ever used, the entire regime is repealed at the end of 2035—every element of it removed from the statute book.
On top of all that, it remains subject to the savers’ interest test, statutory reporting requirements both before and after any regulations are made, and the affirmative procedure. This power has been meaningfully altered and constrained by the scrutiny of this House, and I hope noble Lords will recognise the collective significance of those safeguards. Industry has welcomed our amendments to constrain the power. By way of one example, this morning, Aviva said:
“We welcome the government’s amendments to constrain the reserve mandation power so that it can only be used to support delivery of the Mansion House Accord … We hope this is enough to build the consensus needed for the Bill to be passed in this Parliamentary session”.
I understand the position of those who believe the power should not exist at all. The noble Baroness, Lady Bowles, has made that case with clarity and rigour, and I respect it. But the Government’s view is that the risk of inaction, of allowing the collective action problem to persist to the detriment of pension savers, is the greater risk. The power as it now stands is a carefully circumscribed instrument, designed for a single purpose and limited in every dimension.
This House has done its job as a revising Chamber. The Government have engaged in good faith with the concerns raised and responded with changes to primary legislation—not undertakings, not assurances, but amendments to the Bill. I hope this demonstrates the seriousness with which we have taken this House’s scrutiny and I ask noble Lords not to insist on their amendments and to agree the amendments proposed by the other place in lieu.
I turn now to Lords Amendment 35B, which would require the Secretary of State when making regulations across the scale measures and those for default arrangements to
“have regard to the benefits of competition among providers of pension schemes”.
The Government absolutely support a competitive market; that is evident through all the scale measures. However, we believe that in designing regulations, a range of factors must be taken into account. Our focus always has to be on delivering the best outcomes for members.
Noble Lords have stressed the importance of competition as the market moves towards scale. The Government agree: we have always considered it to have a central role in the policy. The new entrant pathway is designed to drive this, as is the freedom schemes will have to open new default arrangements which will support competition. However, we have listened carefully to the arguments that have been made during debates, especially by the noble Baroness, Lady Noakes, and we recognise the desire to see that commitment feature in the Bill. We have therefore tabled amendments in lieu to set out that regulations, both those in respect of the scale measures and those relating to default arrangements, must have regard to the importance of competition and innovation.
However, under the Government’s Amendments 35C and 35D, regulations will also need to have regard to additional factors: the importance of scale, improving member outcomes and effective governance. It is clearly right that we place members at the heart of this policy—I am sure there can be no disagreement that their needs are just as important as those of the market that serves them. Members’ interests come first and this amendment recognises that.
The noble Baroness, Lady Noakes, has asked me to confirm two matters in relation to this amendment: first, how the Government will meet the new duty in relation to the different factors set out. Under our amendments, when making regulations, the Government will need to have regard not just to the need to reach an appropriate scale but to the importance of competition and innovation in the design and operation of schemes, to effective governance and to the vital objective of improving outcomes for members. This amendment captures the basic but important principle that the Government’s approach to making regulations must be holistic, taking account of many relevant factors. The Explanatory Notes will also make this clear.
Secondly, the noble Baroness asked me to confirm why new Section 28J does not appear in the list of provisions in this amendment, and I am very happy to do so. This is because new Section 28J will allow the Treasury to make regulations that switch on the FCA’s enforcement powers in relation to Chapter 3. This is primarily a question of whether these powers should be available to the FCA, so the matters listed in the amendment are therefore not applicable to that question in the same way they are to the powers that allow the Government to construct key elements of the scale framework. I hope that explains things to her satisfaction.
Lords Amendments 37B and 37C set out the ability for a regulator to exempt a scheme on the basis of an innovative offering or where consolidation may not improve member outcomes. We debated this amendment this week and I will not restate the arguments in the interests of time. The Government have long been clear about our intention to adopt reforms to ensure that workplace pension schemes take advantage of consolidation and scale to deliver better returns for UK savers, and that is what we are doing in the Bill.
While I recognise that this policy may have an effect on some schemes in the market, we must prioritise the need to deliver on this commitment to members. Our priority is to serve those who have begun to save through auto-enrolment and who work hard to save for retirement: we want to ensure that they are saving into schemes that deliver better outcomes. However, we have heard concerns expressed, in this House and in the other place, that the benefits that innovation can bring should not be lost in the process of consolidation. We agree. We have therefore tabled Amendments 37D and 37E in lieu to require the Secretary of State, in conjunction with the regulators, to publish a report about the effects of pension scheme consolidation, and the extent to which innovative product designs are adopted or maintained following consolidation activity, as well as any barriers that may exist to preserving these features. This report will be published within 12 months of the Bill becoming an Act. The timing of the report will ensure that the Government are then able to take action, as needed, in advance of the scale measures being commenced in 2030.
Baroness Bowles of Berkhamsted
Leave out from “House” to end and insert “do insist on its Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88, do insist on its disagreement to Commons Amendments 88A and 88C, and do disagree with the Commons in their Amendments 88E to 88P to the words restored to the Bill by the Commons disagreement to Lords Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88.”
Baroness Bowles of Berkhamsted (LD)
My Lords, I thank the Minister for her explanation and for our meeting with her and the Pensions Minister yesterday. Small movements are better than none, but she will know from that conversation that, as regards the so-called reserve power, there is still a long way to go, and the House should be clear about the issues that remain. There are four in particular.
First is the principle of mandation, even if it is a reserve power to bring in mandation. The primacy of trustee fiduciary duty must be made clear. A structure that subordinates that duty is not acceptable, which means no mandation. Secondly, it is wholly unacceptable that the bar for trustees to decline to invest in the assets that the Government prefer is set higher than the fiduciary duty threshold, requiring trustees to prove material harm—which is a very high standard and probably impossible to do. What reward would the pension saver receive for taking that additional risk? The potential for higher returns alone is not sufficient, but that goes if mandation goes.
Thirdly, the Mansion House Accord has fiduciary duty and consumer duty embedded within it. If this clause is truly a back-up to that accord, it cannot set those duties aside and replace them with something else.
Fourthly, this whole part of the Bill, as the Minister has explained, is predicated upon an allegation of market failure. Were that not the case, I would maintain that competition law would come into play for policy co-ordination.
So what to do? The only logical conclusion is that mandation must go. That does not stop a nudge and monitoring approach—but no threatening reserve power or regulations, because that is coercive, like the debt collector who says they will break your arm, even if not right now. Supporting the Mansion House Accord should surely reference the enablers and caveats that are the fiduciary duty and consumer duty, as well as the government assistance with assets where appropriate.
As this whole project is, in effect, a competition law dispensation to permit co-ordinated policy action, it should be appropriately time limited—for example, to the end of the current Parliament, because that would also safeguard from what future Governments might do, which has been raised more than once. After that, the entire structure should fall away. If it needs replacing, that would be up to the subsequent Government.
Of course, as I have expressed all the way through, there must be no discrimination between investment vehicles, which we know is a Treasury plant, not an industry request, and an example embedded in the heart of the Bill of how highly inappropriate things can be imposed. It will come as no surprise that I will ask noble Lords once again to insist on our deletion and to disagree with the government amendment. I beg to move.
Baroness Noakes (Con)
My Lords, I will speak briefly to Motion C because that deals with Amendment 35B, which I moved in the last round of ping-pong. I am delighted with the amendments that the Government have brought forward. I felt, during the process of Committee and Report, that I was banging my head against a brick wall every time I spoke—which was often—about innovation and competition. I did not think I was getting anything other than a headache. I am absolutely delighted, and I completely accept that the broader wording that the Government have put forward in their Amendments 35C and 35D is an improvement on what I had been arguing for, so I thank them.
Baroness Altmann (Non-Afl)
My Lords, briefly, I support everything that the noble Baroness, Lady Bowles, said. I also thank the Minister: I recognise that there has been significant movement on the part of the Government on some of the other issues.
Unfortunately, although just constraining the mandatory power in the way the Government have proposed is better than it was before, it is not okay for members. Normally, if there is an expectation of market failure, we would wait until that failure is proven before we pass primary legislation, in case it were to arise. It has not been proven. Indeed, if the schemes that invest in the way the Government want—and in accordance with the voluntary accord we are trying to mimic—perform better, as the Government expect, then others are likely to follow, but forcing them to do so against their better judgment cannot be right. There is no compensation if the investment decisions go wrong. The Government have, as the noble Baroness, Lady Bowles, said, inexplicably excluded listed investment companies, which will potentially hold exactly the investments that the Government wish pension schemes to invest in. Therefore, it does not seem that the Government themselves are the best judge of how to invest.
Baroness Neville-Rolfe (Con)
My Lords, I support the noble Baroness, Lady Bowles, in insisting on the omission of mandation in Motion A1. The proposal has made the Government unpopular in the City and, as an ex-businesswoman and ex-pension trustee, I urge Ministers to think more radically and get rid of the power altogether, even in its constrained form.
Moving on, I thank the Minister and the Minister of State, Torsten Bell, for Amendments 85C, 85D and 85E in Motion D, which respond positively to my proposal for a review of public sector pensions. The work promised by the Government Actuary’s Department should provide the transparent analysis of this complex area that I have been calling for, with the support of the Centre for Policy Studies, the economist Neil Record, my noble friends Lady Noakes and Lord Moynihan of Chelsea, and the coverage in the Times and the Telegraph. It was reassuring to know from the Minister that the important complementary work responding to the Public Accounts Committee’s concerns about the whole of government accounts 2023-24 will be published within the one-year timeframe in the amendment.
I have been addressing not just a technical matter but serious problems, such as intergenerational unfairness and the long-term affordability of our important public service pensions. I trust that, as a result of the new work, we will be able to tackle the issues better and in a much more informed way.
Lord Vaux of Harrowden (CB)
My Lords, I will briefly add my support to Motion A1 from the noble Baroness, Lady Bowles, to remove the mandation reserved power. On Monday, the Minister told us:
“On the question on fiduciary duty, nothing in the Bill disapplies trustees’ existing duties of loyalty, prudence and acting in members’ best interests”.
Her argument was that
“the savers’ interest test allows a scheme to seek an exemption if it can show that compliance would cause material financial detriment to members”.—[Official Report, 20/4/26; col. 591.]
I hope that noble Lords can see the rather fundamental flaw in that argument. Not causing “material financial detriment” is very different from acting in members’ best interests. Would the Minister put her pension savings into a fund that promised only that it would not cause material financial detriment? Of course she would not, but that, as she has said, is the standard to which the mandated asset allocation will be held. So, contrary to what she keeps claiming, the power to mandate asset allocation, even with the latest proposed constraints, quite clearly undermines the fiduciary duty of trustees to act in members’ best interests, and it has no place in pension scheme regulation.
Lord Davies of Brixton (Lab)
I will make just two points. First, on the issue of mandation, we need to be clear. I am really concerned about the absolutist no mandation point. There is, of course, an issue to discuss as to how effective these measures would be and what effect they would have on trustees’ responsibilities, but it is important to remember that we are talking about tax advantage provisions, where there is a substantial cost to the Exchequer, so it is entirely reasonable, in principle, for the Government and the legislation to lay responsibilities on those tax advantage arrangements. Saying that mandation is wrong in and of itself is clearly incorrect. As a matter of public policy, it is entirely right that we should legislate to place requirements on tax-advantaged investment arrangements. People can invest their own money in any way they wish but, in return for the tax advantages, there are equal responsibilities.
The second point I want to make is that we need to be clear—it may be of some comfort to my noble friends—that Amendment 77 does not produce a review of public service pensions. It just requires important information to be published within a one-year timescale. I said in Committee that I would welcome a review of public service pensions, but this is not a review of public service pensions. It is just a requirement on the Government Actuary to produce a report.
Baroness Stedman-Scott (Con)
My Lords, since we have only one group of Motions today, I shall address our three key areas—scale and competition, public sector pensions and mandation—together.
First, on scale and competition, I am grateful to the Minister for bringing forward these amendments in lieu. The government response does two important things. First, it places a clear duty on the Secretary of State, when making regulations under key pension powers, to have regard to a set of core principles: innovation in scheme design and operation, competition between providers, the need to improve outcomes for members, the achievement of appropriate scale and effective governance. Secondly, it applies a similar discipline to the appropriate authority when making regulations under Clauses 42 and 44 requiring regard to innovation, competition, member outcomes and governance. Together, therefore, this amendment establishes a statutory framework that must guide the making of these regulations. It ensures that scale is pursued not at all costs but alongside innovation, competition and, above all, better outcomes for savers.
We also welcome the amendment in lieu from the Government, which would require the Secretary of State to publish a report into the effects of consolidation on innovation in the design and operation of relevant master trusts. These are welcome changes to the Bill following our long-fought Conservative campaign. They reflect in a meaningful way the concerns we have consistently raised about the balance between scale and innovation. On that basis, we are content to accept these amendments, and I thank the Minister for her constructive engagement in bringing this forward. This is the change in emphasis that we wanted to see, and we are glad that the Government have moved on this.
Turning to public sector pensions, I pay tribute to my noble friend Lady Neville-Rolfe for her sterling work in pressing this important issue. This is a fundamentally important matter. We are talking about vast sums of public money—indeed, one of the largest government liabilities behind gilts. I am pleased that the Government have recognised the important point that my noble friend has been making and have brought forward this amendment in lieu. We shall of course await publication by the Government to ensure that it receives full and proper scrutiny once it is released, but we thank them for their recognition of this point.
Finally, I come to mandation. We have had some small movement from the Government in their amendments in lieu, which is welcome to some extent, but the Government should not have this power at all—a view that we share with both industry and the public.
The Government want greater investment in private markets. The reason why that is not happening as fast as they would want has many causes—which could in turn have many solutions, not limited to increasing consumer visibility, strengthening employer-side incentives, addressing the role of intermediaries and promoting co-ordination through voluntary alignment. Indeed, we already have several in motion, such as the Mansion House Accord, a voluntary, industry-led framework that was agreed less than a year ago and designed to address precisely these issues through alignment, not coercion.
Yet before the approach has even had time to take root, the Government are reaching for the most extreme lever available: the power to direct private investment into assets of their choosing. That was, contrary to some claims, not in the Government’s manifesto. The noble Baroness, Lady Bowles, is right to oppose this in the strongest possible terms.
Mandation is a profound mistake. It cuts across the fundamental principle of fiduciary duty and the obligation to act in the best interests of savers, not Ministers. It sets the deeply troubling precedent that, where markets do not move quickly enough in the Government’s opinion, the Government will simply override them. The Government are trading partnership for pressure and replacing trust with the threat of intervention. This is not how you build a strong, dynamic investment market; it is precisely how you undermine it.
This power is not just unnecessary: it is dangerous and it should not stand. We entirely support the Motion from the noble Baroness, Lady Bowles, to insist on her amendment and we will support her if she chooses to test the opinion of the House on this question.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords who have spoken. I thank them for being very constructive in their engagements—possibly more so offstage than onstage, but I am always grateful for and will take whatever I can find. I thank in particular the noble Baronesses, Lady Neville-Rolfe and Lady Noakes. I am glad that the noble Baroness, Lady Noakes, knows now that I really was listening all the way through Committee and Report, even if there may have been times when—I am sorry—it looked like I was not; I shall work better on my nodding in future. I am really glad that she and the noble Baroness, Lady Neville-Rolfe, are happy with where we have got to.
I will try to pick up on a few points. We have gone over them many times in debate, so I will not hold the House back in order to redo them all over again, tempting though that is. I turn first to the noble Lord, Lord Vaux. I think the problem is that we have started in the middle of the argument. The diversification of portfolios is critical to reducing risk. There is clear international evidence that a small investment in productive finance, in the context of a diversified portfolio, brings better returns. That is demonstrable. We have to admit that most mass-market DC schemes have little or no private markets in their default funds, and that is very much in contrast to the position in many other countries. So the starting point is that it is reasonable to assume, as the evidence would suggest, that it is better for savers for that to happen.
However, we do want safeguards around this, and what the noble Lord described is one of the safeguards. If this power were ever to be used—it is a reserve power, so the Government do not expect it to be used—a report would have to be commissioned to look at the impact of doing so on savers as well as the broader economy, to establish what would happen. Then, despite all that, if trustees believed, knowing their savers and membership, that it would not be in their interests because of some reason—for example, even if it might broadly be in their interests but it would not be in their savers’ interests—not only can they make an application for an exemption under the savers’ interest test but we would expect the fiduciary duty to drive them to do so. The test is designed to be capable of being passed, not just failed. I understand the noble Lord’s position, but that is the Government’s position.
The noble Baroness, Lady Bowles, asked about the timing: why should it not stop in this Parliament? We have talked about the power stopping in 2032, but the Mansion House Accord has until 2030 to happen, and this Parliament, I am sorry to say, is due to finish before that. Would that it could continue—no, I will not go in that direction; it will get badly reported. We think, that if the power were ever used, there would have to be enough time to see its impact before bringing it to an end. The sunset date of 2032 seems a reasonable starting point and that, I hope, is something that she can appreciate.
A question was asked about collective action, which we have been around several times. The Government have set out the arguments that the view on collective action failure in the market is not just ours; the industry has made this really clear. When the Mansion House compact—the predecessor to the Mansion House Accord—published its collective assessment of progress two years into its assessment, it identified this dynamic of competitive pressure focusing the market on minimising cost as the single biggest barrier to delivering on its own commitments. We have been here before; it has been tried on a voluntary measure and failed, and industry identified this as the single biggest barrier. That is why we are addressing this and that is the reason for doing it.
I can reassure my noble friend Lord Davies that the OBR will continue to produce long-term forecasts of the economy, which will provide a context for the figures that are being made. I am grateful to him for asking about it.
Finally, to describe the changes the Government have made as small is unreasonable. I remind the House what this now is: this provision, the reserve power, is now capped at the same rate as the accord. It cannot be used to compel investment in a single, hand-picked asset class. The headline percentage can be set only once. The power lapses in 2032 if not used and, if it were ever used, the entire regime is repealed at the end of 2035—every element is taken off the statute book. Those are significant movements. The Government have listened. The Commons has twice sent this back; it wants this in the Bill, so we should give it to the Commons. I urge the House to agree.
Baroness Bowles of Berkhamsted (LD)
My Lords, I thank all those who have contributed. As the Minister said, we have been around the arguments many times, so I will be brief. This was sold as a backstop to the accord, so it is not a case for celebration when something that bit off a lot more than the accord is brought a bit more closely into alignment with it. The fact is that the reserve power is coercive—that is what it is there for and what it is meant to do. It is not without effect, yet it was not consulted on. It was sprung on us suddenly and snuck into the Bill, and we have had to deal with it.
I was interested in the tax advantage point raised by the noble Lord, Lord Davies, but these are the least well-off pensioners who are going to be asked to put more into risky assets. Should they not get an extra slice of tax relief, then? All the people who are in safe, defined benefit schemes and those kinds of things where they are not at risk get a tax advantage too. It is not a runner.
I come back to the basic point, which relates to fiduciary duty and the best interests of pensioners in what is their money. Bear in mind that the point has been raised—I am not sure whether it has ever been answered—about the human rights aspect of diverting some of the pensions. We could go on a lot longer— I hope we do not—but I regret that I must test the opinion of the House.
Baroness Sherlock
That this House do not insist on its Amendments 37B and 37C, and do agree with the Commons in their Amendments 37D and 37E in lieu.
“28K Report about effects of pension scheme consolidation
(1) The Secretary of State must prepare and publish a report about the effects of consolidation on innovation in the design and operation of relevant Master Trusts and group personal pension schemes.
(2) The report may in particular include information about—
(a) the extent to which consolidated schemes adopt or maintain innovative product designs of constituent schemes;
(b) barriers to consolidated schemes adopting or maintaining such innovative product designs.
(3) The Pensions Regulator and the FCA must provide such information and assistance as the Secretary of State may require for the purposes of the report.
(4) The report under this section must be published before the end of the period of 12 months beginning with the day on which this section comes into force.
(5) In this section “consolidation” means the consolidation of a relevant Master Trust or group personal pension scheme with one or more other schemes.”
(i) section 40, in respect of the insertion of section 28K of the Pensions Act 2008 (report about effects of pension scheme consolidation), comes into force on the day on which this Act is passed;
(ii) the remaining provisions of Chapter 3 come into force on such day as the Secretary of State may by regulations appoint;”
Baroness Sherlock (Lab)
My Lords, I have already spoken to Motions B to D. I beg to move.
Baroness Sherlock
That this House do not insist on its Amendment 35B, and do agree with the Commons in their Amendments 35C and 35D in lieu.
“28K Regulations about quality requirements
In making regulations under section 20(1A) or (1C), 26(7A), 28A, 28B, 28E or 28F, the Secretary of State must have regard to the importance of—
(a) innovation in the design and operation of relevant Master Trusts and group personal pension schemes;
(b) competition among relevant Master Trusts and group personal pension schemes;
(c) improving outcomes for members of relevant Master Trusts and group personal pension schemes;
(d) relevant Master Trusts and group personal pension schemes achieving an appropriate scale;
(e) relevant Master Trusts and group personal pension schemes having effective governance.”
“Regulations about default arrangements
In making regulations under section 42 or 44, the appropriate authority must have regard to the importance of—
(a) innovation in the design and operation of pension schemes;
(b) competition among providers of pension schemes;
(c) improving outcomes for members of pension schemes;
(d) pension schemes having effective governance.”
Baroness Sherlock
That this House do not insist on its Amendments 77 and 85, and do agree with the Commons in their Amendments 85C to 85E in lieu.
“Public service pension schemes
(1) The Government Actuary must, before the end of the period of 12 months beginning with the day on which this section comes into force—
(a) prepare and publish a document setting out cash flow projections for each of the next 50 years that cover the public service pension schemes within subsection (4);
(b) provide the document to the Treasury and the Office for Budget Responsibility.
(2) The Treasury must lay the document before Parliament.
(3) For the purposes of this section “cash flow” means—
(a) expenditure on benefits, and
(b) income from member contributions.
(4) The following public service pension schemes are within this subsection—
(a) any scheme under section 1 of the Public Service Pensions Act 2013 (schemes for persons in public service) which—
(i) is a defined benefits scheme (within the meaning of that Act), and
(ii) is not a scheme for local government workers (within the meaning of that Act);
(b) any scheme under section 1 of the Public Service Pensions Act (Northern Ireland) 2014 (schemes for persons in public service) which—
(i) is a defined benefits scheme (within the meaning of that Act), and
(ii) is not a scheme for local government workers (within the meaning of that Act).”
“(1A Section (Public service pension schemes) extends to England and Wales, Scotland and Northern Ireland.”
“(f) section (Public service pension schemes) comes into force on the day on which this Act is passed.”