Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Wednesday 22nd April 2026 Lords Chamber

Whether we can pay public service pensions depends on the relationship of those cash figures with the productiveness of the economy as a whole. I very much hope—and perhaps my noble friend the Minister will indicate in reply—that the Government Actuary has a responsibility not just to produce the cash figures referred to in the amendment but to put them into some meaningful context.

[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.