Pension Schemes Bill

Baroness Altmann Excerpts

Committee stage
Monday 19th January 2026 Grand Committee

Moved by

[Baroness Altmann]

26: Clause 9, page 10, line 39, at end insert—
“(7A) Regulations may provide that payment of surplus to the employer may only be made to the employer on the condition that—(a) enhancement to member benefits particularly relating to provision of pre-1997 inflation increases, or (b) one-off payment to reflect lack thereofis simultaneously provided by the employer.”Member’s explanatory statement
This amendment would allow regulations to require employers to enhance member benefits (including provision of pre-1997 inflation protection or offer a one-off payment) if they want to extract surplus payments from the scheme.

[Baroness Altmann (Non-Afl)]

My Lords, in moving Amendment 26, I shall speak to my similar Amendment 39, to both of which I am grateful for the noble Baroness, Lady Bowles, adding her name. To follow on from the words of the noble Lord, Lord Davies, I am introducing these amendments as a marker, because I genuinely believe that it is important, if we are talking about distributing assets—I agree with the noble Lord on that terminology—to employers, that members should participate in the benefits that the excess funding has delivered.

My particular concern revolves around protecting members’ pensions against rises in the cost of living over many years. To go back to the Goode committee report of 1993, which followed the Maxwell scandal, that was the first talk of protecting private pensions in a similar way to state pensions, which would automatically be expected to have some kind of protection against either rising living standards or the rising cost of living. The protections put in place for pension schemes, however, were watered down to some degree and not introduced until 1997, so there are many people now retired who have a significant chunk of their private pension without any inflation protection at all. As inflation has become a much greater concern in recent years particularly, I hope we will be able to agree that attention should be paid to looking after what will be the most elderly of the pensioner population—those with pension accruals since before 1997. If there is to be an enhancement of member benefits, I would argue that the first consideration should be helping to rectify and remediate the shortfalls that many of these people face when trying to afford to live in 21st-century Britain.

I have included in the amendment the option of a one-off payment instead of enhancing the actual pension. In Amendment 26, it is a “may” rather than a “must”. The aim would be to make sure that some money is received by the member who has lost out, while bearing in mind that immediately lifting the pension from the pre-1997 accrual—which could be half or more of the person’s pension—up to a new level and then requiring the employer scheme to continue enhancing from that position, could add a significant extra strain on the scheme in the future if funding deteriorates.

However, we know that currently, in a scheme considering distributing surpluses, there is much more than is required on the current expectations, and for the likely nearer-term future, to meet the liabilities that will arise in, say, the next five to 10 years. Thereafter, one does not know; many of the members affected will not, sadly, be with us in that timeframe. But if actuaries are concerned about a permanent rise in the base level of pensions that must be paid by the scheme and then ongoingly increased over the very long term, payment of a one-off surplus amount to reflect the lack of inflation linking that the member has suffered over past years would, in my view, be easier to absorb but would also significantly enhance the well-being of the members themselves.

These amendments do similar things, although one is more definite than the other. I hope the Government and Minister can confirm that there is sympathy with this idea. Obviously, in a wider context, we will talk about enhancing members’ benefits more generally—I will come back to that on the next group—but, on that basis of the need for inflation protection in particular, I beg to move.

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I am not suggesting something specific for them in the Bill. My noble friend Lady Noakes in her Amendment 42 has, as always, a classically pure position, which is that it is not for any of us to tell anyone how their money should be spent. But I would be grateful if the Minister, in her winding up, could clarify the position of these people and, if there is to be any consideration of their interests, where that should fall. They are not members of the scheme, so I assume that it would not be a role of the trustees to think of the interests of people who are not members of the scheme; they are also employees of the same company.

[Baroness Altmann (Non-Afl)]

May I ask my noble friend a couple of questions? I totally accept the rationale for the change happening only post-1997, but does he accept that because we now have surpluses and there is this gap, a one-off payment would be a potential way of recognising the problem faced by the pensioners without changing the long-term funding position of the scheme?

[Lord Willetts (Con)]

I am not against such payments. As I say, I think this is highly discretionary—there would be a negotiation. I absolutely understand that argument, and we have all received letters from the people suffering financial distress in some circumstances because of not having pre-1997 inflation protection. But I just want to bring in another consideration and try to find out where it would fit in when the employers or the trustees are reaching a decision.

The Government have a policy, or rather we now have on a cross-party basis, a successful policy of auto-enrolment. The levels of pension contribution to the next generation, who are not in these schemes, are way lower than the pension contributions that have generated these large surpluses. It would be great if we could see increasing contributions. Where might a decision fall if an employer says, “We have now turned our scheme into surplus because of the work of the company, and one thing we could do with the money is to put some enhanced contribution into the auto-enrolment pensions of the next range of employees, whose pension rights at the moment will be far lower than those of the people covered in this debate”?

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[Baroness Sherlock (Lab)]

Absolutely. There may be—I am not saying that there are—risks that need to be explored around the use of sole corporate trustees. The consultation will look at that, and at generally improving the quality and standards of administration to improve service quality and so on. That runs until 6 March. My noble friend may wish to contribute to it; I commend it to him.

On safeguards, trustees will need to notify the regulator when they exercise the power to pay surplus. As part of that notification, we anticipate the provision to be made in regulations for trustees to explain how, if at all, members have benefited because that will help the regulator monitor how the new powers are being used.

In response to the noble Viscount, Lord Thurso, the Pensions Regulator has already set out that trustees should consider the situation of those members who would benefit from a discretionary increase and whether the scheme has a history of making such increases. Following this legislation—and as I may have said in the previous group—TPR will publish further guidance for trustees and advisers, noting factors to consider when releasing surplus and ways in which trustees can ensure members and employers can benefit.

On that broader point, we feel that it must be a negotiation, because increasing indexation would increase employer liabilities, so it is right that it ends up being a negotiation. All the safeguards are already there. My noble friend Lord Davies asked what advice trustees should take. We expect trustees to take appropriate professional advice when evaluating a potential surplus release and making a payment. As well as actuarial advice, this should also include legal advice and covenant advice to enable trustees to discharge their duties properly. Let us not forget that a strong covenant is the best guarantee a scheme has; not undermining the covenant, or the employer that stands behind it, is crucial to this.

Amendment 44 would require the Secretary of State to publish a report on whether trustees’ duties should be changed to enable trustees to pay discretionary increases on pre-1997 accrued rights. It is not clear to us why this would be needed as the scope of trustee fiduciary duties do not prevent trustees paying discretionary increases, where scheme rules allow them to do so. We expect trustees to consult their professional advisers, including lawyers, on their duties if they are not sure.

Amendment 41 from the noble Lord, Lord Palmer, highlights the importance of ensuring that members have access to good quality pensions advice. Although we understand the intention, we remain clear that we will not be mandating the use of surplus released from schemes. My noble friend Lord Davies made the good point that, in some ways, the greatest need for support is on the DC side rather than the DB side. DB scheme members expect to receive a lifelong retirement income, which trustees must regularly and clearly communicate to members. This is typically based on salary and length of service, offering strong financial security. For DB, the benefits they will receive on retirement are generally known.

The Government recognise the importance of robust guidance, however, and we already ensure that everyone has access to free, impartial pensions guidance through the Money and Pensions Service, helping people to make informed financial decisions at the right time. The MoneyHelper service offers broad and flexible pensions guidance that supports people throughout their financial journey.

A couple of other questions were asked, including what employers will use the surplus for. The Pensions Regulator published a survey last year, Defined benefit trust-based pension schemes research. In a sample of interviews, it found around 8% of schemes with a funding surplus reported having released a surplus in the last year. That equates to nine schemes. Of those nine, seven schemes used the surplus to enhance member benefits. One used it to provide a contribution holiday for future DB accrual and one to make a payment to a DC section established in the same trust. None of the nine schemes stated that the surplus was released to the employer.

In answer to the noble Lord, Lord Willetts, and my noble friend Lord Davies, it was always the case that it depends on the scheme rules. I want to make sure I get this right. I had a note somewhere about it, but I am having to wing it now so I will inevitably end up writing and correcting it. If there is a DB and a DC section in the same trust, it could be possible, depending on the scheme rules, for trustees to make a decision to release funds from one to the other. But trustees may not be able to agree to that; it would obviously depend on the circumstances. However, as I understand it, there is nothing to stop an employer releasing funds—surplus released from a DB scheme back to an employer. The employer could then choose to put that money in, for example, a DC scheme. I understand the tax treatment would be such that the tax payable on one can be offset as a business expense on the other, making it a tax neutral proposal. In any case, as noble Lords may have noted, the tax treatment of surplus rate has dropped from 35% to 25%. A decision has been made to make that drop down. If by winging it I have got that wrong, I will clarify that when I write the inevitable letter of correction.

My noble friend Lord Davies asked about tax treatment. I will read this out, as it is from the Treasury, and I will be killed if I get it wrong. Amendments to tax law are required to ensure these payments—one-off payments—qualify as authorised member payments and are taxed as intended. The necessary changes to tax legislation will have effect from 6 April 2027. Changes to tax legislation are implemented through finance Bills and statutory instruments made under finance Acts. There will be consequential changes to pensions legislation where necessary, which will be dealt with through regulations. I hope that satisfies my noble friend. If it does not, I will write to him at a later point.

I hope I have covered all the questions. I am really grateful for that contribution; it is one of the ways in which this Committee illuminates these matters. But I hope, having heard that, the noble Baroness feels able to withdraw her amendment.

[Baroness Altmann (Non-Afl)]

I thank the Minister for her explanation. Although it is rather disappointing, I understand where she is coming from. I also thank all noble Lords who have participated in this group. There is a general feeling across the party divides—but obviously not unanimity—that lack of inflation protection is an issue. How or whether it is dealt with is the big question. I hope that maybe we can all meet and discuss this and how it could best be brought back on Report, if it is going to be brought back. With that, I beg leave to withdraw the amendment.

Amendment 26 withdrawn.

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Moved by

[Baroness Altmann]

33: Clause 10, page 11, line 22, at end insert—
“(ca) requiring the relevant actuary to confirm that work to comply with Technical Actuarial Standards issued by Financial Reporting Council on risk transfer processes has been completed,”Member’s explanatory statement
This amendment will ensure that prior to a surplus payment being made the trustees and sponsor have considered the impact on bulk transfer and run-on strategies currently required under TAS300V2.1 P5 other financial considerations for the scheme and the sponsor.

[Baroness Altmann (Non-Afl)]

My Lords, I hope that noble Lords will understand as I go through my remarks that I believe my Amendments 33 and 33A are incredibly important to the future of defined benefit schemes and the aims of the Bill.

Clause 10, which is about the restrictions of power to pay surplus, specifies in new subsection (2B)(c) a requirement for

“the relevant actuary to give a certificate”.

My Amendments 33 and 33A seek to add a strengthening of the trustee considerations of alternatives, rather than just having a certificate from the actuary. Amendment 33 would state that the actuary must confirm that the required technical actuarial standards work has been completed. Amendment 33A is about the trustees, who must ensure that they receive the report on the relative merits and consider alternative options such as buyout, superfunds or even a change of sponsor—I will come to that in a moment—before making payment of surplus.

Why are these amendments required? There are standards in place, but I have been careful not to specify a number for the standard. I am talking about today’s technical actuarial standard, TAS 300, but of course these standards change—there is already version 1 and version 2—so the amendments aim to see that the standards are applied, taken notice of and fed into the consideration before any irreversible changes are made to the scheme.

The trustees obviously have a fiduciary duty to consider members’ best long-term interests, but it seems that they do not already receive the depth of analysis required in many cases. The calculations done for the TAS 300 are not consistent; they are not applied consistently, according to the information that I have received from those in the market. There is no standard calculation methodology, but the DWP regulations that were changed recently require trustees to set funding and investment strategies. In my view, TAS 300, as it stands, should be part of that.

Before any surplus is paid out, or a decision to buy annuities, enter a superfund or change sponsor is made, a proper risk assessment should be carried out looking carefully at the downside risks of any potential move versus the upside potential. The actuarial calculations to quantify these, which are specified in the Financial Reporting Council’s technical standards, do not necessarily become applied, and there are regulatory gaps. The technical standards require actuaries to provide TAS 300 comparative advice, but it is not clear how, when or whether the trustees must consider them.

Consistent application of the assessment, in my view, could be significant in changing the standard mindsets about the best choice for the future of DB schemes. But, even today, there is no consistency, no agreed pro forma, no standard template and no detailed implementation guidance, even, from the Financial Reporting Council or other bodies. It has long been recognised that there is a lack of co-ordination and scrutiny of technical actuarial standards. The Kingman report in 2018, the Morris report and the Penrose report, dating back to 2000, all proposed urgent improvements but not much has changed.

There are seven regulators reporting to three government departments. The Pensions Regulator and the PPF report to the DWP; the FRC and the CMA to the Department for Business and Trade; the PRA and the FCA to the Treasury; and the Institute and Faculty of Actuaries is self-regulating. These regulators need to work together to address this massive pool of assets and national wealth. My amendments are an attempt to help this integration and move it along.

Currently, there is over £1 trillion-worth of assets in these schemes. Since 2018, £350 billion of the value in defined benefit schemes has been transferred to insurance companies, many of which are now offshore. The scrutiny and regulatory control over those massive amounts of money is being diluted, and that has not been recognised. It is still considered that the gold standard for the future of defined benefit schemes is annuities, whether a buy-in or a buy-out; that is meant to be the no-risk option. That is not necessarily the case any more. The Bank of England itself has stated that there are risks in terms of the offshore insurers.

This TAS 300 exercise could become part of a crucial element in deciding what the future of these schemes will be. Currently, the transfer of assets to insurance companies, which is so frequently being carried out—we are told that there may be another £500 billion in their sights from DB schemes in coming years—is handing the surplus assets of these schemes to the insurance companies. I argue that proper use of the TAS 300 exercise could help the surplus be used for national investments, for improving member benefits and for improving the resources of corporate UK.

It is estimated that the scheme assets which are currently being transferred to insurers are invested in such a low-risk manner that their aim—this is the Pensions Regulator’s recommended strategy for low dependency to attain a return of gilts plus a half or so—as soon as the insurer takes these assets in, is to re-risk, invest in other assets, and sell the gilt and aim for a return of gilts plus, say, one and a half. Every £100 billion of assets transferred to an insurance company is the equivalent of about £200 million of scheme assets that are not going to members or employers but are transferring offshore.

Stagecoach, which uses this TAS 300 exercise, actually managed to justify changing the sponsoring employer, while enhancing member benefits and paying extra out in surplus. That could be the way of the future if we get away from the current obsession, which states that the no-risk option is annuities and everything else is risky. This is a huge amount of money. These schemes have changed fundamentally. The outlook has changed fundamentally: we are no longer worried about deficits and employer covenants. We should be talking about using this national pool of wealth to boost Britain.

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[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Altmann, for setting out her amendments. I am also grateful to all noble Lords who have spoken. I must admit that I have learned more about actuaries in the past week than I ever knew hitherto, but it is a blessing.

Three different issues have come up. I would like to try to go through them before I come back to what I have to say on this group. In essence, the noble Baroness, Lady Altmann, has us looking at, first, actuaries: what is their role, what are the standards and how do they do the job? Secondly, what are the right endgame choices—that is, what is out there at the moment? Finally, what should be in the surplus extraction regime? We have ended up with all three issues, although the amendments only really deal with the last of those; they deal with the others by implication. Let me say a few words on each of them, then say why I do not think that they are the right way forward.

We have just finished hearing from the noble Lord, Lord Fuller. Obviously, we are talking about the position now. DB schemes are maturing and, as such, are now prioritising payments to members. Given this context, they are naturally more risk-averse, as they are now seeking funding to match their liabilities. Since the increases in interest rates over the past five years, scheme funding positions have—the noble Lord knows this all too well—improved significantly in line with their corresponding reductions and liabilities.

However, when setting an investment strategy, trustees must consider among other things the suitability of different asset classes to meet future liabilities, the risks involved in different types of investment and the possible returns that may be achieved. The 2024 funding code is scheme-specific and flexible. Even at significant maturity, schemes can still invest in a significant proportion of return-seeking assets, provided that the risk can be supported.

On actuaries, actuarial work is clearly an important part of the process. It helps set out the picture, as well as highlighting the risks, the assumptions and the available options, but it does not determine the outcome. My noble friend Lord Davies is absolutely right on this point. Decisions on how a scheme uses the funds are, and will remain, matters of trustee judgment. The role of the actuary is to support the judgment, not replace it. Trustees are the decision-makers, and they remain accountable for the choices that they make on behalf of their members.

Of course, in providing any certification, actuaries will continue to comply with the TAS standards set by the Financial Reporting Council. I am not going to get into the weeds of exactly how the standards work but, on the broader points made by the noble Baroness, Lady Altmann, we agree that the requirements and the regulations must work together. As my noble friend said, after the funding regime code was laid, the FRC consulted on revisions to TAS 300 covering developments; it has now published the revised TAS. These are complex decisions. Regulators need to work together. We will come back to this issue later on in the Bill, following an amendment from the noble Baroness, Lady Coffey.

In terms of the endgame choices, the independent Pensions Regulator has responsibility for making sure that employers and those running pension schemes comply with their legal duties. Obviously, the Government are aware of the recent transaction that resulted in Aberdeen Asset Management taking over responsibility for the Stagecoach scheme; we are monitoring market developments closely. Although we support innovation, we also need to ensure that members are protected. Following the introduction of TPR’s interim superfund regime and the measures in this Pension Schemes Bill, we understand that new and innovative endgame solutions are looking to enter the DB market and offer employers new ways to manage their DB liabilities. I assure the noble Baroness that we continue to keep the regulatory framework under review to ensure that member benefits are appropriately safeguarded.

Then, the question is: what is the right thing to be in the surplus extraction regime? I know that the noble Baroness, Lady Altmann, is concerned that, following these additional flexibilities to trustees around surplus release, trustees continue to consider surplus release in the context of the wider suite of options available to their scheme, including buyout, transfer to a superfund or other options beyond those. Following these changes, trustees will remain subject to their duty to act in the interests of beneficiaries. As such, we are confident that trustees will continue both to think carefully about the most appropriate endgame solution for their scheme and to act accordingly. For many, that will be buyout or transferring to a superfund, rather than running on.

Let me turn to what would happen with these amendments specifically. Amendment 33 would link the operation of the surplus framework to existing standards on risk transfer conditions in TAS. In essence, it seeks to ensure the scheme trustees have considered a potential buyout or other risk transfer solution before surplus can be released. Amendment 33A has a similar purpose; again, it aims for trustees, before they can release surplus, receiving a report from the scheme actuary assessing endgame options and confirming compliance with TAS.

Although I appreciate the noble Baroness’s intention to ensure that trustees select the right endgame for their scheme, these amendments are not needed because trustees are already required, under the funding and investment regulations, to set a long-term strategy for their scheme and review it at least every three years; that strategy might include a risk transfer arrangement. Furthermore, although I know the noble Baroness has tried to minimise this, hardwiring any current provisional standards into the statutory framework could have unintended consequences, including reducing flexibility for trustees and requiring further legislative or regulatory changes to maintain alignment as these standards evolve over time.

We are back to the fact that, in the end, trustees remain in the driving seat with regard to surplus release. As a matter of course, TPR would expect trustees to take professional advice from their actuarial and legal advisers; to assess the sponsor covenant impact when considering surplus release; and to take into account relevant factors and disregard irrelevant factors, in line with their duties. We are working with the Pensions Regulator regarding how schemes are supported in the consideration of surplus-sharing decisions. The new guidance already considers schemes as part of good governance to develop a policy on surplus. TPR will issue further guidance on surplus sharing following the coming into force of the regulations flowing from the Bill, which will describe how trustees may approach surplus release and can be readily updated as required. Alongside the Pensions Regulator, we will work with the FRC to ensure that TAS stays aligned.

I am grateful for the noble Baroness’s contribution and the wider debate, but I hope that she will feel able to withdraw her amendment.

[Baroness Altmann (Non-Afl)]

I thank the Minister and everybody else who has spoken. I have enormous respect for the noble Lord, Lord Davies, and take what he says seriously. I am most grateful for the support of the noble Lord, Lord Fuller.

I make no apology for the technical nature of these amendments, but I apologise that they had to be shoehorned in; this is such an important issue, though. This environment of higher inflation risk, excessive prudence and hoarding of surpluses is damaging pension adequacy. The de-risking overshoot has sucked innovation, energy and impetus out of the pension system and the economy. Indeed, the chair of the trustees of Stagecoach described to me that he faced what he termed co-ordinated and insidious behind-the-scenes lobbying against the trustees’ aim to try to obtain better pensions for their members; he also said that the lobbying was in favour of annuitisation as the best option for the scheme.

There is no lobbying for either improving member benefits or giving a lot more money back to employers at the moment. If we were able to get an amendment such as this one into the Bill, so that everybody must consider the range of available options plus innovative strategies, I would hope that the outcome of the Bill would be much better, more productive use—which is the aim of the Government: the Minister, Torsten Bell, has rightly talked about using surpluses in a productive manner.

The FSCS backs annuities. It has no government guarantee. I hope that, on Report, we may come back to the spurious safety of the current recommended future for this enormous amount of assets and find ways in which the Bill might be able to accommodate the need for a mindset change in this connection. For the moment, I beg leave to withdraw the amendment.

Amendment 33 withdrawn.

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[Lord Palmer of Childs Hill (LD)]

This amendment raises a very important point. The question, though, is when the surpluses could be paid out. If the company seems to be in a robust way, there is no reason why the pension fund should be overprotected. While everything in the garden is lovely, there is no reason to give them a 10-year position when things may have deteriorated in subsequent years. So, I agree in principle with the amendment of the noble Lord, Lord Sikka, but 10 years is far too long, because in those 10 years, all sorts of things can happen. If it was five years or fewer, it would be very good, but while everything in the garden—in the company—is lovely, the pension fund should not be overprotected for the extent of 10 years.

[Baroness Altmann (Non-Afl)]

My Lords, I have enormous sympathy with the thoughts behind the amendment of the noble Lord, Lord Sikka. However, I share the concerns expressed by the noble Baroness, Lady Noakes, in that it is not clear how that would work, because this would then need to be a contingent payment or some kind of conditional payment which can be recouped, and that would impact creditors or debt holders of the company as well. Does the noble Lord feel that if, as a consequence of the surplus payment, members also got enhanced benefits, that would in some ways compensate for the future eventuality of what he is concerned about?

Finally, in the days before we had a Pension Protection Fund, I was very much in favour of increasing the status of the unsecured creditor position of a pension scheme. But in the current environment, where there is a Pension Protection Fund, and where the Bill will be improving the protections provided by it, it is much less important to increase the status on insolvency of the pension scheme itself than it would have been in past times. I certainly agree with the noble Lord, Lord Palmer, that if there were to be any such provision, it should be a lot less than 10 years.

[Baroness Stedman-Scott (Con)]

My Lords, I am grateful to the noble Lord, Lord Sikka, for tabling this amendment, which is clearly motivated by a desire to protect scheme members and guard against the risk that pension surpluses are extracted prematurely, only for employers to fail some years later. I suspect that there is broad sympathy with this objective across the Committee. However, I have a number of questions about how this proposal would operate in practice and whether it strikes the right balance between member protection, regulatory oversight and the wider framework of insolvency law. My noble friend Lady Noakes, the noble Lord, Lord Palmer of Childs Hill, and the noble Baroness, Lady Altmann, have all raised points connected to this amendment. I hope I am not duplicating their questions, but I will ask mine.

First, can the noble Lord say more about how this amendment would interact with the existing hierarchy of creditors under the Insolvency Act 1986? As drafted, it appears to require pension schemes to be paid ahead of all other creditors, including secured creditors and those with statutory preferential status? Does the noble Lord envisage this as a complete reordering of creditor priorities in these cases? If so, what thought has he given to the potential consequences for lending decisions, access to capital or the cost of borrowing for employers that sponsor defined benefit schemes?

Secondly, I would be grateful for further clarity on the choice of a 10-year clawback period, which other noble Lords have raised. As has been said, 10 years is a very long time in corporate and economic terms, and insolvency occurring at that point may bear little or no causal connection to a surplus payment made many years earlier, perhaps in very different market conditions. What is the rationale for that specific timeframe, and how does the noble Lord respond to concerns that this could introduce long-tail uncertainty for employers and their directors when making decisions in good faith?

Thirdly, how does the amendment sit alongside the existing powers of the Pensions Regulator? At present, trustees must be satisfied that member benefits are secure before any surplus is paid, and the regulator already has moral hazard powers to intervene where it believes scheme funding or employer behaviour to be inappropriate. Does the noble Lord consider those tools insufficient and, if so, can he point to evidence of systemic failure that would justify addressing this issue through restructuring insolvency priorities rather than through pension regulations?

I am also interested in the practical operation of this provision. Proposed new subsection (2) would allow amendments to both the Insolvency Act 1986 and the Enterprise Act 2002 to achieve the intended outcome. That is a very broad power, even acknowledging the use of the affirmative procedure. Has any thought been given to how this would operate in complex insolvencies; for example, where surplus has been paid to a parent company, where assets are held across a corporate group or where insolvency proceedings involve cross-border elements?

Finally, although I understand the protective instinct behind this amendment, I wonder whether there is a risk of unintended consequences. Might the creation of a potential super-priority for pension schemes discourage legitimate surplus extraction, even where schemes are demonstrably well funded, trustees are content and regulatory requirements have been met? If that were to occur, could it inadvertently weaken employer covenant strength over time rather than strengthen it?

None of these questions is intended to diminish the importance of member protection or suggest that concerns about surplus extraction are misplaced. Rather, they are offered in the spirit of probing whether this amendment is the most proportionate and effective way of addressing those concerns, or whether there may be alternative approaches, perhaps within the existing regulatory framework, that could achieve similar objectives with fewer systemic risks. I look forward to hearing the noble Lord’s response and the Minister’s comments.