Pension Schemes Bill

Baroness Bowles of Berkhamsted Excerpts

Monday 23rd February 2026 Grand Committee

[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.

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Moved by

[Baroness Bowles of Berkhamsted]

219A: After Clause 119, insert the following new Clause—
“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.

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[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.

Amendment 219A withdrawn.