Pension Schemes Bill

Debate between Baroness Bowles of Berkhamsted and Viscount Younger of Leckie

Committee stage
Thursday 22nd January 2026 Grand Committee

[Viscount Younger of Leckie (Con)]

My Lords, supported by my noble friend Lady Stedman-Scott, I am glad to be leading off in another group of amendments, largely designed to probe the Government and clarify their thinking, plans and rationale on the small pots regulations in the Bill. Indeed, I know that many industry bodies are watching our proceedings with interest and will be taking note of what the Minister says. This is after we had a series of meetings with those at the sharp end in the industry, as she will probably guess.

I will speak briefly to the other amendments in this group before turning to my own. First, I speak to the amendment in the names of the noble Lord, Lord Vaux, who is not in his place, and the noble Lord, Lord Palmer. Ensuring that a qualifying dashboard service has been available for a period before small pots can be consolidated seems an entirely sensible and proportionate measure. If we are to move pension savings automatically, often without an active decision by the member, it is surely right that individuals should first have a practical opportunity to see and trace their pots in one place and to engage with them themselves.

I also welcome Amendment 81 from the noble Baroness, Lady Bowles, which, as I understand it, would ensure that a pot is not treated as dormant where contributions have ceased for a legitimate and expected reason, such as a temporary break from employment with an intention to return. This strikes me as a pragmatic refinement that would better reflect real-world working patterns and help to ensure that consolidation targets genuine dormancy rather than planned inactivity. I have no doubt the Minister will explain that in more elegant terms than me.

Amendment 88, in the name of my noble friend Lady Noakes, addresses the definitions set out in Clause 34, which itself gives the Secretary of State a broad power to alter the definition of a “small” pension pot, including increasing the threshold, with no upper limit set in the Bill. The amendment would retain flexibility but place a clear ceiling on how far that power could be used. I look forward to my noble friend’s remarks. I know that my noble friend will expand on that point, but I would be grateful if the Minister could also explain why an upper limit is not currently included and how the Government envisage safeguarding against this power being used to capture significantly larger costs in the future. That is an important question that I hope will be raised.

I turn to my first amendment in this group, Amendment 79, which would replace the 12-month dormancy period in Clause 22 with an 18-month period. This is a probing amendment intended to test the rationale for the Government’s choice of a 12-month timeframe. The definition of “dormant” is critical, because once a pot meets that definition it may become eligible for automatic consolidation with no active decision by the member. Many savers engage with their pensions only intermittently, often on an annual basis, and employment patterns do not always follow neat or predictable cycles. Therefore, extending the period to 18 months would allow the Committee to explore whether a full year of inactivity is genuinely sufficient to infer disengagement, or whether it risks capturing individuals who are simply between roles or engaging on a longer cycle.

I want to be clear that this amendment does not seek to undermine the policy of small pots consolidation, which, as the Minister knows, we broadly support. Rather, it is intended to probe how the Government have balanced administrative efficiency with member protection, and what evidence has informed the choice of a 12-month period rather than a longer one. I would therefore welcome the Minister’s explanation of how this timeframe was determined, and whether alternative periods were considered.

Amendment 80 would leave out Clause 22(3)(b). This too is a probing amendment; it is intended to explore what the Government mean by the reference to “prescribed exceptions” in the definition of a dormant pension pot. As drafted, Clause 22(3)(b) assumes that a pot may be treated as dormant not only by reference to contribution inactivity but by whether a member has taken steps to confirm or alter how their pot is invested, subject to exceptions that are left entirely to regulations. Many savers remain in default investment arrangements by choice and engage with their pensions only intermittently, often in ways that are not easily captured by scheme records. Therefore, it is not clear what types of member action the Government intend should prevent a pot being treated as dormant, nor what kinds of behaviour might be carved out as exceptions.

This amendment is intended to prove whether investment-related actions are an appropriate proxy for engagement, how prescribed exceptions will operate in practice and whether the approach adequately reflects real-world member behaviour. I would welcome the Minister’s clarification on how these exceptions are envisaged and why this test has been included in the definition of dormancy.

Finally, my Amendment 82 concerns the level of parliamentary scrutiny applied to regulations made under Clause 22. As drafted, the Bill applies the affirmative procedure to only the first set of small pots regulations or regulations that meet certain specific triggers. Thereafter, changes to the consolidation regime may be made under the negative procedure. This amendment is probing and is not dissimilar to one raised previously in Committee. It is intended to test whether that approach provides sufficient ongoing parliamentary oversight. The regulations made under Clause 22 will govern when and how small dormant pension pots may be consolidated, often without an active decision by the member, and they therefore go to the heart of member protection and confidence in the system itself.

The amendment would require all such regulations to be subject to the affirmative procedure, ensuring that Parliament has the opportunity to scrutinise and approve changes to this framework wherever they are made, not just at first use. I would be grateful if the Minister could explain why the Government consider the negative procedure appropriate for subsequent regulations in this area, and whether there are safeguards to prevent significant policy changes being made without fuller parliamentary scrutiny. I thank in advance the Minister for her comments and answers and all other noble Lords for their contributions on this group, which I feel concerns an important matter. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, my Amendment 81 is very small; I hardly need to say anything about it. It came from one of those occasions when you are going through the Bill and you write a little query which you then convert into an amendment. It concerns Clause 22(3)(b), which says that a pension pot can be moved into a consolidator if

“the individual has, subject to any prescribed exceptions, taken no step to confirm or alter the way in which the pension pot is invested”.

There are instances in which a person may want to stay attached to a pension fund they have in a workplace, particularly if they do not necessarily have a long relationship with an employer or have done some intermittent work and then gone off to have a family, because they may have an informal agreement to go back. How do you cater for that? I realise that it might just fall under “any prescribed exceptions”, which you write in a note to deal with, but that is the basis of the amendment. I am sure it will be very simple for the Minister to say, “Yes, that is covered”.

While I am on my feet, I support Amendment 83. I also support Amendment 88 from the noble Baroness, Lady Noakes, because it is worth having some guardrails for things that are doing very well.

--- Later in debate ---

[Viscount Younger of Leckie (Con)]

My Lords, this is a busy group and I shall not detain the Committee by speaking to all the amendments therein, but I do want to welcome the amendments that have been tabled by other noble Lords, which will allow us to have a detailed and, I hope, fruitful debate and discussion on these important matters.

Amendment 89 is a probing amendment. It would leave out new subsection (1B), which allows the Secretary of State, by regulations, to exempt descriptions of relevant master trusts from the approval requirements in conditions 1 and 2, covering both the scale default arrangement and the asset allocation approvals. The purpose here is to understand the intended scope of this power and the safeguards that will govern its use. As drafted, new subsection (1B) is very broad: it permits exemptions for

“any description of relevant Master Trusts”

and gives examples, including schemes designed to meet the needs of those with protected characteristics and hybrid schemes.

I have three straightforward questions for the Minister at the outset. First, why is it necessary to take such wide exemption powers in the Bill, rather than tightly defining the circumstances in which exemptions may be granted? Secondly, how will the Government ensure that exemptions do not create a route by which schemes can avoid the central policy intent of this chapter: namely, improving outcomes through scale and an appropriate approach to asset allocation?

Thirdly, can the Minister clarify whether these exemption powers are intended, in whole or in part, to apply to collective defined contribution schemes, or other non-standard money purchase arrangements? If so, what is the rationale; and if not, will she put that clearly on the record? I am mindful of the recent debate that we had in this Room on the CDCs. I hope the Minister can respond to those points.

I know that the noble Baroness, Lady Bowles, will set out her reasoning for Amendment 92, so I do not wish to pre-empt or emulate what I know will be a very well-reasoned and informative set of remarks. But, as I have added my name to the amendment, I will briefly say that I welcome this proposal. It would put in the Bill a clear signal that a trust which provides “exceptional” value for money—as assessed by the regulator under its VFM framework—could be a legitimate basis for exemption from the new approval requirements. It seems sensible that trusts that already provide exceptional value for money should be trusted to carry on their good work under the established framework in which they are already operating.

Amendment 100, in my name and supported by the noble Baroness, Lady Altmann, to whom I am grateful, seeks to provide helpful clarity, not to weaken regulation, by making clear that schemes offering genuinely specialist or innovative services can demonstrate that they meet the exemption. This is important because innovation in pensions does not always mean novel technology alone; it can include specialist provision for particular workforces, new approaches to member engagement or delivery models that better serve groups who might otherwise be poorly catered for. Without clarity, there is a risk that worthwhile innovation is discouraged simply because schemes are uncertain about how the exemption will be interpreted.

The amendment also gives the Secretary of State the power, through regulations, to define “specialist or innovative services”. That provides appropriate flexibility, allowing the definition to evolve over time, while ensuring proper scrutiny and regulatory oversight. The amendment supports innovation without undermining member protection, and it gives both trustees and regulators greater certainty about how the exemption is intended to operate. I therefore hope the Minister will look favourably on it and speak to the point that is raises.

Amendments 105 and 107 are intended to ensure that group personal pension schemes are treated fairly and proportionately under the new scale requirements in Clause 40. We are clear that scale alone is not always a reliable proxy for quality or value. There are group personal pension schemes that are smaller by design yet provide highly specialist or innovative services, for example, to particular sectors, workforces or member needs, and that deliver good outcomes despite not meeting a blunt asset threshold. Amendment 105 creates an additional route for relevant GPPs to meet the quality requirement, by allowing those that satisfy an innovation exemption not to be automatically required to meet the scale requirement.

Amendment 107 provides the necessary framework for that exemption. It allows a GPP to demonstrate that it offers specialist or innovative services, and gives the Secretary of State the power, through regulations, to define what those terms mean. That ensures flexibility as the market evolves, while retaining appropriate regulatory and parliamentary oversight. I hope the Minister will see these amendments as a constructive way of balancing scale with innovation, competition and member outcomes, and I look forward to her response.

Amendment 135 would revert the eligibility test for new entrant pathway relief under Clause 40 to the simpler principle-based formulation contained in the Bill as introduced. The purpose of the new entrant pathway is clear: to ensure that credible, innovative schemes are not locked out of the market simply because they are new and have not yet had the opportunity to build scale. As the Bill is currently drafted, that test has become more prescriptive, with a risk that genuinely innovative entrants could struggle to qualify despite having strong growth potential. By refocusing the test on whether a scheme can demonstrate strong potential for growth and an ability to innovate, this amendment would restore the original balance between safeguarding member outcomes and allowing healthy competition and innovation in the market. This amendment would simply ensure that the pathway for new entrants remains realistic and proportionate and is aligned with the policy intent.

Finally, Amendments 165 and 166 are probing amendments about parliamentary scrutiny—back to that subject. Clause 41 gives the Secretary of State the power to make regulations setting out how the Pensions Regulator will assess whether master trusts meet the scale requirement and have sufficient investment capability. These assessments will have a direct bearing on which schemes can operate, which must consolidate and how the market develops over time. As drafted, the Bill provides that the first set of regulations is subject to the affirmative procedure, but all subsequent regulations may be made under the negative procedure. I think we have heard this before. Amendments 165 and 166 would remove that distinction, so that any regulations in this area would require affirmative approval.

The question that these amendments pose is simple: if the initial framework is considered significant enough to warrant full parliamentary scrutiny, why should later changes, potentially just as consequential, receive a lower level of oversight? These regulations are not mere technical updates; they go to the heart of how scale and capability are judged, and therefore to the structure of the pensions market itself. It therefore seems reasonable that Parliament should retain the guaranteed opportunity to debate and approve changes of that kind whenever they are made. I look forward to the Minister’s explanation of why the negative procedure is considered sufficient for subsequent regulations and whether there is scope to strengthen ongoing parliamentary scrutiny in this area. I look forward to contributions from other Members of the Committee and particularly to the Minister’s response. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will speak very briefly to Amendment 92 because it is a “what it says on the tin” amendment. It arose during a conversation. Somebody asked me what happens if a scheme is doing very well but is forced into consolidation because it does not meet the scale requirements. Would there be any legal consequences if it did not do quite so well under consolidation? On whom would those legal consequences fall if, as a result, somebody received a worse pension? Is there any comeback on the scheme because it was not big enough and so got consolidated? Is there any indemnity? Is there any making up? Let us take a theoretical situation in which the consolidator it goes into ends up doing very badly—I would hope that would never happen, but this is just to probe the safeguards around such circumstances. I could not answer the questions. It may be that there is something in the vast number of papers I have not read and the Minister can advise me. There is nothing terribly special or secretive behind it, it is just something that could happen, and can I obtain clarity about what comeback there may or may not be?