Pension Schemes Bill

Baroness Neville-Rolfe Excerpts

Committee stage
Thursday 5th February 2026 Grand Committee

[Baroness Sherlock (Lab)]

My Lords, in moving government Amendment 194, I shall speak also to government Amendments 195 to 202; I would welcome the Committee’s support for them.

The AWE pension scheme is a trust-based defined benefit pension scheme for current and former employees of AWE plc, the Atomic Weapons Establishment. Since 2021, AWE plc has been wholly owned by the Ministry of Defence, and this pension scheme is backed by a Crown guarantee. These proposed new clauses will allow the Government to defund the existing scheme, establishing a new central government pension scheme for its members. The assets held by the scheme will be sold, with the proceeds transferred to the Treasury. The Chancellor announced this measure in her 2025 Budget, but the principle was announced in a Commons Written Ministerial Statement on 6 July 2022.

The new scheme will be an unfunded public pension scheme. This is in accordance with wider government policy that when a financial risk sits wholly with the Government, as it does here because of the Crown guarantee, it should not hold assets to cover that liability. The taxpayer is already exposed to the risks and the liability can be managed more efficiently in the round, along with other unfunded liabilities met out of general taxation. This measure will help to ensure that liabilities are funded in the most efficient way while ensuring the long-term security of members’ benefits. I assure the Committee that these clauses protect the rights that members of the AWE pension scheme have accrued under the current scheme. Neither the terms nor the benefits will be affected. The new public scheme must make provision that is, in all material respects, at least as good as that under the AWE pension scheme.

The new clauses in Amendments 194 and 195 provide that the new scheme should be established by regulations and set out the kind of provision that may be made by these regulations and any amending regulations. Although these are fairly standard for public schemes, I assure the Committee that the Government have considered carefully how these may be relevant to this scheme. The new clause in Amendment 197 ensures that the scheme rules cannot be amended unless prescribed procedures have been followed. In most cases, the requirement is to consult. However, if the proposed amendment might adversely affect members’ rights, the regulations must prescribe additional procedures to protect the interests of members, including obtaining the consent of interested persons or their representatives.

The new clause in Amendment 198 will enable the Government to direct the disposal of the assets currently held by the pension scheme for the benefit of the Exchequer. As we expect that the bulk of the assets will be sold before the new scheme is established, regulations under this clause will ensure that the trustees’ liabilities will be met by public funds, thus ensuring that pensions in payment will not be affected. Regulations under this clause will also be able to exempt the trustee or AWE plc from any liability that might otherwise arise because they have complied with the Government’s direction. This will include the power to disapply or modify specified statutory provisions. These powers can be used only in relation to regulations made under this clause and are intended to protect the trustee. For example, we expect that we will need to disapply the scheme funding regime in relation to the scheme once the sale of the assets begins.

The new clause in Amendment 199 ensures that the transfer of the AWE pension scheme to a new public scheme will be tax neutral, meaning that no additional or unexpected tax liabilities will arise for those affected by the changes. The new clause in Amendment 200 will give the Government the power to make regulations requiring individuals or organisations to provide the information needed to establish the new public scheme, administer the scheme and transfer accrued rights. It should be noted that the Government do not expect to use these powers, as we are working with the AWE pension trustees and others to ensure a smooth transition for the benefit of all members. This provision will be required only in case of non-compliance.

New Clause 201 ensures proper consultation and parliamentary scrutiny for regulations made under this part of the Bill, particularly those affecting the establishment and operation of the new public pension scheme and the transfer of assets. The Government are required to consult the trustee of the AWE pension scheme before making regulations to establish the new public scheme, transfer accrued rights or transfer assets and liabilities. This ensures that the interests of scheme members will be fully considered. Regulations that could adversely affect existing rights, have retrospective effect or set financial penalties are subject to the affirmative procedure. This ensures that significant changes are subject to parliamentary approval and scrutiny. All other regulations under this part of the Bill are subject to the negative procedure, which provides flexibility while maintaining accountability. I hope that this explains the plans for the AWE pension scheme. I commend these amendments to the Committee and I beg to move.

[Baroness Neville-Rolfe (Con)]

My Lords, I shall speak to government Amendments 194 to 202. The Government’s letter states that the liabilities of the AWE pension scheme will no longer be pre-funded, that the assets of the scheme will be sold and that scheme members will be protected in line with the approach taken to other pensions guaranteed by the Government. The proposed amendments to the Bill are said to provide the legislative framework to achieve this outcome. They would enable the creation of a new public pension scheme into which the accrued rights of AWE scheme members would be transferred. For the avoidance of doubt, Amendment 198 does not establish a conventional funded public sector pension scheme. Instead, it appears to create a hybrid transition mechanism which ultimately results in an unfunded public liability.

In a genuinely funded scheme, assets and liabilities move together into a continuing pension fund. The provisions break the link between members’ accrued rights and any dedicated asset backing. By contrast, a private sector defined benefit pension scheme is funded and backed by invested assets. It is governed by a statement of investment principles, which sets risk tolerance, balances growth and security, aligns investments with member liabilities and is overseen by trustees acting under a fiduciary duty to scheme members. Once members’ rights are transferred into the new public scheme, there is no guaranteed asset pool, there is no meaningful statement of investment principles and benefits are met from future public expenditure rather than from scheme assets, as the Minister explained.

The effect of this is a material change in the nature of members’ interests. Rights that were previously supported by a funded scheme, overseen by fiduciary trustees and governed by a statement of investment principles would instead rest on a statutory public sector framework. In that framework, the investment strategy and long-term funding are determined through central government processes and are therefore exposed to future fiscal and policy decisions. Although the Government’s interest in AWE plc is public in ownership terms, these provisions do not operate at a general or class level. They apply to a single named employer and to a closed and identifiable group of scheme members for whom a bespoke statutory framework is being created. This is the problem.

It is for these reasons that there remains a credible argument that the amendments are prima facie hybridising. I know about this because on Thursday 8 January I tabled my public sector amendment to the Bill, which is now Amendment 217. I was required to amend it before tabling because it named more than one specific pension scheme, as Amendments 194, 195, 196, 198, 199, 200 and 202 do. Interestingly and I think unusually, Amendment 199 also deals with taxation, which is something I confess I have not seen before, but there may be a precedent. My amendment did not move members’ interests at all. It simply required a review of the affordability, sustainability and accounting treatment of public sector schemes. That stands in contrast to the far more substantive and immediate changes affected by Amendments 198 to 202. My original amendment was rejected on grounds of hybridity and I had to take out the specific scheme references. Somehow—and it feels rather suspicious—the Government’s hybrid amendment was accepted by the Public Bill Office.

I urge the Committee to reflect carefully on the nature and consequences of what is proposed and the precedent that it may set for hybridity. I invite the Minister to consider this and to consider perhaps introducing amendments to Amendments 195 to 202 or withdrawing the amendments until the implications are considered by an appropriate constitutional expert. Obviously, I look forward to hearing the Minister’s explanation of why we are facing this situation at this point in time. My issue is with the hybridity rather than with the details of the AWE pension scheme, which is not a matter on which I am in any way expert.

[Viscount Thurso (LD)]

My Lords, I have one quick question to obtain reassurance, I hope, from the Minister in relation to Amendment 199 on taxation. I imagine that it is consequent on some of the problems that we had with the McCloud remedy, which required tax changes and the Treasury to intervene. The amendment uses the word “may”, which allows the Treasury to do it if it wishes. Should that not be “must”, in that what we are promising AWE is that nobody will be tax disadvantaged? I put that to the Minister and ask for some reassurance.

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[Baroness Sherlock (Lab)]

I am not in a difficult position. The Government’s position is clear: these are not comparable schemes. One has a Crown guarantee, for the reasons that I have explained, while the other does not because, for a significant portion of its history, it was a private company. It was privatised, and it subsequently went into administration. Those are not comparable situations. While I have sympathy for the position of individual scheme members, that does not make the two comparable or the Government’s responsibility comparable. I am certainly not aware that someone is out there waiting to sponsor this, although the noble Baroness may be. She is nodding to me, and if she wants to share with the Committee that she has a sponsor ready to do that, I would be glad to hear it, but the idea that this would routinely be a pattern where, for lots of long-dead pension schemes, sponsors are waiting to draw them out just would not be practical for the PPF.

I am also advised that the subsection 2(d) that the noble Baroness mentioned is not in force. That does not make a difference to her argument, but it may make a difference to the nature of this.

I shall try to return now to the issue that we were talking about earlier on, the AWE scheme. On hybridity, I say to the noble Baroness, Lady Neville-Rolfe, that my understanding is that hybrid bills affect the general public but also have a significant impact on the private interests of specified groups. In this case, there is no impact on the general public, only on AWE members. That follows the precedent in Royal Mail and Bradford and Bingley/Northern Rock legislation. This also refers to schemes that were or are to be defunded and replaced with public schemes. I hope that explains why this is not hybrid. I cannot comment on why the clerks did not accept her amendment because I did not quite catch what it was that she was comparing it with.

[Baroness Neville-Rolfe (Con)]

My Lords, it may be that those are precedents that have been passed in legislation, but I am not clear that they have been put into this sort of Bill. The problem with the amendments is that they are a mixture of the general and the individual. That is what creates hybridity, which is why I ran into trouble with the Table Office when I tried to table my amendment. However, the Minister’s amendment seems not to have run into that issue, so that is something that we need to consider. Perhaps the Minister could have a look at it and bring the amendments back on Report, assuming that she is right and there is not a hybridity issue. I am very concerned about a constitutional innovation without expert guidance. She wrote a letter; I did not get it, but obviously I have been taking advice on this. It is slightly outside the remit of what we are able to agree on.

[Baroness Sherlock (Lab)]

The noble Baroness makes a very fair point. In the light of her comments, I do not know enough about what she tried to do and why it did not work. I would like to be able to compare them. Given that she makes a perfectly sensible suggestion, I happy to withdraw the amendment and make sure that I can answer her question before we come back on Report, if that is okay with noble Lords. For now, I beg leave to withdraw my amendment.

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[Lord Sharkey (LD)]

My Lords, I will speak briefly but enthusiastically in support of Amendment 205. The case for a review was eloquently put by the noble Viscount, Lord Younger, and its merits are surely obvious. I hope the Minister will be able to agree with that.

In particular, I hope the review will take a close look at the situation that many Gen Z people find themselves in. Many work in the gig economy or are self-employed. The Gen Z average savings are small: 57% have pots smaller than £1,000 according to PPI data, and half of them cannot estimate their pots in any case. Perhaps alarmingly, 45% of Gen Z people rely heavily on social media for financial information—presumably delivered by animated cats. The proposed review could and should examine this in much more detail.

[Baroness Neville-Rolfe (Con)]

My Lords, I support my noble friend Lord Younger of Leckie in proposing a review of pension awareness and saving among young people.

When I had the honour to review the state pension age for the DWP in 2021-22, I was struck by two things that strengthened the case for better policy in this area. First, I found it much more difficult to get young people or their representatives, or indeed middle career workers, to engage in my review. Those who did were keen to keep pension contributions down and they did not believe the state pension would still be universal by the time they reached the retirement age of, say, 70. They were worried about buying a flat, as my noble friend has said, looking after their children and paying back their student loans.

Secondly, the level of financial education was dire. Schools were focusing well on human rights, the environment and ESG, which was discussed under the previous amendment, but not on pensions or financial management. They were not teaching the importance of early saving, the magical impact of compound interest, the value of a pension matched by the employer and the risk of new sources of profit like cryptocurrencies. Much more such education is needed in our schools but the Department of Education was resistant, partly because teachers are also often a little short on financial education. This is an important area and I am sure the Pensions Commission will look at it, but my noble friend is right to highlight what a big job we have to do.

[Baroness Altmann (Non-Afl)]

My Lords, I add my words of support to the concept being promoted by my noble friend Lord Younger. I hope the Government will look into this, as it might well be a good topic to task regulators with in making sure that either they or pension schemes themselves are helping people to understand pension schemes better, how they work and the free money that goes along with a pension contribution in terms of your own money. There is, as I say, extra free money added by, usually, your employer and other taxpayers. I do not think young people always understand just how beneficial saving in a pension can be relative to, let us say, saving in a bank account or an ISA, or indeed the value of investing. It would be in the interests of the regulators and, indeed, the providers to help people to understand that. The Government’s role in guiding that and setting up this kind of review could be very valuable.